THE WORLD BANK GROUP 53424 1988 ANNUAL MEETINGS OF THE BOARDS OF GOVERNORS SUMMARY PROCEEDINGS BERLIN (WEST) SEPTEMBER 26-28, 1988 THE WORLD BANK GROUP 1988 ANNUAL MEETINGS OF THE BOARDS OF GOVERNORS SUMMARY PROCEEDINGS BERLIN (WEST) SEPTEMBER 26-28, 1988 INTRODUCTORY NOTE The 1988 Annual Meetings of the Boards of Governors of The World Bank Group, which consists of the: International Bank for Reconstruction and Development (IBRD), International Finance Corporation (IFC), In- ternational Development Association (IDA), Multilateral Investment Guarantee Agency (MIGA) and International Centre for the Settlement of Investment Disputes (ICSID), held jointly with that of the International Monetary Fund, took place in Berlin (West), September 26-28, 1988 (in- clusive). His Excellency Kjell Olof Feldt, Minister of Finance and Gover- nor of the Bank for Sweden, and His Excellency Bengt Dennis, Governor of the Fund for Sweden, served as Chairmen. The Summary Proceedings record in alphabetical order of member countries, the texts of statements by Governors relating to the activities of The World Bank Group. The texts of statements concerning the IMF are published separately by the Fund. T. T. THAHANE Vice President and Secretary THE WORLD BANK Washington, D. C. January, 1989 1Il CONTENTS Page Welcoming Remarks by Eberhard Diepgen Governing Mayor of Berlin ..................................... 1 Opening Remarks by Helmut Kohl Chancellor of the Federal Republic of Germany ............... 3 Opening Address by the Chairman, Kjell-Olof Feldt, Governor of the Bank for Sweden .............................. 9 Annual Address by Barber B. Conable, President of the World Bank Group ........................... 14 Report by B. T. G. Chidzero Chairman of the Development Committee ..................... 23 Statements by Governors and Alternate Governors 26 Page Page Afghanistan .............. 26 Lao People's Democratic Australia ................. 32 Republic ............... 125 Austria ........ ........... 34 Libyan Arab Bangladesh............... 38 Jamahiriya ............. 128 Belgium .................. 41 Luxembourg.............. 130 *Botswana ................. 48 Malaysia .................. 133 Canada...... ........ ..... 55 Malta .............. ....... 135 China..................... 61 *Mexico .................... 136 *Colombia ................. 64 Nepal............ ......... 140 Fiji.. ...................... 68 Netherlands .............. 143 *Finland ................... 71 New Zealand ............. 148 France.................... 74 Pakistan .................. 150 Germany................. 77 Papua New Guinea. . . . . . . 152 *Greece .................... 82 Paraguay.. .. .. .. .. .. .. .. .. 156 *Grenada .................. 86 Philippines ............... 160 Hungary.................. 89 Poland.................... 167 India .............. ........ 93 Portugal .................. 169 Indonesia ................. 97 Romania .................. 171 Iran, Islamic Republic South Africa ............. 175 of ....................... 101 Spain ...... ............... 178 Ireland .................... 105 Sri Lanka................. 181 Israel ..................... 107 *Sudan ........ ............. 183 Italy.............. ......... 109 Thailand.................. 187 Japan............ ......... 114 *Trinidad and Tobago ..... 191 *Kiribati ................... 120 United Kingdom ......... 193 Korea............ ......... 121 United States.. .. ........ . 199 Yugoslavia ................ 203 * Speaking on behalf of a number of countries v Page Concluding Remarks by Mr. Con able .................................. 207 Concluding Remarks by the Chairman, Kjell-Olof Feldt ............. 210 Remarks by II Sakong, Governor of the Fund and Bank for Korea .. 213 Documents of the Boards of Governors............................... 214 Schedule of Meetings ................................................ 214 Provisions Relating to the Conduct of Meetings .................... 215 Agendas .............................................................. 216 Reports of the Joint Procedures Committee .......................... 217 Report II ............................................................. 218 Report III ............................................................ 220 Report of the MIGA Procedures Committee ......................... 221 Resolutions Adopted by the Board of Governors of the Bank Between the 1987 and 1988 Annual Meetings ............................ 223 No. 423 ... Agreement with the United Nations Development Programme (International Finance Corporation) ..... 223 No. 424 ... Increases in Subscriptions of Certain Members to Capital Stock ........................................... 223 No. 425 ... 1988 General Capital Increase ......................... 225 No. 426 ... 1988 Additional Increase in Authorized Capital ...... 233 No. 427 ... Direct Remuneration of Executive Directors and their Alternates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233 No. 428 ... Salary of the President ................................. 234 No. 429 ... 1988 Regular Election of Executive Directors......... 234 Resolutions Adopted by the Board of Governors of the Bank at the 1988 Annual Meeting ........................................... 235 No. 430 ... Financial Statements, Accountants' Report and Administrative Budget ................................. 235 No.431 ... Allocation of FY88 Net Income ....................... 235 No. 432 ... Resolution of Appreciation ............................ 235 Resolutions Adopted by the Board of Governors of IFC Between the 1987 and 1988 Annual Meetings ................................ 237 No. 156 ... Agreement with the United Nations Development Programme (International Finance Corporation) ..... 237 No. 157 ... Membership of the Democratic and Popular Republic of Algeria ............................................... 237 VI Page No. 158 ... Increase of Subscription by the Commonwealth of The Bahamas to the Capital of the Corporation ...... 239 Resolutions Adopted by the Board of Governors of IFC at the 1988 Annual Meeting ................................................. 241 No. 159 ... Financial Statements, Accountants' Report and Administrative Budget ................................. 241 No. 160 ... Resolution of Appreciation ............................ 241 Resolutions Adopted by the Board of Governors of IDA at the 1988 Annual Meeting ................................................. 242 No. 146 ... Financial Statements, Accountants' Report and Administrative Budget ................................. 242 No. 147 ... Resolution of Appreciation ............................ 242 Resolutions Adopted by the Council of Governors of MIGA at the 1988 Annual Meetings .......................................... 243 No.8 ...... Amendment of Council Resolution No.6 Election of Additional Directors ....................... 243 No.9 ...... Venue and Date of Annual Meetings of the Council of Governors ............................................ 243 No. 10 ..... Resolution of Appreciation ............................ 243 Reports of the Executive Directors of the Bank ...................... 245 Increases in Subscriptions of Certain Members to Capital Stock .. 245 General Capital Increase ............................................ 248 Allocation of FY88 Net Income ..................................... 259 1988 Regular Election of Executive Directors ...................... 259 Rules for the 1988 Regular Election of Executive Directors.......... 261 Executive Directors Elected at 1988 Regular Election ................ 265 Report of the Executive Directors of the Bank and of the Board of Directors of IFC ................................................ 270 Proposed Agreement with the United Nations Development Programme ........................................................ 270 Report of the Board of Directors of IFC .............................. 292 Increase of Subscription by the Commonwealth of The Bahamas to the Capital of the Corporation ................................. 292 Report of the Chairman of the Development Committee ............. 293 vii Page Annual Report of the Development Committee 294 Accredited Members of Delegations at 1988 Annual Meetings ....... 302 Observer at 1988 Annual Meetings .................................... 326 Representatives of International Institutions .......................... 326 Executive Directors, Alternates and Advisors-IBRD,IFC,IDA ..... 327 Directors and Alternates-MIGA ..................................... 328 Officers of the Board of Governors and Joint Procedures Committee for 1988-89 ...................................................... 329 Officers of the MIGA Council of Governors and Procedures Commit- tee for 1988-89 .................................................. 330 viii .... -----------"---------------- WELCOMING REMARKS BY THE HON. EBERHARD DIEPGEN, GOVERNING MAYOR OF BERLIN On behalf of all the men and women of Berlin, I cordially welcome you to our city. I extend particularly warm greetings to the Managing Director of the International Monetary Fund, Mr. Camdessus, and the President of the World Bank, Mr. Conable. You have come here from 151 nations, from every continent and' corner of the world. Despite divergent interests, differ- ing expectations, and diverse opinions, you have all gathered together in this room. For me, this fact by itself betokens hope for people with whom we share this earth. We must all be united by an ardent resolve to create a more just world. The symbol of this year is peace. The dove of peace seems to be winging its way, with the help of the United Nations, from one crisis center to another. In this year of 1988 the time is right, with an eye also to justice-social and economic justice-to set a go-ahead signal for the future. These meetings of the Fund and the World Bank furnish a welcome opportunity to do just that. As everyone knows, the next few days cannot be expected to produce miracles. The problems are too great for that. In this, common sense and realism are better guides than moral rigor. But humanity hopes and expects that a Berlin message will go out from this meeting for a more equitable world economy. For in the long run there can be no peace without respect for the diginity of man, without economic development, or without social progress. We Berliners would be proud to see our city's name associated with such a message. Your meetings are the focus of special public interest in Berlin, as they are throughout the world. This is no surprise to anyone familiar with our city's history. Berlin is a city of freedom, of thinking, and of free speech. Economic cooperation among the countries of this world is by right not a topic for experts alone. Constructive criticism is after all practically a hall- mark also of the Fund and the World Bank. Their work can therefore only benefit from the remarkable public interest it is attracting. Many of you are living in or visiting the other part of Berlin this week. This shows more than any words could do: for us, divided Berlin remains one city. Berlin is perhaps the most European of all cities. Here you can find the history, the opportunities, and the problems of this continent concentrated into a very small space. Division and hope for unification are ever present in Berlin, and the desire for openness and balanced interests is very much alive. But Berlin also stands for Europe in a quite different sense. For a long time it used to be said that this city, just like Europe, had no future. Cultural 1 greatness yes, economic and political future no-that was the popular de- scription. Things have changed. We are looking toward the twenty-first century. We are rediscovering our strengths. We invite competition. We remain competitive-in every respect. Berlin is no museum of the cold war or the old Europe, but a city with a future-a city of sophisticated learning, science, and economics that is also blessed with cultural wealth. Berlin is a young city, freedom-loving and tradition-conscious, in which every investment makes good sense. And by that I mean tangible economic investments just as much as spiritual, cul- tural. and political investments and initiatives. In Berlin it is never a matter of Berlin alone. This city offers a readymade lesson: that global problems can be resolved only through international cooperation. National egotism, imperialism, and lack of respect for human- ity-these were evils of the ninetenth and the first half of the present century. The flight of capital, protectionism, and compartmentalizing are expressions of this old thinking. The hallmarks of the world of today and tomorrow have to be communication, dialogue, balancing of interests, and cooperation. This applies to the East-West relationship just as much as to the problems between North and South. For that reason my city stands also, for example, in the service not only of East-West dialogue but also and equally of North-South cooperation. The borrowing capacity crisis can be resolved only in conjunction with the demolition of protectionism. Economic development must not be borne on backs of the poorest of the poor nor proceed at the expense of the environment. Failure to help countries help themselves leads to political radicalization and endangers peace and stability in the world. Yet for many people the bitter lessons of this analysis have not yet been learned. Nevertheless, if we succeed during these few days in creating a sharpened, honest awareness of interdependencies in the world and gener- ating a serious political resolve to act accordingly, then these Berlin meetings will be worth our every effort. Berlin is a symbol of a common spirit and solidarity: of a common spirit in the heart of Europe and of cooperation between East and West; and of solidarity between North and South. Thank you very much for coming to Berlin. We Berliners want to be friendly hosts. May the spirit of Berlin influence your minds for a common weal all over the world. 2 REMARKS BY THE HON. HELMUT KOHL CHANCELLOR OF THE FEDERAL REPUBLIC OF GERMANY I have the great honor and pleasure of welcoming you to Berlin today for the Annual Meetings of the International Monetary Fund and the World Bank. By choosing Berlin you have placed special trust in this city, for which I thank you on behalf of all Germans, especially the Berliners. This city is situated in the heart of Europe, where East and West meet. In their partic- ularly exposed position, the inhabitants of Berlin have learned from per- sonal experience over the last 40 years that the solution of international problems must not be sought through confrontation, but by peaceful means and through constructive cooperation between everyone concerned. Not least for this reason, you have made a good choice by opting for Berlin as your venue. The central task of your two organizations is, after all, to contribute through cooperation in a spirit of mutual trust to the positive development of the world economy and of the member countries., In view of the subjects to be dealt with at this meeting, it comes as no surprise that different views exist on the right paths to follow. This applies above all to the difficult economic situation of many developing countries, especially to their overwhelming debt burden. Nobody can remain unmoved by the want and misery in the Third World. It is thus all the more important, despite divergent points of view, to hold constructive discussions. But let us not delude ourselves; however understandable the morally based demands for a development policy that is above all socially oriented, real help can ultimately be provided only by those who tackle the problems head on, and not by those who shun responsibility and advocate deceptive panaceas. What we need is a steadfast commitment to a fair balance of interest and to solutions that bring progress, especially under the current difficult con- ditions. This is precisely the goal of the International Monetary Fund and the World Bank, which they make great efforts to attain. For this highly important work I would like to express to you the respect and recognition of the Federal Republic of Germany. Constructive cooperation rather than unilateral action without regard to others, working together instead of opposing each other-these are basic elements of the Articles of Agreement of the International Monetary Fund and the World Bank. Since being established over 40 years ago, the two organizations have made important contributions toward ensuring a general expansion of the world economy, despite difficult conditions at times. World trade has expanded to an extent that surely far exceeds what the founders of these organizations envisaged. Through considrable financial assistance, through support for project funding and structural adjustment, and through 3 expert economic advice, the World Bank and the IMF have paved the way for better integration of the developing countries into the world economy. The importance of these organizations is underscored not least by the fact that the vast majority of all countries are members of the organizations, irrespective of their political and economic values. They regard these insti- tutions as a forum for close, businesslike cooperation, a forum in which- and this cannot be stressed strongly enough-the vast majority of decsions are taken unanimoulsy in a spirit of trust. The aim must be to preserve and enhance this cooperation. And in view of the encouraging changes in East- West relations in the past few years, let me add this: when, in the last 40 years, were the prospects better than today for the intensification and ex- pansion of international cooperation? There is cause for hope not only on political grounds. Optimism is also justified in the light of world economic developments. The economic up- swing in industrial countries has now reached its s!xth year; in other words, we are currently experiencing one of the longest periods in the postwar era characterized by both economic growth and high price stability. After the turmoil on financial and foreign exchange markets last year, quite a few people feared a general crisis of the world economy. Close international coordination and economic prudence on the part of governments and central banks have played a decisive part in successfully averting such a development. The Government of the Federal Republic of Germany has also made its contribution in this respect. At the beginning of this year, we reduced taxes to a considerable extent, lent additional support to private and public in- vestment, and declared our readiness to accept a higher budget deficit this year. The success is now clearly visible. In the first half of 1988, economic growth in the Federal Republic of Germany reached 4 percent-the best result in nine years. And-what is even more important-the growth should continue in the years ahead, because it is based on a sound foundation. This economic growth has also benefited our partners abroad. As a result of the steep rise in imports, our trade surplus has fallen appreciably in real terms; in relation to gross national product it has decreased by more than half over the last three years. This is an important step toward reducing trade imbalances. In the first six months of this year, our imports from developing countries rose by over 5 percent, while our exports to those countries dropped by more than 8 percent in the same period. These are tangible changes which directly help to improve the economic situation in numerous countries. Nonetheless, one cannot overlook the fact that important tasks still have to be mastered. The high unemployment in many countries is a situation that we cannot accept, nor do we intend to. In the Federal Republic of Germany, we have adopted an extensive tax reform. In this way we shall 4 ,,_."--'" _._---,------------- make a substantial contribution toward strengthening growth and, hence, toward creating more new jobs. Securing economic growth, reducing trade imbalances, and, above all, making progress in coping with the debt problems-all of this presupposes in particular that we jointly take an unequivocal stand against protectionism and pursue a consistent policy aimed at open markets. Especially in this connection, it is true that economic problems cannot be solved through confrontation, but only through constructive cooperation. Let me add that the completion of the single European market by the end of 1992 is not directed against anyone. On the contrary, this large market will, due to its greater growth momentum, offer improved export opportunities for our partners throughout the world and thus contribute toward growth and em- ployment in other countries as well. It is essential now that the ongoing GAIT negotiations should lead to a tangible reduction of trade barriers. The favorable world economic condi- tions should help the Mid-Term Review this December to make substantial progress. Such progress includes satisfactory solutions in the agricultural sector. By its decisions of February of this year, the European Community took concrete steps for reducing surplus production. Initial success is al- ready clearly discernible. It is also indisputable that we must rely more strongly on market forces. This calls for realism and a sense of proportion in choosing the right path. The Federal Republic of Germany will make a constructive contribution to this endeavor. In spite of the improved world economic conditions, the situation in large parts of the Third World is clearly as grave as ever. For many of those countries the debt problem still constitutes an oppressive burden threatening their economic, social, and political stability. Further vigorous efforts are thus required. We must not be indifferent to hunger and misery, disease, and environmental disasters. The prosperity which many of us enjoy makes it our duty to provide effective assistance. However, genuine progress can only be achieved if we address the existing problems in a precise and differ- entiated manner and take due account of the specific conditions prevailing in each case. The situation in many African countries remains critical. I find it deeply disturbing that, despite repeated efforts, it has not proved possible in many cases to bring about durable improvements. Diverse assistance measures have meanwhile been initiated for the poorest countries in particular. I need only mention the large increase in the funds available to the World Bank, the IDA and regional development banks, the World Bank's special pro- gram for highly indebted low-income African countries, and the enhance- ment of the IMF's structural adjustment facility. But we cannot confine oursleves to placing additional funds at the disposal of international organizations. though this is without doubt highly impor- 5 tant. Also needed are further measures that specifically help to improve the situation of the poorest and highly indebted countries. For this reason, the Federal Republic of Germany completely canceled the ODA debt owed by the least developed countries. Since then we have been providing financial assistance to them only in the form of grants. In June of this year we decided to extend the debt cancellation to other poor and highly indebted countries in Africa, provided that they carry out reform and adjustment programs in collaboration with the International Monetary Fund and the World Bank. My Government has thus effected or envisaged debt cancellation totalling almost DM 8 billion-i.e., a good $4 billion. In view of the particularly difficult situation of many African developing countries, we reached agreement in Toronto on providing additional relief for highly indebted countries in Africa. The Government of the Federal Republic of Germany is thus willing to make further efforts aimed at im- proving the economic situation of the poorest countries. We will actively participate in the implementation of the agreement of Toronto by providing additional grants to the Sub-Saharan countries concerned so as to reduce interest payments by up to 50 percent within the framework of debt resched- uling in the Paris Club. We have also decided to simplify the credit terms for our bilateral financial cooperation with developing countries and to make them considerably more favorable for our partners in the Third World. We are launching these new, additional initiatives with a view to improving the prospects of the countries concerned for coping with their debt problems. Financial assistance and an economic policy that releases growth potential and ensures attractive conditions for investment-these two factors together lay the foundations for a genuine improvement in living conditions. We consider it our duty to contribute to this through the provision of assistance. Coping with the difficult debt problems of many middle-income countries, especially in Latin America, also calls for a balanced mix of reforms within the country itself, debt-servicing relief, and fresh money. Together with the countries concerned, banks bear the main responsibility for finding solutions that afford the prospect of overcoming the economic difficulties. Since this is primarily a matter requiring cooperation between the banks and the countries involved, it cannot be my task to provide concrete recommendations. But I would like to stress the urgent need for durable solutions in this field. Let me emphasize that the tax law and the bank supervision system existing in the Federal Republic of Germany pro- vide the necessary scope for a flexible approach. The aim of all joint efforts must be to ensure that the countries concerned again acquire access to international financial markets. They need new opportunities for economic growth and development today, and not some- time in the distant future. Only in this way can we give people new hope- the hope of improving their social conditions and at the same time preserv- ing the natural foundations of life for coming generations. 6 However, it would be a Pyrrhic victory if increased prosperity could be gained at the expense of destroying our vitally essential environment. No nation can afford to exploit or destroy its natural resources and thus elimi- nate the foundations of its own life and ultimately that of other nations. We in the industrial countries have had to learn through a painful process that our environment is highly vulnerable to human interference. We have also gained the experience that environmental hazards and their consequences do not stop at national frontiers. Thus, they can only be tackled effectively through international cooperation. This experience gained by industrial nations also applies worldwide. Pro- tection of the earth's climate and atmosphere, of endangered species, of oceans and forests is a matter that concerns all of us. I therefore appeal to everyone to take cooperation in these fields very seriously. My Government has already drawn practical conclusions. For example, an environmental impact assessment is generally prescribed for development projects financed by my country. We suggest that where this is not already the case, other countries and international organizations also provide for such environmen- tal impact assessments. However, this is not enough. We must jointly make greater efforts if we are to master the global environmental challenges. At the economic summit in Toronto, I therefore proposed that environmental protection, especially the protection of tropical rain forests, be included to a greater extent than hitherto in cooperation with developing countries. Our debt cancellation for countries with large tropical forests, such as Zaire, Ghana, and Madagascar, is intended not least to widen the scope of these countries for protecting their environment and their natural resources. It is essential that as many creditors as possible should provide comparable forms of debt relief. In this connection, one should above all examine to what extent debt relief or forgiveness can be linked more closely to ecological requirements. We would greatly welcome the World Bank stepping up its activities in this important field and ensuring the necessary international coordination. The Government of the Federal Republic of Germany is determined to set a clear example through other efforts as well. By the end of this year we shall make available in addition to the OM 108 million earmarked for forest protection and reafforestation, a further OM 150 million for the purpose of saving tropical forests. In the coming years the Federal Government will tangibly increase the funds for this important task. The FAa's plan of action for tropical forests provides a framework enjoying international support. It has been developed with substantial participation by the World Bank. However, the decisive prerequisite for the success of these efforts is that countries which possess tropical forests do their utmost to protect the forests and ensure proper management of them. We are fully aware of the difficult economic problems that this poses for some of those countries. Let me stress this once more. Without a coherent strategy for protecting tropical 7 forests in which everyone concerned participates, we cannot master the vast problems threatening the future of all mankind. Environmental protection must generally become a focal point of development policy. I address this strong appeal to all countries, governments, and organiza- tions. Environmental protection is certainly not the only objective of for- ward-looking North-South cooperation, and for some countries it may not even be the most important one. But without effective environmental pro- tection, development cooperation can only lead to a dead end that could prove disastrous for mankind. The tasks ahead of us are a challenge to our creative ability. We face them with our hearts and minds, with human solidarity, and economic prudence. We in the Federal Republic of Germany do so all the more resolutely, as we were confronted with similarly difficult tasks exactly 40 years ago. At that time, a few years after the war and in the middle of a seemingly hopeless economic situation, it was a question of finding a new currency and a new economic order for us. We opted for a basic reorientation: for the introduc- tion of the deutsche mark; for a commitment to monetary stability; and for a liberal, socially tempered economic system, which since then has been known as a "social market economy." In view of the huge problems existing then, probably nobody would have dared to hope for the success that has actually been achieved over the last 40 years. Not least against the background of this experience you, ladies and gentle- men, can count on the Federal Republic of Germany remaining your reliable partner even under difficult conditions. Our common goal continues to be that of facilitating throughout the world living conditions that can genuinely be described as humane. We realize that the path to that goal is far from easy and that there are no simple recipes for removing the obstacles. What we need in our joint efforts are determination and steadfastness. Our goal is to achieve more justice. Our common future is at stake. In this spirit, I wish you every success in your discussions here in Berlin as we are jointly dependent on progress. 8 OPENING ADDRESS BY THE CHAIRMAN, THE HON. KJELL-OLOF FELDT, GOVERNOR OF THE BANK FOR SWEDEN It is a great honor for me to welcome you all to the Forty-Third Annual Meetings of the Boards of Governors of the International Monetary Fund and the World Bank Group. At the outset I wish·to convey my heartfelt thanks to the Government of the Federal Republic of Germany and to the Senate of Berlin for inviting us to these meetings and for undertaking to arrange this giant gathering in this beautiful and friendly city. I greatly appreciate the honor extended to my country, Sweden, in electing me Chairman of these meetings. Sweden considers itself an active member of the Fund and the Bank and strives to strengthen their roles in the inter- national financial system. In fact, Sweden-its Government and its people-is a firm believer in international economic cooperation. Our own economy is a small and open one. It has been a major beneficiary of the open trade and payments system. And that system is based on multilateral rules and disciplines which are upheld only through active cooperation at the international level. With concern we observe that this system has come under increasing strain. Exchange rate instability and growing payments imbalances have served as powerful incentives to protectionism. Debt problems sometimes prove so difficult that abandonment of discipline as well as unilateral action become tempting options. Increased bilateralism in trading relations threat- hens to do permanent damage to the development of world trade. These Annual Meetings give us an opportunity to counter this develop- ment. We can manifest our continued faith in cooperative action and mul- tilateralism. It is my conviction that the challenges of the decade ahead will be effectively addressed only if international cooperation is strengthened. Only thus can we hope to reduce imbalances, to resolve debt problems, to foster growth and stability. The current situation of the world economy does have important positive features. Growth has gained further momentum in the first half of 1988. We are experiencing the sixth consecutive year of expansion in the world econ- omy. Policy coordination has strengthened among the major industrial coun- tries since the Louvre Accord in early 1987. We have witnessed some con- traction in the U.S. fiscal deficit and increased domestic demand in surplus countries. Many developing countries have experienced export growth in both 1987 and 1988 as a result of improved commodity prices and important adjustment efforts. Nevertheless, fiscal and current account imbalances among major indus- trial countries remain unsustainably large. They continue to fuel uncertainty in financial and exchange markets. Unemployment is unacceptably high in 9 many industrial countries. The debt situation remains difficult. For the poor- est countries, output growth remains below the rate of population growth. Some inflationary pressures have emerged recently and these pressures have pushed up interest rates. Regrettably, these interest rate increases are transmitted to countries where a monetary tightening seems unwarranted. And they add to the burden of the indebted countries. A delayed adjustment of external imbalances will increase the risk of renewed turbulence in exchange markets. It will also delay policies to reduce trade restrictions. Trade liberalization at the multilateral level should instead be stepped up, and individual countries should undertake domestic reforms toward the same end. In this context the importance of a successful outcome of the Uruguay Round is evident. All efforts must now be made to ensure substantive results at the midterm review in Montreal later this year. In the developing countries, the ratio of debt to exports started to decline in 1987 and will fall further this year. Nevertheless, economic growth is still weak as a whole, but with large differences among individual countries. For many heavily indebted middle-income cQuntries the outlook remains worrying. They experience serious difficulties in servicing their external debt and in generating the investment necessary for sustainable growth. "Ad- justment fatigue" may increase if there is a risk of prolonged delays in the recovery of per capita income. Many countries have embarked on the difficult-but necessary-process of macroeconomic adjustment and structural reform in order to stimulate growth, encourage the return of flight capital, and attract investment flows. These adjustment efforts depend for their success on a healthy global envi- ronment, an open trading system, and adequate financial flows. The international community must strengthen its support of medium-term adjustment programs in these countries. The Fund and the World Bank have taken important steps in this direction, but I want to stress that the involvement of commerical banks is indispensable. Flexibility and ingenuity will be needed in order to find market-based financing techniques that can be accepted by the banks as well as the debtors. The role of the authorities in the creditor countries should remain one of facilitating such voluntary arrangements. The debt strategy based on the concept of growth-oriented adjustment and case-by-case treatment remains valid. Yet within its framework, the poorest debtor countries need special attention. The debt burden of these countries continues to mount in spite of re- peated reschedulings. Increased concessional resources are necessary to enable them to resume economic growth, alleviate poverty, and undertake necessary structutral adjustment. I therefore welcome the agreement that has been reached on the implementation of concessionality in official debt rescheduling by the Paris Club. 10 Before commenting on the present activities of the Fund and the Bank, I would like to make some general observations concerning our responsibil- ities as members. Our institutions must have the complete backing of the membership in order to perform their tasks. Unflagging support is particularly important in times of tensions in the international economy. Lately, there have been a number of disquieting signs of a change in attitude among members. I am thinking primarily of those countries that let their arrears to the Fund and the Bank increase although they are able to fulfill their obligations. I am also referring to the hands-off attitude that is sometimes found among debtors as well as creditors. According to this view, the two institu- tions have created their own problems by extending financial support to unsatisfactory programs or projects and will have to sort out those problems on their own. This view seems to imply that the Fund and the Bank are comparable with other financial institutions. I strongly disagree. We-debtors and cred- itors alike-have agreed that the Fund and the Bank must have special status. We will then have to live up to that commitment and treat them as preferred creditors. Otherwise, their central roles cannot be maintained. But there are other and perhaps still more dangerous threats to the integrity and independent status of the Bretton Woods institutions. In many heavily indebted countries, the situation remains extremely fragile. This tends to strengthen the arguments for compromises with reference to polit- ical realities. But we cannot compromise when it comes to the fundamental principle that adjustment programs must lead to balance of payments via- bility. Indeed, lending arrangements with weak or unclear commitments are more of a hindrance than a help to the borrowing country. Obviously, due respect must be paid to the economic and social circum- stances of each country. Economic adjustment is often a painful process which involves hardships and sacrifices for the populations concerned, and the poor are often severely affected. While the Fund and the Bank must encourage the process of economic policy reform, they must remain sensi- tive to these realities. Adjustment itself is likely to be frustrated unless its burdens are shared by all. I will now turn to the activities of the Fund. The Fund has a key responsibility in surveillance. Its role in the interna- tional coordination of economic policies is central to an effective functioning of the international monetary system. A main objective of surveillance is to encourage national authorities to take into account the international con- sequences of their domestic actions. Progress has been made in srengthening policy coordination within a cooperative strategy. And the Fund has played, and must continue to play, a central role in ensuring the effectiveness of the debt strategy. 11 The Fund must be able to respond flexibly to the changing needs of its members. The recent adaptations in its lending instruments and facilities have my full support. The enhanced structural adjustment facility has now become operational. Additional resources are made available on concessional terms to those among the Fund's poorest members that are taking forceful action to adjust their economies. The extended Fund facility has been amended to allow for lengthened arrangements with the Fund and to make more financing available. The establishment of contingency financing through a new facility is an- other positive development. It should set an example for other creditors, particularly commercial banks. Stable resource flows and contingency sup- port will hopefully prevent the derailment of members' adjustment efforts. The increase in payments arrears to the Fund is a matter of deep concern. Countries with overdue obligations soon become ineligible to further bor- rowing from the fund. This aggravates their position and disrupts their adjustment efforts. Arrears also mean a loss of revenues for the organiza- tion, and they put a greater financial burden on other borrowers and on creditors. Strong preventive action and intensified international collabora- tion to initiate basic policy adjustment are needed to cope with these prob- lems. For those cases where necessary adjustment is shunned, the Fund must protect itself through effective measures. In the years ahead it is crucial that the Fund be in a position to meet members' needs for balance of payments financing on appropriate terms. Work on the Ninth General Review of Quotas must therefore be completed by the spring of 1989. The Fund needs substantially expanded resources to play its role in the evolving international monetary system in the 1990s. Let me now turn to the World Bank. The general capital increase and IDA-8 have markedly strengthened the Bank. Its Special Program for Africa has generated considerable resources for that region. Donors have contributed on a bilateral basis and by increas- ing cofinancing with the Bank. It is now essential that subscriptions to the general capital increase be made as early as possible. The scope of the activities of the Bank is widening. In the case of the heavily indebted middle-income countries, it increasingly takes the form of program lending and policy advice. The Bank's support of the adjustment process should continue to have three dimensions. It should engage in direct lending. It should facilitate negotiated settlements between creditors and debtor countries. And it should catalyze new external financing. The Bank should continue its efforts in furthering a broadened menu approach, while safeguarding its capital. The Bank Group has endeavored to assist low-income countries through a variety of means in support of adjustment and to promote growth and 12 poverty alleviation. Continuing close collaboration with the Fund and the donor community has been of paticular importance in those efforts. It is also encouraging that additional resources will be made available for ad- justment credits to poor countries with outstanding IBRD loans. In addition to the strengthening of the Bank's resources, I particularly welcome the increased attention given to environmental concerns in the Bank's activities. The protection and restoration of the environment must be fully integrated into the investment programs of the Bank. I also note with satisfaction new and reinforced activities within the World Bank Group. The Multilateral Investment Guarantee Agency has been launched and should be able to play an important role in encouraging new transfers of resources to developing countries. With an expanded capital base and new instruments for lending and services, the International Finance Corporation has been able to broaden its activities, not least in Sub-Saharan Africa. The Fund and the Bank should be encouraged to continue their efforts to coordinate their work while maintaining their distinctive functions. The close cooperation in preparing policy frameworks for individual debtor countries is welcome and should be expanded. It is obvious that the economic situation of many countries calls for far- reaching medium-term adjustment and development. This is where the World Bank has special competence to assist its members. But sustained development can only be achieved within a stable macroeconomic frame- work. This is one of the main objectives of the Fund. We have reason to be proud of our institutions, the Fund and the Bank. They have served us well, and they have shown the necessary flexibility to cope with the difficult and constantly changing economic environment while maintaining their integrity. The challenges ahead will be no less demanding. I am confident that under their competent leadership our institutions will successfully meet these challenges. 13 ADDRESS BY BARBER B. CONABLE PRESIDENT OF THE WORLD BANK GROUP Introduction Mr. Chairman, Governors, Ladies and Gentlemen- May I, too, welcome you to these Annual Meetings. I am pleased to be addressing you here in the heart of Europe. I wish to thank Chancellor Kohl, the Government of the Federal Republic of Germany, Mayor Deipgen and the authorities and the people of West Berlin for their hospitality. This great continent stands at the threshold of new economic prosperity as the largest integrated market in the world. Europe's postwar transfor- mation shows how hope, combined with enlightened international cooper- ative action, can yield great progress. We must apply the same spirit in our effort to provide rising prosperity and renewed hope for the poor people of the world. Such hope, reinforced by international cooperation and assistance, can yield miracles. I have seen the difference that a village well or a rural health clinic can make. I have seen the grateful eyes of women having access to fresh, clean water for the first time since becoming mothers. From small investments-a metal plow, a sack of seed, a biology textbook, a line of credit for a trucking firm, a bulldozer to make a dirt road passable in bad weather-new worlds of opportunity can emerge. As Francis Bacon so aptly stated, " ... in this theatre of man's life it is reserved only for God and angels to be lookers on." We at the World Bank are determined not to be onlookers. We will continue to put all our energies into fighting poverty through sustainable, equitable growth. Mr. Chairman, this is what I want to talk about today-sustainable growth with equity-and what we must do to turn our commitment to development into reality. Resources for Action Before doing this, however, I want to outline some of the highlights of the past year. At our last Annual Meetings, I called on you for increased support for our urgent development efforts. In response to that appeal: · Shareholders approved the General Capital Increase, which will allow us to increase Bank lending by 10 percent per year through the early 1990s . · The international community demonstrated its strong commitment to the poorest countries by agreeing to IDA's eighth and largest replenish- ment. 14 · Donors boosted their co-financing support for IDA's adjustment oper- ations in Sub-Saharan Africa, and made some progress in reducing Africa's official debt. · The Multilateral Investment Guarantee Agency (MIGA) became an operational reality. I am most grateful for your support. This added strength, combined with the continued confidence of the financial markets, will allow us to act res- olutely and effectively. I am counting also on continued close cooperation with our sister organization, the International Monetary Fund. The Bank will put these additional resources to work to foster growth and an equitable distribution of the fruits of that growth. We will encourage the process of economic policy reform, while helping to protect the poor from added hardships. The Bank will focus fresh effort in the fields of hunger, popUlation, education and environmental protection. In the crucial area of finance, we will mobilize greater resources to ease debt burdens and ensure that growth expands and poverty recedes. A Central Goal: Reducing Poverty Let me focus now on the central goal of the Bank: the reduction of poverty. Poverty on today's scale prevents a billion people from having even minimally acceptable standards of living. To allow every fifth human being on our planet to suffer such an existence is a moral outrage. It is more: it is bad economics, a terrible waste of precious development resources. Pov- erty destroys lives, human dignity and economic potential. It must be fought with resolution, and overcome with sustainable growth. The World Bank is dedicated to attacking poverty and beating it back. Our experience makes us confident. It also teaches us that simplistic solu- tions will not work. Instead, we need determined and sustained action on five major fronts: · securing economic growth; · combatting hunger; · curbing excessive population growth; · investing in education; and · protecting the interests of the poor during the process of economic adjustment. First and foremost, we must have growth. Growth provides the poor with access to better markets and opportunities. It provides the resources for public and private programs vital to the poor. It helps sustain the broad- based political support the anti-poverty effort needs. Sensible macroeconomic policies are essential for that growth and for a successful attack on poverty. The Bank supports such policies through lend- ing for adjustment, which now accounts for a quarter of our new commit- ments. 15 Second, the impact of economic growth must be strengthened by direct action to combat hunger. Hunger takes many forms and has many specific causes. We all are aware of the natural disasters in Bangladesh, the social deprivation in Brazilian favelas, the economic backwardness in Northeast Thailand, to mention a few. Remedial measures must address these differ- ences realistically. In Sub-Saharan Africa, over one hundred million people-one person in four-do not get enough to eat. Dramatic emergencies are an all-too-fre- quent reminder of the tragedy of poverty. To fight hunger, African countries need economic growth, especially in agriculture. I attach the highest importance to the Bank's efforts to expand agricultural research. We will continue to support national programs which bring the needed technology and services to small farmers. By the end of this year, such programs will be underway with Bank support in 31 African countries. The Bank will work persistently with African governments, official and non-government donors, and other international institutions to make food security a reality. This will require more external resources, improved ca- pacity to deal with droughts and other food emergencies, better policies to stabilize food prices and stronger institutions. Within five years, I am con- fident that our collective action can put in place food security programs across the continent. The numbers of absolute poor are even larger in other parts of the world. Similar approaches of collaborative problem-solving and action are essen- tial. Third, it is imperative that developing countries renew and expand efforts to limit population growth. Some countries have made great progress in this area. Even so, many nations will double their already large populations early in the next century. Mr Chairman, allow me to speak plainly. I realize that popUlation policy touches upon sensitive cultural and religious values. But the societies in which population is growing so fast must accept that many-perhaps most- of these new lives will be miserable, malnourished and brief. With today's population growth rates, badly-needed improvements in living standards cannot be achieved, public resources for necessary services are over- stretched, and the environment is severely damaged. By contrast, effective family planning programs in countries as dif- ferent as Mexico and Indonesia show large savings over time in public health and education expenditures-to say nothing of the benefits to the families. Given the magnitude and severity of the problem, it is alarming that many governments are failing to implement sensible population policies. It is also distressing that international assistance for population activities has de- clined. These trends must be reversed. 16 A vital part of the Bank's work involves development activities that have a strong impact on population. Many projects improve economic opportu- nity and education for poor people, particularly women and girls. We are financing health and safe motherhood programs, and we will expand our direct support for family-related activities. Population issues will be prom- inent in our dialogue with governments. Fourth among the Bank's anti-poverty priorities is the need to focus on a vital resource for growth, the limitless capacity of the human mind. The productivity of an educated workforce is the most reliable engine of eco- nomic growth. Knowing this, the Bank and its members cannot ignore the disturbing evidence that investment in education has declined as the need for it has risen. The gap in per-pupil spending between low-income and industrial countries is now almost four times what it was a generation ago. Enrollment is lagging, as well. At the primary level alone, 100 million youngsters who should have been attending schools in 1985 were not. Can we afford to cut off so many young people from active, productive futures? Modest investments in education, wisely and steadily made, pay great dividends in fostering growth and reducing poverty. "There is no force," Jose Marti wrote a century ago, "that will not eventually succumb to trained human intelligence." I will give education heightened priority. Countries which undertake to reform and upgrade their education systems will find the Bank a supportive partner. Fifth, governments and donors need to do more to protect the poor during the adjustment proc'ess. Policy reform is in the best long-term interests of the poor. Distortions and misconceived economic policies harm them more than others. Poor people can get hurt, however, in the transitional process of correcting past mistakes. We have a special duty to encourage and finance measures which keep their short-term interests in mind. While growth is essential, growth alone cannot overcome these hardships, Deliberate measures must be taken to deal with the social consequences of adjustment. The adverse impact on poor people's income and consumption must be reduced. This is the focus of the Social Dimensions of Adjustment Program, a Bank-managed multi-agency effort now underway in a score of African countries. Social programs for the poor must be protected. Initiatives, such as Bo- livia's Emergency Social Program and Ghana's Program of Action to Mit- igate the Social Costs of Adjustment, are Bank-financed examples of how this can be done. These five priorities-securing economic growth, combatting hunger, curbing excessive population growth, investing in education and protecting the poor during adjustment-will guide the World Bank's renewed effort to reduce poverty, 17 But let me stress-effective implementation, not noble intention, is the crucial test. Effective implementation demands that poverty measures focus directly on those in need, and that available resources be used more effi- ciently. Hence, Bank lending in the social sectors will support better design, targetting and delivery of services for the poor. Poverty is not an economic abstract, nor is it homogeneous. In different ways it afflicts males and females, the young and the old, families and people alone, rural and urban dwellers. It must be dealt with through realistic programs which acknowledge the diversity of human conditions. Government policies and public programs playa critical role in poverty alleviation. But governments cannot do everything. Non-government orga- nizations in many developing countries have enormous potential for flexible and effective action. I have encouraged Bank staff to initiate a broadened dialogue with NGOs. Some 150 Bank projects have been identified where NGOs can playa cooperative role. I hope, and fully expect, that this col- laboration will continue and flourish. The objectives which I have outlined today are ambitious. They depend on the commitment of governments to initiate and sustain change in difficult times. The Bank is prepared to assist member countries that are willing to make a commitment to growth with equity. We have the ideas, the resources and a dedicated staff of men and women who are committed to develop- ment. Action for the Environment Let me turn, now, to another matter which is inextricably linked to poverty alleviation-safeguarding the physical environment. The poor are the least able to escape the consequences of environmental damage caused by others. They are likely to be prime victims when loggers clear tropical forests reck- lessly, or when toxic waste is shipped unregulated to poor countries and dumped without regard to risk. This is a growing practice which the inter- national community must not tolerate. We have a collective responsibility to break this vicious cycle of poverty and environmental degradation. We must do so in ways which provide growth, higher productivity and secure incomes for poor people. I am determined that the Bank take a leading role in this common effort. The Bank's expanded environment staff is active in programs to preserve biological diversity, in air and water pollution control projects, in water and sanitation improvement and urban upgrading, and in helping countries de- velop the capacity to manage industrial hazards. Some $200 million of Bank and IDA resources are being invested in projects in about 30 countries to combat desertification and conserve the potential of arid lands. We also are strengthening our own internal review and awareness of the environmental consequences of all projects we finance. 18 Last year I told you the Bank would expand support for forest manage- ment. Our forestry lending last fiscal year reached $193 million and included an innovative forest rehabilitation project in China. In Brazil, Indonesia, Madagascar and the Philippines, we are collaborating with governments on national environmental programs with major forest conservation compo- nents. We have come a long way in a short time. Both we and our member governments need to do far more. There is an equally urgent need for the world community to contain the global environmental threats to our com- mon future. An Agenda for Growth Mr. Chairman, I have repeatedly stressed the importance of growth. Developing countries can only make significant progress in reducing poverty and in safeguarding the environment if they are undergoing healthy expan- sion. The Bank is, above all, an international partnership for growth. To facilitate growth, however, progress is needed in four major areas: · first, better international economic policies and more open trade; · second, deeper and more persevering structural reforms by developing countries; · third, stronger, more sustained international financing to support eco- nomic reform and development efforts; and · fourth, the creation of an economic environment for vigorous private sector growth in developing countries. Let me address these four central issues, each one vital to long-term progress. An Improved World Environment For healthy growth to occur, there must be an expanding global economy. The world economy has, in fact, fared better than many had thought possible following last year's fall in the stock market. The outlook remains clouded, however, by inflationary trends, continued uncertainties over financial im- balances and exchange rates, and increasing protectionism in the industrial- ized world. Coordinated, growth-oriented and outward-looking policies in the devel- oped world are essential. The cooperative gains of recent summit agree- ments must continue. Negotiators and principals must act with courage in the Uruguay Round discussions, in preparations for the Lome IV agree- ments, and in the run-up to 1992 in Europe. The success of the Uruguay Round, especially the reform of agricultural trade, is critical for developing countries. In short, industrial countries must not shirk their special respon- sibilities for the health and stability of a growing international economy. 19 Need for Deeper Adjustment To take advantage of the opportunities for growth, developing countries must undertake, and persist with, deeper adjustment than most have so far managed. Our research shows that countries which have undertaken deeper structural reforms have had better growth and stronger balance of payments performance than those whose reforms were patchy or short-lived. Successful adjustment takes long and sustained effort. For this reason, · we will increasingly base our lending on the implementation of multi- year adjustment programs; · we and our borrowers will need to pay more attention to the fiscal dimension of adjustment, the management and financing of the public sector; and · we will place stronger emphasis on institutional reform. External Finance for Growth Growth cannot be sustained unless it is adequately financed, and external finance is critical to continuity. Current flows of resources are inadequate to meet developing countries' minimum needs. The Bank is committed to carrying its share of the burden. In Fiscal Year 1988, new Bank Group commitments to our borrowers topped $20 billion for the first time. Our gross disbursements also reached an all-time record of more than $15 billion, and the Bank Group's net disbursements to its current borrowers totaled $7.6 billion. The progress made to reduce the burden of debt service in low-income countries has been encouraging. The Bank's Special Program of Assistance for Sub-Saharan Africa and the Enhanced Structural Adjustment Facility of the Fund are in place. The Toronto Summit offered a broad menu of debt relief options to low-income debtors. The Paris Club is now working out the technicalities. Speedy action is important. I am pleased to report that our Board has approved the immediate use of IDA reflows to increase IDA's commitment authority by an additional 525 million SDR annually starting this fiscal year. A portion of the IDA reflows and IDA's net income will be used to supplement adjustment op- erations in IDA-only countries, taking into account their debt service obli- gations to the IBRD. But we cannot overlook the fact that the heavily indebted middle-income countries continue to experience persistent stagnation and low growth. The Bank's approach has been to support investments and new money flows. If this is not sufficient to restore and sustain growth, we must explore further collaborative solutions. I believe a pragmatic, evolutionary approach to the debt crises in the heavily indebted middle-income countries should: · preserve the case-by-case approach; · strengthen investment and stimulate growth in the indebted countries; 20 --------------------.... ,- o provide financial support by catalyzing new money and facilitating vol- untary debt reductions; and o be linked to good performance under an adjustment program. Critical Role for the Private Sector Mr. Chairman, open trade, economic reform and adequate finance can provide essential opportunities for growth. But we also must make use of the full potential of the private sector. We must create conditions in which entrepreneurs, farmers and workers can save, invest and produce efficiently. This is a pragmatic imperative, not an ideological abstraction. For years, the Bank has provided substantial support to the private sector. The Bank has lent billions for agriculture, industry and infrastructure. This support will continue. But we will do more: o Our adjustment lending and other operations must encourage greater private initiative and help dismantle monopolies and special privileges for any group-private or public. o We will stress the urgently needed reforms of domestic financial sys- tems, markets and instruments to mobilize domestic savings and venture capital. o We will provide advice, technical services and finance to assist in the reform or privatization of state enterprises. o Through IFC, we will extend stronger support for capital market de- velopment. o MIGA will offer advice and guarantees to promote private ventures and development. I am committed to use our institutional strength-the financial and in- tellectual power of the Bank, the corporate agility of IFC, and soon the risk coverage of our new affiliate, MIGA. We will leverage our own resources with commitments from the international and domestic private sector. Private sector involvement is not a panacea. But private entrepreneurs command much-needed resources, and have access to new technologies, management skills and markets. No economy should waste such a potential. Conclusion In closing, I want to reiterate that we must work together. The stubborn fact of the Eighties is that growth has been inadequate. Poverty is still on the rise and the environment is poorly protected. Unchanged, these realities would deny our children a peaceful, decent and livable world. We cannot afford to give up. We must build, instead, on what has been achieved and what has been learned over four decades of development experience. We will not succeed immediately, and we will not succeed every- where. But we are entering a period of greater opportunities for partnership and cooperation. 21 Let us seize these opportunities pragmatically and urgently. Let us, to- gether, rededicate our energies, our will, our strength to the challenge of growth, the promise of equity, the work of development. With your contin- ued support, we are determined to carry our mi~sion forward with vision, competence, compassion and courage. Thank you. 22 REPORf BY B.T.G. CHIDZERO CHAIRMAN OF THE DEVELOPMENT COMMITTEE In my capacity as Chairmen of the Development Committee, I have the honor to present the Annual Report of the Committee for 1988. The report of the work and activities of the Committee for the year ended June 30, 1988 has been officially submitted to the Chairmen of the Boards of Gov- ernors, so I will only briefly touch on the highlights. At the two meetings of the Committee since the Boards of Governors last met, a broad range of critical development issues was discussed focusing on the adequacy of resource transfers to all developing countries, environ- ment and development, poverty issues, the impact of the industrial policies of the developed countries on the developing countries, and developments in the heavily indebted countries. Other subjects receiving attention were the need for a general capital increase for the World Bank, the enhancement of the structural adjustment facility of the IMF, and current international trade developments. The Adequacy of Resource Transfers to Developing Countries The Committee had an extensive discussion at its April 1988 meeting on the adequacy of resource transfers to developing countries, followed by a further review at the September 26 meeting. While it was concluded that the volume of financial flows to developing countries is inadequate to meet their needs for economic growth, poverty reduction, structural adjustment, the resolution of the debt difficulties, and environmental conservation, some positive developments were nonetheless noted. These included agreement on a general capital increase for the World Bank following a call at the Committee's September 1987 meeting for the Executive Directors of the Bank to complete their deliberations on such an increase expeditiously. Further, there was the implementation of IDA-8, progress on the Bank's Special Program of Assistance for the debt-distressed countries of Sub- Saharan Africa, as well as on the enhanced structutral adjustplent facility (ESAF) and the establishment of the Multilateral Investment Guarantee Agency (MIGA). At the last meeting, the Committee welcomed the launch- ing of negotiations for the Ninth Replenishment of IDA. Members called for enlarged flows of all types of financial flows to devel- oping countries and encouraged the Bank to explore further the possibilities of financing poverty reduction programs, particularly in low-income coun- tries. Particular note was taken of the role that foreign private investment could play in the transfer of resources. Members welcomed the efforts of the World Bank Group and the Fund to help revitalize markets in the private sector in developing countries, which could assist in creating an environment favorable to increased financial flows. 23 Environment, Growth, and Development The Committee continued its discussion on environment and development issues in depth at its meeting last spring and reviewed a report of the World Bank's environmental program at its last meeting. Steps taken by the Bank in integrating environmental considerations in its lending operations were welcomed. In emphasizing the need for strengthening public confidence in the Bank's commitment to support sound environmental practices, the Committee requested the Board of the Bank to review and publish an annual report on the environmental aspects of its operations, including an assessment of selected projects with a major environmental impact. Poverty Issues At the last meeting on September 26, the Committee had a full discussion on poverty issues, including the impact of structural and adjustment policies on poverty alleviation. There was agreement that reduction of poverty is a crucial objective of development and that additional efforts were needed to achieve this goal. Members called on the international community to strongly support the efforts of governments of the developing countries who themselves have the primary responsibility in designing antipoverty policies. The Committee welcomed the World Bank's reaffirmation of the objective of poverty reduction and food security in its policies and operations. Mem- bers were encouraged by the positive response of both the World Bank and the Fund to concerns at the need to protect the poor against the impact of adjustment programs. Members urged both institutions to help design ad- justment programs and assist in the adoption of well-targeted compensatory measures which would help shield the vulnerable groups from adverse ef- fects. Developments in the Heavily Indebted Countries Both at the April 15, 1988 and the September 26, 1988 meetings, devel- opments in respect of the low- and middle-income heavily indebted coun- tries were reviewed. At the April 1988 meeting, the Committee called for additional efforts to ease the burden of many debt-distressed low-income countries by, where possible, interest rate reduction in official reschedulings or alternative measures having a similar impact. At our meeting last Mon- day, members, recalling the consensus at the Toronto economic summit, warmly welcomed that arrangements had now been worked out to provide additional debt relief through the Paris Club. Noting that the debt service burden has become more severe due to the recent increase in interest rates, members emphasized, at the last meeting, the need to ensure adequate support for the process of adjustment. Re- garding the heavily indebted middle-income countries, the Committee en- 24 couraged donors and creditors to broaden the menu of market-based and voluntary negotiated options blending new money, where appropriate, with techniques which could reduce the stock of debt. The Committee reaffirmed the importance attached to efforts by the Bank and the Fund in facilitating developments in the menu approach, thereby catalyzing financial support for a growth-oriented debt strategy. Industrial and Trade Policies In its review of the impact of industrial policies of the developed countries on the developing countries at the September 26 meeting, the Committee concluded that protectionist and other trade-distorting measures of the in- dustrial countries have a particularly adverse effect on the developing coun- tries, often substantial compared to the level of official development assis- tance (ODA) flows. The Committee called for greater liberalization in international trade and industrial policies affecting agricultural and manu- factured goods of the developing countries and also emphasized the crucial importance of the Uruguay Round in the process of trade liberalization. Members urged a positive outcome to the midterm review due to take place in December 1988. Concluding Remarks In light of my two-year experience as Chairman of the Development Committee, I am able to assert without any hesitation that while the poten- tial of the Committee for influencing polices for the promotion of growth and development has always been recognized, given the unique character of the Committee, our· challenge as finance and development ministers from the industrial and developing countries is to recommit ourselves to realizing the full potential of the Committee-to deepen and sharpen perceptions of problems, to generate the necessary political will, and to maintain the mo- mentum for growth and development. Millions of people in the developing world depend on the success of our efforts to attain better living standards free from poverty. We should not fail them. 25 STATEMENTS BY GOVERNORS AND ALTERNATE GOVERNORS! AFGHANISTAN: HAMIDULLAH TARZI Governor of the Bank I would like to join the other distinguished speakers before me in express- ing my delegation's sincere appreciation to the Government of the Federal Republic of Germany and to the authorities and people of the historic city of Berlin (West) for the warm hospitality and excellent arrangements. It is a pleasure and a privilege to address this distinguished gathering. The meeting is indeed fortunate to have the Chairman to guide its affairs at this session, which takes place at a very crucial time for the world economy. Mainly as a consequence of the macroeconomic policies of the market- economy countries, the 1980s have been a period of uncertainty, instability, and difficult adjustment for the world economy. Developing, and especially least developed, countries have been vulnerable to the multiple external shocks that occurred toward the end of the 1970s and the beginning of the 1980s, namely falling commodity prices and the ever-worsening terms of trade for exporters of primary products, who are still in the category of price-takers, and not price-makers, because of increasing protectionist mea- sures through both tariff and nontariff measures. The recession of 1980-82 in developed countries and its subsequent negative effects and ramifications on the trade and balance of payments position of the developing, especially the least developed, countries, together with restrictive trade practices, including discriminatory sanctions in regards to the general system of pref- erences and the imposition of the MIP by the European Common Market, has resulted on the one hand in rendering our handmade products noncom- petitive and on the other hand in curtailing our major foreign exchange earning exports, namely raisins. There has been an overall rejuvenation and stimulation of economic activity in most of the major industrial nations in the past five or six years, but, unfortunately, the very vulnerable and com- modity-based economies of the developing countries, especially the least developed countries, confronted with concomitant political and natural dis- asters and catastrophes, have yet to recover from the initial shocks. It has been estimated that the external indebtedness of the developing countries has reached astronomical figures, exceeding $1,000 billion. In this connection, three points are pertinent. First, it is well known that projects undertaken through external financing may exert very serious pressure on 'Comprising statements relating to the work of the World Bank Group. Omitted passages are indicated by dots (... ). Statements relating to the International Monetary Fund are produced in the IMF Summary Proceedings. 26 --------------_._...._.. .. ,---------------- , the balance of payments position of the developing countries long before they affect the overall capacity of the economy to generate export earnings or import savings. Second, it is also evident that it is not only the size or even the debt service payment that is important, but the proportion and ratio that the external debt absorbs of the scarce foreign exchange available to the developing, and especially least developed, countries. Third, the developing countries should have unrestricted access to foreign markets for their exports so as to enable them to earn the necessary foreign exchange. Failure to realize these pertinent points by the creditor commu- nity will result in an ever-increasing reverse flow of scarce hard-earned real resources from the developing to the developed countries, thus chronically aggravating their balance of payments position still further. Based on these facts, we propose that, besides the usual debt relief instruments such as debt rescheduling, restructuring, grace periods, and concessional terms, an ad hoc meeting of debtor countries and the creditor financial community under World Bank or UNCTAD auspices, with frank and realistic dialogue and analysis of the debt crisis, would prove beneficial. One suggestion for a possible topic of discussion could be the possibility of setting up a debt relief fund for those countries most affected by the debt crisis. Moreover, the need and recognition that debtor and creditor governments, along with the commercial banking community and international financial institutions, will need to work together to frame solutions for their mutual benefit is an undeniable fact. The main objective is to ensure that the debtor countries receive the necessary financial resources so as to extricate themselves from the quagmire of chronic indebtedness. Likewise, regarding the debt prob- lem, due consideration should be given to unforeseen changes in the coun- try's external payments owing to factors beyond its control. Taking these points into consideration, the philosophy of paying at all costs does not appear justifiable. Likewise, the linkage of the indebtedness of the devel- oping countries to their capacity to pay through export proceeds and avail- able foreign exchange is imperative. It is an accepted fact that the disparity in overall economic development, not only between the developing and the developed countries, but between the developing and least developed countries, is increasingly widening. Thus far, as previously mentioned, the Substantial New Program of Action (SNPA) for the least developed countries appears to be one of the few practical and action-oriented measures adopted in their favor. But, despite certain progress achieved, much remains to be done. As far as my country is concerned, in the light of the rather unfavorable and rather disappointing outcome of the recent Round Table talks held in Geneva, in which the major international financial institutions participated, my delegation proposes that the UNDP and other related UN agencies should explore the possibilities of a more coordinated and integrated ap- proach, including the utilization of more viable and effective modalities to 27 ensure an accelerated and progressive implementation of the SNPA within a specified time limit. However, experience and documented figures amply indicate the rather disappointing performance of the SNPA on the real flow of resources to the developing, especially the least developed, countries. In this connection, besides the full implementation of various measures, such as the observance of the official development assistance (ODA), commit- ments by the developed countries, the increase in IDA resources and a greater portion of grants to loans for the least developed countries, we propose the possibility of serious consideration of implementing the concept of a link between development finance and SDRs, which regrettably has been repeatedly rejected in numerous international forums on rather ques- tionable and controversial grounds by major industrial market economy countries. The important role of money and finance in the context of policies and measures for revitalizing trade and development among nations cannot be denied. Since ODA continues to play an important role for a large number of developing, especially least developed, countries, we suggest that, in compliance with the recommendations of the Development Committee's Task Force on Concessional Flows, developed countries should renew and make more effective their efforts to achieve as soon as possible the inter- nationally agreed target of 0.7 percent of gross national product for total ODA and the targets for ODA directed toward the least developed coun- tries, as adopted in the SNPA and the International Development Strategy. When speaking about financial resources and technical assistance, an- other disturbing factor is that the already inadequate and limited financial and technical assistance is regrettably responding increasingly to political rather than economic motivation, whereby its mobilization and allocations depend in most cases on the nature and consistency of the historical, polit- ical, linguistic, monetary, commercial, and, in certain cases, sentimental links existing between donors and recipients. The developing and the least developed countries have been calling for many years for a reform of the existing international monetary system. My delegation reiterates this call and suggests the following changes: o Increased participation of developing and least developing countries in the decision-making process of the Fund and the Bank. o The further strengthening of the Bank as a truly democratic interna- tional development institution and the further democratization of the Fund, especially in regards to the relation of voting power to shares. o An increase in the Fund's structural adjustment facility and in the lending facilities of the Bank and technical assistance bodies of the United Nations, especially the UNDP. o A review of the Fund's conditionality, with a view to facilitating adjust- ment with growth, re-examining the relation between low and high 28 -------_.------------ conditionality, and restoring the reserve creation functions of the Fund, together with exemption of credit ceilings. However, when speaking about conditionality, any type of conditionality aid must remain true to its primary objective of alleviating poverty. There- fore, conditionality for aid, especially for the least developed countries, must be poverty focused, as is accepted in principle by the World Bank and other UN agencies, particularly UNICEF and the UNDP. The World Bank's Spe- cial Facility for Sub-Saharan Africa is to be commended. We request the Bank to explore the possibilities of establishing a similar arrangement for the least developed and most affected countries on the Asian continent, who are faced with a similar situation. More than 40 years have passed since the historic establishment of the United Nations in San Francisco. During these years, as the saying goes, much water has passed under many international bridges, relations and interrelations between nations have undergone changes, and more impor- tant powerful and dynamic forces of change that had at one time appeared as a first break of dawn on the horizon of international affairs have evolved and metamorphosed into full reality in the form of a positive two-way interdependence in the world of today. The former unequal dependence, economic imbalance, and exploitation of the so-called underdeveloped by the developed societies are for the most part relics of a bygone era. Nevertheless, even today, after the political emancipation of great masses of humanity from secondary subservient and servile roles, regrettably in some cases the inequalities, discriminations, and imbalances still linger on in the economic and related spheres. On the bases of an overall analysis of the past 40 years of the financial arena, the breakdown of the Bretton Woods monetary system in the early 1970s, and the politically speaking far-more-important understanding that peace is a necessary prerequisite for socioeconomic development of all na- tions could be enumerated as important milestones during this interim. Another important evolution was the further recognition of interdepend- ence. This was vividly underlined by the advent of oil as a strategic com- modity in the mid-1970s, which heralded the historic stormy Sixth and more pacific Seventh Special sessions of the UN General Assembly. The Republic of Afghanistan, young in terms of a republic but very old as a nation, is going through an extremely critical and highly sensitive phase in its long and ancient history. More than 10 years have passed since the April Revolution of 1978, whereby the last vestiges of arbitrary monarchism were overthrown and discarded in favor of democratic pluralism. Since then much has been achieved, but much remains to be done. The policy of national reconciliation, which is an outcome of a new form of political thinking, in spite of its being complicated and multidimensional, has nevertheless culminated in the Geneva agreements, which, although 29 hindered by internal and external violations and interference, are neverthe- less, under the prevailing circumstances, a triumph of political wisdom and foresight. At present, despite the continuation and escalation of warfare and the destructive activities by extremists, the paramount task before us in the national reconciliation policy consists of reconstruction, rehabilitation, and the resettlement of our hundreds of thousands of compatriots returning to their homeland. The assistance rendered in this by the UNHCR and the International Red Cross Society is appreciable and commendable. The Republic of Afghanistan has taken the necessary measures to reunify and ameliorate this alarmingly critical socioeconomic disarray. However, the paucity of national real resources, combined with the continuing destructive activities of the extremists and compounded by the unique disadvantages and difficulties of being a least developed and landlocked country, necessi- tates more than ever a much greater amount of multilateral assistance, especially by the international financial and monetary institutions, namely, the Fund and the Bank. While appreciating the initial steps undertaken by the WHO, UNDP, and UNHCR toward rehabilitating and reconstructing our country, nevertheless, the mobilization and inflow of resources, credits, and grants on a large scale and dimension is absolutely essential for the reconstruction of the large- scale destruction, havoc, and unprecedented human and material losses inflicted upon the country and people of Afghanistan, which was brought about by the senseless, imposed, destr.uctive, and exhaustive fratricidal war. This is where the assistance from the most important and major inter- national financial institutions-the Fund and the Bank-is urgently re- quired, taking into consideration the provision of special facilities and ex- emption of certain Fund regulations and limitations, such as the imposition of credit ceilings and certain forms of conditionality. Based on the undeniable truism that peace is an essential prerequisite to socioeconomic development, the newly formed coalition government of the Republic of Afghanistan is taking all necessary measures toward achieving national reconciliation, based on the Geneva agreements and to which the Republic of Afghanistan, despite the repeatedly flagrant non-observance of its terms by internal extremists and certain external elements, has faithfully abided. In the economic arena the Republic of Afghanistan is making every effort to further strengthen the state sector, whose role in the overall socioeco- nomic development aimed toward promoting public welfare is undeniable. Concurrently, the Government is giving due attention, and attaching great importance, to the further development and active participation of the pri- vate sector in the economic development of the country. Besides various incentives-such as tax holidays, custom duty exemptions on raw materials 30 used in the processing of goods, and various facilities, such as ample foreign exchange allocations for business-oriented foreign travel-the newly pro- mulgated Foreign and Domestic Investment Law in itself indicates the Gov- ernment's desire to do all it can to develop and expand further the historic role that private enterprise has and should play in the overall development of the national economy. At the moment, the role of the private sector in the national economy, despite the various incentives, is limited to the distribution sector. But this, as will be agreed, is a common phenomenon in many developing, and especially least developed, countries, where the private sector entrepreneurs are usually more inclined toward short-term returns rather than long-term investments. Thus, it is imperative that this problem should be tackled through greater participation of the state sector in promoting the industrial and productive capacity of the economy. Nevertheless, as things stand, the private sector's share in the national income exceeds 50 percent. Broadly speaking, the Republic of Afghanistan is following a very liberal trade policy, which is oriented toward increasing and promoting foreign and domestic trade. It should be pointed out that the technical and financial assistance rendered by the International Trade Center in promoting foreign trade has been proved valuable. But, on the whole, during the past 10 years, financial assistance from multilateral sources has regrettably gradually diminished to a mere trickle. This fact is very ironic, because Afghanistan has met its financial obligations toward the UN and the international monetary and financial institutions. The fact is that now more than ever our country is in need of all the financial assistance it can obtain. On the socioeconomic sector, aside from the large- scale subsidization of basic food items for the lower-income population, which is based on the realization that development should begin at grass roots, much emphasis is now being given by the Government toward bet- tering and raising the standard of the rural areas in which 80 percent of our population lives. For the more efficient mobilization of this newly initiated program, a new Ministry for Rehabilitation and Village Development has been added to the Cabinet. We hope that the World Bank will, through its antipoverty program, render the necessary financial and technical assistance to the various poverty-alleviating projects envisaged by the new Depart- ment. In conclusion, the Republic of Afghanistan, as a faithful and long-stand- ing member of the United Nations, the Fund, and the Bank, reiterates its faith and aspirations that in this hour of urgent need for financial assistance, the United Nations and the influential international financial and monetary institutions, namely the Fund and World Bank, will not disappoint its jus- tifiable appeals for very substantial multilateral financial assistance at this very crucial and sensitive period. 31 AUSTRALIA: PAUL J. KEATING, Governor of the Fund and Bank The world economy has weathered last October's stock market upheaval more effectively than many expected. It is showing an underlying strength, which reflects the fact that the fundamental conditions for growth are now better than they have been for some time. Lower inflation is one such condition. It has increased confidence and stimulated consumption and investment in many countries, but especially in Japan and some other major industrial countries. Confidence and economic performance have also been boosted by a greater willingness on the part of governments to set policies in a medium- term framework: to pursue policies designed to sustain growth over the medium term. And there has been an increasing awareness of the need for structural reform, together with some progress in that direction. We obviously cannot relax our efforts. If we do, latent inflationary pres- sures, continuing large current account imbalances, and persistent protec- tionist attitudes would undermine the durability of the expansion. But at the same time we should be encouraged by our success in achieving six years of respectable rates of economic growth. There is no reason why we cannot further extend that period. We can if we remain positive and adopt appropriate policies. The recent tightening in monetary policy in several countries will help to restrain inflationary pressures. But reliance on monetary policy alone, even for a short period, will have costs, including costs to developing country debtors. Above all we need continued-and hopefully enhanced-policy dexterity and flexibility. Japan, in deliberately increasing domestic demand, has played a key role. But in the United States a re-weighting of policy away from monetary policy toward fiscal policy is needed. It is not easy, but many countries have done this. In Australia we have shifted from a budget deficit of 4 percent of GOP to a surplus of 2 percent of GOP in five years. This has been achieved essentially by cuts in government spending. Given the political will, other countries can make similar shifts. Our experience illustrates not only that such changes are possible but also that they can be implemented without plunging economies into reces- sion. Indeed, the reverse has been our experience, with the improved policy mix leading to increased private sector confidence and activity, which has offset cutbacks in public sector spending. International policy coordination can play-and has played-an impor- tant role in sustaining economic growth in recent years. The most important requirement here is that coordination be extended beyond crisis manage- 32 ment, or central bank interventions, to the coordination of policies that effectively address fundamental problems. There is nothing to be gained from coordinating policies that are them- selves indifferent. The freeing up of international trade is the single most effective means of promoting structural change and improving the medium-term growth prospects for developed and developing countries alike. It is a sad indictment on decades of supposed international cooperation that protection by indus- trial countries reduces developing country national incomes by almost twice the amount of official development assistance that they currently provide. The Uruguay Round provides perhaps the last real opportunity in this century to make essential advances in trade liberalization. It is time to jettison pious platitudes. At the midterm review in December, Australia will be doing all it can to achieve concrete results in trade, in agriculture, manufactures, and services. In addressing the debt and other problems of developing countries, there is no escaping the policy imperatives that only those countries themselves can implement. Their record of adjustment has been mixed, but stronger adjustment efforts are clearly required by many countries. Those who make the efforts and sacrifices should be supported and encouraged in practical ways, including maintenance of respectable rates of economic growth, ac- cess to markets, and the transfer of resources. The Fund and Bank also have critical roles to play in this difficult task. They are responding well, in our view, to the challenges confronting them .... . . . The Bank has this year launched a general capital increase (GCI), which should underpin Bank operations well into the 1990s. I am pleased to announce that Australia plans to make a substantial subscription to the GCI in fiscal 1989. The GCI will allow the Bank to carry through its emphasis on poverty reduction and adjustment programs aimed particularly at the most heavily indebted countries. However, the Bank's role in resolving debt problems must encourage effective adjustment, and not replace private debt with public debt. This means that the commercial banks must play their full part. We welcome the Bank's efforts to sharpen the focus of its attack on poverty. More than half the nearly 1 billion people living in absolute poverty are in the Asia-Pacific region. The Bank should not overlook this reality. The Bank has provided an important and continuing stimulus to economic growth; this is the primary factor in alleviating poverty. Under growth- oriented adjustment programs, the lot of the poor can be improved through the fairer application of taxes and subsidies and more realistic exchange rates. As Mr. Con able indicated so clearly on Tuesday, much of the Bank's investment lending has a direct impact on poverty. The challenge for the Bank is to maximize its impact on some of the root causes of poverty. 33 The Bank cannot compensate for all the shortcomings that might exist in national policies affecting poverty, or the environment, or anything else for that matter. Key issues such as population growth, natural resource use, land ownership, and government expenditure are sensitive matters of na- tional policy. The Bank can assist in these areas, but it cannot dictate solutions. Strong and effective adjustment programs are essential, with effectiveness being the key word. Relations between the Fund and the Bank in adjustment operations are emerging as a major issue. The potential for a blurring of the roles of the Bretton Woods institutions, and for duplication and conflict, has heightened since the Bank entered the field of adjustment lending almost 10 years ago. But some recent developments here are worrying to us. The Fund and the Bank have separate and distinct mandates. If we confuse these, we do so not only at cost to the institutions themselves, but also at a cost to their general membership. The Fund is a monetary institution, responsible primarily for providing short-term balance of payments support and for safeguarding the effective working of the international monetary system. While the Fund's operations do impact on the development process, the Fund is not a development institution. The Bank does have a role in the adjustment process consistent with the terms of its lending. However, this should be confined to long-term structural problems; short-term stabilization is the Fund's business. Furthermore, we do not believe that the Bank should be lending to any country for long-term structural purposes without of a suitable framework of macroeconomic pol- icies for that country. Recent events suggest to us that these principles are coming under strain. We must avoid a situation in which borrowing countries are able to exploit a duplication of roles, play one institution off against the other, and obtain balance of payments financing from one institution that the other is not willing to provide. Clearly, this would subvert the adjustment process. There is no easy solution to the problems that beset the world. But the basic policy requirements are in general well known. While the Fund and the Bank can help us meet these challenges, they can only do so if we provide them with adequate funds and allow them to operate effectively. AUSTRIA: FERDINAND LACINA Governor of the Bank First of all, let me express my most sincere thanks to our German hosts for the provision of the excellent facilities and the warm welcome extended to us. 34 Our deliberations are taking place in the context of a world economy that seems to have overcome, with remarkable ease and speed, the psychological and economic shocks of the October 1987 stock market crash. Indeed, with output in the industrial countries growing strongly, world trade booming, and inflation held to satisfactorily low levels, the actual course of economic development has surpassed the most optimistic forecasts. In Austria, for one, growth rates for 1988, originally forecast at 1.5 percent, have recently been revised upward to 3.5 percent, the fastest growth rate recorded in the last ten years. However, we should not give in to complacency. Unemployment at the international level is still unacceptably high and does not show any change for the better. In contrast, in my country, unemployment is far below the Western European average, with the rate of unemployment even declining since autumn of last year. The large external imbalances in the world are receding rather slowly. The restoration of equilibria in the external accounts would be greatly helped by adequate fiscal policies. The new multilateral trade round has been launched in a positive spirit and is indeed the most comprehensive one in GATT's history. Nevertheless, little progress has been made in the efforts to reverse protectionism. Unfortunately, recent trade legislation in the United States points in a different direction. The industrial countries have the obligation to create an environment conducive to exports and growth in the developing countries. Adequate policies by industrial countries to increase employment and to substantially reduce external imbalances seem to be a necessary condition for the estab- lishment of a framework for solving developing countries' problems-in particular. the debt problem. For most debtor countries, and especially the heavily indebted developing countries, the underlying situation has hardly changed. Growth, incomes, imports. and employment remain depressed by the large debt overhangs that require these countries to restrain demand in order to generate the trade surpluses needed to service debt. After fiscal and monetary retrench- ment have dragged on for years without tangible improvements in living standards and growth prospects, the continued pursuit of adjustment poli- cies is meeting with increasing fatigue. Under these circumstances, the adjustment programs of some major debtor countries have deviated sub- stantially from their intended course of restoring sound financial policies and fundamentally reforming economic structures. An additional problem arises from the reluctance of commercial banks to contribute to the financing of indebted countries. The fall in the market value of claims on debtor countries has posed a major barrier for continuing the concerted lending approach. In this situation, the Fund and the World Bank have to assume a more vigorous role than in the past in providing, as 35 well as mobilizing, financing from other sources. Adjustment lending should be made available to the countries concerned according to economic circum- stances. In order to ensure the quality of the World Bank portfolio, regional concentration of adjustment lending should be avoided. The opportunities for mobilizing funds from sources other than develop- ment assistance will increase with the quality of policies pursued by debtor countries. I therefore urge the Bretton Woods institutions to assist in the formulation of programs that take into account the political and social circumstances of the countries concerned. The role of the Fund and the Bank in designing such policies is an essential part in the restoration of these countries' creditworthiness. To this end, cooperation between the Fund and the Bank has to be intensified further. The Bretton Woods institutions have to regularly review the ade- quacy of their role, policy advice, and financing, and react in time to new developments. Here, the introduction of the compensatory and contingency financing facility will help prevent adjustment from being thrown off track by unforeseen swings in key economic factors. Some headway has been made on the debt issue. The variety of dishes under the menu approach has been increased with longer repayment periods and the offering and application of new, technically innovative instruments and debt reduction schemes. We also appreciate and support new initiatives by the Paris Club. This brings me to the problems of low-income countries which, in many respects, are distinct from those of middle-income countries. While in the past, some low-income countries were considered eligible for financing at commercial terms, we have to recognize now that, for a number of years, most of these countries will need substantial financial support on very concessional terms. The debt problem of these countries will undoubtedly require a generous approach of all parties involved. In this context, let me congratulate the Fund and the Bank for their initiatives regarding these countries. Policy framework papers have contrib- uted to better Fund-Bank cooperation but also to a better understanding of the low-income countries' problems by donors and creditors, and thereby increased the coordination as well as the financing of adjustment and eco- nomic reform. In the light of this positive experience, the use of policy framework papers would seem advisable for middle-income developing countries too. The adoption of the enhanced structural adjustment facility has added a new dimension to Fund policies. Like other countries, Austria has commit- ted itself to contribute to this new facility. Let me commend particularly Mr. Camdessus for finalizing this innovative financing instrument within such a short period of time. I regret, however, that some industrial countries have not yet committed funds to ESAF. The lack of such vital support might also weaken the collaborative efforts to settle the arrears to the Fund. 36 "-"---------------- The World Bank's Special Program of Assistance for low-income debt- distressed countries in Sub-Saharan Africa has become the centerpiece for aid to this region and demonstrates the Bank's capacity for mobilizing additional funds. Austria appreciates the increased volume of IDA assis- tance to Africa as the focus of Austria's bilateral assistance is also on Africa. Thus, while being open to all IDA-recipient countries, the currently avail- able concessional funds under Austria's cofinancing agreement with the World Bank are planned to be spent primarily on projects in Africa. In line with the objective of combining Austria's development assistance with that of the Bank's Special Program, I am glad to announce that Austria will provide an additional one billion Austrian schillings for cofinancing at concessional terms with IDA. As regards the Paris Club negotiations, Aus- tria has participated in the search for generous solutions for low-income countries. Let me turn now to poverty, the major threat to our future. We have to combat poverty not only for human considerations but for social, environ- mental, and economic reasons as well. For too long it has been assumed that economic growth would be sufficient to improve the plight of the poor. Unfortunately, these hopes have not materialized. It has become clear that poverty can be only attacked with specific measures. The Fund and the Bank should support special programs for this war against poverty. In its development policy, Austria has traditionally aimed at poverty al- leviation and therefore appreciates the increased attention the Fund and the Bank are paying to this problem. Realistically speaking, the new approach to combat poverty will require increased staff input on the side of the World Bank. We all know that poverty leads not only to human but also to environ- mental degradation. Mere complaints about devastation of nature in the Third World and about excessive exploitation of natural resources do not get us very far if we are not willing to actively support and implement measures aimed at eliminating poverty. The environmental problems and the means to tackle them in low-income countries are different from those of most industrial countries. It is their quest for economic development and for repaying their debts which leads to a situation that the industrial coun- tries are complaining about. We should be aware that it is not only to the benefit of people in developing countries to maintain a sound natural envi- ronment but to the benefit of all of us. In the first instance, the solution to this problem can be eased by giving a fair chance to people in developing countries. Furthermore, in allocating development assistance, we therefore have to pay more attention to projects in this sector. I urge the Bank to include environmental aspects in its project design and also to act as a promoter of specific projects aiming at environmental improvement. Finally, let me come to a crucial point, the financial strength of the Bretton Woods institutions. In this period of reduced financing from commercial 37 banks, we have to strengthen the multilateral institutions by providing them with adequate financial resources. Postponement of the Ninth Quota Review is as wrong a sign as delaying the approval of the World Bank's capital increase. Austria supports a substantial increase in Fund quotas and also believes that a new allocation of SDRs is warranted. Austria has already signed her shares in the general capital increase of the World Bank. Con- sidering the increasing number of countries that need concessional funds, we also favor a substantial replenishment of IDA, which may help in re- versing the direction of the flow of funds between First and Third World countries. In concluding, I want to stress the need for adequate financial support for developing countries undergoing adjustment. This support should be adequate not only to maintain economic activity during the adjustment period but also sufficient to finance the investments necessary to ensure sound economic development and to improve living standards. BANGLADESH: A.K. KHANDKER Governor of the Bank Let me start by joining my fellow Governors in congratulating you, Mr. Chairman, on your election as Chairman of the joint Annual Meetings. We are meeting in the historic and beautiful city of Berlin (West). On this occasion, I would like to express my appreciation to the Government of the Federal Republic of Germany and the people of Berlin (West) for their warm hospitality and excellent arrangements made for these meetings, and more so to the spirit of Berlin, so eloquently espoused by its governing mayor. I come from Bangladesh, a low-income country in South Asia with 105 million people. As you are well aware, the country is prone to natural disasters-floods and cyclones visit us almost every year causing widespread damages to human lives, crops, properties, and infrastructures. Our devel- opment efforts are throttled by natural disasters. Last year, we had a dev- astating flood, the worst in the last few decades, causing untold human suffering and material losses. Before the country could fully recover, we were affected by history's worst flood. Three fourths of the country was under water, more than 40 million people lost their homes, and crop loss has been estimated at 3.0 million tons. Damage to infrastructures was so severe and extensive that providing food, medicine, and drinking water to the flood-stricken people itself be- came a task of gigantic magnitude. We have embarked on a massive relief and rehabilitation program. On this occasion, I would like to express our deep gratitude to the international community for its understanding and generous help in our efforts. But in such a situation our needs are enormous, and we hope that in our subse- 38 quent efforts to implement the massive rehabilitation program, continued and enhanced cooperation from the international community will be forth- coming. In Bangladesh, the frequent visitations of devastating floods call for serious examinations of the problem and entail extensive flood protection measures and water management on a regional basis. There is now a recognition of the close link between poverty, environ- mental degradation, and long-term sustainable development. It will be too much for the struggling millions in the delta to recurrently bear the scourge. In the solution of this serious problem, we hope that the World Bank will play its deservingly significant and important role. Here, I refer to the very inspiring and thought-provoking observations made by Chancellor Kohl. He said, and I cannot but quote him, for I have no better words: "It would be a Pyrrhic victory if increased prosperity could be gained at the expense of destroying our vitally essential environment." Let these words and all that he said in this regard set the pattern for development in the coming decades and influence and guide our programs for development. The financial year 1988 marked some notable achievements in both Bret- ton Woods institutions. For the World Bank Group, IDA-8 became effec- tive; the Bank's general capital increase was successfully negotiated and made effective; and the Multilateral Investment Guarantee Agency (MIGA) started functioning. On the Fund side, the enhanced structural adjustment facility for the low-income countries came into existence. I congratulate Mr. Con able and Mr. Camdessus for their leadership and sagacity and the member countries for their understanding and cooperation in attaining these accomplishments. The world economic outlook over the medium term does not hold much promise for us. The world economy still faces uncertainties and major prob- lems. Growth in the industrial countries showed some improvement in 1988, but it is threatened by their serious fiscal and external imbalances; in the developing countries, it was uneven and continued to be inadequate, due to the low level of financial flows, heavy debt burdens, considerably weakened commodity prices, mounting protectionism in the industrial countries, and sluggish demand for their exports. Concerted actions for strengthening mac- roeconomic policy coordination by the industrial countries is an imperative to having the world economy achieve the relatively higher growth scenario projected in the World Development Report 1988. The debt issue still hangs heavy on the developing countries. For highly indebted middle-income countries, a new innovative approach encompass- ing interest rate reduction, debt-equity swaps, the transfer of market dis- counts to debtor countries, and the provision of new money will be neces- sary. In spite of some new initiatives, the debt burdens of the low-income countries are still untenable. We are encouraged by several donors' propo- sals to reduce the debt burdens of the low-income countries. We endorse the recommendations of the G-24 Ministers for extending debt relief to low- 39 income countries and for debt reconstruction by multilateral financial insti- tutions. The most critical issue confronting us today is the flow of financial aid to the developing countries. Since the debt crises has emerged, there has been a marked contraction of flows. This is disquieting. The President of the World Bank, in his reports to the Development Committee, rightly ex- pressed his concerns about the inadequacy of resource flows, and called upon national governments, international institutions, and private banks to increase substantially the total flows for resumption of growth and devel- opment. The ODA flows on which the low-income countries are heavily dependent also declined as a proportion of GDP of donor countries. In real terms, ODA fell by 5.4 percent in 1987 over 1986 levels, although some donor countries have significantly increased their assistance. A substantial increase of ODA flows is necessary for the resumption of growth and the alleviation of poverty, particularly in the least developed countries. This has been recognized by the Task Force on Concessional Flows, which called on the developed countries to redouble their efforts as a matter of urgency to reach the internationally agreed target of 0.7 percent of their GNP. The resurgence of protectionism in the developed countries, mainly through nontariff barriers, is of serious concern for us. It is gradually inten- sifying and expanding to new areas, hindering the growth prospects of the developing countries-it is costing them more than the amount of resources they receive as ODA. The developing countries have liberalized their trade and industrial regimes as part of the structural adjustment and economic reforms undertaken on the advice of the Bank and the Fund, only to find that their exports have limited access to the industrial markets. We look forward to the current round of GATT negotiations for a liberal interna- tional trade environment. We welcome the Bank's renewed focus on poverty alleviation and envi- ronmental protection. The vast majority of the population of the developing countries lives below the poverty line. The problem is acute in low-income countries. The adjustment programs have also had adverse effects on pov- erty. Growth is a prerequisite for poverty alleviation, and without additional concessional resources, it would be difficult to touch the surface of the problem. The dimension of the problem is such that it justifies the launching of a special program by the World Bank. We also appreciate the Bank's efforts to enhance its support in protecting and preserving the environment in the developing countries. We strongly feel that to prevent or to minimize the ill effects of environmental degradation, leading to disasters like flood- ing, should become the prime concern of the international community. While we are happy with the World Bank's general capital increase of $74.8 billion, we are concerned about the dilution of the voting power of the smaller member countries and, consequently, the reduction in the total 40 ........... - ....- - - - - - - - - - - - - - - - voting power of the developing countries. We strongly feel that procedures should be devised to protect the voting power of smaller members, and the total voting power of developing countries as a group should be restored to the level prior to the 1984 selective capital increase. We are disappointed to note that in spite of fairly high levels of net profit, there has been no transfer from the Bank's net profits to IDA, as was the practice in the past. We are afraid that this may give a wrong signal about the World Bank's commitment to development and poverty alleviation in the low-income countries. We hope that from now on there will be adequate transfers of Bank profits to IDA. We welcome the suggestion to utilize IDA reflows. We very much hope that these additional resources will be used for the least developed countries, for which allocations within IDA's framework are inade- quate .... . . . Fiscal year 1988 was a successful year for IFC, although the bulk of new investments was concentrated in a small number of countries. We would expect IFC to increase its exposure in other countries where the private sector is still shy, either directly or through the financing institutions of the developing countries. We will be watching with interest the implementation of IFC's Technology Services Program as well as MIGA's operations in facilitating foreign investment in developing countries. The present global economic environment is a challenge for both the industrial and the developing countries. We may refuse to respond, but this will only be at the risk of global economic instability, stagnation, and wide- spread poverty in the developing countries. This is neither desirable nor in the interest of anyone of us. Only understanding and cooperation among all of us can make the global economic environment congenial for develop- ment and growth. Let me conclude with an optimistic note: we shall jointly respond and face the challenge. Let this be the message of Berlin. BELGIUM: PHILIPPE MAYSTADT Governor of the Bank It is both an honor and a privilege for me to address, for the first time, the Annual Meetings of the International Monetary Fund and the World Bank, this year being held in Berlin (West), whose citizens are more sen- sitive than any to efforts to strengthen international cooperation and who yearn for a greater openness among nations. I wish in particular to thank the authorities of the Federal Republic of Germany for their hospitality. I would like to focus my remarks on four issues: (a) The current good behavior of the world economy-and the ensuing euphoria sometimes noted by certain observers and even some decision makers-must not make us lose sight of the need to strengthen the mech- anisms for international economic and monetary cooperation and, in partic- ular, to strive for greater discipline as regards exchange rates. 41 (b) The central role of the Fund in the adjustment process, both in the industrial countries and the developing countries, justifies a substantial in- crease in Fund quotas and calls for a re-examination of the issue of a new SDR allocation. (c) The persistent problems of over-indebtedness among the developing countries mandates the adoption of a differentiated approach, in which both the Fund and the Bank are called upon to play more important roles in arranging for "controlled reciprocity" between the adjustment efforts of the over-indebted countries and financial assistance from all creditors. (d) The fight against poverty continues to pose a major challenge to our international institutions: the current strategy, based on growth, needs to be complemented and strengthened by measures aimed at overcoming the transitory costs of adjustment and more directly addressing the specific problems of the poorest. Enhanced International Cooperation In the past year, world economic developments have been favorable and economic performance has exceeded projections. However, this clean bill of health ought not be read as a victory statement, in that the objective, namely, to determine how to promote a continuous adjustment process within an environment of noninflationary growth, is ambitious and leaves no room for a slackening of effort. First, I would like to stress the importance of structural policies. To a great extent, it is the structural policies we have introduced since the early 1980s that have paid off in the form of more dynamic activity on the supply side of our economies. We must carryon with these policies and make them as much the focus of multilateral cooperation and surveillance as demand-side policies cur- rently are. As regards these structural policies, the most important contri- bution that can be made from this side of the Atlantic is firm pursuit of the completion of the internal EC market, which will benefit the world economy through higher levels of growth and employment. Second, we must continue the process of coordinating macroeconomic policies and reducing balance of payments disequilibria among the major industrial countries. In pursuit of this objective, the three largest industrial countries have an even more crucial responsibility. Recent trends of eco- nomic and financial indicators, which have been evaluated by Fund staff, show there to be a real danger that the process of simultaneous adjustment of the remaining serious payments imbalances may not decrease at all over the next twelve months, and indeed that a reversal may begin. In my view, this may well be the principal risk the industrial world will have to face in 1989. 42 In order to avoid such a risk, the only possible option is to continue on the path followed for the past three years. During this period, the industrial countries have managed to reach a consensus on basic policy orientations and have recognized the need for international cooperation in implementing them. This consensus has given rise to differentiated demand management in the major industrial countries and to balanced recourse to fiscal, mone- tary, and structural measures. It is important that this balanced and differ- entiated approach be strengthened. This said, it must be noted that the Group of Seven has become the primary venue for cooperative work and decision making by the industrial countries. I trust that in future such concerted work will become even more apparent and more systematic: more apparent through the preference ac- corded to concerted action rather than to statements that might disrupt markets; more systematic through the increased use of the economic and financial indicators calculated by Fund staff. In this regard, the implemen- tation of the "monitoring zones" suggested by Mr. Baker may represent a valuable enhancement of the coordination process within the Group of Seven. Monetary developments in recent months suggest the following: in a short- term perspective, the increase in U.S. interest rates sanctioned by the mon- etary authorities was justified by the need to head off inflationary expecta- tions, even as it made it possible in some European countries to bring a halt to the capital outflows generated by an unwarranted appreciation of the dollar. In a longer-term perspective, however, I fear that these movements may reflect excessive reliance on monetary policy; should this continue, it would make adjustment more difficult: the United States would be con- fronted with high interest rates when it should be significantly reducing its fiscal deficit and strengthening its export capacity. The European countries would once again be compelled to go along, despite the fact that the ad- justment process would suggest that they pursue growth-oriented policies. Overall, we would increase the risk that the financial markets would become nervous again, with strong pressures on exchange markets being the most likely outcome. What is more, such a situation would be especially unfortunate for the over-indebted developing countries: despite recent suc- cesses with exports, the adjustment process in these countries remains highly vulnerable to any deterioration, particularly to any interest rate hike, which could wipe out the progress achieved in recent years. A widespread increase in international cooperation is needed in order to ward off this danger; clearly, however, much depends on the priority which the next U.S. administration will accord to fiscal problems. Prompt an- nouncement of a credible program, even if it is drawn out, would be ex- traordinarily beneficial in terms of financial stability and the continuation of noninflationary growth. Once fiscal policy is firmly associated with pro- 43 moting internal stability, monetary policy could be used more actively to promote external equilibrium and stable exchange rates. Finally, I would like to stress the notion that the international coordination of economic policies would be considerably strengthened by a more solid "anchoring" of the international monetary system and by the acceptance of greater discipline in exchange rates. In the European countries participating in the exchange rate mechanism of the European Monetary System (EMS), we have noted that when markets are stabilized around a given rate grid, the risk of destabilizing capital flows is reduced; the coordination of eco- nomic policies is significantly facilitated, and it becomes ingrained. Before I turn to the next topic, permit me to add a few words on the economic policy followed by my country. Belgium, whose monetary policy hinges primarily on meeting exchange rate targets within the EMS, has to itself only scant room for maneuver as regards macroeconomic policy. Alongside its establishment of more decentralized institutional structures, the new Government intends forthrightly to pursue its effort to rehabilitate public finances and to reduce the budget deficit. It is also implementing structural reforms involving, inter alia, reductions in the taxation of earned income and a modernization of the financial system .... Increased Roles for the Fund and the World Bank in the Concerted Debt Strategy . . . This brings me to the debt problem or, more precisely, the problem of the over-indebtedness of a large number of developing countries. In my view, despite a slight improvement in some ratios, the problem remains very serious, especially when it manifests itself in declining or inadequate levels of the physical and human investment on which the future of these countries depends. It is largely because over-indebtedness persists that some groups of developing countries have benefited so little from the acceleration of economic growth in the industrial world. The first conclusion to be drawn from the experience of the past six years is that a differentiated approach is needed. The debt relief measures an- nounced for low-income countries announced at the Toronto summit are an important step in this direction. It is important that the various proposals formulated in this regard be implemented promptly. It would be desirable for other industrial countries also to adopt debt-relief formulas that are consistent with their own domestic constraints. In all cases, structural ad- justment efforts on the part of the countries that are to benefit will be both the prerequisite and the catalyst for the relief measures. My country is participating actively in Paris Club discussions and will take due account of the recommendations made there for easing the external debt burden of the poorest and most heavily indebted countries. The same is true of the Fund's new enhanced structural adjustment facility (ESAF), designed to permit concessional assistance that is more appropri- 44 ate for coping with the structural adjustment problems of low-income coun- tries. Belgium has made a major contribution to the subsidy account to help finance this facility. It is vital that this new Fund effort be strengthened by appropriate multilateral coordination of concessional aid. I am pleased by the major initiatives launched by the World Bank on behalf of Sub-Saharan Africa, to which IDA can henceforth devote half of its resources. Belgium heartily supports the Special Assistance Program, which will help mobilize resources to meet the needs of the low-income Sub-Saharan countries for additional external financial assistance. Belgium is taking part in this program through cofinancing operations. Besides af- fording significant financial support to the countries in the region, this program can provide an opportunity to strengthen the coordination and improve the quality of the aid provided by various donors. The program is an example of what could be called "controlled reciprocity," under which the adjustment efforts of over-indebted countries are accompanied both by debt relief through the Paris Club and by quick-disbursing supplementary resources. The problems of over-indebtedness of the second group of developing countries, namely, the middle-income countries, call for a different ap- proach, based chiefly on market techniques. Debt rescheduling operations continue to be essential, as does the search for financial techniques which allow for reducing the amount of external debt outstanding. However, the provision of new money, the amount of which should be determined on a case-by-case basis, remains a key component in the strategy aimed at guar- anteeing minimum growth and ensuring the productive investment neces- sary for repayment of the external debt. As regards the respective roles which the Fund, the Bank, and the com- mercial banks should play with respect to these countries, I should like to note the following: (a) As regards the role of the Fund, a significant step forward was made by adapting its intervention modalities. I am particularly pleased by the fact that the Fund, at the instigation of its Managing Director, has developed the contingency facility, which is designed more accurately to take into account the impact of exogenous factors on the implementation of adjust- ment programs. Similarly, I am fully in agreement with the initiatives taken with a view to increasing the effectiveness of the Fund's extended facility. (b) The role of the Bank is no less important in these countries, as in most cases the problems of over-indebtedness are associated with the de- velopment policies that have been pursued. Bank lending to these countries would be far more likely to achieve its objectives if it were more systemat- ically to be associated with an overall assessment of the development strat- egies, including structural adjustment measures that are being pursued by these countries within a multiyear framework. Bearing this in mind, I would suggest that the "Policy Framework Paper" approach already being used in 45 the low-income countries could be extended to some of the heavily indebted middle-income countries. This procedure would have two additional advan- tages: first, it would make it possible more accurately to ensure compatibility between the activities and recommendations of the Fund and the Bank; second, it would augment the catalytic role of the two institutions. A more accurately defined long-term framework and greater clarity with regard to the intentions and future policies of the countries concerned would help make their management more coherent and would increase the confidence of external donors. (c) A third key component in the strengthening of the debt strategy vis- a-vis these countries is increased solidarity among creditors, including the comercial banks. In this respect, the new market techniques, in particular those for debt conversion and debt reduction, freely accepted by all parties concerned, have diversified the possibilities for bank intervention. It is of the utmost importance that we manage, under the auspices of the Fund and the Bank, to more accurately assess and more appropriately channel the efforts of the commercial banks so as to ensure that, in the medium term, those debtor countries which have implemented structural adjustment plans for their economies may be guaranteed sufficient financing. In this connec- tion, one may well wonder whether the commercial banks, taking as a model the contingency facility implemented by the Fund, might not incorporate into their own loans, from the outset, repayment arrangements which take into account the impact of exogenous factors which could threaten the adjustment programs of the debtor countries. In this coordinated debt strategy, as in all development-related problems, we must not overlook the key role of the private productive sector. I am pleased to note in this regard not only the indirect support extended to the private sector through World Bank lending, but also the remarkable in- crease in the activities of the International Finance Corporation: the latter increased during FY 1988 by a substantial margin, both quantitatively (38 percent increase in loans approved), and qualitatively (in particular through IFe's efforts to promote the establishment of sound and competitive finan- cial markets in a number of its member countries). I trust that IFe's future efforts to promote resource flows that do not give rise to debt, in particular through equity participations, will be successful. I would also like to announce that on Friday, September 23, the Belgian Government approved Belgium's participation in the Multilateral Investment Guarantee Agency (MIGA). My country wholeheartedly supports MIGA's objectives and trusts that this new institution will have a beneficial impact on direct investment flows to the developing countries. The Fight Against Poverty The fight against poverty continues to pose a major challenge to our international institutions. Indeed, despite increasing Fund and Bank in- 46 volvement in the economic policies of the developing countries, the number of persons living in absolute poverty has continued to rise sharply since the early 1980s. The programs of both the Fund and the Bank have been subject to harsh criticism in many countries, where they appear to have solidified if not aggravated long-standing social distortions. The fact remains, however, that the severe poverty problems brought about by the economic shocks of the past decade can be resolved effectively only within the framework of a broad growth-oriented adjustment strategy. This strategy, however, must be complemented and reinforced by measures designed to take into account the transitory costs of adjustment; the problems of poverty must be met head on, by incorporating the poverty alleviation component into the advice imparted to governments and the very selection of projects. I approve the World Bank's initiatives aimed at addressing hard-core poverty (the core poverty program) and at reaching out to population groups that are not part of regular economic channels and are unable to fulfill their most basic needs. But this program should not make the Bank lose sight of other means, which are already available, of attacking this problem more directly. The first way in which the Bank might intervene directly in this area is to take a more systematic approach to including the "poverty" dimension in the advice it gives to member countries. Although the Bank cannot substitute its judgment for the sovereign policy decisions of member countries, it should not shy away when it comes down to social questions, even if they are delicate ones, such as family policies that have a significant impact on economic development. The second way in which the Bank can directly attack poverty is by continuing to finance social projects, a process which began in the Mc- Namara era. Recently revived interest in such projects represents a needed correction to the Bank's nearly exclusive attention to macro-economic and sectoral policies since the outbreak of the debt crisis and the advent of adjustment lending. In the spirit of the Bank's mission, these social projects ought certainly not be aimed at setting up grant programs or financing consumer spending. They finance selected investments in sectors such as health, education, or urban rehabilitation-investments which have a favorable economic impact and which can be replicated on a larger scale without the Bank's involve- ment. These "flagship" projects, if well designed, are justified more by their demonstration effect-and hence multiplier effect-than by their own in- trinsic profitability. Projects selected on the basis of these criteria will do more to contribute to long-term economic growth than projects which may in and of themselves generate higher profits, but whose scale and degree of sophistication make it difficult to repeat them using the human and financial resources of the country concerned. 47 Conclusion I would like to conclude on a high point. Surely, we have an enormous task ahead of us in the four areas to which I have referred: · we must improve our mechanisms for international economic and mon- etary cooperation; · we must work to achieve greater stability in the international monetary system, which in my view could be centered around an enhanced role for the SDR; · we must, in order to resolve the problem of over indebtedness, do more to arrange for reciprocity between the adjustment efforts of the indebted countries and the financing thereof by all creditors; · and finally we must, now more than ever, place the issue of alleviating poverty at the heart of adjustment and development problems. I am encouraged by the fact that we have sound multilateral institutions, which have demonstrated their ability to adapt and to deal with these four challenges. For its part, my country wishes once again to stress its own support for the Fund and the Bank and its desire to see them play an increasing role in promoting international monetary and financial coopera- tion. BOTSWANA: P. S. MMUSI Governor of the Bank (On behalf of the African Governors) An overview of the world economy reveals important uncertainties in the short-term outlook. Although moderate economic expansion has been es- timated for 1987 and 1988, at about 3.4 percent, world output growth for this period is below the annual average of 4.2 percent attained in the 1970s. The continuation of growth at an estimated annual rate of about 3.0 percent in industrial countries means that the economic environment facing the developing world would remain difficult. Fundamental problems which threaten growth and financial stability persist and are, indeed, worrisome. The large fiscal and financial imbalances, particularly the fiscal deficit of the United States, the ramifications of the continuing large and unsustainable payments imbalances among the major industrial countries on developing countries and the unresolved debt crisis have all become a source of insta- bility and friction. It is discouraging to note that despite strong declarations of commitment to free trade at international fora, protectionism in industrial countries is on the rise, jeopardizing the international trading system and cooperation. For the developing countries in general, the persistent deterioration in the terms of trade and increasing external deficits in the face of serious financing constraints continue to pose obstacles to growth. Available statistics on 48 economic performance in these countries remain grim: growth is generally disappointing; fiscal deficits have remained high; and the average inflation rate is significantly higher than that for the developed countries. Living standards have declined in a large number of these countries, especially those in Africa where incomes are intolerably low, and adjustment fatigue is setting in as more and more countries reach the point where furthur austerity, in the absence of meaningful economic growth, has become po- litically, socially, and economically untenable. We note that although both the Bank and the Fund have, each, recently acknowledged that domestic policy reforms and adjustment have been intensified in many African coun- tries, we continue to face weak export prices, large debt service obligations, lack of adequate external financing and the generally adverse external en- vironment. It is necessary to stress that the removal of exogenously-induced obstacles to growth is a key factor to improving Africa's economic prospects. To this end, financial policies in industrial countries must move in a direction con- ducive to the reduction of internal and external imbalances, and monetary policies must be implemented in a manner flexible enough to preserve the momentum of noninflationary growth and to bring down real interest rates. Furthermore, there must be adequate access to the markets of industrial countries for both goods and capital. In addition, more effective coordina- tion of macroeconomic policy is therefore required among the major indus- trial countries in order to promote greater stability in exchange markets. Experience has made it quite clear that notwithstanding the improved qual- ity of our economic and financial policies, a crucial requirement for strength- ening growth in our continent remains a supportive international environ- ment, including th.e availability of appropriate and timely external finance. In this connection, we strongly urge the Fund through its surveillance role to exercise necessary and sufficient leverage on the major industrial coun- tries' economic and financial policies so as to promote a more propitious world economic environment to facilitate recovery and growth in African countries. Africa's external debt, which is currently estimated at $220.0 billion, has more than doubled since 1980 and is causing us grave concern. The severity of its burden is most evident when the debt service payments are related to exports of goods and services. This ratio more than doubled from 15.2 percent in 1980 to 33.2 percent in 1987, and is now over 50 percent in some of our economies. In this regard, given the generally declining prices of primary commodities which constitute the bulk of Africa's exports, the resultant acute shortage of foreign exchange earnings has rendered the management of the debt problem almost intractable. The impact of the heavy debt burden on African economies has been reflected in the declining growth rates. Through severe curtailment of the continent's import capacity and a cutback in investment and development projects, the debt burden has 49 inflicted enormous hardship that has induced social and political unrest in a number of our countries. As we are well aware, the unique character of Africa's debt crisis has attracted increasing attention from the international community. In 1986, the Special Session of the United Nation's General Assembly adopted the African Priority Programme for Economic Recovery (1986-1990), thus giv- ing it universal endorsement. The Bank and the Fund have each taken new initiatives to increase resource flows to Africa through the Fund's Enhanced Structural Adjustment Facility and the Bank's Special Programme of As- sistance for the debt-distressed low-income Sub-Saharan African countries. We note the Toronto Declaration and its approach to the debt problems of the poorest countries. In this connection we welcome the announcement of the Ministers of the Group of 7 here in Berlin, that the necessary arrange- ments have now been worked out by the Paris Club for the implementation of the Toronto approach as regards the debts of the poorest countries. This appears to be a step in the right direction. While we appreciate these initiatives, there is no doubt that given'the magnitude of the debt crisis in our continent, they are far below our immediate requirements, which calls seriously into question the adequacy of the existing debt strategy. In the search for a broadly acceptable solution, a plethora of proposals has been made. While each of these proposals may have its merits, we urge the Fund and the Bank to support the African Common Position on Africa's External Debt Crisis adopted in December 1987 by the Third Extraordinary Assembly of Heads of State and Government of the Organization of African Unity (OAU). The main elements of the OAU approach call for an improvement in the terms of trade of African primary commodities; the removal of protectionist measures, enhancement of resource flows to Africa through, inter alia. an increase in grants under bilateral assistance, reduction in real interest rates, and extension of the repayment and grace periods of financial and commer- cial loans for all types of new credits. Other elements include linking debt service to a reasonable and bearable percentage of export earnings; suspen- sion of external debt service payments for a period of 10 years starting from 1988; conversion of all past official bilateral loans into grants; payment of part of official bilateral debt in local currency; and a multi-year rescheduling for a minimum period of 5 years with maturities of at least 50 years, includ- ing 10 years of grace and zero rate of interest. We would like to stress, however, that for any debt strategy to be viable and relevant to Africa, the quantum of resources allocated to debt servicing must be so restricted as to assure social stability and ensure a minimum rate of economic growth. Both the Bank and Fund programs should, therefore, take into consideration the need not only to service debt but, more importantly, to secure economic growth. Moreover, in view of the predominance of many African countries' 50 indebtedness to the Bretton Woods institutions, we urge these institutions to consider a more pragmatic debt relief approach consistent with the cur- rent initiatives to alleviate the debt burden of this group of countries. Given the disappointing growth impact of adjustment on most of our economies, much needs to be done to strengthen the design of programs and make them more relevant to the particular needs of individual countries. Although a "case-by-case approach" is allegedly used in the design of programs, it is common knowledge that much of the work is done in Wash- ington and that different country programs show a very close similarity. We strongly believe that national authorities should be allowed to playa more important role in the design and implementation of adjustment programs so as to ensure that due regard is given to the particular circumstances of each country, and that the tendency on the part of international institutions to dictate programs to national authorities is eliminated. Furthermore, in view of the greater realization of the imperative of generating growth under adjustment programs, sufficient weight should be given to productive in- vestments. Obviously not much can be gained from adjustment policies that overemphasize the stabilization of short-term macroeconomic variables without adequate provision for growth. Financial programming and growth exercises should be integrated so that a program design clearly specifies the level of foreign credit flows consistent with GDP growth targets and the level of debt service burden that a country can bear.... . . . While we support genuine cooperation between the Fund and the Bank, it is totally unacceptable that such collaboration should lead to cross- conditionality. The Fund and the Bank have different mandates, different functions, different financial structures and different expertise; and their domains of responsibility should be preserved. Although there are areas of shared concerns to both institutions, our recent experience with the prep- aration of policy framework papers (PFPs), clearly shows that the problem of cross-conditionality has become more real than apparent. There are cases where projects which should normally meet the lending criteria of one institution have been rendered ineligible for funding owing to the require- ment that they should also pass the other institution's criteria. There are also instances of program loans of one institution which have been delayed awaiting compliance with requirements of the other institution and some loans which were subjected to the two sets of conditions simultaneously. It is crucially important to avoid this cross-conditionality if undue complication and delays in negotiations, particularly for use of Fund resources under SAF and ESAF, are to be minimized. As regards the outturn of the FY88 IBRD/IDA operations, we note that the shortfall in the lending program is marginal in terms of projects while in volume terms the targets were largely achieved. In this connection, we believe that the Bank is now positioned to deploy the resources at its dis- 51 posal to achieve the targets it has set for itself in FY89. In this respect, the need to improve the project pipeline is crucial. With the resource-base now in place, we are certain that the Bank will concentrate fully on assisting its clients and that the FY89 results will confirm that this confidence was well justified. We note the creation of the Environmental Department in the World Bank. It is expected that this Department will help in the mobilisation of resources to deal with the environmental problems faced by our countries. In this connection, we would like to underscore the need to combine the strategies and efforts of both the developed and developing countries as regards environmental matters. Meanwhile, it is necessary to draw the at- tention of the international community to the serious danger caused by the dumping of industrial material, including toxic waste, in our countries. We, therefore, urge all countries to act collectively to ensure that this practice is stopped forthwith. We welcome the coming into effect of the General Capital Increase (GCI). This action will enable the Bank to expand its lending operations without disruption. We are, however, concerned that the headroom problem continues to face the Bank and may potentially hamper its lending activities until enough capital subscriptions have taken place. We would like to enjoin those in a position to do so to make their subscription as soon as possible. In these challenging and uncertain times, the boosting of the capital of the Bank by 80 percent is yet another sign that the membership continues to have confidence in the ability of the institution to playa creative and positive role in the development of its client member countries. More importantly, we also see this act as a reaffirmation of the principle of multilateral coop- eration. Mr. Chairman, some aspects of the GCI package need to be attended to urgently. In particular and without pre-empting the results of the work of the Ad Hoc Committee on Voting Power of Smaller Members, we, African Governors, would urge that a permanent solution be found to the problem. We do not wish to see yet another temporary solution. We would like to urge that a long-term, viable solution which does not impose undue burdens on the small member countries be found. Moreover, as agreed in 1984, when the selective capital increase was approved, the voting power of developing countries as a group needs to be restored to that prior to 1979. Another aspect that has also been assigned to an Ad Hoc Committee of Executive Directors is the valuation of Bank's Capital. The headroom prob- lem to which I alluded earlier is another pointer to the inadequacy of the present arrangements. Given the continued volatility of exchange rates and given that this volatility is unlikely to abate without some fundamental reform of the international monetary system, it is obvious that alternative solutions must be found. As of now, the SDR is the most likely instrument to render some modicum of stability to the value of Bank capital. We once 52 again appeal to all members to join in an early consensus on this important issue and implement it as soon as possible. As is well know, IDA is the single most important source of assistance for most countries in Sub-Saharan Africa. We would like to join others in welcoming the coming into effect of the IDA-VIII replenishment. IDA donor countries deserve to be commended for having taken the requisite actions to make this possible. Yet again, this action serves to reaffirm the commitment of the international community to joint and cooperative en- deavors. But, we all know, however, that available financial resources continue to be insufficient to ensure sustained economic recovery and growth in our continent. The challenge ahead is to ensure that the momentum is not lost through inadequate support for the national efforts of our countries. This brings us to the question of recent initiatives that have been launched by the Bank for Sub-Saharan African countries. At last year's annual meet- ings, we welcomed the Bank's management announcement of the Special Program of Assistance for the debt-distressed low-income Sub-Saharan Af- rican countries. We note that there has been further progress on this initi- ative. Once again, we would like to acknowledge with gratitude the positive responses of donors to this initiative. In this connection, we would urge that the pledges be turned into firm commitments as soon as possible. Further- more, without an increase in contributions in response to this initiative, its very worthy purpose is unlikely to be realized. Another important aspect which we wish to emphasize is that the Bank has to ensure that all potentially eligible countries do in fact gain access to these resources. We would also wish to add a word of caution. Coordination by the Bank and donors should ensure that a true partnership and cooper- ation with the countries ensue. The special cofinancing envisaged should not have the appearance of donor prescriptions to recipients. We certainly believe that for most of these countries the debt-crisis is a crippling problem that requires creative and bold solutions. We, therefore, wish to encourage donor countries and creditors, who have not done so, to consider ways of dealing for instance with the intractable problems caused by the inability to grant interest rate relief on rescheduled non-concessional debt under the Paris Club auspices. We, on our part, continue to be prepared and are committed to use the resources effectively in support of our adjustment programs. In regard to the Fund/Bank-supported adjustment programs, we have in the past highlighted the high social costs of these programs. We have urged the Bank and the Fund to be mindful of the effects of these programs on the social fabric of our communities. We are, therefore, pleased to see that the Bank, in cooperation with other donors, has launched the Regional Project Facility whose main purpose is to help governments identify projects and programs aimed at alleviating poverty. 53 Mr. Chairman, it would appear that perhaps too much emphasis is being put on policy-based lending at the expense of project lending. This may prove to be shortsighted. Sub-Saharan Africa remains a region in dire need of investment in both its physical infrastructure' and in the development of its human resources. It is our view, therefore, that the Bank can ignore the investment on these sectors only at the cost of hampering long-term devel- opment in these countries. This is clearly not acceptable. What is required is a better balance between adjustment lending and regular project invest- ment. We urge the management of the Bank to seek to preserve this bal- ance. We would, in this respect, like to call upon the Bank to increase its lending for agriculture and rural development. There is some diversity of economic circumstances in Sub-Saharan Africa. There are also heavily-indebted middle-income countries which need the Bank's assistance. We trust the Bank will be coming forward with opera- tional plans from the menu of options already tabled, which will alleviate the difficulties facing these countries. In this connection. we welcome the modification of repayment terms that have been instituted. This action. modest as it is, should be encouraged in the hope that it will, in turn, encourage other financiers to come forward with even better schemes. With regard to IFC, we have noted with satisfaction the promising start of the Africa Project Development Facility which, in conjunction with the Africa Management Services Corporation and IFe's Program of Assistance to Small- and Medium-Size Enterprises in Sub-Saharan Africa, will serve to strengthen private sector activity. In the medium-term, the IFC will need to foster creative schemes and projects in order to overcome the difficulties inherent in its task. We note in this respect that the role of equity financing as well as guarantees in its operations has been more clearly defined. These instruments are potentially attractive for investments in Sub-Saharan Africa. We note that MIGA has now become fully operational. The speed with which this has been done soon after the agreement was ratified augurs well for the future. We wish to congratulate Mr. Barber Con able on his election as President and Mr. Yoshio Terasawa on his appointment as Executive Vice- President. We wish them and the management team every success. We are confident that they will live up to the challenge of making MIGA an effective institution within its mandate. Like other private sector initiatives. its po- tential can be fully attained if it acts equitably in the interest of all parties. MIGA's activities will certainly expand as it achieves positive results. In conclusion, we would like to stress that the economic difficulties afflict- ing Africa remain serious. despite the modest growth recorded in the global economy. In particular. the exogenously-induced obstacles to our growth and the disappointingly low level of external financing have seriously under- mined our efforts. While we appreciate the new initiatives recently taken by the Bank. the Fund and in other fora to increase resource flows to Africa. we urge the international community to give an adequate response and 54 provide substantial support in the search for solutions to our economic difficulties. CANADA: MICHAEL H. WILSON Governor of the Fund and Bank It is a pleasure to be in West Berlin and to accept the gracious hospitality of the Government of the Federal Republic of Germany and of the city of Berlin. The practice of holding one Annual Meeting in three away from the headquarters of the Fund and the Bank is a good one because it gives us all a chance to look at the world from a different perspective, and I must say that the vibrancy of West Berlin delivers a strong message to all who care to look. These three-yearly meetings away from home also serve as milestones, for they invite us to look back, in time and distance, on what we have accomplished and what we have not, on the challenges we have met and, perhaps more to the point, on the challenges we now have to face. For challenges there are, and in many ways there will be, tougher nuts to crack than we are likely to imagine. Some of them are familiar: the dilemma of international debt, for example, and the gap between rich nations and poor. In addition, there is the challenge of the eroding environment, and it is a challenge of dimensions so great that we are still learning the extent of the damage it can do to us. Six years ago, the Annual Meetings were held in my own country, in Toronto. It was a different kind of world in 1982. The industrial economies were in the deepest recession since the 1930s. Interest rates, inflation rates, and unemployment levels were all into double digits. To take my own coun- try as an example, consumer price increases in Canada had risen as high as 12.5 percent, the prime lending rate reached nearly 23 percent, and unem- ployment was on its way to 12 percent. Then, just as the Toronto meetings began, came the onset of the debt crisis. Few who attended the Toronto meetings realized how difficult the debt problem was or recognized that it would persist as a major issue for every subsequent meeting of the Boards of Governors. In the past few years, we have come into a better kind of world. In the industrial countries we have experienced a period of exceptional growth. We have broken out of stagflation and created real and sustained gains in production and employment. I believe that one of the significant differences between then and now, a change that has helped to light the way from recession to expansion, is a growing understanding of the nature and extent of the world's economic interdependence. With understanding has come a willingness to act, to explore new avenues of economic cooperation, and to build a new frame- work for the coordination of economic policies. And we are doing so. All 55 of us are making good use of the range of international forums concerned with management of the world economy-in these meetings of the Fund and Bank, in the OECD and the GAIT, and in the Group of Seven indus- trial nations. It would be misleading to suggest that our successes are easily won. We have not yet resolved the large budget deficits and trade imbalances that still pose a threat to sustained, noninflationary world economic growth. Yet we have made headway. The Group of Seven countries have been undertak- ing policy changes to bring down the imbalances in a manner consistent with stability in currency exchange rates. Their capacity to coordinate policies more closely was evident in the aftermath of the financial market crisis of last October, when calm was restored with injections of liquidity. This was followed by strengthened policy commitments at the end of the year. This year we are seeing the results of strengthened coordination as trade imbalances decline further and faster than expected. And we will do more to ensure that this adjustment continues. A second illustration of cooperative achievement is that we have coped with the international debt problem. I do not suggest that we have con- quered it, or that we have done enough to ensure adequate growth in developing countries, but we have managed to weather the crisis so far, and in ways that point to what more can be done. As the 1980s draw to a close, we can legitimately say that the world community is a little wiser and through its growing awareness of the extent of its interdependence is experiencing the benefits of closer economic co- operation. We are improving the institutional framework for achieving it. We are better prepared to deal with new concerns and new challenges. One of these challenges is to sustain global economic growth. The World Economic Outlook just published by the International Monetary Fund paints a fairly optimistic picture, with real GDP in the major industrial countries projected to grow at an average rate of about 4 percent this year and 2.8 percent in 1989. At the same time, however, we face two risks. One is that some economies are now growing so strongly that they are in danger of overheating, and inflationary pressure is emerging in a number of them. It would be foolish to forget the lesson of the 1970s and early 1980s, when an accommodating attitude toward inflation led to more and more inflation. We had to swallow some very bitter medicine-in the form of high interest rates and a deep recession-to bring inflation under control. If we are to avoid repeating this painful history, we must act now in order to prevent inflationary expectations from becoming firmly entrenched. Cen- tral banks must be in the front line in the battle against inflation, but they cannot carry the fight against inflation alone. Fiscal authorities also must 56 act responsibly by strengthening their balance sheets. particularly in coun- tries where growth is the strongest and external deficits are large. We have seen a welcome reduction in the imbalances in current accounts, imbalances in which some nations have massive surpluses while others are deep in the red. But herein lies the second risk-the risk that excessive demand growth in some economies and an absence of needed domestic stimulus in others could slow the reduction of the imbalances. The experi- ence of interdependence and effective coordination teaches us that the bur- den of adjustment can be lessened when market forces are complemented by appropriate policy actions. These risks can be reduced if the major countries continue to pursue compatible economic policies. These include trade policies which open their economies to the changes that are taking place in our rapidly shrinking world. To take one current example, the midterm review of the current GATT Round of Multilateral Trade Negotiations will be held in Montreal in December. It is vital that this meeting achieve discernible progress. Another necessary thrust is stronger international policy coordination in the area of structural reforms. Through medium-term structural adjust- ment, governments can make their economies more flexible, improve their capacity to respond to change, and thereby achieve sustainable growth. This involves improving incentives to work, invest, and save; removing regula- tions which no longer serve their original purpose; increasing exposure to market competition; and enhancing human resource development. Because structural reform is so important, the heads of government at- tending the economic summit held in Toronto in June agreed that efforts in this area should be reviewed and encouraged on an ongoing basis. Progress is being made in a number of areas such as tax policy, regulatory reform, and financial institut·ion reform. In Canada we have made significant gains in structural reform. During the four years that the current Government has been in office, we have abolished market-distorting regulations in key sectors such as energy, trans- portation, and financial services. We have privatized Crown Corporations in such diverse fields as telecommunications, mining, and aircraft manufac- turing. Most important, we have negotiated a free trade agreement with the United States. This bilateral agreement gives us a historic opening to build a stronger, more efficient economy. As the OECD pointed out recently, "Canada is expected to derive large economic benefits" from the agreement, including "lower consumer prices, expanded market opportunities and greater efficiency from the realisation of economies of scale." The free trade agreement with the United States also serves as a model for further liber- alization in the multilateral trade negotiations and was given strong public support by the summit leaders in Toronto. 57 The Canadian Government has been no less active in other areas. We have brought a runaway fiscal deficit under control-by cutting it virtually in half as a percent of GDP over the past four years. We have done this while implementing a tax reform which is restoring fairness to the personal and corporate income tax systems through the elimination of distortions built in over the years. We have preserved and strengthened social pro- grams. We have worked effectively to reduce regional disparities, and we have provided job retraining and other measures to help our people take advantage of new economic opportunities. I believe it is no coincidence that solid achievements in economic policy have been accompanied by an enviable record in economic performance. Over the past four years, Canada has enjoyed the fastest growth of any Group of Seven country, achieving an average annual rate of GDP growth of 4.5 percent. Since 1984, 1.5 million new jobs have been created in a labor force that now totals 13.4 million people. While the international community has succeeded in managing the debt crisis over the past six years, the dual challenges of debt and development continue to demand ingenuity and flexibility. It is apparent, for example, that debtor and creditor countries must work together toward a resumption of private flows, including direct investment. Resources from the interna- tional financial institutions and bilateral aid agencies can facilitate but not replace such private flows. Yet a return to voluntary lending in capital markets for many countries is still some distance in the future. An effective and evolving debt-manage- ment strategy continues to be essential. Its centerpiece must continue to be strong and comprehensive adjustment measures by debtor countries. Yet there is also a growing perception between both debtors and creditors, and within the international financial institutions, that new momentum needs to be given to the debt strategy. A number of innovative financing techniques have been suggested as additions to the debt strategy. In assessing these proposals, I believe we must be guided by three im- portant principles: First, such proposals must be based upon and be consistent with sound macroeconomic and structural adjustment policies to increase the credit- worthiness of the debtor. Second, they should not serve to transfer private sector risk to creditor governments. Third, they must not impair the capacity of the Fund and the World Bank to carry out their important work. The situation of the poorest, most heavily indebted countries, particularly those in Sub-Saharan Africa, is a distinct problem requiring special atten- tion. It is clear that additional concessional flows, plus some debt forgive- ness, will be required. Canada has led the way in this direction by forgiving our Official Development Assistance loans to the poorest countries in sub- 58 Saharan Africa. The Toronto economic summit also dealt with the issue. It recognized the need to remove the burden of ODA loans and achieved consensus on developing a framework of comparability for rescheduling official debt with concessional interest rates, partial write-offs, longer ma- turities, or some combination of these options. I am particularly pleased that the framework for implementing the consensus has now been imple- mented and that it will shortly become operational. It is widely agreed that the reduction of poverty must be central to our economic development efforts. But it is not enough just to be against pov- erty. We need to focus on practical measures to address the problem. In this context, let me stress the importance of investment in human resources to complement needed investment in physical capital. Investments in people-in their health, nutrition, education, training, and literacy- provide opportunities to realize substantial development gains. Unfortu- nately, there has been a sharp decrease in many developing countries in the proportion of government expenditures allocated to education and health. The Fund and the Bank should promote, both in their policy dialogue and in the World Bank's lending program, cost-effective investments in human resources in order to alleviate poverty and maximize future growth pros- pects. Closely linked to the challenge of poverty reduction is the challenge of protecting our environment, since widespread poverty is one of the main pressures leading to environmental damage. As Prime Minister Mulroney recently emphasized: "The world is coming to recognize that economic development and environmental protection are mutually reinforcing, not mutually exclusive." Few issues emphasize so clearly the interdependence of developed and developing countries, or offer such possibilities for lead- ership by our institutions. In Canada, with our prosperity and quality of life so intimately connected with the quality of our environment, we are taking a number of steps to protect the environment. These include large-scale reductions in acid rain by 1994; the virtual elimination of lead emissions by 1990; the creation of four new national parks in the last four years; and commitments to clean up the Great Lakes and the St. Lawrence Seaway, in part on a joint basis with the United States. Some other countries have also taken significant steps, but much remains to be done. Such problems as acid rain and protection of the ozone layer clearly demonstrate that environmental hazards know no political bounda- ries. As we stressed at the Toronto summit, they can only be solved through cooperative international action. Canada has already demonstrated that it is prepared to take a leading role in developing international cooperation. We were pleased to sponsor the international conference in Montreal that resulted in a formal convention to protect the ozone layer. We also acted as hosts, in Toronto immediately 59 following the summit in June, for the international conference on the chang- ing atmosphere. We must now make progress on the issue of environment and develop- ment. Canada is committed to the principles set out in the report of the United Nations' World Commission on Environment and Development headed by Prime Minister Brundtland of Norway. This is by no means a new concern on our part. As the Canadian National Task Force on Envi- ronment and Economy pointed out last year, sustainable development means that the use of resources and environment today must not damage prospects for their use by future generations. The Canadian International Development Agency undertakes environ- mental assessments of all the projects it funds. For some time now, we have been urging that all environmentally sensitive World Bank projects should include clear assessments of their environmental impacts. Mr. Conable, we are pleased to note, has stressed the connection between poverty and en- vironmental degradation, and the Bank has made clear its intention to promote conservation strategies in its borrowing member countries. As one step in that direction, I am putting forward at these meetings a four-point plan of Canadian proposals on development and the environ- ment. First, I am proposing that the World Bank should make more information available about the environmental impacts of its activities. The Bank should take a leadership role by undertaking two commitments: it should prepare and publish an annual report on the environmental impact of its operations, and this annual report should be supplemented by periodic publication of the environmental assessments for approved loans. Second, I am proposing that the Bank draw more heavily on outside expertise from nongovernmental organizations to assess the environmental impact of its lending and that it keep these groups more fully informed of its ongoing operations. There is a growing concern that the destruction of tropical rain forests will lead to climatic changes with serious global consequences. We need to strengthen the Bank's efforts to ensure that its lending takes this very real concern into account. I therefore am making a third proposal: that the World Bank, in consultation with the countries concerned and other inter- ested parties, develop criteria for its lending that affects these vital re- sources. These criteria would be publicly announced and implemented by the time of our spring meetings in Washington. Many Canadians have a deep interest in this matter and have contributed generously to private organizations seeking to conserve the rain forests. I am sure that they will be carefully monitoring the Bank's progress in this respect. I have also requested that the Bank develop similar guidelines dealing with such other sensitive areas as water resources and implement them at the same time. 60 Fourth and finally, I am proposing that the Bank examine innovative ways to finance conservation in the developing world. Destruction of the forests and desperate conditions of urban congestion in the Third World are the consequences of poor people seeking the means to survive. Without improved development opportunities, we cannot expect them to do other than search for such fuel, shelter, and livelihood as they can. We must help them to protect their precious natural resources. There is a perception in some less developed countries that environmental protection is a cause of the rich whose burden falls most heavily on the poor. This, I believe, is a misconception. Environmentally sound develop- ment is no contradiction in terms. Indeed, in the long run it may be the only sure foundation of better lives for everyone in the world. We at these meetings in Berlin face a great many challenges, challenges that will directly affect the well-being of the people in the countries we represent. We have come a long way since the Toronto meetings six years ago, but we still have a long way to go. If we confront these challenges directly-the challenges of imbalances, of the international debt burden, of poverty, and of the environment-I am confident that when we meet next year in Washington we will be able to take heart from what we have achieved: a year of solid growth in the industrial economies and a year of progress in securing financing for sound and sustainable growth in the de- veloping countries. CHINA: WANG BINGQIAN Governor of the Bank We are delighted to have come to Berlin (West) and to attend with our colleagues and friends the 1988 Annual Meetings of the Fund and the World Bank. Please allow me, in the name of the Chinese delegation, to express our wholehearted appreciation to our hosts for their very warm hospitality and excellent arrangements. I would also like to sincerely congratulate Min- ister Feldt and Governor Dennis on their election as Chairmen of this assembly. The world economy continues to experience growth imbalances compared with the past year. The developed countries have maintained growth mo- mentum. But the improved economic performance has been largely confined to the industrial countries; many developing countries have not benefited appreciably. The factors destabilizing the world economy and impeding the growth of the developing countries are still very much with us. Although the trade imbalances among the major developed countries have been cor- rected to some extent, we note that the resurgence of inflation and creeping interest rates have cast a shadow over the prospects for the world economy. Most developing countries have achieved only anemic economic growth, with per capita income in Sub-Saharan African countries still declining. We 61 see a continued drop in resource transfers of all types to the developing countries or even negative transfers for successive years to the developed countries. While the world prices of primary products have gone up some- what, trade protectionism is running rampant. All these facts indicate that there has been no substantial improvement in the overall international eco- nomic environment of the developing countries. Without the cooperation of the international community and without timely actions by the developed countries in particular, the prospects for the world economy admit no opti- mism. We are of the view that while developed countries, particularly the major ones, should strengthen policy coordination among themselves, accelerate structural adjustment, and correct trade imbalances, they should also en- hance their consultation and cooperation with the developing countries. This could conduce developed countries to consider the needs of the devel- oping countries while formulating their economic policies, whereby creating a more favorable international economic environment for the developing countries. At the same time, this would also help to lay a solid foundation for the further development of the developed countries' own economies. What should be mentioned here is that developed countries must resist and reduce trade protectionism and further open up their markets to the devel- oping countries. Another outstanding issue confronting the present world economy is the debt problem. The heavy debt burden poses an obstacle to the growth of the developing countries and threatens the stable development of the world economy. The past six years have witnessed a situation where, in an attempt to meet their external debt obligations, developing countries have vigorously pursued comprehensive adjustments and have paid a high price. However, their total debt stock today is still increasing, and their debt burden remains heavy. The situation in Sub-Saharan Africa is particularly serious. This harsh reality demands that the international community explore innovative approaches to ease the debt problem. The Chinese Government has always maintained that, in seeking solutions to the debt problem, emphasis should be placed on how to revive growth in the debtor countries and strengthen their debt-servicing capacity, rather than on how to get back principal and interest. We believe that the existing debt strategy ought to be adjusted and supplemented, with a view to in- creasing financing, reducing the debt burden, and facilitating adjustment. It is our hope that, in the common interest, creditor and debtor countries, commercial banks, and international financial institutions will hold earnest dialogues in the spirit of shared responsibility to explore various approaches that are practical, feasible, mutually acceptable, and capable of reducing the debt stock and alleviating the debt burden. In this connection, some developed countries should be commended for their commitment to debt relief for the poorer countries. We are pleased to note that some countries 62 -_..... __._------------ have already taken action, and hope that other developed countries will also translate their commitment into practice as soon as possible. In the 1980s, the Fund and the Bank have made substantial efforts to promote the steady development of the world economy, to help developing countries overcome debt problems, and to assist member countries combat poverty. We appreciate those efforts. We are glad to note the successful conclusion of the Bank's general capital increase, which will enable the Bank to expand its lending programs to the developing countries in the years to come. We are also encouraged by the fact that the Bank's Special Program of Assistance for Africa and the Fund's enhanced structural ad- justment facility have been put in operation. These measures, in our opin- ion, will play an active role in promoting the economic development of the poor countries. We hope that negotiations on the Ninth Replenishment of the International Development Association will commence in a timely man- ner and will achieve progress consistent with the adjustment and develop- ment needs of the low-income countries .... . . . President Con able has listed poverty reduction as one of the two fundamental tasks of the World Bank and will accord it priority in the Bank's operations. We appreciate and support his actions. In recent years, the population living in poverty in the developing countries has kept rising, something that the international community should be concerned about. The poverty problem and the related problem of food security in Africa are, in the final analysis, one of sustaining economic development. It is also an arduous and expensive long-term task. While the countries concerned should make efforts of their own, the international community has a re- sponsibility to provide financial and technical assistance and other help. Mr. Conable's call for additional resources has our support. In designing and implementing related projects, the World Bank should take into full consideration the individual circumstances of the recipient countries and, by fully relying upon the governments and the peoples of those countries, enhance the relevance, applicability, as well as effectiveness of its project operations. We often say that today's world is faced with two major issues: peace and development. The factors leading to peace are on the increase, but devel- opment momentum is weak. Specifically, the developing countries are in formidable economic difficulties, experiencing a serious shortage of funds and a high incidence of poverty. Such a situation mandates that the Fund and the Bank playa greater and more effective role. I am sure that the Fund and the Bank will not let their member countries down. This is the tenth year since China adopted its fundamental state policy of reform and opening to the outside world. During the past decade, the reforms of the economic and political structures have led to the emancipa- tion of the people's mind and to the fast growth of social productivity. A society that had shut itself off from the outside world for a long time is being 63 changed quickly into one that is open to the outside on all fronts. The past decade has witnessed the most rapid growth in our national economic strength and the largest improvement in the living standards of our people. Except in a very few areas, the supply of enough food and clothing to the population is assured. It is through this reform and open policy that the people have obtained material benefits. It is also on this reform and open policy that they pin their future. Of course, there are some difficulties and problems on our road forward, which will have to be studied and resolved. We are confident that through our resolute and prudent efforts, the inten- sified reforms of the Chinese economic and political structures are bound to succeed. In the present era, countries are increasingly interdependent in their economic development. The strengthening of international cooperation is therefore particularly important. As multilateral financial and deVelopment institutions, the Fund and the World Bank are expected to playa greater and better role in promoting such cooperation. In conclusion, I would like to reiterate that China, together with other member countries, will make its due contribution to world peace and development. COLOMBIA: LUIS FERNANDO ALARCON-MANTILLA Governor of the Bank and Temporary Alternate Governor of the Fund (on behalf of the Latin American Governors of the Fund) It is my privilege to address this Meeting of Governors of the member countries of the International Monetary Fund by decision of the Governors for Argentina, Bolivia, Brazil, Chile, Costa Rica, the Dominican Republic, Ecuador, EI Salvador, Guatemala, Guyana, Haiti, Honduras, Mexico, Nic- aragua, Panama, Paraguay, Peru, Spain, Suriname, Trinidad and Tobago, Uruguay, Venezuela, and my own country, Colombia. Recent Economic Developments During the last six years, following the recession of 1980-82, the econ- omies of the industrial countries have experienced rapid growth, while in almost all the countries of Latin America and the Caribbean per capita gross domestic product was lower in 1987 than 1980. In some countries of the region, national product in real terms has declined, per capita income has fallen, and social conditions have deteriorated. Moreover, the strength- ened balance of payments current account situation of some high-debt econ- omies has been achieved at the cost of reductions in consumption and investment. Although gross domestic investment has recovered in some countries, in general it is still more than 25 percent below its 1980 level in real terms; in the case of the heavily indebted countries it has fallen from around 25 64 --_._---------_._--- ._--_._--------- ._------ percent of gross domestic product in 1980-81 to 17 percent in 1985-87. The decline in investment is due mainly to the negative transfer of financial resources that began in 1982, when total private and official capital inflow fell short of total amortization, interest, and profit remittance payments; these transfers are equivalent to no less than one third of the region's savings. These facts add up to a serious depression, which has led the 1980s to be described as a "lost decade" for the development of Latin America and the Caribbean. For the group of 'countries classified by the World Bank as heavily in~ debted, the debt/product ratio rose from 37 percent in 1981 to 61 percent in 1986. In contrast, in 1987 the outstanding external debt balance of Latin America and the Caribbean rose by $13,800 million, to a total of $408,000 million, an increase of only 3.5 percent. It is evident from this that the rate of growth is slowing, in spite of the changes in the parities of the major reserve currencies. Nor will 1988 be a good year. Growth of domestic product is estimated at about 0.6 percent, with a sharp fall in per capita income. Some improve- ment is evident in terms of trade, chiefly for the countries that export farming and mining products, but the oil exporting countries will lose fur- ther ground. The balance of payments current account situation will be slightly better than last year; however, the net outflow of resources from the region, estimated at over 4 percent of product, will continue to cause con- cern. Handling of the Debt Topic During most of the decade the region's economic development has been limited by the debt problem and the inadequacy of the measures taken to deal with it. The strategy envisaged a few years ago to resolve the debt problem has turned out to have serious limitations. Although it is evident that in some cases the adjustment measures the countries had to take were inadequate, it is clear that of the three known components this is the one in which most progress has been made-and this despite the unsatisfactory trend in the external sector as regards terms of trade, protectionism, and foreign cur- rency financing on suitable terms. Reiteration of the adjustment efforts is increasingly straining the people's capacity to bear their consequences, and the programs are floundering in an intolerable vicious circle. There is therefore an urgent need to accept that the debt topic calls for a cooperation agreement among the countries involved that recognizes the harmful efforts of heavy debt service obligations on the international econ- omy and finances and, accordingly, provides for realistic and resolute sup- port on the part of the governments of the industrial countries, the multi- lateral agencies, and the private banks, each in its own sphere. 65 In addition, if the macroeconomic adjustment programs and structural changes in the debtor countries are to contribute effectively to a solution of the debt problem, it is essential that our economies be able to export their products and benefit from income growth in the industrial countries. Unfortunately, increased trade activity has not been accompanied by re- duced protectionism; on the contrary, restrictive practices have been inten- sified. Trade policies are certainly not helping to correct the imbalances among the industrial countries and between these and the developing coun- tries. Restrictive agreements and measures have been stepped up even in sectors that in times past were subject to quantity controls, as is happening in agriculture, textiles, and clothing. Another factor that is hampering solution of the debt problem is the recent rise in prices in some of the industrial economies. Higher inflation reduces the level of imports that can be financed out of expanded export earnings, and higher interest rates swell the debt service burden. At the same time, a reduction in imports diminishes the GOP growth potential of the debtor countries, while high interest rates raise the volume of net transfer of re- sources to the creditor countries. External Financing Flows: The Example of Colombia The availability of financing is obviously an essential element of debt strategy. The amount and terms of such financing will be such as to enable the countries of Latin America and the Caribbean to reverse the flow of external resources, and this in turn will facilitate the growth of their econ- omies and consolidation of their social and political stability. On this point I should like to refer to the case of Colombia, which I believe adequately illustrates what is happening in the market. Following a process of resolute macroeconomic reordering, Colombia has regained its rate of growth, with average annual growth of 5 percent during the last three years. The necessary policies have been adopted to introduce structural changes into the tax system, trade, and the financial sector. The fiscal deficit has been reduced below 3.0 percent of GOP, inflation has fluctuated, in accordance with Colombian patterns, around 20 percent, un- employment has been reduced by 4 percent in two years, and the country's international reserves are currently sufficient to cover six months' imports of goods and services. Economic management is thus contributing decisively to enhanced efficiency in resource allocation. At the same time, Colombia has been unfailingly honoring its debt service obligations, with respect to both principal and interest, while its debt level indicators have improved substantially. Our economy requires commercial bank loans for the next few years in amounts equivalent to our capital amortization payments; the Government is currently negotiating a credit operation for an amount slightly below that 66 sum. In view of its particularly good performance toward its creditors and excellent macroeconomic policy management, Colombia ought to be able to conclude this operation without difficulty; otherwise, we would face a sud- den negative transfer of resources, which is unacceptable in view of our requirements. Despite some difficulties, Colombia is confident that, as a country that is known for its capacity to pay and its desire to be a good debtor, the private banks will respond favorably and promptly to its request. We believe that the good economic management achieved during the last few years and the firm line taken to preserve Colombia's good reputation on the international financial markets cannot be set aside because of arguments, unrelated to Colombia, that would seriously question the capacity of the system to as- sume its responsibilities in relation to the existing resource requirements. At recent meetings of the Fund and the Bank, and in other forums, the Latin American countries have repeatedly pointed out that the debt crisis continues to go unresolved in spite of the efforts made to correct the existing disequilibria. The case of Colombia-should the operation now being ne- gotiated not meet with success--could highlight even more clearly the lim- itations of the financial system with respect to implementation of the debt strategy and the impossibility of returning to market mechanisms even with a solid history of good macroeconomic performance. The Function of the Official Credit Institutions Emphasis needs to be laid on the positive aspect of the changes in Inter- national Monetary Fund and World Bank policies to provide an increased flow of financing on terms more in line with the duration of the adjustment programs and to ensure that these in turn serve as catalysts for funds from other sources. We recognize the contribution that the structural adjustment lending programs and compensatory and contingency financing facilities can make. It is nevertheless a matter for concern that utilization of Fund resources in relation to access limits has fallen from 60 percent in 1980 to 43 percent, and that both the International Monetary Fund and the World Bank are lending lower amounts of resources than they are receiving from amortiza- tion of existing loans and thereby swelling the net transfer of financial resources from Latin America and the Caribbean to the rest of the world. The Fund's enlarged access policy must continue at least until total Fund quotas increase until they bear a suitable relationship to the volume of world economic activity. The Governors of the countries that I represent reiterate that it is nec- essary that Fund quotas be at least doubled to enable it to perform the functions incumbent upon it in relation to orderly functioning of the inter- national monetary system and adequate financing of adjustment programs adopted by growth-oriented member countries. 67 We urge the few countries that are still opposed to regular allocations of SDRs to reconsider their position. Regular allocations would facilitate the adjustment-with-growth programs of the developing countries and improve the functioning and stability of the international monetary system. Until now, we have clearly been in a dilemma in our efforts to resolve the serious debt problems. The heavily indebted countries are advised to reform their economic policies in order to make growth more viable; in general, the necessary adjustments have been undertaken. In addition, creditors have offered to increase financing in order to facilitate a solution, but the result has been the contrary: a net reduction in available external funds, with the resulting prolongation and aggravation of the crisis. The mechanisms designed so far have not fully achieved their aim of mitigating the debt burden. This Berlin (West) meeting should open up new avenues and outlets from this dilemma, including of course the case of the medium-income debtor countries. There has been a lot of talk of debt forgiveness and partial remission and reduction or capitalization of interest; schemes have been outlined, such as that put forward by Japan calling for active participation by the industrial country governments and international agencies. In addition, it is being stressed that the private banks have in- creased their capital and provisions in order to strengthen their financial apacity to handle the consequences of the debt. All these considerations are indicative of a commitment on the part of official authorities and of the multilateral institutions to resolve the problem of the serious limitation of resources faced by the debtor countries. It is urgent that this objective be turned into reality very quickly. This will call for a political commitment by all the parties involved in order to resolve this already intolerable situation once and for all and to restore to our countries their capacity for growth and thereby avoid the indisputable social and political risks latent in the countries that face the serious dilemma of the debt problem. FIJI: J.N. KAMIKAMICA Governor of the Bank I take this opportunity of thanking the people and Government of the Federal Republic of Germany and our hosts of Berlin (West) for the warm hospitality extended to us and for the efficient organization of this meeting of the International Monetary Fund and the World Bank Group. I also take this opportunity of congratulating Managing Director Camdessus and Pres- ident Conable and their respective staffs for another successful year of operations and their vision for the future directions of the Fund and the Bank. The statements by fellow Governors and by Mr. Camdessus and Mr. Conable indicate that there is consensus on what we must do to achieve 68 .. - .. __._._----------- sustained growth of the world economy with equity, to reduce poverty, and to conserve the environment for present and future generations. Over the past year considerable progress has also been made toward recognition that cooperation at the bilateral and multilateral levels will produce mutually beneficial results. That spirit of cooperation, I believe, underlies the significant contributions by the Fund and the Bank. I note with appreciation that the coordination of economic policies by the major industrial countries has ensured reasonable exchange rate stability. There has also been a continuation of growth performance among those countries, and that has been a prevalent feature in the last six years. Inter- national trade is also expected to grow. But for some developing countries the growth performance has not been satisfactory. In some of those countries per capita incomes have continued to fall again last year. Apart from the objective of growth with equity, the debt problem is escalating. The solution to this problem, in particular in some developing countries, must be urgently addressed case by case, as the debt burdens in those countries have provided so much of a constraint on their economic growth that the government allocation of resources toward the needy is not possible. The role of the Fund and the Bank in ensuring continued economic growth among member countries is of relevance today, as it was when those institutions were created. I consider that the ratification of the general capital increase for the Bank by most countries, as well as by the United States most recently, testifies that there is recognition of the key role in improving the standard of living in developing countries. I thank President Con able for the incisive analysis of the problems faced by developing countries and the emphasis he placed on various areas that will provide growth with equity in developing countries. We in Fiji have benefited greatly from the sympathetic and professional assistance provided by the Bank. Following the political developments in 1987, Fiji is currently undergoing a period of economic and social readjustment. Production of sugar, our main agricultural export. fell from a record 502,000 tons in 1986 to 401,000 tons in 1987. Tourism, our other major foreign revenue earner, likewise, suffered a severe downturn. The overall level of investment declined signif- icantly as business confidence deteriorated. Our foreign reserves came un- der extreme pressure in mid-1987 and, overall, the Fiji economy declined by 7.8 percent in real terms. This compares with a growth of 8.8 percent in 1986. Faced with the severe and rapid downturn in our economy, the Fiji au- thorities did not hesitate to have the necessary adjustment measures put in place. Wages and salaries in most sectors, including government, were re- 69 duced; the Fiji dollar was devalued by a total of 33 percent in 1987; and monetary and exchange control policies were tightened. Furthermore, the diversification of the economic base through the establishment of policies designed to promote manufacturing for export and the promotion of other export industries, such as gold, fish and fish products, and timber, and further diversification of the agricultural sector are intended to strengthen Fiji's trading position in the medium term. Through these measures, combined with the hard work and support of the people, I am happy to report that the slide in Fiji's economy has since leveled off. Both the sugar and tourism industries are back on track and improvements are anticipated this year, over 1987, and Fiji's external re- serves have now recovered to a position where it can finance six months of imports. During the period of adjustment, Fiji has placed great reliance on assis- tance of the various multilateral organizations, including that of the Fund and the Bank. The financial and technical assistance that these organiza- tions continue to render to Fiji have been received with our sincere appre- ciation. A World Bank economic mission to Fiji in July of this year identified areas of the economy that needed to be addressed after consultations with our authorities. We look forward to the final report of this mission and will endeavor to actively pursue the recommendations arising from the report. As we look into the future, there is no dobut that international coopera- tion provides the only way toward improvement of the world economy, stability, and peace .... . . . The future of the world economy is dependent upon economic and other social measures adopted by varioiIs countries. To be effective, political will must be present in no uncertain terms to ensure effective implementa- tion. While there has been significant commitment toward sustained eco- nomic growth among the industrial countries, it has also become abundantly clear that policy coordination is an important instrument in this process. To complement the efforts made by the industrial countries, there must also be strong commitment among developing countries to those relevant policies adopted by them to contribute toward growth and equity, the fight against poverty, and environmental conservation. The multilateral institu- tions like the Fund and the Bank must be supported to enable them to play the roles they were established to perform in this process through the pro- vision of professional and financial resources. In conclusion, I would like to wish the Fund and the Bank another suc- cessful year. 70 FINLAND: ERKKI LIIKANEN Governor of the Bank (On behalf of the Bank Nordic Countries Looking back to our meetings in Washington a year ago, it might seem as if little progress has been made since then. Although substantial growth has continued in several industrial countries, most of the concerns regarding the economic situation expressed at that time are the same today. In the developing countries growth has remained unsatisfactory. Protectionism has not abated. Resource flows to the developing countries continue to fall in real terms and so does official development assistance. The burden of debt remains as heavy as before. At the same time, nevertheless, many of the intentions stated at last year's meetings have moved toward realization, and measures announced have been implemented. The Bank's general capital increase has been approved. An increased IDA has become effective and so has the enhanced structural adjustment facility of the Fund. The Bank's lending in support of economic reform programs and sound investment projects has expanded. The Special Program of Assistance has advanced. The convention creating the Multilat- eral Investment Guarantee Agency has come into force. In many heavily indebted countries, adjustment programs have proceeded. Important debt rescheduling agreements have been made or are under way. Some results have been achieved in debt conversion. Also, and important, the stage has been set for improved debt relief for the highly indebted countries in Sub- Saharan Africa. It can be added that there are signs, especially during this year, of some economic improvement in developing countries. Commodity prices have risen in aggregate and terms of trade somewhat improved. Growth is in- creasing and external positions are strengthening in several countries car- rying out adjustment programs. During the last year debt service has de- clined in relation to exports for the first time in recent years. These signs are, however, still weak. Improvements are uneven and their stability un- certain. More important, in many heavily indebted countries economic con- ditions have continued to worsen. We are now approaching the end of a decade when for many countries the results of previous progress have been wiped out. It is with this background that on behalf of the five Nordic countries, I would like to address the main issues confronting us today with special regard to the role of the World Bank Group. The aim of the Bank is the reduction of poverty and, as the inevitable means to this end, accelerated growth in the developing countries. The quest for these aims has in recent years become more arduous as external condi- tions have worsened, as the effects of heavy indebtedness have been felt 71 more, and as the concerns for the environment have become more pressing. What once seemed to be a straight road ahead has turned out to be a tortuous path. Governments of developing countries must do their utmost to create the domestic conditions most conducive to economic growth and the reduction of poverty. The support of the governments of the industrial countries for these efforts is, however, vital. It is up to the industrial countries to achieve healthy economic growth with low inflation leading to reasonable real rates of interest. In this, they have recently been more successful than expected a year ago. The effects have, however, been slow to appear in the developing countries, and the reduced growth now expected in the industrial countries in 1989 is a further reason for concern. It is in the interest of the industrial countries to keep their doors open for trade, thereby at the same time greatly benefiting the developing coun- tries. Unfortunately, success on this score has been limited in recent years. Although tariffs have been reduced, other barriers to trade have been raised. At the ongoing Uruguay Round there are opportunities for basic changes in this respect. It is equally important for the industrial and devel- oping countries that they be fully utilized. It is well known how sharply the transfer of private resources from the industrial to the developing countries has diminished in recent years. Last year private capital flows were less than one third of total resource flows and continued to diminish. The developing countries themselves have an important role to play in reviving these flows in a manner more beneficial to them than before. In this, the World Bank Group can give valuable advice and assistance. The resumption of private capital flows depends, however, no less importantly on the willingness of commercial banks and private investors in the industrial countries, as well as on the attitude of official regulatory agencies. With private capital flows greatly reduced, the transfer of resources in the form of official development assistance became even more crucial than before. The response has, however, been disappointing, as this assistance has in recent years shown an overall stagnation. Several donor countries have substantially increased their contributions or maintained high levels already attained. Other important donors are far from the established tar- gets and falling further behind, a trend that has to be reversed. We have all agreed that under these conditions it was of the greatest importance that the Bank could expand its activities. To this end it was decided to increase its capital and strive toward a higher level of loan commitments and disbursements. In spite of this, the Bank's net loan dis- bursements are likely to increase only slowly in the years to come. It is against this background that the Nordic countries strongly concur with the 72 opinion that members' support for increased resource flows to developing countries is essential if sustainable growth is to be achieved. Attempting to return to the developing path. more and more governments have in recent years adopted comprehensive adjustment programs. In this painful but necessary process they have been strongly assisted by the Bank with encouragement, advice, and funds. Our basic aim must be to find ways out of the present impasse toward sustained economic growth and reduced poverty. The results can never be immediate, however, and in the meantime suffering will continue and may even be intensified. It is therefore of the greatest importance that adjustment programs from the beginning are de- signed to soften the impact of the inevitable changes on those most vulner- able. This can be achieved by redirecting and targeting social expenditures to their benefit and by providing compensatory programs for their employ- ment and support of living expenses. Many countries are doing this with assistance from the Bank as well as from individual donor countries. The Nordic countries urge that this attention be maintained and strengthened and the aims of adjustment thereby secured. We agree that there are no alternatives to the growth-oriented case-by- case approach to the debt problem. However, in spite of the considerable achievements of recent years, a feeling of disappointment remains. Could not more have been done by international organizations, individual coun- tries, and commercial banks? Has there not been scope for a broadening of the innovative market-based solutions that have begun to be applied in the highly indebted countries? In particular, could not the expertise and en- hanced strength of the Bank be used to greater advantage in furthering that process? Earlier this year the Bank's Board endorsed an expansion of the Bank's role in this respect. It is regrettable that lack of consensus has since then precluded further progress. As for the low-income countries, would not more forceful official support have been justified? In that respect it is vital that speedy progress can be made on the concessional rescheduling being considered in the Paris Club. The countries I represent are also pleased that an agreement has been reached on measures to reduce the Bank debt service burden of countries receiving Bank loans in the past which are now eligible for IDA credits only. We have in recent years become more and more aware of the need for quality and sustainability in the development process. It defeats the basic aim of this process if prosperity bypasses the poor or degrades the human environment. Fortunately, this need not be the case. Economic growth is certainly necessary for the reduction of poverty and may also be a prereq- uisite for the sound management of natural resources. Aiming directly at reducing poverty and improving the environment may, on the other hand, be the straightest way to sustained development. Reconciliation of these objectives requires careful attention in policies, programs, and projects. 73 Our aim must be that reduction of poverty and improvement of the envi- ronment become integrated into the development process. What we may need to understand most of all is how the poor can be endowed with resources enabling them to employ their own ingenuity and skill. How can they obtain increased access to productive assets? How can their basic needs for nutrition, health, and education be met? What, in other words, is the best way of making them a part of the evolving process of development? In this connection the role of women in development de- serves special attention. How can women in the developing countries through better education, a stronger position in society, and more means at their disposal improve the nutrition of their families and the health of their children and, as managers on the farms and in the towns, raise productivity and create employment? Much has been learned by the Bank and its member countries about these matters over the years. More remains to be learned. The recent re- organization of the Bank reflects these concerns-the creation of special units and task forces as well as integration within its general operations- as does the emphasis on increased cooperation with nongovernmental or- ganizations active in the development process. The Bank is in a unique position to contribute to sustainable development. The Nordic countries are eager to see continued progress from the Bank's efforts to this end. We await further proposals on the implementation of core poverty programs. We also would welcome a review of the environmental aspects of the Bank's operations next fall in time for the follow-up to the report of the World Commission on Environment and Development in the UN General Assem- bly in 1989. Coming to the end of my remarks, I would like to draw attention to a further and fundamental consideration. Like so many others at this meeting I have talked about structural adjustment, debt relief, poverty reduction, and environmental concerns. I have called for the appropriate policies of governments in both developing and industrial countries to cope with these issues. And I have commended the Bank for its increased understanding and activities in these fields. All that will come to nought, however, unless there is a willingness to support actions with sufficient resources. We would all like to be able to achieve better results than before by a more appropriate use of the same resources. That is our first duty. But that will not be sufficient. We will, all of us, industrial and developing countries alike, need to mobilize more resources in the years ahead if we are to achieve the goals we are setting and so sincerely believe to be justified. FRANCE: PIERRE BEREGOVOY Governor of the Fund One year after last October's stock market crash, we get the feeling that the world economy is on the right track. Growth is stronger than projected, 74 international trade is rapidly expanding, and concerted efforts on the mon- etary front have made it possible to stabilize exchange rates at acceptable levels. However, we all recognize that it would be risky to give in to excessive optimism. There are still difficulties to be overcome in order to achieve more balanced growth and to ensure its durability. One need only recall a few facts about the world economy to see the truth of this view: 1. The gap between the industrial countries and the developing countries, which have benefited less from growth than the first group, has continued to widen. Poverty, which has become more acute in many countries, poses a harsh challenge to our world. 2. The debt of the developing countries now amounts to $1.2 trillion and continues to place great strains on the international financial system. 3. The resurgence of inflation in a number of industrial countries, the persistence of unemployment in others, and the current payments surpluses of the Federal Republic of Germany, Japan and several countries of the Pacific, which stand in contrast to the deficits of other countries, are factors of disequilibrium that we should recognize as such. It has become a commonplace to refer to the interdependence of our economies. Economic growth will be all the stronger as the developing countries are part and parcel of it. But how is this to be achieved? Now as in the past, France believes it necessary to promote three objectives: (1) seeking greater monetary stability; (2) warding off the specter of protectionism; and (3) financing development through an improved allocation of financial re- sources. Monetary cooperation has progressed quite well following the Plaza Agreements of 1985, which were confirmed by the Louvre Agreements. The result has been greater exchange rate stability and enhanced convergence of the economic policies being followed in the industrial countries. The texts adopted following the meetings of this past weekend once again lay stress on the industrial countries' firm resolve to act together to stabilize exchange rates. This positive sign is one that the market needed to receive, and I am convinced that it will ultimately promote some easing of interest rates. This monetary coordination, which has proven so valuable, would stand to gain from being extended to other countries, in particular to those re- ferred to as the "newly industrialized" economies of the Pacific and several of the OECD countries with sizable surpluses; these countries too have duties and responsibilities vis-a-vis the international community. Finally, I wish to note the need for serious examination of the role of the SDR. Indeed, the time has come to make it a more widely used reserve 75 currency; this would imply that the SDR would ultimately be traded on the market in accordance with modalities to be decided on together. Secondly, it is clear that the liberalization of trade is associated with improved functioning of the international monetary system. The progress achieved in this area, progress it is necessary to continue under the auspices of the international institutions, makes it possible to make comparable gains in multilateral trade negotiations. From this perspective, what will happen in Montreal takes on particular significance. Either we will be able to impart new impetus to the negotia- tions now under way, or we will find ourselves boxed into procedural disputes made all the more acute by the protectionist trends which are emerging in certain major countries, in particular the United States. So far, the U.S. authorities have been able to resist them. We are glad this is so and hope that everyone will endeavor to resolve the issues outstanding, particularly as regards agriculture, where it is necessary to take into account all the direct and indirect support received by producers and to keep unbridled competition from destabilizing individual countries' agricultural systems. France intends to contribute to this process together with its partners in the European Community. I turn now to the third objective: the financing of development. This issue cannot be considered separately from the debt problem. The magnitude of the debt constitutes a serious obstacle to development. Debt repayment and development are two sides of the same coin. How is this problem to be resolved? We must steer clear of two different pitfalls: an excessively finan- cial approach, and the notion that countries experiencing difficulties car dispense with the need to make any adjustment effort. The poverty and even profound misery in altogether too many countries is a disgrace for all of mankind. They reveal our inability, in the century of the atom and the computer, to resolve fundamental economic problems. International solidarity is the only possible response. Let us not become embroiled in false dichotomies: it would not be wise to engage in academic quarrels between public aid and private capital, between bilateral aid and multilateral assistance. Resources must be com- bined, financial flows accelerated. This requires merging the effectiveness of the market with the solidarity of collective action. It is in this spirit that France encourages every effort in favor of the developing countries. New initiatives have been announced, in particular by Japan. France intends to examine them attentively, in the belief that efforts by countries with large surpluses are a good way to augment growth. In our view, the essential point is to maintain the multilateral administra- tion of public aid and not to shift private sector risks onto the shoulders of the public sector. The commercial banks must, in fact, make an effort, and the systems of mutualization which exist in most of our countries would appear to set a good example of what might be devised on a larger scale. 76 In this spirit, France intends to put forward her own proposals after listening to everything said here; be that as it may, she will support the efforts of the international monetary authorities, the Fund and the Bank, and we all should provide funding to them for their interventions. This is why France, as you know, seeks a prompt increase in Fund quotas. This is why we believe that the subscription to the ongoing capital increase of the Bank must be completed as rapidly as possible. For its part, France has just contributed an initial tranche of $1 billion. Similarly, we consider a new SDR allocation to be necessary to strengthen the reserves of the countries that need it the most. Such a decision would improve the financial positions of many countries and encourage the banks to back their efforts. In this regard, I wish to take the opportunity afforded by the banking community's presence at these meetings to address myself to its members directly. As I indicated a few moments ago, we must add public funds and private funds together. Realism so dictates, as does solidarity. In the long term, it is in the banks' interest to assume a greater presence in countries making the adjustment effort they have embarked upon, and I hope that the banks will heed my appeal. The debt problem has not been resolved, nor has the development prob- lem, yet we have been moving in the right direction. The structural adjust- ment facility, the fifth replenishment of the African Development Fund and the World Bank's special program in favor of the poorest countries represent valuable steps forward. The agreement reached during these meetings on the modalities for im- plementing the decisions taken in Toronto, at the initiative of President Fran~ois Mitterrand, also bears witness to the enhanced awareness of the industrial countries. I would like us to move faster, to go farther. Whatever the political ori- entation of our governments, we cannot disregard the anguish of the several billion men and women whose standard of living has deteriorated further. This harsh reality is unacceptable and is less and less tolerated. Here in this country, where Franco-German reconciliation has opened the way toward the building of Europe, and in this city of Berlin, which was devastated by the most brutal conflict of our history, it has been demon- strated that one must never despair of freedom's future. May I express the hope that we might take inspiration from this example in sending the world a message of solidarity and hope. GERMANY: GERHARD STOLTENBERG Alternate Governor of the Fund It is a particular pleasure for me to address these meetings for the first time on home ground, in Berlin (West). In spite of the political division from which it suffers, this city has remained dynamic, cosmopolitan, and 77 full of intellectual ferment. There is a genuine interest here in world affairs, and a strong sense of responsibility toward the disadvantaged on our globe. I am sure these meetings will show you the strong desire of the German people to see global economic development progress rapidly and visibly. And I also hope that the meeting will prove to our citizens that our insti- tutions are pursuing these objectives seriously and successfully and that they are, indeed, central elements of our framework of international economic cooperation. As we are about to move into the seventh year of continued noninflation- ary expansion in the industrial countries-one of the most extended up- swings in recent years-I would like to draw two conclusions from the experience of the past few years. First, it has paid off to pursue a steady policy oriented to the medium term, based on fiscal and monetary discipline, and geared to the improve- ment of supply conditions. We have been well advised to avoid excessive reactions to short-term fluctuations in statistics and in sentiment. It was right not to follow the counsel of those who, after the unrest in financial markets last fall, predicted a negative turn in the global economic situation. The world economy has proved more resilient than many observers had thought. Second, events have borne out the value of close and effective cooperation among the larger industrial countries. We have strengthened the momentum of growth. We have moved the process of external adjustment a good deal further. And we have returned to conditions of relative stability in interna- tional financial and exchange markets. Together with the vigorous expansion of world trade and the marked improvement in commodity prices, this has created an international environment which is also more supportive of the efforts of the developing countries to restore growth and to improve social conditions. The industrial countries remain committed to this cooperative strategy. The Fund must continue to assist in this process not only with its valuable analysis and policy advice, but also because it represents the interest of the world economy as a whole. Germany has played and will play its part in supporting these common efforts. Domestic demand this year should rise by 31/2 to 4 percent, and GNP by more than 3 percent. The shift from foreign to domestic demand will thus continue. Our foreign balance, which had already come down from 5.4 percent of GNP in 1985 to 3.0 percent in 1987 should decline further this year to some 2 to 21/2 percent of GNP. Monetary and fiscal policies have supported external adjustment and strengthened the domestic forces for growth. For the past two years, mon- etary aggregates have been allowed to expand significantly faster than GNP; more recently, the Bundesbank took advantage of the situation in foreign exchange markets to bring monetary growth closer to its target range and to help prevent a resurgence of inflationary expectations. 78 In the area of fiscal policy we are in the process of passing on to the public the fruit of several years of consolidation. In the six years from 1983 to 1988 federal expenditures have increased on average by only 2 percent a year, which is clearly below the increase of nominal GNP. This restraint on public expenditures gives us the room for reducing the tax burden by 2V2 percent of GNP between 1986 and 1990. Since 1985 the public sector deficit has widened, from 2.1 percent of GNP to 3.0 percent this year. We have accepted this temporarily in line with our international commitments. But over the medium term we must ensure that our fiscal policy remains sound and that deficits do not get out of hand. With the tax reform and the planned reforms of our social security and pension systems our program of consolidating public finances has increas- ingly incorporated qualitative aspects. Structural reform, the removal of rigidities, and the strengthening of incentives for better utilization of our productive potential will be among the central tasks my Government will be pursuing during the coming years. The completion of the internal market in Europe without barriers to trade and to the flow of capital represents both a policy challenge and an impetus for further liberalization of our own domestic structures. A free, dynamic, and unified European market with open borders toward the rest of the world will give new stimulus to investment and growth at home and abroad. The more favorable international economic situation and outlook are giving the developing countries as a group some urgently needed breathing space. Both exports and imports of developing countries are expanding strongly; current account deficits of these countries as a group have returned to manageable levels; and debt ratios have been declining for the first time since the onset of the debt crisis. But there are important differences among the various country groups and among individual countries. While many countries are still facing seri- ous and in some cases even growing difficulties, others are clearly improving their economic situation. For example, many East Asian but also several Latin American and African nations have successfully managed to adapt their economies, diversify their export base, and build a stable policy envi- ronment. They have thus been able to benefit considerably from the strong expansion of world trade. For the majority of countries in Sub-Saharan Africa and also for some middle-income countries in Latin America, however, the situation remains far from satisfactory. The heavy burden of external debt has compounded their deep-seated problems of economic underdevelopment and poverty. In some cases, too, delays in implementing the necessary adjustment policies and structural reforms have severely curtailed the economic and financial room for maneuver in these countries. It is important that we in the industrial countries realize what courage and patience it takes to implement reforms under the difficult circumstances 79 with which many developing countries are faced. Let us be mindful of how difficult we find it ourselves to build the political consensus for economic reforms in the industrial countries, although we are operating in a much more favorable environment with higher living standards and more flexible economies. However, the penalties for delaying necessary adjustment are high for any country. The success of those developing countries which now enjoy the rewards of timely reforms in terms of rising living standards and better access to financing should serve as an encouragement to all. Their experience shows that determined reform policies adapted to the individual circumstances but avoiding the risks of an overly gradualist approach can quickly yield positive results, which will in turn strengthen the political basis for the reform effort. It is here that the Fund and the Bank need to continue to play their central role: to help member countries design appropriate adjustment and reform programs and to provide assistance during their implementation so as to restore financial viability with adequate growth-the only basis from which countries can embark on a path of sustainable, balanced develop- ment. In this context we can feel encouraged by the number of stabilization and reform programs undertaken or launched during the past year with the assistance of the Fund and Bank. This shows an unbroken will on the part of these countries' governments to do what they can to undertake the nec- essary economic reforms even if the severity of their situation often requires difficult choices and sacrifices. In this connection the generally positive outcome of the review of the Fund and World Bank lending policies has to be mentioned. Of course, one has to admit that the appropriateness of some details can-as always-be disputed. But the review has demonstrated that both institutions are able to adapt to the changing circumstances of their membership. The establishment of the new combined compensatory and contingency financing facility in the Fund will give assurance to members who undertake the necessary adjustment efforts that the international community is ready to assist them when the success of their policies is threatened by unforeseen adverse external developments. I am also happy to note that the World Bank is paying increasing attention to the need for protecting the natural environment. The very real financial pressures of today must not be allowed to lead to the destruction of the resources which are essential for our sur- vival tomorrow. I wish to encourage the Bank not only to pursue and to strengthen its environmental work, but to give leadership in this field among multilateral and bilateral donors. It is obvious that developing countries need our continued financial assis- tance in order to master their difficult situation. As far as the low-income countries are concerned, a number of far-reaching initiatives have been taken during the past 18 months. Let me mention only the most important ones, namely the Eighth Replenishment of the International Development 80 Association, the World Bank's enhanced program of cofinancing, the fifth replenishment of the African Development Fund and the enhancement of the Fund's structural adjustment facility. In accordance with the economic declaration of the Toronto summit, the Paris Club will further ease the debt service burden of the poorest countries that are undertaking adjustment programs. Germany is providing a substantial share of all these multilateral initiatives. In addition we have recently decided to extend our previous program of ODA debt cancellation for the least developed countries to a number. of highly indebted low-income countries in Sub-Saharan Africa which coop- erate with the Fund and the World Bank. And we will further reduce interest rates and extend maturities on development loans. For the highly indebted middle-income countries, too, a market- and growth-oriented strategy remains the only viable alternative for overcoming their external debt problems. Although some of these countries continue to face difficulties in servicing their debt, there have also been signs of progress recently. As far as official support to middle-income debtors is concerned, the Fund and the development banks must continue to play their role. In order to enable the Fund and the World Bank to carry out their growing responsi- bilities effectively, Germany has given strong backing to a substantial general capital increase for the World Bank, and we are also in favor of a significant increase in Fund quotas as soon as possible. However, adequate support to middle-income debtors' adjustment efforts through the Fund, the World Bank, and other multilateral development institutions is only part of the story. Given the large share of commercial loans in the total debt owed by these countries, it remains essential for them to seek cooperative solutions with their creditor banks. The development of new financing techniques under the "menu approach" has provided more flexibility to the efforts of debtor countries and their banks to find construc- tive solutions. As has been shown by a number of financing packages con- cluded during the past year, there is further scope for allowing both debtors and creditors to benefit from the application of innovative market-based techniques. I would like to encourage the further development of such voluntarily agreed financing options in order to facilitate new financial flows or to reduce the stock of debt where appropriate. In Germany the regulatory framework provides banks with adequate room for manuever to respond flexibly to new developments in financial markets. However, it is not the responsibility of governments or official institutions to assume private com- mercial risks. At the same time, we all need to recognize the crucial importance of one other vital ingredient to global prosperity and the resolution of the debt crisis, namely that of open markets, of a liberal international trading system. One cannot expect developing countries to increase their exports while at 81 the same time frustrating the success of their efforts. History has taught us that there can be no gain from protectionism. In the GATT we have a cooperative framework, based on mutually accepted rules. that in the past has served us well. We need to use it even more actively and to strengthen it. I believe that we have a special opportunity to do so with the ongoing Uruguay Round and the upcoming midterm review. We need to demonstrate our common will to resist protectionism and to liberalize trade across a wide range of goods and services, including areas of particular interest to the developing countries. Let us not miss this opportunity. We have the opportunity to make the 1990s a decade of growing prosperity and stability, and this is essential-on a more widely shared basis. It is evident that more still needs to be done, especially to enable developing countries to exploit fully their economic potential. Everyone has to accept his share of the burdens involved. Both developing and industrial countries must shape their economic policies with these ob- jectives in mind. We all face a continuing need to adapt to changing circum- stances. The Fund and the World Bank have a unique role to play. As they constitute our institutional framework for cooperation, they need to remain strong and independent in providing advice and assistance, in promoting stability and policy consistency among the various countries that make up their membership, and in helping to advance the development of the pro- ductive resources of all their members. The Fund and the Bank will continue to receive Germany's full support. GREECE: PANAGIOTIS ROUMELIOTIS Governor of the Bank (On behalf of the Member States of the European Communities) Since Greece currently holds the presidency of the Council of the Euro- pean Communities (EC), I have the honor of addressing this meeting on behalf of the member states. Economic developments over the past year contain a number of positive elements which justify some optimism for the immediate future if the efforts toward better coordination of macroeconomic policies and structural ad- justment continue to be consistently pursued. There are, however, still weak- nesses and risks which it is the responsibility of the world community to attempt to remedy. There has been continuing growth of the world economy and vigorous growth of world trade, and the external imbalances among major industrial countries have begun to be reduced in nominal terms. Also. many com- modity prices have recovered from their previously depressed levels. At the same time, the inflation picture is no longer as bright as before and has given cause for monetary tightening in several countries this year. An una- voidable consequence of this has been the recent increase of interest rates. 82 But there have also been uneven patterns of growth among the industrial countries, high rates of unemployment, large existing imbalances in some industrial countries-which present a continuing risk to the smooth func- tioning of the international financial and foreign exchange markets-and serious difficulties associated with the foreign debt of a number of the developing countries. Economic policy coordination at the macroeconomic level has produced tangible results. The stimulus given to internal demand in some major surplus countries is taking effect. At the same time, in the United States, the substantial reduction in the fiscal deficit in 1987 and the rapid growth of exports are significant steps in the right direction. Nevertheless, the fiscal deficit continues to be too high, thereby forming an impediment to more rapid and healthy adjustment. More recently, lack of further fiscal adjust- ment or incipient inflationary pressures forced monetary policy in several countries to pursue two goals that are difficult to reconcile: to keep the exchange rates around their desired levels; and to counter inflation. The experience of the past few months shows that the success of international cooperation depends to a considerable extent upon the possibility of using all the available policy instruments. In the European Community, some success has been achieved in the consolidation of fiscal positions and the reduction of inflation. The coordi- nation of policies has been reflected in a remarkable degree of stability in the European Monetary System. For the EC as a whole, the growth rate of domestic demand has continued to exceed that of gross domestic product, which has contributed to the necessary external adjustment. However, un- employment is still very high, and this underscores the need to maintain sufficient rates of growth. Community member countries strongly support international cooperation in macroeconomic policy. with the central aim of reducing current account imbalances and promoting exchange rate stability. Macroeconomic policy in many industrial countries is gradually being adjusted to the goal of main- taining a rate of growth of domestic demand consistent with medium-term strengthening of fiscal positions, price stability, and the reduction of external imbalances. The consistent pursuit of these goals requires that international economic cooperation be viewed in a medium-term context, while consid- ering ways of further improving the functioning of the international mone- tary system. Moreover, short-term concerted policy actions designed to pro- mote relative exchange rate stability have proved useful. In the light of these considerations, the member states of the Community continue to support an active role for the Fund in international policy co- ordination through the exercise of its surveillance functions, with a view to promoting greater exchange rate stability. In this context, we welcome the progress made within the framework of the Fund in developing the use of economic indicators in a medium-term context. 83 The Community countries share the view that concerted efforts toward structural reform must also be vigorously pursued as an essential part of a medium-term adjustment process. In the United States, continued efforts are needed to reduce fiscal imbalances and to promote private saving, while in Japan the removal of rigidities and distortions in the distribution and tax systems is essential. In the European Community structural reforms that will strengthen supply responsiveness, including the elimination of a wide variety of subsidies, are essential in order to spur job creation, reduce external imbalances, and enhance growth potential. It is in this context that the Community is pursuing structural reforms to complement the coordination of macroeconomic policies as part of its pro- gram for an integrated internal market by 1992, which includes full liberal- ization of capital movements, the removal of the barriers to trade, and the full mobility of labor, goods, and services within a truly competitive frame- work. This program of completion of the internal market will be comple- mented by the enlargement of the role and resources of the structural funds in support of the additional objective of achieving economic and social cohesion by reducing inequalities between the various regions of the Com- munity. Individual countries are taking supplementary measures to address structural problems specific to their economies. This whole package of pol- icies and measures, which should lead to more dynamic, efficient, and open markets, will be an important contribution of the European Community to noninflationary growth across the world. The internal market will not close in on itself. Let me reaffirm that the member states are strongly committed to the fight against protectionism. Therefore, the Community supports the commitment to standstills and roll- backs and will press for a successful outcome of the Uruguay Round. Prog- ress in all areas of these negotiations, including services, improved market access both for the developing countries and to the markets of the newly industrialized economies, and the reduction of subsidies and protection affecting agriculture, is a major goal. Of particular concern is the economic situation in many developing coun- tries. Although the improved international environment contributed more than previously to their efforts at achieving adjustment with growth, not all countries were able to benefit to the same extent. Particularly in Sub-Sa- haran Africa and in some Latin American countries, the situation remains unsatisfactory. Despite the improvement in commodity prices and in com- petitiveness, which benefited some of these countries, their balance of pay- ments position remains fragile. With regard to indebted developing countries, slippages in macroeco- nomic policies and deep-seated internal structural problems continue to play a major role in the persistence of their unfavorable economic situation. This underscores the central importance of appropriate adjustment programs designed to promote a return to financial stability, external viability, and 84 sustainable growth within the framework of a cooperative multilateral effort that also includes the maintenance of a healthy international environment, an open trading system, and the provision of adequate financial resources for development. The Community countries see no alternative to the case- by-case approach. They also take the view that continued emphasis should be placed on structural adjustment programs adequately supported by the international community. With regard to the low-income countries, a number of steps have been taken which the Community countries have strongly welcomed. The Eighth Replenishment of IDA; the activation of the enhanced structural adjustment facility, in which Community countries are major contributors; and the World Bank's Special Program of Assistance for Africa constitute important steps designed to assist the countries that undertake appropriate adjustment efforts to enhance conditions for sustainable growth. The fifth replenishment of the African Development Fund will also contribute to these efforts. We attach particular significance to the proposals discussed in Toronto concern- ing concessional interest rates usually on shorter maturities, longer repay- ment periods at commercial rates, partial write-offs of debt service obliga- tions during the consolidation period, or a combination of these options. In this context, special consideration should be given to heavily indebted sub- Saharan African countries, following approved adjustment policies. With regard to the highly indebted middle-income countries, we believe that the growth- and market-oriented debt strategy applied case-by-case remains the only viable one. A number of innovative techniques have emerged in recent years in dealing with debt problems. The major value of these techniques is that they are market-oriented and constitute voluntary arrangements that can engender new financial flows and reduce the existing stock of debt. We strongly welcome these developments and wish to en- courage a further broadening of the voluntary approach through innovations that improve further the quality of financing and contribute to the alleviation of debt-related problems in the framework of the case-by-case strategy. Both the Fund and the Bank can facilitate the use of such market-oriented in- struments. However, private participation in helping to alleviate this prob- lem should carry the risk on its own, and this risk should not be transferred even partially to public agencies. The approach to adjustment must give due emphasis to structural reforms in parallel with the appropriate macroeconomic policies. In this context, the role of the Fund and the Bank is crucial, especially in assisting in the design and monitoring of programs and in catalyzing finance from other sources. We believe that use of the extended Fund facility on a case-by-case basis and of the new facility designed to safeguard the implementation of the programs against shocks from unforeseen contingencies can be helpful. Another important development has been the general capital increase of the World Bank by nearly US$75 billion, which will enhance its role as a 85 development financing institution and as a key participant in the growth- oriented debt strategy. We would like to urge all countries to complete as soon as possible the necessary procedures for subscribing to this capital increase. International direct investment can also play an important role in spurring economic growth and promoting structural adju~tment in developing coun- tries, while at the same time contributing to alleviating the burden of serv- icing their debt obligations. We therefore urge developing countries to im- plement policies appropriate for encouraging such investment. Such policies would also make an important contribution to preventing and possibly re- versing capital flight. In this connection, the activation of the Multilateral Investment Guarantee Agency is a particularly significant development that can contribute positively to the efforts of developing countries on this front. ... . . . In conclusion, I would like to confirm once again that the member states of the European Economic Community remain committed to sup- porting an expanded role for the Fund and the Bank in finding solutions to the problems of the world economy. GRENADA: HERBERI' AUGUSTUS BLAIZE Governor of the Fund and Bank (On behalf of the Bank Member Countries of the Caribbean Community) I am exceedingly delighted and honored to deliver this statement on Bank matters on behalf of the members of the Caribbean Community and Com- mon Market (CARICOM), namely, Antigua and Barbuda, The Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, and Trinidad and Tobago. At the same time, I wish to express our appreciation and gratitude to the Government of the Federal Republic of Germany and the Senate of Berlin, and also to the people of Berlin (West), for the excellent facilities laid on for the hosting of the 1988 Annual Meetings of the Fund and the Bank. We are happy to be here in this historic city, and all of us can already attest to the warmth and hospitality of the Berliners. The Role of the World Bank My Caribbean colleagues have noted with pleasure the several significant developments that have taken place within the World Bank Group since the 1987 Annual Meetings. The recent general capital increase will enable the Bank to carry out an extended lending program while it has been able to reach agreement with bilateral donors for the provision of $6.4 billion of concessional finance in conjunction with IDA-supported programs. Addi- tionally, the Multilateral Investment Guarantee Agency (MIGA) has be- 86 come operational, and the Bank has made modest changes to the repayment terms of its nonconcessionalloans. More important, the Bank has begun to pay greater attention to the social costs of adjustment-and especially to ways to protect the poor-in support of its structural adjustment program. Despite these recent initiatives, which have increased the Bank's re- sources, it will have to mobilize other private official sources of finance to assist the heavily indebted middle-income and debt-distressed low-income countries to undertake growth-oriented adjustment programs. Countries that are outside these two groups also need increased attention. The Ninth Replenishment of IDA will be of particular significance beyond 1990 to all low-income countries. The World Bank's own growth projections indicate that it would continue to be a major source of technical and financial assistance for developing countries, including the Caribbean Community. For it to effectively perform its role, the Bank must be equipped with the necessary resources. The Bank must ensure that access to its own resources by developing countries continue to be on terms more favorable than those provided by the com- mercial market. It is important that countries which have already ratified the general capital increase be encouraged to make timely payments of their contribu- tions to the Bank and also to front-load them wherever possible. This would enable the Bank to fulfill its inevitable role as a long-term provider of resources to developing countries and as a catalyst in the mobilization of additional resources. The disturbing record continues to show a net outflow of resources from developing countries to the Bank. In the Caribbean Community, the cu- mulative net transfers to the Bank amount to approximately $63 million in FY88. These figures reflect clearly the fact that the high level of debt serv- icing experienced within the region derives largely from a heavy proportion of external debt obligations to the Bank. In addressing the problem of resource flows to the region last year at this forum, a CARICOM Initiative on an International Debt Strategy for a special group of middle-income countries was presented for consideration. The proposal is probably more relevant today and deserves further careful consideration and study by the Bank. There are serious fears of the Caribbean group of countries "falling through the cracks," as the international financial institutions and major development institutions develop strategies to deal with highly indebted countries and low-income countries, thereby ignoring or inadequately ad- dressing the fate of countries that fall between those two groups. Once again, therefore, we urge the Bank to pay appropriate attention to the special demands of small island economies, such as the Caribbean group of nations, which are constrained by a limited resource base, inadequate in- frastructure, and fragile social and economic structures. The Bank's call for 87 adjustment and diversification, both in the manufacturing and agricultural sectors and with emphasis on export-oriented industries, has been recog- nized and acted upon within the Caribbean region. Neither the bank nor the industrial countries should allow these efforts and successes to be thwarted by either inadequate financial support or restrictive trade practices. Access to Resources The present policy of the Bank on access eligibility and the process of graduation can adversely affect the development prospects of the Caribbean group. While the bank has put in place transitional arrangements for con- tinued access to IDA resources over a period of five years for several of the less-developed Caribbean countries, the very nature of that arrangement leaves an air of doubt as to what the future holds for those countries. The Bank is therefore strongly urged to take into account the special circum- stances and needs of its members, particularly small and small island states, and to apply flexibility to its graduation policy conditions. Similarly, the time-bound transitional graduation arrangement relating to access to Bank resources will affect three middle-level developed countries within the re- gion. The fears voiced from the beginning about the need for continued financial assistance from the Bank, even on a diminished scale, have been realized in the case of Trinidad and Tobago, and only time will reveal whether others within and outside the region will have a similar experience. The close link between structural adjustment measures and macroeco- nomic stabilization is recognized in the successful design and implementa- tion of growth-oriented adjustment programs. It is important, therefore, that the Bank achieve the right balance between stabilization and restruc- turing measures and their proper sequencing within an appropriate time frame. At the same time, care should be taken to avoid cross-conditionality between the Fund and the Bank, which could hinder implementation of programs. Poverty Alleviation The new initiative of the Bank in the areas of alleviating poverty, easing the burden of adjustment on the low-income, vulnerable groups within a country, and maintaining the quality of life through the enhancement of the social infrastructure in developing countries is outstanding. Such commit- ment will require access to the Bank's resources. The support given to the Social Well-being Program in Jamaica is an example of the Bank's commit- ment in this area and underpins the need for continued Bank involvement in the development of the social infrastructure of its members. Such support will be even more necessary should the process of graduation persist in its present form. 88 The Private Sector in Development The Caribbean Community notes the vigor with which the World Bank is focusing attention on the role of the private sector in development. The region also notes the report and recommendations of the Private Sector Development Review Group. Action on the recommendations should be taken diligently. In this regard, the inauguration of MIGA is also welcomed. It is hoped that the coordination of efforts between the Bank, IFC, and MIGA will prove beneficial not only to the encouragement of private foreign investment but also to the development of domestic small-scale enterprises and entrepreneurship, particularly in the Caribbean region. We support these initiatives and look forward with enormous expectation to a positive outcome. Sympathy with Jamaica I wish to take this opportunity, on behalf of the rest of our group, to express great sympathy with the Government and people of Jamaica over the devastation inflicted on that country by one of the worst hurricanes of the century. We urge the international community to provide appropriate relief and rehabilitation measures, as well as the necessary financial, tech- nical, and other assistance for putting the country back on its feet. Concluding Remarks Grenada and the rest of the Caribbean Community are satisfied with the new course charted by the Bank under the able direction of President Conable for raising the standard of living and improving the human condi- tion in its member countries. We are confident that Mr. Conable's concern for the welfare of people as the thrust of the Bank's development efforts will be the driving force of the institution in its design of appropriate pro- grams for the improvement and development of its member countries. HUNGARY: JANOS FEKETE Governor of the Fund The world economic outlook of the Fund gives an optimistic forecast for this year. But what gives ground to a deep worry regarding the world eco- nomic outlook is that some industrial countries-fearing inflation- launched a wave to raise interest rates at the end of this summer. Needless to say, higher interest rates discourage investment, contribute to slow growth, imply very serious material consequences, and make the situation of the debtor countries even more serious. The point is not only that their global debt has continuously been increasing and reached $1.2 trillion in 1987, but that the direction of the long-term capital flows has changed. While 89 during 1972-82, $147 billion of long-term capital entered the developing countries, the tendency reversed during 1983-87, when $85 billion flowed out of these countries. The middle-income, highly indebted countries obtained less from new loans than they had to payout during 1983-87 for debt service. There was net flow of capital into the Fund and the Bank in 1986-87. In 1988 this tendency seems to continue. Furthermore, overdue claims of the Fund in- creased, wherby eight countries were excluded from borrowing from the Fund, and there are others that run the same risk. These few data testify that the actual methods and forms of assistance are not efficient enough and do not contribute to the solution of the debt crisis. A new approach is needed to solve the problem. A distinction has to be made between the two main groups of debtor countries. The poorest countries constitute the first group. They can overcome these problems if creditors would-partially or totally-write off their capital debt and if new long-term loans were granted at a minimal interest rate. The situation of the Sub-Saharan African couritries is the most desperate, al- though important initiatives were made to help them last year: the Paris Club made an offer of a longer-term rescheduling scheme for several coun- tries; the Fund pledged to triple the structural adjustment facility; and the Bank proposed an extraordinary program of action. What this first group needs is a policy containing basically humanitarian and social elements. The other group of developing countries possesses considerable natural resources, and their indebtedness stems partly from objective external fac- tors: a slowdown in the growth of the world economy, a drop in the prices of raw materials, and a rise in interest rates. But part stems from faults of their own economic policy. The difficult situation of this giant group of countries should be solved not by aid policy-as was the case for the first group-but by proper economic policy, as well as elements of assistance. I would suggest the following points for solving the debt crisis: · The key is economic growth. The process of growth has to be started somehow in our sluggish world economy. This is the point upon which I agree with the proposal of Mr. Baker, made at the Annual Meetings in Seoul. · The countries that belong to the second group, however, are unable to start this growth on their own. The decisive impetus must come from outside. · Considering realities, industrial countries should make the main efforts in this process. · The Baker plan proved to be not so successful because it wanted to put unduly large burdens on commercial banks. Since the debt crisis started these banks have been reluctant to invest new money in the indebted countries of the Third World. 90 · Overall international growth can be set in motion only by making ad- ditional capital available. In the present situation, substantial additional financial resources can only be created through the Fund. Financial resources of the required magnitude can be a "new SDR" allocation. This "new SDR" allocation would not be the usual one, based on quotas, which separately must be started again. The beneficiaries of the new allocation would be only the countries belong- ing to the second group, depending upon conditionality. The "new SDR" issue would be decided by the Fund's Board of Governors. The upper limit of such "new SDR" allocation can be fixed in relation to the gold reserve of the Fund. I suggest an allocation of "new SDR 100 billion" under a five- year schedule. One must not fear the inflationary effect of creating that much liquidity, because today (and, I firmly believe, also for the next year) stagnation, not inflation, seems to be "public enemy No. I" of the world economy. As a condition of participation in the "new SDR" allocation, debtor countries ought to commit themselves to implement appropriate growth- oriented, medium-term adjustment programs by agreements with the Fund and the Bank. The increase in the Ninth General Review of Quotas under discussion is also necessary to support the central role of the Fund. The World Bank also has to increase its capital considerably to assist the whole scheme, in harmony with its weight and with expectations. The res- olution for this has already been adopted. A lot will depend on the behavior of the creditor countries. They have to support the Fund-Bank initiatives, as the Japanese Government decided to do. I consider this proposal to be the most important event of these meet- ings. Complementing the general adjustment programs, the World Bank would launch an extensive campaign of structural and sectoral adjustment loans and would supervise their use. Debtor countries could start new invest- ments, the industrial sector of the creditor countries would get access to new markets, the governments of the industrial countries would cover deliv- ery risk by credit insurance, and commercial banks would finance new investments in which their own risk would be about 10-20 percent. The individual economies would come into motion, the rate of international economic growth would exceed the desirable 3 percent, and the danger of a recession or depression would be over. Hungary's Cooperation with the International Financial Institutions During the six years of its membership in the Bretton Woods institutions, Hungary concluded 3 stand-by agreements with the Fund, and 16 loan 91 agreements with the Bank. Since 1985, when our country became a member of IFC, 4 joint ventures have been financed with the participation of that institution. The first two Fund stand-by arrangements, which were approved in 1982- 84, supported our external adjustment policies. With the help of these two programs, Hungary improved its external positions and fully regained its creditworthiness on the international markets. The World Bank loans have enlarged Hungary's export capacities in dif- ferent sectors and have helped to eliminate bottlenecks in its infrastructure. The two industrial restructuring loans and the one industrial sector adjust- ment loan represent a new policy approach. The Bank's support for a wide range of sectoral and structural changes is a useful contribution to the overall Hungarian reform process. Our membership in the IFC facilitated new direct foreign investments. The IFC also gives important technical assistance to restructure Hungary's financial system, to develop the domestic capital market, and to establish a planned new national investment fund. Hungary is already participating in the Seventh and Eighth Replenish- ments of IDA resources and is ready to take part in IOA-9 to the extent of its modest financial possibilities. The New Hungarian Economic Program In 1987 the Government adopted a three-year stabilization and revitali- zation program for the economy. The medium-term program envisages fun- damental structural changes in the economy and, as an assurance for the implementation, it is relying on the close cooperation with the international financial institutions. On the basis of the economic policy targets for the first year of the program, the Fund approved a one-year stand-by arrangement with Hun- gary last spring. The main instruments of our economic policy are tight fiscal and monetary policy to restrain domestic demand, an active exchange rate policy, and structural measures to stimulate supply. After having intro- duced the reform of the banking system in 1987, and the VAT and personal income tax system on January 1, 1988, we targeted further steps to substan- tially reduce subsidies to inefficient enterprises and to implement price and wage reform. The midterm review of the implementation of our program took place recently. According to the Fund Board, the implementation of our targets is consistent with our Fund program. As a result of the decrease in household demand, as well as the expansion of exports, the target of improving the external balance by the end of the year is realistic. The budget deficit will be reduced to an amount equivalent to about 1 percent of GOP. Hungarian enterprises are granted the right to engage in foreign trade. The new Law of Economic Association will create equal conditions for compe- 92 ----- --------- tition for the public and private Hungarian enterprises and foreign enter- prises. The law is to be presented to the Parliament next month. A range of reforms should be completed with a substantial import liber- alization and with market-type mechanisms for the social security system. I think it is obvious that the envisaged reform measures cannot be stuffed into the straightjacket of a one-year stand-by program. The experience of the two first stand-by agreements proved that the restrictions exhausted the resources for longer-term growth. I think that our three-year structural adjustment program requires medium-term finance, providing more ample scope for the economic policy. The Hungarian economic liberalization program is in accord with the structural adjustment policy supported by the Fund and the Bank. We support the recent important innovation in Fund facilities-such as the creation of the external contingency mechanism and the revitalized extended Fund facility-which give new impetus to the Fund's policies supporting adjustment. We firmly believe that the comprehensive Hungarian economic reform is worthy of support by the Fund and worthy of its medium-term financial assistance in the form of a future arrangement under the extended Fund facility. INDIA: S.B. CHAVAN Governor of the Fund and Bank I would like to join my fellow Governors in congratulating Mr. Feldt on his election as Chairman of the Annual Meetings. We thank the Govern- ment of the Federal Republic of Germany and the people of this great city for their hospitality and for the care taken to make our stay comfortable. Recent trends in the world economy show some positive features. The collapse in major capital markets in October 1987, shortly after our last meeting, did not disrupt steady growth in the OECD countries. Global economic growth is projected by the Fund to increase to 3.7 percent in the current year, mainly because of a significant improvement in the growth rate of industrial countries. Overall macroeconomic adjustments in major industrial countries have been assisted by a better alignment of exchange rates. The recent surge in commodity prices has helped a number of devel- oping countries. But these welcome developments should not distract our attention from the disturbing features of the global economic scene that demand our urgent attention. The continuing financial imbalances in some major industrial countries have caused concern over the prospective stability of prices and exchange rates. A substantial number of developing countries remain in the grip of serious debt-servicing problems. In a number of developing coun- tries, growth in investment and income continues to be unacceptably low. The short-term outlook for the world economy is clouded by downside risks 93 associated with persistent trade imbalances between the major countries, fears of resurgence of inflation, the rising trend in interest rates, and the problems of debt and financial constraints facing developing countries. Quite apart from these negative features, any sense of complacency based on the improvement in the growth of world output and trade during the past year would appear misplaced if global economic developments are set in their proper historical perspective. Clearly, the growth of the world econ- omy in the current decade has been substantially restricted by systemic constraints. Of even greater concern is the fact that the average growth rate of 4 percent for developing countries as a group is largely accounted for by a handful of rapidly growing nations. A large number of countries, espe- cially in Sub-Saharan Africa and Latin America, have enjoyed little or no growth during the current decade. The Bank's World Development Report estimates that between 1980 and 1987 real per capita GDP declined by almost 3 percent a year in Sub-Saharan Africa and by 1.3 percent a year in the highly indebted countries, mostly in Latin America. A key constraint of world economic growth has been the insufficient flow of capital on appropriate terms to the developing countries. Of particular concern to low-income developing countries has been the deceleration of official development assistance (ODA). The OECD estimates that, in 1985 prices and exchange rates, net ODA from all sources had stagnated in the range of $35 billion to $36 billion between 1980 and 1986. Other sources of capital have also dried up. Net intervational bank lending and net foreign direct investment are estimated to have declined sharply during the past several years. Although gross disbursements from the Bank have continued to increase, net transfers have been declining since 1985 and have become negative this year. Net disbursements from the Fund have also been declin- ing since 1984, which has led to reverse flows from borrowing countries to the Fund in recent years. Many developing countries made growing use of commercial loans in the latter half of the 1970s. Subsequent events have demonstrated the imprud- ence of excessive reliance on private commercial capital to fund long-time development projects in poor countries. It is important that we absorb this lesson for the future so as to avoid emergence of another debt crisis. Against this background, I would like to congratulate the World Bank's agreement on the general capital increase, which was arrived at in April this year. We are also happy to note that the Bank has initiated a major review of its financial operations and policies, including those relating to its currency pool system. This is particularly important in the context of the sharp increase in the valuation of debt of borrowers from the Bank and the consequent rise in their debt service obligations. We welcome the positive decision made earlier this year to readjust the repayment terms of IBRD loans. But the effective cost of borrowing from the Bank is still high and has to be reduced. 94 We have been heartened by the cooperative spirit in which the Eighth Replenishment of IDA was reached. Given the experience of earlier replen- ishments and the current criticality of enhanced concessional flows, this is an appropriate time to begin deliberations on the Ninth Replenishment. I hope that by the time the Development Committee meets again in April 1989, substantial progress would have been made on this front with a view to achieving a significant increase in real terms in IDA resources. IDA reflows have become significant. They are estimated at close to $200 million in fiscal 1989 and are expected to rise to nearly $900 million by fiscal 1999. These IDA reflows offer a special opportunity for assisting low-income developing countries through institutional innovations. In recent years, the commitment of fresh IDA funds has been increasingly channeled toward the nations of Sub-Saharan Africa and a few other low-income countries confronted by especially difficult development problems during the current decade. But the problems of low income and persistent absolute poverty are not confined to these countries. Some low income nations that have faced a sharp reduction in concessional assistance have had to progressively increase their recourse to borrowings on commercial and near-commercial terms. But recent developments have clearly shown the limits to external borrowing on commercial terms, if low-income countries are to avoid serious problems of external debt. I believe that the World Bank Group should seriously consider the pos- sibility of using IDA reflows, through some form of special facility, to sub- sidize the interest rate charged on IBRD loans to low-income countries. This form of interest subsidy should be limited to financing basic infrastruc- ture and direct lending for poverty projects and programs. Such an inno- vation would serve the dual purpose of improving the terms on which ex- ternal development finance is made available to the low-income countries and simultaneously augmenting the World Bank Group's capacity for re- newed emphasis on poverty lending in countries where access to fresh IDA funds is currently posing a serious constraint. We welcome the World Bank's renewed focus on the problems of poverty in both its lending program and in its analytical work. From our own ex- perience, we believe that well-established institutions and programs for poverty alleviation are critical, not only in the context of short-term adjust- ment but also in the wider framework of overall development. The inter- national community has commended India for the management of the severe problems posed by the unprecedented drought in the summer of 1987. We believe that our success in relieving widespread distress and preserving the tempo of economic activity, in spite of the drought, was due not only to the availability of sizable foodstocks, but also to the effective functioning of certain well-established nationwide institutions, especially the public distri- bution system for food and essential commodities and the national programs for rural employment and relief. 95 The resilience of the economy demonstrated in the past year has been built over a period of time. For almost four decades, India has pursued strenuously the path of growth and development with stability to build a strong and self-reliant economy and a just society. Thanks to the endeavors of our people and the strong national consensus behind our growth strategy, India has achieved self-sufficiency in foodgrains, established a diversified industrial structure, and created a large pool of trained people. As a result of steady growth and nationwide antipoverty programs, the proportion of the population below the poverty line has declined progressively, although the absolute number of the poor remains large. In this very difficult decade, the annual average growth of our domestic product is expected to be about 5 percent. The rate of inflation has been moderate. In recent years, India has taken strong measures to liberalize its industrial and trade policies for promoting efficiency, modernization, com- petitiveness, and export capabilities. These policies are already showing good results. Industrial production has been growing at a rate of 8-9 percent a year. Exports have picked up substantially. Investment is growing. These results have been achieved predominantly with the help of our own savings. Gross domestic savings now constitute about 22 percent of the gross do- mestic product. We have made effective use of the support provided by the international community. Our recourse to financial markets for commercial credits has been kept within prudent limits. Considering, however, our low per capita income and still widespread poverty, we face enormous chal- lenges, which will continue to engage our energies. The present decade has witnessed major new initiatives by both the In- ternational Monetary Fund and the World Bank Group in the area of ad- justment lending. In the Bank, the Executive Board has recently undertaken a comprehensive review of the experience with adjustment lending which, together with other ongoing studies will, we hope, help in the evolution of future policy. Frankly our own reaction to the innovations in the field of adjustment lending has been somewhat mixed. On the one hand, we have welcomed the initiatives by the multilateral institutions to support programs of eco- nomic adjustment undertaken by developing countries in the face of adverse changes in the international and domestic economic environment. We fully appreciate that the fundamental purpose of adjustment lending is to support developing nations in carrying out necessary economic adjustment with minimum sacrifice of growth and development momentum. On the other hand, we are apprehensive about some features of adjustment lending, as it has evolved over the decade. These include tighter and far too detailed conditionality in adjustment programs and application of uniform policy prescriptions to all borrowing countries, sometimes without adequate re- gard for the complexity of the development process and the uniqueness of 96 .. _--------_.__..-- .. _--------- each country's circumstances. There is also a tendency to expand the menu of policy prescriptions. In our view, excessively tight conditionality and the consequent disruption of timely availability of finance are, in large part, responsible for some of the disenchantment with adjustment lending. We must recognize that the transition involved in adjustment cannot be readily determined by applica- tion of mechanical criteria. The range of policy conditionality associated with each adjustment loan should be realistically limited. There should also be a greater willingness to undertake adjustment lending operations in sup- port of government policy actions that have already been undertaken to promote adjustment, without imposing further fresh conditionality.... . . . As we approach the end of the 1980s, I believe it would be desirable and instructive for us to take stock of how the Fund and the Bank have evolved during the current decade in light of developments faced by the world economy and to explore the changes needed in these institutions to enable them to meet the challenges ahead. INDONESIA: J .B. SUMARLIN Governor of the Bank I am pleased and honored to participate in the Forty-Third joint Annual Meetings of the International Monetary Fund and the World Bank and to have the opportunity to address this distinguished gathering for the first time in my capacity as Minister of Finance of the Republic of Indonesia and Governor of the World Bank for Indonesia. As we review the events of the past year, we can derive some measure of satisfaction from the generally positive movement in many leading global economic indicators. Further, we can be heartened by the relative progress achieved in a number of programs of national economic adjustment as well as in several important areas of bilateral and multilateral cooperation. During the first nine months of this year, the world economy has contin- ued to expand, trade volumes have increased, real interest rates have re- mained relatively low and stable, inflation has been maintained at manage- able levels in most national economies, and world currencies, while continuing to shift in value, have nevertheless avoided the excessive swings that posed such hardship to rational economic planning during the previous three years. Similarly, we have seen a number of notable accomplishments in national, bilateral, and multilateral affairs. At the national level, we have seen sig- nificant progress by a number of countries in restructuring their economies. I cite my own country as a notable example of this important trend; yet I am delighted to add that we are by no means the only country to demon- 97 strate the beneficial effects flowing from measures of reform and deregula- tion, when they are carefully targeted and judiciously applied. On the bilateral and multilateral fronts, we have seen a number of positive developments that also augur well, I believe, for future economic coopera- tion and growth. On the trade side, we have seen the successful maintenance of a number of key agreements among producers of commodities and other products, which has led to a return to fairer pricing levels than we have had in recent years. Unfortunately, it is still too early to include energy products in this list. In addition to these positive multilateral trade developments, we have seen specific undertakings at the bilateral level that also provide encourage- ment. I would cite the recent proposals for closer market integration in North America, in the European Community, and in my own region, the Association of South East Asian Nations (ASEAN) as examples of con- structive trade cooperation on a regional level. Let me emphasize, however, that all such agreements in the trade sector must have as their ultimate aim the achievement of fuller market integration on a global level-and not, under any circumstances, increased trade bal- kanization. The specter of protectionism continues to be felt in many corners of the world, and we must all work together to banish it forever. Moving to the debt side, I would point to the important consensus achieved by the Group of Seven at the Toronto summit earlier this year regarding debt rescheduling to low-income countries. Bold decisions taken by a growing number of donor countries will significantly ease the debt burden by replacing loans with outright grants in the future. On the debtor side, new and imaginative debt-payment solutions have been proposed. Other countries, including my own, continue to hold firm to a policy of rigorous debt management and unequivocal debt repayment. If there is a common thread uniting this broad range of positive devel- opment, it is, I believe, the genuine recognition among a growing number of nations of the benefits to be gained from prudent fiscal and monetary management, combined with enhanced bilateral and multilateral coopera- tion. In our slow, but steady shift toward global economic enlightenment, we can rightly give credit to the spirit-if not always to the specific actions- of our two institutions, the Fund and the Bank, for their important role in economic management and policy coordination. Having said all this-and in spite of my own overall sense of optimism for the future-it must also be admitted that the world economy of the late 1980s continues to be troubled by persistent underlying flaws and structural imbalances. Among the industrial countries, these imbalances, combined with lackluster economic performance, continue to deprive the world of the full thrust of its primary engine of expansion and growth. Among the less 98 developed countries, an acute scarcity of financial resources is eroding the ability to consolidate gains and expand economic growth. And among the world's poorest nations, the entrenchment of structural rigidities is perpet- uating a cycle of unabated poverty and economic frailty. In all this, the single problem of universal apprehension remains that of global debt-ranging from the most piteous examples of countries where the outflow of funds actually exceeds the net inflow, to countries such as my own, where the debt burden, though manageable, places heavy constraints on the ability to invest and to stimulate economic expansion. As member nations in the Fund and the Bank, we all acknowledge that the obligation of debt repayment is one of the fundamental cornerstones of our global economic order. But we also recognize, I believe, that other principles of equity, or fairness, serve to guide the conduct of our economic affairs as well. I have specific examples in mind when I assert that in both our bilateral and multilateral lending practices, we have so far failed to devise debt instruments sufficiently flexible to achieve a proper balance between these two principles. I am referring to debtor nations struggling under two forms of exogenous shock: (1) external currency realignments and (2) sharp de- clines in export revenues caused by external market swings. In today's economic landscape, the devastating actions of these all too familiar forces not only drain away financial resources needed for economic growth into onerous debt repayment burdens but, in so doing, also severely undermine the ability of debtor nations to carry out orderly, growth-oriented economic planning. I cannot emphasize strongly enough my conviction of the need to develop new lending instruments capable of responding to today's undeniable eco- nomic realities. I am convinced the time has now come to introduce new forms of debt relief. First, I propose that a currency swap facility be added to our bilateral and multilateral lending instruments, by which a fixed value would be as- signed to loans at the time of issue. The protection of debtor countries against the downside risk of external currency swings is, I believe, an essen- tial new component that must be added to our strategy of overall debt management if we are to have any hope of meeting the challenge of balanced global economic expansion in the 1990s and beyond. Second, I propose that the consensus achieved at the Toronto summit- the conversion of existing bilateral loans to grants-be given even wider application. Specifically, more donor countries should agree to follow this generous precedent and also the class of eligible recipient countries should be further broadened. This, I strongly believe, would contribute enormously to a break in the current debt impasse and, at the same time, would propel many of the world's more heavily indebted countries along a path of renewed 99 economic growth and expansion. In addition to developing new solutions such as these, we must also work diligently to maximize gains through the funding instruments already in place. With regard to the disbursement of existing funds administered under the Fund, Indonesia supports the doubling of Fund quotas under the Ninth General Review of Quotas as well as the maintenance of the present en- larged access. Further, with regard to the Bank, we are pleased with the successful passage earlier this year of the third general capital increase and also by the ratification of the IDA-8 Replenishment-as both enable the Bank to direct appropriate funding without undue resource constraints. Where progress still needs to be made, however, is in the area of SDR allocations, which we have left unresolved far too long. Let me add one final word on the subject of that perennial source of controversy within development funding: "conditionality." As we are all aware, certain past funding policies of the Fund, and more recently, some of the "policy" lending by the Bank, when tied to onerous conditions of fiscal and monetary reform, have not always received a favorable hearing among recipient countries. Indeed, there have been cases where the con- ditions of austerity imposed may well have caused greater hardship than the problems they were intended to solve. Having said that, it is my observation that the worst excesses of austere conditionality seem to be declining and that the Fund and the Bank are demonstrating a clearer recognition that structural adjustment is best achieved in a climate of economic growth. In the case of my own country, we have found the recent counsel of these two institutions to be realistic and, above all, supportive of our continued economic growth. With their support, we have moved boldly during the past five years to undertake a major restructuring of our economy. The experience of Indonesia, and the positive results we have achieved, lead me to state that conditionality- enlightened conditionality, that is, based on strategies of growth-remains an appropriate tool to be applied both by the Fund and the Bank in the proper conduct of their affairs. Every year at this time, this important international gathering provides a rare and unequaled opportunity for the nations of the world to work to- gether toward achieving lasting economic progress. Let us not waste the opportunity to ensure that the Forty-Third Annual Meetings of the Fund and the Bank will be remembered as a landmark year in the realization of this common cherished goal. On behalf of the delegation of Indonesia, let me conclude by expressing our thanks to the joint staff of the Fund and the Bank for its fine work in arranging this meeting. Let me express also our appreciation to the Gov- ernment of the Federal Republic of Germany and the cooperation of the city of Berlin (West) for their generous and gracious hospitality. 100 ISLAMIC REPUBLIC OF IRAN: MOHAMMAD JAVAD IRAVANI Governor of the Bank In the name of Allah, the Merciful, the Compassionate. Certainly We sent our apostles with clear argument, and sent with them the book and the scale that men may conduct themselves with equity. The Holy Quran, LVII.25 I would like to express my pleasure at being present in this gathering, and on behalf of the delegation of the Islamic Republic of Iran offer my sincere appreciation to the organizers for their valuable efforts. The joint Annual Meetings of the International Monetary Fund and the World Bank provide an appropriate opportunity to review and discuss the difficulties confronting member countries and to find more fundamental remedies for the current problems in the world economy, particularly for the poor countries. We hope through such gatherings we can at least make the problems of the developing world heard and more practical and funda- mental remedies can be found for their solution. The world economy during 1987 was characterized by disarray and irreg- ularities. The world made much effort to save itself from a crisis. That environment, filled with uncertainties about the future trend of the global economy, still persists. Despite the relative decline of inflation and the moderate pace of growth in the world economy, the overall economic situ- ation is still characterized by disarray and disequilibrium, its main features being international payments imbalances, high interest rates, huge fiscal deficits in certain countries, and large surpluses in others. The present world economic problems stem mainly from the weakness and inability of the industrial countries to provide conditions conducive to economic stabilization, the lack of flexibility in their economic structure, and the adoption of discriminatory trade policies by these countries. The adverse effects of these factors on developing countries were more profound during 1987. Unemployment, poverty, and high mortality rates among chil- dren are some of the undesirable consequences prevalent among the poorest nations. It has now become quite clear that fundamental solutions should be found for the establishment of a stable, lasting, and equitable international mon- etary and financial system. In such a system, monetary and financial rela- tions between the rich and the poor countries should be envisaged, imple- mented, and supervised so as to prevent further widening of the gap between the poor and the rich. The International Monetary Fund and the World Bank should show greater flexibility in the formulation of economic stabilization and adjust- 101 ment programs and display more sensitivity to the difficulties facing the deprived nations. Avoiding more restrictions and conditionality on loans, eliminating cross-conditionality by various international institutions, and adopting a uniform and equitable approach toward all member states are among the issues that need further attention. In addition, the Fund and the World Bank should provide the grounds for greater involvement of industrial countries in the development of the world economy and emphasize the joint responsibility of all countries for the improvement of economic and social conditions of the world. During 1980-87, except for a few newly industrialized countries, the rest of the developing world, particularly the debtor and African countries, faced a severe deterioration in their standard of living, a decline in investments, and economic recession. During 1987 and in the past recent months, only a slight improvement has taken place in supply and demand conditions and prices of primary commodities, which should not give rise to undue opti- mism. Despite these developments, the real prices of primary commodities are still low and as much as 32 percent below average prices during 1980- 84. In fact, they are half the average prices in 1974. At the same time, capital flows from debtor developing countries contin- ued and, according to recent figures, this net outflow from 1982 onward amounted to almost $85 billion. With the continuous drop in oil prices and increasing net flow of funds from the developing countries to industrial countries, and contrary to ex- pectations and despite all projections, the recycling of such funds to the needy countries has not taken 'place. On the contrary, new international lending has declined, direct and indirect investments in developing countries have fallen, and official development assistance has also decreased in real terms. Capital flight and the problem of foreign exchange outflows from the developing countries have assumed greater dimension. It is now recognized by international institutions that capital flight in certain countries has not only caused a reduction of savings and investments and slowed economic growth, but also has further aggravated the debt crisis. Despite the adoption of debt relief mechanisms in recent years, the in- debtedness of developing countries continues to mount up with greater intensity. It is quite clear that ad hoc remedies have proved to be piecemeal and transient. Recently, some industrial countries converted the poorer nations' debts to grants, which is commendable. But the main problem still persists. The creditors and international financial institutions should enter into partnership arrangements with the debtor countries, and the focal point in these arrangements should be the creation of debt cooperative funds and direct links between the creditors and the final users. In these arrangements, the rate of return on investments and profitability of such undertakings are 102 the main determinative factors. In recent years, some measures have been taken in this direction and some loans have been converted to investments in the debtor countries, which should be encouraged. Islamic banking, which is based on similar partnership arrangements and the elimination of interest rates, has become more prevalent in recent years in numerous Islamic and other countries. During last year, a number of studies and research projects have been carried out by international orga- nizations. It is appropriate that the scope of such studies be expanded to cover other aspects of the Islamic economy. Regarding environmental pollution and its harmful effects, it suffices to say that certain countries have deliberately polluted and damaged the en- vironment. In this connection, mention should be made of the pollution in the Persian Gulf waters, which are the natural habitat for rare marine animals. I hope the international community will take effective measures in protecting and cleaning the environment. Recent measures taken by the World Bank in giving priority to environmental issues are commendable. The adoption of the resolution relating to the general capital increase by the Executive Directors of the World Bank was an important step in en- larging the resources of this institution. In this connection, I am happy to announce that the Government of the Islamic Republic of Iran, despite a multitude of problems stemming from the imposed war, has considerably increased its capital in the Bank and voted in favor of the recent resolution on the general capital increase. The ratification of the increase in our capital in the Bank by the Islamic Consultative Assembly and full subscription to Resolutions 346 and 365 are indicative of the importance that we attach to the development and the role of monetary and financial institutions in this respect. For developing countries, export earnings are of utmost importance in their economic development. The earnings of oil producing countries suf- fered the most during the 1980s and the decline of real prices of oil put many of these countries in a difficult position and disrupted their develop- ment plans. The deterioration of these countries' terms of trade, which assumed added dimension in 1986, continued during last year. The contin- ued decline in oil prices adversely affected their imports and investments. The continuation of this trend can bring about further instability for the global economy. It is, therefore, essential that prices of oil increase and stabilize at a realistic level. The points I have earlier enumerated demonstrate clearly the need for tackling the problems in a fundamental way. Transient and ad hoc solutions cannot provide a solid foundation for the world economy upon which it can achieve equitable growth so as to allow all the countries to enjoy the bless- ings endowed by the Almighty Allah. In this connection, the role of inter- national monetary and financial institutions is crucial. Hence, in addition to 103 their surveillance on economies that play an important role in the world economy, they should pave the way for greater international cooperation which is essential for economic growth and development. I wish to mention a few points about the recent developments in my country. The acceptance of Security Council Resolution 598 proved to all that we have been seeking a just and durable peace and have spared no effort to achieve this goal. We also hope that a sound and solid foundation can be laid for durable and honorable peace both in the Persian Gulf and the rest of the world. During the imposed war and despite the decline of oil prices and the pressure to halt the flow of Iranian oil, the export operations continued under the severest war conditions, and the best efforts possible were made to fulfill our contractual obligations. It is to be noted that this task was made possible only because of the devotion and self-sacrifice and the faith of our valiant people. Furthermore, our people, with the help of Allah, have used the imposed economic difficulties to their advantage and dem- onstrated innovation and ingenuity, leading to savings in war expenditures, elimination of conspicuous consumption, and moving toward self-sufficiency and self-reliance in production. In recognition of the importance of reducing reliance on a single com- modity export and attaining self-reliance, the Islamic Republic of Iran has embarked on the promotion of non-oil exports during the last year. The non-oil exports increased to more than US$l billion. It is to be noted that the agricultural sector has enjoyed desirable growth during the last year and as a result of effective management, the efficiency of this sector has increased. Public enthusiasm for interest-free banking during recent years and the growing deposits show people's confidence in the present banking system and its functional acceptability. On the basis of Islamic contracts and by utilizing these deposits, many economic and industrial projects have already become operational. It is also to be noted that private sector deposits during the last year increased 20 percent, and priority sectors in providing credit facilities were agriculture, industry, mining, and housing. Another domestic economic achievement was the lowering of dependence of public revenue on oil through appropriate taxation with a view to estab- lishing social justice and a fairer distribution of income. In this connection, a bill on value-added tax has been prepared and submitted to the Islamic Consultative Assembly and is presently under consideration. In addition, the Government has also paid attention to social welfare. Increasing the rate of literacy in the country, achieving larger enrollment for primary, secondary, and university students, and expansion of electricity and rural health networks are among the achievements. Another positive development is the extraordinary expansion and devel- opment of economic ties with other developing countries and Islamic na- 104 -~"--"-"---"--.----------. -" - -------------------- tions. Relations with the developing world have now become the main pillar of our foreign economic policy. Considering all the problems and difficulties during the imposed war, the Islamic Republic of Iran, without relying on external financial sources and by taking advantage of a mechanism for foreign exchange allocation, has fulfilled all its external obligations. By honoring financial obligations on time, and not relying on borrowed resources during the war years, the conditions are now favorable for reconstruction and renovation as well as expansion of economic capacity. In conclusion, I hope these Annual Meetings can achieve their expected aims and that we may be able to at least eliminate a part of economic problems, poverty, and inequalities in our world through cooperation with all nations. IRELAND: RAY MACSHARRY Governor of the Fund and Bank We can look back with some satisfaction at world economic trends in the past year. World trade and output have been growing and are likely to continue to grow, and it is encouraging that some progress is being made in reducing the global imbalances that threaten the benefits achieved to date. While the debt problem that has dominated the agenda for so long is still unresolved, practical proposals have been put forward that should produce an improvement. In particular, there is evidence of greater willingness among the international community to assist the poorer countries. These developments should not, however, blind us to the dangers, such as renewed inflation, which overhang the world economy. Neither should they lull us into ignoring the depressing facts that growth in many developing countries remains unacceptably low and that the poorer countries continue to experience financing problems that destroy their best efforts to break out of the appalling cycle of poverty and destitution. It is disappointing that greater progress has not been made in coordinating economic policies to achieve a better balance worldwide and that unemployment and a sense of hopelessness remain the lot of so many people in so many parts of the world. The growth of world trade is not only an essential condition for easing the problems of the developing countries, but it is also vitally important for the economies of the developed world, as some of these are especially vulnerable to any downturn. Continued strong growth in world trade will depend, in large measure, on the continued effectiveness of international coordination. It is good that the major industrial countries are sustaining their efforts toward greater coordination of economic policies and the de- velopment of a consistent view of the world economy. I hope that this process will gather momentum. Possibly one of the more important benefits of coordination is that it can provide governments with a firm political will to 105 make difficult choices in the face of opposition from domestic pressure groups. Last year, when addressing these meetings, I mentioned the importance for the Irish economy of continuing growth in a stable international envi- ronment. We are a small and open economy, heavily dependent on export trade. There are clear indications of improvement in the Irish economy and a growing confidence reflected in substantial inflows of capital. Considerable progress has been made in correcting our budget difficulties, inflation is very low, and there has been a very significant drop in interest rates during the past 12 months. I am confident that this turnaround will soon generate increased employment opportunities. I should also add that we are looking forward with optimism to the full implementation of the program for greater integration of the internal market of the European Community. Perhaps there are lessons that can be learned and applied on a global basis from the experience of the development of the Community. Our own efforts to improve our situation have made us particularly sen- sitive to the very much greater difficulties that face the developing countries. The papers prepared for Monday's meeting of the Development Committee, and the discussion itself, reflected an active concern about the possibly adverse effects of adjustment programs on the poorer sections of commu- nities. Both the Fund and the Bank are showing a willingness to confront this very difficult issue. In particular, we endorse strongly the new measures that the Bank is taking to incorporate a poverty focus into its day-to-day work. We welcome the acknowledgment that it is morally, politically, and economically unacceptable to wait for resumed growth to reduce poverty, and we strongly support the reallocation of resources toward explicit anti- poverty activities. The Fund has taken a number of decisions that are designed to make its facilities more relevant to the needs of the heavily indebted, middle-income countries. I am glad that the existing access limits to Fund resources will be maintained in 1989. I believe it is important that agreement is reached quickly on the size of the next quota increase. If the Fund's role in the international monetary system is not to be diminished, it must have sufficient resources at its disposal. I wholeheartedly support a substantial increase in those resources. Despite the continuing constraints on public expenditure, Ireland remains fully committed to the activities of the World Bank Group, and I am happy to be able to say that we have been among the first countries to participate in the recent general capital increase. Earlier this month, my Government approved the taking up of all the shares allocated to Ireland, and on Sep- tember 9, we were able to lodge our formal notification of subscription. I also hope that by the end of this year we shall have completed the domestic procedures to enable us to ratify the Multilateral Investment Guarantee Agency convention. I would like to compliment the Bank on the progress 106 achieved to date with its environmental program. It is especially heartening to see that the heightened awareness of recent years of the importance of environmental considerations to the development process has begun to be translated into action on specific problems. In the modern, complex world economy the need for supranational insti- tutions such as the Fund and the Bank to lead the way in achieving greater stability and sustaining balanced growth is stronger than ever before. We live in a world of great potential and, yet, great inequality. With diverse and often conflicting priorities, it requires much goodwill and commitment to achieve consensus. We must all have a common interest, however, in the betterment of world society through greater coordination of economic pol- icies directed toward the best use of resources and the defeat of poverty. The fact that so much remains to be done, that the gap between rich and poor is so wide, and that sometimes we seem to move backward rather than forward must not discourage us. The Annual Meetings provide us with a forum in which to develop a greater sense of cooperation and to renew our efforts toward finding better solutions. It is important that these meetings result in a stronger commitment from all members to the work of the Fund and the Bank. ISRAEL: MICHAEL BRUNO Governor of the Bank It is an honor and a privilege to address this distinguished gathering on behalf of the State of Israel. The Annual Meetings of the Fund and the World Bank provide an op- portunity for reflecting on recent developments and for the formulation of priorities for the future. Coordination of the macroeconomic policies of the leading industrial economies continues to be a key prerequisite for the orderly reduction of their external imbalances and for the restoration of stable long-term growth, whose rate in the 1980s has been half that recorded in the 1960s. Higher sustainable economic growth in the industrial countries is a necessary con- dition for a recovery in the fortunes of developing countries. Moreover, if the industrial countries do not act in unison to correct their economic imbalances, adjustment is forced upon them by the financial markets through exchange rate shifts and higher real interest rates. These are det- rimental to the adjustment efforts of developing countries. The recovery of the developing countries is thus inextricably linked to the policies and re- sulting performance of the industrial economies. But high growth in developing and developed countries alike cannot be sustained without a liberal and open trade system. Recent trends in this field are not encouraging and we place much hope in this context in the present round of GAIT negotiations, particularly as regards the agricultural sector. 107 The fortunes of the developing countries are also linked to the more industrial world through their need for new financial resources. Adjustment programs, however well planned, need adequate and sustained financing. Inflows of new capital and the easing of the terms of debt repayment are -essential in supporting the stabilization of the deeply indebted countries. The Fund and the Bank play a central role in this respect by providing countries with much-needed financial assistance and, even more crucially, acting as a catalyst for other financing. But if these institutions are to fulfill these functions properly, they must have adequate resources at their own disposal. Otherwise, their actions will lack credibility, both in the eyes of the developing member countries and of the international financial com- munity. However much the growth of developing economies is linked to the poli- cies of their industrial counterparts, it is still not a substitute for sound adjustment on behalf of the developing countries themselves. We would now like to turn to one particular aspect of this adjustment effort and its rela- tionship with the traditional division of duties between the Fund and the World Bank in supporting stabilization policies and longer-term structural adjustment. Stabilization addresses severe short-term problems-inflation and depletion of foreign exchange reserves-while structural adjustment is usually directed at longer-term growth issues, as well as the removal of trade and financial distortions. However, more often than not the deeper roots of a stabilization crisis are structural by nature. In such cases a crisis cannot be permanently cured only by a short-term stabilization program, however well it may have been conceived. For example, a large and sustained gov- ernment deficit may be temporarily removed by a tax increase or an ex- penditure cut, but it will not be permanently eradicated unless the under- lying tax and expenditure systems (and thus the whole set of relationships between the private and public sector) undergo fundamental reform. In the absence of such reform, the fiscal problem will soon re-emerge and with it stability will again be impaired. Similar examples could be brought forth from the areas of trade, finance, or labor market policies. Likewise, a structural adjustment effort is doomed to fail if stabilization of government budgets and external accounts is not assured. Thus the cred- ibility of trade liberalization or financial reform in the eyes of investors will soon be lost if large fiscal deficits re-emerge, implying continued inflation and balance of payments crises. My own country's recent experience is often cited as an example of a successful stabilization effort; yet it also exemplifies the need for the contin- ued pursuance of more fundamental structural reforms, most of which still have a long way to go. In the three years of the Israeli stabilization program (started in July 1985), annual inflation has dropped from 500 percent to 15 percent; the foreign exchange position of the country has dramatically im- proved; also output, employment, and productivity have been growing more 108 .... ,,--------_._--- rapidly, at least until recently (presently there is a slowdown in economic activity). At the same time, however, there are numerous deeper structural problems, some of which have surfaced only once the initial stabilization phase has taken place. A large government budget deficit which was sustained at the rate of 12- 15 percent of GNP for over more than a decade has been substantially reduced, yet the heavy tax burden by which the budget is financed hampers future growth prospects. Its elimination requires a restructuring of the role of government so as to reduce its extensive direct role in the economy. Similarly, after years of government dominance in financial and capital mar- kets with a large overhang of internal debt, there is need for a gradual restructuring of these segmented markets. Real interest rates on free market borrowing are still high, and numerous firms in financial distress require internal debt rescheduling schemes. Finally, greater flexibility in real wage and labor market adjustment as well as further trade liberalization are prerequisites for the final step of reducing inflation to world levels. All of these are examples of the need for sustained structural adjustment in the wake of, and alongside of, a serious stabilization effort. Similar evidence can be brought from the experience of other countries that have gone through recurring fiscal and balance of payment crises. The lessons to be learned from these is that stabilization, liberalization, and structural reforms must be jointly embedded within a medium- or even a long-term strategy. Another implication is that the external support for a country's adjustment effort must be conceived and sustained within an integrated short-, medium-, or long-term framework. These examples suggest the advantage of closer coordination and joint external finance planning by the Fund and the World Bank on a case-by- case basis. Each one of the institutions has its own comparative expertise and should keep its independence; yet there is need for improved coopera- tion in the support of individual country adjustment and development strat- egy as well as in its ongoing surveillance. In closing I would like to join the previous speakers in thanking the city of Berlin (West) for being host to this year's Annual Meetings and for the excellent arrangements it has made for this occasion. ITALY: GIULIANO AMATO Governor of the Fund First of all I wish to express my thanks and appreciation for the warm hospitality that the German authorities have offered us in Berlin (West). The confidence we expressed a year ago in the maintenance of substantial growth rates for the world economy has proved to have been well founded. The fact that the economic expansion has continued in 1988 and actually 109 accelerated represents a significant achievement: this year will be the sixth consecutive year of growth-an exceptionally long phase by historical stan- dards. The resilience of world economic expansion, notwithstanding last October's financial market crisis, bears witness to the appropriateness and promptness of the policy response given by major countries to market dis- turbances. In most industrial nations growth is being fueled by the strength of fixed capital formation, which is expected to raise economic potential significantly over the medium term. The feared resurgence of inflation following the increases in world com- modity prices has materialized only to a minor extent. Another positive factor is the rise in domestic absorption relative to output expansion in major industrial countries other than the United States. New jobs have continued to be created but the high rate of unemployment in Europe has not declined yet. Although some progress has been made in the major countries in reducing trade and payments disequilibria in real as well as, to a lesser extent, in nominal terms, external imbalances are projected to remain large up to 1990 and beyond. As far as the United States is concerned, this would imply an accumulation of external debt that might be difficult to sustain in the me- dium term. The crucial issue is to identify the policy mix capable of ensuring nonin- flationary growth and reducing external imbalances. In some countries, the recent tightening of monetary policy was warranted in view of incipient signs of overheating of the economy that .could have given rise to inflationary expectations. In others, the picture does not seem to call for any change in the monetary policy stance. Indeed, data on capacity utilization must be assessed also in light of structural changes taking place in the industrial sector, while recent developments in commodity prices are far from showing a homogeneous trend. In any event, it would be highly undesirable if an excessive concern about inflation were to bring about a spiral of interest rate rises. Such a move would inevitably transmit deflationary impulses to economies where domes- tic conditions and objectives require different policies. Moreover, it would aggravate the already difficult situation of indebted developing countries. In these circumstances fiscal and structural policies should be made to play a more important role. A tightening of the fiscal stance would be the most appropriate tool to deal with the problem of the "twin deficits" of the United States. Contin- uation of structural improvements would contribute to the reabsorption of the Japanese external surplus, while in Europe structural measures, coupled with somewhat faster growth of domestic demand in surplus countries, would help to reduce unemployment, which, at 11 percent, continues to be the most serious social and economic problem. 110 -------------------- Coordination among the major industrial countries is contributing to the steering of economic policies in the direction required to correct imbalances and to enhance exchange rate stability. Cooperation in the trade field is also necessary. We look forward to a positive outcome of the forthcoming midterm review at Montreal, where protectionist tendencies should be checked and reversed in all countries. Moreover, strong expansion of world trade is especially supportive of de- veloping countries' efforts to lower their debt ratio. Despite some improvements, the situation of developing countries is, as a whole, less encouraging. Their GOP growth remains modest by historical standards. Improvements in output and trade performance appear unevenly spread. Protectionist pressures continue to be a real concern. The flow of financial resources remains insufficient. Interest service ratios have in- creased, especially for the most heavily indebted countries. The existing debt strategy has at present no practical alternative. How- ever, what we are doing is not enough. Several proposals are now being advanced and should be carefully and collectively examined. Voluntary debt conversion schemes, as those experimented with by some highly indebted middle-income countries, can help to reduce the stock of debt and foster private foreign investment and thus the attainment of higher growth. However, the effectiveness of these schemes and their ability to deal with the debt problem must not be overestimated. For low-income countries, official creditors have developed a wide range of modalities for concessional debt rescheduling. These concessions will prove most beneficial to indebted countries if they take the opportunity to improve the efficiency of allocation of their scarce domestic resources and to raise fixed investment. We welcome the introduction of the additional concessionality in official debt rescheduling by the Paris Club, in line with the Toronto summit com- munique. We confirm Italy's commitment to making available additional resources on official development assistance (ODA) terms, continuing in our upward trend. The persistence of imbalances and tensions related to the debt problem calls for a strengthened role of the Bretton Woods institutions and their close cooperation in the design of programs of adjustment and structural reform and the provision of increased financial resources .... . . . Concerning the World Bank, we welcome the completion of the general capital increase, which will double the Bank's capital. It is the most evident sign of the wide support it enjoys among its shareholders, in both the developing and the developed worlds. The Bank is now in a better position to fulfill its tasks and to contribute to the increase of financial flows to the developing countries. It is to be underscored that during the last three years World Bank lending to the heavily indebted middle-income countries has accounted on average 111 for more than 50 percent of total external flows to these countries, making the Bank by far the most important source of new money, of which a great proportion has been in the form of quick disbursing adjustment lending. For the future this source of lending should be reserved for those indebted countries for which genuine commitment to adjustment is supported by a transfer of resources from the private sector. In other cases, the Bank should act through its traditional project lending. The Bank, when requested by both debtors and creditors, could also help in advising on schemes of policy- oriented rescheduling and debt reductions. These should be market-based and part of the case-by-case overall strategy. We welcome the Bank's initiative in the field of environment. It is now widely recognized that, so far, growth in both rapidly industrializing coun- tries and other developing countries has almost invariably been accompanied by destruction of forests, desertification, deteriorated sanitary conditions, high air and water pollution, and unplanned resettlements of entire popu- lations. This is not a necessary price for development. Degradation of the human environment makes it harder to sustain development, and GNP figures alone are an imperfect indicator of a country's welfare. We shall support efforts by the Bank to develop forms of lending where all three targets of economic growth, poverty alleviation, and environmental protec- tion are jointly pursued. The entry into operation of the Multilateral Investment Guarantee Agency (MIGA), together with the recently strengthened International Fi- nance Corporation (IFC), should ensure strong support to private sector initiative. The Bank is certainly not a newcomer in the promotion of food security and poverty alleviation in the least endowed countries. In particular, we would underline its extraordinary ability to mobilize ODA flows. To this end, bilateral resources are crucial; we welcome the recent initiatives taken by the Bank for the coordination of these resources. Recent developments in the Italian economy enable us to be more opti- mistic than we were only a few months ago. There are clear signals that even the latest upward revision in the Fund growth forecasts is on the low side, since the actual figure for GDP growth in 1988 is likely to be around 3.5 percent. This favorable evolution parallels that of other industrial coun- tries where growth has been generally more buoyant than expected. This seems to be partly due to structural changes not captured by existing fore- casting models, especially insofar as efficiency gains are concerned. The 1980s have seen a profound transformation of Italy's productive struc- ture, mainly in terms of increased flexibility and to some extent reduced dependence on traditional primary imputs. This trend is continuing, and in 1988 the increase in investment is expected to be only slightly below the 5.2 percent figure recorded last year. This is an encouraging feature of the 112 ._.._------- .... _.......... - ..... __.... _---- current expansionary phase, especially because it allows demand pressures to be increasingly accommodated by supply, rather than triggering inflation- ary responses. It is also reasonable to predict some improvement in the unemployment situation, of which there are already signs. The latest available data indicate that, for the first time after years of continuous decline, employment in the industrial sector has started to rise again. Recent developm~nts on the price front have been reasonably good, partly due to the continuing favorable trend in import prices and in spite of the recent increase in value-added tax rates. The rise in consumer prices re- mains below 5 percent and further reduction is expected for 1989. The inflation differential with respect to Italy's main European partners like the Federal Republic of Germany is now narrower than at any previous time since the establishment of the European Monetary System in 1979. In turn, this convergence has allowed Italian exports to remain competi- tive and to play a positive role in our growth performance in 1988. As a result, this year, Italy's current account deficit is expected to be about 0.4 percent of GOP and is likely to remain approximately of the same order in 1989. The disinflationary process would not have been possible without the moderately restrictive stance adopted by the monetary authorities. In this respect, the recent increase in the official discount rate, which has accom- panied similar actions taken by other European countries, was both timely and significant. Its timeliness derives from the consideration that credit expansion was going too fast in relation to the target; its significance lies in its being a clear indication of confidence in the effectiveness of market instruments as opposed to administrative measures. The increase in interest rates is exerting a stabilizing effect on expecta- tions. Oemand for medium- and long-term financial assets is rising again. This helps to resume a lengthening of the average maturity of government debt. The state of Italy's public finances is a source of concern in an otherwise encouraging picture of our economy. In spite of the progress being made- this year's public sector deficit should decline to 10.9 percent of GOP, com- pared with the 11.6 percent recorded in 1987-the burden placed by public dissaving on the economy is still too heavy. One objective of the Finance Bill for 1989, which is to be tabled shortly in Parliament, is an unchanged public sector deficit in nominal terms, which implies a further reduction in the deficit/GOP ratio. In order to achieve these results, measures must be taken not only on the expenditure side, but also on the revenue front. In particular, public ex- penditure must be contained and made more efficient; available resources should be concentrated in the areas where they are most needed and yield 113 a greater return in terms of actual welfare. At the same time, a major reform of the tax system is under way, with the aim of improving its equity and its efficiency. The rigorous implementation of the rehabilitation plan passed by Parlia- ment should lead to a surplus in the public sector budget net of interest payments and to the stabilization of the debt/GOP ratio by 1992. JAPAN: SATOSHI SUMITA Alternate Governor of the Fund and the Bank There are a number of important issues before us, and I am grateful for this opportunity to state my views as Alternate Governor for Japan. Before that, however, I would like to express my very sincere admiration and ap- preciation to the Government of the Federal Republic of Germany for the impeccable arrangements that they have made for our meetings. 1. Present State of the World Economy and the Economic Issues Before Us. (i) Present state of the world economy In looking at the overall state of the world economy today, the first thing we notice is that it is achieving faster and better economic growth than expected. The industrial countries continue to enjoy strong expansion, and the developing countries as a whole are managing sustained though gradual economic growth. The next feature of note is the progress that is being made in reducing external imbalances among the industrial countries, not only in volume terms but also in nominal value terms. The U.S. trade deficit and Japan's trade surplus in particular have been steadily reduced. In addition, it is noteworthy that exchange rates, though having changed substantially at times, have been relatively stable of late. Focusing more narrowly upon Japan, the economy has continued to ex- pand, with the primary impetus from strong domestic demand, while prices have been very stable. Real GNP growth in fiscal 1987 was 4.9 percent- the highest it has been since fiscal 1984. In tandem with this, the current account surplus is being steadfastly reduced, the surplus for fiscal 1987 being $10 billion less than that for fiscal 1986-the first reduction since fiscal 1981. Looking ahead, Japan, is determined to promote and consolidate the shift to domestic demand-led growth in line with the new five-year economic plan adopted this May. The tax reform now being discussed in the Diet is also expected to contribute to the attainment of this objective by creating a distortion-free tax structure and by instituting major tax reductions. (ii) The economic issues before us Yet while the outlook for the world economy appears bright, there are still three problems that remain before us. 114 The first is the continuing need to achieve noninflationary and sustained economic growth and to further reduce international imbalances among nations. This need clearly mandates a continued effort for economic policy coordination and for exchange rate stability. Second is the need to resist the rising tide of protectionism. Here, I hope that midterm review of the Uruguay Round will provide additional impetus for the promotion of multilateral free trade negotiations. And third is the persistent problem of the developing countries' debts. According to IMF figures released recently, these countries' total accumu- lated debt is expected to be $1.24 trillion by the end of this year. This is a truly staggering amount, and it is crucial that we make a serious effort to come to terms with this problem, not with idle armchair theories but with practical measures that will have tangible effects. 2. Policy Coordination and Improving the Functioning of the International Monetary System (i) Policy coordination efforts Meeting at the Plaza Hotel three years ago, the major industrial countries agreed to coordinate their policies to ensure that the dollar better reflects economic fundamentals. While steady progress has been made in reducing the imbalances among the major industrial countries in the months and years since then, this period has also seen very large and rapid changes in exchange rates. Bolstered by the Louvre Accord 19 months ago, policymak- ers have realized that they have to coordinate their economic policies and cooperate in exchange markets so as to reduce the external imbalances while promoting exchange stability and to achieve noninflationary economic growth, and all of them are working toward that end. It was this concerted policy coordination effort by the countries concerned that enabled us to ride out the wave of market uncertainty following last October's Black Monday spasm, and it is this policy coordination that ac- counts for the progress we are making in achieving sound economic expan- sion and reducing the external imbalances. It is important that these efforts for policy coordination be continued if we are to maintain these favorable trends: the surplus countries should sustain the momentum of domestic demand as long as possible, while the deficit countries should strengthen their efforts to reduce their fiscal deficits. At the same time, although the risk of global inflation is not an issue of urgent concern, it is important that we maintain vigilance against its re- surgence. (ii) Improving the functioning of the international monetary system Many of our countries have deregulated exchange transactions and the international monetary system has undergone sweeping changes since the 1973 shift to floating exchange rates. Having gone through a number of tests 115 and trials, including major exchange rate changes, the floating exchange rate system has gradually evolved and matured. This is thus an opportune time to step back and look at possible ways to improve the functioning of the international monetary system from the medium- to long-term perspective. However, it should be noted that the introduction of a system establishing ranges, bands, or other binding means restricting the scope for exchange rate fluctuation would necessarily entail full consideration of asset settle- ment. Given this, I believe that it would be more realistic at this point to consider ways of diversifying reserve currencies to complement the dollar's key role, thereby facilitating the financing of resources for market interven- tion and dispersing the exchange risk of reserve currencies. Consistent with this, Japan has been steadily removing the barriers that would impede the use of the yen as an international currency. ... 3. Debt and Development ... (i) Present situation and basic policy directions Although the developing countries' debt service ratios have come down slightly, these countries continue to bear a staggering debt load and the situation remains serious. It is imperative that we overcome this situation in order to promote economic growth in the developing countries and to stabilize the international financial system. It is my firm conviction that the menu approach proposed to cope with the tapering off of the flow of funds to the developing countries from com- mercial banks is valuable in broadening the range of options and promoting new financing participation. Efforts to promote case-by-case solutions based upon full and accurate understanding of the situation in each of the developing countries are basic to any attempt to resolve these countries' debt problem. There is no general panacea for the debt problem. For the middle-income countries, it is essen- tial to promote market-oriented responses premised upon the self-help ef- forts of those countries with cooperation from the commercial banks, the governments of the industrial countries, and the multilateral financial insti- tutions. As noted in the Toronto summit's Economic Declaration, we must also recognize the plight of the poorest countries, and each of our countries should work within its legal framework to lighten their debt burden. Both the IMF and the World Bank have an especially important role to play in dealing with the debt problem in that their financing serves as a critical catalyst for the flow of funds from other sources. I strongly hope that the IMF and the World Bank will continue to strengthen their policy advisory functions and will exercise cooperative leadership in resolving the debt problem. 116 (ii) Japan's response Aware of the seriousness of these problems, Japan has made-and will continue to make-every effort to contribute to a solution to the debt and development problem. We have, for example, instituted a major program designed to recycle at least $30 billion over a three-year period, and nearly 80 percent of this $30 billion has already been committed. Japan is active in contributing and subscribing to multilateral organizations as well as in cofinancing, with these organizations, by the Export-Import Bank of Japan, the Overseas Economic Cooperation Fund (OECF), and commercial banks. With specific reference to the importance of direct investment for alleviating the debt problem, it should be noted that the ASEAN-Japan Development Fund (AJDF) was established recently and is moving ahead steadily to implement its invest- ment programs. Looking to the plight of the poorest countries, Japan announced plans in Toronto to provide grants equivalent to the repayment amount of the prin- cipal and interest on yen credits committed to the least developed countries in the decade 1978 to 1987, thereby, in effect, waiving repayment on these credits. On official development assistance (ODA) overall, Japan announced its Fourth Mid-Term Target this June for the five years from 1988 through 1992. Under this Target, Japan has pledged to raise the half-decade total of its ODA to at least $50 billion-twice the total for the previous half-decade- and, for example, to respond positively to the need to provide strengthened resources for multilateral organizations, to work to enhance its grant aid to the least developed countries, and to make its yen loans generally untied. I assure you Japan is determined to achieve these goals. Also in this same vein, I am pleased to announce, on behalf of Minister Miyazawa, that, as part of its contribution to promote growth in the devel- oping countries and to help solve the debt problem, Japan is prepared to extend additional financing in the form of untied loans in parallel with the Fund's extended or other arrangements. The loans will be extended by the Export-Import Bank of Japan, on a case-by-case basis, mainly to middle- income countries in support of medium-term structural adjustment. (iii) The IMF's role in resolving the debt problem With the successes being achieved by the case-by-case approach, I do not believe it would be either realistic or effective to seek a comprehensive, global solution to the debt problem. Reaffirming our support for the existing basic strategy, Japan would like to propose an additional menu item for the middle-income countries' debt strategies, as suggested by Minister Miya- zawa in Toronto. Under the proposed option, the debtor country would have to start by reaching agreement with the IMF on a medium-term program for economic 117 structural adjustment. This is a prerequisite, and it is hoped that this struc- tural adjustment program would be supported by bilateral funds from the industrial countries as well as multilateral funds from the international fi- nancial institutions. Once this program is agreed upon, the debtor country and the creditor banks would meet to agree on securi~izing some of the debt outstanding and on rescheduling the rest of the debt under appropriate terms and conditions. In both cases, the certainty of repayment would be enhanced by the debtor country's special reserve accounts funded by their own resources and held in trust by the IMF. Of course, it goes without saying that this new scheme would have to be structured so that it meets three conditions: (a) that it is consistent with the case-by-case approach, (b) that it is market-oriented and the creditor banks are free to participate or not as they see fit, and (c) that it does not entail any transfer of risk from the commercial banks to the multilateral financial institutions or creditor country governments. In addition to this, of course, there is much that the IMF can do within its traditional framework. I am thus encouraged by the fact that an effort is being made to revitalize the extended fund facility (EFF) by, for instance, allowing for one-year extensions of its programs when necessary and ac- cepting some flexibility in its access limits on a case-by-case basis. Likewise, I am glad to see that the compensatory financing facility (CFF)-created to provide temporary relief for countries that incur export shortfalls as a result of external factors-has been expanded and enhanced into the compensatory and contingency financing facility (CCFF) to deal with a wider range of external contingencies. By the same token, I am delighted that the enhanced structural adjust- ment facility (ESAF) has gotten off the ground and lending has begun from this facility. The Export-Import Bank of Japan has supported the ESAF with an agreement concluded this April to lend SDR 2.2 billion to the IMF, and the Japanese Government has pledged to contribute a grant of SDR 300 million to the ESAF, part of which has already been disbursed. (iv) The role of the World Bank Group The World Bank is a major player in international efforts to deal with the debt and development problem. Japan therefore actively supports the efforts to enhance and strengthen the World Bank and its affiliates. There have recently been rising expectations regarding the World Bank's catalytic role in promoting and ensuring the flow of funds, particularly private funds, in support of the developing countries' efforts for growth- oriented and market-oriented adjustment. Cofinancing by the World Bank and private financial institutions has recently seen a diminishing flow of private funds. Given this, it is therefore all the more important that the World Bank needs to be even more flexible and positive about its catalytic 118 functions-including cofinancing-in line with the specific circumstances of each case. Among the many forms of private funds flowing to the developing coun- tries, direct investment is especially important because it does not entail new indebtedness and because it is almost invariably accompanied by the transfer of technology and managerial know-how to the host country. It is, therefore, most encouraging that the Multilateral Investment Guarantee Agency (MIGA) has been established to promote such direct investment. I have the greatest expectations not only for its guarantee operations but also for its advisory functions, and I very much hope that more and more coun- tries will become affiliated with MIGA and that MIGA will be able to fulfill the purposes for which it was established. At the same time, the International Finance Corporation has a very important role to play in promoting debt-equity swaps and other modalities for enhancing the flow of private funds to the developing countries. In light of the many features that distinguish the debt and development problem in each region and each country, it is important that there be cooperation between the World Bank and the regional development banks. We can all profit from having the World Bank and the regional development banks work together more closely and promote economic development more effectively. It is indispensable that the World Bank's financial resources be enhanced if the Bank is to meet these expectations and to move meaningfully on the debt and development problem. Japan therefore welcomes the resolution by the Board of Governors on a general capital increase for the World Bank. At the same time, Japan supports the proposal to initiate discussions on IDA's Ninth Replenishment (IDA-9). Special consideration needs to be extended to the poorest countries in negotiating IDA-9 resource allocations, and I very much hope that Asia-said to be home to over half of the world's poverty-will be given special consideration along with Sub-Saharan Africa. Japan is determined to actively support the World Bank both in financial terms and in human resource terms. With the objective of recycling re- sources, over $5.1 billion has already been committed to cofinancing with the World Bank by the Export-Import Bank of Japan, the OECF, and commercial banks. At the same time, Japan is moving ahead vigorously to provide grant contributions for the Japan Special Fund established within the World Bank last year as well as helping the World Bank raise additional funds from the Tokyo market. We intend to continue this vigorous support. 4. Conclusion The world economy today presents an irrefutable picture of increasing interdependence. All of us are irrevocably affected by the way anyone of 119 us meets the challenges before it. The need for transnational approaches and transnational solutions is clear. And as we move forward to cooperate in solving our shared problems, I am confident that the IMF and the World Bank will provide the nucleus for this international coordination and will play an even more active role than they have so far. It is widely recognized that Japan should playa more important role in the international community, and the Japanese people fully recognize their responsibilities and wish to rededicate themselves anew to making an even greater effort to contribute from a global perspective. KIRIBATI: TEATAO TEANNAKI Governor of the Fund (on behalf of Kiribati, Solomon Islands, Vanuatu, and Western Samoa) I speak here on behalf of my own country of Kiribati and three other small island countries of Solomon Islands, Vanuatu, and Western Samoa. Frankly, it is difficult for us to share the complacency that colored many of the statements made earlier this week. We are not much moved by bland reassurances of stability and coordination among the major economies. These statements seem to be aimed at the stock markets and foreign ex- change markets, and we remember how much notice the markets have taken of such assurances in the past. Like last October 19, for example. Maybe we are looking through the other end of the telescope. Because we live close to nature, in daily contact with the environment God gave us, and we can walk around and meet and talk to our people easily-maybe that is why we are unimpressed by self-congratulation based on financial aggregates. We are more concerned with the realities of trade, investment, jobs, health, and national self-respect. What we see is that many of our friends in the bigger developing countries are in serious difficulties, and there is a lack of will in the richer countries to help them in the ways that would be most effective. Not a lack of ideas, now, but a lack of will to put the ideas into action. We see increasing protectionism in the same countries that urge us to increase our exports, deregulate our economies, and roll out the welcome mat to foreign inves- tors. We see a continued decline in the readiness of rich countries to transfer even a small part of their accumulated wealth to the poorer countries, whose low-priced commodities made industrialization possible. And we see edu- cated and prosperous people closing their eyes to the misery and the danger represented by widespread poverty and hunger. They are full of theories of the marketplace that cannot work except where buyers and sellers have equal access to information, credit, and political power. We know we have friends, good friends, in the developed countries and in institutions like the Fund and the Bank. But they are prisoners of their own policies and procedures. These Annual Meetings give us as Governors 120 the chance to give a push on the steering oar of the canoe. Like many others, we were impressed on Tuesday by the broad vision and strong con- viction shown by Mr. Camdessus and Mr. Conable. The acid test is to turn those sentiments into action. Taking the Bank first, there has been a small but welcome increase in manpower available to deal with the South Pacific and a greater effort to understand us. We take this as a good sign-an initial response to our repeated requests for more direct involvement in our development by the Bank. The main areas where we see the Bank being involved are fisheries, forestry, minerals, and tourism, all strongly export oriented and all with potential for growth at a much faster rate than our population. We want to involve the Bank in policy discussions in all these areas. But we also want the Bank to accept the need for direction, for focusing its assistance on the areas where it will do us the most good. We are lucky to have other sources of help available to us also, and we say the same to them. You cannot all be involved in everything. We will match up our areas of need against aid donors' and lenders' areas of greatest strength. In that way we will get the most effective use of your resources and ours. We call it aid coordination. Please do not be afraid. It does not hurt. ... . . . Last, we want to see collaboration improved between the Fund and the Bank. It is nonsense to have two institutions across the street from each other in Washington, both requesting the same or similar information from our hard-pressed staff at home. We do not want to deal with overlaps or gaps or the resulting confusion. We have enough to do to put our house in order at home. It will help us if Fund and Bank Departments can further develop information exchange, joint missions, and joint reports. We are small and very far away from each other and from the major markets of the world. But we live among, and to some extent control, the vast resources of the Pacific Ocean, and some of them still untapped, even unknown. The Fund can help us to develop sound fiscal and monetary strategies. The Bank can help us to plan and finance the development of our economies. We need that help. But it won't work unless both the Fund and the Bank recognize the strengths and weaknesses of our situation, focus down to our scale, and understand the unique nature of each island state: we are all small, but we are each different from the others. We look forward to working together with both the Fund and the Bank in the years ahead. KOREA: IL SAKONG Governor of the Fund and Bank I am very pleased to have this opportunity to participate in the Forty- Third Annual Meetings of the International Monetary Fund and the World Bank. I would like first of all to express my appreciation for the warm hospitality extended to the Korean delegation by our hosts here in Berlin. 121 For the people and Government of Korea, the Annual Meetings of the Fund and the Bank are always a special occasion. For many years now the Fund and the Bank have played a critical role in enhancing financial stability and international cooperation in the world economy. We in Korea are very thankful for all the help and support Korea has received over the years. Now that the Korean economy has achieved a measure of success, we are ready to increase our participation in the Fund and the Bank and to assume greater responsibility in managing the world economy. As you are all well aware, Korea is in the spotlight these days as the Seoul Summer Olympic Games are currently underway. People around the world are tuning in to the Games to cheer their athletes or simply to enjoy this prestigious sporting event. The ultimate purpose of the Olympics is to promote understanding and cooperation in the international community. Similarly, the purpose of this meeting is to promote stable growth and international cooperation in the world economy. Softening the Slowdown in World Growth Fortunately for all of us, the much feared depression or recession in the world economy following last October's stock market crash has failed to materialize. Growth this year has been better than expected, and the world economy remains buoyant. However, continued strong growth has led to an increase in inflationary pressures, rising interest rates, and tightened money supply in some major industrial countries. Owing to these conditions, growth in world trade is generally expected to decelerate somewhat during the next year. This in turn will mean slower growth at home for many countries, and it may also mean an increase in the debt-servicing burden of many developing countries. The outlook is not that bleak, however, and I do not wish to paint an overly negative picture. The underlying buoyancy of the world economy should act to cushion the impact of this expected slowdown. The point I wish to make is that the nations gathered here today also have a role to play in helping to soften the impact of this period of slower growth and to limit its duration. The only way we can accomplish this task is to join forces and make special efforts to coordinate economic policies and cooperate more closely. Resisting Protectionism In this regard, one area that will call for special cooperation has to do with fighting protectionism. Resisting protectionist impulses during times of economic prosperity is one thing, but to do so when belts are being tightened and tensions may be rising is quite another matter. Yet, if we are to keep the spark in the world economy alive and healthy during this period, we 122 have no choice but to act in concert to reduce frictions by enhancing the mechanism of free and fair trade. In this connection, I note with regret a disturbing tendency toward ex- panding the scope of trade legislation and increasing the use of discrimi- natory trade measures. Rather than contributing toward enhancing the mechanism of free and fair trade for sustained world growth, such measures may have the very opposite effect at a most unwelcome time. In this regard, self-restraint on protectionist action should be a priority for all nations. There is also a rising trend toward regionalism and bilateralism in the trade arena. But we must not forget that a multilateral approach is of the utmost importance for the world trade system. On this point, we should all work together toward a successful completion of the current Uruguay Round of Multilateral Trade Negotiations. Of course, it is not just the industrially advanced nations that must make efforts to curtail protectionism. Developing countries must do their part, and in particular the newly industrializing economies (NIEs) have an in- creased role to play. First of all, I would like to point out that the NIEs have been providing a spark of dynamism to the world economy that has had a very beneficial effect. These countries should not be penalized for their competitiveness and resulting fast growth. After all, the world economy needs to find that dynamic spark in some quarter of the globe. This having been said, there are several ways the NIEs can contribute toward improving the current international economic environment. First, the NIEs should make greater efforts toward accelerating market liberali- zation and reducing trade imbalances. Having benefitted from development strategies utilizing trade as the engine for growth, the NIEs are well aware that market liberalization will in the long run strengthen their domestic industries, while at the same time ease frictions in the world economy. Second, just as the NIEs have come a long way toward achieving outstand- ing economic development, so too should they assume greater responsibility for managing the global economic environment in which they have achieved so much. The NIEs should take steps to increase their participation in international institutions, like the Fund and the Bank, which are dedicated to enhancing global economic cooperation. In turn they should also be invited to voice their opinions in shaping policies of those institutions. I am pleased to note that Korea has made significant progress in this regard. First and foremost, Korea has accelerated import liberalization, reducing the share of imports subject to restrictions from about 20 percent at the end of 1983 to 5 percent this year. Tariffs have also been reduced, and a major overhaul is currently under way that will cut the average tariff rate on manufactured goods from its present level of 17 percent down to 11 percent early next year and to 6 percent by 1992. In addition, the Korean currency has appreciated more 123 than 22 percent against the U.S. dollar since 1986 and more than 10 percent during the past nine months. During the past two years Korea has substantially reduced restrictions on current account transactions. In fact, we are already close to conforming with Article VIII of the Fund, and therefore we hope that in the near future, we may be able to fully accept the obligations of this Article. At the same time, we will continue to introduce measures to liberalize capital account transactions both into and out of the country. As for increasing its role in international forums, I can only emphasize that Korea is willing and anxious to share its development experiences with other developing nations and to assume wider responsibilities in world eco- nomic affairs. Third World Debt Another area where cooperation among member nations may be critical concerns a coordinated response to the Third World debt issue. In our view, the best possible general solution to the debt problem involves a threefold response. First, the indebted countries must undertake serious and compre- hensive domestic policy reforms in order to restructure their economies. External assistance-financial or other kinds-will have little lasting effect if unaccompanied by efforts to reform at home. Second, a free and fair trade environment must continue to be maintained in the international economy. Many developing countries have to rely on trade to service external debts, and, if their efforts to increase exports are blocked, they may not be able to put their debt problems behind them. In this connection, industrial nations should be tolerant of moderate surpluses generated by their developing trading partners, because these surpluses can be used to repay external debts. Finally, adequate external financing, on a case-by-case basis, must be made available to those developing countries attempting to overcome their foreign debt problems through structural adjustment. Only with the input of fresh capital will these countries be able to succeed in making these adjustments. The Role of the Fund and the Bank Before closing, I would like to turn briefly to the role of the Fund and the Bank in the current world economic environment. First of all, I would like to express my appreciation to Mr. Camdessus and Mr. Conable for their outstanding leadership during the year and for their successful initiatives to increase the resources of both the Fund and the Bank. The enhanced struc- tural adjustment facility launched by the Fund will greatly contribute to aiding low-income countries facing exceptional economic difficulties, while the general capital increase of the Bank will help to increase the scope of 124 its activities. In addition, the Bank's successful launching of the Multilateral Investment Guarantee Agency, agreed at the Seoul Annual Meetings three years ago, was a welcome development. This new agency, in conjunction with the IFC, will undoubtedly contribute to further development of the private sector. Looking ahead, it is apparent that if the Fund is to continue to playa central role in providing and arranging adequate financing for debtor coun- tries, its capital base must be substantially enlarged. In this context, we would emphasize the importance of the general principle that the relative economic position of member countries should be reflected in allocating quota increases. In particular, ad hoc quota increases are necessary for countries with large discrepancies between calculated and actual quotas. As for the Bank, we hope that it will continue to encourage voluntary prepayment of Bank loans. This may have an adverse effect on the Bank in the short run, but I am confident that the long-term benefits to both the Bank and its borrowers will be much greater. Conclusion It has been said that "success is not a destination but rather a journey." Over the years, although both the Fund and the Bank have been very successful in enhancing stability and growth in the world economy, the journey toward global economic prosperity is still far from over. Moreover, the road to continued success will not be easy to follow, as conditions in the global economic environment change over time and raise fresh challenges that must be overcome. Nevertheless, given the stakes involved, I am con- fident that the Fund and the Bank will adopt flexible, dynamic, and forward- looking approaches to meet these challenges and enhance their roles in fostering growth worldwide. As for the member countries, we perhaps would do well to remember that this is an Olympic year. If we take the message of the Olympics to heart and strive to break new ground in maintaining fair and free trade in the spirit of cooperation and friendship that embodies the Games, we will all come out as winners. LAO PEOPLE'S DEMOCRATIC REPUBLIC: SISAVATH SISANE Governor of the Fund and Bank It is a great honor for me to attend these Annual Meetings of the Gov- ernors of the International Monetary Fund and the World Bank and to speak on behalf of the Government of the Lao People's Democratic Repub- lic in this friendly and historic city, Berlin (West). The Lao delegation wishes to thank the city authorities and the federal government for the many ar- 125 rangements they have made on our behalf and the people of the city for their warm welcome and hospitality. I should like to begin with a number of general observations on the world economic situation. After that, I shall say a few words about my own country and then close with several comments on the respective roles of the Fund and the Bank. Despite notable progress over the past few years, the world economic situation remains uncertain. The major industrial nations, the key players in determining the course of the world economy, have experienced sustained but moderate growth, and although they have succeeded in controlling inflation, their governments must keep a close watch on inflationary pres- sures. Significant external imbalances still exist and are likely to be rectified only slowly. The exchange rate situation continues to cause concern; exces- sive changes in exchange rates could compromise the growth outlook for the world economy. Such are the conclusions reached by the Group of Seven. As far as the developing countries are concerned, growth in overall pro- duction has slowed, although this general trend conceals a wide variety of situations: relatively steady growth in many countries in East Asia and in Europe, the Middle East, and North Africa; lower growth in GDP in South Asia; and declining GDP in Sub-Saharan Africa and the heavily indebted middle-income countries. For the most seriously affected developing coun- tries, the story is always the same: heavy external debt, difficulties in meet- ing debt service commitments, serious macroeconomic imbalances, great vulnerability in international trade, and rigid markets warped by distortions. Furthermore, the matter of net resource transfers from the industrial nations to the developing world is cause for concern. The flow of resources to the developing countries must be increased sufficiently to enable them not only to cope with such imperatives as economic growth, environmental protection, structural adjustment, and the struggle against poverty, but also to overcome their debt problems. If the developing countries are to solve their problems and surmount their difficulties, it is important that the major industrial nations become aware of the international dimensions of their economic, financial, and monetary policies and implement the declarations of the Toronto economic summit. I should now like to report briefly to the Boards of Governors on the economic and structural adjustment efforts we have undertaken in Laos and on the early results obtained. Initially focused on improving the management of our public enterprises, our reform movement, now known as the New Economic Management Mechanism, has been extended to the rest of the economy. It consists of economic, financial, and monetary policy measures and structural reform measures designed to foster economic growth through more effective re- 126 source utilization, realistic economic and public financial management, and increasing monetization of the economy. These measures have been introduced gradually since mid-1986. The most important of them are determination of prices by market forces; introduc- tion of a flexible and realistic exchange system, reform of the banking and credit system, deregulation of trade and free circulation of goods, tax reform and rationalization of public finances, granting of financial and administra- tive autonomy to our public enterprises, recognition of the role of the private sector, and enactment of a liberal and attractive investment code, which we hope will encourage investment in sectors in which the Lao Republic pos- sesses comparative advantages. These economic policy measures go hand in hand with steps we are taking to strengthen our institutions. Although it is still too early to assess the real impact of these reforms on the economy, we have already begun to see promising results. By compari- son with other years, the inflation rate has dropped significantly, our cur- rency exchange rate has been firm, both agricultural and industrial output have increased and diversified, exports have increased, and trade, transpor- tation, and services have expanded considerably. The measures taken under our New Economic Management Mechanism must be supplemented and further strengthened. In this matter my Govern- ment has undertaken a complex and difficult but courageous task, which proves our determination to fight against poverty and do everything possible for the people's welfare. But to support these economic and structural adjustment efforts we require external multilateral financing, both public and private, as well as technical asistance and training for Lao personnel. The Lao Republic is classified among the poorest countries in the world. Our need is considerable for financing to develop both economic and social infrastructure and to increase production. This subject leads me to several comments on the role of the Fund and the Bank. First, I want to compliment the management and staff of both institutions on their achievements over the past year. Against the background of the uncertain international environment, I believe the Fund has an important role to play in promoting improved growth of the world economy without inflation, untenable external equilib- ria, or protectionism and in ensuring the stability of the international mon- etary system. In close collaboration with the Bank, the Fund will have a central role to play in the debt strategy. Though my Government has not yet used the structural adjustment facility, we welcome the Fund's new concessional lending mechanism-the enhanced structural adjustment fa- cility. We look with favor on any step taken to strengthen the Fund's ability to act and make the quotas once again the basis of its financing, if this is done for the purpose of assisting the poorest and most indebted countries on concessional terms. 127 With respect to the Bank, we welcome the positive results achieved in loan and credit operations, with new commitments $1.6 billion higher than in 1987, and in investment of its liquid assets. We approve of its program, which gives priority to the struggle against poverty and to debt management, food security, human resource development, environmental protection, and development of the private sector. We welcome the resolutions authorizing a general increase in the Bank's capital, the international convention estab- lishing the Multilateral Investment Guarantee Agency (MIGA), the entry into force of the Eighth Replenishment of the International Development Association's resources, and the efforts the Bank has made to mobilize resources for framework agreements on cofinancing. We hope that MIGA will succeed in fostering a flow of investments to the developing countries. We encourage the Bank to pursue and intensify its efforts to mobilize resources from official bilateral aid agencies and multi- lateral development institutions and to channel those resources to the poor- est countries for the financing of rural development and social infrastructure projects that could not be funded in any other way. We call upon both institutions to reconsider the conditions of access to the Fund's structural adjustment facilities and to the Bank's adjustment lending with a view to making them more flexible and more accessible to the poorest countries. In conclusion, I express my sincere hope for the success of these discus- sions, and I am firmly convinced that both our institutions will be able to work effectively for the good of all and establish an environment conducive to growth and development. SOCIALIST PEOPLE'S LIBYAN ARAB JAMAHIRIYA: MOHAMED EL MADANI AL·BUKHARI Governor of the Bank Let me begin by saluting you and by wishing you the best in your delib- erations. I believe though that a real solution to the acute problems facing the international community, particularly in the third world, will not mater- ialize so long as the forces of neocolonialism continue to exercise control over the destiny of the peoples of the third world through various means, among which are the policies and practices of these forces in the interna- tional organizations, including the World Bank and the International Mon- etary Fund. Ladies and Gentlemen, as I stand before you today to convey to you the point of view of the Libyan Jamahiriya, I cannot but wonder: How can the peoples of the developing world overcome the obstinent hurdles that impede their efforts to achieve economic progress and break away from poverty, underdevelopment and disease at a time when the policies of the major industrial countries are precipitating a political and economic environment 128 that frustrates these efforts? How can these efforts succeed at a time when, due to the influence of the forces of neocolonialism, the Bank and Fund programs are formulated on the basis of principles that are inconsistent with the basic orientation in many developing countries, and in a manner which pays only lip service to the social, economic, and political circumstances of those countries? How can these efforts succeed at a time when the policy coordination among the countries which dominate the Bank and the Fund is primarily motivated by these countries' desire to preserve and further their interests, without regard for the adverse consequences of the poli~ies pursued in the context of this coordination framework on the third world, notwithstanding these countries' hollow declarations to the contrary. I beg your pardon, Ladies and Gentlemen, if the questions I have raised convey a great deal of pessimism concerning the developing countries' chances to achieve, under the present circumstances, real progress towards the realization of their peoples' aspirations for economic progress, whilst maintaining national identity and political independence, and for building an international community on the principles of human brotherhood, mu- tual respect, as well as purity from exploitation and forced dependency. In my view, however, this pessimism becomes well founded when one considers some of the more important recent economic indicators. First: Although the global economy continued to grow over the past year, that growth was greatly uneven. While industrial countries' economic per- formance exceeded initial expectations, the economic and financial condi- tions in the developing countries continued to be difficult and they may even have deteriorated further. That the developing countries have not benefitted from the growth momentum in the industrial countries is due primarily to the decline in oil prices and to the contractionary policies which many of the developing countries were forced to implement in order to adjust to the unfavorable external environment which was created by the policies of the major industrial countries, and which was reflected, among others, in in- adequate external financing and an intensification in protectionist pressures. Second: Various indicators suggest that inflationary pressures in industrial countries have resurfaced. This has led many to call for according the ob- jective of controlling inflation a high priority in the formulation of policies in major industrial countries. However, as is well known, this policy orien- tation in these countries will have negative implications for the economic performance of the developing countries, especially if the effort to contain inflation is carried out through excessive reliance on monetary policy. In- deed, instead of correcting its fiscal imbalance to reduce its dependence on the savings of others, the United States has recently adopted a contraction- ary monetary policy stance which has led to a significant rise in interest rates. This in turn has led other industrial countries to raise their interest rates in order to maintain stability in the exchange rates of their currencies. 129 It thus has become clear that the burden of the fight against inflation in the industrial countries will be borne by the developing countries, as was indeed the case in the early part of this decade. Third: Notwithstanding what is being said about the progress achieved under the current debt strategy, it is my belief that that strategy has at best postponed the crisis. While the debt-to-export ratios declined for the first time in 1987, they still remained substantially higher than they were when the debt strategy broke out in 1982. Also, in spite of the substantial adjust- ment carried out by the debtor countries, which led to a reduction in their external current account deficits, these countries have not regained their creditworthiness. In addition, this improvement in the current accounts was achieved at the expense of declines in consumption and investment. The negative implications of this situation for poverty in the developing countries are clear and need no elaboration. However, let me just say that there are about 500 million people in Asia, 280 million in Sub-Saharan Africa, and 80 million in Latin America who are suffering from abject poverty, which in many cases threatens their very survival. It is indeed ironic that in spite of this grinding poverty and notwithstanding their statements of deep con- cern about the interests of the developing world, the forces which dominate the Bank and the Fund are calling for tightening the already tight Bank and Fund programs. There is no doubt that, should these forces succeed in this endeavor, the adverse poverty implications of these programs will be exac- erbated even further. All of this at a time when the most basic rules of human brotherhood dictate a reinforcement of efforts to bridge the deep gap between the world's rich and poor, not to deepen it further. Mr. Chairman, through its hegemony over the policies and practices of the Fund and the Bank, the United States has turned these institutions into instruments of coercion that serve its interventionist policies in the third world and its economic and political objectives in general. . . . . . . In conclusion, Ladies and Gentlemen, I have spoken to you today on behalf of a small country which has always fulfilled its obligations to the Fund and the Bank, and has never requested their financial assistance. Our country was surprised at the Fund's response when we presented to it our just cause which cannot be separated from the general cause of international cooperation. We are strong believers in the need for cooperation among the peoples and the countries of the world. But, we want this cooperation to be based on justice, equality, and mutual understanding. LUXEMBOURG: JACQUES F. POOS Governor of the Fund Despite the stock market crash, which was the major financial event of 1987, we find growth for the past 12 months higher than was expected a year ago. Demand levels in the industrial countries remain generally satisfactory; 130 investment activity is quite vigorous; and there is every reason to believe that the longest lasting expansion since World War II will continue into its seventh year. However, to sustain and strengthen longer-run growth pros- pects, progress will have to be made in the following four areas: · correction of the trade imbalances; · coordination of economic policies; · elimination of structural rigidities and protectionism; and · management of international debt. Large external imbalances persist among the major industrial countries, but the markets are now leaning toward greater optimism and greater will- ingness to finance the imbalances of gradually diminishing levels. The syn- ergistic effects of growth, stronger market confidence, and policy coordi- nation may have reduced the risk that the markets will lose patience and impose a correction of the external imbalances at unrealistic exchange rate levels. We must now guard against the new risk that complacency over this improving state of affairs will slow the pace of further progress in relation to the fiscal and external imbalances, a task that is still urgent because the later the adjustment takes place, the more painful it will be. The remarkable progress achieved so far with economic policy coordi- nation is an important step that has increased the likelihood of an orderly correction of present imbalances. Small countries, such as Luxembourg, have always been exposed to large spillover effects stemming from other countries' policies, but the larger countries, too, are now increasingly feeling the effects of international in- terdependence with the acceleration of international trade and the integra- tion and liberalization of financial markets. These countries now appear to have realized that the domestic effects of actions taken without coordination are too often diluted. A strengthening of the coordination process is certainly justified by ex- perience gained with the European Monetary System, which shows that the best way of obtaining exchange rate stability is the common determination to defend a given pattern of exchange rates. Once this has been done, the need for continual interventions to offset destabilizing capital movements gradually subsides. We believe that capital movement restrictions are ineffective and costly in the long run, besides introducing their own distortions into the allocation of resources. Without a system of free capital transfers, Luxembourg would never have been able to shift its economy from its former reliance on heavy industry toward the provision of services. It is equally obvious that an environment characterized by structural rigidities favors the emergence of inflationary pressures that are capable of threatening the coordination process. We are, therefore, convinced that greater emphasis on structural reforms will certainly be helpful in addressing the persistent and unacceptably high unemployment rate levels of certain 131 countries. As a country in which one third of the resident population is foreign, Luxembourg strongly supports the free movement of persons, goods, and services within a framework of minimal administrative, techni- cal, and other kinds of barriers. And, as we oppose these barriers, so do we oppose protectionism, which leads to inefficiencies in the protected sectors and, in turn, to a misallocation of resources. Progress in the dismantling of protectionism within the frame- work of the Uruguay Round would also help speed up the correction of trade imbalances. In the developing world the situation unfolding over the last year has been less satisfactory than that in the industrial world, though some encouraging signs are visible. However, there is a risk that recent interest rate increases will wipe out these gains. It must be acknowledged that the benefits of the improvement in the debt situation are unevenly distributed and that some low-income countries are still accumulating further overdue obligations. These include especially the Sub-Saharan countries. My country has made a special effort to participate in a number of initiatives aimed at alleviating the debt burden of these countries. The replenishment of IDA and the activation of the enhanced structural adjustment facility constitute important steps toward addressing the need for additional concessional resources to support the execution of poverty programs in the context of structural adjustment lending. The merits of excluding social expenditures when reductions in overall budget deficits are recommended should be considered. We strongly endorse the Managing Director's efforts to define a set of social indicators protecting minimum living standards, to be considered in Fund programs along with economic indicators. We also appreciate his Willingness to foster a national consensus on adjustment policies through a dialogue with social partners. With regard to the heavily indebted middle-income countries, we are aware that they continue to have difficulty in servicing their external debt and in generating the funds needed to finance the investments essential for sustaining growth. We still believe that the case-by-case approach, com- bined with the use of growth- and market-oriented techniques aimed at reducing the existing stock of debt, is the only viable solution for these countries. However, all alternative solutions to alleviate the debt burden need to be studied carefully by the international community. In this respect, I especially appreciate the proposal recently put forward by my Japanese colleague. We therefore welcome the new use of the extended Fund facility and the protection offered to countries that implement adjustment programs against external shocks through the Fund's newly created external contin- gency mechanism. The prospect that this mechanism will successfully protect countries' ad- justment programs against external shortfalls will be even further ensured if the commercial banks will prepare themselves to support this new scheme 132 -------"-------- with innovative and flexible reimbursement schemes of their own, based on market techniques and opportunities. Within the framework of the debt strategy, the World Bank's role could be enhanced and many of the present criticisms overcome, by placing the whole range of the Bank's activities in any member country in the context of the member's development strategies. To do this, the Bank must become increasingly involved in the design of medium- to long-term development strategies and in the financing of a wide range of sectoral and structural reforms aimed at creating conditions for the pursuit of sound growth and poverty alleviation. To expand its central role, the general capital increase of the Bank re- quires timely implementation. Luxembourg expects to complete its internal procedures for subscription within the next few weeks. Finally, we support an adequate quota increase in order to allow the Fund to fulfill its responsibilities in the adjustment of developing and industrial countries alike. Whether growth can be strengthened and imbalances improved in the coming years will depend very much on the agreements reached during these meetings. I am confident that the cooperative spirit of our assembly will be helpful to the ongoing consolidation process of the international financial system and economic cooperation among all nations. MALAYSIA: DAIM ZAINUDDIN Governor of the Fund and Bank Since we met last year, it is heartening to note that some positive indica- tors are emerging in the world economic scene pointing to prospects of a better growth performance in major industrial countries and an increase in world trade. But there is no cause for complacency. There is a need for continued commitment by industrial countries to sustain an adequate momentum of growth, to contain the re-emergence of inflationary pressures, to resist pressures for trade protectionism, and to implement effectively the consensus reached at the recent Toronto summit, particularly in the area of exchange rates, which have caused great uncer- tainty in the financial outlook of the developing countries. Developing countries for our part accept the responsibility to enhance efforts to put our economies on a sustainable growth path. These efforts are difficult enough as they involve not only a complex of policy choices but also delicate social and political issues and must be complemented by a supportive international environment. However, two developments in par- ticular are disquieting: protectionism by industrial countries against exports of developing countries, particularly in the form of non tariff measures, is a dangerously emerging trend; and the much needed resources, particularly 133 private lending, are also not adequately forthcoming. These developments must be rectified if developing countries are to help themselves. In all of this, the Fund and the Bank must act as catalysts and provide leadership in promoting sustainable growth, especially in highly indebted developing countries, using to the full their intellectual and financial re- sources, as well as their experience and commitment. With regard to the Bank, may I compliment the President for another year of successful operations. The larger volume of lending and disburse- ment indicates the commitment of the Bank toward the needs of developing countries. With the additional resources from the general capital increase, we trust that the proposed lending of the Bank of more than $19 billion for FY 1989 would materialize. As for the IDA replenishment, we note that current resources are not adequate to help the low-income countries in making the necessary adjustment to their economies. We would therefore urge donors to release their installments early to reduce current shortfalls in commitments. At the same time, we would also urge easier conditionality for structural adjustment loans to ensure the adoption of adjustment pro- grams. Poverty remains a serious issue in many developing countries. Our expe- rience has shown that the fight against poverty requires both resources and commitment. We believe that growth policies must be supplemented by clearly defined poverty reduction programs and activities to benefit the vast majority of the poor. Over the past years, the Bank has financed projects and programs with poverty eradication as the main objective. It is appro- priate that the Bank should evaluate such projects and programs and, in the light of its experience, enhance the effectiveness of its programs of poverty alleviation. In this regard, I fully support the Bank's emphasis and commitment of resources to improve food security and to alleviate in other ways poverty in Sub-Saharan Africa. However, it is also important for the Bank to put in place more programs of action to eliminate absolute poverty in low-income Asia, including a number of small Asian countries. In commending the Bank for its renewed emphasis on poverty eradica- tion, may I also express my support for the special attention it is giving to debt management, food security, human resource development, environ- mental protection, and private sector development. Such a multipronged and coordinated policy approach is necessary to enhance the prospects for growth and development in developing countries. I have, however, to express here once again a negative note about the Bank's lending charges. Although some modification has been made to the repayment terms of its loans, we note with particular regret that no changes have been made to the system of loan charges. Despite the arguments about market perception that are often put forward, we are not convinced of the necessity to target a high reserves/loans ratio during this period of economic recovery. We feel that there is merit for the Bank to consider lowering its 134 loan spread from the current 0.5 percent to a level at least comparable to the Asian Development Bank's spread of 0.4 percent. At the very least, the Bank should reduce the commitment fees, or change the basis of its com- putation by charging it on the undrawn balance of the estimated annual disbursement in line with the formula adopted by the Asian Development Bank .... . . . The developing member countries look to the Fund and the Bank to take the lead and serve as catalysts in generating action for the promotion of sustainable growth. Current efforts by both institutions are commenda- ble, but I feel more can be done. Many of the thoughts regarding additional measures that I and other fellow Governors have expressed at this Annual Meeting are not new; however, this should not minimize their importance or their urgency, and I hope we see progress along these lines in the coming year. MALTA: ANTHONY P. GALDES Governor of the Fund It is encouraging to note that the overall performance of the world econ- omy in recent months has been substantially better than was expected after last October's stock market crash. At the same time, the situation of a large number of developing countries-particularly the low-income countries of Sub-Saharan Africa and the highly indebted ones of Latin America-has hardly improved at all, while large imbalances among the major economies continue to pose a threat to sustained recovery. The prospect for the coming year is one of a slowdown in industrial country growth in the face of renewed concerns regarding inflation and rising interest rates-with obvious impli- cations for the rest of the world. Furthermore, despite some positive signs in the international trading environment, including an upturn in world trade growth and higher commodity prices, protectionist pressures continue to increase, giving rise to concern over the sustainability of these favorable trends. These circumstances underline the timeliness of the establishment of the enhanced structural adjustment facility in the Fund and the approval of the general capital increase for the World Bank last year, as well- as that of the decisions taken during the spring meetings to create the external contin- gency mechanism as part of the Fund's compensatory and contingency fi- nancing facility and to increase access to Fund resources and extend pro- gram periods under the extended fund facility. They also point to the urgency of achieving substantial progress in, and a successful outcome to, the Uruguay Round of multilateral trade negotiations in the GATT. While the Managing Director of the Fund and the President of the Bank, together with their staffs, are to be congratulated for their efforts to make their institutions more flexible and more responsive to the evolving needs 135 and circumstances of their member countries, it is essential that both insti- tutions should be provided with adequate resources to meet their obliga- tions .... MEXICO: GUSTAVO PETRICIOLI Governor of the Fund (on behalf of the Latin American Governors of the Bank) It is a great honor to address these meetings on behalf of the Latin American countries. First of all, we wish to thank the people and authorities of the Federal Republic of Germany and the city of Berlin (West) for their hospitality and the efficient organization of these meetings. We also wish to express our appreciation of the work done by Barber Conable and his associates during the last year. Six years ago we were hit by the debt crisis. To overcome it we designed a strategy aimed at (a) reactivating the development process in the debtor countries, and (b) reducing the vulnerability of the international financial system. The following were the main elements of the strategy: (i) economic adjustment and structural change in the debtor countries; (ii) sustained growth of the world economy; (iii) adequate flows of Bank financing to developing countries; and (iv) greater and better support on the part of the multilateral financial institutions for structural change in the debtor countries. It was hoped that these new flows would allow time for the world economy to recover, by facilitating growth and the adjustment programs. The result would be to reduce the ratio of the debt burden to the debtor countries' national product and exports and thereby to restore their access to inter- national capital markets. However, events took a different turn. Although the industrial countries posted the expected level of economic growth, this was not reflected in a parallel expansion of economic activity in the debtor countries. Moreover, trade barriers, particularly nontariff barriers, plus the deterioration in terms of trade, significantly reduced our countries' export receipts. In addition, international real interest rates held firm until 1987 at double the average rates for the period 1963-80. Today they are even higher. The recent 2 percent rise in international interest rates will by itself cost the region between $7 billion to $8 billion a year. The trend of the financial flows that were to support the countries' efforts was equally unfavorable. The heavily indebted countries effected a total negative transfer of about $96 billion in the period 1983-87. Moreover, net financial flows to the region from the International Monetary Fund, the 136 Inter-American Development Bank, and the World Bank were negative in 1987. Thus, only one of the assumptions on which the debt strategy was based has held up, namely, the debtor countries' efforts in the sphere of structural adjustment and change. Despite the heavy debt service burden on the public finances and the difficulties this poses for stabilization efforts, the ratio of the public sector deficit to GOP has fallen considerably in many of the heavily indebted countries. The debtor countries have moreover accomplished extraordinary structural adjustment efforts. There has also been a notable improvement in the current account position: in the case of the heavily indebted countries this has improved from a deficit of $50 billion in 1982 to virtual equilibrium in 1987. Since the assumptions on which the strategy was based were not fulfilled, it proved impossible to achieve all the goals set. Although the international financial system emerged stronger, the principal aim of the debt strategy- namely, to reactivate the growth processes and restore access to credit by the debtor countries-has not been achieved. For Latin America, what has been called the "longest economic expansion since the Second World War" has in fact been six years of stagnation during which regional per capita product has fallen by almost 5 percent. In addi- tion, the adjustment efforts have been accompanied by a sharp fall in in- vestment levels which has undermined future development potential: in- vestment in the heavily indebted countries has fallen from about 25 percent of GOP in 1980-81 to only 17 percent in 1985-87 owing to the high levels of negative transfers. The fact is that the debt burden has continued to increase: between 1982 and 1988 the debt volume/export ratio of the heavily indebted countries has risen from 268 percent to 336 percent, the debt/GOP ratio, from 48 percent to 58 percent, and the interest/export ratio, from 22 percent to 27 percent. The Latin American crisis, previously regarded as one of liquidity, has become an enormous development crisis. The 1980s have been called the "lost decade" because income and well- being levels are no better, and in some cases are lower, in real terms than they were ten years ago. The economic situation is creating a serious risk of political instability inimical to democratic life in the region and conducive to a resurgence of populism. It is today imperative that we reaffirm our political resolve and our com- mitment to solidarity in order to stimulate growth in the debtor countries and to rekindle the hopes of millions of human beings. The countries of the region cannot face a future of stagnation. Latin America therefore calls on the international community to enter into an "international development pact." 137 We are issuing this call for an international development pact in Berlin (West), in the Federal Republic of Germany, whose extraordinry progress is the fruit of the labor and enterprising spirit of the German people, sup- ported by a great effort of international cooperation. Europe's recovery from the devastation of the war was due not only to the work of its peoples but also to the vision of a group of statesmen who made the necessary resources available, in adequate amounts and on suitable terms; they under- stood that prosperity for some can only be achieved by ensuring the pros- perity of all. The aim of the international development pact would be to ensure the accomplishment of its objectives through a clear commitment on the part of the various participants. The pact would seek to make viable what has been impossible so far: to reconcile debt reduction and new flows of development financing. These goals are not mutually exclusive. It is perfectly natural that a heavily in- debted country should seek to reduce its debt and thereby its debt service obligations. And it is also logical and desirable that a developing economy should require net financing to ensure its growth. Without substantial mitigation of a country's debt service obligations, its financial and economic policy options become unmanageable: either to re- sort to indiscriminate increased borrowing or abandon its growth goals to be able to continue to payoff the debt. The first is not viable in market practice, and the second is not acceptable either socially, economically, or politically-particularly after a long period of recession. The new strategy must recognize that the responsibility for each country's development rests with its own people and government, as does the job of designing and implementing its adjustment and structural change programs. It is not enough that these programs embody fiscal discipline, rationalization of trade policy, divestiture of public enterprises, investment incentives, and export expansion if these are not matched by adequate and well-timed external resource flows. While the solutions chosen must be continually adapted to each country's special circumstances, it is equally necessary that the international devel- opment pact include at least the following minimum components: (1) The adjustment programs of the heavily indebted countries should embody lines of action that explicitly facilitate and promote the growth process. The international agencies must support these programs and ensure that they are not only well designed but also properly financed. (2) As a group, the international lending institutions, such as the Inter- national Monetary Fund, the World Bank, the Inter-American Devel- opment Bank, and other regional development banks, must make available a sufficient volume of resources at least to offset the principal and interest payments they receive from the debtor countries. If nec- 138 essary, automatic recycling mechanisms, effective for limited periods, would be created to enable this objective to be achieved. (3) The members of the Paris Club should consent to multiannual restruc- turing of principal and interest obligations without either increasing the cost or suspending the coverage of export credit for the heavily indebted countries. (4) The commercial banks must contribute through multi annual commit- ments to provide new resources, either through automatic capitaliza- tion agreed upon beforehand or in the form of new lending, at their discretion. These contributions would be based on each bank's port- folio. (5) At the same time, voluntary debt reduction operations would be pro- posed which would reduce the base on which each bank would have to calculate its future new resource contributions. (6) The financial and regulatory authorities of the industrial countries should review their regulatory, accounting. legal, and fiscal require- ments so as to eliminate disincentives to the debt-reduction operations. (7) In order to enhance the chances for success of the debt-reduction efforts, the debtor countries could ask the industrial countries or the international agencies to furnish guarantees or additional financing for discounted repurchase of their liabilities. (8) The international agencies or the industrial countries should furnish this support on a case-by-case basis, to the extent that the debtor countries adopt or have already adopted structural adjustment and change measures that will enable them, together with the expected reduction in their debt and an adequate level of financing, to return to sustained growth. (9) Industrial countries with structural balance of payments surpluses should set up funds to serve as an additional source of financing for the debtor countries in support of their growth or for debt-reduction operations. (10) At the next GATT meeting in Montreal, arrangements should be made to implement the mechanisms for linking market access to compliance with financial obligations, in accordance with the objectives embodied in the Punta del Este Ministerial Declaration. The challenge of growth calls for leadership, imagination, and political resolve. Latin American countries wish to follow the course of negotiated solutions that enable them to respond to the urgent need to restore growth and avoid confrontations that achieve nothing. Peace, development, and democracy in Latin America will depend to a large extent on how we choose jointly to resolve our problems. And it will depend on us whether the decade of the 1990s is a decade of prosperity or a decade of destitution and chaos. 139 NEPAL: BHARAT BAHADUR PRADHAN Governor of the Bank It is a matter of great pleasure for me and members of my delegation to be here in this historic city of Berlin (West). I extend my sincere thanks to the Government and the people of the Federal Republic of Germany, and the citizens of this city in particular for their kind welcome and gracious hospitality. I extend to them greetings and best wishes of His Majesty's Government and the people of Nepal. May I join my fellow Governors in expressing our deep gratitude to H.E. Dr. Helmut Kohl, Chancellor of the Federal Republic of Germany, for his inspiring address. I would also like to thank H.E. Eberhard Diepgen, the Governing Major of this city, for ad- dressing this meeting. I consider it a great honor and privilege to participate and address this meeting of distinguished Governors. My main interest here is to listen to the views of our respected colleagues. I hope they will come up with ideas and actions to alleviate the problems now troubling the world economy in general and the developing countries in particular. The developing world is keenly looking forward to positive developments in this regard. While the economic outlook of the industrial countries is looking up and some newly industrializing countries are achieving satisfactory progress, some developing countries-the least developing countries in particular- are making little progress. The slackening in the transfer of resources to the developing world and growing protectionism, among other things, con- stitute the principal issues of today. Structural weaknesses in the developing countries are no less responsible for the miserable situation facing them. Most of them are thus seriously engaged in structural adjustment programs, difficult and exacting though they are. Most of the developing countries are taking measures to ensure that the benefits of economic development reach the poor. Nepal, for example, has already launched a program to meet the basic needs of its people by the year 2000. A substantial amount of additional resources will be required if the envisaged targets are to be achieved. There is a growing interest among the donor community in alleviating poverty in the developing world. How- ever, the flow of resources is too limited to tackle this enormous problem. Alleviation of poverty needs short-term as well as long-term measures. While social projects will provide some temporary relief, and are essential, the need for economic infrastructure to improve the productive base is no less important. In our obsession with the poverty-oriented program and the environment problem, we should not minimize the importance of the vital infrastructure now wanted in the developing countries, the least developing countries in particular. A balanced investment program on a significantly higher level is thus the crying need today. 140 The subject of adequate transfer of real resources has been discussed several times at various international forums and continues to engage us at different levels of discussion. The volume of resources flowing to these countries is still too little to meet their needs for growth, poverty reduction, and structural reform. Concessional debt relief measures and increased flows of ODA are nec- essary for stability and growth. The recent debt relief measures, including conversion of loans into grants by Japan, are the most welcome development in this regard. On behalf of His Majesty's Government, I take this oppor- tunity to extend our sincere gratitude to the Government of Japan. The efforts of the International Monetary Fund and the World Bank in solving the problems of the poorer countries through various programs thus far are commendable. I express our sincere appreciation to the able lead- ership of Mr. Camdessus of the Fund and Mr. Conable of the World Bank for their commitment to strengthening world economic cooperation and improving the lot of mankind, and in particular the poor in the least devel- oped countries. We should like to compliment the Bank for another year of successful operation, which was demonstrated in the higher level of lending of more than $14 billion in FY 1987. We hope that with the agreement on a $14.8 billion capital increase in April 1988, the Bank will be in a better position to step up its lending in fiscal 1989 and beyond. IDA lending was slightly higher than that planned for 1988. On IDA replenishment, we note that the available resources are not adequate to meet the growing demands of low- income countries. We urge donors to release their installments to reduce current shortfalls .... . . . I would now like to turn to the recent performance of the Nepalese economy. The structural adjustment program that has been undertaken by His Majesty's Government since fiscal year 1986/87 has had a positive impact on the Nepalese economy. This adjustment program was designed primarily in a medium-term framework with fiscal year 1990/91 as the target year. Its essential features included: (1) macroeconomic stabilization; (2) resource mobilization; (3) increased investment efficiency; (4) improvement of public enterprises; and (5) activation of the private sector in agriculture, forestry, trade, and industry. Our economic performance during 1987/88 was generaly encouraging: gross domestic product in constant prices increased by 7.1 percent; agricul- tural production increased by 18.3 percent; and nonagricultural production by 14.5 percent. On the external side, exports increased by 40 percent and imports by 25 percent during 1987/88. With the higher rate of increase in exports over imports, the relative proportion of total exports to total imports increased 29 percent compared with 27 percent in the previous year. Despite the trade 141 gap at NRs 6,431 million, the balance of payments situation of the country has been favorable, amounting to NRs 1,371 million during the first three quarters of 1987/88, compared with NRs 3.5 million during the same period of last year. Achievements on the fiscal front are also encouraging. A major simplifi- cation and rationalization of the tax system was implemented during 1987/ 88. In that year, revenue as a percentage of GDP increased by 0.5 percent- age point to 10.7 percent; the overall budget deficit fell to 6.3 percent; and net domestic borrowing narrowed to 1.6 percent. What concerns us most at the moment is the rate of inflation. Although this eased somewhat to 10.9 percent in 1987/88 from the rate of 13.3 percent in 1986/87, it is still on the high side and has to be contained further in 1988/ 89. Growth with equity and control of inflation are the main economic ob- jectives of the program for 1988/89. To achieve these objectives, various policy measures such as according top priority to basic needs programs, strengthening institutional arrangements, providing gainful employment to the most needy, expanding and improving financial institutions, increasing private sector participation, and adopting appropriate fiscal and monetary measures have been adopted. Accordingly, increased resources have been allocated to the productive and basic sectors such as agriculture, irrigation, industry, health, education, housing, drinking water, and other related ac- tivities. Since a large segment of the Nepalese population lives below the poverty line, activities relating to their gainful employment opportunities, such as small farmers' development, enhanced opportunities for women, and irri- gation, forestry and training, are being proposed for extensive implemen- tation. Recently, a Lead Bank Scheme was introduced to increase the flow of resources toward the productive and priority sectors that benefit the poor. As you know, an earthquake, with an intensity of 6.7 on the Richter scale, recently devastated our eastern region and some of the central region of the country, with a resulting heavy loss in terms of lives and property. More than 66,000 houses either collapsed or were structurally damaged. Infra- structure, such as roads, irrigation, drinking water, schools, and health centers, was badly affected. Relief work started immediately and is now almost complete. Now we have to pay immediate attention toward imple- menting the rehabilitation work on a massive scale. At this time, if we have to divert our current resources for this purpose when we are making a little headway in correcting the macroeconomic imbalances under the Structural Adjustment Program, the structural adjustment process will be jeopardized. It would cause a serious setback and throw Nepal back into the vicious circle of economic stagnation at an extreme poverty level. I would, therefore, like to request all of our donors-multilateral agencies and bilateral agencies- 142 to extend additional assistance for the rehabilitation and reconstruction work. In conclusion, on behalf of His Majesty's Government, I would like to thank all donors once again for their support of our development endeavor. NETHERLANDS: H. ONNO RUDING Governor of the Bank This is the sixth time that I have the honor of addressing this meeting in my capacity as Governor of the World Bank for the Netherlands. When I was considering this year's topics for discussion, I realized once again that some of them have figured for quite a long time already on the agendas of the various international forums that usually meet before we gather together. The most pressing of these issues is the debt problem, but the large payments imbalances between the major industrial countries, the need for greater exchange rate stability, and the still too high level of interest rates have also come to the fore. Although these problems differ widely in nature, they have in common that their persistence points to underlying structural rig- idities as barriers to adjustment. The conclusion is obvious: in both indus- trial and developing countries structural adjustment is of major importance for a return to sustainable internal and external balance. Of course, the first and foremost condition for a reduction of current payments imbalances between industrial countries to more sustainable levels is a sound and internationally consistent macroeconomic policy mix in both major deficit and surplus countries. The process of international policy coordination, which got public attention in 1985 with the Plaza Accord, has produced some tangible results, especially in the areas of interest rate policy, exchange rate policy, and foreign exchange market interventions. After years of exchange rate instability, international cooperation has resulted in more stable exchange rate relations. To a large extent, this cooperation takes place on an ad hoc basis, but several ministers-among them Chancellor Lawson on the occasion of last year's Annual Meeting-have mentioned the possi- bility of building a more permanent regime of managed floating. France also has frequently indicated its interest in strengthening the international monetary system and in more stable exchange rates through target zones. The challenge for the future is to design an exchange rate system that combines flexibility in adjusting to major shocks with the objectives of external and internal monetary stability. The Managing Director has aptly quoted the Articles of Agreement in saying of the Fund that it is the "per- manent institution which provides the machinery for consultation and col- laboration on international monetary problems." I support the Managing Director in giving content to this purpose of the Fund and would welcome it if the Fund gives more attention to this in its work program. 143 Mutually compatible macroeconomic policies are indispensable but do not in themselves guarantee an adequate pace of adjustment. Structural rigidities at macro- and microeconomic levels frequently inhibit an appro- priate supply-side response and stifle the efficacy of fiscal policy. Indeed, there is a clear relationship between the effectiveness of macroeconomic policy and the flexibility of economies. Fortunately, this relationship is in- creasingly being recognized by the international community. The Fund's staff, in an annex to its World Economic Outlook study, has investigated the possibilities of developing indicators for structural adjustment for use in its surveillance of the industrial countries' policies and has made quite a positive assessment. By developing a small number of simple quantitative structural indicators, each country's progress in removing structural rigidi- ties could be followed more closely. In this way, international policy coor- dination in the context of the Fund's surveillance would be significantly broadened in scope. Therefore, in spite of the technical difficulties involved, I would strongly recommend that the Fund continues its work in this area in collaboration with the OECD and the World Bank, not only in order to develop indicators, but also to achieve a division of labor that is in accor- dance with each institution's strengths and mandate. Without going into a detailed discussion of structural policies, I want to indicate the most prominent areas that need to be addressed: these are labor markets, sectoral policies, and trade protection. Not only surplus countries have a responsibility in this area. The area in which it is clearest of all that both deficit and surplus countries should act vigorously is trade protection. Recent Fund and Bank studies show that trade protection in industrial countries has intensified in recent years and is increasingly being applied in a discriminatory fashion. Bilateral agreements that increase pro- tection not only damage the interests of all concerned, but also shred the multilateral fabric that is so great an achievement of postwar global coop- eration. Even bilateral agreements to reduce protection hold this danger. Moreover, attention needs to be given to the fact that protection reduces the speed and effectiveness of adjustment. To realize a given adjustment in current account balances, larger changes in prices, exchange rates, and absorption are required. Thus, protectionism contributes to economic inst- ability. The ill effects of protection by industrial countries are the most painful for the developing countries. The propensity to protect runs counter to our common interest in making their debt problem bearable. Rising protection- ism, including internal subsidies, hardly encourages these countries to em- bark upon the more promising outward-looking strategies that are recom- mended unremittingly by the Bank and the Fund. Therefore, it is absolutely necessary for the Uruguay Round to be successful in establishing improved access to the markets of industrial countries. Indebted countries can in any event improve their prospects by dealing with the macroeconomic and struc- 144 tural imbalances in their own economies. Performance in this respect has been very uneven. In contrast to countries without serious debt-servicing difficulties, highly indebted countries, particularly in Latin America and Sub-Saharan Africa, have benefited disappointingly little from the contin- ued buoyancy of economic activity and world trade. While external factors, such as the rise in interest rates and the continuing low level of some primary product prices, have contributed, for the most part this weak performance is due to domestic policy deficiencies. Frequently stop-go policies are com- pounded by the inability to respond flexibly to changes in the environment. I only mention the widespread use of exchange and trade restrictions, dis- tortionary taxes and subsidies, inefficient credit-rationing systems, and in- effective management of state enterprises. This underscores the need for incorporation of structural policy measures in adjustment programs. Contrary to common belief, structural adjustment measures may very well have a rapid impact. This is particularly true of replacing administered prices by market forces. When demand management and structural policies reinforce each other, the effects can be very beneficial. For example, short- term monetary policy measures aimed at a reduction of inflation would be reinforced in a flexible labor market. The removal of price subsidies could be accompanied by the enhancement of local credit facilities, so that pro- duction can respond more quickly to price incentives. In industrial coun- tries, the relaxation of minimum wage requirements and the abolishment of investment subsidies could increase labor demand at short notice. More emphasis on structural adjustment measures in Fund and Bank programs does not imply that conflicts need arise with social and environ- mental policies. Within the context of structural adjustment programs, it is not only possible, but also imperative to increase the emphasis on poverty alleviation. The excellent documents of the Fund and the Bank on poverty issues explore how to implement a balanced policy and demonstrate that progress is being achieved. Designing adjustment programs with due atten- tion to poverty issues and targeting social expenditures on the poor can ensure that the burden of adjustment is made more bearable and that the benefits of growth are shared fully and relatively quickly by the poor without jeopardizing the basic goals of adjustment. Our efforts should be directed toward eradicating poverty, and not only toward temporary alleviation. Therefore, I am strongly in favor of an integrated structural approach when dealing with poverty issues. Such an integrated approach can be successful only if the programs are fully supported by the governments involved. In order to achieve sustainability, such programs should contain a limited num- ber of relatively simple and unambiguous conditions and targets. Moreover, special attention should be given to strengthening the institutional capacity to enable successful implementation of the required policies. The Bank should continue to integrate poverty alleviation activities in all its opera- tions, thereby concentrating its efforts on the structural and long-term as- 145 pects of poverty alleviation such as the strengthening of the income-gener- ating capacity of the poor and the enhancement of the effectiveness of social expenditures. The creation of special poverty programs and loans would be an anomaly, and the proposal to establish a core poverty program creates the wrong impression that growth and poverty alleviation are conflicting goals. Besides, a core poverty program might well endanger the necessary greater attention for poverty issues in regular Bank activities. Progress in the field of poverty alleviation requires, in my opinion, co- ordination of activities between the various donors, both bilateral and mul- tilateral. It is important to use the wide experience that many bilateral donors and nongovernment organizations (NGOs) have gained in the exe- cution of poverty reduction programs. Coordination is of vital importance. The developing country concerned should be supported in strengthening its capacity to playa leading role in the donor coordination process. The Bank could playa central role in order to ensure an adequate flow of concessional resources to those developing countries that have formulated sound adjust- ment strategies. We should not forget, moreover, that the success of both structural ad- justment programs and integrated poverty alleviation measures will be very limited if inadequate attention is paid to the environmental situation in developing countries. I should therefore like to express my appreciation for the guidelines the Bank has developed in this field. The goal to be reached next is an effective implementation of these guidelines. In my view the Bank should aim at integrating the environmental component in all its programs and should consider it as an important criterion in project appraisal. Fur- thermore, the Bank should playa role in improving donor coordination in this field and in strengthening the institutions in the developing countries that are responsible for environmental protection. Increased attention to the environment is a precondition if we want to prevent a further erosion- in all senses of the word-of the position of the poorest groups in developing countries. Another aspect that we should seriously consider when we look at poverty is the rapid population growth in many developing countries, especially in the low-income category. This is bad for development in the countries con- cerned in several respects. First, if economic growth does not considerably exceed the rate of growth of population, its benefits are virtually wiped out. Second, services that are already scarce, such as health care and education, will have to be distributed over a large number of people, with direct implications for long-term development. Therefore, an active approach to the population problem is imperative. In formulating policies in this field, one should not only develop programs aimed specifically at birth control, but also look at health care and education as vehicles for motivation and increased awareness among the people concerned. Without involvement of 146 the target group, by offering them a better perspective, no policy can suc- ceed. In my view-a view that, much to my pleasure, appeared to be shared by Mr. Con able yesterday-the Bank should step up its efforts in the field of population policies, at the same time ensuring an integration of these activ- ities in all programs undertaken by the Bank. It is my firm belief that structural adjustment creates more room for maneuver and allows a better targeting of government policies of the kinds that I have described. Policy framework papers, which are already used for low-income countries, could playa role in this respect. They offer a general framework for the governments of the countries concerned, the Fund, and the Bank to pursue an integrated approach. However, the increased collab- oration between the Fund and the Bank makes it all the more necessary to have each institution abide by its mandate. Whereas structural and micro- economic policies are the primary area of the Bank, the Fund as a monetary institution must focus on policies with a distinct macroeconomic impact that are intended to restore balance of payments equilibrium. Such a clear sep- aration, based on the nature of the money they provide, safeguards the complementarity of the institutions and helps avoid a damaging rivalry. Adjustment needs to be supported by financing. Good adjustment should be rewarded by generous financing. The Japanese offer to provide additional parallel financing with Fund programs, while not yet clear in all its details, appears to serve this purpose very well, and I welcome it. Both the Fund and the Bank will need to scrutinize future demands for credit carefully and pay great attention to performance in advancing money. The number of cases in which performances have been disappointing is too large. Fre- quently, domestic mismanagement can be observed. All too many are the instances in which an embarrassing degree of income inequality is coupled with corruption, capital flight, or high military expenditure. Economic and moral deficiencies of this nature do not provide a basis for support by the international community. Moral perfection is not the goal of adjustment, but there should be clear evidence of a political will to tackle problems seriously. Only then can generous support by the Fund and the Bank, each for its own preserve, be forthcoming and can this be used to the full to encourage the commercial banks to come across as well. I welcome the inventiveness that is being displayed in the concoction of financing packages. The menu of market-based techniques for voluntary debt reduction without transferring risk from private lenders to official cred- itors is being broadened all the time. However, given the financing needs of countries with adjustment programs in place and the hardships they are already exposed to, banks should not skew the packages exclusively in that direction. New money must playa role. For the same reason the Bank has been granted a capital increase by its members, and I call upon members 147 to stand ready soon to provide the Fund with substantial new resources under the Ninth General Review of Quotas. Governments have already shown welcome evidence of the will to take over some of the burden of the poorer countries in the context of the Paris Club. What cannot be endorsed, however, is the existence of sizable and mount- ing arrears in the Fund and, to a lesser extent, the Bank. The cooperative nature of these institutions and the special role they play in standing ready to support adjustment and development, respectively, should vouchsafe them their preferred creditor status. Prevention and cure in accordance with measures proposed by the Board of the Fund meet my wholehearted sup- port. I have already underlined that commercial sources will have to play their role in increasing the flow of financial resources from developed to deveop- ing countries. In this connection I should like to mention MIGA, which I am honored to do also on behalf of Switzerland and Cyprus since, in the framework of MIGA, Switzerland, Cyprus, and the Netherlands form a constituency. We are pleased to see that, after a long period of preparation, MIGA is now becoming operational and will soon contribute to enhancing private direct investments in developing countries. Some conditions, however, are yet to be fulfilled in order to give MIGA the good start it deserves. Its staff should be brought to the projected level as soon as possible, and a large number of countries should take up membership in order to enhance the multilateral character of this important institution. These steps will enable the agency to develop a portfolio of activities both professionally designed and of substantial financial and development impact. Finally, I want to devote a remark to the standards of value that govern our institutions. The SDR mirrors the weighted value of five major curren- cies and as such absorbs to a significant degree changes in their relative values; it is thus a stabilizing element in calculations and operations. As a matter of principle, moreover, it appears neither logical nor fair to base the standard of value on the currency of a single country. I therefore urge the Bank Board Committee that occupies itself with this matter to take account of this conviction. NEW ZEALAND: DAVID BUTCHER Governor of the Fund and Bank Much has been said in the last few days about the process of adjustment. I want to share with you New Zealand's views about two aspects: first, some lessons from New Zealand's reform effort, and second, how this adjustment relates to current developments in world trade. 148 ._---------_._,----",_. __ __._-_._._---_._-- . . Last year, New Zealand's Minister of Finance described how New Zea- land has embarked on a far-reaching reform program since 1984. What are the lessons that can be drawn? First, comprehensiveness and speed are of the essence. Members of the community and interest groups can better accept structural adjustment and removal of protected positions when they can see others having to cope with similar changes. It is also important in establishing government credibility. People become more confident about a government when it enacts measures within a consistent overall framework. In New Zealand's case, this frame- work is outward looking, promotes competition, and emphasizes the Gov- ernment's role as a rule maker. A second lesson is that meaningful adjustment takes time. It took time for firms and employees to accept the Government's determination not to accommodate excessive wage or price demands through loose monetary policy. It took four years to bring the fiscal deficit down from 9 percent of GDP to a current position of basic balance. Each year the resolve of the Cabinet was tested. In the end, Ministers and backbenchers alike recognized that the course was the right one and would put New Zealand on a sustain- able growth path. A third lesson I want to leave with you is that real adjustment has costs. The Government removed wage and price controls, interest rate and finan- cial controls, and import licensing, and reduced border protection. It has drastically cut subsidies and put a massive effort into making public enter- prises more efficient In New Zealand we have had to accept a pause in our growth. Unemployment has risen to nearly 8 percent of our labor force. There has been real pain among farmers, exporters, householders from high mortgage rates, and public servants facing a Government determined to achieve a cost-effective state sector. These costs were inevitable. However, it would have been more costly to do nothing. New Zealand's balance of payments is significantly improved, the fiscal position is comfortable, inflation is down from 18 percent to under 5 percent, and we have begun paying off external debt. My Government is confident that it has laid the basis for a sustained growth period. I turn now to how our reforms fit in with developments in world trade. In the last four years, New Zealand has substantially dismantled its external protection. We have also significantly reduced subsidies and price support schemes for agricultural products. We did not do this to secure an advantage in bilateral or multilateral trading relationships. We did it because it made economic sense for New Zealand. New Zealand has gained from this strategy. It has increased productivity, reduced inflation, helped reduce the fiscal deficit, and ensured a public perception of equal treatment among sectors. For this reason, New Zealand views with dismay growing protection in many industrial countries. We are convinced that expanding world trade is 149 the only way to reduce the debt of the developing countries and reduce unemployment in the industrial countries. In this context I want to reinforce two points made in the Interim Com- mittee meeting by our colleague, the Australian Treasurer, Mr. Keating. First, we view with concern the potential for regional trading blocks to reduce competition. For example, the Common Agricultural Policy has been an unmitigated disaster for the welfare of Europeans and people who live by trade in agricultural goods. This type of protection must not spread to other regions or other products. Second, we believe it is in the interest of all of us to make progress in the Uruguay Round. New Zealand has moved away from platitudes and has brought about a significant reduction in its protection and subsidies. We did it in our interest. Our moves are also in the interest of everyone. Similar vigorous reform would benefit rich and poor alike. PAKISTAN: MAHBUB UL HAQ Governor of the Bank As we meet in this beautiful but divided city, we are quietly reminded of the many divisions we have yet to overcome-political conflicts between nations, economic disparities within nations, and increasing distance be- tween rich and poor countries. These are persistent problems, and they can never be completely resolved, but our collective efforts can at least make some difference. We have a crowded global agenda~growing debt problems, increasing protectionism, inadequate resource flows, imperfect structural adjustment, and interrupted development momentum. Before we get lost in finding technocratic and often piecemeal solutions to a confusing multiplicity of problems, can we list our sights a little and ponder the real objective of all our efforts? I believe that the only unifying objective of our efforts must be the en- hancement of human development, for people are both the means and the end of economic development. And beyond the convenient aggregates of national output and investment, our ultimate focus must be on the expansion of human capabilities, on the growth of human capital, or the centrality of human initiative and creativity. If we begin to measure development in human terms, we shall immedi- ately recognize the enormous human gap that is opening up between the developing and the developed nations. Just to take one telling illustration there are likely to be 1 billion illiterates in the developing world by the year 2000. And this gap in human development is going to make it even more difficult to overcome the traditional income gap. In fact, the primary task of development should be to expand human capabilities and to let human beings choose their own economic and social path. 150 Is it not possible today to refocus our attention on overcoming this human gap? We certainly have the technology and the resources to do s Oscar Lamberto Benito J. Lucini Governor Daniel Marx Mokdad Sifi Jorge Matzkin Fernando Mauhum Alternate Governor Daniel Merino Mohamed El-Hadi Khelifi Raul Milano Raul Miranda Advisers Victor Mondino Mustapha Achour Roberto A. Mori M'hamed Oualitsene Jorge Murillo Julio Naveyra Antigua and Barbuda# Juan Manuel Peire Juan Bautista Pena Governor Norberto Carlos Peruzzotti Ludolph Brown Ernesto Porto Luis Remaggi Alberro Alternate Governor Juan Carlos Romero Heron Edwards" Jesus Sabra Jorge Sakamoto Luis Santos Casale Argentina Rodolfo Vacchiano Jose Manuel Vazquez Governor Carlos Alfredo Vidal Jose Luis Machinea A. Guillermo Zoccali Alternate Governor Juan Fernando Sommer Australia Advisers Governor Eduardo Raul Ablin Paul J. Keating Raul Baglini Roberto Barry Alternate Governors Eduardo Bauza Peter McCawley" Pedro Buchara David Morgan" Roberto BuJlrich Mervyn John Phillips" Felix Alberto Camarasa + B.W Fraser" Juan B. Castro Marcelo J. Castro Corbat Advisers Luis Cedrola Leslie John Austin Jorge J. Cendoya Robert G. Carling + + Temporary <> Not a member of IFC :/I Not a member of IDA + Executive Director + + Alternate Executive Director 302 Ms. Joanne Collins Bangladesh Ms. WL. Fisher Denis C. Fitzgerald Governor Philip Harrison A.K. Khandker Ken Henry A.M. Hinton Alternate Governors D.E. Russell Muzammel Hossain' M. Mustafizur Rahman' + + Enam Ahmed Chaudhury Austria Governor Barbados# Ferdinand Lacina Governor Alternate Governor Carl Denzil Clarke Othmar Haushofer Alternate Governor Winston A. Cox Advisers Gerhard Janschek Adviser Johann Kernbauer Neville V. Nicholls Heiner Luschin + + Herbert A. Lust Gabriele Matzner Belgium Governor The Bahamas# Philippe Maystadt Governor Alternate Governor Sir Lynden O. Pindling Jean Godeaux Alternate Governor Advisers Mrs. Ethelyn C. Isaacs Gino Pierre Alzetta Jean-Pierre Arnoldi Advisers Jacques de Groote + Owen S.M. Bethel Mrs. Anne Grootaert Reno J. Brown Luc Hubloue Rossevelt Butler Bernard Snoy EdgarN. Hall Jan M.B. Vanormelingen Ervin Knowles Andrew McKinney Belize Patricia Rodgers Warren L. Rolle Alternate Governor Mrs. Yvonne S. Hyde Bahrain<># Benin Governor Governor Ibrahim Abdul Karim Simon Ifede Ogouma Alternate Governor Alternate Governor Rashid Ismail AI-Meer' Saliou Aboudou Adviser Adviser Yousif Abdulla Ali Humood Rachidi B. Radji Temporary <> Not a member of (Fe # Not a member of IDA + Executive Director + + Alternate Executive Director 303 Bhutan<> Arnim Lore' Pedro S. Malan' + Governor Ricardo Luiz Santiago' Dawa Tsering Antonio de Padua Seixas' Elmo de Araujo Camoes Alternate Govenor Karma Dorjee Advisers Jose Roberto N. Almeida Bolivia Carlos Alberto Amorim, Jr. Eimar Andrade Avillez Governor Joao Batista Camargo Fernando Romero Olinto Tavares de Campos Narciso da Fonseca Carvalho Alternate Govenor Ney Werneck de Campos Curvo Fernando Cossio' Ms. Rosa Maria Dalcin Luiz Fernando Monteiro Faria Advisers Marcio Joao de Andrade Fortes Mrs. Marla Elena Baccino Manfred Hollmann Roberto Capriles Clodoaldo Hugueney Filho Victor Hinojosa Luiz Fernando de Freitas Ligiero Jose Justiniano Ary da Graca Lima Fernando Kempff Julio Mourao Julio Leon Prado Antonio do Nascimento Carlos Prudencio Daniel Andrade Ribeiro de Oliveira Jose Roberto Procopiak Jose Rente Nascimento Botswana Sadi Assis Ribeiro Filho Olavo Cesar da Rocha e Silva Govenor Joao Almino de Souza Filho P.S. Mmusi Mrs. Maria Celina Arraes Vinhosa Arnoldo Wald Alternate Governor Baledzi Gaolathe Burkina Faso Advisers Ben 1. Gasennelwe Governor E. Machobane Youssouf Ouedraogo Mrs. M.N. Masisi S.S. Modimakwane Alternate Governor Michael Molefane Patrice Nikiema C. Morara S.B. Seakarea Advisers G.N. Thipe Jacques Nignon Augustin Somda Brazil Governor Burma Mailson Ferreira da Nobrega Governor Alternate Governors Aung Pe Sergio Silva do Amaral' Mario Jorge Gusmao Berard' Alternate Governor Alexandre Kafka' U Thet Bo' Temporary <> Not a member of IFC # Not a member of IDA + Executive Director + + Alternate Executive Director 304 Burundi Douglas E. Smee Miss Jacqueline M. Snyder Governor Stephen Woollcombe Pierre Binoba Cape Verde<> Alternate Governor Anselme Habonimana Governor Arnaldo C. de Vasconcelos Franca Advise:rs Astere Girukwigomba Alternate Governor Edouard Kadigiri Antonio Hilario Cruz Bonus Kamwenubusa Andre Nikwigize Advisers Mathias Sinamenye Manuel Jesus Costa Mrs. Ligia Oliveira Cameroon Antonio Rodrigues Pires Governor Central African Republic< > Mrs. Elizabeth Tankeu Governor Alternate Govenor Cyriaque Samba-Panza Simon N gann Yonn Alternate Governor Advisers Robert Amedi Mebara Atangana Martin Aristide Leopold Okouda Adviser Idriss Vessah N joya Joseph Koyagbele Canada Chad<> Governor Governor Michael H. Wilson Mahamat Sou mail a Alternate GtlVernors Alternate Governor John C. Coleman' Ahmed Kerim Togoi Fred W Gorbet' Ms. Wendy Dobson' Chile Advisers Mark Bailey Governor Martin Bakker Hernan Buchi Anthony F. Burger Barry A. Culham Alternate Governor David C. Elder Juan Andres Fontaine Talavera' Peter Fiori Gerry Grant Advisers Glen D. Hodgson Marcos Ayala G. Paul Krukowski Julio Barriga Silva Peter Liebel Cesar Besio R. Ernest Loevinsohn Raul Contreras Don McCutchan Manuel Diaz E. Franco D. Pillarella Jorge Diaz Vial Frank Potter + Leon Dobry Folkman Temporary <> Not a member of IFC # Not a member of IDA + Executive Director + + Alternate Executive Director 305 Jorge Echeverria Z. Alternate Governors Francisco Javier Errazuriz T. Oscar Marulanda Gomez' Manuel Grez M. Luis Alvaro Sanchez Baracaldo' Alfredo Herrmann Carlos Sanclemente' + + Julio Jaraquemada Ledoux Juan Luis Kostner M. Advisers Pablo Larrain I. Carlos Caballero Argaez Andronico Luksic C. Joaquin Caicedo Salazar Ricardo A. Massu M. Jose Joaquin Casas Fajardo Gonzalo Menendez Duque Javier Gomez Restrepo Alberto Mois Cesar Gonzalez Munoz John N. Myers Mauricio Hernandez Claudio A. Pardo + + Carlos Alberto Hernandez Cruz Andres Gabriel Passicot Callier Jorge Mejia Salazar Renato A. Penafiel Roberto Pardo Vargas Adolfo Rojas Samuel Alberto Yohai Manuel Martin Saez Francisco S. Silva Comoros<> Helmut Stehr Wilckens Boris Subelman B. Governor Roberto Toso Mikidache Abdou'Rahim Patricio Ureta Prieto Cristobal Valdes Saenz Alternate Govenor Tadjiddine Ben Said Massond China People's Republic of the Congo Governor Wang Bingqian Governor Dieudonne Diabatantou Alternate Governors Alternate Governor Wang Liansheng* Andre Batanga Xiang Huaicheng* Xu Naijiong* + Advisers Zhang Junyi* + + Jean Claude Boucher Leroy Celestin Gaombalet Advisers Emile Mabondzo Chen Jian Adoum Malloum Jin Liqun Clement Mouamba Jin Xiangyun Jean-Marie Omog-Samnick Ma Canrong Jack Sigolet Shang Ming Sheng Fulai Costa Rica Wang Chunchao Wang Weixing Governor Wen Duanyu Fernando E. Naranjo Zhang Shengman Alternate Governors Edgar Ayales' Colombia Ms. Silvia Charpentier' Juan Carlos Fernandez Saborio Governor Gerardo W. Jaspers' Luis Fernando Alarcon-Mantilla Rolando Ramirez Paniaqua * Temporary <> Not a member of IFC # Not a member of IDA + Executive Director + + Alternate Executive Director 306 ._-------_.__·....._._ .. Advisers Denmark Jose Joaquin Chaverri William Heyden Q. Governor Luis Liberman G. Ole Loensmann Poulsen Carlos Manuel Rojas K. Mario Rojas V. Alternate Governor Sten Lilholt Cote d'Ivoire Advisers Boerge V. Bloend Governor Niels Bodelsen Abdoulaye Kone Jens Ege Lars Kjellberg Alternate Governor Leon Naka Djibouti Advisers Governor Mohammed Aboulfadl Mohamed Djama Elabe Amon-Tanoh Edward S. Ayensu Alternate Governor Abou Bakar Baba-Moussa Ibrahim Kassim Chehem Claude Cam bray N'Golo Coulibaly Tiebenon Diarrassouba Dominica Mrs. Nicole Diaw Lancina Dosso Governor Ms. Afi Fabre Mary Eugenia Charles Cheikh Ibrahim Fall Charles Gomis Alternate Governor Yao Agbo N'De Hounouvi Cary A. Harris I.V.Iheme Karamoko Kaba Milan C. Kemo Dominican Republic Ferhat Lounes Babacar N'Diaye Governor Godefroy Nguionza Roberto B. Saladin Selin Delphin G. Rwegasira Sylla Sekou Alternate Governor Toure Sidia Francisco M. Guerrero Prats' Mamadou Taofiqui Toukourou Francois Moussa Zoungrana Advisers Mrs. Celeste Silie de Castellanos Felipe Vicini Cabral Cyprus Ecnador Governor George Syrimis Governor Jorge Gallardo Zavala Alternate Governor George V. Hadjianastassiou Alternate Governors Franklin Proano' Adviser Patricio L. Rubianes' E. Ioannou Edison Ortiz Duran Temporary < > Not a member of IFC # Not a member of IDA + Executive Director + + Alternate Executive Director 307 Advisers Advisers Miguel Babra Lyon Tsegaye Asfaw Danilo Carrera Samuel Bekele Guillermo Lasso Yilma Kassaye Cesar Robalino-Gonzaga Angel Serrano B. Fiji Egypt Governor J.N. Kamikamica Governor Kamal El Ganzoury Alternate Governor Rigamoto Taito Alternate Governor Erfan A. Shafey Finland Advisers Governor A. Baharia Erkki Liikanen Mostafa Kamel El Dieb Momtaz Mohamed Saied Abo El Nor Alternate Governors M. Hanafi Kai Helenius' Samir Korayem Osmo Sarmavuori EI Salvador Advisers Mrs. Inga-Maria Groehn Governor Veikko Kantola + + Remo Bardi Cevallos Antti Karppinen Peter Laurson Alternate Governors Asko Lindqvist Alberto Benitez Bonilla' Kari Rainer Nars Edgar Leonel Saballos Munguia Kalevi Pykala Mrs. Taina Teravainen Adviser Ms. Rhina de Jarquin France Equatorial Guinea<> Governor Jacques de Larosiere Alternate Governors Charles Martimor* Alternate Governors Juan Efua Efua Asangono Mrs. Helene Ploix* + Jean-Claude Trichet Advisers Robert Klitgaard Advisers Daniel Turover Mrs. Pascale Beracha Mrs. Sylvie Chapeiaud Ludovic de Montille Ethiopia Jean de Rosen Jacques Desponts Governor Jean-Claude Faure Wollie Chekol Andre Gauron Robert Granet Alternate Governor Ms. Mireille Guigaz Seyoum Alemayehu Francois Jonchere Temporary <> Not a member of IFC # Not a member of IDA + Executive Director + + Alternate Executive Director 308 Jean-Pierre Landau Federal Republic of Germany Mrs. Catherine Laurent Luc-Andre Leproux Governor Bernard Morizet Hans Klein Christian Noyer Mrs. Stephane Pallez + + Alternate Governors Pierre Pissaloux Gerhard Boehmer' + Vincent Rousset Hans-Juergen Brueckner" Claude Rubinowicz Fritz Fischer" Alexis Ruset Volkmar Koehler" Jean-Michel Severino Eberhard Kurth' Pierre Uhel Hans Tietmeyer Jacques Waitzenegger Thierry Walrafen Advisers Dietrich Andreas Heinz Buehler Gabon Enno Carstensen Dieter Martin Eckert Governor Jochen Feilcke Pascal Nze Winfried Fuchs Rainer Christoph Funke Fritz Gautier Alternate Governors Horst Gebauer Casimir Oye Mba' Joachim Gruenewald Jean-Felix Mamalepot Ingomar Hauchler Ulrike Haupt Advisers Mrs. Renate Hellwig Jean-Baptiste Assiga-Ahanda Walter E. Hermann Pierre Parfait Gondjout Josef Hommen Alfred Mabika Mouyama Alois Jelonek Doupambi Matoka Hans Kasper Maurice Moutsinga Lutz Kuehne EmmanuelOndo-Methogo Alexander Martin Muser Fabien Ovono-Ngoua Manfred H. Oblaender Ndong Sima Klaus Oehler Mrs. Ellen Olms Winfried Pinger The Gambia Wolf Preuss Gotthard Reimann Governor Guenther Rexrodt Mamour M. Jagne Wolfgang Rieke Klaus Rose Adolf Roth Alternate Governor Helmut Schaffer J. Ayo Langley Ms. Oda Scheibelhuber Bernhard Schweiger Advisers Wolfgang Sieler Ribley David Asante Max Streibl Momodou C. Bajo Gerhard Theidemann Mousa Gibril Bala Gaye Ernst Thien B.Carr Klemens van de Sand Edward E. Fillingham Ludger Volmer Mbemba Jatta Michael von Harpe + + Tamsir Mbaye Michael Graf von Korff-Schmising · Temporary <> Not a member of IFe /I Not a member of IDA + Executive Director ++ Alternate Executive Director 309 Peter Wende Guatemala Norbert Wieczorek Anton Zahn Governor Rodolfo Paiz Andrade Ghana Alternate Governor Governor Lizardo Sosa' Kwesi Bekoe Amissah-Arthur Advisers Alternate Governor Hugo Argueta Figueroa Joseph L.S. Abbey Mrs. Perla Lam de Morales Jorge Alexei de Synegub Advisers Carlos Echeverria Salas Kwame Adusei-Poku Jorge Papadopolo W Kofi Agyemang Lucrecia Rivera Abubaker Binahad Ahmad Miss Carolina Roca Ruano Clemens Dan Anyomi Alex Bediako John Bentum-Williams Guinea Yaw Osafo-Marfo Ms. Eleanor Quist Governor Yaw Manu Sarpong Kerfalla Yansane Ebenezer Chiatey Totimeh Tsatsu Tsikata Alternate Governor Kabine Komarra Greece Advisers Governor Ousmane Barry Tolo Beavogui Panagiotis Roumeliotis Jean Delacroix Camara Alternate Governors Ousmane Tolo Thiam Mrs. Julia Panourgia Clones' Yannis Papanicolaou' Guinea-Bissau Advisers Governor Theodore Demopoulos Pedro A. Godinho Gomes George Gekos James G. Georganas Alternate Governor Constantine D. Georgoutsakos Bubacar Ly' George Katiforis Sotiris Kollias Advisers Panayotis Korliras Ensa Mahatma Djandy Nikos Melissaropoulos K.U. Koepke Spyros Papanicolaou Bubacar Ture Anastasios Tzavellas Grenada Guyana Governor Governor Herbert Augustus Blaize Carl Greenidge Alternate Governor Alternate Governor Keith Mitchell' James Matheson' · Temporary <> Not a member of [Fe If Not a member of IDA + Executive Director + + Alternate Executive Director 310 Adviser Alternate Governors Hubert Stanislaus Thompson Montek Singh Ahluwalia' J.L. Bajaj* Haiti C.R. Krishnaswamy Rao Sahib' + S. Venkitaramanan Alternate Governor Pedro S. Malan' Advisers Pradeep Bhide S.R. Chaudhuri Honduras Sundaram Krishna A. Madhavan Governor Efrain Bu Giron Indonesia Alternate Governors Mrs. Marta Julia Cox' Governor Ms. Cristiana de Figueroa' J.B. Sumarlin Francisco Figueroa Z.· Dario Humberto Hernandez Bonilla' Alternate Governor Rigoberto Pineda Santos Sujitno Siswowidagdo Advisers Advisers Basilio Fuschich Haryadi Danuwinoto Oswaldo Lopez Arellano Sofjan Djajawinata Pedro E. Schmid T. Ignatius Hardijanto Carlos A. Urbizo S. Harry Harjono Achjar Iljas Hungary Alimuddin Lubis Robert E. McNulty Governor Mansjurdin Nurdin Miklos Pulai Sunny Paago Sanyoto Sastrowaradoyo Alternate Governor Kilian Sihotang Istvan Ipper' Soekarno Hasudungan Tampubolon Advisers Domingus P. Thijssen Janos Bartha Pal Peterfalvy Islamic Republic of Iran Ferenc Polgar Gyorgyi Stenger Governor Mrs. Zsuzsa Sule Mohammed Javad Iravani Iceland Alternate Govenor Ali Majedi Governor Thorhallur Asgeirsson Advisers Seyed Mojtaba Arastou Adviser Fariborz Azarnia Jonas H. Haralz+ Mohammad Jafar Doroudi Hassan Golriz India Abbas Kafafi Mohsen Kakavand Governor Javad Kananizadeh S.B. Chavan H.E. Mostafavi .. Temporary <> Not a member of IFC # Not a member of IDA + Executive Director + + Alternate Executive Director 311 M. Rakhsha Italy Ghassem Mehrzad Sadaghiani Ali Asghar Sedghi Governor Mohammad Ali Shabani Carlo Azeglio Ciampi Javad Toyserkani Alternate Governors Mario Draghi' + Iraq Francesco Papadia' Mario Sarcinelli Governor Subhi Frankool Advisers Gastone Alecci Alternate Governor Francesco Alfonso Tarek T. AI Tukmechi' Paolo Bruni Francesco Cerulli Mrs. Annalisa Biondi Dell'anna Advisers Ms. L. Fernanda Forcignano Kamil Kadhim AI-Abhadh Georgio Marini A. Majid H. AI-Ani Rainer Stefano Masera Abas Kadim AI Sadi Antonio Pedone Ali Kamoosi Giovanni Sacco Jasim M. Khalaf Fabrizio Saccomanni Mahmoud Ahmed Uthman Felice Scordino Abdel Hassan Zalzala Alessandro Sottosanti Sergio Vento Augusto Zoddo Ireland Governor Jaimaca# Ray MacSharry Goverrwr E.P.G. Seaga Alternate Governors Michael Somers' Alternate Governor Sean P. Cromien Headley Brown Brian Bermingham Adrian Kearns Advisers Maurice O'Connell Winston Anderson Charles V. Smith Horace G. Barber + + Paul Chen-Young Patricia Durrant Israel Peter Tatiner Miss Carla Vendryes Governor Ms. Lorraine Wilkin Michael Bruno Japan Alternate Governor Arieh Sheer Alternate Governors Toyoo Gyohten* Advisers Mitsukazu Ishikawa' + Valery Amiel Yoshiaki Kaneko' Gideon Bry Koji Kashiwaya' Raphael Meron Tomomitsu Oba' Freddy Wieder Takeshi Ohta' Temporary <> Not a member of IFe :# Not a member of IDA + Executive Director + + Alternate Executive Director 312 Makoto Utsumi* Advisers Koji Yamazaki* Ahmed Abdallah Satoshi Sumita M.l.P. Kanga Ben Kipkorir Advisers G.K. Koech Nobiru Adachi George M. Mitine Susumu Fujimoto Nahashon N. Nyagah Takayoshi Hatayama M.P.Omwony Takayuki Kamoshida EN.Ondieki Kiyoshi Kodera c.1. Shakaba Takashi Koezuka S.S. Surtan Kunio Kojima Tomoyasu Komuyama Kiribati Shinji Kubono Kunisada Kume Alternate Governors Masatoshi Kuratani Uriam Timiti* Haruhiko Kuroda Manohar Lal Nayyar Rei Masunaga Satoru Miyamura Korea Zenbei Mizoguchi Daikichi Momma Governor Haruhito Totsune II Sakong Ken Yagi Shinichi Yoshikuni Alternate Governors Yukio Yoshimura + + Jae-Hyong Hong* Chong-Moo Lee* Jordan Hwan-Kyun Lee* Hyung-Sup Shim* Kun Kim Governor Taher H. Kanaan Advisers Joong-Gie Chung Alternate Governor Han Do Huh Mohammad H. Al-Saqqaf Noh-Choong Huh Chang-Shik Kim Advisers Seung-Beom Koh Ziyad Annab Seung-Woo Kwon Ismail El-Zabri Chol-Soo Lee Adeeb Khalil Haddad Choong-Seok Lee Basil A. R. Jardaneh Jung-Hwan Lee Zuhair Khouri lung-Seop Lee Michell. Marto Young-Ki Lee Nabil 1. Sweis Cheul Park Fayez Tarawneh Yoon-lin Rhee Hoon Shim Kenya Kuwait Governor Governor George Saitoti lassim Mohamed Al-Kharafi Alternate Governor Alternate Governor W Muriithi Bader Meshari Al-Humaidhi lemporary < > Not a member of IFC # Not a member of IDA + Executive Director + + Alternate Executive Director 313 Advisers Liberia Khalid AI-Babtin Ibrahim Rashed AI-Fuleij Governor Marwan Abdulla AI-Ghanim Elijah E. Taylor Mohamed Abdulmohsin AI-Mershed Fahed Mohammed AI-Rashed Alternate Governor Sheikh Khaled AI-Sabah G. Pewu Subah Sheikh Salem Abdullah AI-Ahmed AI- Sabah Advisers Mohammed Haider-Ghuloum Philip T. Bowen Abdul Karim Sadik Ms. Mary B. Dennis Munyeneh Doh Emmett Harmon Lao People's Democratic Republic<> Charles S. McGill, Jr. James M. Monxhwedey Governor Donald E. Syvrud Sisavath Sisane Libyan Arab Jamahiriya Alternate Governor Khamsouk Sundara' Governor Mohamed EI Madni Al-Bukhari Adviser Kikham Vongsay + + Alternate Governor Bashir Ali Khallat Lebanon Advisers Abubaker AI-Barki Governor Nuri Abdussalam Baryun Habib Abou-Sakr Omar El Mogsi Fathi Mghedish Alternate Governor Berrahem Salem Raja Himadeh Muftah Ali Sherif Kassem M. Sheriala Advisers Salim Kheireddine Luxembourg George S. Nassar Willy C. Rellecke Governor Jacques Santer Lesotho Alternate Governor Raymond Kirsch Governor Advisers Michael M. Sefali Ernst-Guenther Broeder Yves Mersch Alternate Governor Alain Prate Tom Liphapang Tuoane Richard Ross Guy Seyler Advisers Jacques Silvain Mrs. M. Mei Mrs. Qenehelo M. 'Mapolo Moji Madagascar C.S. Molelle Masupha E. Sole Governor Reginald Mokheseng Tekateka Pascal Rakotomavo Temporary < > Not a member of IFC # Not a member of IDA + Executive Director + + Alternate Executive Director 314 Alternate Governor Mali Jean Robiarivony Governor Advisers Anthioumane N'Diaye Stephane Andriamandrainirina Jean-Marie Henri Alternate Governor Andre Rajaonah-Ratsimsetra Qumar Kassogue Mrs. Sabine Rkotozafy Robert Ramelina Advisers Gaston Ravelojaona Bakary Mariko Paul Rozafindrakoto Harouna Niang Andrianarivo Tantely Souleymane Y. Sidibe Amidou Qumar Sy Macky Koreissy Tall Malawi Adama Seydou Traore Governor Malta<># L. Chi mango Governor Alternate Governors Edgar Wadge F.Z. Pelekamoyo* CD. Nthenda Alternate Governor Albert G. Bugeja* Advisers Zakia R.G. Chalira Harry M. Mapondo Mauritania Governor Malaysia Mohamed Quid Nany Governor Alternate Governor Daim Zainuddin Mohamedou Quid Michel Alternate Governors Advisers Tun Ismail bin Mohamed Ali* Ahmed Sani AI-Darwish Tan Sri Dato' Zain Azraai Ahmed Quid Boucheiba Mohmed Lemeine Quid Deidah Ahmed Quid Lefdal Advisers Abu Bakar B. Abdul Karim Hadenan Abdul Jali\ Mauritius Mustapa Mohamed Nadzim Abdul Governor Abdul Wahab Harun Bergoonath Ghurburrun Alternate Governor Maldives Madhukarlall Baguant Governor Advisers Fathulla Jameel Rundheersing Bheenick Sri kant Madan Chitnis Alternate Governor Chitmansing Jesseramsing Ismail Shafeeu * Johannes Kneifel Temporary < > Not a member of IFC # Not a member of IDA + Executive Director + + Alternate Executive Director 315 Mexico Alternate Governors S.P. Shah' Governor Lok Bahadur Shrestha lose Angel Gurria Trevino Alternate Governors Netherlands Salvador Arriola' Antonio Cervera Sandoval' Governor Alfredo Phillips Olmedo' H.O. Ruding Ernesto Marcos Giacoman Alternate Governors Advisers N.H. Biegman' Roberto Contreras Pieter Stek' lose Luis Flores R.l. Treffers' Timoteo E. Harris P. Bukman Roberto Martinez S. Cees Maas' Ms. Hildegard Rohen Ortega Advisers Morocco Paul Arlman + Emile Den Dunnen Governor los de Vries Mohamed Berrada Ronald Keller 1.S. Kramer Alternate Governors Vimy A. Servage Abdelkader Benslimane' Antonius H.l.M. Speekenbrink Mustapha Faris 1.G. van der Tas R. Vermaas Advisers laap H. Weeda Omar Akalay R. Zeldenrust H. Alaoui-Abdellaoui Noureddine Bensouda New Zealand Fouad Benzakour Thami El-Barki Governor Ahmed Harti El Wardi David Butcher Abdellatif louahri Omar Kabbaj Alternate Governor Nouha Mohammed Larbi Ross Tanner Abdallah M'Sahi Advisers Mozambique Hessel Baas Ms. Heather Henderson Governor Murray A. Sherwin + Eneas Daconceicao Corniche Nicaragua Alternate Governor Ms. Yasmin Patel Governor Ad"iser Pedro Antonio Blandon Lanzas Tomas Salomao Alternate Governor lose Evenor Taboada Nepal Advisers Governor Silvio E. Conrado Bharat Bahadur Pradhan Hernan Estrada Temporary < > Not a member of IFC # Not a member of IDA + Executive Director + + Alternate Executtve Director 316 Jaime Valdivia-Arguello Norway Francisco Vannini + + Governor Gunnar Berge Niger Alternate Governor Governor Arne Arnesen Yahaya Tounkara Advisers Alternate Governor Svein Aass Chafany Laoual" Bente Angell-Hansen Elvind Dingstad Advisers Oddmund Graham Issaka Baoua Amani Kjell Halvorsen Djingareye Banakoye Steffen Kongstad Christian Bouchard Ovenga Jannik Lindbaek Zouladeni Malam Gata Asbjorn Lovbraek Adamou Namata Ms. Joronn Maehlum Nassirou Sabo Petter T. Skouen Nigeria Oman Governor Governor Quis Abdul-Munim Al-Zawawi Chu S.P. Okongwu Alternate Governor Alternate Governor Mrs. Rajiha Abdul Ameer Ali" Alhaij U.K. Bello Advisers Advisers Mohamed Nasser Al-Khasibi Alhaji Abba Zorn Mahdi A. Baqi Y. Seyyid Abdulai Mokhtar M. Zouari Alhaji Abubakar Abdulkadir Simeon A. Adekanye Pakistan E.A. Ajayi G. Akwaeze Governor Shobowale Akanni Animashawun Mahbub ul Haq Z.O. Elemide P.O. Eneh Alternate Governor R.N. Ezeife AG.N. Kazi" Ayodele Fadare B.N. IJoabachie Advisers Shehu Usman Jibirin Choudri Mueen Afzal R.O. Mowoe Qazi M. Alimullah Aminu Alhassan Nuhu Moinuddin Baqai O.O.Ogba Shakil Haider N.E.Ogbe Khorshed Marker Mrs. M.A Okonkwo Mehdi Masud C.c. Okoye Miss H. Pazoki E.O. Oladeji Christopher U. Omamogho Panama Mrs. H.A Oseni Benjamin N. Unachukwu Governor Malam Ismaila Usman Gustavo R. Gonzalez J. · Temporary < > Not a member of IFC II Not a member of IDA + Executive Director + + Alternate Executive Director 317 Adviser Alternate Governors Max Jimenez Ernest Leung' Solita C. Monsod Papual New Guinea Advisers Governor Romeo L. Bernardo Galeva Kwarara Ms. Evelyn M. Escudero Caesar Augusto Espiritu Alternate Governor Edgardo B. Espiritu Rupa Mulina' Octavio V. Espiritu Jesus P. Estanislao Advisers Jose R. Facundo Otto Jenjet Edward S. Go Simon Nangoe Kenehe Benito Legarda, Jr. Mrs. Melanie Peni Manuel L. Morales Gabriel Pepson Antonio H. Ozaeta Edgardo P. Zialcita Paraguay Governor Poland# Cesar Romeo Acosta Governor Alternate Governor Wladyslaw Baka Carlos Alberto Knapps Advisers Alternate Governor Oscar A.E. Estigarribia G. Zdzislaw Pakula' julio Rejis Sanguina Epifanio Salcedo Advisers Jorge Luis Schreiner Marengo Andzej Olechowski Michal Ostalski Peru Andrzej Scislowski Zbigniew Sosnowski Governor Grzegorz Wojtowicz Abel Salinas Portugal# Alternate Governor Guillermo Runciman' Governor Advisers Miguel Cadilhe Javier Abugattas Cesar Atala Alternate Governors Gabriel Garcia Pike Alipio Pereira Dias' Luis Gabriel Heysen Zegarra Rodrigo M. Guimaraes' + + Raymundo Morales Luis Antonio Gomes Moreno' Carlos Rivas Alberto Alves Oliveira Pinto' Jorge Valverde Joao Mauricio Fernandes Salgueiro' Allan Wagner Carlos Tavares da Silva Philippines Advisers Jose M.F. Braz Governor Luis Vilhena da Cunha Vicente R. Jayme Ms. Isabel Pinto Correia Pereira Neto Temporary <> Not a member of IFC # Not a member of IDA + Executive Director + + Alternate Executive Director 318 Qatar<># St. Vincent and the Grenadines<> Governor Governor Madhat Abdul Latif Musoud Henry A. Gaynes Alternate Governor Alternate Governor Miss Laura Anthony Nasser Mohd. AI-Hajri Sao Tome and Principe<> Romania<># Governor Governor Teotonio Angelo d' Alva Torres Gheorghe Paraschiv Alternate Governor Alternate Governor Arlindo de Carvalho Ion Zipis' Saudi Arabia Advisers Mihail Diamandopol Governor Cristescu Gabriel Sheikh Mohammad Abalkhail loan Petre Mada Traian Munteanu Alternate Governors Alexandru Tanase Osama J. Faquih* Yusuf A. Nimatallah' Sheikh Hamad AI-Sayari Rwanda Advisers Governor Ahmed Abdullatif Emmanuel Ndahimana Abdulaziz H. AI-Gosaibi Mohammad AI-Hakamy Alternate Governor Ayeidh AI-Jeaid Theodore Mpatswenumugabo' Ibrahim AI-Khoudair Mohammed AI-Mazyad Adviser Nasser AI-Mutlaq Aloys Uwimana Mohammed AI-Nefai Suliman AI-Olayan Said AI-Qahtani St. Kitts and Nevis<> Abdulaziz A. AI-Sehail + + Mohammed AI-Shumrani Alternate Governor Abdulaziz Abdullah AI-Suliman Cecil Jacobs' Abdulaziz AI-Turki Abdulaziz AI-Wahayeb Shaukat Aziz St. Lucia Omar A. Bajamal Wahib Binzagr Governor Abdullah EI-Kuwaiz John Bristol Richard R. Herbert Ms. Susanne Murden Alternate Governor Abdulaziz O'Hali Ausbert ER.P. d'Auvergne Ahmed M. Sabbagh Omar Abdullah Sagini Adviser Jobarah E. Suraisry+ Bertram Clarke Fares T. Zaki · Temporary <> Not a member of IFC /I Not a member of IDA + Executive Director + + Alternate Executive Director 319 Senegal Singapore# Governor Governor Djibo Laity Ka Chuang Kwong Yong Alternate Governor Alternate Governor Youssouf Diop Yeoh Lam Keong Advisers Eric De Lavandeyra Solomon Islands Mamadou Diatta Samcidine Dieng Governor Abdoul Aziz Diop Anthony Vernon Hughes Lamine Diouf Papa Salla Mboup Alternate Governor Abdou N'Diaye Silverio Waleka Mamadou Diagna N'Diaye Amadou Maleine Niang Somalia Cheikh Tidiane Sakho Djibril Sakho Governor Abdoulaye Seye Abdirahman Jama Barre Joseph Louis Tavares da Souza Baba Top Alternate Governor Prosper Aliou Youm Abdulkadir Aden Mohamud SeycheUes# Advisers Ashkir Abdi Abdirazak Governor Ahmed Amin Abi Mrs. Danielle de St. Jorre Abdurahman H.H. Aden Mohamed Haji Ali Alternate Governor Ali Abdi Amalo' Bertrand Rassool Hayan Abdurahman Jama Adviser South Africa R. Vv.J. Grandcourt Governor Sierra Leone Japie A.S. Jacobs Governor Alternate Governor A.M. Doherty Johannes A. Lombard Advisers Alternate Governor T.J. Askew Ernestus A.E. Coker Simon S. Brand J .B. Giliomee Advisers Martin R. Grote Soule Funna Elias Links Dauda S. Kamara Emile Matthee Samura Kamara J.H. Meijer J. Sanpha Koroma Arnoldus M. Pretorius Y.T. Sesay Willem P. Retief Christian J. Smith C. van der Walt N.S.B. Wellington Pieter van Huyssteen · Temporary <> Not a member of IFe # Not a member of IDA + Executive Director + + Alternate Executive Director 320 P.R. van Niekerk Alternate Governor Lambertus van zyl El Sayid Ali Zaki Advisers Spain Mohamed Elfatih Zein Elabdin Kamal El Shafie Shams Eldin Governor Abdel Atti Abdullah El-Mekki Mariano Rubio Jimenez Abdul Azim Mohamed Kheir Alternate Governor Apoloriio Ruiz Ligero Suriname<># Governor Advisers Henk Goedschalk Juan Jose Bosch Jose Casas Alternate Governor Julio Duran Iwan Kortram Federico Ferrer Eduardo Foncillas Adviser Guillermo Kessler Saiz Ms. Ingrid May Valentin Laiseca Luis Maria Linde Juan Maria Lopez-Aguilar Swaziland Rafael Martinez-Cortina Pedro Martinez Mendez Governor Miguel Muniz de las Cuevas Andreas Fakudze Mariano Paya Luis Angel Rojo Duque Alternate Governor Mrs. Mercedes Rubio + Elliot Bhembe Julio Vinuela Advisers Christopher S. Adam Sri Lanka Prince Lonkokhela Dlamini S.S. Kuhlase Governor M.H.M. Naina Marikar Sweden Alternate Governors Irangani Manel Abeysekera * Governor Susantha de Alwis* KjeU-Olof Feldt C. Chanmugam Alternate Governors Advisers Gunnar Lund' Indrajit Coomaraswamy Bengt Save-Soderbergh* Lloyd Fernando Vase Gunawardana Advisers M. Haseeb Bengt Ake Berg Tilak Samarasekera Lars Berglund Mrs. Thulika Wijeratne Staffan Crona Ingemar Einarsson Carl-Johan Groth Sudan Ms. Christine M. Holm Ms. Gerd Maria Johnsson Governor Mats Karlsson Orner Nour El Daim Jens Orback Temporary <> Not a member of IFC # Not. member of IDA + Executive Director + + Alternate Executive Director 321 Tomas Ovist Chalerrn Cheo-Sakul Per Taxell Chalermchat Cheo-Sakul Lars Thomquist Charoen Chinalai Mrs. Birgitta Von Otter Piyabutr Cholvijam BoWilen Mrs. Watchareerat Ekarohit Kirkkiat Jalichan SyriaD Arab Republic Som Jatusipitak Sukri Kaocharem Governor Tongtae Mahasuwan Mohammed Khaled Mahayni Tarrin Nimmanahaeminda Sudhibhand Nimmanhaemin Alternate Governor Chanchai Pathumarak Marwan Kodsi Prasit Pathumarak Anuprasithi Na Pattaloong Adviser Pradech Phayakvichien Sleman Haddad Kobsak Sabhavasu Sathien Tejapaibul Sompong Thanasophon Tanzania Pakom Thavisin Suthai Unenanond Governor Vivat Vinicchayakul O.K. Mbogoro Amnuay Viravan Alternate Governor lbgo G. Rutihinda Governor Advisers Barry Moussa Barque H.Oiria K. Khamis Alternate Governor J. P. Kipokola Kwassi Klutse Richard E. Mariki John M. Mugasha Adviser M.B. Ngatunga Kossi R. Paass Peter Efraim Mayunga Noni S. Odunga M. Urio Tonga Governor Thailand James Cecil Cocker Governor Alternate Governor Pramual Sabhavasu Siosiua T. T. Utoikamanu Alternate Governors Advisers Nibhat Bhukkanasut* Lisiate 'A. 'Akolo Mrs. Prachitt Kambhu* Brynmor Harris Aran Thammano* Thawatjai Thavisri* 1nnidad and Tobago Snoh Unakul* Panas Simasathien Governor A.N.R. Robinson Advisers Anuthra Asawanonda Alternate Governor Peter P.T. Chan Winston Oookeran* · Temporary <> Not a member of [FC II Not a member of IDA + Executive Director + + Alternate Executive Director 322 S. v. O. Kiracho Advisers Miss Betty Mafabi Terrence Farrell George F. Mbowe Trevor Farrell Mrs. E.N. Mukasa Mrs. Patricia Robinson E. Thmusiime Mutebile Gregory Shaw Frank A. Mwine Ewart S. Williams E. Nkwanga Jones Ofori-Atta Thnisia Governor United Arab Emirates Mohamed Ghannouchi Alternate Governor Alternate Governor Mohammed KhaJfan Khirbash Zein Mestiri Advisers Advisers Sheikh Mohamed bin Sultan Al Hamed Ammar Dhaheri Sadok Bahroun Sheikh Suroor bin Sultan AI-Dhaheri Abdeslem Ben Younes Abdul Ghaffar AI-Hashimi Mohamed Bouaouadja Sultan Nasser AI-Suwaidi Tijani Chelly Mohamed Obaid Faris Mohamed Ghenima Ibrahim Fayez Humaid Mansour Moalla Abdulla Mohamed Saleh Abdellatif Saddem United Kingdom Thrkey Governor Governor Yavuz Canevi Robin Leigh-Pemberton Alternate Governor Alternate Governors Yener Dincmen John Caines" Frank Cassell' + Advisers H.P. Evans' Ms. B. Sen Akman J .A.L. Faint" + + Thncay Altan Sir Geoffrey Littler Murat Nedim Arikan Gazi Ercel Advisers Ms. Bahar Sahin A.C.S. Allan Cuneyt Sel J. L. F. Buist Sir Thrence Burns Uganda w.P. Cooke E.J.W. Gieve Piers Jacobs Governor T. L. Richardson Youweri Kyesimira P'J. Warland Alternate Governor Suieiman Kiggundu United States Advisers Governor M. Byemaro Nicholas F. Brady William Kaberuka lCmporary <> Not a member of IFC /I Not a member of IDA + Executive Director + + Alternate Executive Director 323 Alternate Governors Venezuela# Richard E. Bissell* Charles H. Dallara* Governor Robert B. Keating* + Modesto Freites Pinate David C. Mulford* Donald C. Templeman * Alternate Governors W. Allen Wallis Ms. Ana Drossos* Hector Hurtado Advisers Thomas J. Berger Advisers John A. Bohn, Jr. Humberto AIcade Alvarez Godfrey Briefs Antonio Casas-Gonzalez Richard R. Burt Guillermo Castaneda E. Gerald Corrigan Roberto Guarnieri Mark T. Cox, IV + + Eduardo Lopez Robert J. Hermann Ms. Gina Montiel Ms. Ede Holiday Alain Morales Oscar M. Mackour Nelson Ortiz David R. Malpass Miss Sonia Perez R. AI McCandless Jesus E. Rodriguez William B. Milam Hector Santaella Charles H. Powers Ms. Liliana Schilling L. William Seidman Enrique Urdaneta Fontiveros Edwin M. Truman Charles S. Warner VietNam George C. Wortley Chalmers P. Wylie Governor Le Van Chau Uruguay# Alternate Governor Nguyen Chu* Governor Ricardo Zerbino Cavajani Western Samoa Alternate Governors Diego Cardoso* Governor Kenneth Coates* Nonomalo Faiga Cesar Rodriguez Batlle* Alternate Governor John Howard Advisers Juan Ignacio Garcia Pelufo Advisers Ricardo Lombardo Fe'Esago S. Fepulea'i Edgardo Noya William Keil Tauialo Lanu Palepoi T.D. Scanlan ~uatu Tupuola Sola Sir Peter Tapsell Governor Sela Molisa Yemen Arab Republic Alternate Governor Governor George Pakoa * Mohammed Saeed AI-Attar Temporary <> Not a member of IFC /I Not a member of IDA + Executive Director + + Alternate Executive Director 324 Alternate Governor Advisers Anwar Rizq Al-Harazi S.S. Banda S. Liswaniso Adviser James C. Mapoma Khalid A.J. Alif J.M. Mwanza EC. Ndhlovu People's Dem. Repub6c: ofYemen<> Martin G. Sakala D. Sampa Alternate Governor C.S. Tembo Abdullah Saeed Abaddan Adam Zulu Zimbabwe Yugoslavia Governor Governor Svetozar Rikanovic E.N. Mushayakarara Alternate Governor Alternate Governor D.S. Wood Boris Skapin Advisers Advisers Dzika C. Danha Mrs. Ljerka Besirevic-Alajbeg A. D. Henchie Borivoj Crvenic Derek H.D. Johnston Cvitan Dujmovic+ + v.S. Kumalo Mrs. Gordana Hofmann Edward Mashiringwani Hranislav Marinkovic Obert Matshalaga Borivoje Nikolic Ms. Rosemary Mazula Bozo Novoselac Ms. Valerie Mc Nicol Bosko Palija Joseph Mubika Petar Reljic Andrew K. Mullei Ms. Dinah Zuademoyo Mutungwazi Zaire Leonard Ladislas Tsumba M. Zafar Governor Kamitatu Massamba Japan Alternate Governor Alternate Governor; MIGA Mbonga Magalu Engwanda Michihiko Kunihiro Advisers Temporary Alternate Governor; MIGA Bukasa Nkashama Masaaki Nangaku Uanga Wawa Nsumbu Tsahe Zana Nzwanga Switzerland Governor; MIGA Zambia Mario Corti Governor Temporary Alternate Governor; MIGA Gibson G. Chigaga Nerino Devicenti Alternate Governor Adviser Francis X. Nkhoma Dante Martinelli · Temporary <> Not a member of IFC II Not a member of IDA +- Executive Director + T Alternate Executive Director 325 OBSERVER AT 1988 ANNUAL MEETINGS Switzerland Roberto Cippa Mario Corti Nerino Devicenti Alfred Hohl Daniel Kaeser Alexis Lautenberg Markus Lusser Eric Martin Dante Martinelli Georg Rich Jean Zwahlen REPRESENTATIVES OF INTERNATIONAL INSTITUTIONS International Fund for United Nations Agricultural Development S. Abrahamian Donald S. Brown G. Arthur Brown Bouna Semou Diouf William H. Draper, III Idriss Jazairy Manfred Kulessa Bahman Mansuri R. Lawrence Moise Mensah Goran Ohlin Taysir Mustafa Christian Ossa Enrique Ter Horst 326 EXECUTIVE DIRECTORS, ALTERNATES AND ADVISORS IHRD, IFC AND IDA September 28, 1988 Alternate Advisors To Executive Directors Executive Directors Executive Directors Fowzi Homod AL-SULTAN Mohamed Wafik HOSNY Ezzedin M. SHAMSEDIN (Kuwait) (Egypt) (United States) Rumman Ahmad FARUQI (Pakistan) PaulARLMAN Cvitan DUJMOVIC Valery AMIEL (Netherlands) (Yugoslavia) (Israel) Mourad BENACHENHOU Salem Mohamed OMEISH Ernest AKO-ADJEI (Algeria) (Libya) (Ghana) Mohammad R. GHASIMI (Iran, l. R. of) Gerhard BOEHMER Michael VON HARPE Alexander Martin MUSER (Fed. Rep. of Germany) (Fed. Rep. of Germany) (Fed. Rep. of Germany) Felix Alberto CAMARASA Claudio A. PARDO Fernando KEMPFF (Argentina) (Chile) (Bolivia) Frank CASSELL J.A.L. FAINT (United Kingdom) (United Kingdom) Jacques DE GROOTE Heiner LUSCHIN Ms. Bahar SAHIN (Belgium) (Austria) (Turkey) Mario DRAGHI Rodrigo M. GUIMARAES (Italy) (Portugal) Jonas H. HARALZ Veikko KANTOLA Svein AASS (Iceland) (Finland) (Norway) Mitsukazu ISHIKAWA Yukio YOSHIMURA (Japan) (Japan) Mitiku JEMBERE J.S.A. FUNNA James NXUMALO (Ethiopia) (Sierra Leone) (Swaziland) Leonard K. MSEKA (Malawi) Robert B. KEATING Mark T. COX, IV Ronald E. MYERS (United States) (United States) (United States) Pedro S. MALAN Carlos SANCLEMENTE Romeo L. BERNARDO (Brazil) (Colombia) (Philippines) Andre MILONGO Jean-Pierre LE BOUDER Ali M. KALFAN (Congo) (Central African Rep.) (Somalia) Yves-Marie Thano KOISSY (Cote d'Ivoire) Idy Adama DIAW (Senegal) Mrs. Helene PLOIX Mrs. Stephane PALLEZ Bernard MORIZET (France) (France) (France) Frank POTTER Horace G. BARBER Richard DAVIS (Canada) (Jamaica) (Canada) Mohd. RAMLI WAJIB Kikham VONGSAY TAN Soon Ann (Malaysia) (Lao, P.D.R.) (Singapore) c.R. Krishnaswamy RAO SAHIB M. Mustafizur RAHMAN Pradeep BHIDE (India) (Bangladesh) (India) Mrs. Mercedes RUBIO Francisco VANNINI Jesus E. RODRIGUEZ (Spain) (Nicaragua) (Venezuela) Murray A. SHERWIN Robert G. CARLING Seung-Woo KWON (New Zealand) (Australia) (Korea) Jobarah E. SURAISRY Abdulaziz A. AL-SEHAIL (Saudi Arabia) (Saudi Arabia) XU Naijiong ZHANG Junyi JIN Xiangyun (China) (China) (China) 327 DIRECTORS AND ALTERNATES MIGA September 28, 1988 Directors Alternate Directors Alhaji Abubakar ALHAJI Andre MILONGO (Nigeria) (Congo) Fawzi Hamad AL-SULTAN Mohamed Walik HOSNY (Kuwait) (Egypt) PaulARLMAN Dante MARTINELLI (Netherlands) (Switzerland) Gerhard BOEHMER Michael VON HARPE (Fed. Rep. of Germany) (Fed. Rep. of Germany) Frank CASSELL J.A. L. FAINT (United Kingdom) (United Kingdom) Mario DRAGHI Rodrigo M. GUIMARAES (Italy) (Portugal) Mitsukazu ISHIKAWA Kazunori IIZUKA (Japan) (Japan) Robert B. KEATING Mark T. COX. IV (United States) (United States) Claudio A. PARDO Patricio RUBIANES (Chile) (Ecuador) Andras PATKO Ms. Bahar SAHIN (Hungary) (Turkey) Frank POTTER Horace G. BARBER (Canada) (Jamaica) Sujitno SISWOWIDAGDO M. Mustalizur RAHMAN (Indonesia) (Bangladesh) Jobarah E. SURAISRY Abdulaziz A. AL-SEHAIL (Saudi Arabia) (Saudi Arabia) XU Naijiong ZHANG Junyi (China) (China) 328 ----_._-_ .... _------------- OFFICERS OF THE BOARD OF GOVERNORS AND JOINT PROCEDURES COMMITTEE FOR 1988-89 OFFICERS Chairman .................................... Korea Vice Chairmen ............................... Germany Madagascar JOINT PROCEDURES COMMITTEE Chairman ..................... Korea Vice Chairmen ................ Germany Madagascar Reporting Member ............ Ecuador Members ...................... Belize Bhutan Ecuador Egypt Finland France Germany Japan Korea Madagascar Maldives Mali Mexico Nigeria St. Vincent Saudi Arabia Spain Tanzania United Arab Emirates United Kingdom United States Yugoslavia 329 OFFICERS OF THE MIGA COUNCIL OF GOVERNORS AND PROCEDURES COMMITTEE FOR 1988-89 OFFICERS Chairman .................................... Korea Vice Chairmen ............................... Germany Madagascar MIGA PROCEDURES COMMITTEE Chairman ..................... Korea Vice Chairmen ................ Germany Madagascar Reporting Member ............ Ecuador Members ...................... Canada China Ecuador Egypt Germany Hungary Italy Japan Korea Madagascar Netherlands Saudi Arabia United Kingdom United States 330 THE WORLD BANK GROUP Headquarters 1818 H Street, N.W Washington, D.C. 20433, U.S.A. Telephone: (202) 477-1234 European Office 66 ave d'Iena 75116 Paris, France Telephone: 47-23-54-21 Cable Address World Bank: INTBAFRAD IFC: CORINTFIN IDA: INDEVAS