53416 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL FINANCE CORPORATION INTERNATIONAL DEVELOPMENT ASSOCIATION 1980 ANNUAL MEETINGS OF THE BOARDS OF GOVERNORS SUMMARY PROCEEDINGS WASHINGTON, D.C. SEPTEMBER 30-0CTOBER 3, 1980 INTRODUCTORY NOTE The 1980 Annual Meeting of the Board of Governors of the International Bank for Reconstruction and Development, held jointly with that of the International Monetary Fund, took place in Washington, D.C., September 30 - October 3 (inclusive). The Honorable Amir H. Jamal, Governor of the Bank and Fund for Tanzania, served as Chairman. The Annual Meet- ings of the Bank's affiliates, the International Finance Corporation (IFC) and the International Development Association (IDA), were held in con- junction with the Annual Meeting of the Bank. The Summary Proceedings record, in alphabetical order of member countries, the texts of statements by Governors relating to the activities of the Bank, IFC and IDA. The texts of statements concerning the IMF are published separately by the Fund. T.T.THAHANE Vice President and Secretary THE WORLD BANK Washington, D.C. December, 1980 v CONTENTS Page Opening Remarks by Jimmy Carter President of the United States 1 Opening Address by the Chairman Amir H. Jamal Governor of the Bank and Fund for Tanzania 4 Annual Address by Robert S. McNamara President of the World Bank ................. . . . . . . .. 12 Report by Cesar E. A. Virata Chairman of the Development Committee 45 Statements by Governors and Alternate Governors 48 Page Page Afghanistan " ........ . 48 Korea ............ , .. . 139 Australia ............ . 54 Lao People's Democratic Austria .............. . 56 Republic .......... . 143 *Bahamas ............ . 57 * Liberia ............. . 145 Bangladesh ...... .... . 60 *Luxembourg ......... . 152 Belgium ............. . 68 Malaysia ............ . 156 Bolivia .............. . 71 Nepal ............... . 158 Canada ............. . 75 Netherlands .......... . 161 China ............... . 77 New Zealand ......... . 165 *Colombia ........... . 81 Pakistan ............ . 168 Dominica ............ . 85 Paraguay 172 Ecuador ............ . 87 Romania 178 Egypt ............... . 89 St. Lucia 181 El Salvador ......... . 94 *Saudi Arabia ......... . 182 Equatorial Guinea ..... . 97 Seychelles ........... . 190 Fiji ................. . 100 Solomon Islands ...... . 192 France .............. . 103 South Africa ......... . 194 Germany ............ . 107 Spain ............... . 198 Greece .............. . 114 Sri Lanka ........... . 200 India ............... . 116 *Sweden ............. . 203 Indonesia ............ . 119 Thailand ............ . 206 Iran ................ . 121 United Kingdom ...... . 208 Ireland .............. . 123 United States ......... . 216 Israel ............... . 126 Venezuela ........... . 221 Italy ................ . i28 Viet Nam ........... . 226 Jamaica ............. . 132 Western Samoa ....... . 228 Japan ............... . 134 Yugoslavia ........... . 229 · Speaking on behalf of a group of countries. vii Page Concluding Remarks by Mr. McNamara 232 Concluding Remarks by the Chairman, Amir H. Jamal .......... 234 Remarks by Valentin Arismendi, Governor of the Bank for Uruguay 235 Documents of the Boards of Governors ....................... 237 Schedule of Meetings ................................... 237 Provisions Relating to the Conduct of the Meetings ........... 238 Agendas ............................................. 239 Joint Procedures Committee ............................... 240 Report II ............................................ 241 Report III ............. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 243 Report IV ........................................... 244 Resolutions Adopted by the Board of Governors of the Bank between the 1979 and 1980 Annual Meetings . . . . . . . . . . .. 245 No. 346 ... 1979 General Capital Increase .......... . . . . . . .. 245 No. 347 ... Authorized Capital Stock and Subscription Thereto .. 248 No. 348 ... Membership of St. Lucia ...................... 250 No. 349 ... Amendment of Section l4(b) of By-Laws of the Bank 252 No. 350 ... Administrative Tribunal ....................... 252 No. 351 ... Direct Remuneration of Executive Directors and Their Alternates ................................... 252 No. 352 ... Salary Advances to Executive Directors and Their Alternates to Help Meet the Costs of Settlins in and for Emergency Situations ............................... 253 No. 353 ... Membership of St. Vincent and the Grenadines ...... 253 No. 354 ... Amendment of Section 14(a) of By-Laws of the Bank 255 No. 355 ... Membership of Zimbabwe ... . . . . . . . . . . . . . . . . . .. 256 No. 356 ... Increase in Subscription of China to the Capital Stock of Bank ..................................... 258 No. 357 ... Number of Elected Executive Directors ............ 258 No. 358 ... 1980 Regular Election of Executive Directors ...... 259 No. 359 ... Section 5(b) of the By-Laws of the Bank ......... 259 No. 360 ... Amendment of the Bank's By-Laws .............. 259 Resolutions Adopted by the Board of Governors of the Bank at the 1980 Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . .. 260 No. 361 ... Financial Statements, Accountants' Report and Administrative Budget .............................. 260 No. 362 ... Allocation of Net Income ...................... 260 No. 363 ... The Application of the Palestine Liberation Organization for Observer Status ...................... 260 Resolutions Adopted by the Board of Governors of IFC Between the 1979 and 1980 Annual Meetings . . . . . . . . . . .. 263 No. 113 ... Membership of the Revolutionary People's Republic of Guinea ........................................ 263 viii Page No. 114 ... Membership of Barbados ...................... 264 No. 115 ... Membership of the Solomon Islands ...... . . . . . . .. 265 No. 116 ... Amendment of Section 12 (b) of the By-Laws of the Corporation ....................................... 266 No. 117 ... Administrative Tribunal ....................... 266 No. 118 ... Membership of the Republic of Seychelles . . . . . . . . .. 267 No. 119 ... Membership of Zimbabwe .............. . . . . . . .. 268 No. 120 ... Membership of the Republic of Maldives .. . . . . . . .. 269 Resolution Adopted by the Board of Governors of IFC at the 1980 Annual Meeting .......................... 271 No. ] 21 ... Financial Statements, Accountants' Report and Administrative Budget .............................. 271 Resolutions Adopted by the Board of Governors of IDA Between the 1979 and 1980 Annual Meetings ............ 272 No. I 17 ... Additions to Resources: Sixth Replenishment ...... 272 No. 11 8 ... Administrative Tribunal ...................... " 284 No. 119 ... Membership of Zimbabwe .................... " 284 Resolution Adopted by the Board of Governors of IDA at the 1980 Annual Meeting ........................ 287 No. 120 ... Financial Statements, Accountants' Report and Administrative Budget .......................... 287 Reports of the Executive Directors of the Bank. . . . . . . . . . . . . . . .. 288 IBRD General Capital Increase ... . . . . . . . . . . . . . . . . . . . . . . .. 288 Administrative Tribunal ................................. 292 China-Increase in Subscription .......................... 298 Number of Executive Directors ........................... 298 1980 Regular Election of Executive Directors . . . . . . . . . . . . . . .. 299 Amendment of the Bank's By-Laws ........................ 300 Allocation of Net Income ....................... . . . . . . .. 307 Rules for the 1980 Regular Election of Executive Directors ...... 309 Executive Directors Elected at 1980 Regular Election . . . . . . . . . . .. 313 Report of the Executive Directors of IDA ............ . . . . . . .. 316 Additions to IDA Resources: Sixth Replenishment ......... " 316 Report of the Chairman of the Development Committee ........ " 354 Annual Report of the Development Committee ........ . . . . . . .. 355 Accredited Members of Delegations at 1980 Annual Meetings ..... 367 Executive Directors, Alternates and Advisors .......... . . . . . . .. 399 Officers of the Board of Governors and Joint Procedures Committee for 1980-81 ............................ 400 Reference List of Principal T opies Discussed 401 ix OPENING REMARKS BY THE HON. JIMMY CARTER PRESIDENT OF THE UNITED STATES It is a pleasure to welcome you to Washington for the Thirty-Fifth Annual Meetings of these two great institutions. It is a special pleasure to welcome all new members. Your presence here symbolizes the commitment of more than 140 coun- tries to a dynamic system of international economic cooperation and to its central institutions, the International Monetary Fund and the World Bank. Your commitment strengthens the prospects for lasting world peace, because peace cannot be assured if hundreds of millions of people are offered no hope of escape from poverty and economic instability. The Bank and the Fund provide that hope. You are rapidly adapting to new challenges. We support this process of change. The response to a changing world can best be charted within these institutions, acting in your own fields of competence and experience. Your work should not be diverted by extraneous political disputes. And as you mold and adapt, you must be confident that your decisions will not be determined or renegotiated in some other setting. Any political pressure or unwarranted influence from any international forum which might undermine your integrity would be neither necessary nor desirable. The Fund is the world's principal official source of balance of payments financing. So far this year, Fund programs of more than $5Yz billion have been arranged. Even more is needed, and action is under way to expand these resources. The IMF is also adopting important changes in policy, making it more responsive to the changing needs and concerns of its members. During the last 12 months, the World Bank Group has lent more than $12 billion to developing member countries. Nearly $4 billion of that was provided on concessional terms to the poorest countries. The Bank is mounting initiatives to enable developing countries to find and produce more energy while also carrying out other important Bank programs. An enlarged World Bank program for energy exploration and develop- ment would benefit us all. The World Bank has also launched a program of lending and advisory services to help developing countries make the structural adjustments required by higher energy prices. I cannot discuss the role of the World Bank without paying tribute to the leadership and dedication of Robert McNamara over the last 12 years. Under Bob McNamara's leadership, the Bank has become the focus of world cooperation to improve the human condition, and a fine example of how such cooperation can be effective. Bob, you will leave to your successor a high standard and a firm foundation for the future. United States support of the Fund and Bank reflects both our funda- mental humanitarian principles and our economic interests. Legislation 1 enabling our participation in the IMF quota increase passed the House last week. I am pressing for its passage in the Senate, and I will sign the legislation as soon as it reaches my desk. Moreover, I will urge the Congress to give high priority to the Sixth IDA Replenishment later this year. Next year we will submit legislation for our subscription to the General Capital Increase of the World Bank. Both the Fund and the World Bank Group must have all the resources they need for their work. Let me also mention several other steps the United States has taken that will help stabilize the world economy. We have adopted a strong anti-inflation program of fiscal and monetary restraint. We have begun a nationwide program to revitalize our industrial base and to accelerate productivity growth. This new program will increase the portion of our GNP devoted to investment, will reduce inflation, and will restore innovation and vigor to our economy. We have also put in place a comprehensive program to rebuild our energy base. This new program is already bearing fruit. In the last three years, we have reduced oil imports by 24 per cent. Weare drilling more oil and gas wells this year, and producing more coal, than ever in our history. We are acting to ensure that the United States can meet much of the world's needs for coal. We have started a massive investment program to increase production of synthetic fuels. We are spending $4 billion a year on energy research and development, and additional billions on incentives to use energy more efficiently in our homes, our industries, our commerce, and our trans- portation. The world's oil stocks are at an all-time high, and these reserves will help to offset the effect of temporary reductions in supply, such as that caused by the present conflict between Iran and Iraq. However, we are keenly aware that some nations are seriously threatened by even a temporary interruption. Thus, we are working to end this con- flict as quickly as possible. Our energy program is part of a far-reaching effort to which we pledged ourselves at the Venice Economic Summit. The common goal adopted there is to conserve more oil and to produce the equivalent in alternative fuels of 15 to 20 million barrels of oil per day by the end of this decade. This will ease pressure on world oil markets, ease balance of payments problems, and let developing countries obtain a larger share of the world oil supply. Our long-term objective in these domestic and international energy efforts is a fair deal for all nations that produce and consume oil: · One that minimizes the threat of abrupt changes in the price of oil; · One that will assure the consuming countries of a reasonably predict- able level of supply; · And one that will avoid compounding inflation. 2 The oil importing countries and the oil exporting countries can all con- tribute to this effort. They all have a stake in the outcome. This meeting comes at a critical time for us all. The world has come to place enormous confidence in your judgment and in the work of the Bank and Fund. That confidence has never been misplaced. And I am certain that it will be even more justified in the future. On behalf of the United States, I assure you that we intend to remain active in the decisions and supportive of the work to come. 3 OPENING ADDRESS BY THE CHAIRMAN THE HON. AMIR H. JAMAL GOVERNOR OF THE BANK AND FUND FOR TANZANIA I am deeply privileged to be Chairman of these Thirty-Fifth Annual Meetings of the International Monetary Fund and the World Bank Group and to welcome you all to Washington. I would like to extend a hearty welcome to the distinguished representatives of St. Vincent and the Grenadines, who have joined the Fund, and of St. Lucia and of Zimbabwe, who have joined both the Fund and the Bank, in the course of the year. Their presence in our midst is a demonstration of the continuing process of decolonization and a continuing reminder that international institutions need to change in response to the evolving political realities. If I extend a special welcome today to the Governors for the Fund and the World Bank of the People's Republic of China, it is because it gives me particular pleasure to recall what I said at the 1971 Annual Meeting of Governors. I then said, "All the progressive forces in the world are looking forward to the entry of the People's Republic of China as the only authentic voice representing the Chinese people. I would like to express a sincere hope that, in such an event and in those circumstances, it will be possible to see the People's Republic of China becoming a full member of the IMF and the IBRO." At the outset, I would like to express my sincere appreciation that the question of observer status for the PLO and the legal issues surrounding it are being dealt with in the Joint Procedures Committee. I very much hope that these will be dealt with in a manner that will safeguard the fundamental interests of the two institutions and of the participating mem- ber states. I shall say no more about it until the Joint Procedures Com- mittee has reported on the matter, and I hope I shall have the understand- ing of all Governors in this regard. I am conscious of the fact that the world is saturated with words, words and yet more words about the global economic situation. There is now a real danger that talking back and forth instead of doing something is breed- ing insensitivity toward the distress and despair afflicting a large part of humanity, thus threatening the destruction of many universal values which need a chance to become fi~mly rooted. However, first of all let us look at one or two developments which, hopefully, may be potentially redeeming. The 1980 World Development Report, published by the World Bank, unequivocally places man at the center of economic purpose instead of the things which he consumes and which mayor may not be relevant to his well-being. This is not just a milestone. It is a coming of age, and not a day too soon. The whole development process from the next quarter century will have to reflect the fundamental objectives of food, education, health and shelter in actual programming. Production of goods and services will have to be channeled toward achieving these objectives. Schools, hospitals, water and preventive health care will only be available and food will only be secured on a lasting 4 basis if research and development will be geared to industrial production, which meets these basic needs primarily instead of being expended on industrialization for its own sake. The latter course leads to mindless mass consumption of products which pollute, which are not central to man's needs, and which mean diversion of resources to the few causing depriva- tion for the many. While the developing societies take this central purpose to heart and begin to lay foundations for achieving it, the industrialized and capital- surplus countries may want to take a serious look at the Brandt Com- mission Report. It is not that the Report contains any startlingly new information or wisdom. There are other more specialized efforts equally deserving attention. The Commonwealth Expert's Report on the World Economic Crisis is one such serious endeavor. The central point about the Brandt Report is that a group of persons drawn from very different backgrounds and representing a spectrum of experiences found it worth- while to spend time and effort on producing an agreed report which covers some of the burning issues of the day and which argues for an agenda for immediate as well as for longer-term action. If it is not heeded, particularly by those who have wealth and power, the scenario for the next quarter cen- tury and more is one of inward-looking, narrow nationalism. intensification of mutual distrust and mutual disrespect, and building up a legacy for which future generations will have neither pride nor practical value. The Report's subtitle-a Program for Survival-is not, I submit, a flight of rhetorical fancy but a candid statement about present reality. What tasks await us, we who are the Governors of these two prestigious global institutions-the IMF and the World Bank? How do we help in resolving the global dilemma, illustrated time and again in failure after failure at formal international encounters between the North and the South? We represent the political wiII of our respective governments. Why are the Ministries of the North dealing with finance and economic affairs giving the appearance of being the last bastion of an existing system unwilling to change, except most grudgingly, slowly and marginally? Why is it being assumed that a reconstructed IMF wiII be so iconoclastic as to deprive the already industrialized countries of security and well-being? Why assume that the poorest of the world have no interest in world stability? Should not the North ask the South to draft a charter for a new IMF which would receive its constructive scrutiny and which could lead to the beginning of a deliberate process of change? Why not accept that the world is a vastly different place from the time of Bretton Woods, and that the most needed structural change today is in the Bretton Woods institutions themselves? Together with the badly needed monetary reform is the urgent need to restructure international trading arrangements. The industrialized coun- tries, foremost in singing the praise of free trade, of course never allowed agriculture to be anything but protected in their own national interests. Wherever they have been able to manipulate markets for industrial goods, they have continued to pay lip service to free trade. But even here as soon as a limit is reached-if for no better reason than that the poor make un- 5 reliable trade partners or produce too cheaply and too well-protectionism suddenly becomes a wholly defensible policy. There is great advocacy for structural adjustment in recent times. Only the other day we were all rather excited by the objective of meeting basic needs. Ever since developing countries began to take the first conscious steps toward building up their own economic and social capacity in the course of the past quarter of a century, they have been doing nothing if not doing structural adjustment. They inherited structures which were functions of trade and communications developed to cater for the needs of metropolitan powers. Unless and until these were adjusted structurally, they remained economic dependencies despite their political independence. That process of all-too-slow and painful adjustment has now been seriously affected because of the unprecedented inflation in the industrialized world, the recurrent global food shortages and the impossibly high price of energy. I would like to refer to what the Commonwealth Experts' Group has to say in its study, "The World Economic Crisis," about-and I quote. "the inability of the world economic structure-with its inequalities and asymmetries-to come into equilibrium with the changed political structure arising from the emergence of the colonial peoples into politically inde- pendent nations." In other words, right from the very first day of achieving political independence, the burden of adjustment to the world structure has fallen on the poor developing countries. So what does structural adjustment now imply for developing countries, particularly the least-developed ones? Should they abandon the pursuit of basic needs? Are food and shelter, health and education, any less vital for their well-being? How do they achieve an equilibrium in external trade without accepting a feudal relationship with the capital-surplus countries? How does it meet their basic needs if they accept such a relationship? And have the wealthy and powerful the capacity to supervise such a relationship without investing their capital in enforcing domination, which in the final event means still greater expenditure on armaments and military personnel? If capital is available for this purpose, is it not infinitely more befitting to use it for development? The IMF is engaged in meeting the immediate needs of economies of countries such as my own and has begun to show a little flexibility. As a sign of a beginning of a change that must be welcome, I do welcome it. My own country has just concluded a two-year stand-by arrangement which will, hopefully. enable us to import some critically needed inputs. But we are supposed to pay back in three to five years' time, as well as repurchas- ing the earlier facilities falling due now, leaving relatively little for financing immediately needed critical imports. We have decided to make an effort to conclude an agreement, though quite candidly, as Finance Minister my fingers will remain crossed all the way, for the duration of the program or for the duration of my own job, whichever ends earlier! Let us look at a typical developing country. I do not believe Tanzania's plight is by any means unique, though each of us developing countries has our particular circumstances. 6 As a country slowly begins to develop its economy, it becomes clear that industrialization is the only way toward achieving a measure of self- reliance and capability for a degree of self-sustained development in pur- suit of its social objectives in this increasingly interdependent world. At the best of times, this has been a costly and sometimes frustrating journey. But now, with the equilibrium between our import costs and export values having received such a body-blow, what are the economic consequences, let alone the human implications? Even the most wisely chosen priority industries and services which are managed reasonably well need sustained inputs costing foreign exchange. If they are deprived of these, the unit cost of goods and services goes up, output falls and, in extreme cases, ceases. Economists call it cost-push inflation. Reduced production aggra- vates excess demand which at the best of times cannot be met, especially if the economic policy is aimed at meeting basic needs. So, again in eco- nomic parIance, we have demand-pull inflation. These two become a formidable combination in fueling inflation internally, even if there were a moratorium on external inflation. But there is no such moratorium, and no prospect of one is in sight. So, the overall strain is now unbearable. Taking 1973 as the base year, the index of terms of trade for Tanzania now stands at less than 70, a situation which I do not believe is peculiar to my country alone. At the same time there are countries whose index has gone considerably above 100. Such is the outcome of the existing inequitable international trading arrangements and the punishment for the crime of being poor. How does an IMF program, with its rigid emphasis on demand reduc- tion and an incredibly short period for repurchasing, answer to the needs of an economy such as the one I have endeavored to describe, and which I reiterate is not uniquely Tanzanian? While we strive for longer-term basic reforms, the IMF and the World Bank remain the two world institutions upon which falls a heavy responsi- bility for devising ways and means of responding to the immediate pressing needs of the developing countries. And of responding promptly. Even a week's delay in critically needed resource flows leads to the aggravation of the formidably explosive mixture of cost-push and demand-pull inflation in societies where real standards of living, already low, have begun to decline stilI further. To ask these developing countries to set their house in order, before any significant help can be given, makes a kind of abstract sense, of course, but what kind of sense is it when the thatched roof of that house is catching fire and the floods or blizzards are deluging in at the same time? The IMF has historically been geared to dealing with short-term deficits which are basically cyclical. And as representatives of developing coun- tries, including myself, have been saying for years until our voices have become hoarse, the whole concept is rooted in the operation of economic structures of industrial societies which developed while others remained feudal or were colonized. The IMF was never geared to taking care of the slow, painful start of developing countries on the road to economic develop- 7 ment through a process of structural adjustment which has been continuing at a different pace in differing circumstances and which suddenly lost its equilibrium. This was something that the United States, Canada, Australia, and New Zealand did not have to face in the nineteenth century and which the IMF, designed initially to guard against a recurrence of the European financial crisis of the 1930s, has never really faced up to. The IMF has not been endowed with either the philosophy or the re- sources to deal with major external shocks such as drought, food grain prices, costs of energy and rampant inflation in the industrial countries combined with worsening terms of trade for the peripheral economies. The IMF procedures obviously reflect the concepts around which it has been built. An adversary position is almost instinctively assumed, and a cut in demand is an automatic first concern, no matter if the patient is subject to a combination of onslaughts which no preventive care within its limited competence would have been able to keep at bay and no matter whether increased output might be a more plausible way to adjust supply and demand. Indeed, concern for preventive care may well have left the patient hungry, and steps toward greater output may have contributed to his immediate malady. No one disputes the imperative of conditionality. But is it right to expect an underdeveloped economy to provide commitment for a multitude of indicators which cannot be organically interrelated in a way that makes sense in such an economy as it can make sense in an industrialized economy? If in an industrial economy a boiler explodes the results are of a purely micro nature, and anyhow, it can probably be replaced in 48 hours. With us it can be very different. If the boiler of a large, remote coffee-curing works explodes, it may take 48 weeks to obtain a replace- ment. And in the meantime, the effects on overall exports, government revenue and bank borrowing, as well as storage capacity, are significant at a macro as well as a micro level. I very much doubt that indicators and targets related to cyclical demand management within industrial econo- mies are the best yardsticks for measuring these rcalities, which are by no means unique to Tanzania. Added to this is a wholly unrealistic time-frame quite unrelated to time for recovery from external battering or achieve- ment of real adjustments in the production. These factors, plus the im- ponderables which make any single figure projections arbitrary, make of "conditionality" either a procrustean bed or a carte blanche for further Fund policy prescriptions. A plea needs to be made for changes in procedures, including provision for a referee in cases of serious disagreement between the Fund and a member, for mobilization of significant additional low-conditionality facili- ties, for adjustment of the time-frame to deal realistically with the character and magnitude of member needs, and for defining the scope of compensa- tory financing in terms of what the primary commodities produced can buy to meet development needs such as energy, transport equipment, edu- cation, medical and agricultural inputs and intermediate products needed for steady industrialization, not simply in nominal terms whose true value sinks monthly. 8 In this connection, the concern expressed in the Interim Committee discussions about a link between injecting critically needed inputs into the economies of developing countries and inflation wholly misses the crucial point I have endeavored to make. It is that at the low income levels of $300 per capita or so, the only outcome of starving these economies of necessary inputs is the accentuation of internal inflation. The World Bank's initiative in devising structural adjustment financing is timely and welcome. At the same time the needs of developing countries are so enormous that it does not seem at all possible to meet them if a maximum of 10 per cent of all Bank lending is to be allocated to this program. Further, it is not at all clear whether the World Bank is in substance proposing to cover the same ground as that covered by the IMF and, if so, to what purpose? Or does it propose to build up a specialized capability to deal with the complex issues underlying the process of struc- tural adjustment in developing countries, issues made even more acute by the increasingly hostile international economic environment? Do the Fund and the Bank have an identical assessment of the critical quantum of import support needed for a given economy at a given time to be able to optimize its productive capacity? Have these two institutions an ade- quate appreciation of the vital significance of the level of production for fiscal stability, without which no government can deal effectively with the task of restoring the equilibrium in its external accounts? As for the recent proposal to establish a new financing institution to deal with the needs of developing countries to build up energy resources, I, for one, welcome this initiative on the part of the World Bank. Energy is, after all and above all, resource plus capital plus technology. All groups of countries have an interest in the successful operation of such an institu- tion. The oil surplus countries want to slow down production for the sake of their posterity. The industrialized countries need time to make tech- nological adjustment, a critical period that may stretch over decades. For the oil importing developing countries the issue is survival itself. They face collapse if their minimal needs are not met urgently. Of these needs the cost of energy is now of decisive significance. The hour is rather late. But better late than never. If there is a question to be asked, it is this. Will this new institution remain at the mercy of political comings and goings within the body politic of a "donor" country? Will the less-endowed and the little-endowed of the world continue to be buffeted by the winds from the North, the South, the East and the West? Or is the international com- munity now going to see the wisdom of making a new beginning founded on joint participation of all societies and an equitable sharing of decision- making power? These are initial steps which are needed today and tomorrow. For many Third World economies they are very literally a Program for Survival. They must be begun now within the existing institutional framework. But we all know that the Bretton Woods arrangements have been overtaken by events. More basic changes are needed. These cannot be within the existing institutional framework because the decision-making processes, basic institutional attitudes and distribution of power within the Fund and 9 the Bank are among the structures which need to be changed, in particular by entrenching effective participation and protection of the weaker econo- mies while they are enabled to develop. I firmly believe that it is not beyond man's ingenuity to reconcile the political fact of 141 sovereign states with the attainment of the technically sound foundation on which a major reform of the world structures must be built to be of practical value. If I have taken the valuable time of distinguished Governors by raising so many questions, it is because I represent one of the least-developed countries in the world, Tanzania, which shares both the sense of despair and the fleeting gleams of hope characterizing most developing countries today. Time is not our ally; we can only make it work for us instead of against us, if we succeed in persuading the rich and the powerful that they cannot have a future if we perish, and that they are ready to use in the immediate time-frame the international institutions, such as the IMF and the World Bank, imaginatively and with courage to bring about a reversal of the present process of the destabilization of our only world. Before concluding, I want to express my deep satisfaction at the insight and understanding with which Mr. de Larosiere has been addressing him- self to the stormy financial seas at the helm of the IMF during these trying times. His timely guidance of the Fund and his recent statements indi- cating his appreciation of the task facing the IMF are of positive signifi- cance. It is very much in the interest of the international community at a time of deepening crisis that continuity is maintained in the sphere of the management of financial resources in the enlightened and imaginative person of Mr. de Larosiere, particularly when we are forced to accept, with sadness, the impending retirement of Mr. McNamara from the seat of World Bank leadership. This is the last annual meeting of Governors to be attended by Mr. Mc- Namara as World Bank President. I take this opportunity of paying a very special tribute to him on behalf of all colleagues. Without intending any reflection whatsoever on his worthy predecessors, and without in any way prejudging his successor- to-be, I believe it is true to say that the World Bank and its affiliates have been all the richer on account of his determined, sympathetic and en- lightened leadership ever since he arrived on the scene, 13 years ago. It is not just that the magnitude of the Bank Group's lending increased impressively during his term of office. This is gratifying enough, even though the need for development resources continues to outpace their availability. It is the legacy of lending programs whose quality and char- acter have become increasingly responsive to the fundamental needs of developing societies that he leaves behind him. Above all Robert Mc- Namara has been a voice of compassion, of conscience and of competence. He has persevered with tenacity in the struggle to persuade both rich and poor to make sustained efforts to mobilize resources for development and to utilize them efficiently. Even at the best of times, it would be difficult to achieve more. But these have been very far from the best of times and the institutions over which he presided are the offspring of industrialized 10 _ -----_L_ _,_ _ _ _ _ . societies, reflecting their political, economic and social values and interests. A man of Mr. McNamara's understanding and competence was needed to give an orientation in favor of the less franchised societies. I hope I am expressing the sentimentS of all Governors in wishing Mr. and Mrs. McNamara sound health and many more creative years in service of humanity. 11 ANNUAL ADDRESS by ROBERT S. McNAMARA PRESIDENT OF THE WORLD BANK I. INTRODUCTION This is the thirteenth, and final, address that I will have the privilege of making in this forum. The occasion, I believe, places on me a special responsibility, and hence what I have to say this morning will be particularly frank and candid, espe- cially as it relates to the future role of the World Bank. During the past 18 months the external environment affecting economic growth in the oil-importing developing countries-and thus their rate of social advance-has become substantially more difficult. The new surge in oil prices, and the downturn in trade with the devel- oped nations, have imposed on these countries huge and potentially unsus- tainable current account deficits. The result is that their critical develop- ment tasks, never easy in the past, are now seriously threatened. Meanwhile. the industrialized nations continue to grapple with problems of inflation, unemployment, and recession. Governments are searching for politically feasible ways to reduce public expenditures. And though Official Development Assistance remains a miniscule and insignificant fraction of gross national product-and is, in fact, wholly inadequate to the urgent needs at hand-there is little legislative initiative to increase it. Further, the global financial system as a whole, still trying to cope with past imbalances, must now find a way to recycle to appropriate recipients over $100 billion a year of additional surpluses being earned by the capital- surplus oil-exporting countries. The cumulative effect of all of this is a climate of apprehension in which the temptation will be strong for both the developed and developing nations to react unwisely. The developing countries will be tempted to postpone the internal policy changes required to adjust to the new external conditions. And the devel- oped nations will be tempted to turn to shortsighted protectionist and restrictive measures that in the end can only delay economic recovery for the rich and poor nations alike. These temptations are very real. And they are very dangerous. They lead precisely in the wrong direction. What we need are measures that lead in the right direction. They are available, but like almost everything else worthwhile in life they are going to demand courage and effort and vision. I want to explore those measures with you this morning. 12 Specifically, I want to examine: · The prospects for economic growth and social advance in the oil-im- porting developing countries throughout the 19805; · The actions the developing societies themselves, as well as the indus- trialized nations and the OPEC countries, can take to maximize that growth; · The need to accelerate the attack on absolute poverty; and finally · The role the World Bank itself ought to play in all of this in the decade ahead. Let me begin with the current economic outlook. II. ECONOMIC PROSPECTS FOR THE DEVELOPING COUNTRIES Global economic prospects have seriously deteriorated since we met last year in Belgrade. The outlook now is that the oil-importing developing countries in the years immediately ahead are going to have a very difficult time. The Bank is currently projecting, for the decade of the 1980s, lower levels of economic growth in those countries than it did twelve months ago. Table I-Growth of GNP Per Capita, 1960·85 A verage Annual 1980 Percentage Growth Rates Population GNP Per Capita (millions) 1980 dolIarS' 1960·70 1970·80 1980-85 OIL-IMPORTING DEVELOPING COUNTRIES Low-Income: Sub-Saharan Africa 141 239 1.6 0.2 -0.3 Asia 992 212 1.6 1.1 1.1 Sub-Total 1,133 216 1.6 0.9 1.0 Middle-Income 701 1,638 3.6 3.1 2.0 Total 1,834 751 3.1 2.7 1.8 OIL·EXPORTING DEVELOPING COUNTRIES 456 968 2.8 3.5 3.0 Industrialized Countries 671 9,684 3.9 2.4 2.5 Centrally Planned Economies b 1,386 1,720 3.8 3.3 a Preliminary estimates. b Including China. The most probable outcome for at least the next five years is that the annual average per capita growth of the oil-importing developing countries -which was 3.1 % in the 1960s, and 2.7% in the 1970s-will drop in 1980-85 to 1.8%. More depressing still is the outlook for the 1.1 billion people who live in the poorest countries. Their already desperately low per capita income, less than $220 per annum, is likely to grow by no more than 1 % a year-an 13 average of only two or three dollars per individual. There would even be negative growth for the 141 million people in the low-income countries of sub-Saharan Africa. There are two principal causes. The new surge in oil prices has more than doubled the cost of imported energy for the oil-importing developing countries. And the continuing recession in the industrialized nations, which comprise their most important markets, is severely limiting demand for their exports. In 1973 the oil-import bill of these developing countries (in current dol- lars) was $7 billion. In 1980 it is likely to be $67 billion. The price of oil is not going to come down-on the contrary it is likely to continue to rise in real terms by perhaps 3% a year. The projection for 1985, therefore, is $124 billion, and by 1990-even assuming these countries more than double their own domestic energy production, and make a considerable effort at conservation-the bill is projected to be nearly $230 billion (see Table II). Table II-Petroleum Imports of the OiI·Importing Developing Countries (Billions of Current US Dollars) 1973 1978 1980 1985 1990 Cost of Petroleum Imports Low-Income 1 2 6 13 23 Middle-Income 6 30 61 111 206 -- Total 7 32 67 124 229 -- MEMO ITEMS: Price per Barrel (c.i.f., U.S.$) Current Dollars 4.20 13.70 29.80 50.30 78.30 1980 Dollars 8.88 17.13 29.80 35.10 40.85 Volume of Net Imports (million barrels per day) 4.6 6.4 6.2 6.8 8.0 Volume of Domestic Production a 5.7 7.3 8.5 12.7 18.5 a All forms of energy production translated into the equivalent of million barrels of oil per day. Meanwhile, as I indicated, the continuing sluggishness in the growth rate of the industrialized nations will pose additional problems for these develop- ing countries. The expansion of their principal export markets will decline, and an already unfavorable situation could be seriously compounded by additional deflationary policies and a resort to greater protectionism in the developed world. Reflecting the effect of these two factors, the current account deficits of the oil-importing countries have increased sharply. In 1980 they are ex- pected to constitute nearly 4% of their GNP (see Table III). 14 Table nl-Current Account Deficils of Oil-Importing Developing Counlries (Billions of Current US Dollars) 1973 ]975 1978 1980 Current Account Deficits' Low-Income 2.3 5.4 5.7 10.0 Middle-Income 4.4 34.2 21.4 51.0 Total 6.7 39.6 27.1 61.0 Current Account Deficits as a Percentage of GNP Low-Income 2.2 3.8 2.7 3.6 Middle-Income 0.9 5.3 2.2 4.0 Total 1.1 5.1 2.3 3.9 · Excludes official transfers. HI. A PROGRAM OF STRUCTURAL ADJUSTMENT Persistent deficits of the magnitude reflected in Table III cannot be sus- tained indefinitely_ In the short run the deficits can be, and are being, financed by additional external borrowing. But in the longer run this will not suffice since at the levels involved the mounting burden of debt service would soon become unsupportable. The countries will, therefore, have to make those structural changes in their economies that can enable them to pay from their own resources for increasingly more expensive, but necessary, oil. This can only be done by expanding their exports, or by reducing their non-oil imports, or by some combination of the two. Now, since there is no other way to do this, these internal adjustments will in fact take place sooner or later. And they will take place whether or not there is external financial assistance available to help get it done. But the point is that it will make a very great deal of difference to these countries' economic and social advance-that is, to their development progress-whether these adjustments are made sooner rather than later, and with external financial assistance rather than without it. For if the action in a given country is delayed, or if the external financial assistance available to it is inadequate, then the adjustment process will have to take place in an internal environment of low or negative growth, of little or no social advance, and of almost certain political disorder-a very heavy and unnecessary penalty for that society to have to pay. But if, on the other hand, the required structural changes are initiated before a crisis situation develops, and scheduled over a reasonable period of time-say, five to eight years-and if during that adjustment period the country is assisted in maintaining a reasonable level of imports by an expansion of the external financial resources available to it, then the nega- tive impact of the adjustment process on the country's economic growth and social advance will be sustantially less. This would permit growth rates in the developing countries to recover to more satisfactory levels in 1985-90, possibly exceeding even the rates achieved in the 1960s and early 1970s. But such a reversal in fortunes will not be easy to achieve. To begin with, there are significant differences between the present ad- justment situation, and that of the 1974-78 period: 15 · The real cost of oil actually declined from 1974 to 1978 by about 23 %. Since 1978 it has risen sharply, and is now expected to continue to rise during the 1980s. · The commercial banks rapidly expanded their claims on oil-importing developing countries in the previous period: from $33 billion in 1974 to an estimated $133 billion in 1978. But now their capital to risk- asset ratios have worsened, and some feel overexposed in certain of these countries. · Some of the middle-income developing countries, which borrowed ex- tensively in the past, are regarded by the commercial banks as being less creditworthy today than they were then. Increased spreads on new lending and a slower rate of growth in such lending are both likely. · Considerable financing became available to cushion the impact of higher energy costs during the 1974-1978 period from bilateral aid programs and from international financial institutions. Neither source now seems likely to expand as rapidly in the future as it did in the past. · The debt-servicing burden was considerably reduced in the 1970s by negative real interest rates, whereas the developing countries have re- cently been borrowing large amounts at positive real interest rates. · Many developing countries have already carried out a major pruning of their import. investment, and consumption levels so that the scope for further retrenchment is now considerably less. · The oil-exporting nations that are currently accumulating surpluses are likely to have them longer this time-thus prolonging the recycling task-since their imports are not expected to expand as quickly as they did in the previous period, nor are the workers' remittances from these countries likely to accelerate as fast. · And finally, the possibility of a prolonged recession in the industrialized nations, particularly if it is accompanied by restrictive measures applied to trade or capital flows, will make the adjustment task of the develop- ing countries that much harder this time. It is well to remind ourselves of this comparison between the present and past. The sense of relief over the relatively successful adjustment in the earlier period should not be allowed to lead to a feeling of complacency now. The truth is that even in the earlier period there was a considerable erosion of economic growth. Both new jobs and new income were simply lost in most of the developing countries. Their political and economic systems are already under serious strain. And there are limits to how much more they can restrict their domestic consumption levels. Further, this new adjustment problem is caused by a permanent change in the world economy, not by some temporary phenomenon which will later automatically reverse itself. Hence the longer the developing countries postpone adjustment policies, the more intractable their problems will become. Many governments failed to recognize this in the 1970s. They looked instead to short-term finance as the answer to what they regarded as essen- 16 tially a passing problem. But such finance merely borrowed time; it could not, and did not, substitute for basic adjustment policies. Countries that recognized the long-term nature of the problem expanded their exports, reduced their imports through efficient domestic production, used borrowing to support investment and structural adjustment, and re- stored their growth momentum after a relatively brief decline. Those coun- tries, on the other hand, that perceived it as a short-term problem did not use their external borrowing to carry out fundamental structural adjust- ments, and as a consequence merely accumulated more debt and a much greater problem for the future. The point I want to stress here is the necessity of using external finance in support of structural adjustments, and not as a substitute for them. In the developing countries' interests, and in the interests of the world com- munity as a whole, there is no other viable alternative. Obviously it is desirable that these adjustment policies be implemented in a framework of vigorous development activity, rather than at depressed levels of investment and effort. What is needed is not just a new baJance- of-payments equilibrium, but that this equilibrium be reached at the highest feasible level of economic growth. Indeed a key lesson of the 1970s is that success in adjustment should be measured not just by the reduction of cur- rent account deficits to present levels, but by the growth achieved during and following the adjustment period. That is vital to these countries' future, and it is all the more necessary if they are not to lose ground in the most fundamental struggle of all: the attack on absolute poverty in their societies. Now let me turn to certain of the specific actions required if the pro- spective balance-of-payments deficits are to be reduced to a manageable level within a reasonable period of time, say during the next five or six years, while preserving as much growth momentum in the developing countries as is possible. There will have to be major adjustments in both national and inter- national policies, and a sustained, collective effort on the part of the world community, including: · A sharp increase in the savings rate of the oil-importing low-income countries, and the reinvestment of over 25 % of the increment in their GNP during the 1980-90 period; · A significant rise in net resource flows to these countries, from $9 bil- lion in 1980 to $19 billion in 1985, and $33 billion in 1990; · A substantial increase in private capital flows to middle-income coun- tries; · A faster rate of growth in the exports of oil-importing developing coun- tries during the Eighties than in the Seventies; · A more than doubling of domestic energy production in these countries between 1980 and 1990, implying import substitution in the energy sector of over $280 billion a year by 1990; and · Much greater efficiency in the domestic use of capital. 17 These are clearly a demanding set of actions and policy changes. What is essential is that the early years of this decade be used to establish the necessary framework of adjustment so that a vigorous economic recovery can take place in the later years. Each country will, of course. have to design its own specific plan of action for this purpose. If exports are the dynamic' sector in a given economy, the promising strategy would obviously be to stress further export expan- sion. If good possibilities exist for import substitution-as they clearly do in domestic energy production-these ought to be pursued. Let me comment briefly on this issue of domestic energy production in oil-importing developing countries. Domestic Energy Production It can make a very substantial contribution to the entire adjustment process. To understand that, one need only reflect that even if their domestic energy production expands in the future at the rate of recent years (6.7% per annum), their oil-import bill in 1990 will be over $280 billion-a level that would be difficult to finance by any conceivable expansion of exports, or increase in external borrowing. Although the sharp rise in the world price of oil has put considerable strain on the balance of payments of the developing countries, it has also changed the economies of domestic energy production dramatically. At current and prospective oil prices, many oil-importing developing countries can now turn what were previously regarded as marginal energy reserves of oil, gas, coal, hydroelectric, and forest resources into commercial propositions. If they maximize energy production between now and the end of the decade, and pursue a vigorous program of energy conservation, we estimate that these countries could by then cut their annual oil-import bill by more than $50 billion. But if they are to achieve this substantial saving they will have to adjust their domestic prices, incentives, and investment priorities so as to give much greater emphasis than at present to internal energy production. In all too many countries, governments have kept domestic prices of petroleum products artifically low compared to world prices, with the result that there has been little incentive for consumers to conserve, or for producers to invest. What we propose is this: the oil-importing developing countries should establish efficient import substitution in energy as one of their principal tasks for the 1980s. They should draw up concrete national energy plans, and formulate specific domestic investment programs. These, in turn, should be backed by newly mobilized domestic resources and by additional external assistance, including assistance from the World Bank which I will discuss in a moment. 18 External Financial Requirements of Low-Income Countries As I indicated earlier, there is an urgent need for more external funds if the developing countries are to manage the adjustment process, including the expansion of domestic energy production, without avoidable and hence unnecessary penalties to their economic growth and social progress. Let me turn to that subject now, dealing first with the requirements of the low-income countries. A major expansion in concessional flows to these countries is required in the 1980s to support their adjustment programs. What we have to remember is that they will benefit only marginally from world trade expan- sion, and will have limited access to international capital markets. Their financial requirements are likely to increase by $5 to $8 billion in 1980 over 1978 due chiefly to their declining terms of trade, to the sluggish growth in the OECD nations, and to the investments now required to adjust their economies to the changed international environment. These are also the very countries that can least afford to cut back on their programs directed at reducing poverty. And yet they find themselves sud- denly caught in a new and painful squeeze on their resources. They are clearly the priority case for a significant increase in concessional assistance. But what are the prospects for this? Total Official Development Assistance flows, including those from OPEC countries, did not increase in the 1977-79 period. In real terms they declined, and the outlook for the future is not bright. Recent actions give cause for concern. The aid cuts announced by the British Government will cause their ODA to fall to .38 % of GNP by 1985, from the .49% average for 1977-79. Aid bills continue to face difficulties in the U.S. Congress, suggesting that support from the largest donor is likely to remain the lowest, relative to GNP, of all major industrial nations. Germany and Japan have indicated their intention to continue to improve their aid flows, but most donors have not committed themselves to increas- ing the share of GNP allocated to concessional assistance. What is even more disappointing, the portion of these ODA flows that were allocated to the low-income countries-which, of course, needed them most-was shockingly small in both absolute and relative terms. It amounted to less than one-half of the total (see Annex II). On a per capita basis, the low-income countries receive less concessional assistance than the middle- and high-income nations. In view of the penalties the new global economic situation imposes on these poorest countries-a situation they themselves neither caused nor can do much to influence-the donors, both OECD and OPEC, ought to indicate clearly how much, if at all, they are prepared to help. The needs of the poorest countries are well known. It is not a time to temporize with the problem. It is time to act. The OECD nations should consider the following course of action: · At the very minimum, each country should maintain its Official De- velopment Assistance at the same percentage of its GNP as it did in 19 1978, and thus should increase the real level of its ODA as quickly as its GNP increases, · Those countries which are well below the present OECD average of ,34%-in particular, the United States and Japan-should consider increasing their real ODA flows faster than their GNP growth, The former Secretary of State of the United States called the U,S, per- formance "disgraceful"-and I agree with him, · In view of the particularly difficult prospects the poorest countries face in the 1980s, the OECD nations should increase the share that these countries will receive in their individual ODA allocations. As Annex 11 indicates, in 1978 these countries received less than one-half of the total ODA that DAC provided: in the case of Austria and New Zealand it was less than one-fifth; and for Australia, France, and the U.S, no more than one-third. · The OECD nations in 1978 supported a retroactive adjustment of terms in respect to the past debt of poor and least-developed countries, However, only about $5 billion of past debts have so far been can- celled or rescheduled-out of a potential total of about $26 billion- and it is far from certain that this debt relief constituted additional assistance, Full cancellation or rescheduling would be equivalent to a substantial increase in concessional flows, particularly if it were ex- tended to include all low-income countries, A major responsibility rests as well on the capital-surplus oil-exporting nations, Since 1973 the level of the aDA contributions of these countries- Saudi Arabia, Kuwait, Iraq, the United Arab Emirates, Libya, and Qatar- has been remarkable: they contributed 4,0% of their combined GNP during the 1974-79 period (see Table IV). Table IV-ODA Flows From Capital-Surplus Oil Exporters to Developing Countries' 1973 1974 1975 1976 1977 1978 1979 % of % of C/o of % of % of % of % of Sm. Sm. GNP Sm. GNP Sm. Sm. GNP Sm. Sm. GNP - -- GNP - -- - -- - GNP -- - -- GNP Saudi Arabia 305 4.0 1,029 4.5 1.997 5.4 2,407 5.7 2,410 4.3 1,470 2.8 1.970 3.1 Kuwait 345 5.7 622 5.7 976 8.1 615 4.4 1,518 10.6 1,268 6.4 1.099 5.1 Iraq 11 .2 423 4.0 218 1.7 232 1.4 61 .3 172 .8 861 2.9 V.A.E. 289 16.0 511 7.6 1,046 14.1 1,060 11.0 1.177 10.2 690 5.6 207 1.6 Libya 215 3.3 147 1.2 261 2.3 94 .6 115 .7 169 .9 146 .6 Qatar 94 15.6 185 9.3 339 15.6 195 8.0 197 7.9 106 3.7 251 5.6 Total 1.259 4.5 2,917 4.5 4,837 5.8 4,603 4.6 5.478 4.5 3.875 3.0 4,534 2.9 Memo Item: Current ale SurplUS-ill billion US$ 7 43 31 36 34 20 56 · Data for 1978 and 1979 are provisional. The issue now is over future trends in their aDA. If the OPEC capital- surplus countries begin increasing their concessional assistance flows after the recent and hopefully temporary decline, this can make a major contri- 20 bution to easing the adjustment problem of the poorest nations. Though they have a number of plans under active consideration, what the situation needs now are some firm decisions in order to meet the most urgent re- quirements of these low-income countries. · In 1980 the current account surplus of the capital-surplus oil-exporting countries is expected to increase by about $100 billion over the levels of 1978. As already noted, they have provided 4.0% of their GNP in the form of ODA during 1974-79. The question is: can they con- tinue to do so in the future. and can it be provided in the form of quick-disbursing assistance to a large number of the low-income coun- tries in order to meet their immediate needs? · Iraq, Venezuela. and Mexico have proposed that they compensate the poorest countries importing their oil for the recent oil-price increases by granting them long-term, low-interest loans. If this initiative is adopted by other oil exporters, it will have the immediate and beneficial impact of easing the balance-of-payments deficits of the poorest countries. · The Long-Term Strategy Committee of OPEC has recently endorsed the proposal of Algeria and Venezuela to convert the OPEC Fund into a development agency with an authorized capital of $20 billion. If implemented soon, this initiative, too, could be of substantial help to the low-income developing countries. The contribution of the Soviet Union, and the other industrialized coun- tries with centrally planned economies, to Official Development Assistance is so small as to be scarcely measurable-only .04% of their GNP. Surely they, too, ought to do more. External Financial Requirements of Middle-Income Countries I want to turn now to the external financial requirements of the middle- income oil-importing countries. As Table III indicates, between 1978 and 1980 these requirements will have more than doubled in absolute terms (from $21.4 billion to $5 I.O billion) and nearly doubled relative to GNP (from 2.2% t04.0%). Commercial banks, of course, constituted by far the most dynamic ele- ment of capital flows to middle-income developing countries in the 1970s (see Table V). Table V-Borrowings of the Middle-Income Developing Countries From the World's Private Banking System a (US$ billions) 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 - - - - - - - Claims of the Private Banks on LDCs- End Yr. b 30 37 44 53 72 92 110 151 204 251 Increase in Banks' Claims on LDC b 7 7 9 19 20 18 41 53 47 a Includes small amounts loaned to Low-Income countries which could not be separated out of total. b 1970-75 and 1979 World Bank estimates. For other years, BIS data. 21 The chief anxiety today is that the commercial banks may not be able to playa similar role in the 1980s. There are several reasons for this: · As noted earlier, there is likely to be tough competition for funds be- tween the developing countries on the one hand and the industrialized nations and centrally planned economies on the other; · Two-thirds of the commercial banks' credits were concentrated in only 10 middle-income developing countries. These have now acquired sizable commercial debts, and some of the banks are concerned over their own portfolio limits; and · There is an increasing tendency on the part of national regulatory agencies to restrict the activities of the commercial banks in develop- ing countries. This does not mean that the commercial flows to developing countries will not expand in the 1980s. They will. But the key question is this: will they expand enough to permit the adjustment process in these coun- tries to take place at relatively high-rather than at unacceptably low- growth rates? In all probability they will in 1980, and perhaps even in 1981. But beyond 1981 they well may not. Already leading commercial bankers in both Western Europe and North America have expressed their doubts. It is not too early, therefore, to discuss actions to supplement and facili- tate the role of the commercial banks if these doubts materialize. This should be a major focus of the work of the Development Committee and of the Boards of the International Monetary Fund and the World Bank in the year to come. If the task of recycling to the developing countries a portion of the sur- plus of the capital-surplus oil exporters is to be tackled efficiently and equitably in the 1980s, there is not the slightest doubt that the financial intermediation by the Bretton Woods institutions, as well as by other inter- national institutions, should increase substantially above previously planned levels in order to supplement the role of the commercial banks. Financial intermediation was, in fact, one of the main reasons for setting up these institutions: to stand ready to step in as last-resort intermediaries to help recycle funds from those countries that are in surplus to those coun- tries that need them most, whether for short-term balance-of-payments sup- port, or longer-term development needs. The 1980s, then, call for a major reexamination of the function of the Bretton Woods institutions in the recycling of financial flows. And I will comment in a moment on a possible role for the World Bank in all of this. Before turning to that, however, I want to reemphasize an underlying issue, which is in danger today of being obscured by the anxiety over the global adjustment problem. And that is the most fundamental development issue of all: the drive against absolute poverty. IV. THE DRIVE AGAINST POVERTY Over the past decade I have drawn attention repeatedly in this forum- sometimes at the risk of tedium-to the principal goals of development. 22 They are: to accelerate economic growth, and to eradicate what I have termed absolute poverty. Economic growth, of course, is obvious enough. And once one has been in contact with developing societies, so is absolute poverty: it is a con- dition of life so limited by malnutrition, illiteracy, disease, high infant mortality, and low life expectancy as to be beneath any rational definition of human decency. The two goals are intrinsically related, though governments are often tempted to pursue one without adequate attention to the other. But from a development point of view that approach always fails in the end. The pur- suit of growth without a reasonable concern for equity is ultimately socially destabilizing, and often violently so. And the pursuit of equity without a reasonable concern for growth merely tends to redistribute economic stagnation. Neither pursuit, taken by itself, can lead to sustained, successful develop- ment. When we met together here in 1972, I began a discussion of these issues with you. I pointed out that all too little of the benefits of economic growth was reaching the bottom 40% of the population in the developing world. For 800 million individuals, their countries were moving ahead in gross economic terms, but their own individual lives were standing still in human terms, locked in poverty. As our analysis of growth and equity continued in these meetings in subsequent years, we outlined a number of specific actions designed to deal directly with that problem in the context of overall development planning. It was clear that any successful effort to combat poverty would have to do two basic things: · Assist the poor to increase their productivity; and · Assure their access to essential public services. In our meeting in Nairobi in 1973, I proposed a major program for the rural areas, where the vast majority of the ahsolute poor are concentrated. The strategy focuses on a target group of roughly 100 million subsistence farmers and their families, most of whom farm two hectares or less. It is directed towards raising their agricultural productivity, and thus their in- comes, as well as providing them with more equitable access to the services they need. Two years later, at our meeting in 1975, I outlined a comparable program for the urban areas. Though the circumstances of the some 200 million absolute poor in the cities differ from those in the countryside, the strategy is fundamentally the same: remove the barriers to their greater earning opportunities, broaden their access to basic public services, and help them more fully achieve their productive potential. In each of the following years our discussion has pursued these issues further. But now, as I have pointed out this morning, most of the developing countries are facing a new, an unanticipated, and what is certain to be- for at least the next several years-a very difficult situation. Their rates of growth are going to be low. Their capital requirements 23 are going to be high. And there are going to be severe pressures on their governments to adopt austere budget allocations for every activity that is not considered of immediate priority. In these circumstances the temptation will be strong to push aside and postpone anti-poverty programs. The argument will be that poverty is a long-term problem, and that the current account deficits are a short-term emergency: that poverty can wait, but that deficits can't. It is a very specious argument. Mounting deficits cannot be indefinitely sustained, and, as we have seen, the necessary solution lies in structural adjustment. Efforts to get that basic adjustment in place must not, indeed, be delayed. But absolute poverty in a society cannot be indefinitely sustained either. To ignore it, to temporize with it, to downgrade its urgency under the convenient excuse that its solution is "long-term"-and that there are other immediate problems that preempt its priority-is dangerous self-deception. To reduce and eliminate massive absolute poverty lies at the very core of development itself. It is critical to the survival of any decent society. Development is clearly not simply economic progress measured in terms of gross national product. It is something much more basic. It is essentially human development; that is, the individual's realization of his or her own inherent potential. Absolute poverty, on the other hand, is a set of penalizing circumstances that severely impair the individual's pursuit of that very potential. It is the direct denial of the benefits of development. But it is more than just that. It is an open insult to the human dignity of us all: to the poor themselves, because simply as human beings they have deserved better; and to all of us in this room, for we have collectively had it in our power to do more to fight poverty, and we have failed to do so. Now that both the developing countries and the developed nations are under the sting of hard times, are we going to do still less? Let us be clear about one point. Sustaining the attack on poverty is not an economic luxury-something affordable when times are easy, and super- fluous when times become troublesome. It is precisely the opposite. It is a continuing social and moral responsi- bility, and an economic imperative-its need now is greater than ever. It is true that sluggish economic growth in both the developing and developed nations in the early years of the 1980s may mean that the privileged and affluent in most societies will have to accept slower rates of advance or even somt;: selective reduction in their already favored standard of living. If they have to, they can absorb such inconveniences. But for the 800 million absolute poor such a downward adjustment is a very different matter. For them downward does not mean inconvenience, but appalling deprivation. They have little margin for austerity. They lie at the very edge of survival already. What we must remember is that absolute poverty is not a simple function of inadequate personal income. Though the poor have too little income, and desperately need more, their plight is not exclusively related to that. 24 Their deprivations go beyond income. And in many cases, even if their income were higher-which it must become-they could not by that fact alone free themselves from their difficulties. The reason is that absolute poverty is a complicated web of circum- stances, all of them punitive, that reinforce and strengthen one another. And lest we become insensitive to the magnitude of those circumstances in the developing countries, it is worth reminding ourselves of their scope: · 600 million of their adults-lOO million more than in 1950-can neither read nor write, and only 4 out of every 10 of their children complete more than 3 years of primary school. · Of every 10 children born into poverty, 2 die within a year; another dies before the age of 5; only 5 survive to the age of 40. · Common childhood diseases-measles, dip theria, whooping cough, and polio-which have either been eliminated or reduced to minor nui- sances in the developed nations, are frequently fatal in the developing world. A case of measles is 200 times more likely to kill a child there than here. · Though all four of those diseases can be prevented by a simple vac- cination, fewer than 10% of the children born each year in the de- veloping world are now being protected. · Malnutrition afflicts hundreds of millions of individuals, reducing their energy and motivation, undermining their performance in school and at work, reducing their resistance to illness, and often penalizing their physical and mental development. · In the low-income developing countries, average life expectancy for their I.3 billion people is 50 years. It is nearly 75 in the industrialized nations. · In short, compared to those fortunate enough to live in the developed nations, individuals in the poorest countries have an infant mortality rate eight times higher; a life expectancy one-third lower; an adult literacy rate 60% less; a nutritional level, for one out of every two in the population, below minimum acceptable standards; and for millions of infants, less protein than is sufficient to permit optimum develop- ment of the brain. Now, these impersonal rounded numbers are not simply statistics on some economist's computer. They represent individual human beings. Most tragic of all, so many of them are children. Of the total of two and a quarter billion people in the over 100 developing countries that the Bank has served, some 900 million are under the age of 15. They are the chief hope of their society's future. And yet almost half of them suffer from debilitating disease likely to have long-lasting effects. Well over a third of them are undernourished. A third of primary school- age children are not in school. All of this illustrates the tragic waste of poverty. If millions of a country's citizens are uneducated, malnourished, and ill, how can they possibly make a reasonable contribution to their nation's economic growth and social advance? The poverty they are immersed in, through no fault of their own, simply denies them that. 25 As I have pointed out before, it is the poverty itself that is the liability. Not the individuals who happen to be poor. They represent immense hu- man potential. It used to be said that lack of capital was the chief obstacle to economic growth. But we now know that capital formation explains less than one- third of the variation in growth rates among developing countries. Human resource development explains a great deal more. Investment in the human potential of the poor, then, is not only morally right; it is very sound economics. Certainly what is very unsound economics is to permit a culture of poverty to so develop within a nation that it begins to infect and erode the entire social and political fabric. No government wants to perpetuate poverty. But not all governments, at a time of depressed economic growth, are persuaded that there is much that they can really do against so vast a problem. But there is. A number of avenues of attack deserve attention. Today I want to emphasize two that reflect our research of the past year. Both of these are concerned with human resource development. They are: the redesign of social programs to reduce their per capita cost while expanding their cover- age; and the restructuring of the total set of social sector programs to estab- lish priorities that take advantage of the linkages and complementarities between them, thereby reducing their overall cost. Unless essential services are both redesigned and reorganized to complement each other, govern- ments will not be able to afford them on the scale required, particularly in periods of austerity. Our studies confirm the synergistic effects on productivity of actions designed to meet basic needs in each of the five core areas: education, health care, clean water, nutrition, and shelter. Each has linkages to the others. Advance in one contributes to advance in the others, and all con- tribute to higher output. Reducing, for example, the incidence of gastrointestinal disease and parasitic infection-through education, cleaner water, and health and sani- tation programs-considerably increases the nutritional value to be gained from any given quantity of food. This improvement in nutrition, in turn, can expand students' learning capacity, and hence the benefits that they will receive from education, including enhanced productivity and incomes. Studies in many countries have demonstrated that small farmers with a primary education are more productive than those without it. They are quicker to adopt innovations, and are more receptive to the advice of extension agents. Research has also confirmed the beneficial linkage between primary education and the reduction of infant mortality. Studies in Bangladesh, Kenya, and Colombia have shown that children are less likely to die the more educated their mothers are, even allowing for differences in income among families. 26 In Sri Lanka, widespread basic education has to a degree compensated for the poor quality of water because villagers have been taught to boil it in order to eliminate contamination. And health and nutrition everywhere in the developing world affects how well children do in school, how long they remain, or indeed whether they enroll at all. Urban employment, particularly in the modern sector, is not only often dependent on the degree of education, but on health and nutrition as well. Workers who are easily fatigued and have low resistance to chronic illness are inefficient, and add substantially to the accident rate, absenteeism, and unnecessary medical expenditure. More serious still, to the extent that their mental capacity has been impaired by malnutrition in childhood, their ability to perform technical tasks is reduced. Dexterity, alertness, and initiative have been drained away. And yet not only are essential public services often out of reach of the poor, but such facilities as are in place may be so inappropriately designed as to be virtually irrelevant to their needs: impressive four-lane highways, but too few market roads; elaborate curative-care urban hospitals, but too few preventive-care rural clinics; prestigious institutions of higher learning, but too few primary schools and village literacy programs. Public services that are not designed modestly and at low cost per unit will almost certainly end by serving the privileged few rather than the deprived many. To reverse this trend, governments must be prepared to make tough and politically sensitive decisions, and to reallocate scarce resources into less elaborate-but more broadly based-delivery systems that can get the services to the poor, and the poor to the services. The developing countries do not, of course, have the financial and administrative resources at hand today to eliminate rapidly all the inade- quacies in education, health, and other public services that penalize the poor. They must-out of very real necessity-be selective in determining where to concentrate their efforts. All the more reason, then, that they should analyze the most important linkages and complementarities between the various public services since utilizing them in combination can lead to substantial reduction in the cost of individual services, and hence in the total cost of the ongoing poverty program. It has been estimated, for example, that in Egypt the full use of such complementarities among sectors, together with redesigned programs within sectors, would decrease by more than a third the resources required to reduce, and ultimately to eliminate, absolute poverty. If choices have to be made-and they do-what are the most promising ones? That will differ of course, in various societies, but in the case of most developing countries two deserve particular attention. One is primary edu- cation, and most particularly for girls. And the other is primary health care. 27 Primary Education School enrollments throughout the developing world still fall far below the objective of universal primary education for both boys and girls, and this picture is made even worse by dropout rates which are often over 50%. Research makes it clear that economic returns on primary education for boys are high. This is not always recognized. But I want to emphasize today something much less recognized and understood. And that is the immensely beneficial impact on reducing poverty that results from educating girls. In most developing societies women simply do not have equitable access to education. The number of illiterate females is growing faster than illite- rate males. Nearly two-thirds of the world's illiterates are women, and virtually everywhere males are given preference both for general education and vocational training. One reason for this is that the prevailing image of women distorts their full contribution to society. Women are esteemed-and are encouraged to esteem themselves-predominantly in their roles as mothers. Their eco- nomic contribution, though it is substantial in a number of developing societies, is almost always understated. The fact is that in subsistence societies women generally do at least 50% of the work connected with agricultural production and processing, as well as take care of the children and the housekeeping. Schooling clearly enhances a girl's prospects of finding employment out- side the home. In a comparative study of 49 countries, the level of female education in each nation demonstrated a significant impact on the propor- tion of women earning wages or salaries. Greater educational opportunity for women will also substantially reduce fertility. In Latin America, for example, studies indicate that in districts as diverse as Rio de J anerio, rural Chile, and Buenos Aires, women who have completed primary school average about two children fewer than those who have not. Of all the aspects of social development, the educational level appears most consistently associated with lower fertility. And it is significant that an increase in the education of women tends to lower fertility to a greater extent than a similar increase in the education of men. In societies in which rapid population growth is draining away resources, expenditure on edu- cation and training for boys that is not matched by comparable expenditure for girls will very likely be diminished in the end by the girls' continued high fertility. Women represent a seriously undervalued potential in the development process. And to prolong inequitable practices that relegate them exclusively to narrow traditional roles not only denies both them and society the bene- fits of that potential, but very seriously compounds the problem of reducing poverty. 28 Primary Health Care In the health sector, as well, carefully designed and sharply focused efforts can contribute immensely to an overall antipoverty program. In most developing countries health expenditures have been heavily con- centrated on supplying a small urban elite with expensive curative-care systems-highly skilled doctors and elaborate hospitals-that fail to reach 90% of the people. What are required are less sophisticated, less costly, but more effective preventive-care delivery systems that reach the mass of the population. Even quite poor countries can succeed in this, provided sound policies are pursued. Some 25 years ago, for example, Sri Lanka decided to improve rural health facilities. As a result of its efforts in health care, along with those in education and in nutrition, there has been over the past two decades a decline in infant mortality to 47 per 1,000, an increase in life expectancy to 69 years, and an associated decline in the crude birth rate to 26. But many other countries-countries with a much higher per capita national income than Sri Lanka-have spent as much or more on health, and by failing to stress simple, inexpensive, but effective primary care systems, have reaped much poorer results. Turkey, for example, had a GNP per capita of $1,200 in 1978, compared to Sri Lanka's $190, but has concentrated on urban health, with conven- tional facilities, and today has an infant mortality rate of 1 18 per 1,000, life expectancy of 61 years, and a crude birth rate of 32-all far short of Sri Lanka's accomplishments. As part of their preventive-care programs, governments should make a special effort to reduce sharply current infant and child mortality rates. Average rates of infant mortality-deaths per 1,000 in the first year-are well above 140 in Africa, and roughly 120 in Asia and 60 in Latin America. In the developed countries they average only about 13. Why are they so high in the developing world? Largely because of low nutritional standards, and poor hygiene, health practices and services. But infant and child mortality rates can be brought down relatively quickly with a combination of redesigned and reoriented health, education, and nutrition policies. And the return in lowered fertility, healthier children, and in- creased productivity is clearly worth the effort and costs. The truth is that a basic learning package for both males and females- and particularly for females-and a carefully designed program of primary health care for both the countryside and the cities are investments that no developing country can afford to neglect. The economic return will be huge. And the same is true of other invest- ments in the immense untapped human potential of the absolute poor. Even in a period of austerity-indeed, especially in a period of austerity-those investments must be accelerated. I want to turn now to the role the World Bank itself can play in the 1980s. And to establish the background against which this must be viewed, let me briefly summarize the principal points that emerged earlier in our discussion. 29 V. THE ROLE OF THE WORLD BANK IN THE 1980s The current account deficits of the oil-importing developing countries have risen dramatically. The increase in these deficits is the mirror image of a portion of the rise in the surpluses of the oil-exporting nations. A major objective of the world's intermediation effort to deal with these sur- pluses must be to assure that appropriate portions of them flow, directly or indirectly, back to these developing countries. The assistance the developing societies will need in the 1980s-both to alleviate their burden of absolute poverty, and to facilitate the structural changes in their economies required by the changes in the external environ- ment-is much larger than was projected before the events of the past 18 months. The developing countries, already financing 90% of their own develop- ment efforts, will now have to mobilize substantial additional resources. But they cannot succeed in this enormous task by their own efforts alone. That is why all previously planned programs of international assistance, including that of the Bank must be reexamined in order to determine how the most urgent needs of the developing world can be met. It is in this perspective that the future level of World Bank lending, and the nature of its operating policies, should be reviewed. The Bank clearly cannot do everything. Nor should it try to. But neither can it be allowed to fail in its basic responsibility toward its developing member countries. Let us examine for a moment the role the Bank has undertaken over the last decade. During the past twelve years, the World Bank has expanded dramatically its level of financial assistance to the developing world (see Table VI). Table VI-World Bank Group: New Financial Commitments and Net Disbursements (US$ billions) Annual Average Per Period Working Plan· FY64 FY69 FY74 -68 -73 -78 FY79 FY80 FY81 FY82 FY83 FY84 FY85 New Loans IBRD .9 1.8 4.9 7.0 7.6 8.6 9.6 10.7 11.9 13.2 IDA .3 .8 1.6 3.0 3.8 3.6 4.1 4.7 5.0 5.3 IFC .1 .2 .4 .7 .6 .7 .8 .9 1.1 Total-Current $ 1.2 2.7 6.7 10.4 12.1 12.8 14.4 16.2 17.8 19.6 -Constant FY80 $ 5.0 6.8 9.5 11.2 12.1 11.9 12.6 13.3 13.8 14.3 Disbursements IBRD .5 .9 2.2 3.6 4.4 5.2 6.3 7.4 8.3 9.2 IDA .3 .3 1.1 1.2 1.4 1.8 2.2 2.7 3.5 4.1 IFC .1 .2 .2 .3 .3 .5 .7 .8 .9 Total-Current $ .8 1.3 3.5 5.0 6.1 7.3 9.0 10.8 12.6 14.2 -Constant FY80 $ 3.1 3.5 5.3 5.5 6.1 6.7 7.6 8.6 9.4 9.9 a The Working Plan is subject to annual review by the Executive Directors and is based on the assumption that necessary legislative action on the General Capital Increase and IDA VI replen- ishment will be completed according to schedule. 30 But our objective during these years was not principally the size of the Bank's operations. We did not simply want to do more. Rather, we wanted to do more of what would contribute most to our member countries' evol- ving development needs. Thus, over the past decade there has been a major qualitative change in the Bank's lending, and in its development policies. That change arose out of the understanding that if the absolute poor had to wait for the benefits of overall economic growth to trickle down to them, their incomes and welfare would inch forward at an intolerably slow pace. It became clear that developing countries needed to devise policies and investment programs to assist the poor in their societies to become more productive, and to assure an equitable distribution of basic services to them. Throughout the 1970s the Bank made a determined effort to help its member countries to devise such policies, and to finance and implement such projects. It has devoted to this objective a high proportion of its intellectual resources, and a growing share of its expanded lending. In the FY64-68 period such loans, on average, amounted to only $60 million per year, and accounted for less than 5 % of total lending. In FY80 they had grown to $3,565 million, and accounted for over 30% of total lending. In that year alone the Bank approved agricultural and rural development projects to raise the productivity, and thereby the incomes, of 29 million people, including 18 million of the world's poorest-and to increase food production by 6 million tons per annum. Highways, electric power, and other traditional infrastructure and pro- duction investments remain, of course, vital to development. They are basic to strengthening the foundations of growth, and to expanding em- ployment opportunities and enhancing the incomes of all members of so- ciety. While the Bank reduced the share of its lending to these sectors, it substantially increased its absolute volume. Bank lending for traditional infrastructure projects grew from an annual average of $700 million in 1964-68 to $4.4 billion in 1980; and for traditional production projects, from $350 million to $3.5 billion. Only by raising its overall level of lending was the Bank able to meet its member countries' new development needs without neglecting their tra- ditional requirements. This clearly remains the path for the future. The Bank must be in a position to respond to new needs which have already appeared. And it will certainly be called upon again and again to help meet needs which we can- not yet foresee. It must be able to do so without disrupting other programs for which developing countries are counting upon its assistance. Is the Bank in such a position now? Last year I reported to you that we were making progress in laying a foundation for further expansion of the Bank Group's lending program in the 1980s. Let me summarize the steps that have been taken over the past twelve months, and where we stand today. 31 The General Capital Increase in the Bank's authorized capital, from $45 billion to $85 billion, was approved by the Board of Governors in January 1980. Some countries, including the United States, will need legis- lative approval before they can subscribe to the additional shares. Negotiations for a sixth replenishment of the International Development Association (IDA) were successfully concluded last December, and the basis for the replenishment was approved by the Governors in March 1980. The replenishment itself, however, is still not effective because a few coun- tries, and in particular the United States, have not been able yet to com- plete the necessary legislation. Other donor countries have agreed to make voluntary contributions to prevent an extended hiatus in IDA's lending program. But I want to emphasize the importance of early action by all governments to make the sixth replenishment effective, and the severe penalties for the poorest na- tions of the world that will result from prolonged delay and uncertainty. Let us assume, however, that all the necessary legislative actions for the General Capital Increase and for the IDA VI replenishment will be com- pleted soon. Will the lending program summarized in Table VI, which the General Capital Increase and IDA VI are intended to support, be adequate for the role the Bank Group must play in the 1980s to assist its developing country members? Will it allow the Bank to meet these countries' needs in even the limited way that we hoped it would when the program was prepared? The answer is clearly no. The lending program for FY81-85 reflects the Bank's assessment of the future financial requirements of the developing countries as they appeared early in 1977, when the plan was prepared. In the light of that assessment we believed the planned level of lending would permit the Bank to increase its new commitments each year by 5 % in real terms, and that this projected growth would allow the Bank to make an adequate contribution to its mem- ber countries' priority development needs. That assessment is no longer tenable. Four events have intervened in the meantime that invalidate its underlying assumptions. A rampant and unexpected rate of inflation has reduced the real value of the commitments permitted by the General Capital Increase and the IDA VI agreements. In planning the program in 1977, the Bank had assumed a world inflation rate of 7.5% for FY79. It turned out to be 13.3 %. And we now project inflation in future years will taper off more slowly thao we had previously expected. As a result, the real value of the lending program planned for 1981-85 will fall 10.5% below what was pro- jected. In today's dollars this represents a loss of over $5.6 billion. Quite apart from this, our developing member countries' needs for Bank assistance have increased for three other reasons: · First, as I have emphasized, the sharp rise in the oil price has raised the cost of their imports, while recession in the industrial countries has depressed their export prospects. They must react to these events by carrying out the far-reaching structural adjustments in their economies, 32 discussed earlier, and yet do so without reducing their growth to totally unacceptable levels during the transition period. · Second, as part of that process, in their own interest as well as that of the world community, they should step up substantially their investment in energy development. · And third, the change in the representation of China has increased by 45 % the number of people who now need, who now desire, and who are now entitled to have World Bank Group lending. Let me briefly discuss the effect on the Bank of each of these three points in turn. First the financing required for the much larger than anticipated current account deficit: Let me sum up the key points of the argument put forward earlier. As compared to 1978, the oil-import bills of developing countries have increased by $35 billion. And even if the industrialized nations resist domestic protectionist pressures, as they must, their continuing problems of recession and slow growth have already reduced the export prospects of the developing world. The problem is not that developing countries will be left with deficits they cannot finance. If deficits cannot be financed, they will disappear. But if tney disappear because adequate financing cannot be found, this wiII seriously cripple their development programs. If that were to happen, the rest of the world could not be cushioned from the deflationary pressures generated by such a collapse. Even the nar- rowest self-interest of the industrialized nations requires that these essential financing needs should be met. Adequate financing of imports is not a substitute for structural adjust- ment to the new external circumstances. Rather, it is a prerequisite for such adjustment: it permits the developing countries to adapt sensibly their pro- duction, trade, investment, and savings patterns to new needs. Without adequate financing of their imports they will be forced to adopt "quick-fix" remedies-such as blanket controls on imports or arbitrary cutbacks in public investment programs-which are in no one's long-term interest. Nor is the financing of structural adjustment a substitute for the financing of other development needs. The magnitude of the other investments re- quired to make at least a minimally acceptable impact on absolute poverty has not diminished. The cost and urgency of raising the productivity of the world's poor and of providing them with equitable access to the essential public services they desperately need remain high. Should not the Bank, then, shoulder part of the burden of financing its developing member countries' structural adjustment? In doing so it would clearly not be substituting for the private-market mechanisms to recycle surpluses. On the contrary, it would be helping to underpin private flows, and by closely supporting the adjustment process it would improve the creditworthiness of the recipients. Nor would the Bank be substituting for appropriate action by the IMF. Rather, it would be complementing such action by bringing its resources 33 and its expertise to bear on the longer-term development aspects of struc- tural adjustment. To help meet these requirements, the Bank introduced structural adjust- ment lending several months ago, and is tentatively planning to commit $600-800 million for that purpose in the current fiscal year. In FY82 or '83, such lending might amount to $1,500 million, and in subsequent years to more. At present, however, such structural adjustment loans have to be fitted into the previously planned lending program. But these new and unantici- pated needs are clearly additional to the requirements identified in 1977, which the current lending program was designed to meet. The Bank needs, therefore, to expand the current program to respond to them. If it fails to do so, it simply will not be contributing to the solution of the world's inter- mediation problem. Let me move now to the second point: the financing required for energy development. Beyond their immediate impact on import costs, the higher energy prices present both long-term challenges and opportunities for the oil-importing developing countries. Our studies indicate that at the new price levels there are highly profitable investment opportunities in these countries which are additional to current plans and which, taken together with vigorous conservation measures, would reduce oil imports by 3 million barrels of oil per day-ISO million tons per year-by 1990. This would have obvious benefits for all producing and consuming nations. But the exploitation of these opportunities will require substantial investment over the next five years. Total investment needs for energy development in oil-importing develop- ing countries, in the period 1981-1985, will amount to about $185 billion in constant 1980 prices, as against $80 billion devoted to energy investment in these countries over the past five years. Most of these needs will be financed by their own savings, and by external sources other than the Bank. The Bank, however, should help by expanding its previously planned energy development program, both in order to serve as a catalyst for other funds, particularly from private sources, and in order to finance those needs for which such funds are not likely to be available. To assist in this vital role, we now estimate that the Bank should lend an additional $12 billion above the $13 billion planned for energy development in the 1981-85 period. Finally, let me turn to the matter of China. The change in the representation of China in the Bank has increased by nearly a billion the number of people who now have a claim on the Bank's resources. That claim is no less compelling, and their needs are no less urgent than those of the Bank's other members. It will take time to translate these needs into specific Bank projects, but when that has been done it is clear that they will amount to several billion dollars per year. If we had to accommodate these needs within the lending program planned earlier, we would have to reduce sharply our lending to other member countries. This would seriously disrupt their development pro- 34 grams, and this we must not do. An addition to the lending program is clearly required. The inescapable conclusion of all these considerations is this: the Bank Group must mobilize substantial additional resources if it is effectively to assist its developing member countries through the critical years of the 1980s. But it must do this in a manner that takes full account of the cur- rent budgetary constraints faced by the governments of the developed nations. What we need to do now is to reach broad agreement on the following objective. The Bank should: · Increase its lending program in order to offset fully the higher-than, anticipated inflation levels; · Finance structural adjustment, but not at the cost of reducing the de- velopment finance already planned for the oil-importing developing countries; · Assist in financing an expanded energy development program, but not at the cost of cutting its assistance to other equally vital programs; and · Respond to the development needs of China, but not at the cost of its other borrowers. If we agree on this objective-and I believe we can-then our task is to find the means for financing the expansion in lending without imposing un- due burdens on the budgets of our member governments. Several approaches to that seemingly impossible task are worthy of con- sideration. Let me refer to them briefly. It is through payments for capital subscriptions that the International Bank for Reconstruction and Development (lBRD) places demands on the budgets of our member governments. Those budgets are tight, and the equity capital that they finance is, therefore, a scarce resource. Loan funds, on the other hand, arc available, and even abundant on the world's financial markets. The issue facing the Bank today is whether we are making the best pos- sible use of that very scarce resource, our equity capital, in order to mo- bilize those other more abundant funds. The question is: could we increase our borrowings in the private financial markets without imposing additional claims on scarce funds from governments? Throughout its history, the World Bank has gradually improved the use it has made of its equity base. Twenty years ago, for example, the Bank concluded that it had only barely begun to utilize the full financial power of that base in support of its borrowing. At that time, in 1960, the Bank's callable capital of $17.3 bil- lion-essentially member government guarantees of its borrowings-plus its paid-in capital and reserves of $2.5 billion, a total capital base of $19.8 bil- lion, supported borrowing of only $2.1 billion and loans of $2.8 billion. To increase the efficiency with which its paid-in capital was being used, in 1960 the Bank doubled its subscribed capital without any increase in the amount of capital paid in. And yet even in 1970, when paid-in capital and reserves had risen to $3.9 billion, and callable capital amounted to $20.8 35 billion, borrowings totalled only $4.6 billion and loans $6.0 billion. We were an under-leveraged institution. During the 1970s the Bank began to use its equity base to mobilize much larger amounts of borrowed funds for investment in its developing member countries. Borrowings and outstanding loans had increased to $30 billion and $27 billion respectively by the end of FY1980. Meanwhile, the Bank's paid-in capital and reserves rose to $7 billion--of which over half came from retained earnings-and callable capital rose to $36 billion. Moreover, the Governors, having reduced the amount of the paid-in portion of the 1960 capital subscription from 20% to 10%, have now reduced the paid-in portion of the new General Capital Increase from 10% to 7.5 % . When the General Capital Increase is completed, the Bank will have total subscribed capital of $85 billion. About $7.5 billion will then have been paid in. This will be augmented by reserves and retained earnings that amount to about $3.4 billion today, and are growing fast. This means that if it fully uses the authority provided by the General Capital Increase, the Bank's own paid-in equity and reserves will finance about 15 % of out- standing loans. When callable capital is included, every single dollar of outstanding loans will be backed by a dollar of capital or reserves. These ratios contrast with the standard practice of large commercial banks, whose capital to risk-asset ratios run to less than 6%. And yet none of these banks has the IBRD's repayment record; none of them relies on such long-term sources of funds; and none has such a strong liquidity position. The World Bank, then, should continue to improve the efficiency with which it uses its immensely broad and uniquely guaranteed financial base. It must begin to use the demonstrated strength of its loan portfolio that reflects the prudent lending policies that it has followed for over thirty years. This is essential if it is to meet more fully the needs of the developing countries without imposing additional burdens on the budgets of other governments in a period when the domestic demands of many are par- ticularly pressing. The question is how can this best be done, while at the same time fully safeguarding the strength and integrity of the Bank's financial structure? There are at least three actions that should be considered. The relationship between the Bank's loans-and hence its outstanding debt-and its equity base could be changed. The~ Articles of Agreement, drafted over 35 years ago in immensely different financial circumstances, provide that the Bank's total disbursed and outstanding loans cannot exceed its total subscribed capital and reserves. The question the Brandt Commission, investment bankers, and other financial experts have been asking us in the Bank is this: in the circum- stances of today, as contrasted with those of 1944, does it still mak.e financial sense to limit any increase whatever in the Bank's lending authority to an equal increase in its capital? The tentative answer appears to be that the 1 to 1 ratio, established at Bretton Woods in the closing months of World War II, is no longer really 36 relevant to the Bank's financial condition or to the economic situation of its principal shareholders, and that the result now is an unnecessary under- utilization of the Bank's capital base. It is obvious that any action to change the ratio should not be construed as a substitute for the completion of the General Capital Increase. On the contrary, it should be viewed as a necessary additional step. The General Capital Increase was agreed to prior to the more recent events that have now substantially enlarged the financial requirements of our developing member countries. The change in the ratio would make it possible for the Bank to respond to these new requirements through a more effective use of the increase in its capital base which has already been authorized. A second possibility would be the organization of a separately capitalized energy affiliate. As I remarked earlier, the need and the potential for developing new energy resources present a major challenge, as well as a major opportunity, to the developing countries, and to the world community at large. To meet that challenge, and to exploit that opportunity, there is now an international consensus, reflected most notably in the decisions of the Venice Economic Summit and the meetings of the OPEC ministers, that measures must be taken to assist the developing countries in the development of their energy resources. More specifically, the World Bank has been asked to examine the possibility of setting up an energy affiliate to assist in this effort. Such an affiliate would serve both as a direct source of finance itself, and as a catalyst for other public and private funds. The equity capital of such an institution could come from IBRD profits, and from contributions by member governments: not necessarily by all member governments, and not in the same proportion as their contribution to the Bank's capita\. Such an equity base would be utilized to underpin borrowing and lending that could ultimately amount to a multiple of the scarce equity funds. A third approach would be to raise the Bank's lending and borrowing authority again, as was done in 1960, by increasing subscribed stock, but without the necessity of additional paid-in capita\. Anyone of these three actions, or a combination of them, would make it possible for the Bank to be more responsive to the urgent needs of its developing member countries which were not anticipated when the General Capital Increase was put forward. The variety of means available to equip the Bank to be more responsive should encourage those who, like myself, believe that the current climate of budgetary constraint in the developed nations need not stand in the way of necessary action. While these measures are being studied, because of the urgent need to expand the Bank's lending program for FY82-86, we should consider draw- ing forward a portion of the lending presently planned for later years to the nearer term. In this way we could increase IBRD loans over the next five critical years by a total of $10 billion. Implementing these various proposals would allow the IBRD to expand its lending program. Yet that would not by itself help the Bank's poorest member countries, which require highly concessional financing of very long 37 maturity. As I have indicated, the needs of these low-income countries have also greatly increased. And the IDA VI replenishment, while it is generous, will fall far short of meeting them. Just as we need to find a way to exploit more fully IBRD's equity base, so we must also increase the leverage of scarce IDA resources. The credit- worthiness of a number of countries which have in the past received IDA credits has now markedly improved. This is most notably the case for oil exporters such as Indonesia and Egypt. But others too have increased their ability to service debt on intermediate terms. Some of these countries could shift in the future to IBRD loans only, or to a blend of lBRD and IDA loans less concessional than had been neces- sary earlier. This would permit an increase in IDA lending to those coun- tries whose financial requirements have expanded but which are not yet creditworthy for IBRD loans. It should go without saying that making additional IDA funds available to the poorest countries by shifting some countries from IDA to IBRD borrowing will be possible only if IBRD itself is enabled to meet these additional claims on its resources. And it should be unnecessary to add that a truly adequate response to the poorest countries' needs would require additional resources, raised perhaps by such new means as those suggested by the Brandt Commission. In this discussion of the role of the Bank in the 1980s, I have focused on only one aspect of its work: its loans to developing countries, and the means of financing them. In the short run, this must have first claim on our attention. But in the longer run, as both Executive Directors and Ministers from developing countries have emphasized so often in recent months, it is the non-financial assistance of the Bank that is of even greater value than its financial support, indispensable as that is. In the 1970s the Bank's policy advice and technical assistance were directed toward the twin goals of accelerating economic growth and reduc- ing absolute poverty. These must continue to be our objectives in the 1980s. But the environment in which those goals will be pursued will be so dif- ferent, and so difficult, as to require a major shift of emphasis within the Bank: · Population growth, although decelerating, will place increasingly heavy burdens on the resources of most developing countries; · Labor forces growing at explosive rates, reflecting past levels of popu- lation growth, will place a premium on job creation; · Migration from the countryside will burden metropolitan areas grown larger than most in the developed world; · Widespread malnutrition, if it is to be overcome, will require substan- tial increases in food production per hectare because opportunities for putting land under cultivation in the developing countries are sharply reduced; and · External payments imbalances will require acceleration of industrializa- tion and expansion of exports in the face of slower growth in world trade and rising tides of protectionism. 38 It is shocking to reflect that in spite of the progress of the past quarter cen- tury and the advances that are likely in the next two decades, it is probable that at the end of this century 600 million human beings in the developing countries will continue to live in absolute poverty. Clearly there will be an immense intellectual and technical effort required from the Bank in the 1980s-in addition to its financial contribution-if it is effectively to assist the developing countries to address their fundamental social and economic problems. Let me now summarize and conclude the central points I have made this morning. VI. SUMMARY AND CONCLUSIONS Global economic conditions over the past 18 months have become sub- stantially more difficult, and the prospects for growth in the oil-importing developing countries during the decade of the 1980s now appear less promising. The sharp new rise in oil prices has more than doubled these countries' cost of imported energy, and the continuing recession in the industrialized nations will seriously limit demand for their exports. As a result, their current account deficits have increased rapidly, and now constitute on average 4% of their gross national product-and for many countries substantially more. Though they can continue to finance these deficits in the short term by additional external borrowing, in the longer term their mounting debt service would become unsupportable. The deficits must be reduced. What is needed are fundamental structural adjustments in their economies. If these difficult changes are undertaken soon, and can be completed over the next five to eight years, growth rates in the oil-importing developing countries should recover to more satisfactory levels during the second half of the decade. This, however, will require financial assistance in the interim, beyond what is now in prospect. if severe reductions in the level of their develop- ment activity are to be avoided. If this financial assistance is not available, or if the developing countries delay initiating the necessary structural changes, their development progress will be seriously compromised through- out the decade. The current adjustment process is likely to be more difficult than the earlier one in the 1974-1978 period. One of the most important actions the oil-importing developing countries can take to moderate its damaging effects is to adopt efficient import substitution policies in energy. At present and prospective oil prices, many of these countries can turn what were previously regarded as marginal energy reserves of oil, gas, coal, hydroelectric, and forest resources into profitable investments. This will require their mobilizing additional domestic and external finance, but would permit them by the end of the decade to reduce their annual oil-import 39 bill-projected by then to amount to some $230 billion-by more than $50 billion. The current global economic situation has imposed particularly severe penalties on the poorest developing countries. They desperately need addi- tional Official Development Assistance to get through the adjustment period. But total ODA flows declined in real terms from 1977 through 1979, and that portion of the flows allocated to the poorest countries was shockingly small in both relative and absolute amounts. Both the OECD nations, and the capital-surplus members of OPEC, should now consider what measures they can take to increase concessional assistance to the poorest nations who continue to be damaged by a global economic situation they neither caused, nor can do much to influence. The middle-income developing countries will continue to depend on external capital flows from commercial banks throughout the decade, though it is questionable whether the volume will be sufficient from these sources to meet the additional requirements imposed by the new adjustment difficulties. If the task of recycling to the developing countries a portion of the more than $100 billion a year of additional surpluses now being earned by the oil-exporting countries is to be tackled in the 1980s efficiently and equitably, there is no doubt that the financial intermediation of the World Bank, and other international institutions, should increase substantially above pre- viously planned levels. During the 19805 the Bank should: · Increase its lending program in order to offset fully the higher-than- anticipated inflation levels; · Finance structural adjustment, but not at the cost of reducing the de- velopment finance already planned for the oil-importing developing countries; · Assist in financing the expanded energy development program called for at the Venice Economic Summit meeting, but not at the cost of cutting its assistance to other vital programs; and · Respond to the development needs of China, but not at the cost of its other borrowers. All of this can be done-aild in a manner that takes fun account of the current budgetary constraints faced by the governments of the developed nations-provided we make full use of the potential of the Bank's capital base, and facilitate the use of the large private resources available for sound investment opportunities. The 1980s are likely to be a turbulent decade, preoccupied with a whole new range of financial difficulties. But underlying the immediate financial concern, more fundamental prob- lems persist. The most fundamental of all is the persistence of widespread absolute poverty. Development itself comprises a twofold task: to accelerate economic growth, and to eradicate absolute poverty. 40 These two goals are related, though governments are sometimes tempted to pursue one without adequate attention to the other. In the end, that ap- proach fails from a development point of view. The pursuit of growth with- out a reasonable concern for equity is ultimately socially destabilizing. And the pursuit of equity without a reasonable concern for growth merely tends to redistribute the deprivation of economic stagnation. In our meetings throughout the 19705 we have examined the various requirements of these two goals. This morning I have stressed both the critical need and the economic good sense of developing those human re- sources who have been inequitably passed over by the modernization process. None of us, of course, can pretend that our understanding of the com- plexities of-the poverty problem is complete. We are all still learning. But I believe we can take a measure of satisfaction that many governments and institutions throughout the international development community, including this Bank, are beginning to think about poverty in a more thoughtful way than they did a decade ago. And they are beginning to ask themselves how they can reshape their own efforts to deal with it more effectively. That should be encouraging to everyone in this room. Due to your support, and that of the governments you represent, the World Bank over the past ten years has become by far the world's largest and most influential development institution. That is important. But what is far more important is what has transpired throughout the developing world in the millions of individual lives that this institution has touched. What these countless millions of the poor need and want is what each of us needs and wants: the well-being of those they love; a better future for their children; an end to injustice; and a beginning of hope. We do not see their faces, we do not know their names, we cannot count their number. But they are there. And their lives have been touched by us. And ours by them. 41 ANNEX I Flow of Official Development Assistance From Development Assistance Committee Members to Developing Countries and Multilateral Institutions" (Percent of Gross National Product) 1965 1970 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 Australia .53 .59 .59 .41 .42 .54 .52 .51 .50 .50 .50 .51 .51 Austria .1l .07 .17 .12 .24 .29 .19 .23 .25 .27 .28 .29 .30 Belgium .60 .46 .59 .51 .46 .55 .56 .59 .60 .61 .63 .65 .67 Canada .19 .52 .41 .39 .48 .52 .47 .46 .45 .45 .45 .44 .44 Denmark .13 .58 .38 .56 .60 .75 .75 .67 .70 .70 .70 .70 .70 Finland b .02 .18 .06 .17 .16 .17 .22 .22 .23 .24 .26 .27 .28 France .76 .62 .66 .62 .60 .57 .59 .59 .59 .59 .60 .60 .60 Germany .40.32 .40 .36 .33 .37 .44 .44 .44 .44 .45 .46 .46 Italy .10 .16 .11 .13 .10 .14 .09 .09 .10 .10 .11 .11 .1l Japan .27 .23 .23 .20 .21 .23 .26 .27 .27 .28 .28 .29 .30 Netherlands .36 .61 .75 .83 .86 .82 .93 .94 .94 .96 .97 .98 .99 New Zealand' .23 .52 .41 .39 .34 .30 .30 .30 .30 .30 .30 .30 Norway .16 .32 .66 .70 .83 .90 .93 .95 .96 .97 .98 .99 1.00 Sweden .19 .38 .82 .82 .99 .90 .94 .95 .95 .95 .95 .95 .95 Switzerland .09 .15 .19 .19 .19 .20 .21 .22 .25 .26 .26 .27 .28 United Kingdom .47 .41 .39 .40 .46 .48 .52 .52 .49 .45 .42 .40 .38 United States d .58 .32 .27 .26 .25 .27 .19 .18 .22 .22 .22 .22 .22 GRAND TOTAL ODA ($b-Nominal Prices) 6.5 7.0 13.8 13.8 15.7 20.0 22.3 24.6 28.7 32.1 35.7 39.7 44.1 ODA ($b-Constant 1980 Prices) 20.3 18.0 21.9 20.9 22.1 24.4 24.5 24.6 26.3 27.2 28.3 29.4 30.8 GNP ($t-Nominal Prices) 1.3 2.0 3.8 4.2 4.7 5.6 6.5 7.2 8.0 9.0 9.9 11.0 12.1 ODAas % of GNP .49 .34 .36 .33 .33 .35 .34 .34 .36 .36 .36 .36 .36 Price Deflator e .32 .39 .63 .66 .71 .82 .91 1.00 1.09 1.18 1.26 1.35 1.43 "Historical figures through 1979 are on note deposit basis as reported from OECD/DAC. Those for 1980-85 are based on OECD and World Bank estimates on growth of GNP, on information on budget appropriations for aid. and on aid policy statements by governments. They are projec- tions, not predictions, of what will OCcur unless action not now planned takes place. bFinland became a member of DAC in January 1975. 'New Zealand became a member of DAC in 1973. ODA figures for New Zealand are not avail- able for 1965. dIn 1949, at the beginning of the Marshall Plan, U.S. Official Development Assistance amounted to 2.79% of GNP. e The deflator is the US$ GNP deflator which excludes the effects of Changes in exchange rates. 42 ANNEX II Distribution of ODA From OECD Countries in 1978 by Developing Country Income Group (Amounts in millions of dollars) To Middle- and High- To Low-Income Countries a Income Countries a TotalODA Percent Percent of Percent of Total Percent Percent Am!. TotalODA of GNP Am!. ODA of GNP Am!. of GNP Australia 198 34 .18 390 66 .36 588 .54 Austria 31 19 .06 135 81 .23 166 .29 Belgium 384 72 .40 152 28 .15 536 .55 Canada 564 53 .28 496 47 .24 1,060 .52 Denmark 254 66 .50 129 34 .25 383 .75 Finland 30 56 .10 24 44 .07 54 .17 France 768 28 .16 1,937 72 ,41 2,705 .57 Germany 1,171 50 .19 1,176 50 .19 2,347 .37 Italy 247 66 .09 128 34 .05 375 .14 Japan 1.136 51 .12 1,079 49 .11 2,215 .23 Netherlands 606 56 ,46 468 44 .36 1,074 .82 New Zealand 7 13 .04 48 87 .30 55 .34 Norway 237 67 .60 118 33 .30 355 .90 Sweden 508 65 .59 275 35 .31 783 .90 Switzerland 91 53 .11 82 47 .09 173 .20 United Kingdom 897 62 .29 559 38 .19 1.456 .48 United States 2.078 37 .10 3,586 63 .15 5,664 .27 - Total 9,207 46 .16 10,783 54 .18 19,990 .34 a 1978 is the Jatest year for which available information permits distribution of ODA as between "Low-Income" and "Middle and High~Income" countries. Low-Income countries have a total w population of 1.3 billion with per capIta incomes averaging $200 per year. The populations of Mlddle- and High-Income countries total 900 million with per capita incomes averaging $1 250 per year. The distribution includes bilateral ODA contributions and allocable shares of ~on- tributions to multilateral development assistance institutions. 43 Personal Note-Prepared After the Text Was Printed And now-if I may-let me add a purely personal note. These past 13 years have been the most stimulating of my life. I wouldn't have traded them for anything. And I want to say to all of you how deeply grateful I am for the privilege of having served with you throughout these years. This World Bank-born out of the ruins of World War II-has grown into one of the most constructive instruments of human aspiration and progress. And yet, it has only barely begun to develop its full potential for service and assistance. There is so much more it can do, so much more it ought to do to assist those who need its help. Each one of us here can help make that happen. And how can we begin? We must begin-as the founders of this great institution began-with vision. With clear, strong, bold vision. George Bernard Shaw put it perfectly: "You see things, and say why? But I dream things that never were, and I say why not?" Thank you, and good morning. 44 REPORT BY CESAR E. A. VIRATA CHAIRMAN OF THE DEVELOPMENT COMMITTEE Within this year we had two meetings-one in Hamburg in April and, last Monday, we had the fourteenth meeting of the Development Com- mittee in Washington. The communique issued indicates the range of issues discussed and the conclusions reached by the members. I wish to take this opportunity to apprise you of our work in the past and the task ahead of us. This particular meeting of the Development Committee was held at a time of extreme difficulty and uncertainty for the world economy. Since our meeting in Belgrade last year, the global economic situation has deteriorated seriously and, in particular, prospects for the low-income developing countries look very grim and bleak. The main features contrib- uting to the gloomy situation are sustained high real costs of energy and of other factors, prospects of a sharp curtailment of growth in the industrial countries threatening the expansion of world trade, a severe worldwide problem of inflation, instability of exchange rates, increased indebtedness, and uncertainty in regard to the volume and terms of capital market flows. There is also actual decline and threatened stagnation in levels and pros- pects of concessional flows for the poor developing countries whose current account deficits are expected to rise to $80 billion in 1981-representing an increase of over 100 per cent from the 1978 levels. How do we meet this situation? What is it that the developing countries need to undertake on their own? What is it that the international com- munity needs to do to meet the situation both for its own sake and in the interest and welfare of their developing country partners? What is the role which the Fund, the World Bank and other international and regional insti- tutions must play in the crisis which we we all face? These are some of the questions to which the Development Committee addressed itself in its deliberations on the basis of several papers and studies prepared by the Bank and the Fund. We obviously have not resolved these issues, but there were clear indi- cations of the directions in which we need to move-and move quickly- if the situation is not permitted to be aggravated by our inactivity or inade- quate and late response. There was recognition in our Committee of the serious situation we all face and the speed with which we need to move to resolve our common problems. There is a prolonged period of major structural adjustment for both developed and developing countries ahead of us-a harsh period with its exacting demands of strict discipline and sacrifice. While the developing countries embark on measures to make new investments re- quired in agriculture, in infrastructure, in stimulating their exports, in expanding new production of energy sources, in improving the efficient use of capital, of human resources, and imports, they will need the under- standing and strong support for a liberal trading policy and for increased capital flows-both concessional and non-concessional-from the inter- 45 national community. This support in their efforts is a critical element in the successful completion of the adjustment process. At the international level, therefore, a variety of measures were con- sidered to be necessary by the Committee. These included: -increased flows of resources from capital surplus and industrial coun- tries and liberal trade policies; -substantial increase of concessional assistance to low-income coun- tries-today they receive less aid per capita than the middle-income developing countries; -examination of the suggestion that a small proportion of future GNP increases be set aside by donor countries to facilitate more rapid progress toward the 0.7 per cent GNP target for official development assistance; -mobilization of public opinion in favor of official development assis- tance; -completion of legislative action to make IDA-VI Replenishment ef- fective at the earliest possible date; -in the meanwhile, bridging arrangements should be accelerated to provide IDA intermediate commitment authority pending effective- ness of the replenishment; -the capital base of the MDIs and particularly of the World Bank be increased to meet new and unanticipated needs arising from the change in the representation of China, the need for larger investment in energy development, provision for structural adjustment loans and to compensate for the higher sustained rate of inflation; -the lending program of the Bank in the next fiscal years be expanded above presently planned levels which were based on assumptions that are no longer tenable; -the setting up of an energy affiliate or facility to promote the expan- sion of Bank lending operations in the energy sector; -a larger role by the IMF through increased quotas, allocations and appropriate implementation of its various facilities-existing and planned-to the current balance of payments and structural adjust- ment problems; -early completion of the work assigned to the Task Force on Non- Concessional Flows to strengthen the functioning of international capital markets and the flow of resources to developing countries; -continuation of the work to seek a solution to the G-24 and Brandt Commission proposals on the reform of a monetary and financial system. These are some of the important measures discussed and agreed to which the Committee desires to be pursued vigorously in the period ahead and which hopefully on completion would contribute significantly to the resolution of the difficult problems we face today. The Committee's work in the past year, in fulfillment of its mandate for transfer of real resources to the developing countries, is fully detailed in 46 our annual report which is being presented to the Boards of Governors and will soon be available as a public document for general distribution. As to the future, I believe that the 1980s will shape up as a decade of profound change in national and international economic structures. Despite temporary setbacks, developing countries must persevere in their march toward their twin goals of accelerated growth and reduced poverty. The developed countries must also adjust their own policies to permit an equi- table sharing of the world's resources and an unrestricted access to eco- nomic opportunities by the disadvantaged nations of this world. In this process, it is inevitable that all aspects of the relationship between de- veloped and developing countries will be re-examined and the workings of international financial institutions will come under increasingly close scrutiny. I believe that the real challenge for the Development Committee in the 1980s will be to anticipate these areas of adjustment and change; to discuss them in a spirit of goodwill and cooperation; to provide ade- quate resources for carrying them out and to arrange a process of orderly change-and arrange it in time before it becomes too late. The Develop- ment Committee must become one of the main fora and play an important role in the restructuring of international financial policies and institutions within the framework of the UN global negotiations. We will await the outcome of the agenda and procedures of these negotiations. The Committee will next meet on May 22, 1981 in Libreville, Gabon. Before I conclude, I would also wish to place on record my own deep appreciation and that of my colleagues to Mr. de Larosiere, Mr. McNamara and their staffs for their cooperation and invaluable assistance which they have provided to the work of the Committee. As Mr. McNamara is retir- ing next year as President of the World Bank and will not be with us at our next annual meeting, I wish to pay a special tribute to him for the strong leadership which he provided to the World Bank over the past 13 years with rare distinction and devotion. For all of us-and for the entire international community-he stood for so many years as a tower of strength, as a beacon of hope. It takes just one flame to light a million candles. Mr. McNamara has been that flame-in the midst of many storms-steadfast, resolute and courageous, with a historic sense of pur- pose and mission. The institution will bear the imprint of his personality long after he leaves it. He will advance the work, in the remaining months that he is going to be with us, on the recent new initiatives he has taken which will enable the institution to set its course in the decades ahead. I am confident that he will remain active on the international scene and con- tinue to provide the broader vision we all need so urgently in the decade ahead. On behalf of the members of the Committee and myself, I wish to extend our very best wishes to him and Mrs. McNamara. 47 STATEMENTS BY GOVERNORS AND ALTERNATE GOVERNORSl AFGHANISTAN: FAZL HAQ KHALIQYAR Governor of the Bank I deem it a great privilege to represent the Government of the Demo- cratic Republic of Afghanistan at these distinguished Annual Meetings. Personally, it is a great opportunity for me to meet with my eminent col- leagues and leaders in the financial and banking fields from the various countries and exchange views. Likewise, I am looking forward to more productive results from this Meeting. The year which has concluded proved to be another dismal one, perhaps more depressing than the previous year, especially for the least developing countries. Inflation continued to dominate the world economic scene dur- ing 1979-80; in fact, there was a worsening of the situation as the year progressed. Further escalation in oil prices in the first half of 1979 may have been a contributory factor to the accentuation of the inflationary pressures. Along with this, stagnation was also a continuing feature of the world economy. Declining output and growth rates, and further deterio- ration in employment marked the economies of several leading capitalist industrial countries. Protectionist policies of the developed countries com- pounded the problems of the developing countries. The main features of the development in the world economy, to which I have alluded above, have all been analyzed and discussed very competently in the reports of both the World Bank and the International Monetary Fund in the recent weeks. I will avail myself of this opportunity, if I may, to stress the unfortunate plight of the developing countries, especially the low-income developing countries. The growth in the volume of world trade in 1979 was around 6.5 per cent, which was only slightly higher than the 5.5 per cent growth in the preceding year. As against this, the growth of exports of non-oil developing countries was lower at 8.5 per cent in 1979 as compared with 10 per cent in 1978. The immediate prospects are also depressing; in 1980, the growth of exports of non-oil developing countries is estimated to decelerate further to only 6 per cent. Along with this unfavorable condition, the volume and terms of trade of these coun- tries, especially the prices of their exported goods, were also lower than the prices which they paid for the imports. This deterioration is over and above the 4 per cent suffered by these countries in the preceding year, and the prospects for 1980 are for a further worsening of the situation in this regard. The impact of these depressing developments is reflected in their external payments situation. There was a sharp increase in the current account deficit of non-oil developing countries to US$55.0 billion in 1979, from US$36.0 billion in the preceding year, and the deficit is estimated to grow further to US$68.0 billion in 1980. 1 Comprising statements relaling to the work of IBRD, IFC and IDA. Omitted passages are in- dicated by dots ( . . . ). Statements relating to the International Monetary Fund are produced in the IMF Summar}" Proceedings. 48 All these facts evidently show the unjust characteristics of international economic relations, which meet only the selfish interests of the relatively small group of imperialist states, and their monopolies. The current situation facing the developing countries has been succinctly summed up by the President of the World Bank, Mr. McNamara, in his fore ward to the 1980 World Development Report published by the World Bank a few weeks ago. He characterized the current situation as a "time of difficulty and uncertainty for the world economy, particularly for the developing countries." We see that the reason for the difficulties and the economio uncertainties particularly for the developing countries, again, relates to the long domination of international imperialism. More than one hundred countries were under domination or colonization for more than one hundred years, and now this exploitative relation has led to irreconcil- able antagonism between the interests of the majority of the developing countries, and the imperialist monopolies. Now, the previous form of colonization has changed to new colonialism, by which the Western indus- trial countries keep the developing countries as a source of raw material and these countries continue to be severely exploited by imperialist states and their monopolies. It is clear that unless the main obstacles to economic growth of the developing countries, such as imperialism, colonialism and new colonialism, racism, apartheid including zionism as well as foreign aggression and occu- pation, dependence, subjugation and all other types of discrimination, coer- cion, interference, domination and exploitation are not removed, the world economic order could not be steered on its proper and just course. This leads me to the issue of the flow of aid to the developing countries. Here, too, the performance of the developing countries-as measured against the target (0.7 per cent of GNP) set by the United Nations for the Second Development Decade-has been most disappointing. Leaving aside the few countries which have already reached the UN target, the aid performance of most of the remaining 13 Development Assistance Committee members deteriorated from 1975 to 1979, and there is no assurance that the developed countries will respond to the continuation of aid, because imperialistic countries would like to solve their economic problems by augmenting exploitation of developing countries, and passing on their crises to them. Likewise, during 1978-79, aid in its real sense has been lower than the level of 1975. It is against this backdrop that the role of multilateral financing institutions assumed crucial importance. The question of enlarging the role of these institutions in effectively promoting the development of the developing countries has been discussed in recent years in several international forums. Because of the current international situation, the majority of the developing countries has not only not achieved progress but their condition has further deteriorated, and the gap between developed and developing countries widened. In the last several decades, the real gross national product of the developing countries on the measures called for, including structural reforms in the world monetary system, has emerged and has been crystallized in the recommendations of the Group of Twenty-Four in the Outline for a Program of Action on International 49 Monetary Reform which was approved by the Ministerial Meeting of the Group of 77 held in Belgrade last September. Specifically, the outline presented a program of immediate action which encompassed some ] 3 measures to be adopted on a priority basis, in the fields of money, trade and transfer of real resources to developing countries and in this connection, necessary assistance will be required by the de- veloping countries from international financial and monetary institutions. Of special significance to the World Bank are the recommendations relating to an increase in the program lending of the multilateral financial institutions and provision of adequate local cost financing, establishment of a long-term facility to finance purchases of capital goods by the develop- ing countries and formulation of an effective strategy to deal with the official indebtedness of some developing countries which face debt servicing problems. We would also like to see an acceleration in the flow of con- cessional aid, linkage of the SDR allocation with additional development assistance and establishment of a medium-term balance of payments facility to respond to the adjustment needs of the developing countries. I should also refer in this connection to the disquieting discriminating trend which has emerged recently, namely politicalization of the policies of the multilateral financial institutions, especially the World Bank. It is unfortunate that lending policies come to be influenced by political con- siderations, much to the detriment of the progress and growth of the developing countries. I would, therefore, earnestly urge the institutions to steer clear of political pressures and arrive at their decisions on merits, free from political considerations of any kind. Ignoring the nationalities or the countries to which the presidents and secretariat staff members of the World Bank, Asian Development Bank and Islamic Development Bank belong, we, as a least developing member were very disappointed when the World Bank unilaterally stopped withdrawals of ongoing projects in our country. Due to this unfortunate decision, we had to allocate resources of about US$7.0 million of our own meager foreign exchange and the equivalent of Af 1,500 million to continue work on these projects. As you know, Afghanistan is a least developed and landlocked country having no access to the sea. We are isolated and far from international markets and this situation causes a lot of difficulties and results in high costs of international transportation, which is a serious obstacle to our foreign trade and thus, to our economic and social development. Because of the unsuitable condition of transit roads with no access to the ocean and also the unfriendly behavior of some of the neighboring countries, our problems are compounded. Along with this our country, like other de- veloping countries, is under exploitation by unjustified international trade and monetary mechanisms. After the Saur Revolution, especially after the new phase, some of the Western countries topped by the United States of America cut all their official assistance to Afghanistan, in violation of international obligations and economic and social cooperation. Imperialistic and reactionary circles have imposed an unannounced economic blockade and endeavored to 50 strangulate the Revolution of Afghanistan under the influence of policy of the United States, and that of other countries like West Germany, Great Britain and Japan. They carry out the same policy of economic pressures against Afghanistan. The EEe cut their food assistance to Afghanistan because of political reasons which are unprecedented and inhuman. However, all these anti-Afghan positions from these countries' governing circle were taken at a time when the people of Afghanistan faithfully struggled to abolish all elements which caused economic and social back- wardness which was the legacy of the previous nasty and exploitative regime. Please let me draw your attention to some developments which have occurred in our country. The Saur Revolution which took place in Afghanistan two years ago was a national democratic uprising, which toppled the proimperialist, semi- feudal regime. The aim of the Revolution was to carry out general demo- cratic revolutionary changes that is, elimination of all feudal and pre- feudal remnants in social and national relationships, distribution of land among landless peasants and agricultural workers, the development of national economy, raising the standards of living of the people, expansion of education, gradual abolition of illiteracy, democratic solution of national problems, democratization of social and political life in the country, and elimination of the influence and all manifestations of colonization and imperialism. The first and foremost task of the Government of the Democratic Republic of Afghanistan which came into power with the new phase of the Saur Revolution last December was to restore the confidence of the people in the Government which had been shattered by the misdeeds of Amin's fascist regime. Almost the very first act of my Government was to release the thousands of our people who were put in prisons arbitrarily and unjustifiably by the previous regime. Action was also initiated to return to their owners the properties and assets which included houses, business premises, factories, machinery and equipment and cash taken over by the previous Government, and to make payments toward the share of the private sector in the capital of banks nationalized by the previous Govern- ments. It is the policy of the new Government that while the public sector will continue to play an important role in the economic development of the country, it will also assist and encourage the private sector to contribute to the productive and nation-building activities. For the active and efficient participation and assurance of the private sector, a new internal and external investment law was enacted which encourages, guides, and pro- tects investment in the private sector. In this context, new regulations on customs and tariffs are under preparation; also credit facilities through the commercial and specialized banks arc provided to individuals and com- mercial and private enterprises. I should add here that under the fundamental principles of the Demo- cratic Republic of Afghanistan, framed and announced, the basic rights of people, including the right to own property, have been fully secured. It is 51 the policy of the Government to associate all progressive and patriotic sections of the people to join hands in the task of developing the country, and with this objective in view, a paternal United National Democratic Front has been set up which will provide a forum for mobilizing the peo- ple's cooperation. Associations of workers, teachers, and professionals, such as doctors and religious leaders, are also being organized which will serve as consultative machinery to the Government on the major policy issues affecting these sections of the people. Along with the mobilization and channeling of the people's efforts, the Government is determined to put down and eliminate completely activities of reactionary clements asso- ciated with imperialism and regional reaction and chauvinism within the country, so as to provide the conditions necessary for the progress of the development of the country. The Democratic Republic of Afghanistan has chosen a free and independent course of development and is desirous of complete cessation of imperialist, chauvinistic, and reactionary intervention in the internal affairs of the country so that the people of Afghanistan will be able to continue their peaceful reconstruction and economic advance- ment. As Barak Karmal, the General Secretary of PDPACC, President of RC and Prime Minister of the Democratic Republic of Afghanistan has stated: "The DRA Government in full harmony with its decisive revolu- tionary domestic policy follows a principled peaceful path in its relations with all countries of the world; and Afghanistan is and will remain as a nonaligned nation. We will profoundly and actively support the principles of positive and active nonalignment, peaceful coexistence, the policy of detente and general disarmament." Toward the same objective, steps are being taken to rationalize govern- ment procedures and to do away with bureaucratic inefficient practices inherited from the previous regimes. Wasteful and unproductive govern- ment expenditures are being eliminated and Government has announced its intention to restrict its borrowings from the central bank-a factor which contributed most to the large monetary expansion in the economy witnessed in recent years. In fact, for the first time in recent history, the Government was able to prepare a balanced budget for the present fiscal year, and for the first six months has faithfully and successfully implemented without resort to any borrowing. Obviously, it will be some time before the impact of these and other steps taken by the Government is reflected in the performance of the economy. In the meantime, during the years 1979-80, the country passed through severe stresses and strains. There was destruction of property and infrastructure facilities indulged in by the antinational and reactionary factions which are actively supported by foreign powers. Productive capacity has been extensively damaged, let alone expansion of the pro- ductive potential through further investment. Nevertheless, output levels were not allowed to decline substantially and shortfalls, especially in essen- tial consumer goods of mass consumption by the toiling people, were being made up by increased flow of imports. We are particularly grateful to our friendly socialist countrics, especially the U.S.S.R., for the timely and gen- erous provision of such goods provided as grants, worth about US$165 million this year alone. 52 Available data show that gross national product declined during 1979-80 by about 4 per cent to Af 153.2 billion (at current prices) from Af 159.7 billion in the preceding year. The fall in gross national product appeared to have been largely in the industrial sector. With the significant exception of electric power and natural gas, output in most of the other major industries, such as coal, sugar, saIt, cotton textiles, and cement, recorded declines. It is likely that overall output in the agricultural sector suffered no major decline. It is notable that prices of essential articles of mass consumption, such as wheat flour, rice, sugar, kerosene, cloth, saIt and tea, recorded if at all, small increases, thanks to the policy of augmenting supplies through liberal imports and subsidies extended by the Government. On the external front, the country's foreign exchange reserves registered a further expansion of about US$60 million (excluding revaluation of gold holdings effected during the year) in 1979-80. The continued accretion to foreign exchange reserves should, however, be attributed largely to fortui- tous factors which included higher prices fetched by certain export com- modities, such as natural gas, karakul. and raisins, sharp increase in invest- ment income reflecting the record levels of interest rates which prevailed in the leading countries abroad and lower amortization payments, conse- quent upon rescheduling of certain foreign debts. Some of these factors are, naturally, transient and, in fact, the rate of growth in reserves has been decelerating in the past three years or so. Having regard to the fact that, being an agricultural country, output and exports are very much depen- dent upon the vagaries of the weather and the problems inherent in being a landlocked country, the present level of reserves, which represent about a year's commercial imports, cannot be considered excessively high, espe- cially since much of the increase has been clearing dollars with bilateral agreement countries. There has actually been a decline in our convertible currency reserves. Basically, the relatively high level of reserves is a reflection of the slow rate of deVelopment of the economy which has been hampered by destructive activities of reactionary and imperialist agents. Agriculture is the mainstay of the country's economy and my Govern- ment is according high priority to the development of this sector. Several measures have already been initiated which will lead to larger investments in this sector. New owners under the land reform programs are being given ownership documents expeditiously to encourage invest- ment in the lands distributed to them. The new owners were the erstwhile landless peasants and small farmers with meager uneconomic landholdings. Agricultural inputs, such as fertilizer and improved seeds and implements, are being made available to farmers at concessional terms and prices. With a view to encouraging larger output, growers of sugarbeet and cotton are offered higher prices for their produce, the increase in prices ranging from 20 to 30 per cent. The duty of our nation at this stage of deVelopment of the country is very sensitive, complex, and difficult, and the implementation of the devel- opment programs of the nation is being followed according to the prin- ciples suggested and accepted by the international organizations and the UN for the entire population. And for the fulfillment of this aim, we are in 53 need of active and enlarged aid participation of the international organi- zations. Our Government hopes especially for continued assistance from the World Bank, Asian Development Bank, and the Islamic Development Bank as an active and faithful member, and we hope that expanding participation of these institutions will continue to promote Afghanistan's economic de- velopment in the future. AUSTRALIA: JOHN W. HOWARD Governor of the Bank and Fund Australia welcomes the new members of the Fund and Bank, St. Lucia, St. Vincent and the Grenadines, Seychelles and Zimbabwe, and the partici- pation of the People's Republic of China. We also join with others in pay- ing tribute to Mr. McNamara for the great contribution he has made as President of the World Bank on this, the occasion of his last Annual Meet- ing in this capacity. In my statement at the Annual Meetings last year, I pointed to some encouraging signs for world economic conditions in the 1980s. There were signs of wider understanding of the basic causes of the current economic problems, particularly of the dangers of allowing high rates of inflation to continue unchecked. Most importantly, there was increasing recognition that stamping out inflation is a necessary precondition for sustained im- provement in economic growth and lasting reductions in the level of un- employment. This was being reflected in a much needed redirection of policy priorities toward overcoming inflation. The beneficial effects of that change have not yet emerged. Since last year's Meetings, inflation has accelerated partly as a result of the con- tinuing effects of stimulatory measures taken in 1978 in some major economies, and partly in response to the further substantial oil price rises. Economic activity has slowed appreciably and large external imbalances have re-emerged requiring both a further major recycling of funds in the short run and further adjustment of the economies of oil importing coun- tries, developed and developing alike. Notwithstanding the effects of the further oil price rises, a few encour- aging signs have been emerging. Rates of increase of money wages in some major economies have been moderating. There are also signs that energy pricing policies in oil importing countries are working to moderate demand for oil more effectively than was previously feared would be likely-a development which will, if maintained, improve the outlook both for inflation control and payments imbalances. This is one important confirmation that application of economically responsible policies will bring desired results. The shock given to the system by the further oil price increases has, however, served to intensify the need for policies directed toward reducing the rate of inflation and encouraging conservation of oil and development of alternative energy sources. 54 In these circumstances, any relaxation of the stance of policy would have serious consequences for world economic conditions over the years ahead. Unfortunately, there is cause for concern on this score .... Recent oil price increases have, of course, given rise to serious adjustment and finance recycling problems .... Of course, concern to assist with the recycling process should not be allowed to obscure necessary responses to the adjustment problem. Aus- tralia endorses the views expressed by the President of the Bank concern- ing the urgent need for, and appropriate forms of, adjustment. ... Australia also supports structural lending by the IBRD as long as amounts provided under this program are clearly applied to structural ad- justment which will contribute to longer-run balance of payments viability. While the economic progress of the developing nations is principally dependent on their own domestic policies, aid flows do have an important role to play. In this regard, Australia's official development assistance is estimated in the World Development Report to be 0.51 per cent of GNP, considerably higher than the average for developed economies. In the allocation of its development assistance funds, Australia has naturally felt a particular obligation to assist the countries in its region. At the same time, we are doing as much as we can to increase our bilateral support for the least developed and other poorer countries. Thus between 1972 and 1979 Australian bilateral aid to the least developed countries quadrupled, and over the same period their share of total Australian aid doubled. Moreover, all Australian aid to least developed countries has always had a 100 per cent grant element. Australia also welcomed the agreement for replenishment of IDA and has agreed to participate in the IDA VI bridging arrangement. Our ad- vance contribution is being made on an unconditional basis and is available for immediate commitment by IDA. The decision to make an advance contribution has been prompted by a desire to assist IDA in its present difficulties and reflects Australia's strong and traditional support for the Association. At the same time we wish to express our continuing concern over the circumstances that give rise to the need for bridging arrangements particularly if such arrangements do not involve uniform action by all donors. We hope that it would be possible to avoid recourse to such arrangements in future. Perhaps the largest contribution the developed nations can make to the welfare of the less developed nations is to ensure that trade and capital flows are kept as open as possible. While difficult domestic circumstances are bound to arise, developed nations should strive to avoid the extension of protectionist measures and, over time, should seek to reduce trade bar- riers wherever this is possible. In the long run, as the developing countries have rightly insisted all along, trade with developing countries offers much greater potential benefits to them than does aid. In the foreseeable future, private capital flows will continue to be the main means of financing the resource flows reflected in current account deficits of developing countries .... 55 Finally, I want to say a few words about the future role and the direc- tion of development of the Fund and the Bank. First, I hope that Governors, whatever their political persuasions. will join with me in decrying the increased politicization of the deliberations of the Fund and the Bank. The tasks facing these institutions are difficult enough without such unhelpful distrar:tions. Second, while there have been developments which in some ways brought the Fund and Bank closer together, it does seem to me to be advisable to maintain the distinctive roles of the Fund and the Bank .... The role of the Bank on the other hand is to provide long-term finance on concession- ary terms for development purposes. Blurring of these roles could be counterproductive to achievement of their underlying objectives and ulti- mately damaging to the interests of developing countries. We must continue to be able to look to the Bank to hammer out sen- sible development programs and projects in consultation with member countries .... The two institutions, while developing new activities in re- sponse to changing circumstances, must not be diverted from the funda- mental purposes for which they were originally established. I believe it is most important that, responding to the views of member governments, the Fund and the Bank alone remain responsible for decisions which will govern their activities. I trust that all concerned will bear these considera- tions firmly in mind when considering suggestions for further changes in operations of the Fund and the Bank. AUSTRIA: HANNES ANDROSCH Governor of the Bank Let me first welcome the Governors of the People's Republic of China, Zimbabwe, St. Lucia, and St. Vincent and the Grenadines to our meeting wherein they are participating for the first time. Also I would like to express my gratitude to the Government of the United States for the hos- pitality offered to us .... In addition, higher economic activity in the industrial countries would contribute in reducing the deficit of the external imbalances of the devel- oping countries. The experience of the 1970s clearly shows that positive adjustment requires medium- or long-term structural policies. They have also shown that a structural policy can only be successful within a frame- work of stability. Furthermore, it is crucial to look for adequate solutions in the energy field. This leads us inevitably to the conclusion that an orderly retreat out of oil is the order of the day. This can be achieved by opening up new resources, developing alternative energy sources, and con- serving and recycling energy. To accomplish this objective investments are necessary. They would at the same time stimulate domestic demand and increase employment, thereby reducing the demand for imports. The major aim is to create a market out of a crisis. Permit me to say a few words on the development of the Austrian economy. For 1980, we expect a real growth rate of the order of 3.5 per 56 cent with less than 2 per cent unemployment which could be considered quite satisfactory. We could not, however, detach ourselves from the worldwide wave of inflation. Thus, the expected average rise of the CIP for this year will be in the vicinity of 6.5 per cent. Largely due to the excessively high energy prices, the deficit on our current account has again increased and will amount to 2.5 per cent of our GDP this year. Dealing with this situation we are further forced to maintain a restrictive policy stance. The hard currency policy will be continued supported by restric- tive monetary policy measures and a tight fiscal policy. For 1981 a further reduction of the federal budget deficit is envisaged .... . . . Austria has voted in favor of the resolution on the Bank's capital in- crease. With regard to IDA VI, I am happy to report that parliamentary procedures to implement Austria's share in this operation are weII under way. In this context I wish to pay my special respect to a man who since 1968 has been responsible for the Bank's remarkable performance: President McNamara, whose outstanding personal capacity we have admired over the years. As the World Bank enters into a new era of challenges we can only accept with deepest regret President McNamara's decision to retire. Before closing, let me say a few words on the future relationship between developed and developing countries. The North-South relationship is over- shadowed not only by economic strains but also by political conflicts. We should, therefore, welcome all efforts to avoid confrontations and speedily resume the North-South dialogue. The Report of the Brandt Commission has clearly underlined the neces- sity of closer cooperation between North and South. Let me conclude with a quotation from this stimulating report: " ... all nations will benefit from a strengthened global economy, reduced inflation and an improved climate for growth and investment. All nations will benefit from better management of the world's finite resources. All nations-industrialized and developing, market or centrally planned economies-have a clear interest in greater security, and in improved political capability and lead- ership to manage global problems." BAHAMAS: ARTHUR D. HANNA Governor of the Bank and Fund It is my great honor and privilege to address the Joint Annual Meetings on behalf of not only my own country, the Bahamas, but also on behalf of Barbados, Dominica, Grenada, Guyana, Jamaica, St. Lucia, St. Vincent and the Grenadines, and Trinidad and Tobago. My remarks will be con- fined to matters relating to the Bank, as the honorable Governor for Trini- dad and Tobago will express our joint views on items concerning the Fund. Let me begin by expressing our sincere congratulations to the People's Republic of China and Zimbabwe which, together with St. Lucia and St. Vincent and the Grenadines are joining in our deliberations for the first time. Congratulations are also due to the World Bank President for a job 57 well done, although Mr. McNamara will be continuing in his post for some months to come. It is of particular importance to note that while the President's accomplishments are significant, perhaps his greatest contribu- tion lies in the fact that he has brought a sensitivity to the philosophy of this institution which should better serve the welfare of its constituents far beyond his term of office. The vastly expanded role of the World Bank over the years can be attributed to the leadership of a man who is deeply sensitive to the needs of developing countries and particularly to the most severely affected segments of their populations. In paying tribute to him and to the highly dedicated and capable staff of the World Bank, we can only hope that all member countries will con- tinue to support the Bank's continued expansion and evolution in the years ahead. Early action by all to ensure the effectiveness of the IBRD general capital increase and the IDA Sixth Replenishment is, of course, essential to the Bank's continued expansion. Some of my colleagues here attended the Commonwealth Finance Min- isters' meeting last week in Bermuda where they focused on a number of the issues before us today. There was general recognition of the continuing deterioration of the world economic situation which imposes upon devel- oping countries increasingly acute problems in financing their development needs. Nevertheless, the consensus reached was that these problems have, in fact, been identified and recognized by developing and developed coun- tries alike. Indeed, not only have the issues been identified but it was the general feeling that reasonable and attainable remedies have also been articulated. It seems to us, therefore, that what is now required is a con- certed effort to apply the remedies already at hand. I have referred to the need to ensure early implementation of the agreed increases in the resources of the IBRD and IDA. That this must be done quickly is, of course, absolutely crucial in order that the Bank might be assured of a sound financial basis on which to pursue and expand its activities. In the light of the difficult times we face, it is vitally essential that there be an expansion in the total flow of official bilateral and multi- lateral development assistance to developing countries. Such action, it would seem to us, would represent a demonstration of a collective inter- national commitment. I shall now outline some of the other actions which, in our view, should receive the priority attention of those represented here. I do so in no par- ticular order since it is essential that all of these measures proceed simul- taneously in order to ensure continued and balanced economic development. Both the Bank's new structural adjustment lending and regular program lending need urgently to be further expanded and adapted to the individual needs of developing countries. In particular, structural adjustment lending should not be viewed as a substitute for other forms of lending. Rather, it should be recognized for what it is-a different and additional facility upon which developing countries can draw in accordance with their particular circumstances and needs. Then, too, the procedures for regular program lending should be streamlined and the facility made readily available, as a 58 means of addressing the total disasters which natural phenomena, such as hurricanes and earthquakes, can visit upon developing country economies in the space of a few hours. Any terms and conditions associated with either type of program lending ought to be flexibly adapted to the develop- mental priorities of each borrowing country. The procedures and objec- tives associated with these tests should be measured in terms of those priorities and not by any criteria which are externally imposed. The Bank's energy program ought to be expanded and oriented in order to meet the requirements of those countries which do not have reasonable prospects for discovering domestic energy resources. Those countries should not simply be written off as non-oil developing countries for which there is no hope. I am pleased to point out with regard to energy that Trinidad and Tobago, an oil exporting country of thc Caribbean region, has introduced a formula designed to assist oil importing countries in the region in financ- ing the increased cost of oil purchased from that country. The operation of this facility will provide additional resources to enable oil importing countries of the region to pursue further developmental objectives. Another important feature of the facility is that it will not be tied to any other funding programs already in effect. In the discussion of the proposed new energy affiliate, consideration must be given to ways of assisting all developing countries. If this cannot be done through the development of alternative energy sources, it must at least take the form of assistance which would foster more efficient utiliza- tion of the energy which they are forced to import. We are encouraged by the Bank's apparent willingness to view large projects on their own merits, and not only in the context of the size of the economies which they are designed to serve. If a large investment can be justified, resources should be made available to support it. Large-scale projects in low-income countries should be supported, particularly where significant economic and social benefits are likely to accrue, even if the sums involved appear disproportionate to the size of the economy. I must once again make a plea on behalf of middle-income developing countries, which make every effort toward their own development but experience considerable difficulty in obtaining development assistance- and here I refer to nonconcessional loans-with which to supplement their own funding efforts, mainly because of the application of the misleading GNP criterion. In the case of the Commonwealth of the Bahamas, for example, such criterion, when considered in isolation, disregards, first of all, the large high-income non-Bahamian labor force and its consequent foreign exchange drain. Secondly, it ignores the difference in the cost of living made higher by our economic circumstances. Thirdly, the Bahamian archipelago is comprised of a large number of islands of differing geographical features, each at various stages of development. In addition, I should point out that the geographical features of the Bahamas render it susceptible to illegal activities by foreign nationals who are products of a highly developed na- tion, and which, in turn, demands that a disproportionate percentage of 59 financial resources must be directed toward the surveillance of an area in excess of 100,000 square miles. Needless to say, these funds ought prop- erly to be directed toward the social and economic development of the Bahamian people. As I am certain that there are among us other middle-income countries, with their own peculiar circumstances, which are also struggling toward development, I would urge the World Bank not to be distracted by the pure and simple fact of GNP and per capita income, but to make avail- able the assistance required by such countries to supplement their own development efforts. The removal of barriers to trade continues to be of vital concern to the Caribbean region where most countries are now forced to implement export-oriented strategies. Artificial and unnecessary barriers erected by developed countries limit the development of our export potential and retard our economic development. It is only by increasing exports that developing countries can earn the foreign exchange necessary to service the foreign debt and purchase the energy and other intermediate and capital goods needed for development. My colleagues would wish me to urge the World Bank to continue its support of financial institutions serving developing countries in the region, particularly the Caribbean Development Bank which is a useful and im- portant agent in the development of our small nations. It is in this spirit, therefore, that we note the 1970s have been marked by rhetoric which far outstripped useful action. And, perhaps, that had its usefulness, in a way, for it analyzed the problems and identified solutions. It is our hope that the decade of the 1980s will be marked by the deter- mination of those who can to come to grips with these development prob- lems that affect the greater portion of mankind. Mr. McNamara's closing remarks were filled with emotion, not so much that he was leaving the Bank, as, no doubt, that there he has had fond and lasting memories, but also that he, who became so deeply involved in the plight of mankind and knew what ought to be expected of the industrial and developed nations, was saddened that his dreams may not be realized. We here in the Bank can give inspiration to those who can. We in the Caribbean have done and are always willing to do our part. It is our sincere hope that the Bank will assist us in meeting our goals. BANGLADESH: SAIFUR RAHMAN Governor of the Bank It is a matter of great privilege for me to address this meeting of the two great institutions-the World Bank and the International Monetary Fund-for the first time. Representing one of the least developed coun- tries, we view these meetings with great hopes. I therefore welcome the most encouraging statement made by President Carter. I would also like to join others in extending a very hearty welcome to the new entrants to the Bank and the Fund. We are particularly happy to see the People's 60 Republic of China take its rightful place in the two Bretton Woods insti- tutions. I would like to start by extending our thanks to President McNamara and Managing Director de Larosiere for their excellent and illuminating state- ments. The Annual Reports of the Bank and the Fund, the World Development Report and the documents prepared for the Development and Interim Committee all indicate a serious deterioration of the international economic situation and the worsening of the development environment. Not only has the environment deteriorated during the last 12 months since our meeting in Belgrade, but it is also a matter of grave concern for the developing countries that the entire decade ahead looks extremely difficult. The most important features disturbing the international economic situa- tion are continued inflation, slow growth of the industrial countries, deteri- oration in the terms of trade of the developing countries, frightening in- crease in their balance of payments deficit and declining trend of resource transfer. Continued high inflation in the industrial countries with a slow- down in their growth, and the rise in prices of internationally traded goods in general, oil in particular, have all cumulated to produce staggering cur- rent account deficits for oil importing developing countries. In concrete terms this means a sharp erosion in the ability of non-oil developing coun- tries to sustain their current imports. not to speak of meeting their invest- ment needs. It is not surprising that this has resulted in a steady decline in the growth rates of the developing countries. While the burden has been heavy for all developing countries it has been particularly acute for the low-income countries. Aggregate figures for all developing countries do not clearly reveal that for 38 low-income countries real growth of a little more than the 2 per cent in 1979 left no room for per capita income gains. The Annual Reports of the International Monetary Fund and the World Bank, as well as the World Development Report, 1980, have brought up a common theme-that in the coming decade the developing countries must undertake programs for structural readjustments of their economies. And it is only toward the second half of the decade that there is a possibility of growth rates reversing the trends if adjustments could be carried out suc- cessfully. Such adjustments cover a wide range of policies aiming to reduce deficits by raising exports, increasing investment, efficient use of resources, and domestic resources mobilization, and reducing consumption of energy through conservation and greater domestic production of energy where possible. The reports also suggest that such adjustment programs by the LDCs require strong and enlarged support from the industrialized coun- tries and capital surplus oil exporters in stimulating demand for developing countries' exports, in recycling oil surpluses and in providing aid. The success of this meeting will depend to what extent consensus and agreements can be reached towards concrete action for such international support. At the first annual meeting of the decade, we must not lose the opportunity of arriving at agreements as to how these two great institutions can reorder their policies. operations and management to meet the chal- lenges of the coming years. The reports circulated in this meeting have 61 also pointed to one thing: the deteriorating economic and development prospects of the developing countries are almost entirely due to external shocks and are largely of external origin. Therefore, the remedies must be based primarily on external support and action. The developing countries not only survived but achieved modest success in responding to the challenges of the 1970s through virtually enforced reduction in their standard of living which is apparent in the total number of people living in absolute poverty at the end of the decade. To expect them to suffer continuous decline in their level of living and at the same time to expect them to achieve even modest development success in the face of much greater challenges in the 1980s, without stepping up external sup- port, would not square with the harsh economic realities. While international action will be needed for all developing countries in general, special attention will have to be given to the low-income countries. Adjustment measures must aim at increasing supplies and not by restrain- ing demands of those already at mere subsistence level, by expanding domestic production, and promoting exports. All these efforts essentially call for a massive flow of external capital on concessional terms. And yet the record here is lamentable, to say the least. Apart from a few worthy examples, the developed countries have levels of ODA which are not at all flattering for them. And in 1979 even that unflattering level suffered further decline. It was most unfortunate at a time when the need for greater aid flow was more compelling. Most disheartening yet is the fact that the low-income countries receive only about 37 per cent of total ODA and on a per capita basis much less than the middle- and upper-income developing countries. In this context we fully support the proposal of the Group of 77 that ODA to the least developed countries must be doubled by 1985, and quadrupled by the end of the decade in real terms in 1977 prices. In this context we strongly urge the developed countries to initiate steps to implement the Immediate and Substantial Action Programme adopted unanimously at the UNCT AD V. We congratulate the World Bank on another successful year of opera- tion leading to a total commitment of $11.5 billion for IBRD and IDA. Net disbursements have also shown rapid upward trends. The IFC also deserves our commendation for increasing their operations by over 50 per cent in one year. Expansion of IFC activities in the low-income countries and in the field of energy are highly welcome. We are happy that the Bank's lending program will continue to expand in the current financial year, but are disappointed to note that the lending program for IDA will go down not only in real terms but also in nominal terms from $3.8 billion to $3.5 billion. Of equal concern is the fact that of the total assistance extended by the World Bank to the developing countries only about one third goes to the low-income countries. The Bank has introduced an inno- vative idea for expanding non-project lending to countries through struc- tural adjustment loans, which has by now received general support. This program will be meaningful only if there is additionality of resources. For IDA countries, however, it will not mean any additional benefit in terms of total flow of resources, not to speak of additional program lending 62 which has been so strongly recommended by the Brandt Commission. We agree that the Bank's resources need to be increased to compensate for continuing international inflation, the need for expanding assistance in the energy sector and to meet the needs of the new members. We therefore fully support Mr. McNamara's proposal for increasing the resource base of the Bank. The three alternatives mentioned by him need to be carefully examined by the Executive Directors to come to definite conclusions. Action to change the gearing ratio of the Bank should be at the heart of all action in this direction. While on this subject we cannot but note with regret that the general capital increase of the Bank which was approved by the Board of Governors some time ago is yet to become effective in the absence of necessary legislative measures by some important shareholders. It is of greater concern that the agreement for the Sixth Replenishment of IDA is also not yet effective because the necessary instruments for about 80 per cent of the total replenishment amount had not yet been deposited by the end of fiscal year 1980, in spite of the strong support given to the replenishment measures by the 1980 Venice Summit Meeting. We are grateful to the IDA donors for the arrangements for advance contributions and hope that the bridging arrangements will become effec- tive before long so that there is no hiatus in IDA lending. While on this subject we would also like to convey our thanks to the new contributors to IDA, such as Argentina, Brazil, Mexico, Venezuela, Romania, Greece and Portugal. We fully support Mr. McNamara's proposal for increasing the resource base and lending capacity of the World Bank. We realize, however that these measures will not directly benefit the low-income countries, like Bangladesh, for which it will be necessary to design new mechanisms to increase Bank assistance to them, and it is in this context that the proposal for interest subsidy needs to be urgently and carefully pursued. We would strongly urge the World Bank and donor Governments to set aside a part of the aid funds as interest subsidy to enable low-income countries to bor- row more funds on terms which they can afford. Besides this, Executive Directors of the World Bank may examine the possibility of allocating a part of the Bank's net income to a special interest subsidy account to enable the low-income countries to borrow larger amounts from the World Bank. These steps will certainly be in the direction of facilitating recycling of international surplus. As I have already mentioned, the World Bank deserves to be congratu- lated for expanding its assistance to the developing countries for energy development. We fully support the idea of increasing the lending program for this sector to $25 billion in the next five years. Hence the idea of a separate energy affiliate calls for immediate appraisal to enable the Bank to organize the development program effectively and adequately. Here again, the low-income countries would not benefit significantly from the energy affiliate unless interest subsidy or soft blending is considered. We would urge both the OECD and the OPEC countries to extend their full support in this field including additional resources to support interest sub- sidy for lending to low-income countries. 63 We cannot let this opportunity pass by without referring to the excellent record set by the OPEC countries in the field of development assistance. Though the average level of assistance by the capital surplus OPEC coun- tries over the last seven years has been in the order of 4 per cent of their GNP, the record of few individual countries in percentage terms has been even greater in some years. A noteworthy feature of OPEC assistance is its untied character. Another qualitative edge of OPEC aid is that, unlike the aid from industrialized countries, the funds that the OPEC countries provide do not flow back to them in the form of purchase orders, as hap- pens in the case of aid from developed countries. We welcome the mea- sures taken by Iraq, Mexico and Venezuela to help developing countries with special measures relating to the import of oil. We hope the OPEC group as a whole will adopt similar measures for all developing countries without further delay. We also strongly welcome the decision by OPEC to come-rt the OPEC Special Fund into an international development agency We have no doubt that in keeping with their past laudable record this flWd UNCT AD resolution particularly for the low-income countries .... We also welcome the success attained by the World Bank in mobilizing resources through co-financing arrangements. This measure will certainly help recycling of international surplus, but the low-income countries are effectively deprived from this source in the absence of special measures on intere<;t subsidy. The deterioration in the terms of trade of the developing countries has also eroded the resources that would otherwise be available for imports and investments. It has been estimated that had the terms of trade of non- oil developing countries been the same in 1979 as they were in 1970, their external purchasing power in 1979 would have been $36 billion greater than it actually was. This only shows the devastating impact that terms of trade can have on investable resources. The consequent reduction in the purchasing power of national income has, in turn, exerted downward pres- sure on national savings, investment and growth. The rising trend of pro- tectionism has further aggravated this situation. In spite of exhortations in all international fora, it is indeed a regrettable fact that protectionism has been persistently resorted to by the developed countries instead of undertaking structural adjustments in their economies which they patroniz- ingly propagate for low-income countries as apocalyptic remedies irrespec- tive of their social and political background. My question to developed countries is why they betray reluctance to adopt adjustment measures which they so generously advise upon us. While on the subject of concessionary assistance and resources, refer- ence must be made to the serious dimensions which the debt problem is beginning to assume for many developing countries, particularly the low- income countries. We would urge all donors to implement the 1978 UNCT AD resolution particularly for the low-income countries .... While the two Bretton Woods institutions have served the developing countries well for a long period, the need for restructuring these institu- tions has now been felt by all, including the Brandt Commission .... The World Development Report vividly describes the likely scenario and 64 the grim prospects for the developing countries in general and low-income countries in particular in the next decade. It is quite clear that in the absence of meaningful action by the international community, declining growth, massive unemployment and lack of resources for sustaining the minimum needs for imports and investments are likely to lead to social unrest in many developing countries, thus ultimately affecting the pros- pects for peace and security. It will not be an exaggeration to say that there is a sense of desperation in many developing countries particularly the low-income countries. The failure of the two development decades to achieve targets, the failure of the international community to muster con- crete support in favor of the declaration for a New International Economic Order, more recent failures to reach agreements at UNCTAD V, UNIDO III, and finally the disappointing outcome of the UN Special Session, have all contributed to this sense of desperation and frustration. The recom- mendations of the Brandt Commission, aptly described as a "Program for Survival," have therefore raised some hopes and in our view provide another opportunity for exhibition of statemanship and political will by the leaders of the industrialized countries. The need for political will have assumed renewed importance in view of the Brandt Commission report. It has clearly brought out that most economic problems today are inter- linked, and global interdependence dictates that there can be no piecemeal solutions to these problems. There are compelling arguments in favor of global cooperation as has been forcefully brought out in the report of the Brandt Commission. We commend Mr. Brandt and the members of his Commission for their understanding of the global problems and their con- structive proposals for collective action for overcoming these problems. The recommendations of the Brandt Commission are comprehensive, bal- anced and realistic. The report has rightly asserted that it is in the best interest even of the developed world to sustain and support the develop- ment of the developing world through a massive transfer of real resources and a restructuring of the international economy which would ensure" ex~ pansion of global trade, investment and growth. While discussions and negotiations should be speedily organized following the expected summit meeting in Mexico City, our two institutions must also promptly deal with the recommendations relating to them and finalize proposals for early action by the Governors. While on the subject of the two institutions, we would like to draw par- ticular attention to the recommendations relating to their management. The specific recommendations are: (a) a greater role of borrowing coun- tries in decision-making and management of international monetary and financial institutions; (b) greater participation of the developing countries in the staffing, management and decision-making of the IMF and the World Bank; and (c) greater decentralization of the management of the Bank's operations. The need for increasing representation of the developing countries, par- ticularly at appropriate management levels, h<1S been highlighted in the earlier meetings and we have noted some progress in that direction in the Bank's Annual Reports. At a time when the two institutions have to 65 increasingly deal with the developing countries in fields having important bearing on social and political sensitivities, direct experience of socio- economic process in the LDCs will be highly relevant and desirable for those who are responsible for their day-to-day operations. We hope the management of the Bank and the Fund will give serious thought to the subject. You will bear with me if I say a few words about my own country, Bangladesh, which accounts for one-third of the population of the least developed countries. With 55,000 square miles of land, 90 million people, and approximately 1,500 persons per square mile, Bangladesh today has one of the lowest per capita incomes in the world. We have been doubly hit by the world economic situation. On the one hand, we have to pay increasingly more for importing oil; on the other, for imported capital goods and industrial raw materials. The cost of our import bill for oil and petroleum products will be over two-thirds of our total export earnings this year. This has put extremely severe pressure on our balance of pay- ments. We are determined, however, to raise the level of living of our people, and not only to achieve self-sufficiency in food production but also to generate surplus for exports as early as possible. Our objective is to cut down the population growth rate, to build more schools and more hospitals, and to ensure that no man, woman or child goes without food, shelter or clothing. It is with these hopes and objectives that we have launched our Second Five-Year Plan from July this year. Our priorities are agriculture and rural development, development of our energy resources and universal primary education. To attain these objectives we have progressively under- taken radical transformation of our administrative and political institutions so as to allow a fuller participation of the people in the developmental process. But we need strong and generous support from the international community to reinforce our national efforts. Bangladesh has had fruitful cooperation with the World Bank and the Fund since its independence. We are looking forward to greater coopera- tion in the years ahead. It is therefore with a sense of loss that I now have to say a few words about Mr. McNamara, the outgoing President of the World Bank. When we look back we cannot but recognize the impact that the World Bank has made in the affairs of the developing countries over more than a decade under his leadership. The impact has been in qualita- tive as well as quantitative terms. During his stewardship, the Bank ex- plored new horizons, reached new heights, and above all, raised new hopes in the developing world. His statement in the opening meeting indicates his obsession for the 800 million people in the developing countries trapped in absolute poverty, "the wretched of the earth," and how to meet their basic needs for a minimum level of decent living. Under Mr. McNamara's leadership the Bank has set worldwide standards for development invest- ments and, what is most important, he has given a social and human dimen- sion to development investments by giving attention to social sensitivities on which the success of all investments for the poor will depend. We are sorry to see him go. We firmly believe and hope that the things which he set in motion will continue with their momentum. The dynamism which 66 he will leave behind in the institution will, we have no doubt, make it a stronger organization. Naturally we anxiously look forward to the steward- ship of the Bank in the difficult days ahead. No doubt we need a man with vision and political acumen, sound financial capabilities to grapple with the difficult task of capturing resources through imaginative recycling devices, but above all, we need a man with unsurpassed dedication to the cause of international socio-economic development. The Executive Directors have a great responsibility in searching out a personality to meet the challenging requirements of the job, and if necessary they should look for able persons across national frontiers, including in the developing countries. We agree with Mr. McNamara that the goals and objectives of the coming decade should be accelerated economic growth and distribution of economic opportunities for the absolute poor. A pre-condition will be a just and equitable distribution of economic opportunities among nations. It will entail changes in the patterns of global production, consumption and trade, arising in particular from the resource needs of the developing coun- tries. The new decade will call for changes in the framework of inter- national economic relations so as to ensure equitable and effective partici- pation of the developing countries in the formulation and application of all decisions in the field of international economic cooperation for develop- ment. The new requirements of the coming decade will essentially call for new initiatives in political as well as economic terms. However, political ends should not be allowed to dominate consideration of complex economic and development issues. We shall not find solutions if we cling to outdated concepts and institutions irrelevant to handling the emerging needs of the coming decade. The nations of the world taken together have the resources and technology to achieve the goals which are internationally accepted. A journey along the path of collective endeavor would lead us to the attain- ment of goals with greater certainty and assurance. Economic and political compulsions dictate that we follow this path. We sincerely hope and pray that we make the right choice at the right time. Before concluding, I would like to highlight the need for taking the fol- lowing measures: (1) All ODA to the low-income countries must be channeled in the form of grant; (2) ODA to the low-income countries should be doubled in 1985 and quadrupled by 1990 at 1977 prices; (3) A substantial portion of the proposed OPEC Fund for Interna- tional Development should be earmarked for the low-income countries; (4) The share of the low-income countries in ODA should be raised to at least 50 per cent by 1981 and gradually increased thereafter; (5) Making qualitative improvements in ODA by untying its use and condi tionali ty; (6) Increased allocation to program assistance, sector assistance and local cost financing by both bilateral donors and multilateral insti- tutions; 67 (7) Speedy action by the donors to make IDA VI Replenishment effective and to complete the bridging arrangement; (8) Completion of legislative measures for making the General Capital Increase of the World Bank effective; (9) World Bank and the IMF should devise new mechanisms to pro- vide intermediation and thus help recycling of the international surplus keeping in view the recommendations of the Brandt Com- mission and the G-24 Program of Immediate Action; (10) The Bank should expedite the setting up of an interest subsidy fund to help the low-income countries to take greater advantage of the resources of the World Bank, of commercial sources, as well as of resources mobilized through co-financing; use should be made of IBRD net income, and special contributions should be sought from both OECD and OPEC countries for this purpose; (11) Speedy action to increase the resource base and lending capacity of the World Bank based on the Brandt Commission recommen- dations and Mr. McNamara's suggestions .... (16) Speedy action in increasing SDR allocation and their possible use to subsidize interest rates so that LDCs could take advantage of borrowing from the commercial sector and larger resources from the Bank and the Fund. BELGIUM: PAUL HATRY Governor of the Bank As this is the first time that I have participated in the Annual Meetings of the IMF and the Bank, I cannot refrain from prefacing my remarks with one or two personal reflections. I cannot help comparing the mental picture I had of your institutions with what I actually find today. Among the principles and objectives that inspired the founders of the Bretton Woods institutions we find the following: - relative exchange rate stability; - widest possible freedom in international trade relations, devoid of discrimination between countries and of protectionism; - pursuit of balance of payments equilibrium through use of the estab- lished regulatory mechanisms; - and, of course, reconstruction in the countries affected by the second world war, - together with development. Circumstances have altered the relative importance of these various objectives, and first priority has shifted to development and everything associated with that concept. On that subject two personal thoughts come to mind: 1. At a time when annual growth of world trade is down to less than 5 % , it is important to take a closer and more critical look at all the obstacles 68 that exist to international trade, whether hidden or overt and whether attributable to developed or to developing countries, with the object of resorting to international trade its role as growth factor. 2. As the Minister of Finance of an industrialized country I cannot help noting that such countries are finding it more and more difficult to act as the locomotive of world growth as they still did in the 1970s. The two oil shocks of 1973-74 and 1978-79 have resulted in a marked deterioration in the financial situations of our countries, bringing appreciable balance of payments deficits, a haIt to GDP growth and substantial budgetary shortfalls in the public finances. This state of affairs has obvious consequences precisely for relations with the developing countries, toward which the industrialized countries can no longer play their former role of growth poles. I believe that the developing countries need to be aware of the disastrous consequences that the oil shock means for them, not only directly, in balance of payments terms, but also indirectly, through the restrictive effect exerted by the transfer of resources from the industrialized to the oil-producing countries. Our meeting is being held undl:?r thoroughly inauspicious circumstances. Since last year's Annual Meetings, there has been no let-up in worrisome developments on the international economic front-the size of the im- balances following the second oil shock has exceeded predictions, economic activity remains stagnant, inflation remains strong, doubts are expressed as to the ability of the capital markets to playa regulating role, and protec- tionism remains a menace. Despite this pessimistic picture. international solidarity remains more crucial than ever. It is indispensable if the international community wishes to cope with the present challenges-the consistent development of econo- mies as well as the struggle against inequalities. Financial institutions, representing countries at different stages of devel- opment, are the arenas in which international solidarity can best be expressed and the required resources can be mobilized. In the past, the Bretton Woods institutions have been at the forefront of the search for solutions to the financing problems of their members. They have demon- strated their ability not only to meet needs but also to adapt to new cir- cumstances. The experience of the World Bank in the decade just ended seems remark- able to me in this regard. Under the enlightened leadership of its President, it has more than quintupled the annual volume of its commitments, which surpassed $12 billion last year. This figure is impressive both quantitatively and qualitatively, for the International Development Association has con- siderably boosted its share of the total. The 27 per cent growth recorded in the last year merits attention. Allow me, Mr. President, in view of your decision to retire. to express in just a few words the appreciation of my predecessors and myself for what you have already accomplished since 1968. Your name shall remain indis- solubly linked to that of the great institution whose activities you have molded with your dynamism and great professional competence. 69 Despite the spectacular progress achieved, the task before us remains immense. Your successor will need to demonstrate conviction and enthusi- asm to maintain the support, which sometimes appears to weaken, of all member countries, large and small, developed and developing. Nor must we allow emotionality to take hold among us. Our energies must continue to be directed toward a greater economic and social equilibrium. Our atten- tion must not be diverted from the true objectives of development and efficiency in the use of resources. I would reproach myself if I failed to stress the importance of the deci- sions made regarding the doubling of the Bank's share capital and replen- ishment of the resources of the International Development Association. The amounts involved are evidence of the confidence that continues to be placed in them by their principal member countries, despite the serious domestic and external problems they themselves face at this time. The urgency and scope of the developing countries' needs for financing certainly allow us no pause in our efforts, but at the same time the new financial environment and the measures the Bank will have to take in that environment call for in-depth thinking about its structure and the efficacy of its efforts. To reflect on these matters while at the same time expanding the lending program may be difficult, but it is necessary. The effort that has been started in the area of structural adjustment lending must be continued and expanded. World Bank financing in support of medium-term adjustment measures, shown by a comprehensive analysis of the economic situation to be necessary, may be of great assistance to a growing number of countries. Such intervention must be closely coordinated with that of the International Monetary Fund, which watches over the short-term financial conditions pertaining to development, and the high-level dialogue on overall development policies between the Bank and countries receiving its assistance must be intensified. This new type of intervention will, moreover, enable the Bank to carry out fully the nonfinancial role it is meant to perform, and will foster an inflow of private capital to the coun- tries where the intervention takes place. Belgium recognizes the need for increased participation in the financing of energy projects and is gratified to note the appreciable expansion that has occurred in the last year. I urge the Bank to continue along this path and to provide greater assistance to its members in the development of their domestic energy resources and national energy planning. Proposals for mobilizing greater resources for this sector should be examined without delay. With regard to the proposal to establish a new energy agency, I would say that this is but one possibility among others and that, in examining it, we should bear in mind the need for such an agency to have a different capital structure from that of the Bank, to have additional resources, and to receive considerable financial support from the surplus countries of OPEC. New measures in the areas of structural adjustment and energy, as well as assistance to the People's Republic of China, must not prejudice the Bank's traditional program, including its role in agriculture to which Belgium is deeply devoted, as indicated by the award of the King Baudouin Prize to the 70 Consultative Group on International Agricultural Research. We therefore deem it important that existing proposals, such as that of the Brandt Com- mission to enlarge the Bank's borrowing capacity in the future, be studied promptly with a view to formulating concrete proposals for expanding the Bank's lending capabilities while preserving its financial stability and its position on the capital market. Similarly, original formulas for further expanding the Bank's operations in the area of capital transfers, such as cofinancing and the direct recycling of financial surpluses, should receive greater application. The intervention of the World Bank Group will fully bear fruit only if it is accompanied by complementary action on the part of the International Monetary Fund .... These then are, in brief, the paths I think need to be followed to meet more fully the needs of the members in a changing world. Achieving the objectives I have just described will not be easy, I agree. If the present legal structure poses a barrier to implementation of the needed reforms, it is our job to remove the barrier by amending our fundamental Agreement. BOLIVIA: JOSE SANCHEZ CALDERON Governor of the Bank The importance of these Thirty-Fifth Annual Meetings of the Inter- national Monetary Fund and World Bank compels me to express, on behalf of Bolivia, the concerns voiced by the developing world in various inter- national forums on numerous occasions. The current world economic situation is not at all promising for the developing countries. First, the most optimistic growth forecasts for the industrial countries show rates ranging from 3 to 4 per cent in real terms. Second, worldwide inflation will reach levels which governments and indi- viduals both find intolerable. Third, balance of payments maladjustments are clearly imbalanced to the detriment of the non-oil primary producing countries. What is even more discouraging, despite the role played in the past by the private international financial sector with respect to recycling surpluses, is that although we can see on the horizon the mechanisms and resources needed to move development programs ahead, there is no cer- tainty that they will come into being. The President of the World Bank and the Managing Director of the International Monetary Fund have described in their respective statements the living conditions that future generations will be facing and the assis- tance that will be provided by the developed countries. But it is not enough to adjust economies within the realistic frameworks based on various con- cepts of economic and social growth; it is urgently necessary to bring about a real change in the attitudes of all nations toward the needs of the poorest. Several years of political stability have enabled Bolivia to achieve signifi- cant advances in economic and social areas: it has moved from a deficit position to a situation wherein small surpluses are generated by its agri- 71 cultural output and by natural gas; it has become self-sufficient in most foodstuffs, and is a traditional exporter of minerals and metals. However, this process of transformation has been slowed in recent years, giving rise to sizable and deep-seated disequilibria in the economic, social and political structure of the country. In 1978, the country called for general elections. Thereafter, management of the economy was paralleled by a marked deteri- oration in the productive and financial base of the country. In a brief, three- year period, there were three general elections, four revolutions, five different interim governments, about eighty political parties, more than a thousand strikes, wage increases not counterbalanced by efforts in the productivity area, and a virtual paralyzation of the savings and investment process, which resulted in a lack of confidence on the part of the international financial community. Late last year, in cooperation with the World Bank and the Interna- tional Monetary Fund in particular, an economic adjustment program was initiated. Its two major components were a stand-by arrangement with the International Monetary Fund and a structural adjustment loan from the World Bank intended to help re-establish the country's domestic and external equilibrium; Bolivia is complementing the program by renegotiating its external public debt with the private international banking community. The continuing process of economic and social growth in Bolivia is based on the restructuring of the national economy as regards institutions, customs duties, production, investments and administration. In 1980 Bolivia's economy will expand at a rate of 1.2 per cent, well below the average for Latin America and other less developed countries. If this rate of economic and social growth persists, it will take a century to double current levels of savings and investment. Some of the objectives relating to reducing the budget and balance of payments deficits have been reached at the cost of totally eliminating the country's investment expenditure and by increasing wages and, as a result, accelerating inflation. The expansion of government credit in the absence of the cover anticipated from tax revenues will result in a 66 per cent rise in net government credit this year. The Government will shortly introduce a soundly based national recon- struction program with clear objectives in the political, economic, social and international domains: politically, this means establishing the basis for an arrangement wherein there can be peaceful coexistence among Bolivians and full observance of the Constitution and laws; economically, it involves defining and implementing an overall economic adjustment program within the dictates of sound economic reasoning. This process will take time, effort and dedication. Nevertheless, we are resolved to press on and to achieve the goals of economic and social development. This program is based upon fulfilling the agreements already entered into with international financial organizations while adapting our institutions to the requirements of those agreements. This program consists in obtaining an extended facility arrangement with the International Monetary Fund; making disbursements of resources from the existing loans with the World Bank, the Inter-American Development 72 Bank, and other financial institutions; arranging a second structural adjust- ment loan with the World Bank; and endeavoring to move forward with a number of realistic projects designed to stimulate exports and productive capacity. These projects will deal in particular with the mining, agricultural and hydrocarbon sectors. The rationalization of expenditure, and increasing investment in the education and health sectors will be emphasized. We are confident that these efforts will be understood by the international financial community; what is more, we are convinced that we will be able to count on international financial cooperation. In this connection, we think that the roles played by the International Monetary Fund and the World Bank must be substantially increased in the future, and to that end we offer them our full support and trust. There are many topics which might be brought up on an occasion such as this, and some points, of course, which simply must be stressed. We have come to the end of the first decade during which there has been a cooperative strategy among the industrialized countries based on principles of cooperation. It has been assumed that at least 0.7 per cent of the gross domestic product of the developed countries would be devoted to multi- lateral assistance for the decade. We are greatly disappointed to note that the majority of donor countries have not fulfilled their commitment. For the decade of the 1980s, we shall rely not only on the excellent reports on world economic development and the international financial situation prepared by these two organizations, but also on the Brandt Commission report, which sets forth with precision the magnitude of the problems confronting the developing countries. At these Annual Meetings, particular support must be given to initiatives which have been studied by the Executive Directors of both institutions. Noteworthy among these are: decisive support for the general increase in World Bank capital and other measures tending to increase the amouI1t of resources available; and decisive support for the use of and increases in the resources of the International Monetary Fund. Our country will not only fulfill its own commitments, it will cooperate fully to see that such goals are reached. One particularly important matter in this regard is the World Bank initiative concerning the creation of an affiliate designed to extend loans in the energy sector; as on past occasions, we support any initiative in this direction, even if it involves changes in the voting strength of the participat- ing countries. Another matter which concerns us greatly is the introduction of political considerations in the granting of loans. The multilateral nature of these institutions has been based on compliance with realistic economic policies and programs. But this year, to our great disappointment, we have seen that political considerations, which formerly had no direct impact, are now much more evident, raising the possibility that they might become even greater. It is essential that economic considerations alone be taken into consideration when examining lending to member countries. This is not a new criterion, and has been proposed in the past by Latin America, Spain and the Philip- 73 pines. On this occasion our representatives at the Bank and the Fund will propose it anew. Other matters of interest to us involve the accentuation of the inflationary process, and the Development Committee initiatives to establish measures which might reduce inflationary pressures in the developing countries, in turn calling for adjustment policies in the developed countries. We have reached the point where the international financial community has laid the foundations for interdependence between the industrialized and the devel- oping countries. The price of oil has certainly been one of the factors contributing to the rise in international prices, but expansionary spending policies, low pro- ductivity and low growth in the product of the industrialized countries have also been responsible for these rates of inflation while some prices for various raw materials have undergone increases which are not sufficient to fill the needs of developing countries for external financial resources . . . . Another matter of vital importance is the maintenance of international trade flows on the terms we have stressed in different trade forums; protec- tionist trends and controls on exports from the developing countries will in no way solve the problem. Furthermore, in the special case of Bolivia, we have expressed our resolute opposition to the implementation of measures that would result in a decline in our export proceeds, such as those being promoted by consuming countries that are members of the International Tin Agreement. The introduction of protectionist policies in industrialized countries will only add to existing imbalances. Finally, we wish to take this opportunity to join with other member countries in expressing our special gratitude to Mr. McNamara, who will be stepping down as President of the World Bank in the middle of next year. We view him as one of the leading financial figures of this century. More importantly, however, he is one of those people whose "development cru- sade" has brought about a significant change in the patterns of international financial cooperation. We in Bolivia have received notable cooperation in the form of financial resources and also in the provision of human resources for the formulation of our development programs and projects. Our tribute to the man is also a tribute to the institution. Finally, I wish to reiterate the dccision of the Government of Bolivia to conduct the development process on a realistic basis, founded on principles of professional and human integrity, an approach that the international financial community will in due course be able to evaluate. The image of my country has been distorted in recent months. In no way does this image correspond to reality. The Bolivian armed forces took on the difficult task of government when faced with the inability of civilian groups to reach agreement in the political process, and the institutional chaos into which Bolivia was sinking. We will receive with open arms all those countries and organizations that understand the problems we face and who are prepared to enter into a dialogue with us that will enable us to show Bolivia's poten- tial. Export projects will become reality; changes in the structure of imports and related instruments, together with strengthening of the financial struc- ture, are among the objectives of the Government of National Reconstruc- 74 tion over the next few years. This process will be accompanied by better distribution of income and the people will share in the benefits that development will bring to the country. CANADA: ALLAN J. MacEACHEN Governor of the Bank and Fund First of all, it gives me great pleasure to join in welcoming St. Lucia, St. Vincent and the Grenadines, and Zimbabwe to the membership rolls. As well, at this Annual Meeting China is taking its rightful place in these institutions and we all look forward to its participation in our deliberations. We meet at a very difficult time. The problems we face are immense and we urgently need new and imaginative solutions. I sense among many members a growing impatience and concern. Indeed, a very real sense of frustration at delays in achieving the progress they desire for their peoples. I can understand this impatience. I share these concerns. None of us can rest easy as long as millions of people in the world are living in dire poverty and distress. Nor can any of us be content with a situation where economic growth is faIling and where even the ability of the system to successfully redistribute and recycle funds is being questioned. That is what the Brandt report was all about. That is why its findings need to be taken seriously. But I believe our concerns may turn out to be exaggerated, that the frustrations may be misplaced. We are indeed making progress in grappling with these problems. We have already made major changes in the workings of the Bretton Woods institutions. The Bank and the Fund have shown a much greater awareness of the need for flexibility in dealing with the problems of different countries. They are demonstrating their recognition of the very special needs and requirements of the poorer members. It is this willingness to adapt, to consider new programs and new procedures, that we must welcome. It is up to us to ensure that both these institutions have the necessary resources to carry out their essential programs. But if success is to be lasting-indeed if we are to find the funds needed- we must make sure that the conditions for growth are right. I agree with the Managing Director that present levels of inflation are undermining the prospects for growth. A firm stance against inflation must remain a key element in any economic strategy that is to be of lasting benefit. I also agree that the energy situation is one we must tackle with resolu- tion. All of us must try to curb our energy consumption. We need to find ways of seeking additional sources of energy. I am very much aware that while the increasing costs of energy may create problems for many, the burden borne by some of the non-oil developing countries is particularly heavy. Higher energy costs often threaten to exhaust their foreign exchange resources. Almost invariably they reduce those countries' ability to pursue their development. Those of us who are better off must help them in shoul-, dering this burden. We must also look for ways to help them exploit their own energy resources. 75 As a major energy producing country, Canada stands ready to help the poorer countries tap their energy potential. In addition, we support the proposal for an expanded energy development program by the World Bank. We intend to honor the undertakings we entered into at the Venice Eco- nomic Summit. Let me say something more generally about resources. One of our first priorities must be to ensure that the economic system continues to recycle funds effectively to all developing countries and particularly to the poorer countries. The private banks and private capital markets must continue to play the leading role. But we must support and supplement these efforts through our own bilateral programs and through the international financial institutions. On the development side there is also a need for much larger flows of assistance-both concessional and nonconcessional. The President of the Bank, Mr. McNamara, has made the point that the World Bank Group must mobilize substantial additional resources if it is effectively to assist developing member countries through the critical years of the 1980s. This is called for if we are to maintain the real value of the Bank's lend- ing program in the face of higher than anticipated inflation levels. It is also necessary if the Bank is to play an expanded role in energy development. And additional funds will certainly be needed if the new program of Structural Adjustment Lending, which I for one support wholeheartedly, is to be effective. Finally, there are the very large and very real development needs of China that need to be met. Mr. McNamara has suggested a number of ways in which these additional financial resources might be obtained. I agree we must consider all of these alternatives and I urge that this work be completed as soon as possible. My greatest concern, however, is whether we can muster sufficient resources to meet the needs of the poorest developing countries. Many of these countries do not have access to capital markets. All of them require official aid and assistance, not only to finance their growth but often to meet even the basic needs of their people. This is why I attach particular importance to ensuring an adequate flow of concessional funds from the international financial institutions. This is why it is important that all of us who are in a position to do so take immediate action so that IDA lending can be resumed as quickly as possible. Those of us who can do so must also exert ourselves to maintain and increase our overall aid flows. We have already announced in Canada an increase in our aid budget for the present year. We intend to devote increased resources to aid. Our plan is that our aid flows should reach .5 per cent of GNP by the mid-1980s and we are aiming for. 7 per cent by the end of the decade. This is one of the concrete ways in which we intend to play our role in the International Development Stategy. A word about the proposed global negotiations. I do not know when these negotiations will be launched but I hope agreement on them can be reached shortly. I do know that some of the key subjects which must figure on any agenda for the future come clearly within our sphere of responsi- 76 bility as Ministers of Finance. We have an obligation to these institutions to see that we press forward with the work. I am encouraged by the progress which has been made in the past few months. I am impressed by the resolve J detect in both the Bank and the Fund to search out new ways of dealing with our problems. The greatest contribution we can make as Ministers of Finance and Governors of these institutions is to ensure that we are not hostages to the prejudices of the past. We must be prepared and willing to consider new ideas no matter how strange they may appear at first blush. At the same time, we must insist that these proposals, these suggested remedies, are rigorously tested. We cannot afford to fritter away resources. We cahnot do things which might undermine the basic integrity of the international monetary system and the workings of our institutions. The proposals that we adopt must be founded on realism. They must be practicable and workable. They must be able to withstand the test of time. Before closing, I would like to express Canada's appreciation to Robert McNamara for the way he has served us all as President of the World Bank. CHINA: WANG BINGQIAN Governor of the Bank I am very happy to be addressing today the Annual Meetings of the Boards of Governors of the International Monetary Fund and the World Bank. I would like to extend my heartfelt thanks to Mr. Jamal, Mr. de Larosiere, Mr. McNamara and other Governors for their kind words about the Chinese Delegation. I wish to congratulate Mr. Jamal, Chairman of the Board of Governors, for his address at the current Annual Meetings. I also listened with interest to the welcoming remarks of President Carter and to the speeches of Mr. de Larosiere and Mr. McNamara. I associate myself with other Governors in extending a warm welcome to the new members of our two institutions Zimbabwe, St. Lucia, and St. Vincent and the Grena- dines. This is the first time that a delegation from the People's Republic of China is attending the Annual Meetings of the Boards of Governors of the IMF and the World Bank. Both institutions sent missions to Beijing earlier this year at the invitation of the Chinese Government for negotiations on the representation of the Government of the People's Republic of China in the IMF and the World Bank. A quick resolution of the matter was achieved thanks to our joint efforts and the warm support of many fellow Governors. Resolutions on an increase in China's quota and subscription and on an additional Executive Director were also adopted by the Boards of Gov- ernors before these Annual Meetings began. On behalf of Mr. Li Baohua, Governor for China in the IMF and President of the People's Bank of China, and in my own name, I would like to express our thanks to Mr. de Larosiere, Mr. McNamara, and all the Governments and Governors who gave China their warm support. 77 In coming to attend these Annual Meetings of the Boards of Governors of the IMF and the World Bank Group, we on the Chinese Delegation seek to promote international economic cooperation, foster mutual understand- ing and friendship, and learn from the good experience of other countries. Henceforth, enjoying its rights and fulfilling its obligations, China will do its part to further the cause of international economic cooperation in con- formity with the purposes of these institutions. We, in China, are marking the thirty-first anniversary of the founding of the People's Republic of China. During these thirty-one years, signal achievements have been scored by our people through their diligent efforts. Agriculture has become more developed; in industry, a foundation has been laid for further growth and expansion, and the quality of life of the Chinese people has improved. But the level of economic development in China is still quite low compared with the advanced, agricultural-industrial countries. Ours is still a developing country. China's economic development experienced ups and downs for many years. The period from 1966 to 1976, in particular, was a decade of chaos, during which our economy suffered grave disruption. After that chaotic situation was brought to an end, stability and unity have prevailed in the country; the economy has been quickly rehabilitated and growth resumed. With single-minded purpose, the Chinese people are now working con- fidently and unswervingly for the achievement of their grand goal of modernizing agriculture, industry, science and technology and national defense. Though we are sure to meet with difficulties in the future, we are confident that these will be overcome through our efforts. Prospects are bright for China's economic development. We embarked last year on a program of adjustment, reform, consolida- tion and improvement of the national economy. By this we mean to carry out structural adjustments to correct the major imbalances in the national economy, to reform our system of economic management, to consolidate our existing enterprises and to improve the level of our science, technology and economic management, so that the economy as a whole may develop more soundly and in a coordinated manner. Our efforts during the last year have yielded some initial results. Agricultural and industrial production have made progress. Particularly after the initial measures we took to carry out adjustment and consolidation, our manufactures have improved in quality, there is a greater variety of goods, and a reduction in the use of raw ma- terials and energy consumed in the production process. Industrial produc- tion is expanding on a more solid foundation. Meanwhile, we have raised the procurement price of farm produce and side-line products, reduced some rural taxes or declared a tax holiday, given workers an increase in wages and other benefits, and created job opportunities in cities and towns. During the short space of one year, we took all these important and absolutely neces- sary measures in order to improve the livelihood of the people in town and country. However, it was impossible to cut down all at once on the outlays for capital construction. Moreover, owing to shortcomings and mistakes in our work, a deficit appeared in the state budget for the year 1979. This we will work to reduce step by step and eventually to wipe out altogether 78 in the course of further economic adjustments and expansion of production and construction. Meanwhile, our economy is developing in a sound man- ner. Agriculture, light industry and heavy industry are regaining a better balance through structural adjustments. The output of consumer goods has grown visibly; the market is plentiful and flourishing. There has been a noticeable increase in personal savings both in town and country due to higher incomes, and faith in the renminbi is strong. Facts show that the important measures we have been following for the last year or so have imparted new dynamism to our national economy. However, there are still a host of problems to be ironed out gradually in the course of our economic development. China is not well-off. Its per capita GNP is quite low. Subsistence agriculture is still more or less the case. The country's infrastructure is inadequate. In industry, production technology and management techniques are still rather backward. We lack trained scientists and managers, and our educational system is still relatively backward. In order to step up economic development, we are undertaking reforms in economic management concurrently with the structural adjust- ments that are being made. We are going to give the enterprises a greater say in running their own affairs, and we will apply the economic leverage exercised through fixing prices, setting taxes and interest rates and having recourse to bank credits under the overall guidance of state planning, thereby giving full play to the positive aspects of a market economy. Through these measures of economic reform, we will try to promote the comparative advantage of different localities and departments, protect com- petition between different regions and enterprises, and encourage all forms of mergers and joint ventures that are in the mutual interest of the partici- pants, and in this way stimulate the enthusiasm, initiative and creativity of the localities, departments, enterprises, and working individuals. We have carried out experiments along these lines in the last two years in a number of enterprises. They have in all cases boosted output and improved eco- nomic efficiency. The Fifth National People's Congress at its recent third session has endorsed this approach of reforming economic management, and we will be systematically pushing these measures in every sector. In order to hasten China's modernization program, we will keep to the premise of relying mainly on our own efforts, but at the same time endeavor to develop our foreign trade, import advanced technologies, make use of foreign capital, expand economic cooperation and technical exchanges with other countries, and learn from their advanced expertise in science, tech- nology and management techniques. This is not a makeshift measure, but a long-term policy that we will be following. The total volume of China's import-export trade has grown rapidly in recent years, and our economic cooperation with other countries has expanded both in scope and form. Considerable headway has been made in such areas as the import of ad- vanced processes and complete sets of equipment, compensatory trade, joint exploitation of resources and manufacturing of goods, joint ventures, bid- ding for construction projects, technical consultation and the training of skilled personnel. The Bank of China has established correspondent rela- tionships with 975 banks in 144 countries and regions, and signed loan 79 agreements with some foreign banks. Recently, the Chinese Government started to accept long-term, low-interest official loans, signing agreements of this sort with some countnes. Before accepting foreign credits, we in China of course take into full account our ability to repay. With a view to developing our foreign trade and economic technical cooperation with other countries, we have already adopted and are continuing to draft relevant economic legislation to guarantee the legitimate rights and interests of foreign investors and collaborators. There is wide scope for the expansion of trade and economic and technical cooperation between China and other countries. The economic picture of the world is very grim indeed. Inflation, a slow- down in economic growth, and international payments difficulties are problems of a widespread nature. The developed countries are facing stag- flation and a new recession. Numerous developing countries are painfully aware of a shortage of international liquidity and a lack of credits with long maturities for development purposes. The energy problem is a matter of growing concern to everybody. Hegemonist aggression and expansion pose a further grave threat to world peace and security, and are factors contribut- ing to greater instability of the world economy. Unless hegemon ism is checked, world peace cannot be secure, and the economic development of the world will be seriously impaired. Great changes have taken place in the world, politically and economically, since the establishment of the IMF and the World Bank. Many countries have gained independence, and they are seeking to accelerate their economic development. ... The North-South relationship is a crucial element in the endeavor to build the New International Economic Order. Economically, there are conflicting interests as well as interdependence between the North and the South, which should seek reasonable solutions to their differences through dialogue and negotiations on an equal footing. We hold that it is necessary to set up at an early date a rational and stable international monetary sys- tem, so as to facilitate the expansion of international trade and the world economy. We hold that the developed countries should abolish restrictive trade barriers against the developing countries, so as to improve the latter's terms of trade. The industrially advanced countries should be more forth- right in undertaking the commitment to increase concessionary economic and technical assistance to developing countries. All these measures are, of course, in the interests of the developing countries, but in the final analysis they will also help to promote the stability and growth of the developed countries themselves. China shared, in many respects, the plight of other developing countries in the past and confronts today the same task of trying to accelerate eco- nomic development. As a developing socialist country, we in China will work in friendly collaboration with and seek to learn from the good experi- ence of other member countries of the IMF and the World Bank, especially the developing countries. Weare prepared to join with all of you in a common effort to enable the IMF and the World Bank to playa greater role in providing development assistance. 80 COLOMBIA: JAIME GARCIA PARRA Governor of the Bank I have the honor of addressing the Annual Meeting of Governors of the International Bank for Reconstruction and Development and its affiliates, the International Development Association and the International Finance Corporation, as spokesman for 25 countries: Argentina, Bolivia, Brazil, Chile, Costa Rica, Dominican Republic, Ecuador, EI Salvador, Guatemala, Guyana, Haiti, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, the Philippines, Spain, Suriname, Trinidad and Tobago, Uruguay, Venezuela, and my own country of Colombia. On behalf of the Governors of these countries I wish to convey cordial greetings to the Chairman of the Meetings, ·Mr. Amir H. Jamal, to Mr. Robert McNamara, President of the World Bank, to Mr. Jacques de Larosiere, Managing Director of the International Monetary Fund, and to all the delegations participating in this meeting. I also wish to thank the Government of the United States of America, our hosts on this occasion, and in particular the Secretary of the Treasury, Mr. G. William Miller, for the cordial reception extended to us. We have been particularly honored by the visit paid to this meeting by the President of the United States, whose words will certainly contribute to better under- standing of the matters before us. We extend a cordial welcome to the countries that have joined the institution recently: Dominica, Seychelles, St. Lucia, and Zimbabwe. We also received with pleasure the good news of the presence of the People's Republic of China in the Bank. The circumstances in which we meet this year continue to be highly complex. No one can be unaware that the situation of the world economy is difficult, and that it has deteriorated since we last met in Belgrade. The economies of the industrial countries are recording low growth rates accom- panied by rising unemployment in many areas. Inflation remains very high. The lack of dynamism in demand and protective restrictions in the markets of the industrial countries are reflected in turn in a slackening in the rate of growth of world trade. Given current conditions of international economic interdependence, fluctuations in the industrial economies affect the devel- oping countries with particular intensity. The Brandt Commission laid great emphasis on this point. Inflationary trends in Latin America, Spain and the Philippines intensified in 1979. However, in the months that have so far elapsed in 1980 we note a slowdown in the rate of price increases, due in most cases to the efforts being undertaken in this area. With regard to the economies of the countries which I represent, in 1979 the gross domestic product of Latin America rose by 6.2 per cent and that of the Philippines by 5.7 per cent, both rates being significantly higher than the 3.2 per cent recorded for the economies of the industrial nations as a whole. 81 The higher growth rate in Latin America and the Philippines compared with the industrial nations was not reflected in a larger percentage share in world trade; this share fell markedly from 7.2 per cent in 1960-62 to 5 per cent in 1977-79, due in part to the protectionism still being prac- ticed by certain industrial countries. For this reason I wish to state that a lower percentage share for the countries I represent in total Bank lending commitments and disbursements would have an unfavorable impact on their growth rates, and by extension on their social and economic progress. Conversely, the transfer of resources at an appropriate level to the region will contribute to strengthening the process of recycling of resources worldwide. Growth rates in most of the countries of Latin America, and in Spain and the Philippines, reflect a notable dynamism in capital formation high- lighting their capacity to absorb resources for productive purposes. In fiscal year 1980 the Bank effected a net transfer of $566 million to the countries of Latin America and the Philippines, more than double the net resourc"es received from the institution in 1979. In the past year dis- bursements amounted to $1,611 million, compared with $1,141 million in 1979, both figures being considerably above those of previous years. These figures indicate the growing absorption capacity to which I alluded earlier, together with the flexibility of the Bank in the various project and program phases. The International Finance Corporation, for its part, invested $392 million in Latin America and the Philippines, up considerably compared with 1979. We are pleased to note that a further increase in investments is planned for the coming five-year period. The Bank has shown its ability to adapt to changing conditions in the present-day world. On the suggestion of its President, the Brandt Com- mission was set up to study problems of international cooperation particu- larly the transfer of resources to underdeveloped countries and the adjust- ment of their economies to new realities. Some of the recommendations made by the Brandt Commission, and other recommendations of a similar nature put forward by the Group of Twenty-Four, are currently being studied by the Executive Directors of the World Bank and the International Monetary Fund. Among those directly related to Bank activities, special mention should be made of the start of lending for what are known as "structural adjustment" programs, made necessary by the new facts of present-day life. No less important is the growing role of co-financing with other sources of funds for projects and programs supported by World Bank resources, and the projected increase in the lending program for the energy sector, together with the possible creation of a specialized institution to finance this vital sector of the economy. The proposals offer a vast field of action for the World Bank, and the efforts that are being made to implement them will receive our full and total support. Even so, the countries in whose behalf I am addressing these Meetings consider it necessary to offer a few comments on matters affecting them. 82 We feel that financing for structural adjustment should not disturb the normal flow of the Bank's traditional lending, nor become confused with the operations of the International Monetary Fund. At the same time, the bases of this financing should rest on programs formulated by the requesting countries. It is necessary to repeat that the criteria applied must take account of the economic, social and political characteristics of the bor- rowers, to avoid greater and at times impossible conditionality for access to the resources available. For some, adjustment programs have in the past placed excessive weight on measures to control demand, especially through reductions in growth of credit and public expenditure, accompanied by drastic devaluations. It is now thought that very strict programs emphasizing this approach can severely damage employment, investment and, as a result, economic and social development. The conclusion is, therefore, that Bank and Fund programs designed to correct economic imbalances should at the same time encourage growth on the supply side. In the programs financed by the Bank, borrowers sometimes face diffi- culties and costly delays due to the lack of local counterpart funds. Many of our countries think that the Bank policy is still too rigid and that it would therefore be highly advisable to study and approve alternatives which alter the practices governing the financing of local costs and expenditures in freely convertible currencies. Another matter deserving of attention is the importance of providing long-term funding through the World Bank. However, it would never be able to meet all the financial needs of our development, as is demon- strated by the large proportion of resources raised in international markets and the efficiency with which it has been possible to recycle the funds of surplus countries. Therefore, cooperation between the World Bank and institutions active in the financial markets must also be free from unneces- sary interference. Any limitations imposed on the free movement of such funds could cancel out the efforts of the World Bank and make even more difficult the circumstances to which Mr. McNamara referred so realistically in his address yesterday. In line with these concerns, the Development Committee, through the Task Force on Non-Concessional Flows, has made important suggestions to facilitate the recycling of funds. They require. of course, the cooperation of the World Bank and the political will of the industrial countries. I should also like to report on the agreement reached by the Nicaraguan authorities with the international commercial banking community on the renegotiation of its external public debt. Due consideration was given in this agreement, both to the economic situation prevailing in the country and to internationally accepted banking practices. In another area of international cooperation closely related to structural adjustment, mention should be made of the support being given to Central America and some Caribbean countries by two of our countries, Mexico and Venezuela, in the form of financing of oil supplies on concessional terms. 83 In this sphere, namely that of the energy problem, the countries of Latin America, Spain and the Philippines, on whose behalf it is my honor to address these Meetings, support a greater mobilization of resources through the World Bank for contributing to the development and conservation of energy sources. In this connection we also fully share the view inspired by the President of the Bank according to which the resources used to meet this objective should not interfere with ordinary allocations for other pro- grams. In other words, additional resources are required. It is to be hoped that a proposal will soon be available on which all countries can reach a decision, this without overlooking initiatives being promoted in other forums. As regards the ordinary resources of the Bank, I am pleased to report that all the countries I represent have approved the doubling of the Bank's capital and are confident of timely approval on the part of the remaining member countries. In addition, other resources will be needed to enable the institution to finance its ordinary programs and meet other needs as well. Accordingly, we would like to stress the importance of the proposal to change the gearing ratio. These are appropriate solutions to the problem of coping with the challenges posed by development of the world economy. There are really no words to express adequately the urgency we associate with the provision of additional resources for the Bank and its affiliates. I am also pleased on this occasion to inform you that the countries of Latin America, Spain and the Philippines support the introduction of the system of currency pooling. We consider this new arrangement for dis- tributing exchange risks to be the first of several measures the Bank might explore for the purpose of reducing the costs to final borrowers of its resources, including those resources channeled through the development finance intermediaries. We are also pleased that the Sixth Replenishment of resources of the International Development Association has proceeded satisfactorily; we trust that the conditions enabling it to take effect will be met without delay. I would like to stress that among the contributing countries are five from Latin America, which are contributing for the first time: Argentina, Brazil, Mexico, Venezuela and Colombia. It is noteworthy that the region receives practically no IDA funds. The significance of these contributions is apparent in light of the remarks made by Mr. McNamara in his address. The transfer of resources to relatively less developed countries is an urgent necessity. On behalf of the countries I represent, I should now like to express to you, Mr. McNamara, our most profound gratitude for your outstanding service and imaginative leadership, which have enabled the Bank to play an ever more important role in international relations. Your ability to concentrate the wills of countries with such disparate interests on improv- ing the conditions of life for all justify your very high standing among the most outstanding individuals of our times. Your superior human and intellectual qualities, combined with an extraordinary devotion to the task before you, have been decisive factors in improving the prestige and opera- tional capacity of the World Bank. Furthermore, your vision in defining the fundamental factors in development has enriched the meaning of the human factor in the advancement of mankind. You have shown that 84 efficiency and discipline need not be divorced from concern for the fate of the least advantaged. We very much regret your decision to retire from the Presidency of the Bank. The international community, and we in particular. will feel your absence. Mr. McNamara, on behalf of the Governors who have honored me by selecting me to speak today, and on my own behalf as well, I wish you and your family fair winds and smooth sailing in the future. DOMINICA: MARY EUGENIA CHARLES Governor of the Fund Dominica has now been a member of the Fund for more than a year and of the Bank for almost as long. Thus, this is the second opportunity which we have had to address this distinguished assembly. Nevertheless, it is the first on which I, as Prime Minister, have had this privilege. Permit me. therefore, to express my great pleasure in joining you and the other Gov- ernors here this week. At the same time. it is with regret that I associate myself with the sentiments expressed on the intended departure in the coming year of Mr. Robert McNamara, a person who has so ably served the World Bank Group over the last 12 years. Perhaps the sincerest compliment I may pay him is to note how difficult it surely will be for his successor to equal his dedication in addressing the problems of developing countries in the increasingly difficult days and years ahead. I wish, also, to join with the other Governors who have spoken before me to welcome the new Governors for St. Lucia and St. Vincent and the Grenadines-our close neighbors-and also the new Governors for Zim- babwe and the People's Republic of China. The development problems facing a small country like ours may be different in magnitude but, I can assure you, are no less real than those facing other developing countries represented here today. It is to the great credit of the Bank and Fund that Dominica has been able to be accommo- dated in their work programs. We look forward to increasingly active cooperation with both institutions and would welcome the greater flexibility that their increased assistance will give us in implementing our development program. In this regard, I was greatly impressed by the humane concern expressed in Mr. McNamara's address, especially as regards those countries whose condition he so aptly described as absolute poverty. We ourselves are among the poorest nations of the world and such genuine concern as expressed by the President of the Bank means much to our outlook on the future. Within the past two years we have experienced a negative growth as a result of natural disasters and political unrest. Per capita income, already extremely low, fell by 12 per cent last year, and is expected to reduce further as a result of further destruction in agriculture. In these circumstances, the decline in external aid flows, the increasing and insupportable debt burden, the inexorable rise in inflation and oil price increases make economic recovery extremely difficult. Without an increase 85 in official aid flows for countries like Dominica, the prospect of recovery in the short term is extremely dim. We welcome the new initiative on the part of the World Bank to provide finance for structural adjustment. However, in terms of countries already experiencing absolute poverty, structural adjustment must have a different connotation to the concept applicable to middle-income countries. At the lowest level, the adjustment process must surely be limited in extent and effectiveness, unless it is accompanied by substantial inflows of concessional aid. What Dominica, and countries like Dominica, need is a great deal of concessional finance to flow directly into their economies. Small island economies are often regarded as cost-inefficient in themselves for World Bank financing, and more and more use is being made of regional financial intermediaries for channeling funds into their economies. While we appreci- ate the need for the financing and development of financial intermediaries, this must be considered as augmenting regional aid flows, not as an exclusive means of channeling aid to small island states. We regard the Sixth Replenishment of IDA as a matter of the greatest urgency and join in urging member countries who have not already done so to complete the legislative process for such replenishment. As a country richly endowed with water resources, the Bank's initiative in developing a special energy program is of special interest to us. We also have been badly hit by increases in oil prices, and our ability to survive the critical need for cheaper energy will depend on the early development of alternative energy resources-such as mini- and micro-hydro units. We look forward with interest to the establishment of the new energy facility in the Bank. Both the Fund and Bank have crucial roles to play in the growing struggle to alleviate poverty in developing countries. The new initiative of both institutions must, therefore, be translated into action as a matter of urgency if growing poverty is to be stemmed and human dignity restored among the poorest nations of the world. As you know, before last year's Annual Meeting in Belgrade, Dominica was devastated by hurricane David. This year, before we could even pro- nounce ourselves well on the way to recovery from that disaster, Dominica was hit by another hurricane in July last. Our needs this year, therefore, have been doubly compounded by the third catastrophe to befall our island within 12 months. While we are entirely sincere in expressing our gratitude for the assistance already received, we must repeat our appeal for further efforts by those countries able to come to our aid. It is only by combining our resources with those from bilateral as well as multilateral sources that we shall be able to meet the difficult task of reconstruction and development which Dominica faces. 86 ECUADOR: LEON ROLDOS AGUILERA Governor of the Bank We have requested the floor because, as a developing people and nation, we believe this is an appropriate occasion on which to express the solidarity that is essential to the success of the development efforts of all the peoples of the world, efforts that must be shared by the development finance insti- tutions, the international commercial banking system and those governments that are aware that today, economic or social disorder within anyone country has serious repercussions throughout the world. Barriers between continents no longer exist-there is but a single world, and a problem of any one country is a problem of the world at large. How should we demonstrate this solidarity? Basically, in three ways: by acting at the right moment, by providing sufficient resources, and by properly understanding the individual circumstances of each people or state. I stress these 3 points because I believe that if even one of them is ignored there can be no solidarity. The first point is the necessity of timely action. In my country I have criticized the fact that projects have failed because of inadequate planning- an idea was born and steps were taken toward implementing it, but the actual "planning" failed to take proper account of, say, soil conditions in the case of a highway project, or local social and economic conditions in the case of a social program. Thus, resources have been wasted and are still being wasted for lack of proper planning. But sometimes we have unfortunately gone to the opposite extreme, in- undating ourselves with paper, calculations, prefeasibility and feasibility studies, preliminary projects, projects, appraisals, re-appraisals-the years go by, we continue to busy ourselves under documents, yet take no practical steps toward fulfilling what is most often a necessity. What does this mean? Well, often when we have talked of our true priorities we have had to abandon the idea of approaching the development banks or other sources of concessionary financing. Why? Because the problems require almost immediate attention, and if we wait to get credit on concessional terms even more years will go by, and what is today a necessity will have become desperately urgent by tomorrow. To my mind, it is essential to devise a system for attending rapidly to priority needs. It is a real setback for a country when its top-priority projects have to be financed through the commercial banks on market terms and conditions. Something has to be done about this. This is not only a problem of financing, it is also one of technical assistance, because if there is inadequate planning, it can happen that the projects that are undertaken are not the ones that are really needed. If we can manage to shorten processing times, injecting greater dynamism into the financial contribution made by the credit institutions through concessional or semi-concessional lending, the whole process will be made much more efficient and effective. Provision has in fact now been made for this, and we are very grateful for the new credit policy. But individuals as well as institutions must con- 87 stantly endeavor to give of their best. That is why I stress the need to find new answers through timely attention to credit needs. My second point relates to sufficient volumes of financing. In a world economy of galloping inflation, with currencies already plunging as the result of successive devaluations, reality is hard. I wish to put on record, however, that this is not the case with Ecuador, where inflation has remained below 15 % and the last devaluation was in 1970. Nevertheless, Ecuador is also affected by the inflation in the rest of the world, because the cost of a project estimated today will bear no relation to reality in 6 months time, or after one, two or three years. In these circumstances, to hope to be able to finance a project from a country's own resources or from domestic savings is sometimes an illusion, a dream. With our system of free enterprise, we cannot have recourse to domestic savings without jeopardizing the use of those savings by the private sectors that represent the bulk of our economy and serve as our country's importers and therefore need those resources. And the idea of taxation brings up the very difficult question of the true payment capacity of the taxpayers and of the beneficiaries of a project. The financial institutions have furnished supplementary loans but these have involved practically the same processing as new loans. Another much needed mechanism is a flexible credit amplification system to handle increases in the costs of a project or service, taking account of the respective proportions of external and counterpart funds. To compel a country that has already embarked on a project to turn to external financ- ing or to obtain domestic resources can have the immediate consequence either of bringing the project to a halt or raising its cost. It would be most helpful for our economies if the pace of execution of a given project could be maintained by means of an effective system of updating or continuously amplifying a loan. My third point relates to the importance of understanding a country's need in the light of its particular conditions. We know that we suffer from serious structural disorders, and that a number of orthodox remedies need to be applied before this or that result can be brought about. However, we must not forget that an overdose of even the best medicine can kill rather than cure. In countries such as ours, with long-standing traditions of politi- cal demagoguery and lack of social awareness, and with several decades of subsidization behind us, there is no overnight remedy; we have to change things gradually. Project analysis and project appraisal must take account of the individual conditions of each country. There is nothing human about science or laboratory procedures; what is human is reality. I fully agree that the economies of the developing countries have to put an end to subsidies, to remedy their structural disorders, but it must be remembered that we can only go forward one step at a time. We are sur- rounded by social and economic realities which we cannot change without running the risk of destabilizing governments, undermining democracy and creating conflicts that would be far more serious than the situation we are trying to rectify. It has been said that what constitutes the true wealth of a people and a state is peace, the absence of serious social or economic 88 conflicts. And while there are indeed problems, serious conflicts have not yet erupted. But we must take care that we do not forget my three points- timeliness in lending, financing in sufficient volume, and understanding of individual circumstances-and thereby generate conflicts and aggravate situations that could be remedied. All these are general ideas, and do not imply criticism. On behalf of the people and Government of Ecuador I wish to thank the World Bank for its valuable contribution to my country's development during this, my last year as Governor of the Bank. The staff of the Bank truly seem to be imbued with a spirit of universal cooperation. We see this not only in its leaders, but also in all its officers who contribute their skills to promoting my country's development. I should like also to refer to the Bank's new policy for financing exploration and production in the energy sector, a policy that we greatly appreciate and from which our country hopes to benefit, since we are convinced that natural conditions in Ecuador are such that our energy sources can be made much more productive. We produce oil to supply our own needs, but we also have a certain surplus for export. We therefore believe that Ecuador has the potential to increase the productivity of its hydrocarbons and other energy sources. We therefore look forward to the financial assistance of the World Bank, for the benefit not only of the people of Ecuador but also of the rest of the world. In conclusion, I should like, on my own behalf and that of the people and Government of Ecuador, to add my voice to the tributes paid to Mr. Robert McNamara by all the countries represented here, recalling that the people of Ecuador expressed their gratitude to him in November 1979. I know that he is a deeply religious man, and those of us who share this faith are always conscious that God must be honored on earth, and that the best way to honor God is to honor one's fellow human beings. In his fight against underdevelopment, in his struggle to eradicate poverty, Mr. McNa- mara has honored his fellow human beings in a manner that shows that he truly loves God as all people should love Him. Thank you, Mr. McNamara, for showing us the true universal man. EGYPT: MOHAMED IBRAHIM DAKROURI Governor of the Bank This is indeed a momentous and memorable occasion, and it is my pleasure, to take part in these Annual Meetings of the World Bank and the International Monetary Fund. No doubt, such Meetings should pool our thoughts and ideas, thus leading to the interaction of problems and solutions to the world economy. We also convey our compliments to the Executive Directors for the comprehensive and thorough Annual Reports of the Bank and the Fund. The reports reflect clearly the state of the world economy. We also appre- ciate the efforts exerted in the preparation of the valuable third World De- velopment Report, which contains an excellent analysis of major develop- ment issues. 89 I would like to Jom previous fellow Governors in extending a special welcome to the Governors of the Fund and Bank for the People's Republic of China. I would like also to welcome the distinguished representatives of St. Vincent and the Grenadines who have joined the Fund and of St. Lucia and Zimbabwe, who have joined the Fund and the Bank during the course of the year. At the same time the Egyptian Delegation urges the admittance of the Palestine Liberation Organization as an observer to the Fund and World Bank Meetings. Various honorable Governors have just elaborated on topics of utmost importance for the developed and the developing world. Yet I feel, to solve our economic problems, greater understanding and effective, concerted action are seriously needed. The year 1979 was marked by three salient features that have directly disturbed lhe functioning of our global economy, i.e., accelerated and persistent high inflation; slackening of growth in indus- trialized countries, which, if not eliminated, would turn into an international recession that would affect world trade expansion; and the larp,e surpluses and deficits of the external balances on current accounts of most countries, which threaten their possibilities specially non-oil developing countries, to sustain the financing of these deficits according to the projected plan. Truly, inflation was the prime cause of economic disturbances, for its widespread acceleration in industrial countries last year was more evident in terms of final product prices, which are part of domestic expenditures, than in terms of overall GNP prices, which do not have a direct effect on price increases of imported commodities. Other factors are inclusive of inflation such as expansionary fiscal policies, compounded by structural rigidities and periodic external shocks. However, there is a stress on demand management policies to contain inflation, which reveals the fact that depressing the current high inflation is a condition for renewing domestic growth and achieving international equilibrium. Nevertheless, the average rate of expansion of economic activity in the industrial countries did not exceed 4 per cent, but dropped below that figure in 1979, reflecting the cyclical downturn of economic activity in the United States and most western countries. Yet their expected average out- put increase in 1980 may be 1 per cent, and for 1981, a similar rate is expected. However, there is no way to gauge the balance of expansionary and contractionary forces in the period ahead, and the prospects of recession cannot be ruled out. Events have followed as a repercussion of the escalation of oil prices during 1979 and the first half of 1980. On one side, the unbalanced pattern of external balances on current account has emerged among major countries, resulting from the rise in the current account surplus of oil exporting countries, whose surplus has again been building up rapidly from $68 billion in 1979 to an expected high of $115 billion in 1980. On the other side the combined current account balance of industrial countries shifted from a surplus of $33 million in 1978 to a deficit of 90 $10 billion in 1979, and still continues into deep deficit. For the non-oil developing countries with a capital-importing economic structure, they incurred a $53 billion deficit in 1979, which will approach $70 billion in 1980. Yet their ability to finance such deficits is questioned, and this major issue has yet to be solved. Reconciliation of the above deficits may be brought about through recycling of surplus funds of oil exporting countries. Another difficulty faced by the developing countries-an everlasting prob- lem-is the debt service obligations, which are already large; and the capacity and willingness of some countries to withstand the costs of larger debts are questioned. The expansion of lending to developing countries by private financial institutions may not continue for the simple fact that lending is tending to be selective in character. Unless satisfactory move- ments of loanable funds to developing countries take place, curtailment of import growth by such countries is likely to appear, with its depressive influence on international trade, in addition to hindering domestic invest- ment and growth .... Needless to say, longer concessional assistance is fundamental as well, especially that provided by international institutions and national govern- ments. So a close cooperation of these institutions is imperative at this juncture, to secure adequate coordination between the specialized assistance of development lending institutions and aid granting agencies, and the over- all approach of the Fund. Industrial countries have to resolve issues of trade, energy and capital flows, which are the links that bind the world together, for inflation in those countries, due to upward movements of prices, exerted an unsettling influ- ence on economic activity and policy formulation the world over. The generally high and uneven rates of inflation among major industrial coun- tries have been a source of difficulty in the conduct of policies relating to external payment positions and to the maintenance of instability in exchange markets. The rapid growth of developing countries depends on the efforts exerted to increase exports, boost investments, and improve efficiency in using new and existing investments, as well as the ability to service their debts which requires buoyant export markets and increasing capital inflows. The ability of developing countries to afford the imports they need for growth depends crucially on their exports to the industrialized coun- tries, which currently constitute two thirds of their market. On the other hand, industrialized countries determined to combat inflation by restraining growth, must minimize the effects their deceleration will have on the developing world. Liberalization of trade will payoff in faster productivity growth and lower inflation. In this regard, exporting nations can also help by rapidly expanding their imports from developing countries. As regards energy, I would say that the oil importing developing coun- tries have been hard hit by the price increases of the previous year, and their energy costs would be expected to rise further in real terms. At the same time, modernization of their economies will spur demand for energy, so they will be faced with a continuing need to adapt to the rising costs of 91 imported oil. It is sincerely hoped that a quick and just settlement of the Iraqi-Iranian dispute, could be reached for the welfare of the Iranian and Iraqi peoples and in order to avoid any possible energy problems. With respect to current account imbalances, it is observed that they will be large in the next few years, again requiring efforts to recycle finance to developing oil importing countries. Reluctance or inability to finance large external deficits will lead to lower levels of trade, investment and economic efficiency, and hence, to lower growth rates. Even in the later years of the t 980s, when the severity of payment imbalances is expected to diminish, the growth of developing countries will continue to depend on inflows of foreign capital. Under such circumstances donor countries, in their own long-term interests as well as those of develop- ing countries, should do their utmost to expand their aid in relation to GNP, and should concentrate their aid even more on low-income countries. There is no doubt that commercial capital, mainly from banks, private direct investment and official sources, will be available to help middle- income countries. However, there is not enough long-term programs financ- ing to support the structural changes required in many countries. Some will undoubtedly benefit from the structural adjustment lending of the World Bank and IMF assistance; enlarged official flows of this sort, particularly from multilateral agencies, should play an ever-increasing role. We have also to keep in mind that economic growth comes about in two ways, which can be powerfully influenced by government policy; first, building up an ever-increasing stock of productive assets and human skills; and second, increasing the productivity of these assets, skills and the coun- try's natural resources, which involves capital and labor mobility among sectors, developing new institutions, new techniques of production, making decisions, etc. Growth thus involves continuous change. It is a process of perpetual disequilibrium. We cannot envisage any substantial improvement of the world economy so long as the industrial countries do not put into practice the necessary measures to stimulate a vigorous and noninflationary recovery of their economies. Needless' to mention, the protectionist measures adopted by industrial countries are of a major concern and a deterrent to the policy of export diversification of developing countries. No doubt, such a policy will have an adverse impact on our earnings, growth, and development prospects. On behalf of my country, I feel we are burdened by the increasing cost of imports, restrictive and protectionist measures which hamper our export potential, and by the instability of the international monetary system. May I reiterate that diversification of the export base of developing countries will give them the opportunity to compete effectively in an ever- increasing wide range of manufactured goods. Attention should be drawn to the fact that growth in our economies and strengthening our export capacity mean a growth to our import capacity from the industrial countries. However, the agreement of the Group of Twenty-Four, adopted by the Group of 77 to reform the world monetary system, is certainly a boon, added to the targets of the Tokyo Round on Multilateral Trade Negoti- 92 ations for the diversification of the range of developing countries' export products. Egypt has made great strides and relentless efforts to build a sound economy. Our five-year economic plan (1980/81-1984/85) indicates the Government's target to achieve an annual average growth rate of 10 per cent. Toward that objective, investments of the order of LE 20 billion have been allocated to the public sector. It gives me pleasure to announce that for the first time, the current budget in the State budget has produced a surplus of LE 218 million, while the overall deficit has decreased by 17.5 per cent. The increase in proceeds of oil exports and Suez Canal revenues, in addition to savings of Egyptian workers abroad, has contributed to the improvement of the balance of current transactions. The increase in for- eign currency resources with the Central Bank and the commercial banks amounted to 79 per cent and 38 per cent, respectively. Accordingly, the balance in current transactions and current transfers revealed a slight deficit during the first half of 1980. This situation reflects the expansion of available resources, which would bring about prosperity and set Egypt on its path toward achieving the wel- fare and better standard of living for its people. Hence, an average annual growth of 10 per cent would bring about increased productivity which is an indigenous factor to our economic growth. Moreover, our economic plan envisages less dependence on the outside world to finance its investments, i.e., from around LE 437 million or 10.7 per cent of total financing during the year 1980/81 to about LE 360 million or 5.8 per cent at the end of the plan period. The foregoing is a glimpse on the enormous achievements of my country in a short period. An important feature of our times is the economic interdependence among nations, hence universal cooperation is an imperative must, under conditions commensurate with development requirements .... Looking at the activity of the World Bank Group, we express our appreci- ation for the excellent development work carried out by the Bank and its agencies, IDA and IFe. We do indeed give our support to their policies aiming to raise productivity of the poorer and disadvantaged segments of the world population, and improving distribution of the fruits of economic development. We welcome as well a substantial expansion in program and sector lending. IDA plays a crucial role since its credits are directed solely to low-income and poor countries, which are a majority. However, the criteria of per capita income and population size for resource allocation has shortfalls, and consequently it needs modification to secure equitable distribution of IDA resources. Gentlemen, what should be done to improve the economic conditions of the world, especially the developing poor countries? It may be suggested that coordination of the economies of industrial countries is the first remedy, so that they would bear a larger part of the deficit in their balance of payments. 93 Secondly, the expansion of international trade is basic and fundamental, because it is the prime effective factor to enhance and push forward growth ratios and economic efficiency in developing countries, which would gen- erate more imports to industrial countries from developing countries. This would dislOdge and remove the protective policies lately adopted by the latter. The last but not least remedy is the guarantee of the continuity of capital flows to developing countries, in addition to the expansion of ODA and private assistance on a concessionary basis. It is unlikely that developing countries will import from technologically-advanced industrial countries, unless the latter extend their aid to them. In this connection, we would like to support the Bank's efforts to estab- lish an energy affiliate which we believe will allow more funds to be invested in energy by developing countries. Finally, let me mention that Egypt has chosen the road to peace, and peace it will be. Its target is the economic prosperity of its people, and that is exactly what it is performing already. I would like, at the end of my speech, to express my Delegation'S senti- ments in wishing Mr. McNamara, to whom we owe gratitude, many healthy, creative years to come. EL SALVADOR: GUILLERMO DIAZ S. Governor of the Bank On behalf of the Republic of EI Salvador, I would like to congratulate the countries which have become new members. I would also like to con- gratulate the new Executive Directors now joining those who have so skill- fully directed the course of these two institutions which play such an important role in the present-day world. We are confident that their talents, knowledge and abilities will be of value in dealing with the present critical period in international economic cooperation. As clearly delineated in the 1980 World Development Report, the funda- mental challenge for the countries of the Third World consists in surmount- ing and overcoming both external and domestic factors which stand in the way of economic and social progress. My country, El Salvador, has already begun a process of structural change with the firm intention of creating the objective and subjective conditions which will enable it successfully to combat those domestic fac- tors which have prevented it from achieving the sustained economic growth required to ensure levels of employment and income commensurate with the needs of its people. This process has started with the implementation of three major structural reforms which together make up an ambitious plan for modernization and democratization: the Agrarian Reform, the Reform of the Financal Sector, and the Foreign Trade Reform. The implementation of a far-reaching Agrarian Reform, which will directly benefit more than a quarter of a million farmers in its initial phase, is intended to guarantee, in the medium term, increases in productivity per 94 worker which should bring about substantial improvements both in total volumes and in the composition of agricultural production, while ensuring a redistribution of income which will improve the outlook for industriali- zation. The Agrarian Reform also has clear-cut advantages on the social level: it reduces the tremendous inequalities which have prevailed and makes it easier for those actually working the land to purchase it. The Reform of the Financial System is designed to ensure social effective- ness and efficiency in the allocation of financial resources. At the same time, the measure democratizes the ownership of banks without in any way threatening the flexibility and operational capacity of our banking system. The objective of the Foreign Trade Reform, on the other hand, is to ensure that revenues stemming from exports of the primary products most important to the Salvadoran economy are promptly channeled back into the economic system, imparting to it the dynamism required for its expansion. In this way, Mr. Chairman, El Salvador has initiated a serious and vigorous effort to make far-reaching corrections of the domestic structural maladjustments which have held it back for so long, and to promote effective action to achieve democratically the economic and social development desired. To guarantee the success of this monumental undertaking in El Salvador, the cooperation of the international community and of the development finance institutions is absolutely necessary; for this reason, the people and Government of El Salvador, through me, wish to invite you to take part in giving your backing and support to a nation which, with great dedication and sacrifice, is endeavoring to break away from anachronistic socioeconomic structures which have prevented it from integrating itself dynamically into the world economy within a framework entailing genuine reciprocal benefits. If the developing countries wish to obtain positive results in their efforts to modernize their economies, government action must not be confined to short-term economic measures aimed simply at reducing current account deficits and adjusting to ever more expensive energy imports; instead, government action must simultaneously be oriented toward the foundations of the system, readapting them to the urgent need to increase and diversify production and expand the domestic market. We share the view expressed in the World Development Report that the adjustment of the international economic system to the difficult realities of the early 1980s will not only determine the system's growth during th'e period, but will also increase the chances of accelerating growth during the second part of the decade. In this line of thought, it is evident that every country's efforts to effect structural changes in order to overcome the domestic factors blocking the path to development must be encouraged and supported by those institu- tions which, like the International Bank for Reconstruction and Develop- ment and the International Monetary Fund, seek to promote the develop- ment of all nations of the globe. For those institutions, supporting the processes of change undertaken by countries like El Salvador becomes a historic duty. 95 As regards the external problems, such as international trade, energy, and capital flows, my country supports the just demands of the Third World countries for the establishment of a New International Economic Order through joint negotiations between the North and South carried out in a spirit of solidarity. It is extremely important to note that the need to intro- duce fundamental changes in the relationships between the countries in the international economic system is vital to solving the profound crisis through which the system is now passing. The steps taken by nations in order to solve domestic problems must be complemented by unified international action answering the call for the establishment of new and improved objective conditions in the framework of international economic relations, conditions which will make it possible to overcome the external problems standing in the way of sustained eco- nomic development. For the system as a whole to overcome the crisis, its individual parts must also overcome the domestic factors which keep them from adapting to the new operational requirements of the system. Consequently, they must be adapted to a new economic reality, the major focus of which is on an even greater interdependence between the developed countries and the developing nations, an interdependence gradually coming to mean mutual advantage and not, as it has to date, advantages for the strongest. In this connection, my country supports the Arusha initiative supporting the far-reaching proposal to restructure the international finan- cial institutions and adapt them to the new demands of economic realities in the 1980s. We all know that economic realities are changing realities, and that unless the framework of an institution is periodically restructured to deal with new and different problems, that institution isolates itself and runs the risk of losing its effectiveness and legitimacy. On these grounds, we think it fair to say that a restructuring of the international monetary system, and of international economic relations in general, is in the mutual interest of all countries in the system. To conclude by recapitulating my short statement, I would like to empha- size the need for supporting innovative processes in the developing coun- tries and accompanying short-term economic measures-against inflation, protectionist tendencies, competitive deflationary policies, the instability of exchange markets, the unpredictable nature of Eurocurrency transactions, the growing and recurrent disequilibrium in the balance of payments, and the remaining problems constituting the symptoms of the international economic crisis-by genuine reforms in the institutional framework of inter- national economic relations and, more specifically, by a restructuring of the international financial institutions and by a revision in the criteria gov- erning credit and financial soundness. Finally, I would like to express to this meeting my country's hopes that my proposals will serve to promote at this Thirty-Fifth Annual Meeting of Governors the major decisions which the nations need in order to begin dealing energetically and seriously with the problems facing them today. If we are truly prepared to cope with the changes and all their conse- quences, this first meeting of the 1980s is destined to be a historic one. 96 EQUATORIAL GUINEA: PATRICIO EKA NGUEMA ORONO Governor of the Fund In the past year the Republic of Equatorial Guinea set a new course in its history, entering a new phase in full awareness of the difficulties facing it. This awareness stems from simple observation of the conditions exist- ing as the new phase began. We are not starting from ground zero, but instead from a still more difficult point, a situation characterized by total economic neglect which inevitably resulted in a profound crisis in our entire productive and administrative apparatus and our society as a whole. Given the lack in recent years of any rational control over economic activity and the resulting absence of statistics of any kind, it is difficult to provide a .quantitative evaluation of the initial indicators; however I can provide some meaningful data in this connection, data which speak with eloquence enough. Our production of cocoa, for example, our principal export product and one of the foundations of our economy, fluctuated over the last two years to give an average annual yield of about 8,000 tons. This figure, when compared with the nearly 30,000 tons of the] 970 crop year, gives us some idea of the neglect into which this important sector had fallen. Similarly, the production of coffee and timber, basic products in our export sector, declined to minimum levels in recent years. There is vir- tually no coffee production, while 6,000 tons were produced a decade ago. Timber yields amounted to about 20,000 cubic meters, compared with the nearly 400,000 cubic meters attained in the early 1960s. While sectors such as fisheries and livestock had nearly disappeared, the trade sector was monopolized by the State, which imported goods in a chaotic manner without adequate domestic distribution. The volume of imports in 1978 and ] 979 was about $20 million, a figure below that of ten years before. The absence of economic control is seen clearly by the observation that no general government budget had been prepared and no central bank balance sheet drawn up for six years. Obviously, this all had profound and serious social repercussions. Sectors such as education and health suffered lamentable setbacks. I think these scant data give an adequate picture of our starting point. While the picture is doubtless a gloomy one, it has not made us give up; to the contrary, the Government and people of Equatorial Guinea have moved into this new stage of economic and social reconstruction with vision and confidence, and today, a year after charting our new course, we can look toward the horizon with high hopes for the exciting challenge of getting our country moving again. After the initial months, during which a few urgent measures were adopted in priority sectors, such as health, education and other urgently needed public services, and following the efficient startup of our adminis- tration and organizations with the help of technical assistance from Spain, other friendly countries and international organizations, the Government 97 drew up an overall Development and Stabilization Plan for the period from April 1980 to June 1981. This program, which includes among its key points the achievement of productive development, especially of the agricultural sector, is in the form of a group of actions and regulations relating to trade policy, such as the liberalization of trade and the preparation of the new customs tariff; to fiscal policy, such as establishing a balanced budget; to employment policy, offering incentives to agricultural workers, and to monetary policy, so as to provide adequate resources to the private sector. The Government also proposes limiting its own activities to public services, and has therefore been liquidating the existing inventories of government-owned commercial enterprises, with the twofold objective of supplying the domestic market and contributing to the financing of the present budget. In recent months, the accounts at the central bank have been subjected to a clearing and settlement procedure. This is intended to make them sufficiently accurate to yield reliable quantitative data for purposes of mone- tary forecasting. A large number of Public Treasury accounts have also been restructured, thereby providing the necessary accounting insights to permit daily moni- toring by the Ministry of Finance, with a view to ensuring proper operation of budgetary control mechanisms. The Studies Department of the Bank of Equatorial Guinea has also initiated efforts, in this take-off phase, aimed at providing the country with precise statistical data with which to prepare the macroeconomic studies and forecasts required for our planning activities. This is indisputably a difficult task in a country where, as I said earlier, economic neglect has been paramount in recent years. Despite this, the first series of data have already been prepared with a view to providing our Government with sufficient information as it works with the Spanish Government to prepare a broad-based and detailed development plan for the future. The banking system has been reorganized and consolidated balance sheets for the banking system are being prepared each month. Currency issue as at July 31, 1980 amounted to 1,792 million ekueles, compared with EK 1,560 million last December. October of this year will see the introduction of a new series of bank notes, which will permit more precise control over currency in circulation. Checking and savings accounts held by the public in banks amounted to EK 1,961 million as at June 30, 1980, representing an increase of 117 per cent over the figure of EK 900 million as at December 31, 1979, six months earlier. Total control has been achieved over our external positions. As you know, on June 21 of this year, the ekuele was devalued by 50 per cent. As at July 31, 1980, our net external assets amounted to $12 million, in- cluding our rights and obligations on account of export and import credits through December 31. Assets held by correspondents, and in the form of gold and foreign portfolio holdings, amounted to $29 million, while our current liabilities stood at $5.6 million. 98 Since August 1979 a number of credit agreements have been signed with Spain to finance imports of capital goods and services for infrastructure works and the fisheries sector, in an aggregate amount of $33 miIIion, of which $11 million remains to be disbursed .... 1979 exports amounted to $31 million, with cocoa accounting for 95 per cent of the total, while imports totaled $24 miIIion. Our payments surplus will disappear in the current year, due mainly to two factors: first, the marked drop in world cocoa prices, and, secondly, the significant but necessary increase in our imports. As a result we antici- pate an overall deficit of some $23 million in 1980 and some $33 million for the period covered by the program, viz. April 1980 through June 1981. ... AlI of these proposed measures are being accompanied by a far-reaching and indispensable process of readjustment and organization of our admin- istrative machinery. While the way in which this machinery is currently functioning cannot by any means be described as sophisticated or perfect, it is now operating in a responsible and reliable manner, appropriate for the proper monitoring of accounts, the basic requirement for proper budget- ary controls. We are, however, aware of the need to increase the level of training of our staff, and this is a source of concern to us; in solving this problem, we hope to rely on the assistance and advice of friendly countries. The foundations have been laid for effective monitoring of customs receipts, particularly following the recent publication of the new Customs Law and the new customs tariffs. Given the current situation and the nature of our economy, customs duties will form the basis of our tax system, and for this reason we have devoted our main efforts to this task. Through July of this year, a total of EK 540 million was collected by way of taxes, duties and sales of inventories of state enterprises. Of this total, taxes on external trade accounted for close to 70 per cent. Import licenses are now approved by the Ministry of Finance and Com- merce under a liberal trade system, and foreign exchange receipts are chan- neled, under total supervision, through the central bank. Import licenses have been authorized against lines of credit in the amount of $22 million. The Government also proposes to devote maximum attention to efforts already under way in such basic sectors as health, education and public services, without disregarding such other sectors as livestock and mining, which can be of great potential benefit for the country. But every measure of this type, reflecting the Government's firm intention to promote private enterprise and rationalize public expenditures, will have to be supplemented by financial assistance from outside. This support is essential in two fields: investment in sectors with a high export potential, such as the timber industry, which offers very sizable possibilities, and external credits to cover needed imports of basic consumer staples and the capital goods that are so essential for the equipping of our productive sectors. In this regard, the Government published a Foreign Capital Investment Law in November 1979 which, we feel, offers attractive incentives for foreign investment, while at the same time holding out the firm prospect of 99 controlling and rationalizing public expenditure with a view to achieving the priority objectives set forth in our economic program. We are confident that the sense of solidarity among peoples, assistance from the international organizations, and the facilities offered to foreign investors by sectors with a high potential rate of return that are waiting just for the necessary economic and technical stimulus, together with the efforts of the entire people of Equatorial Guinea, will prove to be factors capable of bringing about harmonious and stable development in our country in accordance with our resources and possibilities, while at the same time contributing to achievement of a more just and balanced eco- nomic and social order for the entire world. FIJI: ALLAN E. GEE Governor of the Fund I join colleagues who preceded me to this podium in thanking the President of the United States for his words of welcome to us. I would also compliment the Bank and Fund for the excellent arrangements under which we meet this week. The current and prospective world economic situation has been docu- mented in great detail in the Annual Reports of the two organizations and in the World Economic Outlook of the Fund and World Development Re- port of the Bank. The Managing Director, the President of the Bank and Governors who have spoken also reviewed the subject in detail. So on this subject I shall be brief. The industrial countries, upon the robustness of whose economies the rest of the world depend, face difficult economic problems. Most of these countries are saddled with high inflation rates, large payments imbalances, slow growth, persistent unemployment, and falling productivity. Over the past two decades they have embarked upon heavy outlays, particularly in social security services. While such a policy is certainly laudable, it has exerted upward pressures on public sector deficits leading to escalating growth in the money supply. This factor, together with declining produc- tivity in a number of industrial countries, has contributed to persistent inflation. Inflationary expectations have unfortunately become entrenched. But inflation will have to be eradicated if consumer and investor confidence are to be promoted. Upon this depends the future growth in savings and in- vestments which are vital ingredients for steady long-term growth in the world economy. So the solution of inflation appears to be deserving of primary priority. The situation in the developing countries is critical. Inflation in these countries is rampant. I should, however, point out that Southeast Asia presents a happy exception to this depressing picture. The developing countries are now heavily saddled with large external indebtedness. For some of them negative income per capita growth rates are projected. 100 The total current account deficits of the non-oil developing countries rose from $36.6 billion in 1978 to an expected unprecedented $80 billion in 1980 and in 1981. Current account deficits have, of course, to be financed. It is here that the challenges of the months ahead will have to be met. An assessment of the prospects in the world economy cannot be com- plete without taking into account the important variable of energy. It is probably wise to take a global view of this issue: organic energy sources are of necessity limited. Although the thought of it is undoubtedly un- palatable, a sound working hypothesis suggests that we may have to brace ourselves for future price increases which are positive in real terms. Given this kind of possibility, it becomes imperative that the issue of increased energy production and conservation must be addressed and accorded the highest priority. The world economic problems we face are structural in nature. As such, economic adjustments by our various countries would certainly be unavoid- able. For some countries these adjustments would be politically and socially painful. So the issue in front of us is one of finding and promoting a delicate balance between financing and adjustments which optimizes be- tween what is economically desirable and what would be politically and socially digestible .... The developing countries will be able to implement the necessary adjust- ments with diminished social pain within a world economic climate charac- terized by: (i) the readiness to adopt growth policies by the industrial countries as soon as the abatement of inflation has been achieved; (ii) increased private capital flows to the developing countries; (iii) increased ODA, particularly to the weakest developing countries experiencing difficulty of access to the capital markets; (iv) a drastic reversal of the current trend toward protectionism; (v) future on-price increases, which although they may be positive in real terms, are executed gradually over time; (vi) an efficient recycling process, predominantly carried by the private banking system but with the World Bank, the regional banks, and the Fund playing a more significant role than in the past. While we must collectively ensure that the world economic climate is not hostile toward the developmental efforts of the developing countries, we must not undermine the importance of appropriate domestie policies in the difficult months ahead. The international private banking system played a commendable and critical role in the recycling process over the last six years. In the difficult years ahead the burden of recycling will again fall heavily upon the private banks. Understandably these are now increasingly more cautious about their exposure in a number of developing countries. Indeed, it is likely that they will become more and more selective about the developing coun- tries to which they lend. So for those who find access to the capital markets 101 difficult or impossible, the Bank and the Fund would become more and more foreign exchange sources both of first instance and of last resort. Balance of payments must be financed if the world economy is to avoid the present trends toward deepening recession .... The background papers to this Annual Meeting have all emphasized the critical role of a smooth recycling process in the difficult months ahead. Such a process would be greatly assisted by increased allocations of SDRs. As we all know, the SDR is simply a mechanism allowing access to the resources of surplus countries by those experiencing balance of payments and external reserve difficulties. Such transactions are reversed when the external position of the borrowing member improves. If the external posi- tion of the borrowing member remains difficult, the transfer of resources under the SDR mechanism continues as a relatively long-term loan. A number of proposals immediately flow from this observation. First, there should be substantial allocations of SDRs in a fourth basic period beginning in 1982. I would consider appropriate an annual allocation of not less than SDR 10 billion in such a period. Second, we shall have to make the SDR more attractive to creditors if it is to help promote the recycling process. In this connection I feel that the reconstitution provision should be repealed. I, therefore, welcome the recent decision of the Interim Committee to recommend this to the Executive Board. It is also time to consider an increase in the SDR interest rate. I should, however, caution that such an increase should not at this point increase the level of charges which may become pressing consequent upon the attendant increase in the level of remuneration. I believe that the world economy has changed significantly since 1978, when the decision regarding the SDR allocation in the current basic period was made. The Articles of Agreement provide that the rate of allocation could be varied in such circumstances. I would, therefore, feel that increas- ing the rate of allocation in the third year of the current period would be well justified .... Recently the F AO requested the Fund to examine the possibility of creating a financing facility for increases in food costs brought about by factors beyond the control of a member country. Malnutrition and starva- tion are fundamental issues deserving urgent attention by the Fund and the Bank .... I would like to end on a general note. Interdependence among nations has never been greater. We shall have to learn that the collective welfare of mankind can only be promoted within an international economic climate of give and take. Sacrificing individual economic interest will be necessary in the short term if we are to promote world economic growth in the long term. But sacrifice needs political will and courage. Yet it must be done. Let us therefore have the courage of our conviction and sell this message to our various constituencies upon our return. 102 FRANCE: RENE MONORY Governor of the Fund Our meetings this year will go down in history as those at which we were joined by the legitimate representatives of the world's most populous coun- try, heir to a tradition we all admire. I would like to begin by greeting the Governor for China and telling him how gratified we are to look forward to his country's participation in our institutions. I would also like to offer the warmest of welcomes to the Governor for Zimbabwe, which has so brilliantly taken its place in the international com- munity, to the Governor for St. Lucia and, finally, to the Governor for St. Vincent and the Grenadines. In the interval since our Meetings in Belgrade, our fears have by and large been confirmed. Now, while the consequences of the second oil shock are being fully felt, we know that they will persist for some considerable time to come. Slower growth, underemployment of men and production capacities, inflation and payments disequilibria are the prospects for the world today. The international community cannot passively accept a situation such as this which aggravates the inequalities in the world; while gravely prejudicial for the industrial countries, it is nothing less than traumatic for the develop- ing countries. It compromises the chances of those that have begun to industrialize, and condemns the poorest ones to stagnation, bankruptcy and possibly despair. Our common and urgent task is to rebuild a better balanced international economic system that will give renewed hope to all men, and in particular to the poorest. France is prepared to participate actively in this undertaking. 1. A Serious Disequilibrium that Widens Illequalities The extent of the disequilibrium evident this year is unquestionably excessive. However, the international banking system, which has demon- strated its adaptability over recent years, is still performing the essential recycling of capital with great efficiency. What concerns me most is the accumulation of these disequilibria over the years ahead. If this continues at the rate currently anticipated, it will have harmful repercussions on the world economy that could well prove tragic for the poorest countries. (1) The developed countries, which are materially well off, enjoy a high international credit rating and possess considerable trained human re- sources, ought to be able to adapt to the difficult situation resulting from successive oil shocks if they have the courage to adjust to the changed cir- cumstances by reducing their energy dependence and pursuing rigorous anti-inflationary policies. This is precisely the policy that the French Government is pursuing with determination and continuity. It has enabled us to maintain a satisfactory equilibrium in our balance of payments on current account despite the in- 103 creases in our oil bill: in 1978, our current balance showed a surplus of F 17 billion, which was brought down to F 5 billion in 1979. This year. we are clearly going to be in deficit, but the deficit will still be modest and smaller than in most industrial countries (about F 25 billion), and in any event less than the impact of the higher cost of our oil imports. Next year, our deficit should be even smaller. On the domestic front, we have maintained and even strengthened our anti-inflationary strategy, the twin pillars of which are control of money creation and budgetary rigor. The liquidity ratio of the economy, which has already been going down for two years, will drop still further in 1980, and the reduction in the rate of growth of the money supply will be continued in 1981. Therefore, less money than wealth will have been created in France for four years in a row. This result has been possible primarily because of strict limitation of the budget deficit, which is still much smaller in France than in the other major developed countries. Our deficit is of the order of 1.5 per cent of GNP in 1980 and is financed, basically, without any money creation. It should drop to 0.9 per cent in 1981. Perseverance in the battle against inflation is beginning to bear fruit: inflation in France peaked during the summer and should drop back below 10 per cent next year. However, this strict policy has not prevented the regular growth of activ- ity; we expect to achieve the same growth in 1981 as in this year (2.2 per cent) . This result has only been possible through a far-reaching transformation and overhaul of the French economy. To foster business dynamism in a climate of competition and responsibility, price controls have been re- moved from almost all the competitive sectors; the financial market has been significantly developed and modernized; exchange controls have been eased; research is the priority of the draft budget and large tax incentives in favor of investment are planned. To reduce our energy dependence, we have instituted a long-term pro- gram that ranks among the most ambitious, since its goal is to reduce the proportion of our primary energy consumption accounted for by oil from 56 per cent to 30 per cent over ten years. By that time our nuclear power generation will be equivalent to our oil imports. Consequently, the franc is a stable and unquestioned currency in the European Monetary System. In existence now for 18 months, the EMS has played an important role in bringing about greater stability in the exchange market, a priority goal of the international community. (2) As regards the developing countries, and especially the least devel- oped among them, a similar reasonable policy of reducing energy depen- dence and of discipline is vital but not in and of itself sufficient. The fact is that the effects of such a policy can only materialize gradually, but these countries have to continue financing their deficits in the meanwhile. For certain of them, however, this would entail indebtedness beyond their ability to repay. Unable to obtain further loans, these countries would be obliged 104 to cut back their activity still further, although it is already barely adequate to maintain the low living standard of their peoples. For France, such a situation would not be humanly acceptable. For these countries, the dilemma is not therefore a choice between ad- justment and financing; it is absolutely essential that they both pursue rigorous policies to contain their deficits and be able to finance them. I am convinced that the private markets will continue to provide the major part of this financing. This requires, however, that the existing mechanisms do not grind to a halt and therefore that confidence be main- tained. This in turn will call for an expanded role for the IMF and strength- ening of official development assistance .... III. OffiCial Development Assistance More Necessary than Ever It is common nowadays to hear some of the major industrial nations announcing their intention to reduce their already less than adequate assis- tance to the developing countries. These statements, as well as some ten- dencies toward protectionism, profoundly disturb me. How can the coun- tries of the Third World escape poverty, how can the more advanced among them continue to industrialize, if they are struck simultaneously by a slowdown in the growth of world trade, which restricts their markets, and a decline in official development aid? We must vigorously combat the temp- tation to be selfish and to withdraw into oneself. France, for its part, believes that extensive access by the developing countries to the markets of the developed countries must be assured. Thus, despite the economic slowdown, France boosted its imports from the non- oil developing countries by over 25 per cent in 1979. Moreover, it is evident that many developing countries do not have, and in the near future will not have, access to private financing, which, in any case, would be too costly for them. Substantial official aid is absolutely essential to them. I should like here to place particular emphasis on the situation in Africa south of the Sahara. In many respects, that situation is tragic. The World Development Re- port is unfortunately only too eloquent on this subject. Without energetic efforts, this region will see its lag behind the other developing countries widen alarmingly over the coming decade. Over larger and larger areas, the food situation, already extremely precarious, continues to deteriorate year by year. To avoid a perhaps irreparable catastrophe, the only possible solution is a genuine mobilization of donors. The preparation of the World Bank's Special Action Program for Africa is therefore of consider- able importance. This program should make it possible to expand to new dimensions the financing provided this region by the World Bank Group, especially IDA, and to mobilize exceptional efforts on the part of other donors. It would be incomprehensible if Africa is not accorded top priority by all donor countries. France will strive, to the extent permitted by its resources, to participate in this stepping up of official development aid. It reaffirms its determination 105 to do all it can to raise its aid to 0.70 per cent of its national product by the mid-1980s. It will especially focus its cooperative effort on agriculture and food, which-along with energy, to which I will return in a moment- are probably the highest priority sectors for the coming decade. In this regard, my country is prepared to make its full contribution to the pending reconstruction of the resources of IF AD-an agency whose primary pur- pose is to assist those in the rural areas who are most disadvantaged. With more specific regard to the World Bank Group, it is essential that every effort be made to effect the Sixth Replenishment of IDA as rapidly as possible. The expanded resources which, I hope, will soon be available to the World Bank Group must, in my view, be accompanied by a re-examination of priorities so as to promote adaptation to the new economic situation. I have already indicated the crucial position we assign to Africa. The Bank is concurrently engaged in a program of structural adjustment loans; France approves its policies and is closely following its application. The imple- mentation of this program is another reason for insisting on intensified cooperation between the Bank and the Fund. It also seems to me that the Bank could playa useful role in facilitating the access of certain countries to the market by extending partial guarantees. In 1978 France proposed that the Bank intensify its activities in the energy field. The implementation of a new program in 1979 largely met our expectations at that time. We are all aware of the need to go still farther today. In this regard my country is very interested in the plan to create an affiliate of the Bank specializing in the energy field. While its mode of operation remains to be defined, it already seems ap- parent to me that an institution can come into being and grow only if it brings together the efforts of all those in a position to help and if it appears from its characteristics to be sufficiently independent of each of them. I hope this idea rapidly comes to fruition. Finally, I should like to pay special tribute, on behalf of the President of the Republic, Mr. Giscard d'Estaing, and of the French Government, to Mr. McNamara, at this time when he is preparing to leave the Bank. You have succeeded, Mr. President, in making of the Bank an excep- tional instrument of universally recognized quality. For your unflagging determination on behalf of development, I want to add the words of France to those of all the others who today are expressing their deep gratitude to you. How could I fail to assure you that the message you have just pre- sented to us will have a lasting impact on the work of our institutions? May it guide our actions toward the building of the more united world for which you have worked here! I am convinced that your courageous, new ideas on development will continue to shape the work of our institutions. I hope that they will enable us to make our efforts to assist the world's most impoverished countries more generous and more effective. 106 GERMANY: HANS MATTHOEFER Governor of the Bank As we enter the 19805 the world economy is caught up in far-reaching structural changes. This process takes place under adverse conditions: we are worried about unsatisfactory growth, rampant inflation, and the hard- ship suffered by people in the poorer countries. In this situation, the world is looking toward the IMF and the World Bank. It rightly expects them to help restore stable economic growth and to ease the burden of adjustment during the transitional period. President McNamara, to whom we owe deep gratitude, is about to depart from his office. He has worked untiringly for a humane development proc- ess; under his leadership the World Bank has made a major contribution to this cause. We trust or at least we hope that his successor will continue in the same great tradition . . . . Today, many expectations are held with regard to the IMF and the World Bank; this is hardly surprising in view of the enormous dimensions of the current economic and social problems. We must explore with an open mind solutions for these problems. In doing so we must be careful not to intervene too hastily in well-tried and well-functioning systems. We must check each proposal carefully to see whether it can be integrated in the aims and objectives of these institutions, what positive effects it may have, or what side effects or risks it may entail. ... To restore, to secure, and to maintain peace in all parts of the world is the most important condition for social and economic progress. The grow- ing conflict in the Gulf area makes this doubly clear, after so many cruel conflicts all over the world; suffice it to mention Indochina, which has been shaken by violence for 30 years. I call upon all leaders in politics, in the media, in public life to condemn war and violence as the worst enemy of social progress. The widespread squandering of resources on armament and military destruction is contrary to all international efforts to achieve social progress. We must work in- creasingly for a peaceful solution of such conflicts, first of all through ap- propriate and economic development policies, which should be designed to allow all men to live their lives productively and in self-determination. The Independent Commission of International Development Issues under the chairmanship of Willy Brandt has rightly stated: "History has taught us that wars produce hunger, but we are less aware that mass poverty can lead to war or chaos. While hunger rules, peace cannot prevail." Both in industrial and in developing countries a distressingly large part of GNP is absorbed by armament expenditures-almost 6 per cent in 1977, according to one estimate. If only part of these funds were tapped for peaceful pur- poses, this could be the breakthrough to more tolerable living conditions for a countless number of people. Let me once again quote from the report of the Brandt Commission, in which this is vividly demonstrated: "The military expenditure of only half a day would suffice to finance the whole malaria eradication programme of the World Health Organisation, and less 107 would be needed to conquer river-blindness which is still the scourge of millions." Therefore, efforts at disarmament must go beyond the aim of merely maintaining the strategic balance between the major power blocks. It is deeply alarming to see that in the last ten years military expenditure in developing countries increased by 7 to 8 per cent annually. My Gov- ernment therefore advocates practical confidence-building measures not only for Europe, but for all other parts of the world as well. Only such measures can pave the way for arms limitation and disarmament. We also advocate greater transparency of military aid and weapons expenditure by establishing appropriate registers at the United Nations. The development and growth prospects not only of the LDCs but of the world economy as a whole depend on the availability of resources to finance the large payments imbalances. These imbalances have been greatly inten- sified by the recent oil price increases and they may become an almost intolerable burden for many developing countries. Our experience with more than 30 years of development policy demon- strates that money alone will achieve relatively little. Sustained develop- ment also depends on the adaptation of social and economic structures, the preservation of cultural traditions and values, and on providing adequate opportunities to individuals to make full use of their potential. Each country's economic and social progress depends above all on its own efforts. In this context, the Brandt Commission has rightly insisted on the need for economic and social reform. My Government therefore will continue to assist those Governments in the Third World that are willing to carry out needed structural changes. The developing countries are sovereign states, and they must determine their own course for development. In providing development assistance in all its different forms-by transferring capital and know-how or by tech- nical assistance-our aim is not to gain influence on the recipient countries. However, to ensure that aid resources are put to optimum use, industrial countries must see to it that a serious endeavor is made to pursue viable economic and social policies. The Federal Republic of Germany-in cooperation with other countries and the international financial institutions-has made a special effort to help Turkey overcome its social and economic difficulties. I wish to express my gratitude to the IMF and the World Bank for their most valuable con- tribution to these joint efforts. I very much hope that Turkey-like many other countries of the Third World-will find a way to combine economic progress with a peaceful and democratic social development. Coming to grips with the energy problem will be of decisive importance for the economic future ohhe entire world. Repeated oil price increases have put severe strains on industrial coun- tries since 1973. Low rates of growth and increasing unemployment have often created serious social and economic problems. The sharp rise in the current account deficits of industrial countries forces these countries to go through a difficult period of adjustment. Even more serious is the situation 108 for the oil importing developing countries, many of which have to use the bulk of their foreign exchange earnings just to purchase the bare minimum of oil. It is tragic indeed that all the development assistance provided by donor countries is insufficient to cover the increase in the oil bill of developing countries from 1979 to 1980. It would be illusory to believe that balance of payments deficits of this magnitude could be eliminated solely by additional development aid. It will be difficult enough to finance these deficits even for a transitional period and to prevent losses of output and economic collapse. Temporary balance of payments financing of this magnitude must be accompanied by determined efforts of all countries, and particularly of the developing countries themselves, to reduce their dependence on oil imports. Their own energy resources must be developed, and energy must be used more economically and more efficiently. All groups of countries should join in one common effort. This can be achieved if we all bear in mind our common interest in a functioning system of world trade, in a growing world economy, in lower rates of inflation, and in high levels of employment. The world does not suffer from a lack of capital, or from a lack of ideas and technical capability, or from a lack of labor. There is, of course, no lack of the need to produce more to satisfy pressing human needs. What is required now is to bring together all these elements. The indus- trial countries wish to export higher technology and capital goods and they desire to utilize their productive potential. Oil exporting countries are interested in a secure and profitable invest- ment of their financial surpluses. The developing countries want to activate their unused labor resourccs and to make fuller use of their countries' eco- nomic potential. I appeal to the governments of industrial countries, OPEC countries, and non-oil developing countries to join in our mutual interest in a pact for economic growth and social progress. My Government has more than once stated its readiness and desire to have an energy dialogue with a view to make oil supplies more secure and to protect the world economy from abrupt price shocks, although future price increases might be unavoidable. Increasing strains on the environment and disregard for ecological neces- sities all over the world are jeopardizing the opportunities of present and future generations. This means that our growth objectives must take into account ecological considerations. If these were disregarded, the destruc- tion of our economic resources would follow. The transformation of once fertile land into barren land, the "death" of lakes and rivers, the over-exploitation of valuable forests as a result of a lack of proper reforestation; these are examples which we are all aware of and yet we permit such misuse to continue, day in, day out. Healthy growth must not destroy its basis. Environmental protection therefore promotes rather than impedes sound economic development, and it must be given due regard in industrial and developing countries alike. 109 My Government welcomes and supports the intention to enter into global negotiations next year on all major economic issues. We should, however, avoid duplication of work and fragmentation of responsibilities. The representatives of my Government have therefore advocated-and we shall continue to do so-an efficient and decentralized approach. The United Nations family comprises well-established and effi- cient institutions with proven competence, experience, and initiative. The IMF and the World Bank, in particular, have demonstrated that they are able to adapt their policies to changing economic circumstances. No inter- national organization has mobilized such large sums for the benefit of its members as the IMF and the World Bank Group have succeeded in doing. We earnestly desire to avoid impairing the efficiency of these institutions. Today's large payments imbalances, although they are likely to persist for a number of years, are basically of a temporary nature. They can and they must be overcome by adjustment. If the efforts to reduce these imbalances are to succeed, they must elimi- nate the root cause, namely, excessive oil consumption. Oil consumption must be drastically reduced and oil bills must be cut. The seven major industrial countries agreed at the Venice Summit Meeting to continue and intensify their efforts in this direction. We have already made good progress in this. Germany, while achieving impressive real growth since 1973, has consumed less oil in 1980 than in that year. In volume terms we have re- duced our oil consumption in 1980 by 8 per cent. But we have to pay more for this smaller quantity with the result that the burden on our current account has increased heaVily. We are doing all we can to become less dependent on oil by making more use of other traditional sources of energy and by utilizing alternative sources of energy. In reducing the dependence on imported energy different countries will have different choices. I am convinced that the possibilities are greater than is realized. The potential of hydropower, solar and wind energy, for instance, has not yet been systematically analyzed or exploited in any developing country. Instead, there continues to a widespread and alarming overexploit at ion of wood for fuel. But industrial countries should not be too quick to criticize in this re- spect. Their own energy policies have not been very successful so far, and that does not give them a very strong moral position versus countries whose people often have literally no other choice than to use wood for fuel. Oil producing and industrial countries should provide capital, knowledge, capability, and experience in order to formulate and implement adequate technological solutions to close this energy gap in cooperation with the countries concerned. At the International Energy Congress in Munich, the Chancellor of the Federal Republic, Helmut Schmidt, stressed the advantages of agreements between oil exporting and developing countries, which grant the latter spe- cial advantages in respect of quantities and prices. We regard the agree- ments which countries such as Mexico and Venezuela have concluded with some of their neighboring countries as a demonstration of solidarity be- tween countries on opposite sides of the energy table. 110 This is one side of the problem. The other one is the need to increase exports to obtain foreign exchange to pay for oil imports. This calls for less, not more, protectionism. Industrial countries should open their mar- kets for the products of developing countries and they should assist them in building new production plants, marketing their export goods, and stabiliz- ing their commodity earnings. My Government supports all efforts directed toward this objective. We are confident that we can succeed, as there is basically no other way of maintaining a viable world economy. The question is not whether, but how adjustment will occur: either without delay and in an orderly process, or under disruption and confusion if it is put off too long. We all, industrial and developing countries alike, are responsible for putting our own house in order. I recognize the need for greater emphasis on improving supply- side conditions. In many cases, however, excess demand is still a major factor in countries' external imbalances, the IMF therefore, should continue to give due attention to prudent demand management. ... To the extent that there is a global need to supplement existing currency reserves I support continuing the allocation of SDRs in the fourth basic period. As to the amounts of allocation the time has not yet come for firm conclusions. The immediate recycling problems have, for a while, pushed into the background the idea of a dollar substitution account. I do not feel, how- ever, that this plan should be discarded. We should include it in our delib- erations on the further development of the monetary system and work on the substitution account should be resumed at a suitable time. Recycling is effected through many channels, in particular through com- mercial banks. But the rapid growth of banking business, strained balance sheets, and growing concentration of risk on a small number of developing countries call for the increased attention of supervisory authorities. Moni- toring the activities of international banking groups on a consolidated basis would be desirable also in countries where such monitoring systems are not yet in place. Calling for better supervision of banks does not mean to put private capital markets on a leash and cut back their legitimate scope for expan- sion. Rather, the aim is to reduce risks and to ensure that these markets remain efficient and able to fulfill their very important function. In the long run, I do not see any contradiction between banking supervision and recycling: on the contrary, a sound banking system will produce a stable and steady supply of credit. There is no doubt that we are entering a very difficult period charged with great uncertainties. We have no choice but to take up this challenge. We should not permit growth pessimism or resignation to gain the upper hand, rather we should fully use the growth potential that still exists despite increasing problems; we should bear in mind that qualitative growth is the only way of overcoming both economic and social problems and that we must do all we can to activate the forces that such growth requires. The world economic situation is not without elements of strength. Technological progress will continue to give substantial impulses to invest- ment and growth. The need to save energy and to substitute oil is creating 111 powerful new investment motives. If any uncertainty about the profitability of investment in energy should have persisted after the first oil shock, such doubts have not been dispelled once and for all. The long-term nature of the energy problem and the need to invest and to adjust have become very clear to all of us. This necessity to adjust stimulates investment which should make economic activity less susceptible to fluctuations in private sector demand. On the other hand, inflationary forces in most countries are still danger- ously active .... A stability-oriented ~olicy and a monetary policy aimed at curbing infla- tionary expectations is the key to economic growth. To pursue such a policy means a fiscal policy that encourages rather than discourages pri- vate investment. It means to pave the way to sustained growth and secure employment. To some degree, the present balance of payments pattern among major industrial countries is another source of reassurance. It has already brought benefits to the foreign exchange markets. For a long time we have not seen exchange rates keep such a steady course as they did this year, thanks also-we believe-to the influence of the European Monetary System. It is particularly gratifying to see that the dollar appears to have over- come its period of weakness. A strong dollar is still a precondition for a sound world economy. But the expected further strengthening of the cur- rent account of the United States will present new challenge to America's economic policymakers. This should enable the United States to resist the call for import restrictions and to take once again a proper place in the provision of development aid that is worthy of such a great nation. My Government takes a dispassionate view of the Federal Republic's current account deficit. We can live with this deficit for a while, but in the medium term the Federal Republic should regain equilibrium in external trade. With this in mind, my Government relies on a policy aimed at eliminating the underlying causes of the deficit, by making the German economy less dependent on oil and more competitive by means of structural adjustments, increased productivity, research, and innovation. I can assure you that there is absolutely no intention of manipulating our current balance by competitive devaluation, export subsidies, import restrictions, or other barriers to trade, which would be totally incompatible with our concept of economic policy. Let me now turn to World Bank matters: in the past year the three insti- tutions of the World Bank Group have again succeeded in achieving a substantial increase in their commitments. Bearing this in mind, I consider it a matter of urgency to put into effect the doubling of the Bank's capital as rapidly as possible. We are prepared to make our contribution at the agreed time. I must, however, point out, as I did in Belgrade, that we cannot see how the new capital subscriptions can be implemented before the valuation of the Bank's capital and the main- tenance of value issue has been finally settled. We assume that by the beginning of the subscription exercise on October 1, 1981, the difficulties 112 which have arisen in this connection will have been eliminated. This is not easy, I know, but nor is it impossible if it is the genuine desire of all members. Other suggested methods of raising the lending capacity of the Bank can only be a complement to, not a substitute for, the general capital increase. In this connection, President McNamara has mentioned a new general capital increase relating only to the callable capital as well as a change in the gearing ratio. Both possibilities seem tempting at first glance, since this would avoid additional payment obligations. One should not overlook, however, that the Bank can borrow on the international capital markets only as long as it maintains its sound financial structure and remains a "blue chip" issuer. This is, in my view, a most important consideration, since the confidence of the international capital markets in the World Bank determines ultimately whether or not higher lending targets can be attained. In view of the need of the poorest developing countries for concessionaJ aid, the Federal Republic of Germany attaches special importance to the activities of IDA. Accordingly, we played an active part in bringing about IDA VI. In order to enable IDA to continue making commitments until IDA VI enters into force, my Government has decided to participate in the bridging measures in connection with IDA VI. I should like to announce here that the Federal Republic of Germany is ready, under this bridging operation, to make an advance contribution equivalent to its entire first installment. For us, the bridging arrangement is a visible token of our solidarity with the poorest developing countries. I hope that this will serve as an additional incentive for other donors to participate quickly and to an appropriate extent in this action. We appeal to all members who have not yet given notification of their contribution to accelerate their parliamentary procedures in order to enable the carefully negotiated agreement to enter into force. In the spring of this year the Bank reacted with speed and flexibility to the new financing requirements of the developing countries by adding struc- tural adjustment loans to its range of lending facilities. This new type of loan can help the developing countries to make the inevitable, though necessary long-term adjustments to the world economic situation. We assume that, in the case of loans of this type in particular, there will be even closer consultation and collaboration between the Bank and the Fund. In July we received from the Bank the study entitled "Energy in the Developing Countries." It shows that it is possible to invest in developing countries with good prospects of success in this scctor and it describes the role the World Bank could play here. The Bank estimates that about US$12 billion in additional funds will be required for the period until 1985. We all should search for ways of jointly resolving this key financial problem in the next few years. I consider this to be the most urgent task for the World Bank Group in the very near future. Consequently, we are looking forward with great interest to the proposals under preparation at the Bank for a concept on the formation of an energy affiliate or facility such as that suggested at the World Economic Summit in Venice. We shall examine 113 these proposals very carefully and we are prepared to take an active part in consultations on how to realize the Bank's new energy concept, including an equitable participation of all members of the World Bank Group. GREECE: XENOPHON ZOLOTAS Governor of the Fund Once again our meeting is overshadowed by persistent "stagflation." High rates of inflation continue to be with us, unemployment is increasing, investment is at a low ebb, and productivity is falling. The recent increases in the price of oil have served to make matters worse. I will not dwell on these developments, since they are well examined in the Annual Reports of the Fund and the Bank, two documents of high quality. In this regard, I would like to express my appreciation to Messrs. de Larosiere and McNamara for their illuminating opening addresses. In the past, I had the opportunity to stress in this forum that we would not be able to achieve rapid recovery and get out of the stagflation dead- lock through demand management alone. Investment management is also required in conjunction with demand management. The developments that took place after 1973, such as the dramatic increase in the cost of energy, the intensification of inflation, the fiscal drag, and the growing cost of pollu- tion control, have discouraged productive investment, with adverse effects on employment, productivity, and inflation. In contrast, prior to 1973 economic recovery was achieved mainly through new investment which increased productive capacity and reduced unemployment, without gen- erating inflationary pressures. If inflation is to be combated effectively on a permanent basis, invest- ment on a large scale will be needed in order to increase and modernize productive capacity and raise productivity. To this end, investment disin- centives should be removed and new incentives to boost fixed productive investment should be granted for as long as is needed. The second problem we are facing is the persistent international pay- ments imbalances, especially in the developing countries, following the successive oil price increases. The question of recycling surplus oil funds has been discussed at the IMF and the World Bank, as well as in other international organizations .... Parallel to the greater activation of the IMF and the World Bank, serious efforts should be made to ensure continuous and adequate recycling through the private financial institutions which in the past have been the main chan- nels for recycling surplus oil funds. We should not be content with piece- meal measures. We should proceed to the creation of a mechanism which will ensure the uninterrupted recycling of surplus funds. A way must be found to encourage private banks to step up the recycling of funds, par- ticularly to the developing countries. Private banks need some form of security. I feel that the creation of an International Loan Insurance Fund, which I proposed in 1977, is now urgently needed. 114 This insurance fund, apart from enabling the LDCs to bring about the structural changes and readjustments that would allow them to keep ex- panding their economies, would permit the deficit countries to service their outstanding foreign debts and avert the creation of liquidity problems for lending banks, that could trigger chain reactions and disrupt the inter- national financial system. These arrangements may not suffice to solve the problem of the poorer countries with expanding deficits. For them, special measures should be taken by the governments of the industrial and surplus oil countries in the form of grants or concessional loans. With regard to the new valuation of the SDR, I would like to make a few remarks on the SDR itself and on the need for the creation of a stable international monetary standard . . . . The SDR was designed to serve as an international monetary unit and gradually become the main reserve asset. However, since it is based on the weighted average of a basket of currencies, practically it tends to reflect the average inflation in the countries whose currencies are included in the basket. Therefore, it suffers from the same disease as these curren- cies. The considerable erosion that the purchasing power of the SDR has undergone since its inception shows that it does not provide the firm foun- dation needed for a sound international monetary system, which would create a climate of confidence and stability. This is the main reason why the SDR has been unable to improve its position as a reserve asset and has prevented its wider acceptance as a unit of value in international transactions. I doubt that it will achieve these objectives in the foreseeable future. Suffice it to mention that, although it has been ten years since the SDR was introduced, reserves in SDRs amount to only 6 per cent of world foreign exchange reserves. It is, therefore, doubtful whether the SDR will ever manage to live up to the expectations associated with its creation. The international monetary system needs a stable inflation-proof mone- tary standard, particularly in the present phase of high and widely differen- tiated rates of inflation in the main trading countries. It needs a unit of value with constant purchasing power, which would help to combat infla- tion in individual countries, expand international trade, and reduce de- stabilizing speculative capital movements. In other words, it needs an international unit capable of serving as a genuine international currency and the main reserve asset in the system. The question of creating a standard of stable value has been the concern of economists since the nineteenth century. The various schemes that were proposed over the years were complicated and difficult to apply. Most of these schemes relied on a composite commodity basket to which the inter- national monetary unit would be linked .... 115 INDIA: R. VENKATARAMAN Governor of the Bank and Fund At the outset, I would like to welcome the new members who have joined the Fund and the Bank family since our last meeting: St. Lucia, St. Vincent and the Grenadines, and Zimbabwe. We are also happy to welcome the People's Republic of China whose statement we have heard with deep interest this morning in the Fund and the Bank and look forward to her active participation in the two institutions. When we met at Belgrade a year ago, only the most optimistic among us would have expected the intervening period to be less than grim .... The situation confronting the low-income, non-oil developing countries is much more serious than in the past. Their terms of trade have been adversely affected by the energy situation and their current account deficits have not only been persistently large, but are bound to worsen. The diffi- culties of non-oil developing countries in achieving minimum growth rates are compounded by the deterioration in the international economic environ- ment and, even under the best scenario envisaged by the Fund or the Bank, they are expected to face serious problems in regard to growth and balance of payments financing in the next few years. It is therefore only natural that the principal focus of our deliberations should be on reaching an agree- ment on the role that the international institutions and the industrial and surplus countries should play in solving the problems of non-oil developing countries. While these countries would be able to finance their 1980 deficits only at the cost of their international financial position, there is little prospect of their finding the requisite resources for financing the deficits in the coming years. They have limited access to international financial markets and the outlook for official assistance is not promising. Their real export earnings have been declining in recent years and the scope for export expansion is limited, due to recessionary conditions and growing protectionism in indus- trial countries. The problems of the low-income countries are not amenable to short- term solutions. The scope for any immediate curtailment of oil imports in many non-oil developing countries is small, because these are even now limited to essential infrastructure, industrial, and agricultural uses. On the contrary, the economic growth of these countries would require more use of oiL Therefore, the only appropriate solutions are expansion of exports and development of energy resources. These call for structural adjustment, which is bound to take time and need heavy investment. Industrial coun- tries, oil exporting countries, and international financial institutions should, in their turn, adopt policies which would create a climate conducive to the orderly pursuit of adjustment policies. There has been no effort in the industrial countries to lower trade re- straints, and existing mechanisms to control low-cost imports have become institutionally entrenched. It is particularly distressing that such sectors include those in which developing countries are competitive suppliers, such 116 as clothing, footwear, and hand tools. A curtailment of these imports not only reduces their export earnings but also produces, owing to their labor- intensive nature, harmful social consequences, particularly for the poorer sections of society. We are also disturbed by the failure on the part of some developed countries to understand the rationale of export subsidies in developing countries and unilaterally to deny them some of the benefits under the GATT. We earnestly hope that enlightened self-interest will reverse this protectionist trend. It is now well established that an increase in the exports of developing countries brings in turn an increase in the external demand for goods of developed countries. This would also pro- vide an opportunity to industrial countries to shift workers from unskilled, low-productivity jobs to those involving more sophisticated technology and higher productivity. The cost of such adjustment will be more than com- pensated for by the benefits of growth in trade. lower inflation. and higher welfare all-round. The mounting payments deficits of developing countries need unprece- dented amounts of external financing during the period of adjustment. ... The G-24 Program of Action has proposed an interdependent interna- tional monetary order that would be conducive to the growth of both the developed and the developing world. The Brandt Commission has also made similar recommendations. We hope constructive decisions in this regard would be taken expeditiously. We would urge that in view of the unforeseen economic developments resulting in protracted and huge imbalances. a timely decision should be reached on a supplementary allocation of SDRs in 1981. It is our view that considerations like the global demand for increased liquidity and the balance between conditional and unconditional liquidity would warrant an allocation of SDRs in the fourth basic period on a scale far larger than in the past. With the recent improvements effected in the uses and charac- teristics of the SDR. a sizable allocation would be a positive move toward promoting the SDR as the centerpiece of the international monetary sys- tem. The revival of the proposal for an SDR link is appropriate, and the contribution a link could make to the international adjustment process has come to find wider acceptance. We hope that the link would become an accomplished fact of international monetary relations very soon. In the context of world trade needs and growing payment deficits. there is an urgent need for early implementation of the seventh general quota increase and for advancing action on the eighth quota review. We hope that the opportunity will be taken at that time to review the formula for quota determination. In this context. we fully endorse the valuable sugges- tions made by Chairman Jamal yesterday. We would also strongly urge increased participation of the developing countries in the staffing, manage- ment, and in the decision-making of the Fund. This holds good for the Bank as well. ... Now I shall turn to the Bank family. These Annual Meetings are, in a sense, a sad occasion, for it will be the last time that we shall see Mr. McNamara on the podium and hear his inspiring address. Mr. McNamara has, in the 13 years that he has been 117 President, transformed the Bank beyond recognition. Adding the dimen- sion of social justice to development lending has been Mr. McNa- mara's unique contribution to the functioning of the Bank-a contribution which I have no doubt will not only endure but be built upon in the years to come. We in India also have been urging precisely this combination of growth with social justice. What Mr. McNamara has achieved is to carry conviction that growth and equity are not, and need not be, mutually ex- clusive and that economic growth would be much more sustained and en- during if it were accompanied by amelioration of the conditions of the poor and the provision of their basic needs. As Mr. McNamara steps down from this high office, I hope his wide experience and wise counsel will be available in the cause of world development. The World Development Report presents a gloomy prospect for the de- veloping countries in the medium term. Developing countries would need to undertake a structural adjustment of their economies to meet the change in their external payments position brought about by factors exogenous to them. The character of change would have to be so far-reaching that it would be more accurate to describe it as structural transformation. This transformation would require not only a massive step-up in investment but also a change in its composition. In the ultimate analysis, the developing countries need to be more self- reliant and meet the challenges by increasing their savings and rducing their external deficits in a manner most appropriate to their economic circum- stances. But this is not to gainsay the importance of external assistance for low-income countries, in particular, of official development assistance. The performance of ODA has, however, been depressing in the extreme. The current levels are less than half of the internationally accepted target of 0.7 per cent of GNP. Aid has become the inevitable casualty of the efforts of industrial countries to adopt appropriate demand management policies. In our opinion the resilience and strength of the economies of developed countries should enable them to adopt a different solution. The World Bank as the leading development agency should mobilize opinion in the devel- oped countries as well as the capital-surplus oil countries for higher levels ofODA. I am attracted by the suggestion that the increase in ODA should be related to incremental GNP. A figure of 3 per cent for this incremental ratio cannot be regarded as a burden, given of course the political will. While on the subject of concessional assistance, I should like to state that the logic of several DAC countries putting their assistance to low-income countries on a grant basis needs to be extended to debt relief through retroactive application of currently prevailing soft terms to past credits. I would also like to express our hope that the distribution of assistance from both the developed and the capital-surplus oil countries would be more broad based and more of it would go to the low-income countries. These countries, despite containing the greater part of the population of the developing countries, account today for very much less than half of the total ODA going to all developing countries. The distribution of conces- 118 sional assistance clearly needs to be altered so as to make the greatest impact on poverty alleviation. The problems which many developing countries face today have their origin in the changed picture relating to the supply and pricing of energy. It is therefore entirely appropriate that serious attention is being given by the Bank to the problem of energy in the developing countries. Yesterday Mr. McNamara referred to the need to enhance the resources of the Bank Group not only to provide for a real increase in its lending, to offset fully higher than anticipated inflation levels but also to meet the new and increasing challenges posed by the expansion of Bank membership and the requirements of energy and structural adjustment lending. In this connection we feel that serious consideration should be given to several ideas such as changing the gearing ratio and increasing the subscribed stock without the necessity of additional paid-in capital for enhancing the lend- ing capacity. I referred earlier to the Brandt Commission Report. I believe I would be echoing the sentiments of many around here in saying that the Brandt Commission has given us a framework for international economic coopera- tion based on the premise of mutual interdependence between the South and the North and the need for appropriate policies for the interconnecting range of issues of food, energy, international trade, and development assis- tance. I hope the recommendations of the Brandt Commission will receive the earnest consideration which they so obviously deserve and also the positive political support which they equally clearly need. INDONESIA: ALI WARDHANA Governor of the Fund The measures introduced by Governments with a view to improving the economy of their countries have apparently borne some fruit. ... Their paramount target was to reduce inflation, and while it remains unacceptably high at present, rates of price increases in industrial countries measured by GNP deflators turned out to be lower than evidenced by consumer price indices. Also there appears to be a better balance among industrial coun- tries as far as current account surpluses and deficits are concerned, while exchange markets have been relatively calm. Whether the recession itself. particularly in the largest economy, the United States, has bottomed out as implied by some indicators, is perhaps too early to determine. On the whole, however, the situation of the world economy whether examined for the short run or for the longer run, remains bleak. Growth, inflation and balance of payments developments continue to be precarious, and policies to combat inflation are becoming somewhat uncertain which may tempt Governments to relax their fiscal and monetary stance. Most disturbing of all is the widening gap between the countries of the North and South to which in particular the Brandt Commission drew our atten- tion. Recently also the special session of the United Nations has tried to 119 agree on solutions within a global framework. The dialogue as we know has failed. The increasing resource gap faced by developing countries, especially the poorer among them, not only dooms them to live at often subhuman levels but it also threatens to become a serious impediment as far as the world economy is concerned. One of the lasting features of the Brandt Commis- sion Report is its convincing analysis of the interdependence of all econo- mies. Neither the North nor the South can go it alone. The North needs expanding markets to sustain its growth and welfare; those markets cannot come into being without the South's increasing its purchasing power which could only be enhanced by growth, trade, and a degree of resource transfers. Protectionism in the industrial North and the withholding of resource trans- fers for whatever reason are self-defeating. They reduce the revenues of the South and therefore imports from the North, and in the end both sides would be the losers. Both the Fund and the Bank drew attention to the increasing deficits of a great number of countries, and of oil importing LDCs in particular. Their current account deficits are staggering: in 1978 $36 billion, in 1979 $53 billion and in 1980 approaching $70 billion. The industrial countries also have shifted from a surplus of $33 billion in 1978 to a deficit of $10 billion in 1979, and the figures may reach $50 billion in 1980. However, indus- trial countries on the whole are in a better position to cope with those deficits in view of the strength of their economies, their reserves and their access to external resources. The problem is that of the non-oil developing countries for which re- sources have to be found for the short run as well as for the longer run ~s the World Development Report and the Brandt Commission convincingly argue. It is understandable that both in the North and the South ideas and pro- posals have been developed to remedy the situation. They all have one thing in common: more resources are needed and a variety of suggestions have been made ranging from increasing official development assistance to better access to capital markets, facilitating and increasing investments, re- forming existing institutions and the setting up of new financial entities. At that, there is a need to involve developing countries more in the decision- making process because their interests are at stake. The possibilities and practicability of the various proposals have to be carefully examined and discussed in the appropriate fora. But meanwhile the need for financing in the period 1980-81 has to be met immediately. It seems to me that we cannot wait until perhaps more lasting and com- prehensive solutions for the resource gap identified by the Bank and Fund, the United Nations and the Brandt Commission would be agreed upon by the relevant countries. We cannot allow a great number of developing countries to collapse in the meantime. Under these circumstances the one practical and pragmatic approach for the immediate period ahead is to turn to and examine the possibilities of existing and already operating institutions. In our case those institutions are the International Monetary Fund and the World Bank. 120 President McNamara has over the years succeeded in increasing the re- sources and consequently the lending capacity of the World Bank. An innovative decision taken recently is to extend loans for structural adjust- ments which are aimed at relieving balance of payments pressures while at the same time introducing structural changes so that current deficits could be reduced to sustainable levels. We believe that resources for this purpose should be increased without impairing the other activities of the Bank, which implies that the Bank needs more resources itself. The Bank, with its excellent standing in the capital market, could tap more from it but it is hampered by its present so-called gearing ratio. It seems to me that this ratio could be changed without endangering the Bank's solvency. I do not wish to exhaust the list of possibilities; they have been discussed by the Development Committee .... All in all,. the situation for the poorer developing countries is grave. We have to try to make use of existing institutions to meet their immediate needs. I would like to use this opportunity to extend our sincere thanks to President McNamara for his services to the less developed countries. We in Indonesia have certainly benefited from his development policies. We regret his departure and this is the last Annual Meeting to express our appreciation to him. Finally, on behalf of my delegation I would like to thank the United States Government and people for the efficient arrangements in connection with our Meetings and for the hospitality which we are enjoying in this great country. IRAN: E. RASHIDZADEH Temporary Alternate Governor of the Fund May I first offer my sincere thanks to the IMF and the World Bank for their excellent arrangements and splendid efforts to organize this important meeting. I would also like to take this opportunity to add my voice to those of other distinguished delegates in welcoming all new members of these two institutions. For some time we have been witnessing gloomy indicators and listening to dire warnings about the state of international economic relations. There is, I believe, general agreement that the world economy is entering into a most difficult and critical phase and all the elements of a profound and widespread crisis are present. For some years economic and financial prob- lems within the framework of international economic relations used to be discussed individually on their own merits, while now we observe that such questions are intermingled with political considerations. The emerging crisis, therefore, is a crisis of confidence, brought about by recent events and a widespread belief that the present system is severely deficient to deal with urgent economic problems. The basic weakness lies in the structure and the organization of the international monetary system which is not well-suited to cope with present problems. 121 A fundamental issue is whether international institutions in whose deci- sions and deliberations developing countries have relatively little voice, can effectively deal with problems of payment imbalances and capital shortages. Similar arguments were voiced by both the Brandt Commission and the G-24 Ministers who, in their communiques, have consistently proposed an increase in the share of developing countries in IMF quotas to accord them more voting power. This is essential if frustration and the sense of help- lessness on the part of developing countries toward international institu- tions is to be avoided. Unfortunately, it has been repeatedly observed that this legitimate demand has been consistently denied. Based on the most recent experience, events have explicitly shown that what was once said about the dangers of a system based on effective domi- nation by one single reserve currency is now apparent. Thus emerge mal- functionings of the system which are harmful both to the issuer of such currency and to the users. There is a need therefore to move away from such arrangements. Indeed the world needs a comprehensive monetary and financial order based on a pluralistic criterion that considers a multitude of factors and is free from inclination toward a single currency. Recent events have also shown that when political considerations are brought in to play a role in the interna- tional monetary system, severe disturbances in the functioning of the sys- tem may result and the confidence in viability of the whole arrangement may be shaken. The financial markets, those that cater for and finance international trade, must not be subject to political considerations and must be accorded a measure of independence. This is specially clear in the case of U.S. action of freezing Iranian Gov- ernment assets. There could be no economic or even political reason to justify manipulation of the international monetary system. It was a dan- gerous weapon that affected not only those against whom it was aimed, but also had global repercussions which have resulted in undermining the world confidence in the international banking system. The Iranian Gov- ernment at all times before and after the freeze honored its obligations. But after the formal declaration of the freeze, all efforts by Iran to pay interest and principal of Iranian Government loans became futile. Iran has always honored all its financial commitments, but U.S. banks ignored re- peated instructions, sent days before the date of the freeze, to pay interest on outstanding loans, and declared default on such loans and accelerated repayments. U.S. bank branches abroad followed suit, in total disregard of the bank- ing laws of the host countries, and legal actions taken by Iran to oppose such moves are pending in those countries. It is appalling that in some cases the American banks based their argument for disregarding the host country's banking laws on the Fund's Articles of Agreement. Another harmful development brought about by such measures was wide-scale use of reserve currencies and also international network of banks for political aims. The U.S. measures provided an illegal precedent for any country issuing an international reserve currency to deny the holder at any time the right of usage of such currencies. A very serious implica- 122 tion of such an action is the vulnerability of developing countries in the face of similar measures taken by the government of an industrial country. When a single government could stop the free use of a so-called freely usable currency, this would seriously lessen the credibility of the Articles of Agree- ment. The immediate effects of such measures were to deny a sovereign state and an original member of the IMF its assets and to inflict economic hardship upon Iran. The wider implications go far beyond national boun- daries and indeed threaten the very foundation and purposes of the Fund. The proper functioning of the international monetary system, stability of the world money and capital markets, safety and security and free move- ments of assets, are at risk. These concerns led the Third Meeting of the Governors of the Central Banks and Monetary Authorities of Muslim Countries, which was recently held in Riyadh, to oppose the freezing of Iranian assets and to call for their immediate release. Therefore, any new international economic order should be devised in a manner that does not leave any room for manipulation by any single country.... We must take urgent steps to rectify such developments and if we fail to take action, serious difficulties will arise. In this day and age, countries of the world are being awakened to their rights and obligations. They want to control their own political and economic fate and destiny. I therefore strongly endorse, Mr. Chairman, your call for immediate structural changes within these two institutions, bearing in mind that any postponement will waste precious time and opportunity, to the detriment of all. I hope that the problems I have discussed, specifically our grievances relating to the freezing of our assets, will be reflected in the Chairman's Report so as to show that there is at least a world forum where such legiti- mate voices of discontent can be attentively heard. IRELAND: MICHAEL O'KENNEDY Governor of the Bank and Fund I should like to begin by associating Ireland with the welcome which has been extended to St. Lucia, St. Vincent and the Grenadines, and Zimbabwe as new members and by warmly welcoming also the People's Republic of China .... The implication for policy internationally is that it should be more than usually alert to change, and that it should exploit any opportunities that emerge, however small, to strengthen world expansionary forces, while not, of course, rekindling inflation .... I should like to relate my remarks briefly to our position in Ireland where we have been particularly affected by the international developments of the past year. This year our growth rate is likely to be below 1 per cent and our unemployment level has risen by about a quarter since the begin- ning of the year. Inflation is at an unacceptably high rate, but there are signs that it is moderating. Our balance of payments deficit, while remain- 123 ing uncomfortably high, is expected to fall, as a proportion of GNP, by about two percentage points this year. This latter is a welcome develop- ment. It is significant, against the background of higher deficits in the smaller industrial countries, and in the industrial countries generally for that matter. But this reduction of our deficit has, of course, been accompanied by the substantial increase in unemployment which I mentioned. We have a rapidly growing, educated labor force, and this, allied to the need to correct our current problems, is a factor making for our decision to pursue a planned development strategy for our economy, in spite of the setbacks largely stemming from the oil price shock. We see an appropriate evolution of incomes, and greater industrial peace, as key elements in such planning. In pursuing this strategy we will have regard, not only to the needs but also to the clear potential of our economy and, in this context, to the overriding importance of funding substantial infrastructural investment. The Irish economy is, of course, particularly open. We are dependent on export markets to absorb about half of our production. The develop- ment of the external environment, therefore, is crucial to the success of our efforts. It is my hope that, as a result of the better appreciation which we will gain from this meeting of one another's problems and opportunities, policies internationally will follow a direction helpful to the efforts being made in our countries to resolve current problems and to reduce imbalances. It is important to recognize the impact of policies in the larger countries on the more open smaller economies. The record high interest rates of the past year are a cause of concern to all countries, including our own, but they are a special burden on the developing countries. For them, high interest rates have serious adverse consequences and their plight deserves our close attention. I believe that the industrial countries must strive as far as possible to construct a policy on interest rates that avoids extremes, one that is based not just on national considerations but takes account of wider international implications. While it is necessary for us all to be on our guard against further inflation, and while increases in interest rates may be inevitable as part of our policies to achieve this, we must be wary lest the cure should have side effects as damaging as the disease. In our efforts to return to sustainable and balanced growth it is essential to ensure also that official arrangements to assist members through the present difficult period are adequate. The burden of adjustment must be spread over a reasonable period, with countries having access to adequate financing in the meantime. Such access will be vital for many countries, not least the developing countries .... The full extent to which the outlook for low-income developing countries has deteriorated since our meeting last year is made abundantly clear in this year's World Development Report. The report is required reading for anyone seriously interested in the future course of the world's develop- ment. Its basic message has a stark simplicity about it-that is, that all countries must adjust to meet the problems facing the world economy but that the burden of adjustment must be equitably shared. Few would dis- agree with this message. However, we must now move beyond general 124 endorsement of the message to a phase which will ensure operational sig- nificance for it. The incentive for doing so is given in the report's timely reminder-re-echoing that in the Brandt Commission report-of the grow- ing interdependence of all our economies. I would like to join with other Governors in welcoming the efforts being made by the Fund and Bank to really come to grips with the task of helping the poorest developing countries .... The performance of the World Bank Group has not been found wanting either. The sharp increase in lending which the Bank has been able to achieve, its constantly evolving programs in support of structural adjustment and the routing of an increasing pro- portion of financing directly to the poorest peoples, all deserve our un- equivocal support. These efforts by the Fund and Bank must be supplemented both by the industrial and oil exporting countries. As part of this, the line against protectionist pressures must be firmly held. Failure in this area will surely prevent the achievement of our common goals of increased employment and prosperity. I would suggest that the technologies that the developed countries can provide, and the vast resources now becoming available to the oil producing countries, can, if used together, make a major impact on the development process. The needs and obligations of the various eco- nomic regions of the world today have to be radicaUy reassessed in view of the major changes that have occurred in the last decade. Ireland attaches major importance also to the work of the International Development Association in helping the poorest developing countries. We were, therefore, heartened by the success of the Sixth Replenishment nego- tiations in settling an amount of $ I 2 billion for the replenishment of the resources of the Association. The donor countries must now honor the commitments made in the negotiations and bring the Replenishment into effect as speedily as possible. Pending its formal entry into force we think it is essential, in the interests of the countries who depend on loans from the Association, to bridge the gap in the Association's finances. It is in order to help in this effort, and as an indication of the importance we attach to it, that Ireland has informed the Association that we are prepared to make an advance contribution to it. It has been traditional at the Annual Meetings to record our thanks to the staff and Executive Boards of the Fund and Bank for all their work during the past year. I am happy to do so again this year. I should also like to thank the Managing Director of the Fund and the President of the Bank for the excellent leadership they have displayed during the year. I am sure that Mr. de Larosiere will understand if I say that, on this occasion, our appreciation must be directed particularly to Mr. McNamara in view of his intention to retire next year. Mr. McNamara has made a truly out- standing contribution in highlighting the plight of many developing coun- tries and in promoting schemes to help alleviate their problems. It is reassuring that, at a time when foresight and imagination are needed more than ever, he will continue to guide the Bank for the period immediately ahead. May I conclude by wishing him every success for the remainder of his term of office and in his retirement. 125 ISRAEL: ARNON GAFNY Governor of the Bank Three basic problems currently confront us: inflation, lack of growth, and international payments imbalance. Once again, many nations face serious difficulties as a result of recent, sharp increases in real oil prices. Applying lessons learned in the mid-1970s, some industrial countries are implementing policies of fiscal and monetary restraint, increased taxation, and reduced growth. These policies, while they may reduce a given coun- try's rate of inflation and slacken the deterioration of its balance of pay- ments, exact a high price, in terms of unemployment and living standards. Furthermore, were these policies to be adopted by all nations, international trade would be sharply reduced and world recession ensue. It is the oil importing developing countries (with a current account deficit totaling almost $70 billion) who will be hardest hit by combined inflation, stagnation and payment deficits. Although, in large measure, developing countries managed to weather the oil crisis of the mid-1970s, strong doubts now prevail as to their ability to cope with the new oil price shock. Par- ticularly hard-hit are the low-income developing countries, who are paying an enormous price in human terms. Unless a reasonable rate of growth is maintained in these developing countries, the repercussions-social, eco- nomic and political--could be disastrous. Furthermore, it should be noted that the economies of the semi-industrialized, middle-income developing countries are highly vulnerable to oil price increases. Those who, after years of strenuous efforts, are attaining some success, are now in danger of losing what they have achieved. Looking back on the 1970s, we find that the first oil price shock sig- nificantly slowed the development momentum in oil importing developing countries. For many of these countries, the recent oil price increases could mean not mere slowdown, but stagnation, and even regression, in their socioeconomic development. World economic disequilibrium in the 1970s, should have made amply clear the interdependence of the economies of all nations. Unfortunately, recent intensification of restrictive trade practices in industrialized coun- tries clearly shows that many have not yet learned this important lesson. Contraction of developing countries' export markets in industrial countries decreases not only their export earnings, but their capacity to import as well. The industrial and the developing nations thus should have a shared interest in maintaining, and even expanding, world trade. However, be- cause of a growing imbalance in international payments, barriers to world trade are rising. Proposals for long-range amelioration of economic problems are currently under discussion. But short- and medium-range programs must be activated to meet the serious immediate needs. To cite a few examples of appropriate measures which could be taken promptly: (3) Establishment, within the World Bank, of a "Fourth Window," aimed at expanding cofinancing, in which commercial banks and development institutions could meet; 126 ( 4 ) Strenthening of the "Third Window," by the provision of large- scale interest subsidization; (5) Operation of an export credit guarantee facility, to foster develop- ing countries' trade. In establishing priorities for development programs, international insti- tutions must aim at the attainment of an adequate standard of living. The essence of development for many, therefore, becomes the obtaining of an adequate supply of food and energy. In the case of food, successful appli- cation of appropriate agricultural technologies and the exploitation, through irrigation, of land which is currently marginal, or even unarable, should be the primary goal. Despite stringent constraints in terms of capital, arable land and water, Israel has, with the help of W orId Bank financing, developed its agricul- ture over the past two-three decades to the point of becoming a net exporter, instead of a net importer, of food. In view of our problems, the technologies developed place emphasis on high output with minimum capital investment, and have therefore proven to be particularly suitable for developing countries' needs. As in the past, we stand ready to share our experience and technology with other developing countries and with inter- national and regional development institutions. In the case of energy, financial resources throughout the world are being directed to the search for an alternative to oil. The World Bank is currently considering a special facility, which would finance development of addi- tional energy sources, including oil, in developing countries. We support this initiative and urge that an appropriate amount of funding be directed for the promotion of development of renewable sources of energy wherever needed. Despite limited means, my own country has made significant progress in developing industrial-scale energy sources, such as solar ponds and methane gas from agricultural waste. We have ample reason to expect, in the next few years, for these systems to begin reducing our dependence on oil-based electricity. We are convinced, therefore, that the furthering of such new technologies warrants appropriate financial support within the framework of any special energy facility which the Bank may create. In closing, we are of the opinion that the economic problems evolving from recent oil price increases can and must be dealt with effectively on a world scale. However, this can only be achieved if all countries-and in particular the industrial nations-reach an appropriate balance between national needs and international considerations. While long-range solutions to basic economic problems would be welcome, adequate attention must be given now to essential and immediate needs. Regrettably, I cannot conclude without referring to an issue which obviously does not belong either to the regular subject matter, or to the priorities to which this distinguished forum has been accustomed. It was in recognition of the immense importance placed in the smooth functioning of the Bank and the Fund that by an unwritten agreement all their members observed the letter and spirit of their Articles, saving this unique forum 127 from political issues. We are all well acquainted with the criteria implicitly derived from the Articles and explicitly applied in the long-standing prac- tice of the two institutions with regard to the observer status. According to these criteria, such a status has been accorded to countries with pending membership applications and to international or regional organizations with continuing interest in, or significance to, the Bank and the Fund. The PLO does not meet any of the above criteria. All of us, no doubt, share the view that the world today cannot afford diversion of its two most important economic institutions from their real purposes. Only a firm stance against the introduction of extraneous political elements jeopardizing the form and substance of the Bank and Fund func- tions will enhance the best interests of the international community as a whole. Mr. McNamara, under your leadership the World Bank has taken sig- nificant strides forward in supporting economic growth, particularly in the lesser developed countries. Yet, as we are well aware, there is still much work to be done. We trust that, although your role as Bank President is coming to an end, your knowledge and experience will continue to serve the cause of development for many years to come. ITALY: FILIPPO MARIA PANDOLFI Governor ot the Fund During the past year, the representativeness of our institutions has been strengthened by the association of countries which have reached statehood or which were previously not represented. We welcome the new members of the Fund and the Bank. I would also like to extend a warm welcome to the Governors for the People's Republic of China, who have brought into our institutions the voice of over one billion people. Finally, I would like to thank the staff of the Bank and the Fund for the excellent organiza- tion of the meetings, and President Carter for his introductory address as well as for the gracious hospitality extended to us by the United States authorities. 1. Italian Economy The rejection by Parliament on Saturday last of a Decree-Law contain- ing a set of economic stabilization measures led to the resignation of the Italian Cabinet. This, inter alia, created a situation of conflict between my immediate domestic and international duties. I hope I have reconciled this conflict at least to some extent by being present here today to address my fellow Governors. I was needed in Rome over the weekend to introduce a number of urgent measures of a precautionary nature. These measures are tough ones, as they include a further raising of the discount rate to a his- torically high level and a tightening of regulations governing foreign trade financing. The speed with which such pre-emptive actions were under- taken clearly shows that we have not lost our determination to cope with difficult circumstances. Our economy has gone through difficult periods in the past, showing both resiliency in the face of adverse developments and 128 vitality in meeting new challenges. I believe that the time has come again to show our ability to react, and I trust we will do so. Indeed, over the recent past the performance of the Italian economy has been strong. The period of rapid expansion, which started at the end of 1978, has continued well into 1980, in the wake of a long-awaited recovery of fixed investment, with the result that over the two years 1979-80 the economy will show a growth of as much as 10 per cent. The combination of rapid growth in a context of declining world activity and of the impact of the oil price increase has caused a sharp swing in our balance of payments: the current account is now expected to record a $7 billion deficit in 1980, after a large surplus in 1979. As signs of over- heating became apparent and inflation accelerated, our monetary policy was progressively tightened. The policy of high interest rates has favored foreign financing of the balance of payments, with the result that international reserves in con- vertible currencies, EeUs and SDRs have remained at a level which is fully adequate to our prospective needs. Our economy is now expected to slow down considerably, and this in itself should help to reduce sub- stantially the high demand for imports which has prevailed recently and thus to relieve pressures on our balance of payments. I am in no position at present to outline the strategy of economic policy in Italy for the period ahead. There are differences of views among the political parties on the components of the economic policy program. But there is substantial consensus on the need to reduce inflation; besides being in itself one of the ultimate policy objectives, this will help us to strengthen the productive structure of our economy and, as in the past, to maintain our external payments in reasonable balance over the medium term. I believe these goals are within reach if the consensus on the objectives can be translated into concrete policy actions. 2. The World Economy For the second time in a decade the world economy has been hit by a major oil shock .... Imbalances are re-emerging in international payments, and slow growth of output and of employment are in prospect in both industrial and developing countries. The full deflationary effects of the oil price increase have yet to work their way through the economy, but the direct impact is already estimated at about 2 per cent of the aggregate GNP of oil importing countries. At present the relative cyclical positions of major countries make it unlikely that a severe recession will ensue as it did in 1975. It is also unlikely, however, that the behavior of the relative prices of oil and manufactures will follow the same pattern as in the post-1975 period. Under these circumstances, the risk of a protracted stagnation of eco- nomic activity cannot be ruled out. This would only aggravate social ten- sions, as the number of unemployed is already exceedingly high in both industrial and developing countries. But a slackening world economy would not entail per se a significant abatement of inflationary pressures. Although 129 price increases are expected to slow down somewhat in 1981, inflationary expectations remain strongly entrenched in our economic system. The process of adjustment to this new situation has barely started in most countries, but we already know what lies ahead. Adjustment will involve large transfers of resources and severe sacrifices. Adjustment will require that top priority be given at this juncture to a reduction of the inflation rate, and that the domestic causes of inflation, such as institutional rigidities that hinder the needed redistribution of resources and of incomes, be attacked. Adjustment means that an appropriate degree of restraint in monetary management should be accompanied by determined efforts to reduce public sector deficits and to remove price distortions which discourage efficient uses of resources and savings. "Real" adjustment means introduction of policies designed to elicit supply responses, to increase investment and productivity and to free resources for export. It means also the transfer of higher oil costs to final users to bring about significant energy conservation and encourage the development of alternative energy sources. These are great challenges, but the future of the world economy over the next decade is crucially dependent on our ability to meet them courageously and effectively. The re-emergence of large imbalances in international payments and the prospect of having to live with them for a protracted period raise funda- mental questions for the future of the international monetary system and of our Bretton Woods institutions. We can on the whole be reasonably content with the way the recycling process had developed so far. But the outlook is not entirely bright. Private capital markets have shown in the past their resiliency and flexibility in accommodating a rapidly growing demand for financing. No doubt they will continue to play their role. However, increasing reluctance by inter- national banks to continue expanding their exposure in highly indebted developing countries is becoming apparent in the form of a marked slow- down of new commitments and widening lending spreads. Such developments are not inappropriate in light of the need for con- tinued stability of the international banking system, and we should see to it that the expansion of lending does not foster inflationary financing of the imbalances and remains within prudential limits both as regards risk concentration and lending-to-capital ratios .... 3. Policies of the IMF and IBRD The scope for multilateral action in this area is very broad. And while the Bretton Woods institutions should continue to play the central role, there is ample room for supplementary and mutually supporting initiatives at a regional level, such as those the European Community is presently undertaking. The IMF and the World Bank, for their part, are adapting their lending policies so as to increase the financial resources available to members in 130 support of appropriate adjustment programs and to take into account the nature of the imbalances. We have endorsed the consensus which has emerged during the past few months as regards enlarged access to Fund resources by members as well as the adoption of a new "program lending" policy by IBRD .... But we are aware that the resources needed to implement the adjustment process are enormous, certainly well beyond what many members of our institutions will be able to mobilize internally. A further substantial in- crease in the resources made available by IBRD and the IMF to oil import- ing developing countries must be envisaged. To this end we have supported an increase in the gearing ratio of the World Bank .... The resumption of SDR allocations in the fourth basic period may also be envisaged in light of the aggregate need for reserves. It would serve the purpose of strengthening the role of the SDR as a reserve asset. The changes recently introduced in the SDR basket are intended to enhance the attractiveness and marketability of the SDR ... Two priority areas for the developing countries in which our efforts should be concentrated are food and energy. We support the proposals recently put forward by the World Bank for the establishment of a new energy affiliate, along the lines suggested at the Venice Summit ... Any proposal to substantially increase the resources of the Fund and Bank will need the support of the oil surplus countries. and I am sure they will show in this manner their willingness to take responsibilities com- mensurate with their newly acquired wealth for the continued effectiveness of our institutions and the solution of development problems. Such an increased role on the part of oil surplus countries is especially needed at a time when industrial countries, faced with severe domestic adjustment problems, are finding it difficult to maintain targeted levels of ODA. And I say this, coming from a country which has been severely hit by the higher oil prices and still has been able to substantially increase its appropriations for assistance to developing countries. Difficulties do not exempt us from our responsibilities. A decade has just ended, one which many observers thought would wit- ness the demise of the Bretton Woods institutions. A new decade has just started and I believe it will show the continuing vitality of these institutions and their ability to adapt themselves to new realities without losing their fundamental character. The outcome of our deliberations in these meetings is a first indication that we can indeed blend the urge for change and the desire to preserve into a viable and progressive line of policy. This is the avenue we should endeavor to follow in the years ahead. Finally I would like to join other Governors in expressing my high appre- ciation for the competence and dedication with which President McNamara has led the World Bank over the last 12 years. Under his leadership the Bank has not only considerably expanded lending in various forms to de- veloping countries, but has also given a new dimension to the role that inter- national institutions can play in the process of development. We wish him well for the years to come. 131 JAMAICA: R. H. P. SMALL Governor at the Bank and Fund Before I begin, Jamaica wishes to pay two special tributes. Our first tribute is to Mr. Robert McNamara for his leadership of the World Bank over the past 12 years. We sincerely hope that he will continue to serve humanity after he demits office next year. Our second tribute is to you, Mr. Chairman, for the forthright way in which you set the tone for this meeting in bringing to our attention the urgency of the need to reform the Bretton Woods system to make it responsive to the changed conditions of today's world. We join other delegations in welcoming the new members of the insti- tutions, especially our fellow Caricom States, St. Vincent and St. Lucia, as well as Zimbabwe and China. These Annual Meetings of the Bank and Fund take place at a time of deep crisis in the world economy, which is only matched by the disorder which at present afflicts the international monetary system. As serious as this is for the developed market economies, the impli- cations for the developing countries are little short of disastrous. . . . According to the World Bank's Development Report for 1980, the prospects are at best for slow or even negative growth for the first half of the decade of the 1980s. Only two years ago the World Bank envisaged that rates of growth and the volume of resource transfers would need to be greater than those attained in recent years if the number of absolute poor in the world were to be reduced from 800 million to 600 million by the end of the century. In the low-growth scenario the number of absolute poor in the world will rise to nearly 2,000 million souls by the end of the century- and it is this latter scenario which confronts us at present. In this context, the challenges facing the international community are awesome. And there is a correspondingly heavy responsibility on those of us-the political leaders and the top officials in finance and development of the greater part of the world-to respond to this challenge. And as we seek to find answers to the problems with which these Meetings have been preoccupied, we should remember that behind the sometimes abstract prob- lems of payments imbalances, the financing of deficits, adjustment and conditionality, and inflation, there lies the real world of human beings. We should remember that the poor and suffering majority of humanity looks to us to provide some hope for the future which would make more bearable the grim and somber conditions of the present to which delegates to this meeting have referred. My delegation has listened with great care and attention to the reports on the efforts being made by the Bank and Fund to reinforce existing measures and facilities and to introduce new ones, to address some of these problems. We would be lacking in frankness if we were to express optimism and satisfaction at the adequacy of the measures which have been estab- lished at these Meetings. If we feel some sense of dissatisfaction, it is not because we are unaware of the efforts which have been made, but rather because of a sense of the enormity and the urgency of the tasks that the 132 present situation requires. and the very real impacts they have on the lives of our people. Let me give you just one example. In dealing with the problem of pay- ment imbalances, the need for greater equitableness and symmetry in the process of adjustment has been continually stressed not only by national delegations, but also by the Group of Twenty-Four, by the Commonwealth Finance Ministers in their recent meeting in Bermuda and by the report from the Interim Committee. Indeed, the need for this has been accepted by this Board of Governors for many years. It is, therefore, difficult for a people like ours to understand why the burden of adjustment continues to be thrown almost entirely on the weaker deficit countries of the develop- ing world who neither have access to private capital markets nor possess the special privilege of using their own national currencies to finance their payment gap ... . . . But one should always remember that in small, open island economies such as those in the Caribbean, there is a much higher ratio of foreign trade and external payments to the size of the economy and the population of the country than in other countries. In per capita terms, the external payments gap is correspondingly much greater, as is the quantum of external finance which is needed to fill that gap. Moreover, it is a fact that the private capital inflows which were projected as a result of our stabilization program, failed to materialize, so that we experienced continuing difficulties in financing our payments gap. In addition, our export performance, al- though positive, did not experience the upward surge which we were led to expect would be the logical result of a devaluation of over 50 per cent. At the same time, let us review the "adjustment" that the Jamaican economy and the Jamaican people undertook in 1978 and 1979. In addi- tion to steep devaluation, domestic prices were substantially liberalized to improve the incentives for savings, investment, and production. There were large increases in indirect taxes, and reductions in subsidies, in order to reduce the fiscal deficit. Major new programs to provide credit for private sector exports were introduced. The result of all this was that the average real wage in Jamaica is estimated to have fallen by 35 per cent in 1978 and a further 10 per cent in 1979. According to a distinguished report prepared by the UNCT AD Secretariat for the Group of Twenty-Four, such a reduction in real wages would be "unthinkable" in the developed industrial democracies. Which of the developed countries that are the leading mem- bers of the Fund and the Bank could contemplate a reduction in real wages of nearly 50 per cent over a period of two years? In addition to all this, my Government inevitably had to cut back on a number of social programs which had been introduced to correct the social and economic inequities of the past and to make provision for the basic needs of our people. These are programs which are precisely of the type which arc being vigorously promoted by the World Bank and the inter- national community as being necessary for the alleviation of poverty and the improvement of the human condition, which are the ultimate objectives of development. Indeed, we have noted with interest and approval that the World Bank has given special attention to this aspect of development in the 133 current issue of its World Development Report. But the adjustment re- quired of developing deficit countries like Jamaica by the stabilization pro- grams of the Fund is in direct contradiction with the development of edu- cation, training, health, and nutrition so comprehensively discussed in the World Bank document. By the end of 1979, Jamaica was unable to meet some of the perfor- mance criteria under the second year of the External Facility Program. This was due largely to factors outside the country's control-especially the unanticipated severity of international inflation and rising interest rates, the rising costs of imported energy, and the inadequate level of capital inflows-all related to problems of a worldwide nature which have occu- pied most of the time of these Annual Meetings. However, at one stage we were told that the further "adjustment" required of our country should take the form of a reduction of about J$300 million-approximately 16 per cent of our fiscal budget; and that this should include the laying off of about 11,000 public sector employees at a time when our rate of unemployment had increased to over 30 per cent. According to our calculations, if the United States was asked to make an "adjustment" of this relative magni- tude, it would need to reduce the federal budget for 1980-81 by some US$103 billion. There would also have to be retrenchment of some 1,700,000 employees from the federal and state administrations. We can- not think of any better way to dramatize the asymmetry of adjustment and the problem of conditionality as it affects the developing countries, in real human terms. That is why Jamaica has associated itself with a recent statement known as the Arusha Initiative-which calls for the establishment of a new inter- national monetary system. Such a system should be universal in character and participation, democratic in decision-making, and capable of accom- modating to the needs of different social and economic systems and alterna- tive paths of development. Above all, it should be able to respond to the evident need for the transfer of resources to developing countries on a stable long-term basis, and within that context to secure real symmetry and equitableness in the process of adjustment to payments imbalances .... Nonetheless, Jamaica will continue to discharge its responsibilities and obligations of membership in the Fund and Bank. We will continue to support the ongoing efforts and initiatives at reforms in the international monetary system. We will continue to support the expansion of the lending operations of the World Bank to meet the evident needs of developing countries. JAPAN: MICHIO WATANABE Governor of the Bank and Fund It is my great pleasure to have the opportunity to state my views for the first time as Governor for Japan. I should like, first of all, to extend my hearty welcome to our neighboring friend in Asia, the People's Republic of China, which has sent its first delegation headed by Governors Li Baohua 134 and Wang Bingqian. I have no doubt that China will make constructive contributions to the Fund and the Bank. Let me also extend my warmest congratulations to St. Lucia, St. Vincent and the Grenadines, and Zim- babwe, our newest members. At this, the first Annual Meeting of the 1980s, I should like both to review the experiences during the last decade and to surmise the challenges of this decade. The 1970s was in many respects a decade of trial and tribulation for the world economy. First and most significant was the emergence of energy resources, particularly oil, as a grave constraint on economic growth in both availability and price. No sooner had we adapted to the first oil crisis, which had begun in the fall of 1973, than we were forced to face another sharp rise in oil prices at the end of the 1970s. In the 1980s, we must make utmost and immediate efforts to emancipate economic growth from the constraint of oil supply through reducing oil consumption and developing alternative energy sources. At the same time, we need to reconsider habitually expansionistic attitudes toward economic growth. In the 1980s, we must seek ways to enhance welfare of our nations' citizens, maintaining an appropriate pace of economic growth, while attending to preservation of natural resources and protection of the environment. The second challenge we faced in the last decade was worldwide infla- tion. The first oil crisis aggravated the worldwide inflation which had already been taking place and the world prices kept rising thereafter at high rates, though less than at first. Last year we witnessed a resurgence of price hikes and many countries are still suffering from double-digit inflation rates. Such prolonged inflation has discouraged private invest- ment and slowed down productivity growth. To regain price stability, persistent and wide-ranging policy efforts deal- ing both with demand and supply are indispensable. The key must be to maintain disciplined fiscal and monetary policies to control aggregate demand at an appropriate level. On the supply side, the importance of which has become widely recognized in recent years, we must establish and pursue feasible and effective measures within the specific circumstances of each nation's economy. In spite of the gradual spread of recession over the world economy, we must pursue with unswerving determination and endurance the difficult fight against inflation. By stabilizing prices, we ought to regain the confi- dence of businesses and households in the economic future, thereby re- vitalizing the economy and eventually achieving sustained economic growth. In particular, I sincerely hope that the countries with great influence over the world economy will carry out their international responsibilities by exercising economic discipline and implementing appropriate oil policies. The third test in the 1970s was the appearance of large payments im- balances between oil exporting and oil importing countries. Throughout the last ten years, oil exporting countries accumulated a huge current account surplus, whereas oil importing developing countries experienced an almost equal deficit. Since the outbreak of the second oil crisis, deficits 135 of oil importing developing countries have still been increasing, while those of developed countries increased rapidly. These imbalances may persist for a considerable time into the 1980s and the potential adverse effects on the world economy are cause for con- cern. We cannot dispel the fear of a stagnant world trade and even dis- order in the international financial mechanism which could occur if current account deficits should amount to such a magnitude as to impede sound management of the economies of the deficit countries, or if recycling of funds from surplus countries should cease to work smoothly. In order to prevent these portentous possibilities from materializing, it is essential, in the first place, that each country endeavor through appropriate policy efforts to reduce its payments imbalances as far as possible. The adequate energy policies and anti-inflation measures referred to earlier must be implemented steadfastly for the purpose of adjusting external imbalances as well. Second, we need to improve the mechanism for channeling funds from surplus to deficit countries. Various reform measures have been taken recently to facilitate recycling. Namely, the role of international financial markets has been strengthened and international cooperative efforts are under way toward the sound functioning of these markets. Furthermore, now in many international financial institutions, the resources have been reinforced, financing facilities improved and more flexible lending policies adopted. The issue for the future is how appropriately each country will make the best use of these financing mechanisms. In this connection, I hope, in particular, that the surplus countries will make positive efforts to promote a stable flow of funds to oil importing developing countries. Now I should like to turn to international monetary problems, reflecting on the 1970s and looking ahead to the 1980s. In the turbulent decade of the 1970s, the international monetary system groped for new institutional devices to ensure development of the world economy. One major achieve- ment was realized in the management of the exchange rate system. The floating exchange rates among major currencies started as emergency measures, went through many trials in the course of the 1970s, and have now been accorded an established role in international transactions. Though various flaws have been pointed out with regard to floating rates, I believe that no other system could have successfully coped with the volatile world economy caused by, inter alia, successive increases in oil prices. In recent years, through cooperation among monetary authorities, we have been strengthening measures to counter disruptive fluctuations in ex- change rates. In the decade that lies ahead, we should further improve the management of floating exchange rates, by maintaining and augmenting the ties of cooperation among monetary authorities .... In the years to come, we should consider the active use of the SDR in order to attain greater stability in international currencies. To this end, a proposal aimed at replacing parts of official reserve holdings by SDR- denominated assets is now under consideration. Japan will continue to cooperate actively in discussions on the realization of schemes for the 136 stable international monetary system, including further consideration of this proposal. Next, I should like to take up the issue of the developing countries. Despite the harsh world economic environment of the 1970s, developing countries as a whole have maintained a higher rate of growth than the industrial countries. In particular, remarkable progress has been achieved in those countries which made extraordinary efforts for economic develop- ment, and I would like to pay my highest tribute to the untiring efforts of these countries. It is admitted, however, that many problems still remain unsolved for the developing countries. Many countries are confronted with substantial current account imbalances and enormously accumulated foreign debts, pri- marily due to the sharp increase in energy costs. And a large number of people are living in absolute poverty, left behind by economic progress. On the other hand, the industrial countries are now faced with the "trilemma" of inflation, recession, and payments imbalances, all of which could weaken their capacity to extend aid to developing countries. I believe that, in order to solve these problems, under these circum- stances, it is imperative that each country not take recourse in trade pro- tectionism, but make further efforts for international cooperation. It is also strongly hoped to review the present aid policies in order to make develop- ment assistance more effective, while expanding it steadily. Let me present my view on the expected roles of the Fund and the Bank in the 1980s to tackle such problems of the world economy, international monetary affairs, and development assistance as I have outlined .... Now I would like to refer to the activities of the World Bank Group. First of all, I hope that the financing resources of the Bank will be strength- ened by the agreed general capital increase so that individual efforts of developing countries can be readily supported under severe world economic conditions in the 1980s. Japan is ready to participate positively in the agreed general capital increase and, at the same time, intends to give favor- able consideration, as ever, to the Bank's funding in the Tokyo capital market. We subscribed, from the same point of view, to a substantial share in the Sixth Replenishment of the International Development Association. We have completed the necessary domestic procedures and have notified the Association of our subscription. Member countries are strongly urged to do their best to make the Replenishment effective as soon as possible in order to avoid disrupting the activities of the Association. Second, I would like to stress the importance of the accumulated knowl- edge and experience of the World Bank Group. Based on its wide experi- ence over the past three decades, the Bank has made a great contribution in various spheres of development, such as food production, social develop- ment, energy exploitation, and, more recently, in the promotion of human development. I expect that this wide-ranging expertise will play an ever more important role in the 1980s. In addition, let me assure you that we will continue to cooperate positively with regional development institutions which, along with the World Bank Group, are operating to meet the par- ticular needs of the respective regions. 137 Let me briefly explain the recent developments in the Japanese economy and in policy management. The nearly threefold increase in the oil import price since December 1978 has exerted a severe and profound impact on the Japanese economy. The external payments due directly to this increase in the oil price amounted to more than $30 billion. Since the third quarter of 1979, the current account has been recording large deficits caused mainly by this additional payment. Although signs of improvement have been seen recently in the current account, on account of the increase in exports and stability in import prices, rapid reduction of the deficit seems unlikely. The sharp increase in import prices, including the oil price, has also considerably affected our domestic prices. Mainly because of external factors, the rate of increase in wholesale prices accelerated since the second half of 1979 to reach a year-to-year rate of 24 per cent last April. The wholesale price rise has progressively become moderate and is now con- sidered to have passed its peak, but consumer prices are still rising at a high rate and therefore require close scrutiny. Overall business conditions had kept a steady growth until the beginning of this year, largely owing to increases in private fixed investment, but the pace has been slowing down since then, because of a backlash from front- loaded spending and stagnation in private consumption. Under these circumstances, the official discount rate was lowered in August and a Comprehensive Package of Economic Measures was an- nounced by the Government early this month. Thus, we are ready to take adequate measures flexibly, while paying close attention to developments in the economy, seeking stability in prices, and maintaining aggregate demand at an appropriate level. The Japanese economy has thus far adjusted successfully to the changing world economic environment, achieving relatively good performance in economic growth and price stability. In the meanwhile, however, the adaptability of the Japanese economy to the changing circumstances has been undeniably undermined by a significant deficit in the government budget as well as in the external balance. In particular, the restoration of fiscal soundness is indispensable for fulfilling our international duties as well as for ensuring stability in the lives of the Japanese people and the steady and balanced growth of the economy. Therefore, the most im- portant and urgent task before us is to adjust our economy to a long-term path of steady growth, through appropriate policies, pursuing at the same time the restoration of fiscal soundness. Now I should like to touch briefly upon our development assistance policies. First, you are assured that the target will be achieved after great efforts to double the annual amount of our official development assistance within the three-year period ending this year. While we are determined to continue to take a positive stance toward official development assistance in spite of a severe budgetary situation, we intend to pay closer attention to the needs of individual developing countries to maximize the effect of our aid efforts. Second, even with our domestic social and economic problems, we have been striving to expand both the imports from and the flow of funds to de- veloping countries. 138 Third, we will continue to play an active role for the establishment of the Common Fund in order to help stabilize primary product prices and contribute to the economic advancement of the developing countries. Fourth, I would like to stress the importance of human resources for social and economic development in developing countries, as pointed out in this year's World Development Report. Japan has, in the past, made efforts to cooperate in this field and we intend further to amplify our efforts in the future. The last decade was a period of trial for the world economy. The up- coming decade also appears to be a hard one, full of challenging tasks. The sound development of the world economy hinges on each member country making the utmost effort toward overcoming difficulties in its own economy in the spirit of international cooperation. One of my favorite maxims says that, "the path of duty lies in what is near." By analogy, how- ever high a mountain may be, a path to the top can always be found. In other words, whatever we aim to do, we must carry out step by step what we can. Only when each country makes steady progress will international cooperation and collaboration become fruitful. With this basic belief. Japan is dedicated to contributing to international society through the sus- tained development of its domestic economy in harmony with the world economy. KOREA: SEUNG· YUN LEE Governor of the Bank and Fund Managing Director de Larosiere, President McNamara. Members of the Governing Boards, and Distinguished Delegates and Guests, I feel most honored today to address these Annual Meetings. Since our last meetings in Belgrade, the world and its economy have undergone a number of sig- nificant changes that challenge our wisdom and determination. With you, Mr. Chairman, presiding over this important meeting, I am confident that we will not fail to take necessary actions to restore faith in the vitality and resilience of the world economy. I would like to welcome the members who have joined the Fund or the Bank since the last Annual Meetings-St. Lucia, St. Vincent and the Grenadines, and Zimbabwe. It is also' my hope that the participation of the People's Republic of China as an important member will contribute to further strengthening the fabric of these financial and monetary institutions. These will be the last Annual Meetings of the Bank and Fund that President McNamara will be attending in that capacity. My thoughts naturally turn to the enormous challenges to our organizations when he assumed his position and to the numerous and important contributions the World Bank Group has made since then. The past decade was in many ways the most difficult period for the world economy since the founding of the Group. Against the backgrounds of demographic expansion and dwindling natural resources, we have wit- nessed a series of unending economic crises that threatened to shake the very foundation of the world economy. On the one hand, demand for 139 larger resource commitments was made upon the Bank, while obtaining commitments of resources to the Bank became increasingly hard. A large part of the world community lay helpless against abject poverty and despair. A growing number of member nations felt stymied by a new wave of trade restrictive measures just as their hard-won productivity improvement began to show results in international markets. And throughout most of the developed world the shock waves of two energy crises reduced the will and ability to create a more dynamic and fair world economic order. And yet, the Bank did not share the gloomy mood. In order to help the members weather this unprecedented economic adversity, the Bank has taken major innovative measures, judiciously balancing caution with cour- age. Of particular importance is the launching or fortifying of various social development programs. The Bank's investment policies for upgrad- ing the absorptive capacity of developing countries, concern over the employment effects and environmental preservation, and its recent and timely adoption of structural adjustment lending are but a few such examples. I am sure that my colleagues agree with me that the Bank under Presi- dent McNamara has secured a firm ground as a development institution whose views on economic matters are respected and welcomed throughout the world. I should like to pay highest tribute to him on behalf of the Korean people and their Government and wish him well for his future. I should also like to express my hope that his expertise and judgment will continue to benefit us even after his retirement. ... Prospect for the World Economy During the recent past, a number of painstakingly prepared analyses of the world economy have emerged. A widely-shared consensus seems to characterize their conclusions on how the triple straitjacket of rising unem- ployment and concurrent inflation in developed as well as developing coun- tries, the severe and apparently unabating current account deficits of the oil importing developing countries, and the increasing entitlements gap both within and between nations have come to us. Whatever conceptual tools or analytical methods may have been employed to produce such a large consensus, the studies convince us again that the fundamental cause of this near calamity is none other than our failure to reduce the gap between our perception of the problems and willingness to act accordingly. Long since, we have been aware of the theoretical limitations of the neo- classical economics that place the pivotal role on demand management. When requirements for growth and full employment of resources com- promise those for stabilization and distributional justice, as they do now, national authorities alone do not possess too many effective tools to revive their economies. Whether we like it or not, the extent of economic inter- dependence among our members counsels us to think and act in unison, boldly foresaking convenient truths and comfortable choices. In today's world, we all know that the shape of the world's and indi- vidual nations' economies are being forged by multi polarized and mutually 140 dependent economic forces, many of which did not even exist only 20 years ago. The values and aspirations they seek are diverse; their commitment to these goals is high; and they possess adequate means to initiate actions which. due to the fragile nature of the interdependence, can cause tremen- dous repercussions. The homogeneity of values and assumptions and the clear-cut understanding of respective roles that underlay the previous inter- national economic order do not apply to the current order. On the physical side, we must not fail to observe new facts and reorder our priorities accordingly. The ratio between population and economically available natural resources have turned unfavorable to our established ideas on development with an accelerating speed. Savings and capital available for development investments have not been increased in parallel with the human potential to promote the growth. let alone with the need for it. And most important of all, the available time span for introducing necessary adjustments to changing environments is being reduced while the conse- quences of failing to take act;ons are becoming increasingly heavier. The Second Resources Crisis and its Consequences I do not wish to present you with a merely historical survey. Rather, I hope to underscore the urgent need to reduce the gap between our rational perception and inadequate action so that we may together fulfill the expec- tations of our respective peoples. My own perception of the future world economy is such that we, th~ member governments and the Fund and Bank. must now act together in order to prevent certain situations from arising which otherwise are highly likely to develop. Foremost of them all is the probability of a disruption in the flow of international financial resources. Since the beginning of last year, the average price of imported oil has increased by more than J 20 per cent. Today close to 30 per cent of total exports from oil importing developing countries must be diverted to the suppliers of this crucial raw material. The full consequence of this sudden change, including its secondary impacts channeled to us through newly- intensified protectionism and thinly-spread resources of commercial lending facilities, arc beyond any imaginable capability of the developing countries to bear by themselves alone, as is well documented in various Fund and Bank studies. What is therefore needed is that the organizations concen- trate their efforts on strengthening their roles as responsible and effective intermediaries for the flow of financial resources to oil importing developing countries. Energy Affiliate and Additionality During the recent past. a number of international bodies have devoted themselves to the solution of this urgent problem. The works of the Devel- opment Committee, recommendations from the Brandt Commission, and especially the Program of Immediate Action proposed by the Group of Twenty-Four have already identified various aspects of the problem and have shown us ways in which we can jointly settle it. My Government 141 shares their views on the need to effect speedily the General Capital Stock Increase of the Bank and urges that the Sixth IDA Replenishment be finalized without further delay. My Government also endorses the propo- sition that the Articles should be amended so as to increase the gearing ratio of the Bank. In pursuing these objectives, however, it is essential that new resources, not a diversion from existing sources, be made available to the Bank. Every effort should therefore be exerted to make certain that new programs and institutions do not simply reallocate already available resources. As was pointed out by President McNamara yesterday, the Bank's lend- ing program for the next five years essentially reflects the world economic situation as it was projected in 1977, when the recycling problem was small in magnitude. Obviously, that is not the case today. It is for these reasons, then, that I welcome the proposal for establishing an energy affiliate of the Bank. I strongly urge the management to move speedily toward this end and further hope that all members, particularly the surplus countries, will channel significant portions of their extra resources through the Bank and Fund. International Credit Insurance While recognizing the importance of implementing these proposals, allow me to introduce here one more aspect of the international financial market. Official development assistance alone would not fulfill the growing need for short- and medium-term capital requirements of developing countries. The role of the international banking system, which recently has become the major source of development capital, will realistically continue to be the key factor. As was well pointed out by the Task Force on Non-Concessional Flows, the present payments imbalances also present a constraint on the interna- tional banking system. Understandably, international banks and their regulatory agencies are nervous about their capital adequacy and portfolio concentration. Although the prudential aspects of bank lending have not so far brought about a reduction of lending to an intolerable degree, there are clear indications that it may in years ahead. In view of this, my Government wishes to request the management to initiate immediately a procedure through which the feasibility of establish- ing a credit insurance institution as an affiliate of the Bank or Fund could be investigated .... Protectionism and Structural Adjustments Our concern over the capital flow and our painstaking efforts to devise methods to facilitate it should not blind us from the simple fact that ulti- mately it is the normal flow of trade and current account balances that only can bring the world economy into equilibrium. Recent proliferation and intensification of protectionism by developed countries therefore must be reversed if we are to achieve any long-term stabilization. 142 In spite of the two GATT rounds negotiated during the past two decades, quantitative restrictions chiefly aimed at manufactured exports from devel- oping countries multiplied in number almost parallel with their economic advancement. New acronyms like MFA, OMA, and VER have now estab- lished a firm place in trade lexicon, indifferent to the basic principles of GATT. In 1979, for example, nearly 50 per cent of Korea's exports to industrial countries was thus subject to these regimes, a figure almost double thatfor 1975. We do not need to cite here numerous studies that clearly showed how protectionism poses boomerang effects against the very countries that prac- tice it. What is not appreciated sufficiently is the fact that the practice also disrupts the process of global economic development as it prevents the NICs from vacating markets for labor-intensive products for more capital and technology-intensive products. My Government obviously welcomes the structural adjustment loans of the Bank and intends to do its best to use them in order to make necessary adjustments. Yet, this approach cannot bear its well-deserved fruit unless the current trend in protectionism is arrested. We are here in agreement with the Brandt Commission recommendations. Our hope is that developed countries will find it politically possible to commit their own resources to positive adjustments. In the meantime, we should not lose the momentum for trade liberalization generated by the Multilateral Trade Negotiation Agreements and resist the abuse of the notion of unilateral safeguard. Developing countries also need to upgrade their communication and trans- portation capacities for trade among them. Conclusion The world economy and our ability to manage it are now being put to a test. We cannot shy away from our responsibility to make choices that will redistribute benefits as well as burdens. In meeting this task, we should neither ignore political variables nor allow them to dictate to us. The strength of our two organizations always has been the high professional standards of the men and women who have guided their courses. They specialize in finding the least imperfect answers from the imperfect world of ours. And these path finders usually saw in crises the two elements that any crisis is made of: the danger of inaction and the opportunity to act. Today my faith and trust in their collective judgment remain intact. LAO PEOPLE'S DEMOCRATIC REPUBLIC: OUDONE PHOLSENA Governor of the Bank Speaking on behalf of the Lao People's Democratic Republic and the Laotian delegation, I should like to express my deep gratitude for the excel- lent arrangements made for this Meeting. My thanks are also extended to all those who have helped directly and indirectly in the preparation of this 143 Meeting. May I take this opportunity to welcome the new members who have joined our institutions since our last Meeting in Belgrade. As many Governors have stated, the world economy has deteriorated further and the economic crisis is deepening. An accelerating inflation rate and widening deficit have caused the developing countries, especially the least developed countries and the landlocked countries, to suffer the most. On this occasion, I should like to mention recent developments in my country. After 30 years of successful fighting, we are preparing to celebrate the fifth anniversary of the foundation of the young Republic and the achievement of reconstructing our economy after the disruption by a devastating war of aggression. Although we have devoted aU our efforts to reconstructing our economy during the last five years, we still face economic difficulties following two consecutive years of natural calamities. Such diffi- culties are less threatening than the aggressive activities in the North, the closing of the western border areas, the continuing tactics of persuading the people to leave the country and other activities aimed at the destruction of our new regime. In spite of the problems facing us, the Government and the people have always been devoted to and have pursued the development of agriculture first so that we can achieve self-sufficiency in food resources as soon as pos- sible and transform the economy into one founded on the principles of socialism. Now, as never before in the past, agricultural cooperatives have been formed voluntarily and strengthened; the arable land area has been ex- tended; irrigation systems have been built; new seed and new cultivation techniques introduced; and, together with an intensive agricultural program, we have been able to solve most of our food problems. At the same time, strong efforts have been made to increase exports of our main products, such as timber, coffee, tin, and others. By our own efforts and also with the aid of socialist countries, the UN agencies and international organizations such as the World Bank, the Inter- national Monetary Fund, the Asian Development Bank, the OPEC Special Fund, the IFAD, and the EEC, and friendly countries such as Sweden and Holland, we have been able, under the most difficult circumstances to re- construct our country; our people are deeply grateful for this assistance. The increasing need for resources in the developing countries, especially the least developed and most seriously affected countries such as the land- locked countries, means that the volume of the official development assis- tance to be assigned to them should bear special attention. My delegation would like to mention our concern that the institutions will not attach political conditions to ODA. We firmly support the position of managements who oppose such conditionality as being contrary to the spirit of our institutions. Once again I would like to express our concern that all assistance to member countries should be based on the principles of respect for the independence, sovereignty and the needs of the recipient countries. Moreover, we propose that the institutions re-examine and simplify their procedures in order to accelerate implementation of aid pro- 144 grams. Most important of all, such aid should be aimed at helping the recipient country to develop its economy. Finally, I wish to express our appreciation of the cooperation we enjoy with the Fund and the Bank. We welcome the position that the two insti- tutions have adopted in extending help and answering the needs of the poorest countries. LIBERIA: TOGBA-NAH TIPOTEH Governor of the Bank On behalf of the African Governors, we would like to extend Africa's warm welcome to all countries which, in the course of this past year, have become members of our two institutions. We particularly wish to welcome the membership of China and Zimbabwe to the Fund and Bank. The grow- ing membership of our two institutions in recent years reaffirms our collec- tive dedication and commitment to build a wider basis for multinational cooperation in the fields of finance and development. The substantive issues that dominate our deliberations this year have been presented in the excellent Annual Reports of the Fund and Bank. These reports have indicated the extent to which the world economy has entered into a serious crisis. At the time of our Belgrade meetings last year, the world was already characterized by an economic slowdown, continued high inflation and increasing balance of payments problems. Since then, the world economy has deteriorated further. The rate of growth of world output is diminishing, global inflation is accelerating, the growth in the volume of international trade has slackened and payments imbalances have continued to intensify. The present unsatis- factory trends in the world economy and the grim prospects for the next few years are imperatives for the adoption of appropriate measures de- signed to ensure a return to growth in the international economy. African Governors note with deep concern that the economic activity among the industial countries is slowing down. This slowdown is all the more disquieting since the economy of the United States is still experiencing a recession. Currently, the growth rate in real GNP of the industrial coun- tries is projected to decline from 3.4 per cent in 1979 to about 0.9 per cent in 1980 and 0.7 per cent in 1981. In addition, their inflation is accelerating from 7.6 per cent in 1979 to 9 per cent in 1980 and unemployment is on the increase. The decline in their growth rate has led to an estimated slackening in the volume of growth of international trade from 7 per cent in 1979 to 3 per cent in 1980 and 1981. These unfavorable trends among the industrial countries pose the gravest threat to the economies of the developing countries and in particular those of the non-oil developing countries since the creation of the Bretton Woods institutions. Although the non-oil developing countries had achieved a relatively high rate of growth in 1979, of the order of 4.9 per cent, the figure conceals profound disparities between regions. The countries of 145 Africa continue to have the lowest growth rate among the developing coun- tries. Their current real growth rate, at around 3 per cent, is hardly suffi- cient to meet the basic needs of our peoples. The African Governors are vitally concerned over the serious deteriora- tion in the terms of trade experienced by African countries in recent years. As is well known, the prices of our export commodities have dropped sig- nificantly in the last few years. At the same time, costs of imported goods, services, food and oil have risen substantially forcing our countries to cut back on foreign exchange outlays needed to buy essential capital goods .... We are convinced that it would be difficult to bring about a significant im- provement in the foreign payments situtation of our countries without a satisfactory solution to the problem of the deterioration in the terms of trade .... As regards the current account deficit of the non-oil developing countries we note with concern the continuing rise of this deficit from US$56 billion in 1979, to an estimated deficit of US$72 billion in 1980. For the non-oil African countries the estimated deficit has risen from US$9.1 billion in 1979 to US$1 0.0 billion in 1980. These growing deficits are posing serious problems to our countries. We do not believe the financing of these deficits can be supported without increased ODA assistance and access of the developing countries to private international capital markets. An important and worrying aspect of the economic situation facing the non-oil LDCs is the extraordinary increase in their external indebtedness. Total foreign debt of the non-oil LDCs is estimated at more than US$375 billion in 1979, while the cost of debt servicing has risen to US$69 billion, or more than 37 per cent of export receipts in that year. Certain countries iri the developing world are now experiencing very serious debt-servicing problems requiring urgent measures to alleviate the debt burden particu- larly for the low-income countries. The African Governors have been par- ticularly concerned about the deterioration in the structure of their global debt induced by the increase in the proportion of loans contracted on the private financial markets. As a result of this development, almost 50 per cent of the total debt at the end of 1977 is expected to be reimbursed dur- ing the period 1978-82. The African Governors are of the opinion that in the absence of a substantial increase in official development assistance it will be difficult for many low-income countries to honor their debt obliga- tions. Up to now debt relief arrangements have been limited to exceptional and critical cases. The overriding principle so far adopted by creditor countries has been to confine debt relief efforts to the minimum needed to permit the resumption of debt-service payments. We in Africa are of the view that the international community should give serious consideration to the prob- lems of debt relief having in mind the need to continue a country's develop- mental program. Unfortunately, an analysis of recent trends in capital flows toward devel- oping countries shows that development assistance from all sources has increased more slowly than financing made available on market terms. 146 New flows under this heading from the industrial countries account for only 0.34 per cent of their GNP, or in other words a figure below half of the target of 0.7 per cent established for the second development decade. While the slowing down of economic activity in the industrial countries may be partly responsible for the decline in ODA, we hope that the reduction in economic performance in several member countries of the DAC will not be an excuse for the failure of these countries to attain ODA target of 0.7 per cent in the next few years. We are aware that economic and social progress in our countries depends to a large extent on our own efforts. However, we believe that assistance from the international community, as a supplement to our own efforts. can significantly accelerate development in Africa. For low-income African countries, development assistance is often the only source of external finance. Moreover, the African Governors believe that an expansion of development assistance is an essential aspect of the international adjustment process. Such an expansion would contribute to a growth in economic activity in the industrial countries. where there is considerable underutiliza- tion of productive capacity and where unemployment is quite high. We deplore the growing protectionism in the industrial countries, which limits export opportunities for the developing countries, but hinders also growth prospects in the developed countries themselves. We strongly urge all countries to resist protectionist pressures and to take the necessary steps to establish an open system of international trade that would permit a rapid growth of exports of manufactured products by the developing countries. The magnitude and severity of present economic problems in the world require a new impetus in international cooperation. The need to strengthen international solidarity is predicated on the fact that all countries are living in an interdependent world which means in essence that several aspects of international cooperation must be borne in mind in the conduct of national economic policies. In this connection, the African Governors note that some of the key issues in international cooperation have been dealt with in the Brandt Commission Report. We certainly hope that the international community will respond positively to the Report's recommendations. The African countries had pinned considerable hope on the international development strategy for the Second Development Decade. Now that we are embarking on another cecade, the 1980s, it is evident that the accom- plishments so far have been very limited. The gulf separating the develop- ing countries from the rich countries is continuing to widen. The gap between African and the other developing regions has become more marked. During the 1970s, the per capita income in the poorer African countries rose by no more than US$4. The prospects that can be discerned from the "World Development Report, 1980" are highly disturbing: the report ex- pects a decline in per capita income in the poor countries between 1980 and 1985. This situation is intolerable. The constraints which caused the disheartening results of the 1970s could very well continue through the 1980s unless a solution can be found. This is why the African Heads of State and Government of OAU have adopted the Lagos Plan of Action for 147 the Implementation of the Monrovia Strategy which emphasizes "auto- centre" development of the African countries and assigns priority to "self- reliance." In the context of the deteriorating economic situation and the need for mobilizing resources for the continent, we arc strongly committed to the endeavors of our regional development finance institution, the African Development Bank Group. We would like to underscore that the African Development Bank Group is in the process of mobilizing both its conces- sional and conventional resources in order to support the development efforts of its member states and would strongly urge donor countries to give their strong support to this effort. We would also like to register our appre- ciation for the cooperation that has taken place between the World Bank and the African Development Bank in the areas of co-financing, training and exchange of information. Mr. Chairman, in the foregoing brief remarks we have tried to highlight in very broad terms some of the issues that are of particular concern to our countries in the present circumstances. Permit me now to share with you some of the African Governors' views on the role of the Fund and the World Bank in the period ahead .... We need not overemphasize the fact that inflation has become a global problem. In the industrial countries the prices of manufactured goods have risen substantially thereby fueling inflation. The high inflation in these countries has become inimical to sustained economic growth and it is caus- ing distortions and inequities. At the same time it is hampering economic policymaking. It is clear that the persistence of high rates of inflation in the world as a whole continues to be a serious deterrent to economic develop- ment. In this connection, it is encouraging to note that industrial countries, which have a heavy weight in the world economy, have taken a view that inflation at present is intolerable. We would, therefore, encourage these countries to take appropriate actions designed to bring inflation under con- trol. Of particular importance in this regard are the measures required to achieve higher levels of saving and investment and to encourage growth of production through improvement of supply conditions and removal of other structural impediments to growth. Another significant issue that we would like to mention here relates to the energy problem. ]n recent years the cost of energy has become of criti- cal importance to the world economy. The repercussions of recent oil price increases on the balance of payments have been felt by most countries, par- ticularly the lower-income developing ones. The need to deal adequately with the energy issue is clearly a matter of paramount importance to the international community. The African Governors recognize fully the neces- sity to avoid the pervasive impact of the recent upsurge in oil prices. We therefore would like to stress the importance we attach to the need for cooperation between the oil exporting and oil importing groups of coun- tries. We believe that cooperation in this area is essential for the purpose of developing a basis for more stable conditions in world oil markets and for a more orderly evolution of the price of oil in real terms. As regards 148 other measures required to deal with the problems of energy, the African Governors believe that there is a fundamental need for all countries not only to cooperate in conserving energy and in developing additional and alternative sources of supply but also to embark on a positive program of substitution of petroleum-derived energy where feasible. We arc also con- vinced of the need for all member countries to maintain realistic energy pricing policies and to assist in limiting the secondary repercussions of oil price increases on the general price level. ... As regards the activities of the World Bank. we note that the World Bank Group has carried out. and has indeed slightly exceeded, in nominal terms. its planned program of operations for fiscal year 1980. We wish to reiterate our continuing support for the new initiatives which are being taken by the Executive Directors and management of the World Bank Group to adapt the operations of these institutions to the changing economic circumstances of the deVeloping countries. Over the past few years, however, we have noted that the increase in IBRD commitments, in real terms, has been distinctly below the level gen- erally agreed to by the Executive Board. It would be most unfortunate to allow this situation in which we now find ourselves to continue. We must recall that the FYSl-S5 lending program of the World Bank was based on the economic situation that existed in 1977. At that time. an annual report growth rate in lending of 5 per cent appeared appropriate under the assumption that the rate of inflation for FY79 would be no higher than 7.S per cent. The rate of inflation, at 13.3 per cent for that year, was about double the assumed rate. Prospects are that the rate of inflation dur- ing the present plan period will be in double digits. It is clear, therefore. that the real value of resources that had been earmarked for the FYSl-S5 program would be much less than was originally assumed. On the basis of the growing economic difficulties which we have outlined in my introduction to this statement, and in which the President of the Bank and the Managing Director of the Fund have analyzed in their usual profes- sional manner, there is no question now that in addition to the developing coumries' on-going development efforts, the Fund and the Bank must make additional efforts to assist them to adapt or adjust their economies to the prevailing and prospective world economic situation. A number of ways of increasing Bank resources have been put forward in different forums. These include the changing of the gearing ratio, in- creasing subscribed stock without the necessity of additional paid-in capital, establishing a separately capitalized energy affiliate, etc. The African Gov- ernors do not see these different approaches as either/or propositions. We believe that they are all necessary. The problem is which of them can be more readily implemented. From experience we know that any proposals which call for financial contributions have been very difficult to implement on a timely basis. We therefore urge that tho~e proposals which call for no financial contributions should be examined immediately and timely action taken. Those that call for financial sacrifice should be examined in turn, paying adequate attention to the particular financial needs of the 149 developing countries at this time, and the depressing effect that an un- acceptable rate of growth of these countries would have on the indus- trialized world. The need to achieve high rates of growth and to adjust our economies to the world economic situation over which we have no control cannot be overemphasized. We require vastly increased financial assistance from bilateral and multilateral sources to supplement our own resources. If these are not forthcoming, we may have no choice but to cut back further on imports with intolerable consequences on investment programs. Such un- fortunate measures would be injurious to our people and those of other nations. In this regard, we call on the World Bank to review its present five-year program and increase its program to at least eliminate the full effect of inflation. When we discuss the problems of developing countries in such forums, we do not appear to pay sufficient attention to the special difficulties of the poorest developing countries. We have referred to ways in which World Bank resources could be increased. Unfortunately, Mr. Chairman, even if some of these approaches were successful, there are some countries that would not benefit on grounds of creditworthiness. These countries can only borrow from the International Development Association, the soft window of the World Bank Group. Even though the resources available to these countries are more limited than those for other countries, very little atten- tion has been given to possible ways of increasing these resources, to a method of ensuring that there is never a hiatus in their flow, and to ways of guaranteeing that the available funds reach those who are in the greatest need. We were gratified at the agreement reached on a US$12 billion Replen- ishment for IDA VI. This amount, which represented a commendable effort last December, is now obviously inadequate in the light of the grow- ing needs of the low-income developing countries and the higher-than- anticipated inflation that has already seriously eroded its value. But what is worse is that the Sixth Replenishment of IDA is still not effective more than three months after the date it was to have come into effect. This has been the result of the failure of some countries to complete the necessary legislative actions. Even though donor countries have agreed to make vol- untary contributions so as to enable IDA to continue to provide the urgently necessary assistance to the poor countries, no such contributions have yet been made. The African Governors call on all the donor countries to give this matter priority attention in order to put an early end to the damage which the lack of effectiveness of IDA VI is already inflicting on many developing countries. We suggest to the management of the Bank and the donor countries that future Replenishments should include bridging arrangements in order to avoid interruptions in the Association's commitment authority from one Replenishment period to another. It is imperative that ways and means be found to convert IDA into a sure and continuous source of financing for the low-income countries. 150 With respect to the distribution of IDA funds, we wish to express our concern at the stagnation in Africa's share in the last two replenishment periods. We would like to draw to the attention of this assembly once again that the majority of the African countries benefiting from IDA credits are not only low-income countries but also among the least developed coun- tries. In sub-Sahara Africa about 50 per cent of the population lives under conditions of extreme poverty. These factors argue for a substantial in- crease in the share of IDA to the sub-Sahara countries. Permit us, Mr. Chairman, to comment briefly on three specific aspects of World Bank Group operations. We are gratified to note the initiative and catalytic role of the World Bank in the sphere of co-financing. We would like to see measures taken as soon as possible to harmonize the policies and simplify the procedures of co-financing arrangements in order to allow African countries to benefit fully from this type of financial arrangement. We appreciate the Executive Board's decision to introduce a new financ- ing technique labeled "lending for structural adjustment." This initiative of the Bank will no doubt assist the countries faced with heavy payments defi- cits. It is, however, clear that Bank Group resources currently allocated for this purpose will be quite inadequate in making a significant contribu- tion to the financial requirements of countries that need adjustments in their economies. The aims of structural adjustment lending will thus be attained only if substantial additional financial resources can be mobilized for this category of operations. We trust that the Bank will continue its traditional program loans and will display enough flexibility in the implementation of the structural adjustment programs as suggested in the resolution of the G-24 that states that structural adjustment loans be dissociated from IMF conditionalities, and based on programs worked out by the developing countries themselves. We urge that structural adjustment loans should not be a substitute for other types of financing. The African Governors wish to pay particular complement to the Execu- tive Directors and Management of the World Bank Group for the special attention they have given to the energy problem. We need not remind anyone of the havoc that the cost of energy has done to the economic development efforts of our countries, and the fact that the situation would get worse unless we begin to take heroic measures to address this problem. This is why we express the wish that the World Bank take measures to facilitate and encourage regional efforts aimed at solving energy problems in non-oil developing countries. In this context, we wholeheartedly wel- come the initiative of the World Bank which aims at establishing an energy affiliate within the World Bank to finance the development of various sources of energy in the developing countries. It is gratifying that this suggestion has thus far received widespread support. We wish to empha- size the urgency of addressing this problem. Every effort should be made by all countries to ensure that an energy affiliate is in place and functioning within the World Bank before our next Annual Meetings. We wish to reiterate the importance that African countries attach to participation in the deliberations of the World Bank and the IMF at all 151 levels. We have on several occasions drawn the attention of this assembly to the threat hanging over the representation of sub-Saharan African coun- tries in the Boards of Executive Directors. We proposed last year that a lasting and satisfactory solution to this problem be found before these Annual Meetings. Unfortunately, no significant progress in this direction has been made. We, in Africa, cannot accept a reduction in the number of seats held by Africa in the Executive Boards of the Bank and the Fund. We feel strongly that necessary measures must be taken forthwith to ensure that Africa will at all times be adequately represented in the Executive Boards of the two institutions. Before concluding, Mr. Chairman, let us join the various Governors who have spoken before us as well as those who will speak after us in paying tribute to Mr. Robert McNamara who is attending these Annual Meetings for the last time as President of the World Bank. Anyone who examines the phenomenal progress that has been made by the World Bank Group since 1968 will readily acknowledge the great contribution that this man has made to the economic and social development of the nonindustrialized countries. His record of service is unrivaled. We wish him a happy retire- ment and feel sure that his wise counsel will be greatly missed in all inter- national meetings which are concerned with development. LUXEMBOURG: PIERRE WERNER Governor of the Fund This year the meeting of the Bretton Woods institutions is faced with two key issues: First, international economic and financial imbalances have, in the wake of the second oil shock, moved into a dimension as yet un- known, and call for an in-depth re-examination of adjustment and financing problems .... Second, many countries are facing problems of slower development as a result of this oil price shock: the new international development strategy for the next decade must take account of these difficulties. Since Luxembourg at present holds the Presidency of the Council of the European Communities, I have the privilege to present on this rostrum the Community's views on these two challenges before us. In general, the performance of the world economy in 1980 resembles in its poor results the situation in 1974 and 1975. Growth is at its lowest and inflation at its highest for five years. Following the second oil shock, cur- rent payments imbalances are at record levels, the oil producers' surplus having grown from some $5 billion in 1978 to around $115 billion in 1980. Unemployment, after some stabilization at an already high level in 1979, is again increasing appreciably in the majority of countries. Indeed, the new wave of oil price increases, not justified by market conditions, has induced a sharp acceleration of inflation and a marked slowdown of growth 152 in industrial as well as non-oil developing countries. The development prospect of non-oil LDCs has been seriously hampered. The outlook for 1981 remains uncertain, but there are some positive factors. Inflation has peaked in most industrialized countries. The balance of payments in these countries-while remaining in deficit-should improve next year. This recession is unlikely to be as deep as the last one. Never- theless, the outlook for growth in the industrialized countries will remain poor in 1981, and unemployment is likely to increase further. There is a risk of a new increase in the current deficits of the non-oil developing coun- tries. I shall come, in a moment, to the serious problems of financing and adjustment that they will face. This rapid sketch of the World Economic Outlook ... contains appre- ciably more shade than light. There are also considerable political uncer- tainties. Nevertheless, it would be inappropriate to give way to pessimism and resignation. There are many signs that the difficulties stemming from the shock of the sudden climb of oil prices and the resultant disequilibria may be better dealt with now than in 1974. Governments and public opinion in the oil importing countries today realize more clearly that the problem is one of a transfer of real resources which cannot be solved by inflation. For this reason the European Council at Venice confirmed that the fight against inflation will remain the first priority of the Nine. The Community has also prepared a program to cut its oil consumption and to develop its energy potential in the next few years, in particular by seeking alternative energy resources. The exchange markets have been relatively calm in recent months. This is largely attributable to current account developments in the industrialized countries whose currencies are most widely used, as well as to improved concertation between central banks. The European Monetary System, brought into operation at the beginning of 1979, has also been a factor in stabilizing international monetary rela- tions over this difficult period and has enabled us to cope successfully with the strains caused by external and internal imbalances. Further reinforce- ment of the Community aspects, including judicious adaptations where necessary, as well as increased convergence of the economic policies of the member countries, should enable the EMS to further contribute to the stability of the international monetary system. Although, on the whole, the difficulties -stemming from the process of adjusting to and financing the external imbalances have been overcome in a relatively satisfactory manner in the European Community over the last twelve months-taking account, of course, of the current difficult economic background-it must nevertheless be stressed that the situation is different for most of the developing countries, which have very little room to maneu- ver in the face of the dramatic deterioration in their balance of payments situation following the second oil shock. We must emphasize in this connection the responsibility which, among others, the oil exporting countries have toward the poorest countries-a 153 responsibility which takes practical shape in the policies which they adopt toward oil pricing and the investment of their accumulated financial sur- pluses. Given that the international banking ,sector's recycling capacity is not unlimited, a larger redeployment of the investments of the oil exporting countries in favor of the other developing countries-particularly by an increase in direct aid and by contributions on concessional terms to the international financial institutions-would seem vital. While the current economic crisis has confronted all oil importing coun- tries with the need to make radical adjustments, it has also plunged the poorest countries into a very difficult situation. For this reason, the financ- ing of these countries' deficits will be more heavily dependent initially on external resources. The private financial markets will continue to playa major role in chan- neling surplus countries' funds toward the deficit countries. It nevertheless seems possible, and recent trends confirm this view, that the banks and bond markets will show more caution toward a growing number of devel- oping countries. This behavior is motivated by the concern to maintain the essential stability of the banking sector. It is in this context that the International Monetary Fund and the World Bank, each in its own field, can playa decisive role .... Side by side with the problems which are the Fund's responsibility- those of adjusting to and financing deficits-the development problems which are the World Bank's concern have taken a more dramatic turn as a result of the current economic crisis. In this respect, the Bank's World Development Report paints an alarming picture, and the statement of President McNamara, whose devotion to the cause of development is par- ticularly outstanding, illustrated the economic and human dimensions of this drama which is liable to be enacted in the next few years, particularly in certain regions of Asia and Africa, unless the solidarity and wisdom of the international community can increase sufficiently the transfer of re- sources to the countries in question. The Community can state that despite its internal economic difficulties, official development assistance granted by its members in 1979 was 29.9 per cent up on the previous year, whereas for all the countries belonging to the Development Assistance Committee the increase was only 11.4 per cent and for the oil exporting countries it was 8.4 per cent. The European Council meeting in Venice last June also confirmed the Community'S political commitment to the North-South dialogue; it is, how- ever, important that the global negotiations, when they begin, should not attempt to take over the responsibilities of the two great world institutions whose affairs we are meeting to consider this week. The Community'S commitment in this respect, is not simply verbal, but a fundamental and permanent aspect of its policy. In this connection it must in particular be recalled that the Community is linked to the great majority of developing countries by a network of contractual relations unprecedented in both number and quality of which the Lome Convention is a prime example. In this context we can also mention the particularly fruitful cofinancing opera- 154 tions conducted by the European Investment Bank and the European De- velopment Fund. The European Community is convinced that it thus makes an appreciable contribution to the aspirations of the Third World by the establishment of a new type of relationship based on the ideas of shared responsibility, mutual advantage and on-going dialogue between equal partners. The new international development strategy which is being worked out in different international bodies and particularly at the United Nations will be of particular importance for the future of relations between the indus- trialized and the developing countries in that it is an expression of the international community's will to advance towards the attainment of the fundamental objectives of development: these are the improvement of wel- fare of the people in developing countries and in particular of the poorest among them, and progress in the establishment of fairer international eco- nomic relations. With this in mind, the member countries of the European Community have taken great interest in the Brandt Commission report, which is at present being studied in detail in our capital cities. This document makes an interesting contribution to the continuation of the efforts which were set in motion in 1974 with the North-South dialogue on the initiative of one of the Community member countries, and to which we have always attached the greatest importance. The World Bank will continue to join in the efforts to increase official financing and to attract private capital. As a result of the increase in its capital, and by developing cofinancing operations wherever possible, the Bank will be able to develop loans for structural projects. It is, of course, important that the Fund and the Bank continue to coordinate their opera- tions closely to ensure that their areas of responsibility do not overlap and their policies do not conflict. In the general economic context which I outlined earlier, it is clear that among the centers of interest of the Bank's activity, greater weight must be given to development projects in the energy field. The Community coun- tries have noted with interest the recent proposals by the Bank's President, and in particular the idea that activities in this specific compartment might be assigned to a new institution affiliated to the Bank. The Executive Directors could well undertake a first exchange of views on these problems in the near future. International institutions must continuously reflect on their role and must give proof of flexibility if they are to remain effective. In the last decade the Fund and the Bank have demonstrated a remarkable wealth of imagina- tion and adaptability. The present debate on their role and the way in which they function can be constructive if the prime requirement is ob- served, namely that of maintaining and even strengthening their financial credibility and authority. Only in this case will the two institutions be able to play an effective role in maintaining or restoring the credit of the coun- tries seeking their support. 155 May I end by saying that the member countries of the Fund and the Bank must direct their efforts toward two prime objectives: First, a search for the ways and means which will enable the world economy to climb out of the recession and return to balanced growth on the basis of stable international monetary and financial relations. Second, a rapid solution to the most urgent problems influencing the development of the Third World and the living conditions of hun- dreds of millions of human beings. Lastly, I should like to stress that the Bretton Woods institutions will not be able to continue to play an effective role unless the member countries are ready to cooperate on the basis of the principles of mutual advantage, common interest and shared responsibilities. MALAYSIA: TENGKU RAZALEIGH HAMZAH Governor of the Bank and Fund It is a great honor and privilege for me to address distinguished fellow Governors at these Thirty-Fifth Annual Meetings of the Boards of Gover- nors of the World Bank and the International Monetary Fund. Before proceeding further I would like first of all to welcome St. Lucia, St. Vincent and the Grenadines, and Zimbabwe who have joined the Fund and the World Bank this year and also the participation of the People's Republic of China for the first time at this meeting. It appears that we have now reached a critical juncture in international economic cooperation. The last decade saw a number of initiatives taken to make the international economic environment more conducive for our economic pursuit. We saw the start of the North-South dialogue, greater activity in UNCT AD, which has resulted in agreement to set up the com- mon fund, and major changes in the scope and scale of operations of the International Monetary Fund and the World Bank to cope with the changed International economic environment. Recently, we have seen the comple- tion of the Brandt Report on world development issues, particularly prob- lems facing the developing countries. In the meantime the world economic situation and prospects continue to deteriorate, with inflation being the major problem facing the developed as well as the developing countries. With the surge in oil prices and slug- gish growth in world trade, the balance of payments deficits of the devel- oping countries are expected to be much larger this year and could con- tinue to pose severe problems to these countries in the years ahead, given the present unfavorable economic situation and prospects. With the unfavorable international environment looming over our heads, it is easy for a country to be overly preoccupied with its own problems. But the fact is that we are now living in an increasingly interdependent world. The problems of today could no longer be resolved by nations acting on their own, but require the bold international action involving the whole international community. 156 In the present economic circumstances, the major countries have a spe- cial responsibility to steer the world economy back to an even keel and recovery. This calls for greater wilIingness of the countries which dominate the world economy to coordinate their policies and adopt measures to pro- mote stable economic growth and an environment that is more conducive for international economic transactions, particularly for developing coun- tries. As for the International Monetary Fund and World Bank, there are a number of specific measures which they could adopt to assist member coun- tries over this difficult period and to build up a more stable and prosperous world for all. While both these institutions have built up their capacity, their ability to fulfill such a role depends largely on member countries which hold the purse strings and command the votes. I would like to seek the cooperation of member countries to enable the Fund and the Bank to be more effective in fulfilling their role in financing international adjustment and development. For the World Bank, the decade of the 1980s will pose major chalIenges not only because it is increasingly involved in the difficult area of socioeco- nomic development, but also because of its greatly expanded scope of operations, arising from the growth in membership and the size of popula- tion; a result mainly of the participation of China in the World Bank and also the difficult situation faced by developing countries in financing the structural adjustment of their economies in the years ahead. This will calI for new initiatives to raise its resources and expand its lending capacity. I would therefore urge the OECD nations and the capital-surplus members of OPEC to assist the Bank in this regard. The availability of increased resources for the Bank is extremely important if the developing countries are to successfully manage the adjustment process arising from the unfa- vorable economic situation, particularly the high energy costs, as well as to avoid a deflationary trend which could adversely affect the development efforts of the developing countries with the unfavorable consequences that this may have to millions of poor people in the developing countries. The need to reduce the delay in legislative action for an expansion in the Bank's resources through the general capital increase and greater borrowing are therefore crucial. In addition, it is timely to examine its financial operations as to whether the one-to-one gearing ratio for its loan operations is not too conservative, given the pressing need for World Bank assistance. I am not aware of any international banks in the commercial world which operate on such a one- to-one ratio. In order to enable it to further raise its resources and to expand its lending capacity, the Bank should therefore look into its own financial management and, in particular, its gearing ratio should be im- proved. I welcome the move in the World Bank to increase its program loans. This lending policy will provide greater flexibility for the Bank in develop- ment financing. In particular, the loans wiII be very useful for developing countries, where development programs take the form of a large number of smalI projects, which is often the case in rural and agriculture development. 157 There is no doubt that for the low-income developing countries only loans on the most concessional terms will be helpful, since these countries find it hard to pay market rates. In this regard, I would urge the rich countries to take steps to speed up their contributions to be used as IDA credits, and also to achieve the target of official development assistance of 0.7 per cent of their GNP. I must say that the current achievement rate of 0.36 per cent is a poor effort. ... As in all forms of international cooperation, strong will and determina- tion are essential. Given the present unsatisfactory economic conditions and political uncertainties in several parts of the world, there is the grave danger that the will and determination to act will be lacking. Instead, there is a dangerous trend toward allowing narrow interests to subvert international cooperation, and in the process to weaken the confidence in the functioning of international institutions. We must stop this trend in the interest of stable and orderly world economic progress . . . . I would also like to pay a special tribute to Mr. McNamara, who will be retiring soon as President of the World Bank. His unstinting and imaginative efforts during the last 13 years at the helm of the Bank have greatly contributed to the social and economic development of the non- industrial world. especially the least developing countries. His departure and wise counsel will be greatly felt in future international meetings. We wish him a happy retirement and every success in his future endeavors. NEPAL: YADAV PRASAD PANT Governor of the Bank Mr. Chairman, it is my pleasure to address this Thirty Fifth Annual Meetings of the Board of Governors of the World Bank and the Inter- national Monetary Fund after a lapse of nearly half a dozen years when I had the opportunity of attending such Annual Meetings in the capacity of Governor for Nepal to the Fund. At the outset, on behalf of the Nepalese delegation and on my own, I would like to express my sincere appreciation to the Government and the people of the United States of America for the warm and generous hospitality extended to me and members of my delegation. I would also like to thank the management and the staff of the World Bank and the International Monetary Fund for the excellent arrangements made to the conduct of the meeting. I am also pleased to welcome the People's Republic of China, our great and friendly neighbour, for the first time, in this august body, and I hope that China's participation in the Bank/Fund activities will further expand the operations of these institutions. I also join my fellow governors in welcoming the new members of the Bank. Mr. Chairman, we are all aware that the decade of 1970 is marked by the turbulence in the financial and economic fields. The fixed exchange 158 rate was replaced by the floating of major world currencies. The developed countries were characterised by recession, high rate of unemployment, widespread and persistent inflation, lagging investment and declining pro- ductivity. On the other hand, oil importing developing countries experienced low level of economic activities, deteriorating terms of trade, adverse balance of payments position, and mounting debt servicing. The decade was also marked by the phenomenal rise in the price of petroleum products which resulted in a huge amount of balance of payments surplus of oil exporting countries. The impact of these developments was experienced by various group of countries in different magnitude and adjusted to it accordingly, the developed countries took recourse to tightened fiscal and monetary policies to adjust to the changing situation, and were also in a position to transfer their burden, in one way or the other, to the developing countries. Recessionary tendencies in the industrial countries coupled with inflationary pressure and energy price hikes have adversely affected the external position of the developing countries. particularly, in the areas of the capital flow and the export trade of non-oil producing developing countries. Since we met in Belgrade in 1979, the overall economic outlook of the world has changed for the worse. The situation of oil importing developing countries has presented a worrisome picture in many ways, and various studies have pointed to the gloomy future for 1980's. The real price of petroleum products and other imported goods have shown rising trends whereas the price behaviour of non-oil primary commodities is both erratic and generally weak resulting in the marked increment in the current account deficit. Huge. uneven and persistent payments imbalances have come at a time when there is a limited scope for the expansion of their export trade in view of the deteriorating terms of trade and protectionist barriers raised by industrialised countries. Any encouraging sign of improvement in this situation is hardly visible as yet. As against the growing needs of external resources of these countries, the net disbursement of the official development assistance (aDA), which makes a significant portion of the concessionary assistance to the least developed countries, has not increased in an adequate scale. In fact, the net disbursement of aDA, as a propor- tion of aggregate GNP of Development Assistant Committee members has virtually remained constant to less than half of the committed target of 0.7 percent of GNP. To cope with such an unfavourable and disappointing situation, the flow of real resources to the developing countries in general and least developed countries in particular must be accelerated in a massive scale, and the quality of such aid flow should also be improved accordingly. The fundamental problem of the world community is to face the chal- lenge of poverty and disease prevailing in the developing countries. The successive World Development Reports and the Brandt Commission Re- port, to name a few. have clearly presented problems and prospects facing the mankind. The Commission Report which provides a comprehensive analysis of the global issues, has rightly emphasized on the interdependence and the mutual interest of the world community. The Report has come 159 out with far reaching proposals and recommendations which deserve serious attention from the concerned parties. The Bank's lending operations have strongly projected the concern and the need of the teeming millions of the developing countries. The overall commitment of the Bank has increased, and more and more funds have been channeled to sectors such as agriculture and rural development, edu- cation, population and nutrition and small scale industries. Moreover, the decision of the Bank to finance the projects related to the exploration and development of petroleum products has duly recognised the emerging needs of the oil-importing developing countries. The most visible sign of progress the Bank has made in 1980 lies in initiating a new form of lending i.e. lending for structural adjustment aiming at financing the programme to adjust the long-term or persistent structural imbalance. . . . However, there is some concern in the availability of resources to the Bank and the Fund in order to finance the programme in an expanded scale. The general capital increase of the Bank, sixth replenishment of the IDA . . . have yet to be materialised. I urge fellow Governors to expedite the legislative process to make available adequate funds to these institutions in time. Mr. Chairman, I have already mentioned about the deteriorating external position of the developing countries because of mounting energy prices, the large balance of payments deficits, marginal increase in the external capital flow and so on. Nepal, a least developed and landlocked country, is naturally affected by the international economic events. The trade gap has widened further by almost 53 per cent in comparison to that of last year because of the fast growth in import expenditure and decline in the export earnings in 1979/80. The aggregate agriculture production in the Fifth Plan period (1975-80) declined by 3 per cent per annum due to adverse weather conditions in the first three years of the plan period whereas the population increased by 2.6 per cent per annum despite the efforts to slow down the rate of population growth. In fact, food produc- tion declined by almost 13 per cent last year due to drought in the western parts of Nepal. As a result, exportable surplus in rice has dwindled further and the jute, the country's major exportable commodity has suffered from the uncertain and volatile international market. On the other hand, import bill of petroleum products which accounted for a little less than 50 per cent of the export income in 1979/80, has continued to increase. All the economic indicators indicate a difficult task in managing the Nepalese economy in the years ahead. The phenomenal increase in the oil prices has generated interest in both the developed and developing countries to explore and develop alternative energy sources. Hydro-power, inter alia, is an important alternative source of energy. Fortunately, Nepal is endowed with abundant water resources. The proper harnessing of water resources for hydro-power will not only benefit Nepal but also solve the critical energy problems of the neigh- bouring countries. In this connection we in Nepal have taken note of the Bank's timely initiative in launching a new lending programme for energy 160 development. I urge the Bank to utilize such resources in the development of renewable energy sources which will enlist genuine cooperation between the developed and developing countries. Under the dynamic leadership of His Majesty King Birendra, Nepal continues to focus its attention to eradicate the problems of poverty and achieve its all-round development. We have launched the Sixth Five Year Plan this year with the basic objectives of gradual elimination of absolute poverty through the generation of employment opportunities, fulfilment of minimum basic needs of the people, raising the social-economic conditions of the rural and low income group and conservation and development of water and natural resources. Of course, we are determined to pursue vigorously the integrated rural development approach with the broad participation of the people. The public sector financial outlay has more than doubled in comparison to the Fifth Plan outlay. A significant amount of funds have been allocated to the development of productive sector without, of course, neglecting the development of social and economic infrastructure. Moreover, we have emphasised on the development of our water resources and particularly, hydro-power and irrigation system which are vital for extending and sustaining the future economic growth of Nepal. In order to fulfill the basic objectives of the Plan, we are determined to mobilise domestic resources as much as possible but the need for more and more external support in the form of concessionary assistance to meet the plan target is quite obvious. President Robert S. McNamara who led the Bank successfully with vision, dedication and hard work, has expressed his desire to retire from the Bank next year. We have been fortunate to have Mr. McNamara in the Bank at a time when the world economy is marked by grave economic situation with unprecedented complexities. We in Nepal appreciate the leadership he has taken in the past thirteen years in the Bank in favour of the world's poor, and we would have preferred for him to continue to lead the Bank. Mutual trust, cooperation and understanding among all the countries in the world serve as a precondition for the solution of the complex and diverse problems the world is plagued with. Present realities and future prospects in the international monetary, financial, and economic outlook are extremely grim, necessitating a common front and joint attack on the part of all the developed, oil-exporting, and non-oil-exporting developing countries for the creation of bright and happy new world. Thank you. NETHERLANDS: A. P. J. M. M. V AN DER STEE Governor of the Bank I would like to join my colleagues in expressing my regret at the coming departure of the President of the World Bank, Mr. Robert S. McNamara. I share the great appreciation of the valuable work he has done since his 161 appointment in 1968. His dedication was essential in developing the Bank into the important international institution it is today. I also want to welcome the new members of our institutions, and the People's Republic of China that, with a population of nearly .one billion, represents about a quarter of the world's population. Its accession clearly reinforces the universal character of our institutions. There are two topics I would like to address today. The first one is the urgent financing problem of the non-oil developing countries in the coming years; the second one is the role the Bretton Woods institutions can play in the solution of this problem. I want to place these topics in the context of the World Economic Outlook. Economic recovery will depend heavily on private investment and innovation, particularly in the field of energy. As to macroeconomic policy, we have to continue to give top priority to the containment of inflation. The recent slowdown in consumer price increases in some of the larger industrial countries is encouraging, indicating that the mon- etary and fiscal policy stance is on the right track. In this context, I want to emphasize the possible contribution of incomes policies in the present circumstances. One of the lessons from the first oil crisis is that terms of trade losses eventually will have to be reflected in incomes. Large inflation differentials are projected for the near future, as is usually the case when inflation is high. These discrepancies, together with the current account deficits of a number of OECD countries, give rise to concern about the potential consequences for the exchange markets, which have experienced a remarkable stability this year. Underlying pressures may be built up which cannot be checked by interest rate policies in the long term. Sizeable balance of payments imbalances are likely to persist in the period ahead. It is important to realize that future developments in this field depend to a large extent on the absorptive capacity of oil producing surplus countries. There may be reason for some optimism about their absorptive capacity. Nevertheless, substantial adjustment in deficit countries will remain necessary. Speaking about adjustment I would like to draw your attention to the position of the smaller industrial countries, where . inflation and current account deficits are still increasing. Developments after the first oil crisis indicate that adjustment is an especially difficult process for these countries. Let us now turn to the first topic I mentioned: the problem of the very substantial deficits on current account of the oil importing developing countries. These deficits are accompanied by very substantial surpluses for OPEC countries, surpluses that are not likely to vanish rapidly. At the same time, economic developments in the industrialized world are characterized by a low rate of growth and a high rate of inflation. A rapid improvement in this situation does not seem likely. The current account deficits of the non-oil developing countries are expected to remain sub- stantial in the coming years. An appropriate combination of adjustment and financing will be called for. Unlimited financing of the deficits is 162 neither possible nor desirable. It is not possible because the commercial banks are neither able nor prepared to do so. It is not desirable because a further increase in the debt burden would gravely endanger future economic development. Too heavy a stress on adjustment is undesirable as well, however. This would lead to an unacceptable decline in structural economic growth as well as to an unacceptable decline in the standard of living which in many countries does not allow the satisfaction of even the basic human needs. Therefore, a combination of adjustment and financing has to be found that will allow the necessary adjustment process to be spread over a longer period of time. The result has to be a gradually declining balance of payments deficit. Clearly, such a process will require time and, therefore, financing, for an appropriate period will have to be found. This financing will have to be partly concession ai, partly non- concessional. An important contribution to concessional financing has to be made by additional official development assistance, both bilateral and multi- lateral. The Government of the Netherlands urges a rapid expansion of the flow of concessional aid to developing countries . . . Especially in view of the extremely difficult position of many developing countries, it is of utmost importance that the generally accepted target for aDA of 0.7 per cent of gross national product be realized as soon as possible. Low-income countries that have only limited access to international capital markets depend to a large extent on an increase in this form of aid. Apart from an increase in the flow of concessional aid, an increase in the flow of non-concessionary capital to developing countries is also needed. The "Task Force on Non-Concessional Flows," appointed by the Develop- ment Committee at its meeting in Belgrade, has made a useful study of the ways in which these flows could be increased. The Task Force noted that the main problem in the coming year will be to assure the proper distribution of these non-concessional capital flows. A solution to this problem can be sought in three directions: increased cooperation between commercial banks and international financial institutions, the creation of mechanisms to guarantee the borrowings of developing countries on international capital markets, and an enlargement of the role of the international financial institutions. Regarding the first possibility, increasing risks have made the com- mercial banks more cautious in their lending operations in developing countries. In such circumstances, cofinancing arrangements between multilateral development institutions and private banks may give an important boost to the recycling process. However, I am aware that many complicated rules and procedures that often accompany cofinancing ar- rangements frequently deter potential co-lenders. It is therefore important that the Task Force develop proposals to remove such bottlenecks. The second possibility is the creation of some form of guarantee mechanism to improve the access of developing countries to international financial markets. Several interesting mechanisms have been proposed, but they remain to be worked out before decisions on their implementation 163 can be taken. I hope the Task Force will soon be able to produce an evaluation of these mechanisms. The third possibility is an enlargement of the role of the Bretton Woods institutions. This brings me to my second topic. At the outset, let me point out that the constructive contribution of the Bretton Woods institutions to the solution of global monetary and development problems has been and remains possible only on condition that they are not politicized. It is gratifying to learn that there is a general desire to expand the role of the Bretton Woods institutions, and that these institutions have already made progress in that direction. As to the W orId Bank, the decision has been taken to provide struc- tural adjustment loans. These loans fill a gap in the traditional tasks of the Bank and the Fund. The amounts that have been set aside for these activities at present are rather modest, and we will have to examine the possibility of making more money available. Additional lending capacity is also needed for energy exploration and exploitation. In this context I stress the need for an nicrease in the capital of the Bank. The Nether- lands would like to see a speedy ratification of the general capital increase of $40 billion by all member countries. In order to further expand the Bank's lending capacity in the longer term the Brandt Commission has suggested changing the gearing ratio. Alternatively, it would be possible to have an increase in capital without a paid-in portion. These proposals deserve to be studied intensively. I would like to urge a rapid completion of these studies, and hope that the ensuing discussion will soon lead to agreement because of the great importance of a further expansion of the activities of the Bank .... I have commented on the short-term aspects and solutions of the prob- lems we face today. As I indicated, a solution must also be found for deficits of a more structural character that cannot be resolved in one or two years. Initiatives in this field have already been taken. Both the Fund and the Bank, in fact, now give medium-term balance of payments support. As such, these new activities have, of course, to be welcomed as a re- inforcement of the role of the two institutions in the recycling process. But we must preserve the specific characters of the Fund and the Bank. Therefore, I would like to formulate some principles for the further development of medium-term balance of payments support within the framework of the Bretton Woods institutions. The first principle is that finanCing requirements of a structural character cannot be satisfied by means of money creation, be it in form of monetarily financed credits or in the form of allocation of SDRs. The international problems would never have been as large as they are, were it not for the runaway inflation we continue to experience .... Only nonmonetary means can be used to finance balance of payments deficits of a more structural character. This implies financing these deficits either by borrowing from countries in a favorable position that do not ask for a liquidity clause, or by borrowing on the capital markets. 164 Both have their own specific advantages and disadvantages that will have to be carefully studied .... Support for structural adjustment, therefore, has to be distinguished clearly from the traditional activities of the Fund. We will still have to review which institutional arrangement will best guarantee such a distinction. I have dwelled at some length on the separate tasks I see for the Fund and the Bank in the near future. But precisely because their areas of activity are closely related, I feel that increased cooperation between the two institutions is of the utmost importance. I believe that an even closer cooperation between the Fund and the Bank will be possible without either institution losing its own specific character. This means that the Fund will remain concerned with general macroeconomic conditions, whereas the Bank will concentrate on develop- ment and on the microeconomic aspects of the economics of its member countries. NEW ZEALAND: R. D. MULDOON Governor of the Fund Mr. Chairman, first of all I wish to congratulate you on the theme of your opening address. Wc have had too many words, and what the world now needs is action and the political will to act. Two closely related and equally depressing factors determine the outlook for the world economy. First, there are massive imbalances between the surpluses of the oil producing countries and the deficits of the oil importing countries. Second, adjustment to higher oil prices and action to stem inflation have resulted in depressed economic conditions in the major western economies. I do not propose to discuss here the pattern of events that has produced these conditions. There has been endless debate in various institutions over the last year apportioning blame for what has happened. Rather, I want to talk about the consequences of payments imbalances and depressed economic conditions. Countries which depend heavily on imported oil and which also have low per capita incomes view the future with foreboding-foreboding which was clearly apparent among Ministers speaking at the Commonwealth Finance Ministers' Meeting in Bermuda last week. At that Meeting there was agreement that "funds available for developing countries were not growing as fast as the problems to be solved with the aid of those same funds." There is an urgent need for finance to be available on conditions and for terms which will enable the deficit countries, particularly the poorer ones, to adjust to the new situation by increasing production from their own resources without at the same time holding back development by limiting demand. Countries whose people are near to starvation already 165 cannot suffer a further reduction in the level of real personal incomes. Only by making available the means of improving the supply side of their economies can the necessary adjustment be made in an acceptable way. Action to achieve this takes time. Indeed, it will not even begin unless the governments of such countries have the assurance of adequate finance for sufficient periods. As Governors of the Fund and the World Bank, we have a responsi- bility to the world community to cooperate in putting together a plan of action which will provide a practical way of helping countries hard-hit by the increase in the price of oil. If help is to be effective, however, it must be based on acceptance of the fact that adjustment to the impact of higher prices will take time. Finance must not be so restrictive as to cost, term and conditionality as either to inhibit the adjustment itself or cause undue political restraints. We are not planning in some philosophical ivory tower, but in the real world of threatened political and social dis- location. Whatever solutions are produced must be practicable in the domestic political sense as well as in the banking and economic sense. Above all, our approach has to be positive. There are countries that are on the point of losing hope. That in itself suggests that the system may not be working as well as it should. We should therefore be prepared to contemplate change before that lack of hope turns to despair. ... The move toward more flexible conditionality requirements by the Fund and toward structural adjustment lending by the World Bank are welcome. There is debate about whether we have yet gone far enough. Attitudes to this question are influenced by our approaches to political issues. There are sharp differences in the ability of countries to absorb the balance of payments effects of oil price increases by restraining demand. The incomes of the people of some countries are already so low that traditional demand management policies are inappropriate for, if they are implemented, they will make the structural changes needed in the longer term more difficult to achieve. The process of recycling goes beyond a simple shifting of oil pro- ducers' surpluses back into the world's capital markets. The terms and conditions under which recycled funds become available to developing countries will, in the last analysis, determine whether recycling is successful. Recycling is of little long-term benefit to the non-oil producing developing countries unless it can result in additional output. Finance must be available for such periods and on such terms as will encourage rather than discourage a fuller use of resources. The experience of the early 1970s taught us that the major developed countries with deficits should not close the gap by adopting measures which pass the burdens to those who can ill afford to shoulder them. Their very strength both enables them, and places them under an obliga- tion, to accommodate their deficits in a way that has the least adverse effect on the balances of weaker economies. But major economies cannot by themselves shoulder the burden of adjustment. The welfare of all, including the welfare of the surplus countries, will benefit from an orderly 166 and equitable adjustment to the situation with which we are faced. In their own self-interest, the oil producing surplus countries should bear a part of the burden. This would best be achieved by a willingness to lend through the Fund at less than a normal market rate of interest. There is another area in which all countries could make a contribution. Many deficit countries, and New Zealand falls into this category, intend to make the adjustment by improving the performance of the supply side of their economies with particular attention being paid to the production of internationally traded commodities. It is therefore of critical importance that opportunities to trade internationally should not be obstructed by restrictive trade and payments practices. Protectionist policies may seem to lighten the individual burden of adjustment by shifting it to others- but these others usually turn out to be those least able to cope with the burden. Recycling, therefore, demands a truly cooperative approach on the part of all countries, large or small, oil exporting or oil importing surplus or deficit. It also demands a positive and constructive approach .... . . . Before completing my address, I would like to speak of New Zealand's aid performance. I noted with some concern that Mr. McNamara singled out New Zealand for criticism on the grounds that it provided less than one fifth of its overseas development assistance to the poorest countries. Unfortunately, his statement is misleading and based on a faulty analysis that was brought to his attention prior to the delivery of his address. New Zealand's geographical position in the world means that it has regional responsibilities for assisting the countries in its own Pacific region. More than half of New Zealand's bilateral aid goes to this region. Some of these countries are among the world's poorest, particularly if aid flows are excluded. The isolated island nations of the South Pacific suffer from problems arising from their small size and difficult transport and communications arrangements. Moreover, most major donors give very little assistance in this region. In many cases the Pacific countries are not members of the World Bank and other large international aid institutions, and rely almost entirely on bilateral assistance from New Zealand, Australia and one or two other countries. Were it not for the assistance they have received over the years, these Pacific nations would be as poor as those officially categorized as least developed countries. New Zealand's bilateral aid is almost entirely in grant form, and is not formally tied to the purchase of New Zealand's goods and services. The terms of our aid are among the most highly concessional of any DAC members. We have agreed to make an advance contribution to the bridging arrangements for the Sixth IDA Replenishment, which will ensure that concessional assistance continues to flow to the poorest countries. I am concerned that a statement critical of New Zealand's aid record should have been included in the President's statement. It fails to recog- nize the need for our assistance to be concentrated in the South East Asian and Pacific region, the quality of the terms of our overseas aid, and the 167 efforts we have made to help the poorest countries by our multilateral contributions. I deeply regret the failure to make progress on the proposal for a sub- stitution account. The danger posed by the overhang of stateless currencies remains as a major threat to international economic stability. We have heard in the current debates in the United Nations forums some hard words about the International Monetary Fund and the World Bank. I do not fully subscribe to that criticism . . . . Nevertheless, unless the Fund and Bank can get the support of their members to respond quickly and positively to the changed economic circumstances of the 1980s, then that widespread criticism may well prove justified. PAKISTAN: A. G. N. KAZI Governor of the Fund The present Annual Meetings of the Fund and the Bank are of unique significance since, at long last, a quarter of the world's population has been given true representation on the Boards. On behalf of my Govern- ment and the people of the Islamic Republic of Pakistan I extend the heartiest congratulations and warmest welcome to the Government of the People's Republic of China on assuming its lawful rights in the International Monetary Fund and the World Bank. The Government of the People's Republic of China is the sole legitimate Government that can represent China, one of the original members of these international financial insti- tutions. I would also like to extend a cordial welcome to Zimbabwe, St. Lucia, St. Vincent and the Grenadines, who have recently joined the Fund and the World Bank Group. I regret that the PLO has not been given observer status at this session, and I would like to associate myself fully with the views expressed by the distinguished Governor of Saudi Arabia on this issue. The developing countries are currently passing through a dismal inter- national economic environment that not only darkens their immediate prospects but also casts a shadow on their future hopes and expectations. The period since we last met in Belgrade has seen the intensification of stresses and strains to which the world economy in general and the non-oil developing countries in particular have been subject in recent years. Opportunities and resources for development have critically narrowed. The time has come to candidly reassess traditional strategies, approaches, and institutions for growth and development, especially of the low-income countries in which the mass of the world popUlation resides. The Fund's Annual Report and the Bank's World Development Report analyze, between them, the current problems and the near-term and more distant prospects of the world economy. It is evident that inflation, reces- sion, and protectionism have seriously undermined the capacity of low- income countries to sustain a development path that holds promise of substantial gains within the time span of one or two decades. While 168 inflation has multiplied the cost of their imports, recession and protec- tionism have barred expansion in the volume of exports. Moreover, capital flows to developing countries have not kept pace with their growing current account deficits. In particular, growth in official development assistance has lagged far behind other forms of capital transfers, severely affecting the low-income developing countries which have only marginal access to nonconcessionary finance. The impact of the latest round of inflation, recession, and protectionism on the balance of payments of non-oil developing countries is before us. The combined current account deficit of non-oil developing countries increased from $36 billion in 1978 to $55 billion in 1979 and is projected at $68 billion in 1980 and $78 billion in 1981. A more than doubling of the external imbalance within the short span of three years is obviously disquieting, the more so because the manner in which these deficits have to be financed will sharply increase indebtedness and debt-servicing burdens. And yet the scale of the deficit would have been much larger but for the strong measures that developing countries have been compelled to take to cut down expenditures essential to their development. The adoption of these measures meant a major setback to the plight of low- income countries living under stark conditions and striving for meager improvements in living standards. The deterioration in external circumstances is not a passing phenomenon; it clouds the prospects of low-income countries for several years. Even in the optimistic scenario, the high-growth case of the World Development Report, export volumes of non-oil, low-income countries are anticipated to expand at the feeble annual rate of 2.3 per cent during the current decade. Thus, Tokyo Round notwithstanding, export demand is unlikely to provide much of an impetus to growth in output of low-income countries or improve the balance of payments outlook. Although import growth is forecast at a fairly low rate of 2.4 per cent per annum, only marginally above the growth in exports, the current account deficit of the low-income countries is expected to triple, from $10 billion in 1980 to $32 billion in 1990, largely due to worsening terms of trade. Again, on past experience, it is far from certain whether concessionary aid flows will keep pace with the enlarging current account deficits. The high-growth case, it needs to be noted, calls for considerable effort and efficiency on the part of the low-income developing countries. They have to maintain savings rates in the region of 20 per cent of GDP which calls for heavy sacrifices, given the low levels of income and the magnitude of poverty that prevail in these countries. Furthermore, the World De- velopment Report states that in order to raise efficiency of resource rise, these countries will also have to adjust and restructure their programs, priorities, and economic management. Finally, even the sacrifices and efficiency improvements required of these countries will not be enough. It will be necessary as well for developed countries to grow at a fast rate so that demand is created for exports from the developing world, pro- tectionist tendencies are contained, and development assistance continues 169 to stay around its present proportion of GOP in developed countries. According to the scenario, the per capita GNP of non-oil, low-income countries will increase by about $50 in 1980 prices during the decade; but if developing countries are to aspire to this order of increase, the per capita income of industrial countries will have to increase by $3,500. Surely it is time to pause and consider whether we should perpetuate the prevailing inequitable economic order. Evidently what is required is a new development strategy for the poor countries in the context of a new and more equitable framework of international economic relations. When obstacles in the form of recession and protectionism surface fre- quently, export-led growth ceases to offer a meaningful opportunity for rapid development of poor countries. When import prices are highly volatile in international markets and require speedy adjustment on the part of government, wider exposure to such an environment may be prejudicial to the interest of low-income countries which are poorly equipped for fine tuning their economies or making anticyclical adjust- ments. When terms of trade decline secularly, considerations of current comparative advantage alone may misdirect investment decisions which affect long-term prospects. As the low projections of exports from low-income countries even under the "high-growth case" indicate, due to international economic conditions, the developing countries are being forced into adopting import substituting strategies the high costs of which have been often measured and docu- mented. The dangers of an insular and inward-looking approach do not lie in the sphere of economics alone. Such an approach affects coopera- tion and accommodation in other areas as well. International economic programs and policies should be based on far-sighted vision and should foster international cooperation, which is clearly in the larger interests of the world community. Such vision has not been altogether lacking. Last year, the Brandt Commission issued its report called a Program for Survival. This was a Commission whose members were drawn from diverse disciplines and country groups, including eminent politicians from the developed world. The conclusions and recommendations of the Commission strongly sup- ported the Program of Immediate Action worked on by G-24 last year and went on to make further far-reaching proposals for bringing about improvements in the international economic order. It is essential for the economic well-being of the world community that these recommendations receive urgent and sympathetic consideration for early implementation; in particular, I would stress action in the following spheres. For ensuring rapid and orderly growth of developing countries, it is of foremost importance that their exports should be encouraged and not smothered under tariff and non tariff barriers. The absence of secure and growing markets inhibits steady and planned growth in developing coun- tries. The removal of impediments to exports of manufactures from devel- oping to developed countries is the most essential requirement of interna- tional economic cooperation. 170 The level and form of concessional capital flows are of particular importance for the growth of low-income developing countries. At the beginning of the Second Development Decade ten years ago, the interna- tional community had set a target cf 0.7 per cent of GNP for the official development assistance to be provided by developed countries. It has been an unfortunate experience that instead of moving toward this target the realized flows receded from the levels of 1970. But that is now history. More relevant and disheartening are the current attitudes and future expec- tations in this regard. The first edition of the World Development Report issued in 1978 had projected that the net flows of official develop- ment assistance from DAC countries would increase from 0.36 per cent of their GNP in 1975 to 0.39 per cent in 1985. Two years later, the latest version of the World Development Report forecast that aid flows from DAC countries, which had fallen below 1975 ratios during 1978 and 1979, will regain the 0.36 per cent level in 1980, stay at that rate in 1985, and fall to 0.35 per cent in 1990. Even this would probably be regarded as wishful thinking by many. The Brandt Commission has forcefully reite- rated the necessity of moving toward the 0.7 per cent target and has called for prescribing a timetable for it. It is essential that this recommen- dation of the Brandt Commission be accepted and the schedule for imple- mentation of the target be mutually agreed upon during the next round of the North-South dialogue at the United Nations. Along with an increase in the level of concessional aid inflows, a major change is required in the form in which such assistance is rendered. Much of the aid flows are currently tied to purchases from donor countries or to projects having the approval and reflecting the concern of donors. The former restriction often results in a steep increase in prices charged, and the latter tends to prevent developing countries from pursuing a develop- ment strategy which fully reflects their needs and priorities. There is a pressing need for routing a much larger proportion of assistance through multilateral development institutions. In turn, these institutions should provide larger assistance on reasonable terms as program rather than pro- ject lending. In this context we welcome the steps taken by the World Bank and the Fund for providing financing facilities under the structural adjustment lending program and the EFF. The advantage that developing countries derive from these facilities will, however, depend upon the flexibility with which they are administered. The conditionality attached to these loans should take account of the extra- ordinarily difficult period of adjustment that most developing countries are going through, a period in which their performance is vulnerable to and at the mercy of external conditions. Moreover. the structural adjustment required from developing countries should pay due regard to the historical evolution of policies in each country, to the commitments embodied in its development program, and to its economic management capability. It would be wrong to insist upon doctrinaire approaches, especially those meant for advanced countries operating under stable equilibrium condi- tions. Thus. while we have hopes that these facilities will assist in the 171 adjustment process, their success will be minimal if they make very stringent demands on developing countries; demands that these countries may be forced to accept but would never be able to fulfill .... I attach particular importance to an early decision with respect to the establishment of a link between SDR allocation and development finance. This would augment the flow of resources required for additional balance of payments financing, provide much-needed reserves to developing coun- tries, and contribute to the solution of the global recycling problem. Be- sides, an SDR link would also be beneficial to the developing countries on the grounds of improving their reserve composition, with respect both to the division between conditional and unconditional liquidity and to reserve diversification. I would also like to emphasize that a substantial and uninterrupted annual allocation of special drawing rights is the need of the moment for meeting the requirement of expanding world trade. Regular SDR alloca- tions would not only contribute to the stability of the international mone- tary system by making a primary reserve asset available and by improving reserves composition, but would also help in making progress toward the objective of making the SDR the principal reserve asset in the reformed international monetary system. This would, hopefully, lead in due course to an effective control on international liquidity which requires that the use of national currencies as international reserves be markedly reduced. In conclusion, let me join the other Governors in expressing our sense of loss at the departure next June of Mr. McNamara from the Presidency of the World Bank. Developing countries have benefited considerably from his advocacy of their cause and the substantial expansion in the operations of the World Bank during his tenure. Both in spirit and deed he has enriched international economic cooperation. The period ahead poses grave and complex problems for the world economy at large and deVeloping countries specifically. It is our misfortune that the dedication, the leadership, and the ability that Mr. McNamara provided will not be available during this trying phase. In wishing him the best in the years ahead, we hope that he will continue to take an interest in problems of development and contribute in his personal capacity to promoting har- monious and constructive international economic relations. PARAGUAY: CESAR ROMEO ACOSTA Governor of the Bank At this, the Thirty-Fifth Annual Meeting of Governors of the World Bank Group, where the majority of the world's countries are working together to improve the condition of low-income groups in the developing countries, the representatives of Paraguay wish to contribute the experience they have gained and are gratified to report that the Paraguayan people and Government are bringing about a rapid development, while at the same time carrying out significant regional integration projects. 172 In the latter connection, a few months from now the Government of Paraguay will sign a new treaty on the construction of a hydroelectric plant, the Corpus Project, on the Parana River in the area called Itacua. Corpus will be the third hydroelectric plant to be built on that river with the cooperation of Argentina and Brazil. With the 12.6 million and 4.05 million kilowatts of installed capacity in the Itaipu and Yacyreta dams when fully operational, this will bring the combined total up to more than 20 mil- lion kilowatts, of which 50 per cent will be available to Paraguay. These projects, construction of which is proceeding on schedule, are a driving force behind and a significant factor in regional integration. In the economic area, Paraguay again experienced rapid growth in 1979, this despite the adverse conditions of the world economy such as the energy crisis, widespread inflation, and the protectionist measures of the indus- trial countries. The gross domestic product increased by 10.7 per cent, surpassing the average of 6 per cent for Latin America. The most dynamic sectors of the Paraguayan economy in 1979 were construction, where value added rose by 30 per cent, basic electricity, water, transportation and communications services (up 13.9 per cent), general services in com- merce, finance, government, housing and others (11.1 per cent), while there were moderate increases in agricultural production (6.4 per cent) and industrial output (6.9 per cent). The balance of payments registered a surplus of US$166.5 million, nearly the same as the 1978 level; this situation was favorably affected by the inflow of private investment, investments made in carrying out the hydroelectric projects, and external financing. In 1979 Paraguay also made compensatory payments amounting to US$139.9 million with nearly all the LAFTA member countries; total allocations of special drawing rights amounted to SDR 9 million, equivalent to 11.9 million dollars as at December 31, 1979. Because of its favorable balance of payments and strong international reserves position, Paraguay purchased SDR 300,000 on November 14, 1979. In addition, its reserve position in the Inter- national Monetary Fund totaled US$11 million, an increase over 1978 of US$3.1 million, representing an increase of SDR 2 million as a contribu- tion to the currency budget of the IMF. Accordingly, Paraguay's net position with the Fund at the end of 1979 totaled US$22.6 million. The net international monetary reserves of Paraguay as at December 31, 1979 amounted to US$595.4 million, an increase of US$156.4 million over 1978. Gold and freely convertible currencies accounted for some 96 per cent of the increase in reserves. As a result of trade restrictions in many industrial countries, Paraguay's foreign trade did not come into balance as anticipated; 1979 ended with a trade deficit of US$126.6 million. Exports totaled US$305.2 million and imports US$431.8 million. The 'increase in imports was attributable principally to price increases for oil, fuel, and lubricants, as well as to the steady inflow of capital goods into the country. One of the principal problems confronting Paraguay was inflation, which could not be avoided despite efforts to control it, because of the country's 173 vulnerability to adverse economic impacts from abroad. In fact, price indices in 1979 reached one of the highs of the decade, rising by 28.2 per cent. The 1977 and 1978 figures were 9.4 per cent and 10.6 per cent, respectively. This situation was brought about in large measure by the rise in the price of oil, wage increases, the rising cost of imported food- stuffs and industrial inputs, the contraction of the supply of beef for domestic consumption, increased demand for beef substitutes, an inade- quate level of domestic food production relative to demand, and an increase in the costs of producing goods and services. Paraguay's economy in the first half of 1980 once again showed an accelerating pace, characterized by the increase in agricultural produc- tion, industrial expansion, the sustained push provided by construction, and increases in services and trade. In the agricultural sector, the soybean harvest is estimated at 600,000 tons while the cotton harvest is estimated at 235,000 tons, representing increases of 33 per cent and 3 per cent, respectively. There were also increases of 48 per cent in maize production, totaling 600,000 tons, 10 per cent in rice production, totaling 75,000 tons, 10 per cent in sugar production, and 32 per cent in coffee production. Tobacco production declined by 32 per cent because of adverse weather conditions. The soy- bean and cotton harvests accounted for 33.6 per cent of overall agricultural production in 1979; current calculations indicate that these products' share in the total will be greater in 1980 than in 1979. Estimates indicate that the agricultural production index may rise by more than 8 per cent in 1980 as compared to 6.4 per cent in 1979. In the livestock area, the 184,428 head of cattle slaughtered in the first half of 1980 represented a slight decline of 1 per cent in comparison with the first half of 1979. The number of head set aside for domestic consumption, totaling 177,536, increased by 3 per cent and the number of animals slaughtered for export declined to 6,892 head, the lowest level in recent years. Timber production and processing increased substantially due to acceler- ating domestic and external demand. The demand for construction purposes, furniture, the manufacture of packaging, bodywork, and other uses increased markedly during the first half of 1980; external demand also rose significantly. with exports of 101,711 tons of sawn timber, up 42 per cent, and 35,621 tons of wood manufactures, an increase of 115 per cent. Exports rose by 105 per cent and 97 per cent compared with the first half of 1979. Manufacturing also registered increases in the first half of 1980; estimates for the industrial index show a rise of over 7 per cent for 1980. Among the various sectors of economic activity, construction continued to have the highest rate of growth. Activity in the sector increased by 30 per cent in 1979, and the 1980 pace is similar. Basic electricity, water, transport and communications services registered increases which, taken together, amount to a 12.7 per cent annual rate 174 in 1980 at constant 1977 prices. General services increased in the first half of 1980 at an annual rate of 10.2 per cent. The increase in the production of goods is calculated at 14.7 per cent for 1980, while that of services is figured at 10.6 per cent. The increase in the gross domestic product is estimated at 10 per cent at constant 1977 prices. Notable strides have been made in the area of private investment in recent years; again in 1979 it grew by 100 per cent with respect to the preceding year, or by $21 32 billion, representing investments for new business establishments and for the expansion and modernization of exist- ing ones. A total of $21 9.3 billion of investments authorized under Law 550/75 on the Promotion of Investment were made during the first half of 1980; these consisted in facilities for carrying out 52 investment projects in new enterprises and 61 projects involving existing enterprises employing more than 3,000 persons. The consumer price index rose by 6.9 per cent in the first half of 1980, showing a more moderate increase than the 14.8 per cent rate of the first half of 1979. The foodstuffs heading was virtually unchanged, whereas housing rose by 16 per cent, clothing by 8.4 per cent, and mis- cellaneous expenditure by 19.6 per cent. On the other hand, the index of workers' salaries rose by 14 per cent in the first half of 1980 as compared to 15.4 per cent in the same period of 1979. The Government raised the minimum wage for workers by 15 per cent effective January 1, 1980, and another 15 per cent increase took effect on July 15 of this year. In January and July 1979, the Government authorized the same per- centage increases in the minimum wage. The general index for workers' salaries rose by 20 per cent in 1979; the estimated 1980 increase is 25 per cent. Currently issue by the Central Bank of Paraguay increased by $21 10,460 million, i.e., 14 per cent, compared with the increase of $21 12,442 million (22 per cent) in the first half of 1979. The money supply rose by 15 per cent in the first half of 1980. This was a slower increase than the 25 per cent posted in the first half of 1979 and the 36 per cent of the same period in 1978. If the official deposits held in the Central Bank are excluded, the increase in the money supply becomes 12.5 per cent in the first half of 1980 and 22 per cent in the corresponding period of 1979. The increase in the money supply is closely related to the increase in international reserves. In the first half of 1980 this was 12 per cent, while in the same period of 1979 it was 21 per cent. The behavior of the external sector thus continues to be the chief factor behind money creation. The Central Bank's net international reserves of US$667.8 million as of June 30, 1980, equivalent to $21 84,143 million, are almost equal to the amount of currency issue as of that date, viz. $21 84,136 million. This shows that the exchange market has sufficient backing to maintain exchange equilibrium. 175 The Central Bank's Monetary Program for 1980 is designed to curb inflation and the expansion of the marginal money market, to reinstate the banking system as the principal money and credit market, and to strengthen the monitoring powers of the Central Bank in its capacity as executing agent for the Government's monetary and credit policy. The Program establishes the maximum growth in public credit, the level of rediscounting, monetary expansion of external origin, money contraction factors, and the estimated growth in total currency issue. For purposes of monetary regulation, the legal reserve requirement of 42 per cent on bank deposits and 15 per cent on deposits in foreign currency has been maintained unchanged. The advance deposit rate for certain imports has been maintained, as have the regulations governing deposits by official entities in banks. The goal of the Monetary Program is to bring about a moderate rise in the money supply in order to hold down the rate of inflation and thereby support thefinancing of economic activities. In short, it is true to say that the monetary and banking measures adopted by the Central Bank of Paraguay have had a positive impact on maintaining equilibrium in the money and financial markets and have contributed to the slowdown in the rate of inflation in the first months of 1980. In the first half of 1980, savings deposits in banks increased faster than deposits in savings and loan associations. This reflected the rise in the interest rate paid by the banks on deposits in guaranies, while at the same time interest rates on the foreign market declined. The maximum interest rate on deposits, paid by savings and loan associations remained unchanged at 8 per cent, plus monetary adjustment, which varies from year to year in accordance with domestic monetary conditions. In 1979, the monetary adjustment amounted to 7 per cent. Savings deposits in banks are not protected by a monetary adjustment clause. The balance of trade showed a deficit of US$68.7 million in the first half of 1980. The trade gap was thus much larger than the US$2.4 million recorded in the first half of 1979. Exports through banks in the first half of 1980 totaled US$134.5 mil- lion; in the same period of 1979, they had amounted to US$171.2 million. Thus exports fell by US$36.7 million or 21.4 per cent in terms of value. The volume of exports likewise dropped by 77,456 tons (a decline of 15 per cent), totaling only 450,293 tons. Imports effected through the banking system during the same period totaled US$203.1 million, a rise of US$29.6 million, or 17 per cent, compared with the first half of 1979. The increase was due mainly to imports of fuels and lubricants, which rose by US$9.5 million (34.5 per cent). Imports of transportation equipment and accessories also rose by US$8 million, up 28 per cent on the first half of 1979. More buses and trucks were imported, while the number of automobiles, pickup trucks and aircraft also rose. The balance of payments showed a surplus of US$70.6 million in the first half of 1980 down from the surplus of US$108.4 million in the same 176 period in 1979. The surplus earned in the first half of 1980 resulted in a rise of US$72.4 million in the international reserves of the Central Bank of Paraguay. Net international reserves totaled US$667.8 million as at June 30, 1980, up 12 per cent over the US$595.4 million held as at December 31, 1979. The increase in international assets of US$72.4 million stemmed from the following factors: (a) capital investments by binational entities for Itaipu and Yacyreta; (b) inflows of private capital and official loans; (c) increase in dollar equivalencies as a result of exchange fluctuations for the dollar vis-a-vis European currencies, particularly the deutsche mark; (d) increase in reserves in the IMF through the currency budget and designation of SDRs; and (e) allocation of special drawing rights. In October 1978 the Central Bank purchased World Bank bonds in an amount equivalent to Sw F 14.5 million. Paraguay's favorable balance of payments and international reserves position have allowed the guarani to remain an eligible currency in the International Monetary Fund's currency budget. In accordance with the provisions of the Fund Articles, the Central Bank of Paraguay contributed a total of SDR 4.9 million to the IMP's currency budget, equivalent to US$6.1 million as at June 30, 1980. Net external debt amounted to US$81 0 million as at June 30, 1980, up 10.7 per cent compared with December 31, 1979. Eighty per cent of this amount represents obligations of the public sector and 20 per cent external debt of the private sector. In summary, the Central Bank's net international reserves as at June 30, 1980 amounted to US$667.8 million, equivalent to ~ 84,145 million. Currency issue amounted to ~ 84,136 million as at the same date. Conse- quently, currency issue is covered in its entirety by foreign reserves. In the first half of 1980, net international reserves rose by ~ 9,118 million and currency issue by ~ 10,460 million. The growth that has occurred in Paraguay has been due basically to the efforts of its people and of its Government, which have together appreciated the value of peace as a basis for development and have joined forces to create a country in which the momentum of labor prevails under the aegis of a democracy that unites the efforts and aspirations of all for well-being in freedom. Paraguay welcomes the statement in the World Bank's Annual Report to the effect that they are placing increased emphasis on investments that can directly affect the well-being of the great masses of the poor in the developing countries, by increasing their productivity and incorporating them as active participants in the development process. The Paraguayan representatives fully share this view, and thus it was that our country established a policy of assisting small farmers and implemented a system of guaranteed credit for small-scale entrepreneurs in agriculture. industry and handicrafts lacking sufficient collateral to set up their own independent businesses. Finally, we wish to express our thanks to the World Bank for the 177 financial cooperation extended to us over the past year. It has been an important source of support and encouragement in sustaining productive efforts and economic growth in Paraguay. Our delegation also recognizes the efforts of the World Bank's manage- ment, under the dynamic leadership of Robert S. McNamara, in its extraordinary task of carrying out the objectives of the Bank. We approve the Annual Report without reserve, and we express our earnest desire that the proposals outlined in its pages may be translated into reality and benefit the progress and well-being of every nation on earth. ROMANIA: GHEORGE POPESCU Alternate Governor of the Bank I should like to begin by congratulating the Governor for Tanzania warmly on his election as Chairman of our Meetings. I am also pleased to associate myself with other delegates and to express satisfaction at the fact that the legitimate rights of the People's Republic of China in the World Bank and in the International Monetary Fund have been re-established, and I likewise welcome the Governors for St. Lucia, St. Vincent and Grenadines, and Zimbabwe, who are taking part in our Meetings for the first time. The Government and the people of Romania are following develop- ments on the international scene with deep concern, in particular, the growing trend toward shifts in spheres of influence, increased dominance by certain countries in different parts of the world, and proliferation of areas of tension and conflict. The economic crisis, the energy crisis, and the monetary and financial crisis are assuming ever larger proportions, and are having an adverse impact on every country, especially the developing countries. These are crises that call into question the very structure of the world economy set up by the former social order-characterized by a division of the world into rich countries exporting manufactured goods and poor countries producing and supplying raw materials, and by an inequitable system of relations between nations, under which the rich become richer and the poor become poorer. If we add to this the dizzying rise in inflation, currency depreciations for speculative ends, the prohibitive cost of imported technology, and the extremely high interest rates demanded on the capital market, which impose a growing and crushing burden on the non-oil developing countries, we have an even more complete picture of the factors that are widening the gap between the developing and the industrial countries. It is altogether abnormal that, at a time when hundreds of millions of people live in absolute poverty and abject misery, mankind should be recklessly spending $500 billion a year on an accelerated arms race and the production of new weaponry, including nuclear arms. 178 In perceptively analyzing these realities from a worldwide point of view, the President of Romania has on many occasions emphasized the vital necessity of intensifying and linking the efforts of every nation to overcome the difficulties imposed by the current world economic crisis and by the system of international economic relations, in order to develop economic cooperation and trade between nations. As President Nicolae Ceausescu recently said, "Romania is firmly attached to the establishment of a new international economic order that will be more just, better, and more equitable, that will put an end to exploitation and inequality, and that will institute relations of full equality among all the nations of the world." I should like to focus on the parlous situation of the non-oil developing countries, obliged as they are to sink ever deeper into debt to commer- cial banks and transnational corporations which are profiting to the maximum from the absence of energy policies capable of ensuring eco- nomic and monetary stability, without which there can be no favorable climate for the harmonious development of international trade. The fact that the recent Special Session of the General Assembly of the United Nations devoted to the new international economic order did not produce thehoped-for results serves to underscore one of the most serious problems facing the international community at this juncture-the perpetuation of conditions of underdevelopment under which a large part of mankind is living at present. As regards economic development in Romania, I wish to report that the current year wilI mark the successful completion of the 1976-80 Five- Year Plan. We are currently drawing up the next five-year plan, which will cover the period 1981-85, during which we propose to develop our national economy at a rapid rate by allocating a larger proportion of our national income to development. We have an energy program that calIs for the use of all our energy resources, together with a reduction in our consumption of oil and natural gas for fuel purposes, application of drastic conservation measures i~ every field of activity, imposition of strict economic and financial discipline, and more effective utilization of public monies. This last objective is reflected in recent measures for reduction in administrative outlays and other public expenses amounting to almost Lei 4 billion, together with a reduction of approximately Lei 2 bilIion in military outlays. In the period 1981-85, Romania will steadily expand its foreign trade, as well as other forms of economic collaboration and cooperation with all countries. We will take steps to achieve balance of payments equilibrium and systematically reduce Romania's external debt. As indicated in the reports presented and in the statements of Governors who have preceded me on this platform, our efforts to find solutions to the problems facing the world economy must be continued. Romania believes that the constructive proposals formulated by the developing 179 countries in the Program of Immediate Action provide a broad enough framework for reaching the general agreement required. In this connec- tion, permit me to indicate certain major policies which, in Romania's view, should be the basis for action taken by the international community as a whole. We also wish at this juncture to reaffirm our belief that the elimination of underdevelopment implies first of all a special effort on the part of the developing countries themselves, as well as greater cooperation and mutual assistance, in order to create powerful productive bases. We like- wise reiterate the position we have always held on the need to take concrete steps in the area of disarmament in order to free new resources for use in accelerating the growth of the developing countries. At the same time, we feel that the demands of balanced economic growth require the establishment of new mechanisms to ensure eco- nomically justified relationships among the prices of major commodity categories, such as raw materials, energy, agricultural products, and manufactures. It is also advisable to eliminate those factors which give rise to exces- sive price fluctuations on international markets, as well as to protect the purchasing power of the developing countries against the monetary erosion caused by inflation. We are cognizant of the fact that firm steps must also be taken to improve the terms of the developing countries' access to international credit markets and to lower interest rates, including those charged by the Bank and the Fund, from their recent levels. At present rates of interest, credit not only fails to promote economic development but hampers the realization of domestic projects in the developing countries. We believe it necessary to adopt measures to keep interest rates within reasonable limits, thus-we hope-facilitating the access of developing countries to financial markets. In this connection, while we look with favor on the activities undertaken by the IMF and the lBRD, we believe that these specialized agencies of the UN must play a greater role in eliminating the factors which give rise to a now chronic instability, and must contribute more actively to the battle against inflation and against all manner of obstacles to the expansion of trade. The Fund and the Bank must also play a more active role in inter- national economic cooperation with respect to reorienting the process of recycling the financial resources of surplus countries and more fully adapting it to the financing needs of developing countries. We support the idea of encouraging the World Bank to enlarge its financial rcsources so that it can make energy-development loans to devel- oping countries. In concluding I would like to express my gratification at the fruitful collaboration between our country and the Fund and World Bank, and to pay homeage to Mr. Jacques de Larosiere, the Managing Director of the International Monetary Fund, and to Mr. Robert McNamara, the President 180 of the World Bank, for their tireless efforts and their remarkable leadership of the two institutions. We also regret the impending retirement announced by Mr. Robert McNamara, and thank him for the great skill he has shown in dealing with the extremely complex problems faced by the World Bank. On this occasion, I wish him a good year, the best of health, and much satisfaction in his personal life. ST. LUCIA: ALLAN LOUISY Governor of the Bank alld Fund As this is the first Annual Meeting of the World Bank Group at which the sovereign state of St. Lucia is being represented as a member, it gives me great pleasure as Prime Minister to address this distinguished assembly. I must, however, say that I do not feel myself a total stranger either to the Fund or the Bank because we, in my country, have already experienced beneficial effects of their operations through our indirect association by way of the Caribbean Development Bank and our former status of Associated Statehood with Britain. We also came into close operational contact with both institutions through their contribution in the sponsorship and nurturing of the Carib- bean Group for Cooperation in Economic Development. We do have, therefore. some experience to guide us in our expectations from these institutions. Their performance and the quality of their effort, even speaking from my limited experience, lead me to feel that, given the necessary instruments, they can, in time, develop the necessary pro- grams to meet what now appears as overwhelming needs of member countries. I need not go into details about such needs and such programs since the two speakers on behalf of the Caribbean countries have outlined these details very thoroughly and competently. You will appreciate Mr. Chairman. why I acknowledge with regret the impending departure of Mr. Robert McNamara from the presidency of the Bank. I wish to associate myself with all the congratulatory remarks which have been made about Mr. McNamara. Although St. Lucia, as a new member of the Bank, cannot speak on the basis of direct experience, I feel that the achievements of the World Bank as an international finan- cial institution over the past years of his presidency should stand as a memorial and a tribute to him. Nor do I want to minimize the magnitude of the problem. In fact, it is my view that the challenge is so substantial that if the institutions and their members (i.e., member countries) are able in the next few years to meet the challenge successfully, such an achieve- ment may well rank second only to the founding of the institutions 35 years ago. No one can deny the important international role which the World Bank has come to play during the years of Mr. McNamara's stewardship. I think it is worthwhile noting the fact that the World Bank is one of the 181 first international institutions which my country has joined following independence. The assistance of the Bank and the Fund is crucial to the successful integration into the international economy of a small nation such as ours. St. Lucia has been following prudent economic policies and indeed we were well on the way to establishing a sound economic base for our further development when we experienced the devastation created by hurricane Allen this past summer. The scale of such a natural disaster is difficult to appreciate by larger countries where even the dislocation of war does not often destroy the total resource base of a country as a hurricane can to that of a small country in the matter of a few short hours. The problem we face thus is a far acute version of the classic one of how to allocate scarce resources between short- and longer-term use. In our case, the short term means the day-to-day necessities needed to ensure our ability to survive and this leaves us with very little to invest and regenerate. We are, therefore, left with little opportunity to expand the income flow which we earlier enjoyed .... For these reasons, St. Lucia looks forward to an early initiation of dis- cussions with the Fund and the Bank on how our particular needs can be accommodated in the work programs of these institutions. I invite both the Fund and the Bank to send missions to visit our island at their earliest convenience in order that they can more readily appreciate the special nature of our situation. SAUDI ARABIA: SHEIKH MOHAMMAD ABAL-KHAIL Governor of the Bank and Fund The rate of expansion in world trade has declined substantially, largely as a result of reduced growth of output in industrial countries, but rein- forced by sluggish demand in most developing countries, uncertainties in exchange markets, and due to increasing protectionist tendencies. And the world economy continues to be characterized by high rates of inflation, a slowdown in output, uncertainties in the international oil market, and persistently large external imbalances. The state of the world economy and its near-term outlook are the consequence of a number of different factors. I shall comment on these factors, and on the role of the major country groups, and on what the IMF and the World Bank can do to reverse present trends. In the industrial countries, the continued fight against inflation, a necessary step to revive domestic growth and to achieve international equilibrium, although aggravating unemployment, is beginning to show results. Restrictive monetary policy in a number of countries has not only squeezed domestic credit, but has also contributed to a slowdown in global economic activity, and to the widening of interest rate differentials, with important repercussions on exchange rate movements and capital flows. 182 While restrictive demand management policies in industrial countries are in the right direction, there is a clear need for both changing the emphasis on these policies and complementing them with other measures to stimulate the supply side of the economy. In particular, the need to reverse the recent deceleration in productivity growth requires a variety of measures over the medium term, including investment incentives, increased research and development, and measures to increase competition and eliminate market imperfections. Sustained growth of productivity needs to be viewed in relation to investments associated with global structural adjustment programs. In many industrial countries, resistance to such unavoidable adjustment remains strong, allowing uncompetitive industries to continue operating through subsidies, tariffs, and other protectionist measures. Increased efficiency of resource allocation in the present circumstances can be greatly facilitated through the immediate recognition and gradual adoption of necessary structural changes. I need hardly emphasize that in these efforts to increase productivity and to restructure various sectors, energy conservation should be given particular attention. Energy prices should be appopriately adjusted to induce the development of energy-efficient machines and efficient industrial processes. The reorientation of industrial countries' policies in this direction, while beneficial to themselves, would also be globally constructive and helpful to developing countries. The continued state of sluggish economic activity and disruptive infla- tionary expectations have had particularly serious consequences for devel- oping countries. The primary objective of maintaining satisfactory growth in developing countries has been made all the more difficult because of persistent deterioration in the terms of trade, stagnation in aid flows, reduced import capacity, rising protectionist tendencies, and an unfavorable foreign debt profile. High rates of inflation in these countries have not only acted as a deterrent to domestic savings, but the resultant restrictive measures have let to severe constraints on investment, production, and consumption. Both the actual and the prospects for growth of the low-income countries remain disheartening. GNP per capita grew at an average annual rate of 2.9 per cent during the decade of the 1970s for all developing countries. The performance of economies of low- and middle-income countries in Africa, Asia, and the Middle East was even more unsatisfactory. The total external public debt of developing countries grew fourfold during 1972-78, with a greater percentage of earnings from their exports going toward debt service payments. The latest World Development Report projects a per capita growth rate of 2.5 per cent growth after 1980 in industrial countries, as compared with 1 per cent per annum in low-income countries. It should be realized, however, that in 1980 the industrial countries have a per capita income of $9,684, while the average per capita income of low-income countries is $216. Therefore, the per capita income of the first group would increase by $242 per year, while that of the other would increase by a mere $2. 183 The expected annual incremental increase of per capita income in the industrial countries is by itself larger than the basic level of per capita income of the poor countries. These are only statistical aggregations and averages which hide the shocking fact of 800 million people living in absolute poverty in Asia, Sub-Saharan Africa, Latin America and in the Middle East. This condition of life is characterized by malnutrition, illiteracy, disease, high infant mortality and a short life expectancy so as to be beneath any rational definition of human decency. We consider the existence of a large number of human beings in this state of poverty as a stigma on the conscience of the international community. Yet, unfortunately, the response of the international community to the challenge has been far from satisfactory. There is clearly a need for adjustment in most of these countries to achieve a viable external position. However, because of the magnitude of the task, a meaningful and effective adjustment, without sacrificing development goals and lowering consumption even further, would be only possible with a substantial increase both in financing and in the transfer of resources. In this context, it is estimated that countries with per capita incomes below $520 will need annually about $40-$50 billion (in 1980 U.S. dollars) in the 1980s to achieve the United Nations' Second Development Decade's target of 3.5 to 4 per cent growth in per capita income. These required financial flows are far in excess of expectations. Official development assistance is one of the most effective instruments for transferring resources on concessional terms to support the develop- ment programs of low-income countries. The performance of the devel- oped countries in this area continues to be dismal. Official development assistance from OEeD countries has declined from 0.49 per cent of GNP in 1965 to 0.34 per cent in 1979 and is projected to stagnate at about this level through the 1980s. There are also qualitative limitations in OEeD aid. Most of the aid is tied to procurement from OECD countries. Only 40 per cent of OEeD aid goes to the poor countries. Such aid performance is unfortunate given the fact that each dollar of tied aid from major indus- trial countries results in a $2-3 increase in the GNP of OECD countries. In contrast to this, the development assistance from Arab countries is untied and far exceeds the UN target of 0.7 per cent of GNP. As propor- tion of GNP, the OEeD estimates that aid from Arab oil exporters accounted for 2.55 per cent in 1978. For some individual donor countries, the proportion was substantially higher. Most of this aid goes to the poorer countries, which in turn is largely directed to accommodate pur- chases from industrial countries. These contributions by Arab countries become even more impressive when it is noted that their per capita income is approximately one'third that of the OEeD countries. Moreover, in assessing our aid contributions, the nature of our economies should be kept in mind. On the one hand, for most Arab oil producers, oil and associated gas are the only significant 184 natural resources. Agricultural potential is limited by geographic, climatic, and human factors. We are confronted with the uncertain outcome of transforming oil wealth into productive assets with which to sustain our economies, while satisfying world energy requirements. In the short and medium terms, depletion of oil wealth will, in terms of traditional accounting methods, result in oil revenues and thus in high levels of current GNP, and depreciating foreign exchange reserves. However, if the depletion of oil does not result in the development of a productive non-oil sector, then current GNP will be derived from a deple- tion of oil wealth: a process which is unsustainable in the long run. In other words, exports, GNP, and the external position of oil exporters are not comparable to that of economies where output is a flow derived from a sustainable productive base with exports and external position being by-products. In the case of oil exporters, exports and external surplus are not a flow but are instead derived from an exchange, or transformation, of a non- renewable asset. Thus potential GNP is maintained if oil is not extracted, or if extracted oil is transformed into other capital. A satisfactory trans- formation requires the condition that the present discounted value of the transformed capital (net of depreciation) is equal to the discounted value of the oil had it not been transformed. On the other hand, the industrial countries have diversified economic bases, with the ability to produce output on a sustainable basis. Yet, these countries which face a more cer- tain and prosperous economic future, provided in aid a much lower pro- portion of their GNP. The Arab countries are faced with the same difficulties as other devel- oping countries. The Arab oil producers have made a sacrifice by export- ing more oil than is needed to satisfy domestic financial requirements. Although we have done so in a cooperative response to the challenge of international energy requirements, we have become an easy target for blame. Inflation in the world is blamed on oil exporters. This is a misleading sifplification. Inflation is by definition the change in the price level as opposed to the price level itself. Thus an increase in the price of oil could only affect inflation over a limited time period. Undoubtedly, infla- tion in the industrial countries was at a substantial rate before the oil price increases of 1978-80.... Although the 1978-80 increases in oil prices have had an effect on inflation, it has been a small one. However, political rhetoric has exag- gerated the effect. ... Oil price adjustments have also been isolated by the industrial coun- tries as the source of the increase in the deficit of the developing countries. Developing countries have historically experienced a shortage of foreign exchange due in part of their own limited capacity to produce exportables, to their low level of income, to protectionist measures and due to the ever-increasing cost of imported machinery and manufactured goods. At 185 the same time, exports of developing countries have suffered as a result of economic conditions and policies of the industrial countries. Since 1974, although the current account of developing countries has deteriorated, its causes should be seen in a multilateral tntde setting; isolation of one item on the import account is of little economic significance. Oil imports, even in 1980, are a fraction of the total imports of developing countries .... The burden of financing and servicing the deficits of developing coun- tries has been further aggravated by inflation and by increasing rates of interest in the western world, with the six-month LIBOR dollar rate, which accounts for the bulk of the funds in the international capital market, rising from 5.5 per cent at the end of 1976 to over 20 per cent in April 1980. The negative effect of higher debt service payments in 1979, resulting from higher interest rates, was on the order of 8 per cent of export earnings of a large majority of developing countries. This figure is in the same order of magnitude as that of the effect of oil price increases on these countries. Current economic difficulties call for cooperation. The IMF and World Bank can and should, in this regard, play a decisive role. On the one hand, the Fund should support adjustment programs of members on a larger scale within a medium-term context, while coordinating its recom- mendations, where appropriate. with the Bank. On the other hand, the Bank should step up its support for structural adjustment lending and for the long-term development of its members .... The Program of Immediate Action signifies the concerns of the Group of Twenty-Four for a fundamental reform of the international monetary system, particularly those features which are of basic interest to develop- ing countries: ( 1) to effectively control the creation of international liquidity; (2) to ensure symmetrical adjustment; (3) to promote more stable exchange rates; (4) to enhance the transfer of real resources; and (5) to give developing countries an effective voice in decision-making at the Fund and at the Bank. Since Bretton Woods, there has not been any sustained and compre- hensive effort to reform the international monetary system to cope with new situations and emerging problems. Instead, the process of reform has been replaced by ad hoc measures. It is time to resume the unfinished task of fundamental international monetary reform. As the G-24 Program of Immediate Action is a serious attempt in this direction, we strongly support its implementation. While all the action areas contained in the Program are important, I shall limit my remarks to a few. At the time of the initial allocation of SDRs, it was hoped that con- tinuous efforts would be made on the international level to make the SDR the centerpiece of the international monetary system. Unfortunately, these hopes have not materialized. In our view, regular allocations of SDRs and improvements in its characteristics are necessary for progress in this direction. The need for increased allocation of SDRs is clearly indicated by the declining ratio of SDR holdings to total reserves, by the general increases in prices, by the expansion of world trade, and by 186 the magnitude and distribution of existing and potential payment im- balances. The question of the link has been with us for a number of years. The case for an SDR link is predicated, among other things, on: (1) supple- menting the process of resource transfer to developing countries; (2) im- proving the quality of aid; (3) promoting trade and development; (4) contributing to the adjustment process; and (5) on grounds of fairness and equity, arriving at a better distribution of SDRs than that based on unrealistic quotas. Because of the trends and prospects of aid flows, the present and likely size of payments deficits of many developing countries and the poverty facing a large number of countries, the case for an SDR link has never been stronger. The fears that an SDR link would undermine confidence in the SDR and erode its monetary character have been exaggerated, especially after improving the quality and the yield of the SDR. To enhance the role of the SDR, improvements in its characteristics are needed. Foremost is an increase in the SDR rate of interest and the elimination of the remaining reconstitution requirements. If the SDR rate of interest is increased toward the market level, a modified system for distributing SDRs should be acceptable to industrial countries as they would no longer be subsidizing net users of SDRs. However, from the viewpoint of developing countries, even with an increase in the SDR rate of interest, they would still benefit through a larger allocation of SDRs. Many developing countries have little or no access to international capital markets. Thus, they are unable to borrow to supplement their reserves. For other more fortunate developing countries, who have access, the cost of borrowing may be substantially higher than that of the full basket rate of the SDR. Thus, an increased allocation of SDRs to developing countries would implicitly permit these countries to have access to borrowed reserves on a basis approaching that available on international capital markets to developed countries .... Let me now turn to the policy role of the Bank. We believe that the World Bank, because of its broad commitment to fostering the develop- ment process, has an increasingly important role to play. The Bank should be in a position to mobilize additional resources to respond to new needs, such as acceleration of financial flows for structural adjustments, and investments in energy development. Most bilateral and multinational aid financing is available for only project loans. But project loans are disbursed slowly and are, therefore, inefficient in facilitating an adequate transfer of resources. What is needed are flexible funds which are not tied to specific projects, that is. program lending. The Bank has responded to demands for increasing program lending by introducing lending for structural adjustments. In principle, this is a step in the right direction. The current amounts earmarked, that is $600-800 million during the present fiscal year and rising to a limit of $1,500 million in fiscal 1982, are inadequate for the structural adjustment 187 needs for developing countries. However, this facility should be based on additionality of resources. Moreover, we hope that the conditionality of this kind of loans would accommodate social aspirations and political realities of the recipient countries. The establishment of an "energy affiliate" to assist the developing countries in the development of their energy resources is widely supported. The exact modality of such an institution has not yet been spelled out. It is clear, however, that the proposed affiliate should reflect the economic realities of the present world in its capital and voting structure. We are fully prepared to participate with others in a discussion to look into all aspects of the proposal. We also support the modification of the gearing ratio of the World Bank. Because an expansion of the gearing ratio would not impose any immediate burden on the budgets of member countries, the proposal should be evaluated on its impact for the credit standing of the World Bank. We are confident that the excellent credit rating of the World Bank in the world financial markets would not be impaired by an increase in the gearing ratio. The Arab countries stand ready to participate in any concrete program of action designed to eradicate poverty, develop energy resources and accelerate development. Such contributions can be effective only if indus- trialized countries bear a fair share of the burden. To effectively implement these policies in a cooperative approach, a greater role for developing countries in the decision-making at the Fund and the Bank is necessary, and must be viewed in the wider context of the desired reform of the international monetary system. Although representing 8 5per cent of the membership, the developing countries have no effective say in policies and, in fact, continue to be on the receiving end, and at times victimized by the outdated structure of economic and financial relationships. In this regard, I would like to highlight some areas that deserve im- mediate attention from the Boards of the Fund and the Bank: (1) In the view of many, including ourselves, it is neither necessary nor desirable-as a matter of principle-that a single country should have veto power on the important decisions of the IMF or the World Bank. Therefore, special majorities need to be reformulated so that no single member can exercise a veto power. While at present the special majority requirements can enable the developing countries to exert some influence, it does not enable them to translate their initiatives to programs or policies that they consider to be in their interest, as well as in the interest of the international community. (2) The importance of basic votes has greatly diminished over time. More importantly, the provision for basic votes was adopted as a compro- mise, but basic issues were not resolved. The diminution of the basic votes, in relation to total votes, has in fact worked to the advantage of those favoring a voting system based on shareholding. Indeed, whenever a reduction in the voting power of major shareholders occurred, the level of special majority requirement was raised so as to preserve the special 188 privileges enjoyed by those major shareholders. It is necessary to in- crease substantially the number of basic votes. (3) Regarding the representation of developing countries on the staff, we endorse the two principles embodied in the Articles of Agreement with respect to the allegiance of the staff to their institution, and the recruitment of personnel on as wide a geographic base as possible. The strict adherence to law and the impartiality of the management and the staff are the major guarantees for the rights of the small and weak mem- bers. While the number of staff from developing countries has increased over time, the association and participation of individuals from develop- ing countries in the process of policy formulation has not been sufficiently promoted. It would be imperative to increase the number of appointments from developing countries at middle and upper levels, to bring staff with several years of work experience in developing countries, and to widen representation of differing educational backgrounds. Before I end my statement, I would like to refer to the subject of inviting the PLO to attend the Annual Meetings as an observer. The Arab countries have asked to include this item on the agenda. It is important to point out that this issue would have been included on the agenda by other members in case the PLO was allowed to attend. The regular procedures that were followed previously to invite observers should have been adhered to but this was not the case. These two institutions were, unfortunately, used as a political tool which transformed ordinary procedures of inviting observers into a series of political pres- sures. This was done in order to reach the minimum number required. This practice leads to the weakening of the legal structure of the overall relationships among members, which have been created in the framework of these institutions. Our concern for the legal foundation and well-being of these two institutions leads us to draw the attention to the dangers of these practices. The Arab Governors take this opportunity to express their sincere appreciation and gratitude to the more than 65 countries who have not participated in the adoption of this politically inspired resolution. Those countries have confirmed their intentions to protect the legal foundations of the IMF and the IBRD. In conclusion, the prevailing economic conditions demonstrate one undeniable fact on which we can all agree. We live in an interdependent world where our destinies are inextricably linked. These generally dismal conditions and prospects in our fragile world require cooperation on an unprecedented scale. A special responsibility rests with the industrial countries who, by controlling inflation, countering recessionary trends, reducing protectionist barriers, and by increasing the outflow of direct investment, as well as official assistance, can contribute to a reduction of the hardships of developing countries. The spirit of cooperation demon- strated by the Arab countries reflects their conviction that the overall deterioration in the world economic situation and the grim prospects for the near future call for a joint effort from the various country groups, with 189 mutual reinforcement of policies as well as an underscoring of the need for effective cooperation at the international level. I have tried to paint a broad picture of our interdependent problems and to present appropriate policies for members and our two institutions in order to reverse prevailing and projected dismal economic conditions. Instead of political rhetoric, international understanding and cooperation are called for on an unprecedented scale if we are to improve economic conditions for all. These meetings provide us with one avenue. Other channels also exist. Unfortunately, it is not the lack of appropriate fora for such deliberations that limits the international progress. It is, instead, an absence of political will, and of statesmen-like approach toward the long-term survival of our planet. Today, we urge the entire membership to commit themselves to a cooperative endeavor to achieve sustained progress for all. For our part, we are willing to pursue any and all available channels to achieve this elusive goal. SEYCHELLES: J. D. M. FERRARI Governor of the Bank I would initially like to thank the Board of Governors for accepting Seychelles as a member of the Bank at the last Meeting in Belgrade. Although Seychelles has been a member of the Fund for the past three years, it is only earlier this week that we officially became a member of the Bank. My country, as a very recently independent republic, is honored to be represented here today. We are especially enthusiastic in joining the Bank at a time when its role is increasing and at a time when recognition of the need for fundamental changes in both the Bank and the IMF is gaining momentum. I would also like to congratulate the other new members, namely the People's Republic of China, Zimbabwe, S1. Vincent and the Grenadines, and St. Lucia. However, we note with some concern the absence of the PLO as an observer, and we wish to associate ourselves with the remarks of the Governor for Saudi Arabia speaking on behalf of the Arab countries and by the Governor of the Bank for the Socialist Federal Republic of Yugoslavia. It is regrettable that as we come in, Mr. McNamara is moving out. I have followed the work of the Bank very closely in the past years, and his dynamism and unselfish devotion to the Bank have been inspiring. I would like to join the previous speakers in expressing my regret at his departure. I wish him good health in his future endeavors. The Seychelles share the view of the Chairman that the Bank and the IMF must review its charters to enable our two institutions to be capable of meeting the economic and financial challenges that the world will face until the year 2000 and beyond .... It is becoming more and more evident that the nature of the world's economic and financial problems is quite different from what existed when these two institutions were born at Bretton Woods. 190 Rather than elaborate on what I consider to be the obvious, I would like to draw your attention to the increasing number of small island states which are joining the World Bank and the IMF as more and more of us take our place among the community of nations, and testify to the continued process of decolonization. We are located in the middle of the Indian Ocean, about 1,500 kilo- meters from anywhere. We have a small population of only 63,000 people, but we have over 100 islands in our archipelago. Like many other small islands such as those in the Caribbean or the Pacific, we suffer many economic problems from the nature of our country. The terrain is rugged, with poor soils. This makes agriculture difficult and expensive, and causes construction costs to be very high. Further, we are poorly endowed with natural resources, having no minerals or metals to exploit, and precious few building materials. The other major economic problem we have is transport. We are over 1,500 kilometers from the continent of Africa, and many thousands of kilometers from the main world markets. This significantly affects import costs, and mitigates against the establishment of successful export industries. And, with over 100 islands in our archipelago, the farthest one being 800 kilometers from our main island of Mahe, OUf internal transport problems are very serious. Moreover, with only 63,000 people, the prospects for viable import substituting industries are limited. It was because of these constraints that my country opted for tourism as a means of creating more employment and of earning more foreign ex- change to enable us to improve the living standards of our people. During the 1970s, this approach worked well, but the world recession is now making itself felt in Seychelles. So far in 1980, we have suffered from an 11 per cent decline in the number of visitors coming to Seychelles. You can imagine the impact of such a decline on an economy entirely dependent on tourism. It is in recognition of this problem of dependency that my Government, like governments of other small island states, is struggling to diversify its economy into sectors such as fishing, agriculture and small industries. This task is made more difficult when we have to raise loans on the international money markets at the present high interest rates. I do not say all this as a message of despair for the future. On the contrary, in Seychelles you will find an optimistic people, with great hopes for the future. I say this, so that perhaps you will remember that although we are small, although we have many advantages, such as a healthy climate and food for our people, although we have tourism, we suffer, like other small island states, from severe economic problems and constraints. If you consider the economic and human problems of the large countries of Africa and South Asia, it is easy to forget the small fry like Seychelles. And it is easy for a large institution like the World Bank to forget us- not that anyone who visits Seychelles ever forgets it-but I ask you to remember what I have told you today of our economic problems, and not to discount them. 191 This brings me to another matter that I wish to touch upon briefly. One of the items we are very concerned with at these Meetings is the recent report of the Brandt Commission. There are just two aspects of this important report I would wish to comment upon. Firstly, in Seychelles we have often disliked the posture that has been forced upon us in the context of economic cooperation of having to be the grateful recipient accepting the great magnanimity of the aid donor. In this respect we regard the proposal of the Brandt Commission to transform economic cooperation into a contractual relationship between the rich and the poor. I say this, not from self-interest. but from a firm belief in one of the basic tenets of the Brandt Commission, and that is that the improvement in the material conditions for the Third World is an absolute prerequisite to the solution of so many other problems facing the world today. We know that the western industrialized countries are suffering an economic recession, for we in the developing countries feel it at least as badly as they do, but it seems to me to be simple economics that a prosperous Third World can only be good for the prosperity of the industrialized world. The present climate of increasing protectionism and reduced flows of economic assistance to developing countries, while I can see its short-term attractiveness to western voters, can only be harmful to the future of the world economy. Therefore I would urge you to give serious thought to the Brandt Commission proposals on the future of economic cooperation and its financing. I would now like the World Bank to consider whether its existing cen- tralized structure is the most efficient way of dealing with the small island states. My experience in dealing with international institutions has shown that the larger the institution, and the more centralized that institution, the harder it is for us to get our voices heard and the slower are our projects processed. In this respect, the proposal for greater regionalization of the Bank, and for the granting of greater powers and increased staffing in the regional offices of the Bank appeals to us greatly. To have the Bank on our doorstep would make life so much easier for us, and it would enable us to know at anyone time where our projects stood. It would also help the Bank staff members to get to know our countries better, and to understand our economic problems and our priorities. To go from Seychelles to Washington to sort out a problem is one thing; to go to Dar es Salaam, Antananarivo or Nairobi is quite an- other. I know that the Bank is thinking hard about this question, and I know that it has its administrative problems, but I am sure that many other countries, like Seychelles, would welcome such a move. With these remarks I will clo.se my address. It was a pleasure for me as Governor for one of your smallest members to address you here today. Sometimes, "small is beautiful," and sometimes small is impossible. Seychelles is small, it is beautiful, and we are working to make the best of our possibilities. 192 SOLOMON ISLANDS: BENEDICT KINIKA Governor of the Bank and Fund On behalf of the Solomon Islands I extend a warm welcome to the representatives of the People's Republic of China to this Meeting and the Governors of the Fund and the Bank. The People's Republic has been absent for so long from international forums of this kind, and we in Asia and the Pacific particularly have so long felt the unreality of discussing global affairs without their participation, that we are specially glad to see them here with us. I also extend a special welcome to the representa- tives of Zimbabwe, here at last as an independent nation to take their place with the rest of us. I welcome also the small island states of St. Lucia and St. Vincent and the Grenadines. Compared with last year's Meeting in Belgrade, I think I can see some improvements. Not in the economic or financial sense, because generally the positions of many countries are worse than last year and seem likely to worsen further. But improvement in the sense of a slowly growing recognition that we really do inhabit one world and depend mutually on each other. I think I can see fewer completely closed minds, and more realization that the only possible solutions are slow and complex, re- quiring genuine collaboration, and may involve going back in order to go forward. Perhaps even the trouble about observer status will have that effect. Now, among the many problems which exercise so many minds, and on which such distressingly slow progress is apparent, I want in this brief speech to pick out two issues-one is the Fund and one in the World Bank .... Turning now to the World Bank, the subject I wish to raise is the rela- tionship between public sector and private sector investment. I believe there is little understanding in many countries, including my own, of com- plementarity of public sector investment and the investment of private capital. I know that the Fund and the Bank have received a report of a Task Force on Private Foreign Investment in developing countries. This is a welcome move. But I think much more direct action and assistance is needed to help developing countries, particularly those which lack a sig- nificant indigenous private sector and an experienced good bureaucracy, to enable us to formulate policies and make decisions. I have in mind the need to understand the nature of public sector investment, its strengths, weaknesses and what can be done about them-and the same with private sector investment; the relationship, interaction and interdependence which arises between investment activities in the two sectors; the relative amounts of capital which should be made available, directed or encour- aged into each sector and on what criteria. In summary, what is the proper role of public sector and private sector investment and how can the return to both of them be maximized, against our national objectives. I stress the need for a clear and impartial examination of this subject, because it tends to be clouded by emotion and concepts that are of little use in solving the development problems that most of us are facing. 193 I believe that our failure to think clearly about this is handicapping our development efforts. It is not just a choice between big government or small government, between wicked transnational corporations or virtuous sons-of-the-soil smallholders; it is a problem of analyzing the capabilities of different kinds of input to the development process, and then assigning to those inputs (whether they be human, technological or financial) that role in the national economy where they will fulfill themselves best, for the good of the state. Comparative advantage, if you like. I hope that those in the Bank and in the Fund who are looking at these problems will move quickly to produce results in a form that can be directly of use to us. Let me emphasize that in raising these two specific points I am not dissenting from the general trend of thought among any developing country colleagues about the many other aspects of Fund and Bank questions that need attention, but I think these two points are worth highlighting. Among the many unpublicized achievements of the Bank during the last year, I am particularly pleased that agreement has been reached by management on the way in which the World Bank can help small countries in the Asia and Pacific region, by cofinancing projects with the Asian Development Bank in the lead role. This is a good example of solid, professional staff work, in answer to our demands, leading to a sensible result, and we appreciate it. Finally, Mr. Chairman, I wish to join those who have paid tribute to the role of Mr. McNamara in the World Bank. For those of us who have joined the Bank in recent years it is almost impossible to think of the Bank without Mr. McNamara as President. We have admired his energy, leadership and especially, I think, his compassion. This is not a quality often found in heads of major financial institutions. But this quality has colored, informed, improved and enlarged Mr. McNamara's impact and, indeed, the Bank itself during his tenure of office. We are deeply grateful to him for all that he has done and we look forward with con- siderable interest to the selection of his successor. I trust that this selection process will be one in which we developing country members of the Bank will be allocated a part. SOUTH AFRICA: OWEN P. F. HORWOOD Governor of the Fund I wish to begin by complimenting Mr. de Larosiere, Mr. McNamara, and the Executive Directors of the Fund and the World Bank Group on their achievements during the past year and on their lucid and incisive Annual Reports. I wish Mr. McNamara well on the eve of his retirement after so many years of dedicated service. In addition, I would extend a word of welcome to all the new members of the Fund and Bank and in particular to our neighboring country, Zimbabwe. 194 As a founder member of both the Fund and the Bank, my country is proud to have been associated with the work of these great institutions over the years and with the exemplary principles of financial discipline and sound economic development on which their actions have largely been based. It is accordingly a matter of concern to me to note the increasing tendency for international politics to rear its ugly head in Fund and Bank circles. This tendency bodes iII for the international monetary system and for develop- ment cooperation. If allowed to gain momentum, it will undermine con- fidence in international financial arrangements and could greatly reduce the effectiveness and future importance of both the Fund and the World Bank Group, most of all for those of their member states who are in greatest need of their guidance and support. It is therefore a tendency which should be discouraged. Related to this question is the increasing demand from devel- oping countries for even lower-cost and easier financial assistance, not only from the World Bank Group but also from the Fund. As Governor of the Fund for a country on the African continent, I have some understanding of the dire straits in which many developing countries find themselves at present, and I wish to support their case for increased official financial sup- port to help them overcome their structural as well as their short-term balance of payments problems. But it is of crucial importance to the well- being of all concerned that this assistance be provided through an appro- priate transfer of real resources and not, as has now again been proposed, by creating more paper money through the activation of additional special drawing rights or by relaxing the conditions attaching to Fund facilities. It must be accepted as a fact of life that the rise in oil prices and other related developments calls for painful adjustments on the part of most non-oil producing countries. Since the poorest countries understandably find it difficult to make these adjustments, those industrial and oil pro- ducing countries which profess a desire to provide assistance should take part of the adjustment burden upon themselves. This necessarily implies that they must be prepared to make certain sacrifices. There is no other way to bring about the desired transfer of real resources. Attempts to solve the problem painlessly by using inflationary methods of financing will only be self-defeating in the end. The founding fathers at Bretton Woods in 1944 knew what they were doing when they decided to set up two institutions, namely the Fund and the Bank, instead of only one combined institution. They realized the importance of drawing a sharp distinction between, on the one hand, the function of assisting countries to finance and adjust temporary payments imbalances and, on the other, that of providing devel- opment finance. That distinction is stilI valid today .... The situation in the Southern African economic region is almost a micro- cosm of this international problem. The escalation of energy costs has adversely affected some countries and areas in this subcontinent, while the balancing increases in mineral prices-including the price of gold-have considerably improved real incomes in the mineral rich areas of the region. The way to deal with the problem is not for the monetary authorities con- 195 cerned to create more liquidity, as that would simply inflate costs every- where in the region. The sound way to proceed is to recycle part of the true savings in the advantaged areas into new investment in the stricken areas, with the emphasis on development. In accordance with this approach, my Government has, during the past year, joined forces with a number of governments of states in the region, as well as with leading private sector enterprises, in launching a new pro- gram of economic development cooperation, as part of a far-reaching initia- tive to promote the development of a constellation of states in Southern Africa. Included in this program are steps to promote economic develop- ment cooperation on a regional basis, transcending the borders of national states; the establishment of a multilateral development bank; and the sys- tematic promotion of small business enterprises. In the earlier stages, particularly, of this development strategy, agriculture will assume crucial importance. It is perhaps not generally known that South Africa is today virtually the only exporter of food on the vast African continent and that our exports to African countries are steadily increasing. I turn now to the current state of the world economy. Undoubtedly the overall situation has deteriorated since our meeting in Belgrade last year. Most countries have experienced a combination of accelerating inflation, new recessionary tendencies, and increased payments imbalances .... The only really encouraging feature of the past year has been the greater appreciation in certain important countries of the urgent need to apply more stringent monetary and fiscal policies in order to curb excessive spending and money creation. And it is gratifying to see countries like the United Kingdom persisting with unpopular but fundamentally appropriate financial policies in their efforts to curb inflation and to strengthen their underlying economic position. The experience in my own country in recent years has once again dem- onstrated that financial discipline, including particularly the effective restric- tion of government spending, is an essential ingredient in any policy de- signed to encourage real economic growth while at the same time maintain- ing a strong balance of payments and minimizing inflation. Assisted by the higher gold price, South Africa will in 1980 probably combine a real eco- nomic growth rate of between 6 per cent and 7 per cent with an inflation rate of about 14 per cent and a current balance of payments surplus equal to more than 5 per cent of gross domestic product. Of course, the very fact that the continuing upswing has now absorbed most of the surplus capacity in the economy must, in the normal course of events, imply both a slowing down in the rate of real economic growth and a reduced current account surplus in 1981. But the economy should nevertheless continue to expand rapidly with rising standards of living for all sections of the popula- tion .... Finally, I wish to stress the central importance of improving the quality of the world's monetary system and payments arrangements if we are to succeed in the great design to achieve a better world. And in this context I come to gold-a subject which, although conspicuously absent from the 196 public statements made at this meeting, is once again very much in the news and in the minds of delegates. Gold has clearly reasserted itself still further during the past year as a factor in international monetary affairs. Apart from its continued use in swaps and as collateral for loans, and its role in the pool of monetary reserves backing up the European Monetary System, it presently constitutes about 60 per cent of the total official reserves of free world countries. Moreover, there is no longer any dispute about the relative status of the main reserve assets-the markets have passed a clear verdict in favor of gold. As the General Manager of the BIS put it recently: "Gold may have no official status. But it is not unloved." What is new is the growing body of opinion in certain influential circles that, as part of a broader strategy to deal with the world's present set of deep-rooted economic problems, a move forward to a new gold-based monetary system of one kind or another might be a useful, if not an essen- tial, step. It is also significant that it has suddenly become respectable again for economists and others to debate the whole issue of gold's future mone- tary role. Moving to a new gold-based system will not be easy. The subject requires a thorough investigation by experts, and the relative merits of the different methods of moving to such a system will have to be carefully considered. The Executive Directors and staff of the Fund are ideally placed to conduct such a study, and I would hope that they will not leave this task to others. The textbooks are right when they state that for any asset to serve satis- factorily as money, it must be able to combine the functions of means of payment, unit of account, and store of value. The experience of recent years has shown once again that inconvertible paper currencies simply fail to do this. Against this background there is a growing realization that to become truly acceptable as money again, paper currencies must be re-linked to commodities in one way or another and that in practice this can best be done via a link with gold. By itself, of course, the institution of a new gold-based system will not solve the world's present economic problems. I am in full agreement with those who argue that the main prerequisite for any such solution is the application of more effective fiscal and monetary policies. But it is my sincere conviction that the recognition, clarification, and normalization of gold's monetary role will assist governments in the adoption and main- tenance of appropriate policies of financial discipline. Given the present distrust of paper currencies and manmade international monetary arrange- ments, the monetary authorities of the world have much to gain and nothing to lose by forging sound money policies on the confidence which people everywhere consistently display in gold in a world fraught with uncertainty and changing values. 197 SPAIN: JAIME GARCIA ANOVEROS Governor of the Bank For a number of years now, it seems that the statements made at these Annual Meetings have inevitably been worried commentaries on the dif- ficult and serious problems of the world economy. What is new this time is that these difficulties have become significantly worse over the past twelve months. The sizable new increases in oil prices have had a severe impact-both inflationary and recessionary-on some economies that had still not ad- justed fully to the new conditions created midway through the past decade. The outcome of the efforts made to curb inflation and to enable econ- omies to embark on a path of stable economic growth has been seriously compromised: inflation has been fueled afresh while real expansion rates have slowed markedly. The world economy has entered a sluggish phase, aggravated by the effects of the recession in the United States. At the same time, pronounced balance of payments disequilibria have reappeared which will perhaps take longer to eliminate than after the first increase in oil prices and which pose formidable problems in financing the deficits involved. The recrudescence of these difficulties has served to remind us-if we had ever succeeded in forgetting-that we are in the midst of a period of serious problems which could persist for some considerable time and which need to be dealt with from a medium- and long-term standpoint. There is an increasingly widespread conviction that policies for managing overall demand are not sufficient for grappling with the problems that have arisen in the majority of countries. The progressive reduction of today's high inflation rates must, unquestionably, be given highest priority; and external current account deficits have to be kept within financeable limits. But these are not, at the present time, problems that can be dealt with solely on the demand side, because they are today also influenced by major pressures on the supply side, substantial changes in the structure of rela- tive prices and considerable capital renewal and resource reallocation needs. The excellent reports prepared by the International Monetary Fund and the World Bank appropriately emphasize, each from its own viewpoint and as regards its own sphere of action, the peculiar problems economic policies must address at this time. Spain has been one of the countries profoundly affected by the events of recent years on the supply side, higher energy prices, and the mal- adjustments resulting from the changes in relative prices and in the structure of world supply and demand. All of this has caused high and mounting unemployment that cannot be passively accepted by my Government or its economic policy-makers. However, the Government is also perfectly aware that a lasting and stable solution to the unemployment problem can only be found to the extent that it succeeds in keeping inflation in check and effecting significant re- 198 allocations of productive resources, which calls for an increase in the economy's saving and investment rates. This is precisely the strategy recently outlined by the Prime Minister to the lower house and accepted by that chamber. And the General State Budgets for 1981 which I submitted only yesterday to Parliament are consistent with that strategy. However, it is not so much my intention to discuss the content of Spanish economic policy as to note that this policy, like those of many other countries, implies actions that will need time to come to grips with problems that can only be solved over the medium and long term. For this feature of the present problems and of the policies designed to solve them has significant consequences for the subjects that concern us at these Meetings. The International Monetary Fund could be viewed in the past as an institution charged with facilitating the short-term adjustment of economies whose problems stemmed basically from the pressures of overall domestic demand. It was, of course, possible that the problems were deeper and more persistent; but in that case they were viewed as being outside the Fund's own purview. The Fund could link its cooperation to relatively short-term adjustments, chiefly in the areas of demand and exchange rates. Today, as the Fund itself recognizes, such an approach would be simplistic and inappropriate. Today's maladjustments originate largely outside the economies themselves, implying a greater international re- sponsibility for the adjustment processes. The difficulties that arise are due in significant degree to supply-side influences; as a result, they cannot be corrected solely by conventional measures relating to aggregate demand, and the complex supply and demand policies that are required cannot be seen as short-term adjustments. Hence, the Fund's assistance today must be governed by greater flexibility than in the past, and its conditionality, while no less demanding, must reflect different, broader criteria than those applied in past years, because the adjustment processes will necessarily take longer, be more complex, and cut deeper, and the countries cannot be asked to accept rapid, far-reaching changes in response to outside influences that are beyond their control. Today, as it happens, the adjust- ment problems that have arisen are leading to closer collaboration between the two institutions-the Fund and the Bank-since the Bank's assistance must be designed to promote processes of change and growth that will help, in time, to solve the problems of transfers abroad which are closer to the Fund's concerns. The separate spheres of the Fund and the Bank can no longer be demarcated today as clearly as in the past. ... Similarly, the World Bank should seek additional resources so that the entry of the People's Republic of China, to which we extend a most cordial welcome, combined with the growth of the structural adjustment loan program and the anticipated worldwide inflation, do not force it to curtail its traditional project loan program. Therefore, we specifically support the Bank's initiative in exploring the founding of a specialized energy 199 affiliate, which would be allocated additional resources for use in this field. I do not want to close without expressing my sincere gratitude to Mr. McNamara, who has done a truly effective job at the World Bank in the last 12 years. SRI LANKA: RONNIE DE MEL Governor of the Bank and Fund It is a great privilege to be associated with these Annual Meetings of the Fund and Bank. They usher in the decade of the 1980s. Sri Lanka welcomes the representation of the People's Republic of China. It brings into our fold nearly a third of humanity and a country with a long and distinguished history and civilization with which Sri Lanka has had close and friendly relations at all times. We also extend a warm welcome to Zimbabwe, St. Lucia, and St. Vincent and the Grenadines. We are saddened to hear of the decision of Mr. Robert McNamara to step down from the Presidency of the World Bank. We in Sri Lanka consider him a special friend. He is retiring after completing an outstandingly successful term of office. He has given the Bank a new orientation and a new outlook with his basic needs approach. He has sought for solutions to relieve human misery and deprivation among the poorest of the poor. On behalf of the Government and the people of Sri Lanka, I wish to place on record our sincere thanks to Mr. McNamara for his distinguished record of service to the World Bank and indeed to all humanity and to wish him every success in the future. We are painfully aware that new difficulties and new problems confront us, particularly affecting Third World non-oil producing countries. Though the Fund and the Bank have responded to certain difficulties, solutions to most of the pressing problems of our times seem to still elude us. The grim and bleak world economic outlook of today will leave many Third World countries in a hopeless and helpless situation. In such circumstances, the greatest honor we can do to Mr. McNamara in his retirement is to see that his ideas and intentions are effectively and urgently implemented to alleviate the sufferings i~ our countries .... I now come to questions related to the World Bank. As the largest multilateral development institution, the Bank bears a special responsibility to take the lead in promoting flows of concessional and nonconcessional assistance. Structural adjustment lending could act as the catalyst in helping fulfill that responsibility. Developing countries welcome the new facility and look forward to its early implementation. It would be some- what counterproductive however to have the same type of conditionality as that in the Fund for such a facility. We hope that the Bank would take into consideration the individual characteristics and needs of each country, and also consider political and social reality. We would urge the Bank to adopt a practical, pragmatic and flexible approach. 200 We would also urge the Bank to consider the question of a reduction in interest cost to a target category of countries. I have yet to come across any concrete proposals to fulfill this need. Greater involvement by the Bank and Fund in financial intermediation can give the much needed stabilizing influence in the international capital market. The re- duction of exchange and political risks will itself be conducive to a lowering of interest rates relating to such market borrowings by the Bank and Fund. It is worthwhile recalling that the Bank's Articles of Agreement restrict program lending to "special circumstances." Yet in the period 1947-55, ways and means were found to make available 38 per cent of Bank lending in the form of program loans. Of course, they were not called program loans. But their broad and flexible character made them so. Almost all these loans were granted to what are now developed countries. Reluctance to adopt" the same objectives and techniques in the exceptional circum- stances of today would be very difficult to understand. The Fund and Bank have all the potential to make a direct and sub- stantial contribution to the process of international development. The Fund, in particular, could do much more, considering that in each of the last three years repayments to the Fund exceeded credits granted by considerable margins. A year or two from now, there should be no cause to say-the Fund had finance, but conditionality prevented its utilization; the World Bank had policies and procedures which encouraged members to come to it; but having come there, they languished for want of funds. Let us not create a scenario of disillusionment and despair in these difficult times. The responsibility of the Bank to focus on ways to improve the inter- national economic environment also includes a review of policies of developed countries. Official development assistance is important enough for special comment. The Bank's expectations are for a marginal stepping up of the level from 0.34 per cent of GNP in 1979 to 0.36 per cent by 1985-about half the international target of 0.7 per cent. It surely would be giving the wrong signals to the developed countries if the Bank were to be so modest in its expectations! What is the justification for this unduly low target if one compares the expenditure of developed coun- tries on armaments with the pittance that they devote to assisting develop- ment of needy nations? We welcome the study made by the World Bank on the emerging energy situation. The proposal to establish an energy affiliate to finance energy projects including oil exploration in developing countries comes not a day too soon. While recognizing the need to take early action after a comprehensive study for promoting long-term investment in energy, the need to establish a special oil facility as in 1974 to assist the non-oil producing developing countries to overcome their short-term imbalances arising out of increased costs of oil imports is even more urgent. I would strongly urge the establishment of such a facility immediately. We welcome the action of Iraq, Venezuela, Mexico, Trinidad and Tobago in giving certain rebates in the purchase of oil by developing countries and would 201 urge other oil exporting countries to consider similar rebates or long-term loans to help finance the increased costs of oil of seriously affected Third World countries. Balance of payments assistance and development financing are inter- linked. Some developing countries have made great strides in the ad- justment of their economies by pursuing bold and imaginative policies. These well-designed development plans have been supported by the multi- lateral organizations and by the international community. It is only by implementing these plans that developing countries could hope to achieve a better quality of life and relieve the majority of their people from con- ditions of abject poverty and deprivation. Uncertainties about future development assistance to carry through these programs to completion would not only be costly but counterproductive, and destroy the climate of confidence and stability. Pruning down investment programs from time to time will not help the developing countries to expand economic growth to fight the problems of unemployment and low growth that continually beset them. The fact that both the Fund and the Bank have not been able to devise an emergency program of assistance in these changing circum- stances is a serious shortcoming in the present international economic situation. Until they can come up with such a solution, those programs that have already been accepted by them should not be allowed to falter for lack of adequate financial assistance. This would be tragic for countries that are trying their utmost to put their house in order and achieve self- sustained economic growth. This is not the best of times so far as the world economy is concerned. This is also not the worst of times. What is required is a new orientation, a new outlook, in the Bank and the Fund. What was good enough for the Bretton Woods era is certainly not good enough for the 1980s. The World has changed and changed considerably. The Bank and the Fund have made many changes in recent years, but they must adapt themselves much more to changing conditions. They must evolve new methods of borrowing and new methods of lending to suit the new needs and new aspirations, par- ticularly of the low-income developing countries. What is required is not rhetoric, but a new political will and political action to reform the international monetary system and the international economic order to fulfill the needs of all the peoples of the world, both developed and developing. Above all, we require a new flexibility-a practical and pragmatic approach to world problems. We believe that there is an in- creasing role for the Bank and the Fund to play in the future. We from Sri Lanka also believe in cooperation, not confrontation, in an increasingly interdependent world. We hope that this new cooperation will gradually emerge in the 1980s. 202 SWEDEN: HANS BLIX Governor of the Bank It is a great pleasure for me to join previous speakers in paying tribute to Mr. McNamara, who is now attending his last Annual Meeting in his capacity as President of the World Bank. The Nordic countries have persistently underlined the importance they attach to social considerations in the Bank's lending policies. Under Mr. McNamara's leadership the Bank Group has developed in the direction we have advocated. The emergence of the so-called new style projects and, more generally, the in- creased emphasis on poverty alleviation and human development have had -and will continue to have-the fuJI support of the Nordic countries. They sincerely appreciate Mr. McNamara's efforts and the heritage he leaves the Bank to concern itself with economic and social development. For some delegations these are the first Annual Meetings. On behalf of the Nordic countries I wish to extend our warmest welcome to the Gov- ernors of the Bank for these countries. I may be permitted to express particular satisfaction over the fact that the People's Republic of China, with nearly one fourth of the world's population, is now represented on our Board. It is also natural for me to underline the great value that the Nordic countries attach to having an independent Zimbabwe as a member of the Bank. These changes in representation have brought the Bank closer to the goal of universality, which is not yet attained and which remains of great importance. Moreover, it would be valuable if the voting structure of the Bank could be adjusted so as to more accurately reflect the realities of today's world. There is no need for me to repeat all the telling economic indicators that sadly depict a world economy in crisis. The imbalance in world development represents a challenge to us both in the short and in the long run. It has been aggravated by a profound disequilibrium in international payments and a stagnation in the industrialized world. Never has inter- national economic cooperation been more important. But that cooperation is also subjected to greater strain than before. The gloomy world economic situation cannot be attributed to any single factor but has evolved as the result of a chain of events over the last decade. Most countries, developed and developing alike, will now have to adjust their economies to a world economic environment that is undergoing fundamental and long-term changes. The process of adjustment to higher energy prices is particularly difficult and painful for the poorer oil importing developing countries. Furthermore, for these countries the inflationary rise in the cost of their manufactured imports, combined with a weakening of their export earnings, has resulted in deficits on current accounts which dramatically increase their needs for external finance. Even more alarming is the fact that these deficits, accord- ing to the World Development Report, are expected to persist in real terms throughout the coming decade. The problem is further aggravated by the fact that many developing countries are already heavily indebted. 203 It is not possible to prescribe any detailed remedy for this situation. There are, however, some elements which I should like briefly to place before you. First, it is evident that more is needed than mere short-term stabiliza- tion policies. Structural adjustments, especially in developing countries, will require extensive investments for the medium term. Second, it is imperative that the oil importing developing countries achieve rapid export growth. Therefore, the industrial countries should refrain from protectionist measures and avoid pursuing unduly deflationary policies. Third, export promotion will have to be supplemented by import substitution, especially in the areas of energy and food. Prospects for increased energy and food production in oil importing developing coun- tries are in many cases quite good. Investments in these areas should, therefore, be given the highest priority. The points I have just made underline the important role which the World Bank can play. It has already demonstrated a capacity to face changing circumstances. The decision to introduce program loans to assist structural adjustment is important and positive. We believe that this type of lending should expand over the coming years. Similarly, the Bank has a crucial role in assisting developing countries' efforts to increase production of key commodities. The Nordic countries strongly support a continued expansion of lending for food production and rural development. We have also given our full support to increased lending to the energy sector. In our view the present situation certainly warrants further efforts in this field. Accordingly, we support the efforts to open a special facility for substantially expanded lending in the field of energy. But emphasis on these new areas must not be allowed to take interest and resources away from the fundamental aim of alleviating poverty. It is comforting to note that this year's World Development Report confirms that there is no inherent contradiction between stimulating growth and fighting poverty. There seems rather to be evidence to suggest that satisfying basic needs in the broad sense, i.e., through human development, increased employment opportunities and reduction of inequalities, would stimulate overall economic growth and development. The world economy today presents the picture of vast financial resources seeking useful employment, and of immense human needs which are not met for lack of funds. The challenge before us all is to find the means whereby supply and demand of capital can be matched in ways which are mutually acceptable and beneficial. The Nordic countries believe that the World Bank has an increasingly important role to play in this process: First, because the Bank is a prime quality borrower and can therefore obtain and relend on terms that cannot be achieved by the non-oil de- veloping countries themselves. Second, because the World Bank possesses the capacity and know-how needed to put additional financial resources to productive use. 204 It is against this background that the Nordic countries, already at the Development Committee Meeting in Hamburg, argued in favor of substan- tially expanding the World Bank's future lending capacity. We have no difficulties in supporting Mr. McNamara when he sees further arguments for such expansion in the higher-than-anticipated inflation levels and in the development needs of China. In his address, Mr. McNamara mentioned three different ways of financing such an expansion. So far the Nordic countries have given preference to an increase in the callable capital of the Bank. But the study which is being prepared will give us a clearer picture of which of the possible methods or combination of them promises to give the quickest results and muster the strongest support. It is important to emphasize in this context, however, that a further increase of the Bank's lending capacity will not, in itself, give substantial benefits to the poorer developing countries. Given the increasingly diversified situation within the group of developing countries, it might be desirable for the Bank to consider further how the terms of Bank lending could be ameliorated for countries at the lower end of the income scale. Possible ways of achieving this could be through interest subsidies, in- creased differentiation of maturities and grace periods as well as new principles for blending. In this connection the Nordic countries would welcome a full discussion of the principles and alternatives for allocating the Bank's rapidly increasing net income. I need hardly add that any changes contemplated in these respects would have to be compatible with the need to preserve the position of the Bank in the financial markets. The importance of ODA is more obvious than ever. Concessionary assistance is the only source of finance that, in the long run, can be afforded by the low-income oil importing LDCs. It is alarming therefore that the flow of concessional resources is stagnating. It is disappointing that so many countries have not yet felt able to make any firm commitment to increase their development assistance to the internationally proclaimed target. It is generally recognized that a larger share of ODA should be directed to the least developed countries. In this perspective we regret that IDA VI has not yet become effective. The single largest source of concessional assistance must not be forced to cease its operations. The Nordic Govern- ments intend to contribute to the bridging operation presently under way. The difficulties encountered in a number of international financial institutions over the last year give us the most serious concern. How can we retain confidence in the negotiating procedures which in the past have made it possible to raise large amounts of money for development, if negotiated pledges are no longer implemented by all countries? This matter has to be carefully considered with a view to avoiding today's problems in future replenishments. At this crucial moment the Bank's task of assisting millions of people in the developing world assumes even greater importance than before. The Bank is part of an international institutional system that is now hope- 205 fully getting ready to embark on a major negotiating effort. The Nordic countries would wish the Bretton Woods institutions to play an active and constructive role in the negotiations. At this meeting we address ourselves to the problems of poverty de- privation in the detached terms of macroeconomic analysis. This is in- evitable and necessary. But we also have to reflect on what you, Mr. Jamal, rightly said yesterday, that the world may be saturated with words and that our discussions have no sense, if they do not lead to positive action. Our institutions are powerful and capable instruments for such action. I pledge the full support of the Nordic countries to the work before us. THAILAND: AMNUAY VIRAVAN Governor of the Bank First of all, on behalf of the Royal Thai Government, I would like to join other fellow Governors in extending a warm welcome to new mem- bers of the Bank and Fund, namely St. Lucia, St. Vincent and the Grenadines, and Zimbabwe. A cordial welcome is also extended to the People's Republic of China on the resumption of relations with the Bank and Fund. With enlarged membership and a wider sphere of influence, the World Bank and Fund should become more fully representative and thereby contribute to better understanding and improved relations among members of the international community. This is also a fitting occasion to pay tribute to the eminent outgoing World Bank President, Mr. Robert McNamara. During his terms of service spanning over a decade, the World Bank has grown tremendously in size and stature not only as the primary source of development financing but also as an invaluable depository of technical assistance and expertise. Through Mr. McNamara's dynamic leadership and unrelenting efforts, the World Bank and IDA have succeeded in expanding their lending operations by several folds. The quality of development financing has also shown marked improvement, with greater emphasis on the human aspects of development and the differing needs of individual borrowing countries. Looking ahead into the 1980s, the role of the World Bank and Fund in channeling financial and technical resources to LDCs will be even more crucial if the development process is to be sustained. Hence, the impor- tance of choosing the right man to succeed Mr. McNamara, to whom all our best wishes go on the occasion of this retirement from the World Bank. The world economic outlook in the near and medium term as projected in the Fund report and the World Development Report gives rise to serious concern, particularly for the developing countries. Difficulties which have emerged during the last decade, namely stagflation, balance of payments deficits, declining terms of trade and growing external debt burden loom larger than ever with no easy solution in sight. Difficult choices must be made by developed and developing countries alike concerning their 206 respective growth paths consistent with national objectives and the desired level of trade and world economic activities. For low-income countries, the difficulty in implementing an appro- priate development strategy is further compounded by their relatively inflexible economic structures as well as existing social and political constraints. For this reason, there can be no panacea for the economic problems which beset all our countries today. The need for structural adjustment is clearly recognized. However, timing and methods of adjustment must be determined by the respective countries in the context of their national objectives and constraints. I refer in particular to the implications and trade-offs arising from specific measures to restructure investment and production structures as well as recommended institutional changes. Thus, while our overall development strategy does not differ essentially from the structural adjustment path recommended for non-oil LDCs, the degree and timing of adjustment must, in the final analysis, reflect political realities with which we are faced. Notwithstanding the plea for greater flexibility consistent with differing circumstances and needs, I also wish to register strong support for increased international cooperation, particularly in the field of trade, energy and capital flows. Increased market access is essential if the developing coun- tries are to succeed in expanding their foreign exchange earning capacity and limiting their payments deficit to a financially sustainable level. Underlying instabilities in the world economy and the urgency of con- certed efforts to contain and reduce these instabilities prompt me to endorse the Brandt Commission's clear and comprehensive Program for Survival. Urgent coordinated efforts are clearly needed to check the rising protec- tionist trend, ensure orderly supply and pricing of energy and channel adequate financial flows to deficit LDCs. The Brandt Commission and the Group of Twenty-Four have identified many desirable and feasible areas for international action, particularly measures which relate to the World Bank and Fund. These proposals should be implemented without further delay, including in particular the quota and capital subscription review, more regular SDR allocation consistent with liquidity needs and declining purchasing power, as well as the recycling issue. On the "recycling" of surplus savings, several schemes have been pro- posed to alleviate the tight and competitive credit situation projected for the 1980s. Proposed channeling of petrodollars through the IMF and IBRD supplementary financing facility, structural adjustment lending and the new energy affiliate are of primary importance in view of the growing con- straints of the private financial markets and the rising external debt burden ofLDCs. It is in this context and in relation to bilateral aid flows that we deeply regret the growing trend toward overt linkage of financial assistance programs with political considerations to the detriment of low-income developing nations. It is therefore noted with interest that plans are underway to reorganize and expand the role of the OPEC Special Fund. The scope for closer trade and financial cooperation among capital surplus 207 OPEC countries and non-oil LDCs is an area which merits further consideration. In view of the growing balance of payments constraints and the un- favorable outlook for non-concessional flows to LDCs, bilateral and technical cooperation will be more important than ever before during the 1980s. Greater efforts are urged on the developed countries to increase the availability of concessionary aid flows on a multiyear basis and on terms which are comparable to OECF loans extended by Japan. Multilateral institutions, particularly the WorId Bank and Fund are, however, expected to playa pivotal role in dealing with large payments deficits under their newly evolved policies and operational guidelines for structural adjustment lending. Apart from the availability of resources, terms and conditions for use of Bank and Fund facilities are factors which will determine the practical usefulness and adequacy of such facilities under the changing international economic situation. It is therefore relevant to consider other recycling schemes outside the framework of the Fund and Bank, including the proposed creation of an International Loan Insurance Fund and the World Development Fund. The Fund and Bank should render technical assistance by under- taking detailed studies of such proposals. Regarding the operational matters which relate to the Bank and Fund, I would like to urge greater efforts to reduce or keep the borrowing costs of developing countries at a minimum level. Toward this end, the Fund's interest subsidy scheme and re-activation of the Bank's Third Window are strongly supported. The financial and other economic problems which beset us today are indeed complex and serious. However, with vision, determination and increased political will to cooperate for mutual survival and benefit, the world community should be able to weather the gathering storm. The World Bank and Fund must playa key role in the on-going process of adjustment to the prevailing economic and international political realities of today. UNITED KINGDOM: GEOFFREY HOWE Governor of the Fund Introduction May I begin by joining with others in welcoming to the Fund and Bank the new members, St. Lucia, and St. Vincent and the Grenadines, and, with particular pleasure, our newest member, Zimbabwe. May I express too my satisfaction that the People's Republic of China is now participating in the Fund and Bank. This is an event of great signifi- cance and represents a major broadening of the two organizations. 208 Economic Outlook The world economy is still adjusting to the effects of the recent oil price rises. At Belgrade last year, and again at Hamburg, the IMF con- sistently stressed the need to give priority to the fight against inftation- and particularly to prevent higher oil prices from having an inflationary impact on other domestic costs. Events since then have shown the wisdom of that advice. There are signs that inflation in the industrial countries has now peaked and may be beginning to subside. But inflation, although declining, still remains far too high. The first movements in the right direction provide no kind of excuse for more relaxed policies. For each successive cycle in recent years has started from a higher rate of inflation than its predecessor. We must make a decisive break in this upward trend. Fighting inflation clearly involves sacrifice in the short term. This is no doubt why the Managing Director remarked, in his report to the Interim Committee, that the commitment of many governments to the containment of inflation might soon be severely tested. But short-term sacrifice is un- avoidable if we are to lay the foundation for more sustainable growth. The costs of the alternative course of more accommodating policies, whether in the national field or in the management of the world monetary system, would ultimately be greater. The value of currencies, and the international monetary system, would be progressively undermined. In- flation would flare up again with still more serious effects on growth .... The False Division Between North and South The increases in the price of oil have also transformed the pattern of economic relationships in the world. But we have been slow to change the way we think about world economic problems and slow to realize that the pattern of roles and responsibilities has fundamentally altered. For many years now the world has commonly been divided into "North" and "South." This classification into two mutually exclusive groups was always oversimplified. Today I doubt whether it is helpful or even accurate in analyzing the world's problems. We must always beware of the dangers of simple categories. Nations are like people, they have different per- sonalities, endowments, problems, and attitudes. They have roles both as individuals and as members of groups. Take first the non-oil developing countries. Nobody should any longer make the mistake of treating them as though they were all identical; for we must all recognize their great diversity. Some have become major exporters of industrial goods and have achieved rapid increases in living standards. They consume the greater part of the oil used by developing countries. They account for a high proportion of borrowing from inter- national capital markets. With the right policies their ability to raise credit on the market should remain considerable. Some countries in this group have a good resource base as major producers of important raw materials. 209 But others are less fortunate, with low and, in some cases, even declining GNP, and rely very heavily on official flows of one kind or another. Their problems are indeed serious. They have generally been unable to increase -their borrowing as fast as the average for developing countries, but because of slow growth in export earnings their debt-service ratios have worsened more than the average. It is in these countries that the greatest needs are found and it is on these countries that we need to concentrate the concessional assistance that is available. Even the relatively small group of oil producers is far from homogeneous. Some find it easy to spend their extra revenues. In consequence they may not have much of a surplus to recycle. Others have a substantial surplus. These too have a strong community of interest with the rest of the world. They depend for their markets and the value of their investments on growth and prosperity elsewhere; their savings suffer also from inflation and exchange rate instability, and they depend on the continued soundness of the international banking system. Finally, there are the industrial countries who have so far passed under the collective name of the North or the West, but are in fact to be found all over the world. There is, is there not, something strange about the way in which I have described-as many of us tend to do-the various cate- gories without having said one word about the industrial countries of Eastern Europe which are not members of these institutions. They play a very small part in the transfer of resources to the developing countries. It is in fact the free industrial countries who have been the biggest aid donors, accounting in recent years for 80 per cent of official flows. But there are limits to what they can achieve, and still stricter limits on what their governments can do. The impact on the developing countries of an oil price increase of the order we have seen over the last year and a half far outweighs the benefits from the aid the industrial countries have been giving. In addition, it imposes on the industrial countries an adjustment burden which sharply reduces their capacity to increase, even to sustain, aid programs and open trading policies. We see then diversity between different countries. And yet the changes wrought in the world economy brought about by higher oil prices have obliged most countries to face new and formidable problems, which we now must share together. In these circumstances, it is quite frankly a mis- leading mistake to go on discussing world economic problems exclusively in traditional North/South terms. The oversimplified division now masks the true nature of the situation. Oil and the new patterns in the world economy have created a new dimension. We need to break away from a debate about aid on its own, and look instead at total resource and trade flows. In any event we should recognize that the true size of the contribution of industrial countries to development is not adequately measured by looking solely at official flows. It should not be forgotten that, in addition to the 0.7 per cent official aid target, there has been throughout the 1970s a second target of 1 per cent of GNP for the transfer of resources through 210 total financial flows. This wider, and inclusive, target has been substantially exceeded by a number of countries. The average for the industrial coun- tries in 1978 was 1.2 per cent of GNP. Private flows to developing countries, which rose during the 1970s from $7 billion to $43 billion- about doubling in real terms-are now around twice as large as official aid flows. Let me say a word about the facts of the U.K. aid program. I think I heard the President of the Bank say yesterday that by 1985 our aid as a percentage of GNP would fall by 25 per cent below the average of 1977-79. In 1979 our aid was 0.52 per cent of GNP. This was well above the OEeD average and compared favorably with other major countries. Around 70 per cent of our program, bilateral and multilateral, goes to poorer countries. This emphasis is exactly in line with Mr. McNamara's exhortation to us yesterday. As to the future, he was right to say that in real terms we are having to reduce our program from present levels. We cannot escape the need to reappraise rigorously all our public expenditure programs, including aid, as part of our difficult fight against inflation. Our present policy is essen- tial to the restoration of our economic health, on which depends the scale of our future contribution to the developing world. However, I do not begin to recognize a 25 per cent reduction in GNP share for aid. We have not yet determined our aid program for 1985. The 25 per cent reduction appears to assume an average rate of growth for our GNP between 1980 and 1985 of about 3 per cent per annum. We have made no such forecast. We face a fall of 2 per cent or more in GNP this year, which is all too likely to be followed by a period when growth is slow. So I am afraid that I do not regard the figure of 25 per cent reduction as valid. Responsibilities of Different Countries The growing diversity of the world economy points up the need for an approach which recognizes our widely varying responsibilities in managing our economies. Starting with the industrial countries: -We must, above all, curb inflation-and so help check the rise in import prices for the developing countries and oil producers, as well as restore the health of our own economies. -We must maintain open trading markets, particularly for the exports of developing countries. -We must maintain open capital markets, both to allow surplus coun- tries to acquire a wide range of financial assets and to give developing countries access to finance for their deficits. The United Kingdom is practicing what it preaches. We have maintained one of the most open major economies in the world. We have eliminated exchange controls, freeing the flow of investment to developing countries. -And we have a special responsibility to maintain confidence and 211 stability in international capital markets, in the interests of borrowers as well as lenders. In considering the oil importing developing countries we must keep in mind the wide differences between them. They include, as I have said, many with the most serious problems, which will need substantial help from the international community. But three points are important: -These countries cannot avoid the need to adjust to changing con- ditions, often at heavy and painful cost to development. This adjust- ment can be eased by help from the international financial institutions and, in particular, by early and full use of IMF resources. -It will help if oil importing developing countries maintain a climate which is favorable to private capital and to external borrowing. This is not only a question of investment incentives or tax structures; above all, it is a matter of prudent and consistent economic manage- ment and political stability. -The poorest developing countries have grown more slowly than the average, and in some of them growth per capita has been relatively even more depressed because of the rapid rise in their populations. As for the oil producing countries, their responsibilities have increased in line with the power and wealth which higher oil prices have brought them: -The world looks to them not only to maintain the flow of oil and to avoid sharp increases in its prices, but also to pay full regard to the impact of both on the world economy. -Alongside the important part they can play in strengthening the resources of the international financial institutions, we must expect them to assume more direct responsibility for recycling, whether bilaterally or through OPEC institutions. What I am suggesting, then, is that we should get away from the mis- leading overtones of confrontation-of "haves" versus "have-nots"- which have all too often been implicit in the old North/South framework. Of course, I acknowledge and understand the misery that is involved in poverty. It is for the sake of the poorest nations as much as any that we need to think of the world economy not simply as a redistributor of limited resources but as the generator of additional wealth. We live in a network of obligations certainly; but it is a network of opportunity as well. This is the full meaning of the interdependence of the world economy of which the Brandt Commission has spoken. International Capital Markets I have emphasized the important role of international capital markets. The ability of the private capital markets to carry the burden of recycling in the way they did after 1973 has been the subject of some debate. We cannot ignore such factors as the strain on banks' balance sheets and 212 high exposure to a limited number of countries. Certainly it will not be easy to maintain the necessary momentum. For some banks and for some borrowers in the forefront of the growth in international bank lending, there may well have to be some reining back. Borrowing countries will need to follow policies which continue to command the confidence of lenders. The greatest threat to recycling would be any loss of confidence in the system. So I regard emphasis on prudent lending as a help, not an obstacle, to recycling. Since 1973 the markets have developed in both size and depth, and this will enable them to continue to play a major role in recycling. International Financial Institutiolls Even so, it will clearly be necessary to strengthen the role of the inter- national financial institutions. I have no doubt that we should build upon those which already exist, adapting them to meet changing circumstances. They have accumulated a massive body of experience. It would take many years for new institutions to become as effective. It is fewer bureaucracies that we need-not more. The World Bank already commands the confidence of governments, both of the developed and of the developing countries, and of the in- vestors on whose money its whole lending program depends. Under Mr. McNamara's direction the Bank's stature as a development organiza- tion has greatly increased. The scale of it operation has grown substantially. It is planned to expand further on the basis of the general capital increase. There are new challenges with the introduction of structural adjustment lending and the re-entry of China. For leaving the Bank in such a sound and well-respected position, indeed for all his hard work over the years, we must all be truly grateful to Bob McNamara. The growth in World Bank lending which is necessary will require great skill and care to ensure that the funds thus made available to less developed countries are deployed as effectively as possible. There is widespread agreement that there must be more emphasis on energy invest- ment; but there will still have to be an appropriate balance between revenue- producing investment and investment of a more social character. I wel- come too the recent expansion in the activities of the International Finance Corporation. The planned lending program of the Bank over the next few years depends first on achieving the general capital increase. But there are other ways in which the volume of funds being recycled from surplus countries to developing countries under the auspices of the Bank could be increased. There are suggestions in the Brandt Report and elsewhere, but some of these involve changing the Articles of the Bank which would be a difficult and time-consuming process. Others involve new calls on the developed countries for capital or for guarantees going beyond the planned general capital increase. These could well present problems of a different order. 213 But there may be other ways in which the transfer of resources could be responsibly increased. The World Bank already has an extensive program of co-financing, and to the extent that outside funds can be brought in, this releases World Bank funds for other purposes. Is it not also worth considering the possibility that countries with surplus funds to invest, and who would like to see them invested in developing countries, might establish their own organization or program, whose purpose would be to co-finance World Bank projects? If such Joint Lending Programs could be established, either by individual countries or by groups of countries, the investors would be able to benefit from the World Bank's experience in identifying and implementing sound investment projects. Such arrangements might, as it seems to me, permit the World Bank greatly to increase its operations in the field of energy exploration and development as well as on other forms of lending. This and other pos- sibilities, including the idea of a new energy affiliate, should be studied in more detail. There may well be difficulties in setting up new institutions, and we should look at all available options which match the need for urgency and simplicity. What I have suggested might be a more rapid way forward than setting up a more formal institution .... I would like to end by expressing my belief that existing institutions and structures, as they evolve, can respond to the challenges that are being presented, despite real and justified dissatisfaction with our present lot. We must resist the temptation to write off the world economic system, to tear it up and start again. Our economies and financial markets have demonstrated their adaptability and resilience. We must not be tempted by any quick fix solution. Rather we must work together with a sense of mutual obligation. Between us we have the capacity to cope with the problems that will continue to beset us. Notes These notes amplify some of the remarks made in the Chancellor of the Exchequer's speech to the IMF /IBRD Annual Meetings. 1. The substantial difference in the growth performance of different groups of LDCs is illustrated by the following figures: 1970·80 Annual Percentage Growth GNP Population GNP per capita All developing countries 5.3 2.4 2.9 Low-income countries Sub-Saharan Africa 3.0 2.8 0.2 Asia 4.2 2.2 2.0 Middle-income countries East Asia and Pacific 8.0 2.3 5.7 Latin American 5.8 2.6 3.2 SOURCE: World Bank De"elopment Report, 1980, Table SA.l. 214 2. The difference in the structure of balance of payments financing (cur- rent account deficit plus reserve growth) of different groups of LDCs is shown below: 1976-79, Average Percentages Major exporters Low- Other oil All non- of manu- income importing oil LDCs factures countries LOCs Non debt-creating flows, net 30 26 35 25 Official long-term capital, net 28 22 42 24 Total official flows 58 48 77 49 Private long-term capital, net 40 55 3 29 Other financing capital flows, net 2 -3 20 22 Total 100 100 100 100 SOURCE: Statistical Supplement to IMF, World Economic Outlook, April 1980 (lD/80/6), compiled from Table 21. 3. Indebtedness and debt-service ratios (payments as a percentage of export of goods and services) of groups of developing countries, 1973-80: Debt-Service Ratios Debt in 1980 as 1973 1980 Percentage of 1973 All non-oil-developing countries 8.9 11.1 368 Major exporters of manufactures 7.7 8.2 305 Low-income countries 9.0 15.4 348 Other net oil importers 7.2 9.3 384 SOURCE: IMF, World Economic Outlook, (as above), Tables 25, 22. 4. The relative size of trade and financial flows to LDCs is illustrated below: 1979 $ billion Official development assistance 22.3 Other official flows 3.0 Private flows 43.2 Export earnings 177.7 SOURCE: OECD, DAC Press Release (80/39), June 1980. 215 UNITED STATES: G. WILLIAM MILLER Governor of the Bank and Fund The Bretton Woods institutions continue to grow in stature and in membership. The People's Republic of China, representing nearly one fourth of the world's population, now participates with us as a fully active partner. Our newest member, which joined yesterday, is Zimbabwe, a nation whose struggle to gain independence and freedom has engaged our high admiration and support. To all those who sit in this assembly for the first time, I offer a special welcome. At the same time that we are welcoming new associates, we will soon be losing the services of Robert McNamara, whose vision, energy, and strength of purpose have fashioned the World Bank into a powerful and effective instrument for economic and human development. His per- formance, through more than a decade of wrenching change and multiply- ing difficulties for the developing world, has been magnificent. He deserves, and he has, the enduring gratitude of all mankind for his accomplishments. And he has our heartfelt best wishes for his future endeavors. Bob McNamara has led the World Bank to giant accomplishments, but he is the first to point out the towering challenges ahead. He and Jacques de Larosiere have detailed for us a sobering outlook for the world's economy and people. Their perspective is not seriously contested by any of us. Together our nations face a formidable collection of problems. -First and foremost, persistent inflationary pressures. -Weak economic growth. -Low productivity improvement and capital stocks threatened with obsolescence by world energy developments. -High, in many cases rising, unemployment. -Sharply higher oil import bills, which siphon funds from investment, development, and growth to pay for essential energy imports. -Massive payments imbalances and financing needs. The difficult global energy situation is a factor in all these problems. And it will not cure itself. After the oil price increases in 1973-74, the world failed to adjust sufficiently to the new situation. Instead, oil demand was temporarily reduced by a global recession. Thereafter, the oil im- porting world to a large extent succeeded in financing a continuing high level of consumption, but it did not put in place the new investment needed to reduce dependence on imported oil. In many cases, the hope seemed to be that the oil and financing problems were temporary and could be resolved without fundamental changes. Indeed, there appeared to be some success, as for a brief time world inflation receded, economic activity re- covered, and payments imbalances narrowed. But a second round of massive oil price increases beginning early last year brought a renewal of the earlier difficulties. The new shock compounds the problems for a world economy already beset by strong 216 underlying inflationary pressures and laboring under heavy external debt burdens accumulated during the 1970s. There is no prospect of avoiding repeated oil shocks unless the oil importing world recognizes and adjusts deliberately to a radically altered global economic and energy balance. The required adjustments involve both energy conservation and development of new energy sources. But they must also encompass measures to stimulate investment and pro- ductivity in circumstances of greatly increased energy costs. And they must be carried out in an environment of financial stability within individual national economies, to facilitate movement of resources to more productive sectors and to ensure continued flows of external financing. We look to the oil exporting nations to follow responsible price and production policies. And each nation represented here must face and act upon the need for internal adjustment. Many have done so. Most have at least started the process. None, including the United States, has yet done enough to assure its satisfactory completion. The United States is taking strong steps to reduce oil imports, to control inflation, and to improve productivity. A broad array of policies-most importantly, decontrol of domestic oil and natural gas prices-has been marshaled to encourage energy con- servation and stimulate domestic energy production. Principally as a result of these efforts, U.S. oil imports are about 25 per cent below the average of 1977, the peak year. This reduction is primarily the result of improved efficiency in energy use, not reduced economic activity. The amount of energy needed to produce a unit of national output has been lowered by about 10 per cent since 1973. The United States continues to pursue fiscal and monetary policies designed to limit and then reduce inflation. In addition, the President has recently proposed measures to increase the share of national output devoted to investment. Our efforts to reduce oil imports and strengthen the U.S. economy have supported a welcome improvement in our external accounts. They have also provided a firm basis for stability and strength of the dollar on the exchange markets. We must all recognize that our individual efforts form part of a col- lective international response that ultimately can succeed only if it is coordinated and cooperative. The Bretton Woods institutions originated as just such a cooperative effort. Their task was to guide the world economy from the devastation of World War II, and their success was re- markable. In subsequent decades they have adapted flexibly and imagina- tively to changing needs and circumstances. But a major test lies ahead. As we enter a new decade, we must again call upon these institutions for guidance through a difficult and dangerous period. A world accustomed to strong growth and rising living standards now faces the prospect of a decade in which performance may fall short of expectations and aspirations. Large persistent imbalances in international 217 payments are likely. And the associated financing requirements are huge. In 1980 alone, the aggregate of current account deficits that need to be financed could reach $150 billion. In light of these prospects the Fund and Bank face a complementary task: the Fund to assure a judicious blend of financing and adjustment; and the Bank to assist in restructuring economies to permit development to continue as rapidly as possible. Let me outline the United States' view of the roles of each of these institutions.... The prospect of IMF borrowing from the private markets raises in concrete terms the possibility of greater private use of SDR-denominated assets. From a longer-term perspective, we urge the Executive Board to initiate a study of other measures that might be taken to expand the use of SDR-denominated instruments by the private sector. As the private market in SDRs develops and takes hold, we propose that the World Bank give consideration to borrowing in the form of SDR-denominated securities and lending correspondingly in SDR terms, both as a means of giving further impetus to the instrument and as a technique of moderating ex- change risk for the Bank's borrowers. The World Bank The welfare of the developing countries and the immense problems which they confront are of paramount concern to the United States. We recognize fully the urgency of today's development needs. The Commission chaired by Chancellor Brandt has properly stressed the common interest of both industrial and developing nations in meeting global economic prob- lems, including the need for equitable growth in developing countries. Progress in the developing nations is essential to the health of the global economy as a whole. It is for these reasons that the United States is so strongly committed to the work of the World Bank. Over the past 35 years, the Bank has made great strides as a project financer, financial catalyst, and institution builder. The Bank has pioneered efforts to speed human capital formation and has been in the forefront of efforts directly to reduce poverty. Bank operations have contributed enormously to development, and the Bank is now clearly established as the leader of the international community's efforts to address development concerns. The record for developing countries since the Bank was established shows clear progress. Quality of life standards have shown significant improve- ment. Average per capita income has approximately doubled in real terms since 1960. Yet formidable development challenges remain. Absolute poverty is pervasive. Serious, widespread deficiencies remain in health and nutrition, literacy and education, life expectancy, and in the overall physical and social environment. Population growth continues to add to the already immense problems of unemployment and underemploy- 218 ment. Rural to urban migration has fueled a rapid increase in the numbers of urban poor. In addition, there is the continuing critical need of low- income countries-with large numbers of rural poor and heavy reliance on agriculture-to improve the productivity of the small farmer. These serious development problems have been compounded by world economic conditions. Surging oil prices, worldwide inflation, slower growth in the industrial countries, and constraints on access to external capital have combined to cast a long shadow over development prospects for the 1980s. In the difficult decade ahead, it is of vital importance that the Bank remain at the forefront of global efforts to deal imaginatively with the changed economic situation. For its part, the United States will continue to support and encourage those adaptations in the Bank lending which effectively meet the evolving needs of the developing countries and strengthen their capacity for further growth and development. We attach great importance to the Bank's existing plans to lend approximately $14 billion for energy development projects in oil importing developing countries through 1985. We strongly support the Bank's search for addi- tional ways to further expand energy development in its borrowing coun- tries, including the possibility of an energy facility or affiliate which would consolidate and enhance the Bank's activities in this field. The United States strongly applauds the Bank's new program to support "structural adjustment." It is a necessary response to altered global eco- nomic conditions and a radically changed world energy balance. The Bank's structural adjustment loans, coordinated closely with the IMF, will serve as a catalyst for growth and help strengthen the recycling process. It is particularly appropriate for the World Bank to undertake this critical program because of its sound reputation, expertise, and long experience with the sectoral issues that are fundamental to any restructuring. We appreciate the 1980 World Development Report's analysis of the relationship between population and other aspects of human resource development and economic growth. We look forward to increased Bank lending in the population area in coming years. The Bank's record of solid achievement in maximizing project benefits for the poor should be maintained and the share of its lending allocated to the poorer borrowing countries should be increased. This is vitally important given the unacceptably high level of absolute poverty and the value-so impressively highlighted in the 1980 World Development Re- port--of human development as a tool of growth. Bank Financing The United States and other Bank members have a vital interest in encouraging effective responses by the Bank to critical world needs. It is thus of great common concern to note that the needs of the developing countries are-for the reasons highlighted in Bob McNamara's address- 219 growing more rapidly than anticipated. Fortunately, we have already negotiated both a general capital increase for the World Bank and a Sixth Replenishment of IDA's resources. The United States fully supports both the GCI and IDA VI. We hope to have legislative approval for U.S. participation in IDA VI before the end of this session of Congress. U.S. participation in the GCI will be the principal element of next year's funding request to Congress. The agreed general capital increase of $40 billion-increasing World Bank capital from $45 billion-and the $12 billion IDA VI Replenishment should meet developing country needs for Bank financing over the next few years. We therefore will have time to assess carefully how best to finance the needs of the developing countries beyond these replenishments. The United States is prepared to join other members to look at alterna- tive ways to help support Bank operations. Any reassessment of Bank financing must, of course, be done thoughtfully and deliberately, with due regard for the needs of developing countries, the need to maintain the high quality of lending standards, and the impact of future financing on the capital structure of the Bank. Weare also willing to join with others in a serious effort to improve the efficiency and effectiveness of both bilateral and multilateral conces- sional assistance, including channeling an increasing share to the poorest developing countries. We will also work to find practical ways ourselves to increase both the quality and quantity of such assistance. Bank/Fund Collaboration There is one additional area where I think there is a need for innova- tion: that is in the collaboration between the Fund and the World Bank. When we established these twin institutions in 1946, the world was different, and the functions of the Fund and Bank were clearly separated and defined. Now the problems of short-term adjustment and the problems of development have become more intertwined, and the activities of the Fund and the Bank are focusing more on common problems. Both developing and industrial countries have learned that an effective program of adjustment to achieve the multiple and sometimes conflicting objectives of economic policy requires attention to both demand manage- ment and the supply side of the equation. Over the years since Bretton Woods, the Fund has worked with its members in the design of demand management policies to achieve economic stabilization. The Bank has focused on the supply side in its effort to promote growth through develop- ment of sound investment strategies. In the years ahead, it is essential that the unique capabilities of these two institutions be brought to bear in a complementary and positive manner to assist countries in their adjustment efforts. The Bank and Fund should be prepared to collaborate with one another to assist member countries in assessing their economic pros- pects, developing effective economic programs, and providing appropriate financing. 220 At the same time, it is also essential that the Fund and the Bank remain as autonomous institutions with distinct functions and purposes. I know that the staffs of these two institutions have made significant strides in collaborating on adjustment programs in specific countries. At this stage, I think it would be useful to review what has been accomplished, with a view to improving the form and substance of this collaboration in the future. This review might best be undertaken under the auspices of a joint committee of the Executive Boards, supported by the staffs of both institutions. Effective collaboration between these two institutions will help ensure their continued responsiveness to the changing needs of the world economy., We also urge consideration of steps to assure proper coordination of the borrowing policies of the two institutions. The prospect that both could be borrowing in world capital markets in the same time frame suggests the need for specific steps to assure a smooth coordination of those activities. The record clearly shows that the Fund and the Bank have demonstrated repeatedly their capacity to evolve, adapt and respond flexibly during periods of major economic and financial strain. The institutions work efficiently and well. They deal in realities, and give practical content to the high objectives set forth in their Articles. But their ability to con- tinue to perform their indispensable tasks depends on the commitment of their members to maintaining their integrity and competence and to avoiding injection of political issues into their work. Difficult problems and challenges confront us. The Bretton Woods institutions are the central focus of our collective effort to meet those challenges successfully and cooperatively. The United States pledges its vigorous support to the Fund and Bank as they address the tasks before them. With the support of other nations represented here today, I am confident that lasting success will be achieved. VENEZUELA: RICARDO MARTINEZ Governor ot the Bank Allow me to begin by expressing my satisfaction at being present at this Thirty-Fifth Annual Meeting, where matters of vital importance to the present international economic moment will be discussed. I wish you, as President, and our fellow members of the Meeting, the greatest success in your deliberations in this outstanding event. I would like to take advantage of this renowned world forum on development to mention some aspects related to the development efforts being carried out by my country, as well as to Venezuelan participation in technical and financial cooperation with the countries of the Third World. Venezuelan problems are much the same as those of the other developing countries. Throughout 22 uninterrupted years of democratic regimes being in power, we have maintained a continuous effort to carry out planned development, represented in five National Development Plans. 221 At this precise moment we are about to put into effect the Sixth Plan of the nation, which will regulate the taking of decisions by the Venezuelan Government for the five-year period 1981-85, and the principal objective of which is to reduce critical poverty and progressively eliminate mar- ginality and social injustice, which still persist, through the application of model growth with redistribution. The strategy adopted for achieving this objective has a temporary horizon of ten years and implies the carrying out of actions in three fundamental areas: (a) To increase the potential economic growth of the country by means of important investment in the basic sectors such as petroleum, steel, aluminum, and petrochemicals, so as to assist in the adaptation of national productive system by means of incentives to private investors, both national and foreign, the increase of productivity, and the reordering of the functions of the public sector. (b) To maintain the basic economic and financial equilibrium insofar as public finance, the balance of payments, and the rational behavior of internal prices are concerned, conserving the true value of remuneration in wages and salaries. (c) The redistribution of income, by means of actions to improve the standard of living of the economically deprived sectors, as well as the access of these sectors to material goods and services and culture. To achieve the goals indicated, the Plan provides for the instrumentation and application of a group of measures on policies in the matter of educa- tion, employment, remuneration, housing, nutrition, expansion and im- provement of public services, equilibrium in fiscal income and expenses, prices, strengthening of the external sector, integration, foreign and other investments, which will permit the harmonious development of the different actions in carrying this out. It is particularly pertinent to point out the efforts being made to train human resources by means of expansion and improvement of education- the first priority of the National Government-as well as to raise the true income of the more deprived sectors of the populations, through the generation of employment and increased remuneration, as well as by making public goods and services more available. In line with the intention of, establishing a model of participating democracy, for the first time the Plan incorporates regional development plans for the nine regions of which the country is composed, drawn up by the regional institutions, and adequately consistent with the global plan and the sectoral plans. In the same way, this new development plan will be the result of an extensive prior process of consultations and discussions with the participa- tion of different organizations, unions, and institutions representative of the whole Venezuelan community, endeavoring to express the important objectives of which the model desired society is made up, more just and with greater solidarity, expressed in the political project supported by the national majorities. It is also worthwhile emphasizing the rate of growth anticipated for the country in the course of the five-year period. 222 The Plan expects a moderate annual average growth of 6 per cent for the period 1981-85. We wish to correct serious imbalances in the national economy, which have seriously affected the standard of living and the welfare level of the population and have worsened the distribution pattern of income. The growth proposed is concordant with the potential and capacity of the country. Foreign investment is considered within the national development strategy as variable and not marginal, which presupposes an active position of the country in the matter, for the purpose of converting such investment into an instrument or channel for the effective transfer of technology and support for the management capacity of our country. This policy will be instrumented, taking into account the rulings of the Venezuelan legislation on the subject, as well as the disposition of Decision 24 of the Andean Pact. In summary, Venezuela is at the present time carrying out an intensive effort to modernize the structures of the country and the society of which it is composed, and is advancing in the development and modernization process. This effort emphasizes the generation of wealth and its just dis- tribution, raising the standard of living, struggling against marginality through education and the access of all to material goods and services, so that Venezuelans should have more and be more. Humanity requires to renew the dialogue between developed countries and developing countries on solid bases. Venezuela registers its preoccu- pation and considers the deadlock in the dialogue a delicate world problem. Six years of unsuccessful meetings, discussions, and negotiations have not sufficed for the poor nations and the rich to have come to an agreement on the institutionalization of a new international economic order. In the meantime, the number of poor people, hungry and unemployed, increases constantly. At the same time, the deficit in the balance of payments of third world countries increases and, for the year 1980, represents a sum ten times greater than registered eight years ago, as indicated by the Bank in its Annual Report. Therefore, it becomes urgent and necessary for all members of the United Nations to participate in negotiations for the resumption of the "dialogue," at the same time ensuring the due relation between the new international strategy on development of the United Nations and the establishment of the new international economic order. My Government is firmly convinced that, in order to reach valid and solid agreements within the framework of North-South negotiations, it is necessary to establish an extensive basis for South-South sustenance which would permit the expression of only one political desire, and a common outlook and interest in the utilization of appropriate development mechanisms. It is pertinent to mention here the commitment of the Organization of Petroleum Exporting Countries at its meeting in Caracas in December 1979, when it was agreed to supply the oil necessary to satisfy the internal consumption demand of the non producing developing countries of the world, on a priority basis and at the official prices of the Organization, as well as its very important cooperation with the countries of Africa, Asia, 223 and Latin America, through the special OPEC fund. This organization, having obtained excellent results in its first stage, is now preparing to become a development agency, with legal status of its own and with an initial capital of $2,400 million. Venezuela's policy on international cooperation is based on the strictest application of the principles of international social justice and, in this regard, ideological pluralism. The indomitable vocation for solidarity of our country is expressed in its policy on foreign cooperation, which year after year involves strenuous efforts expressed in the increasing use of human and financial resources for carrying out instrumentation programs and projects on technical, economic, and financial cooperation. However, Venezuela's solidarity with developing countries does not manifest itself and is not limited to its cooperation programs. In addition to this, the decided and active participation of our representatives in the dif- ferent international forums in defense of the rights of those countries and the search for a new international economic order which might achieve adequate levels of social and economic development and stimulate under- standing and collaboration among the members of the world community has become a recognized fact. The national constitution of Venezuela manifests the principle of coop- eration with all the countries of the world and, more specifically so, with the countries of Latin America, with which we are closely united by ethnic and social ties, as well as only one common historical origin. In this context we take our stand with regard to our active participation within the Andean Pact, giving it the necessary economic and political dimension as well as the projection it merits within the world setting. Allow me to give a brief summary of the more important actions regard- ing cooperation that the Venezuelan Government has been carrying out through bilateral and multilateral mechanisms: In the past five years, that is, 1974 to 1979, our country has granted financial cooperation, through international entities, for a total amount of $5,109 million expressed in loans, fiduciary deposits, direct financing, quotas in special fiduciary funds, swap credit lines, petroleum facilities funds, and other methods used, depending on the type of application and the objective applied to Venezuelan cooperation. Outstanding among these actions are the programs we are executing with the World Bank and the Inter-American Development Bank, which in each case represents a con- tribution of $500 million, with the Development Bank of the Caribbean, the United Nations funds, the Special Fund of the Organization of Petro- leum Exporting Countries, the International Agricultural Development Fund, and others. Venezuela, true to its principles of third world solidarity and the his- torical and geographical links that unite it to the Latin American and Caribbean countries, is furthermore developing a vast program of financial cooperation so as to mitigate, as far as possible, a part of the serious prob- lems which impede the social and economic development of the neighboring countries of Latin America. From 1974 to 1979, this program represented 224 a strictly bilateral contribution in the order of $809 million, which was used to resolve serious imbalances in the balance of payments, finance develop- ment programs and projects, the construction of basic infrastructure, and aid to nations which suffered natural calamities. Specially outstanding was the technical and economic aid to help the reconstruction problems of Nicaragua, after the victory of the revolutionary forces. Venezuela is not only going ahead with international economic coopera- tion programs, but has assigned an equally important role in its foreign policy to technical cooperation. With this, it endeavors to attend to the necessities of technical and professional formation and perfecting the most important resource for development and socioeconomic growth, which is none other than its human resources. Thus, we have promoted with the scope of the member countries of OPEC, the creation of the International Institute Foundation for Advanced Studies and the Institute of Higher Scientific and Technological Studies of the Third World, which initiatives have our most enthusiastic support. Our country also sponsors a scholarship program for foreigners, through different official national organizations, in which well-known Venezuelan centers of higher education and research participate. To this long list of cooperative actions must now be added the recent agreement entered into by Mexico and Venezuela to supply oil to eight Central American and Caribbean countries under concessional conditions induding annual loans to these countries of between $500 million and $600 million on 20-year terms at 2 per cent interest to cover development programs. In this respect, I am in a position to report to this august meeting, that the National Government has, in the last five years, granted a total of 1,130 scholarships to citizens of developing countries, especially of Latin America and the Caribbean. Another means of cooperation is technical and scientific counsel, essen- tially concerned within technical cooperation to bring countries together, in order for the transmission of know-how and the adequate sharing of experi- ence for the solution of problems of a similar nature. Thus, the National Government is always willing and disposed to send Venezuelan experts to attend to requests from the neighboring countries on different developing aspects, insofar as our country has the experience and is in a position to transmit it. The only reason for the summary I have presented on Venezuela's inter- national cooperation is to reaffirm before this renowned forum the vocation of our country for solidarity and its identification with all initiatives which may lead to the establishment of a new international economic order based on the principles of equality and social justice. 225 VIET NAM: LE HOANG Governor of the Bank It is a great honor for me to address the Governors on behalf of the Delegation of the Socialist Republic of Viet Nam at this Thirty-Fifth Annual Meeting of the Governors of the International Monetary Fund and of the World Bank. May I begin by expressing our sincere thanks to the Chair- man of the Meeting and to the staff of the Fund and of the World Bank for the good organization of this 1980 Meeting. In this first year of the 1980s, the world is already confronted with numerous pressing economic and social problems. Over the past year infla- tion has become increasingly serious and the energy situation and the world monetary system more and more unstable. The steadily worsening balance of payments disequilibria have slowed the pace of investment and economic development in most nations. This world situation has had heavy repercussions on the underdeveloped and developing countries. In particular for those which are beset with a multiplicity of difficulties, the economic woes of the time coupled with nat- ural disasters have had a seriously detrimental effect on food production and the lives of their peoples. As we know, these problems cannot be resolved for each country in isola- tion, at a time when the economies of the developed, underdeveloped and developing nations are interdependent. Cooperation and mutual assistance are becoming highly important factors in the relations between countries. The Fund and the Bank will only be able to carry out the role assigned to them through promoting cooperation and assistance for countries that are still experiencing difficulties. In this connection, we are most appreciative of the recent efforts by the Bank and the Fund to find new formulas for helping member countries in difficulty. After thirty years of bitter but glorious war, the people of Viet Nam have regained their independence and freedom and have begun the task of re- building their homeland under very trying circumstances. They are doing their best to remedy the prolonged consequences of the destruction wrought by a protracted war and military pressure and at the same time to overcome the difficulties caused by natural disasters, in order to raise production and improve the well-being of the population. Many nations and international organizations have demonstrated their good will in supporting and helping Viet Nam. I would like to take this opportunity to repeat our sincere thanks for their invaluable assistance in building up our country's economy. While the people of Viet Nam are devoting themselves to the peaceful reconstruction of their homeland and concurrently making immense sacri- fices to provide effective aid to the fraternal people of Kampuchea in escap- ing extermination and rebuilding their country, the forces of imperialism and reaction have launched frenzied movement aimed at sabotaging and encircling Viet Nam's economic activities. Because of this, the World Bank has deferred financing for Viet Nam from IDA resources, although such financing is a legitimate right of member countries in difficulties. We were 226 truly surprised to learn that the President of the World Bank had announced the temporary suspension of financing already promised to Viet Nam and confirmed by the Bank on several occasions. This action has caused Viet Nam and many other member countries to wonder whether the Bank has strayed away from its basic purposes. It has also had an impact on the relations between Viet Nam and the international financial and monetary organizations of the Bretton Woods system, which has thus entered into a critical phase. We have increasingly demonstrated our desire to cooperate. We hereby call on these organizations to meet the legitimate requests of a member country, and on the World Bank, to furnish promptly the financing for projects it agreed upon with our country, including the rehabilitation and agricultural development project for Nghe Tinh province, which is one of the priority projects according to the Bank's appraisal. Aid for the popu- lation of that province, a purely humanitarian undertaking, has been rushed in by many international organizations. It is our view that the Bank ought no longer to delay resuming the study of the project or continue evading its obligation to meet a justified request from a member country. Our position in the matter is clear: the reciprocal rights and obligations between a member country and the Bank and Fund have to be strictly observed. The Socialist Republic of Viet Nam wishes to have closer equal and cooperative relations with the Bank and the Fund. We believe that this is also the wish of all the member countries. It is our opinion that if the international financial and monetary organizations pursue their funda- mental goals unswervingly, they will be able to eliminate the harmful influ- ences of the forces opposed to the independence and sovereignty of their member countries, forces which are doing their utmost to subject the activ- ities of the international organizations to political conditions and to whittle away their independence. We consider that only by strict observance of their fundamental goals and preservation of their independence can the role and reputation of the international monetary and financial organizations be safeguarded. We would like to see IDA able to mobilize an even larger volume of resources for the financing of its underdeveloped and developing member countries, and we would like the Fund to consider simplified measures and procedures for effective assistance to member countries in balance of pay- ments difficulties. It is our desire, in short, that the Bank and the Fund make great efforts to reserve low-interest financing for their underdeveloped and developing member countries so that these will be able to develop their national economies and raise the well-being of their peoples. By doing so, the Bank and the Fund will be able to ensure that the independence of their organization is maintained. We are here in Washington in a spirit of sincerest goodwill and motivated by a desire for constructive cooperation. We are awaiting a positive re- sponse from the Bank and the Fund to Viet Nam's legitimate requests. We warmly greet and heartily thank the representatives of the member countries and international organizations who have asked the Bank and the Fund to satisfy the legitimate requests of the Socialist Republic of Viet Nam, 227 a country that has suffered so much from the prolonged aftermath of war and successive natural disasters. May I use this opportunity to thank the Chairman of this Meeting, the Governors and the representatives of the international organizations for their deeply appreciated aid and support to our country. WESTERN SAMOA: VAOVASAMANAIA R. P. PHILLIPS Governor of the Fund I wish to join other Governors in expressing a special welcome to all the new members of the Fund and Bank. The seating of the representatives of the People's Republic of China is most appropriate as it allows direct repre- sentation of one billion people, one quarter of humankind. In the past 12 months, the international economic situation has become considerably more difficult for most countries, particularly for non-oil pro- ducing developing countries. We are all faced with a situation of severe worldwide inflation, a general pattern of slow growth of output with a threat of general recession in the industrial countries, and a sharp slump in the growth of world trade volume reflecting slack demand in industrial coun- tries and financial restraints in non-oil developing countries. There is also a significant worsening of the distribution of imbalances on external current account among major groups of countries. The adjustment of non-oil pro- ducing LDCs to the current situation is considerably more difficult than was the case during 1974-75. This is because their current account deficits are considerably larger than before, owing to the generally sluggish com- modity prices and stagnating export levels, sharp increases in import prices, and significantly enhanced external debt burden concurrent with growing concern in the international banking community about the risks of over- lending to the LDCs. The alarming economic plight and prospects faced by many countries in the world today which I have briefly alluded to have been fully described, painstakingly analyzed, and sharply brought into focus by the Brandt Com- mission's Report, the World Bank's Economic Outlook Report, the Fund's Annual Report, and the Development Committee's Report. However, along with many other members, frankly, we remain disappointed with the con- crete steps taken so far or actively contemplated by the major industrial countries and the international financial institutions for coping with today's worldwide economic crisis . . . . The World Bank Group's response to the LDCs' needs is encouraging, but here, too, there is a desperate need to substantially increase the lending capacity of this group. In this context, it is of deep concern for us to note that the high rates of inflation have reduced the growth rate in Bank loans in the last two years to well below the modest target of 5 per cent in real terms. We support the Bank's operating program for lending for the next five years which indicates increased lending plans for energy sector and structural adjustment loans. We believe, however, that the Bank should 228 expand its program lending which will allow for increased flexibility of borrowing terms, especially for the smaller developing countries. Provision for increased co-financing by the Bank should result in additional resource flows to the LDCs. While we agree that greater collaborative efforts between the Fund and Bank are essential, we strongly urge that countries should be able to obtain structural adjustment loans from the Bank without necessarily having to borrow from the International Monetary Fund utilizing higher credit tranches. Against this background of the pressing need for augmenting the Bank's lending program, the continuing delays in IDA replenishment are noted with concern. It is encouraging that some countries have willingly. provided bridging arrangements pending the effectiveness of the Sixth Replenishment to minimize the adverse effect of the replenishment delays. However, in the light of the experience hitherto, the formulation of sounder long term arrangements for future replenishments would seem necessary. Western Samoa is indeed grateful for the assistance it has received to date from the Fund and the Bank. But we would be less than frank if we did not voice our concern that the actual response by both these institutions to the problems of the poorest developing countries confronted by the deterioration of the international economic situation over the past two years has just not been rapid enough. In this respect, the problems faced by geographically disadvantaged small island economies are particularly acute. It is urgently necessary for the Fund and the Bank to examine their lending policies in the light of current conditions to facilitate increased adjustment process assistance to the poorest developing countries, for it is these coun- tries which have the least room to take appropriate economic adjustment measures without reducing their already low living standards. I would conclude with sincere appreciation to President McNamara for his years of dedicated humanitarian service aimed at making the World Bank a more dynamic and increasingly responsive instrument for coping with the pressing problems of poverty over large segments of the world. YUGOSLAVIA: PETAR KOSTIC Governor oj the Bank It gives me much pleasure to welcome the Republic of Zimbabwe as a new member of our institutions. I want to express our esteem to the brave people of Zimbabwe and the success of their just struggle against colonialism and racism. Our institutions can play an important and positive role in supporting the efforts for reconstruction and development of the economy of Zimbabwe. It is also a great pleasure to welcome at this Annual Meeting the Gov- ernors of the People's Republic of China. We believe that our institutions will become more representative and responsive to the needs of mankind, and especially those of developing countries, by the active participation of the People's Republic of China. 229 We regret that the Palestinian Liberation Organization has not received Observer status in our institutions, in spite of the Resolution which was unanimously adopted in the first meeting of 114 Ministers of Finance, members of the Group of 77 in Belgrade. The substance of this issue is not of a procedural nature and it cannot be resolved in that manner. There- fore, we urge that further efforts be undertaken in order to resolve the issue as soon as possible, as requested by the Group of 77. The world economy and international economic relations are in a serious crisis. In the last twelve months economic conditions for development deteriorated even further. Deflationary measures, while beginning to give certain results in fighting inflation in industrial countries, have slowed down growth and are threaten- ing to bring about a general recession in the developed world. This situation has led to the increase of unemployment and to a sudden slowing of growth in international trade, augmenting the danger of protectionism already noted in numerous developed countries. These developments, together with the deterioration in terms of trade, represent a heavy burden for oil importing developing countries, bringing the poorest among them to an extremely difficult situation. This imperils the economic independence of developing countries and creates conditions for competition among great powers and blocs, thus augmenting interna- tional tension. The available analyses suggest that the continuation of present economic policies would lead to an unacceptably low growth of oil importing develop- ing countries. It is clear that their faster development depends mostly on their own efforts to increase exports and on efficiency in their economic activities. However, the outcome of their endeavors equally depends on broader conditions in the world economy. There is a danger that the per- sistence of developed countries with tight demand policies beyond the need to restrain domestic inflationary pressures could deepen the recession and make its international consequences even more serious. This must be avoided. Industrially developed countries as a group should be ready to have larger deficits in a longer run. Enlarged and liberalized imports from developing countries would facilitate their fight against inflation and induce domestic reallocation of resources, thus contributing to the structural adjust- ment of the economies in both developed and developing countries. It is of extreme importance that in the current difficult world economic situation our institutions respond as fully as possible to the needs of mem- ber countries. I am pleased to be able to note some initiatives which I con- sider are in that direction. In the activities of the World Bank I wish to support the orientation to provide loans favoring structural adjustment programs, as well as the enhanced activity and new proposals for larger financing in the field of energy. However, I note with concern here that the implementation of these important programs reached the ceiling of the authorized total increase of the Bank's loans. The necessary agreement that structural ad- justment loans be additional to those formerly planned for projects in other 230 priority sectors has not yet been reached. At the same time, a desirable program of investment expansion in energy in developing countries requires some $25 billion, which would absorb more than 30 per cent of the total presently authorized five-year loan program and would thus inhibit the Bank to support other important developmental targets with appropriate amounts. I consider the Bank's present lending capacity inadequate for these tasks. Therefore, I support the intention of the President of the Bank, Mr. Robert McNamara, to explore the possibility of establishing an affiliate or a special facility to provide additional resources for energy financing in developing countries. I hope his initiative receives a positive response from potential contributors. I would also like to point out that inflation, higher than earlier assumed, has been eroding the real value of the agreed capital increase of the Bank. We should not permit it to affect the real increase in volume of Bank loans in response to the pressing needs of developing countries. For this reason, I want to recall that in the Group of 24 we supported the increase of the Bank's gearing ratio from the pre~ent 1: 1 to 2: 1.... It is very disappointing that the lending operations of IDA have to be brought to a halt, in spite of the timely completion of negotiations on the Sixth Replenishment. I call on donor countries to intensify their efforts in urgently making the Replenishment operational. In order to avoid detri- mental consequences for eligible countries, namely the least developed countries, bridging financing should be arranged urgently .... This year we heard the final Annual Meeting address of the President of the World Bank, Mr. Robert McNamara, who for thirteen difficult years steered the course of the Bank in its extremely important role in the devel- opment process. During these years the World Bank grew in size, branched out in its activities, and dramatically gained in its importance and role in the world development process. I wish to express on this occasion the great appreciation of my Government, as well as mine personally, for the extraordinary achievements of Mr. McNamara and his work as President of the World Bank. We wish him success in his future activities. At the same time, we hope that the international community will continue to follow and enrich the work he has been charting for the World Bank, and which he himself summarized this year, as follows: "Only by raising its overall level of lending has the World Bank been able to meet the new development needs of its member countries without neglecting their traditional require- ments. This clearly remains the path for the future." I am satisfied to note that the International Finance Corporation has achieved remarkable results by nearly doubling the volume of equity and loan investment compared with that in 1978. On this occasion I would like to pay tribute to the outgoing Executive Vice President of IFC, Mr. Moeen Qureshi, who by his patient efforts, skill, and energy further promoted the activity of the Corporation. His ability, experience, and devotion will be very useful, I am sure, in carrying out his new assignment in the Bank. I am aware of the economic and social difficulties and uncertainties faced by developed countries. However, I cannot accept them to be a good rea- 231 son for opposing and delaying more decisive changes in international eco- nomic relations. The crisis felt by all of us is of a structural nature, and this accumulation of difficulties makes more basic changes in the system even more indispensable and urgent. By proposing global negotiations in the framework of the United Nations, nonaligned and other developing countries gave the initiative for an integral and interdependent approach to the solution of all the most important problems of international economic relations. Global negotiations would represent an important possibility to achieve a package of mutually sup- portive arrangements in different areas, which could mean a political break- through in solving major monetary and financial issues which in the past could not be solved in isolation. It is our deep regret that the Special Ses- sion of the UN reached no decisions on launching the global negotiations. However, there remains the hope that the avenues for international coopera- tion remain open for renewed efforts and initiatives. We, the Ministers of Finance and Governors of Central Banks, should endeavor that these dis- cussions continue, particularly in monetary and financial fields. CONCLUDING REMARKS BY MR. McNAMARA During our deliberations this week I have been struck by the broad con- sensus that has emerged on the role of the World Bank in the 1980s. There has been strong and very widespread support-among the oil importing developing countries, the Arab nations, and among the OECD nations-that the Bank needs to expand its presently approved lending pro- gram, and should examine all the possible means of financing that expanded program, including the establishment of an energy affiliate of the Bank. The reasons for this broad consensus are clear. The current account deficits of the oil importing developing countries have risen dramatically. The increase in these deficits is the mirror image of a portion of the rise in the surpluses of the capital-surplus nations. A major objective of the world's intermediation effort to deal with these sur- pluses must be to assure that appropriate portions of them flow, directly or indirectly, to the developing countries. The assistance the developing nations will need in the 1980s-to alleviate their burden of absolute poverty, to facilitate the structural changes in their economies required by the changes in the external environment, and to take advantage of the new opportunities in energy investment-is much larger than was projected before the events of the past 18 months. The developing countries, already financing 90 per cent of their own development efforts, will now have to mobilize substantial additional re- sources. But they cannot succeed in this enormous task by their own efforts alone. That is why all previously planned programs of international assistance, including that of the Bank, must be re-examined in order to determine how these increased and urgent needs of the developing world can be met. 232 It is in this perspective that the future level of World Bank lending, and the nature of its operating policies, should be reviewed. The Bank's lending program for FY 1981-85 reflected the Bank's assess- ment of the future financial requirements of the developing countries as they appeared early in 1977, when the plan was prepared. As you know, four events have intervened in the meantime that invalidate its underlying assumptions: -A rampant and unexpected rate of inflation has reduced the real value of the commitments permitted by the General Capital Increase and the IDA VI agreements. -The sharp rise in the oil price has raised the cost of the oil importing developing countries' imports, while recession in the industrial coun- tries has depressed their exports, with the result that current account deficits are much larger than anticipated. -The change in the economics of energy investment has increased the funds required for that purpose in the next five years to $185 billion, compared with $80 billion in the last five years (in 1980 dollars). -The change in the representation of China has increased by 45 per cent the number of people who now need, who now desire, and who are now entitled to have World Bank Group lending. On Tuesday, I asked whether in the light of all these developments, the previously planned Bank lending program, which the General Capital Increase and the IDA Replenishment are intended to support, was still adequate for the role the Bank Group must play in the 1980s. Would the existing program allow the Bank to meet the developing countries' needs in even the limited way that we hoped it would when the program was prepared? My answer on Tuesday was clearly no. The response of Governors was overwhelmingly in the same sense. The inescapable conclusion of all these considerations, shared I believe by the great majority of Governors who have spoken this week, is that the Bank Group must mobilize substantial additional resources. But it must do this in a manner that takes full account of the current budgetary constraints faced by the governments of the developed nations. In the light, then, of this consensus that we should prepare the ground for expanding Bank lending above the presently approved program, and should examine the most appropriate means of financing that expansion, we will plan to present to our Board papers on these subjects between now and early next year. Through detailed discussion of these papers in the Executive Board, we will hope to develop a consensus as to the lending increase required and the action to finance it. We will then incorporate these conclusions into our Lending, Borrowing, Administrative Budgets, and Staffing Programs for the five years FY 1982 through FY 1986. These we will plan to present to our Directors in May, for their discussion and decision in June. 233 Before concluding, I want to announce that in the course of these Meet- ings the bridging arrangements for the IDA Replenishment have become effective. Fourteen countries have indicated that they will participate in the bridging arrangement providing advance contributions in excess of $1.2 bil- lion. Mr. Chairman, our Meetings over these past days have been fruitful indeed. We will long remain in your debt for the skill and patience with which you have presided over them. Ladies and Gentlemen, I have been deeply touched by the generous com- ments on my tenure of this office, and I can only say again how grateful I am to you for granting me the privilege to serve. When I spoke to you Tuesday I failed to articulate clearly a quotation from George Bernard Shaw. Let me repeat it now. Shaw wrote: "You see things and say, why? But I dream things that never were, and I say, why not?" Let us dream such dreams. And move toward their realization. CONCLUDING REMARKS BY THE CHAIRMAN, AMIR H. JAMAL As Chairman, it was my privilege to open these Thirty-Fifth Annual Meetings three days ago. Now as we come to the end of our work, I would like to thank my fellow Governors for the cooperation and understanding that I have received from them in making this gathering a fruitful and businesslike one-and particularly my fellow Governor from Brazil who kindly chaired the plenary sessions when meetings of the Joint Procedures Committee required me to be away from the plenaries. In my opening remarks, I had expressed my earnest hope that the question of observer status for the PLO and the legal issues surrounding it would be dealt with in a manner that will safeguard the fundamental interests of the two institu- tions and of the participating members states. In this connection, I should like to express my sincere appreciation to members of the Joint Procedures Committee for their assistance, and I might mention here in particular the Governors for Arab countries and for the United States, for their coopera- tion and understanding in bringing the matter to a definitive conclusion. The Governors have adopted a resolution recommended to them by the Joint Procedures Committee. I would like to express my hope that the Committee will discharge the responsibility placed on it with total objectiv- ity and the greatest degree of technical competence. Only then would the Fund and the Bank be able to ensure the integrity of their decision-making process. I take this opportunity of placing on record my firm belief that in the matter of observer status for the PLO I have acted fully within the rules and regulations governing the Fund and the Bank. I deeply regret that events developed in the manner in which they did. I also continue to hold 234 the view that at a time when the Bretton Woods institutions are under increasing pressure for change, the overt support from the PLO to them by its readiness to associate itself with the Fund and the Bank should be con- sidered a welcome development. The statements made by Governors in the course of the Joint Meetings have underlined the seriousness of the international economic situation. Both Mr. de Larosiere and Mr. McNamara's statements leave no doubt that these two Chief Executives have a total understanding of the nature and magnitude of the needs of the international community and in particular of the developing countries .... It is gratifying that the proposal for an institution to deal with energy development has received a large measure of endorsement. It is a measure of interest in the proposal that Governors wanted to obtain further clarification of the proposed structure and its competence. The answers, in the final event, will be provided by the capital-surplus and technology-surplus countries. Let us hope that as they proceed to take the necessary initiatives, they will not overlook the intere~ts of developing countries which are as yet poor. I can think of no greater tribute to Robert McNamara than that his large vision and deep dedication to the cause of development be enshrined in an institution concerned with energy development. It is my pleasant task to express the appreciation of all of us for the excellent arrangements that the staffs of the two institutions have provided to us at these Meetings. The smooth functioning of such a large gathering is evidence of their competence and dedication. I am particularly indebted to Mr. Van Houtven and Mr. Thahane for their invaluable assistance to me in steering the business of these Meetings. I wish to extend my sincere thanks to the Government and people of the United States for their warm hospitality and courtesy in accommodating our needs. Finally, I would like to extend my warm good wishes to the Governor for Uruguay who is succeeding me in this office. As we take leave of one another and prepare once again to face the heavy tasks of some complexity at home, let us take with us a message of hope that those who have the power and the ability to take timely action in the interest of stability and progress for all will exert their best endeavors. REMARKS BY VALENTIN ARISMENDI Governor of the Bank for Uruguay Uruguay accepts the Chairmanship of the Thirty-Sixth Annual Meetings of the International Monetary Fund and World Bank with a keen aware- ness of the honor and great responsibility this represents. Despite the somber picture of the world economy which emerges as the general conclusion of the statements made at these Meetings, it is our hope that, by the next time we meet, a clear understanding of the growing eco- 235 nomic interdependence of nations will guide us toward solutions that will make assistance to the developing world more effective. In reiterating our confidence in the leadership of both institutions, we join in the consensus of gratitude expressed to Mr. Robert McNamara as he leaves the position he so brilliantly filled. Finally, we cannot fail to acknowledge the way Mr. Amir Jamal, Minister of Finance of Tanzania, has conducted the Meetings now drawing to a close. 236 DOCUMENTS OF THE BOARD OF GOVERNORS SCHEDULE OF MEETINGS 1 Monday September 29 9:30 a.m. - Joint Development Committee 6:15 p.m. - Joint Procedures Committee Tuesday September 30 9:00 a.m. - Opening Ceremonies Address from the Chair Annual Address by President, IBRD, IFC and IDA 3:00 p.m. - Annual Discussion 6:15 p.m. - Joint Procedures Committee Wednesday October 1 9:30 a.m. - Annual Discussion 2:15p.m. - Joint Procedures Committee 3:00 p.m. - Annual Discussion IBRD Election of Executive Directors Thursday October 2 9:30 a.m. - Annual Discussion 2:30 p.m. - Joint Development Committee 3:00 p.m. - ICSID Administrative Council 2 J oint Procedures Committee Friday October 3 9:30 a.m. - Annual Discussion Joint Procedures Committee Reports Comments by Heads of Organizations Adjournment lAll sessions were joint sessions with the Board of GOl'ernors of the International Monetary Fund. 2 The summary of proceedings of ICSID are published separately. 237 PROVISIONS RELATING TO THE CONDUCT OF THE MEETINGS! ADMISSIONS 1. Sessions of the Boards of Governors of the Fund and the Bank, IFC and IDA will be joint and shall be open to accredited observers, the press, guests and staff. 2. Meetings of the Joint Procedures Committee shall be open only to Governors who are members of the Committee and their advisers, Exec- utive Directors, and such staff as may be necessary. PROCEDURE AND RECORDS 3. The Chairman of the Boards of Governors will establish the order of speaking at each session. Governors signifying a desire to speak will generally be recognized in the order in which they ask to speak. 4. With the consent of the Chairman, a Governor may extend his statement in the record following advance submission of the text to the Secretaries. 5. The Secretaries will have verbatim transcripts prepared of the proceed- ings of the Boards of Governors and the Joint Procedures Committee. The transcripts of proceedings of the Joint Procedures Committee will be confidential and available only to the Chairman, the Managing Director of the Fund, the President of the Bank and its Affiliates, and the Secretaries. 6. Reports of the Joint Procedures Committee shall be signed by the Com- mittee Chairman and the Reporting Members. PUBLIC INFORMATION 7. The Chairman of the Boards of Governors, the Managing Director of the Fund and the President of the Bank and its Affiliates will communi- cate to the press such information concerning the proceedings of the Annual Meetings as they may deem suitable. lApproved on September 25, 1980 pursuant to the By.Laws, IBRD Section 6(d), IFC Section 4(d) and IDA Section I(a). 238 BANK AGENDA 1 1. 1979/80 Annual Report 2. Financial Statements and Annual Audit 3. Allocation of Net Income 4. Administrative Budget 5. Joint Development Committee 6. Rules for 1980 Regular Election of Executive Directors 7. Officers and Procedures Committee for 1980/81 8. Application of the Palestine Liberation Organization for Observer Status IFC AGENDAl 1. 1979/80 Annual Report 2. Financial Statements and Annual Audit 3. Administrative Budget IDA AGENDAl 1. 1979/80 Annual Report 2. Financial Statements and Annual Audit 3. Administrative Budget lApproved on August 14, 1980 pursuant to the By-Laws, IBRD Section 6(a), IFC Section 4(a) and IDA Section lea). 239 JOINT PROCEDURES COMMITTEE Chairman . . . . . . . . . . . . . . . . . . . .. Tanzania Vice Chairman. . . . . . . . . . . . . . . .. Brazil Reporting Member . ............. United Kingdom Otber Members Australia Lesotho Burma Netherlands Cameroon Oman Ecuador Saudi Arabia France Singapore l Germany Spain Italy Thailand Japan United States Kuwait Venezuela l iNot a member of IDA. 240 Report IJI October 3, 1980 At the meeting of the Joint Procedures Committee held on October 2, 1980, the items of business on the agendas of the Boards of Governors of the Bank, IDA and IFC were considered. A. The Committee submits the following report and recommendations on Bank and IDA business: 1. 1980 Annual Report The Committee noted that the 1980 Annual Report and the activities of the Bank and IDA had been discussed at these Annual Meetings. 2. 1980 Regular Election of Executive Directors The Committee noted that the 1980 Regular Election of Executive Directors of the Bank had taken place and that the next Regular Election of Executive Directors will take place at the Annual Meeting of the Board of Governors in 1982. 3. Financial Statements, Annual Audits and Administrative Budgets The Committee considered the Financial Statements, Accountants' Re- ports and Administrative Bud,!!ets contained in the 1980 Bank and IDA Annual Report, together with the Report dated August 12, 1980. The Committee recommends that the Boards of Governors of the Bank and IDA adopt the draft resolutions .... 2 4. Allocation of Net Income of the Bank The Committee considered the Report of the Executive Directors dated July 29,1980, on the Allocation of Net Income ... 3 The Committee recommends that the Board of Governors of the Bank adopt the draft resolution ... 4 B. The Committee submits the following Report and Recommendations on IFC Business: 1. 1980 Annual Report The Committee noted that the 1980 Annual Report and the activities of IFC had been discussed at these Annual Meetings. 2. Financial Statements, Annual Audit and Administrative Budget The Committee considered the Financial Statements and the Accountants' Report contained in the 1980 Annual Report, and the Administrative Budget attached to the Report dated August] 2, 1980. l Report I related to the business of the Fund. " See pages 260 and 287. " See page 307. , See page 260. 241 The Committee recommends that the Board of Governors of IFC adopt the draft resolution ... 1 Approved: /s/ Amir H. Jamal /s/ J. Anson Tanzania-Chairman United Kingdom-Reporting Member This report was approved and its recommendations were adopted by the Boards of Governors on October 3,1980. 1 See page 271. 242 Report In October 3, 1980 The Joint Procedures Committee met on October 2, 1980 and submits the following report. 1. Development Committee The Committee noted that the Annual Report of the Joint Ministerial Committee of the Boards of Governors of the Fund and the Bank on the Transfer of Real Resources to Developing Countries (Development Com- mittee) has been presented to the Boards of Governors of the Fund and the Bank pursuant to paragraph 5 of Resolutions Nos. 29-9 and 294 of the Fund and the Bank, respectively ... 1 The Committee recommends that the Boards of Governors of the Fund and the Bank note the report and thank the Development Committee for its work. 2. Officers and Joint Procedures Committee for 1980/81 The Committee recommends that the Governors for Uruguay be Chair- men, and the Governors for Botswana and Finland be Vice Chairmen, of the Boards of Governors of the Fund and of the Bank and its affiliates, to hold office until the close of the next Annual Meetings. It is further recommended that a Joint Procedures Committee be estab- lished to be available, after the termination of these Meetings and until the close of the next Annual Meetings, for consultation at the discretion of the Chairmen normally by correspondence and, if the occasion required, by convening; and that this Committee shall consist of the Governors for the following members: Algeria, Austria, Bahrain, Botswana (Vice Chairman), China, Ethiopia, Finland (Vice Chairman), France, Germany, Honduras, Indonesia (Reporting Member), Jamaica, Japan, Madagascar, Mexico, Nepal, Portugal, Saudi Arabia, Trinidad and Tobago, United Kingdom, the United States, and Uruguay (Chairman). It is recommended that the Chairmen of the Joint Procedures Committee shall be the Governors for Uruguay, and the Vice Chairmen shall be the Governors for Botswana and Finland, and that the Governors for Indonesia shall serve as Reporting Member. Approved: /s/ Amir H. Jamal /s/ J. Anson Tanzania-Chairman United Kingdom-Reporting Member This report was approved and its recommendations were adopted by the Boards of Governors on October 3,1980. 1 See page 355. 243 Report IV October 3, 1980 1. The Joint Procedures Committee met on September 29 and 30 and October 1 and 2, 1980 and considered documents distributed at the meetings. 2. The Committee decided, in the light of the discussions at the meetings, to forward to the Boards of Governors the resolution entitled "The Appli- cation of the Palestine Liberation Organization for Observer Status." 1 /s/ Amir H. Jamal /s/ J. Anson Tanzania-Chairman United Kingdom-Reporting Member This report was approved and its recommendations were adopted by the Boards of Governors on October 3, 1980. 1 See page 260. 244 RESOLUTIONS ADOPTED BY THE BOARD OF GOVERNORS OF THE BANK BETWEEN THE 1979 AND 1980 ANNUAL MEETINGS Resolution No. 346 1979 General Capital Increase WHEREAS the original capital stock of the Bank amounted to $10 bil- lion in terms of United States dollars of the weight and fineness in effect on July 1, 1944 (hereinafter referred to as 1944 dollars); WHEREAS the Board of Governors, by Resolutions Nos. 128, 131, 194, 222, 264 and 315 increased the authorized capital stock to $34 billion divided into 340,000 shares having a par value of $100,000 each in terms of 1944 dollars. WHEREAS the Executive Directors of the Bank, having duly considered the question of enlarging the resources of the Bank through an increase in its authorized capital, have concluded that action to increase the capital of the Bank would be desirable and have submitted an appropriate proposal therefor to the Board of Governors; WHEREAS the Executive Directors have concluded that it would be desirable to reserve a portion of the increase in authorized capital for selective increases in the subscriptions of present members; WHEREAS the Board of Governors expects that in the circumstances members will not wish to avail themselves of their preemptive rights pur- suant to Article II, Section 3 (c) of the Articles of Agreement of the Bank; NOW THEREFORE the Board of Governors hereby resolves as follows: 1. The authorized capital stock of the Bank shall be increased by 331,500 shares of capital stock having a par value of $100,000 each in terms of 1944 dollars; provided, however, that if as a result of determinations on the standard of value for Bank capital stock the increase in authorized capital is in excess of $40,000,000,000 calculated as of the time of such determina- tions and on the basis of that value, the number of shares authorized by this Resolution shall be reduced so that such value shall be equivalent (to the nearest number of shares) to $40,000,000,000. 2. Each of the members of the Bank listed below may subscribe up to the maximum number of shares of the Bank set forth opposite its name subject to adjustment as provided in paragraph 3 of this Resolution: 245 Maximum Maximum Number Number Member Country of Shares Member Country of Shares Afghanistan 327 Guinea-Bissau 25 Algeria 2178 Guyana 192 Argentina 4400 Haiti 163 Australia 6037 Honduras 102 Austria 2523 Iceland 208 Bahamas 253 India 10608 Bahrain 153 Indonesia 3639 Bangladesh 1163 Iran 5284 Barbados 130 Iraq 895 Belgium 6803 Ireland 1185 Benin 110 Israel 1566 Bolivia 247 Italy 9472 Botswana 69 Ivory Coast 478 Brazil 5055 Jamaica 558 Burma 553 Japan 16417 Burundi 163 Jordan 218 Cameroon 230 Kampuchea, Democratic 238 Canada 10410 Kenya 515 Cape Verde 15 Korea, Republic of 1304 Central African Republic 110 Kuwait 2998 Chad 110 Lao People's Dem. Rep. 110 Chile 1161 Lebanon 167 Colombia 1100 Lesotho 54 Comoros 15 Liberia 243 Congo 117 Libya 1485 Costa Rica 123 Luxembourg 278 Cyprus 260 Madagascar 256 Denmark 2362 Malawi 170 Dominican Republic 164 Malaysia 1934 Ecuador 344 Maldives 6 Egypt 1544 Mali 190 EI Salvador 132 Mauritania 118 Equatorial Guinea 72 Mauritius 207 Ethiopia 137 Mexico 2954 Fiji 138 Morocco 1142 Finland 2003 Nepal 137 France 16443 Netherlands 7188 Gabon 215 New Zealand 1766 Gambia, The 61 Nicaragua 103 Germany 16485 Niger 110 Ghana 801 Nigeria 2753 Greece 885 Norway 2256 Grenada 22 Oman 180 Guatemala 156 Pakistan 2358 Guinea 224 Panama 202 246 Maximum Maximum Number Number Member Country of Shares Member Country of Shares Papua New Guinea 230 Syrian Arab Republic 475 Paraguay 66 Tanzania 411 Peru 878 Thailand 1383 Philippines 1605 Togo 170 Portugal 1239 Trinidad & Tobago 624 Qatar 338 Tunisia 439 Romania 1873 Turkey 1527 Rwanda 163 Uganda 373 Sao Tome & Principe 13 United Arab Emirates 1032 Saudi Arabia 5300 United Kingdom 24336 Senegal 419 United States 72760 Sierra Leone 167 Upper Volta 110 Singapore 376 Uruguay 485 Solomon Islands 16 Venezuela 3534 Somalia 177 Viet Nam 707 South Africa 3241 Western Samoa 22 Spain 4260 Yemen Arab Republic 99 Sri Lanka 899 Yemen, P.D.R. 314 Sudan 657 Yugoslavia 2118 Suriname 152 Zaire 1157 Swaziland 92 Zambia 1077 Sweden 3441 3. In the event that the number of shares authorized by this resolution shall be reduced pursuant to the proviso to paragraph 1 above, the amount authorized to be subscribed by each member shall be reduced correspond- ingly (to the nearest number of shares) . 4. Each subscription authorized pursuant to paragraph 2 above shall be on the following terms and conditions: (a) the subscription price per share shall be par; (b) a member may subscribe from time to time prior to July 1, 1986, or such later date as the Executive Directors may determine; pro- vided, however, that the Bank shall not accept any such subscription prior to September 30, 1981; (c) the subscribing member shall pay to the Bank (i) gold or United States dollars equal to % % of the subscription price of the shares subscribed and (ii) an amount in its own currency equal to 6% % of such subscription price; (d) the Bank shall call the amounts of the 2 % and 18 % portions of subscriptions which are not required to be paid under paragraph 4 (c) above only when required to meet obligations of the Bank for funds borrowed or on loans guaranteed by it, and not for use by the Bank in its lending activities or for administrative expenses; (e) before any subscription shall be accepted by the Bank, the follow- ing action shall have been taken: 247 (i) the member shall have taken all action necessary to authorize such subscription and shall furnish to the Bank such informa- tion thereon as the Bank may request; and (ii) the member shall have made the payments provided for in paragraph 4(c) above; and (f) the maximum number of shares authorized to be subscribed at any time by a member pursuant to this Resolution shall be reduced by the number of shares such member is authorized to subscribe but has not then subscribed pursuant to Resolutions Nos. 313 and 314, adopted by the Board of Governors on January 3,1977 and Febru- ary 9, 1977, respectively, and Resolutions submitted after that latter date and prior to March 22, 1979 to the Board of Governors for a vote; provided, however, that no such reduction shall be made on account of shares authorized under Resolutions Nos. 313 and 314 which the member has formally notified the Bank by March 22, 1979 it will not subscribe. 5. If no determinations have been made on the standard of value issue by September 30, 1981, and if any member thereafter shall have subscribed a number of shares in excess of the number of shares authorized to be subscribed by it after reduction in accordance with paragraph 3 above, such excess shall be cancelled and any amounts paid thereon shall be credited to the member on account of the subscription price of the balance of the shares theretofore subscribed to the extent that the amounts provided for in paragraph 4(c) above have not been paid and any balance shall be returned to the member. 6. In the absence of notice to the Bank from any member on or before July 19, 1979 that it intends to exercise its right to subscribe its propor- tionate share of the increase in capital provided for in this Resolution, such member will be deemed to have waived such right; provided, however, that if any such notice is received from any member the Secretary of the Bank shall promptly after the said date notify all other members thereof where- upon such other members shall have an additional 30 days after the said date to give such notice. (Adopted January 4,1980) Resolution No. 347 Authorized Capital Stock and Subscription Thereto WHEREAS the Resolution entitled "1979 General Capital Increase" (hereinafter referred to as the Main Resolution) provides for an increase (subject to adjustment) of 331,500 shares in the authorized capital stock of the Bank; WHEREAS it is desirable further to increase the authorized capital stock of the Bank in order to provide for the subscription by each member to 250 additional shares of capital stock for the purpose of avoiding dilution of the voting power of certain members as a result of the General Capital Increase; 248 WHEREAS the understanding as among members is that, with respect to such subscriptions, the 2 % and 18 % portions of each subscription pay- able pursuant to the Articles of Agreement in gold or United States dollars and the currency of the subscribing member, respectively, shall not be called for use by the Bank in its lending activities or for administrative expenses; WHEREAS it is also the understanding as among members that sub- scriptions pursuant to this Resolution will not be counted in determining limitations on guarantees and borrowings of the Bank pursuant to Article III, Section 3 of the Articles of Agreement of the Bank; WHEREAS in order to achieve the purpose of authorizing such addi- tional subscriptions it is necessary that members waive their right under Article II, Section 3 (c) of the Articles of Agreement to subscribe their proportionate share of the increase in authorized capital stock pursuant to the present Resolution; NOW THEREFORE the Board of Governors hereby resolves as follows: 1. The authorized capital stock of the Bank shall be increased by 33,500 shares of capital stock having a par value of $100,000 each in terms of United States dollars of the weight and fineness in effect on July 1, 1944. 2. Each member may subscribe to 250 shares on the following terms and conditions: (a) the subscription price shall be par; (b) the subscription of each member shall be received by the Bank on or before July 1, 1986, or such later date as the Executive Directors may determine; provided, however, that the Bank shall not accept any such subscription prior to September 30, 1981; and (c) each member shall represent to the Bank that it has taken all action necessary to authorize such subscription and shall furnish to the Bank such information thereon as the Bank may request. 3. The Bank shall call the 2 % and 18 % portions of subscriptions made pursuant to this Resolution only when required to meet obligations of the Bank for funds borrowed or on loans guaranteed by it, and not for use by the Bank in its lending activities or for administrative expenses. 4. In the absence of notice to the contrary from any member on or before July 19, 1979, such member shall be deemed to have waived its right to subscribe its proportionate share of the increase in authorized capital under this Resolution. 5. Subscriptions to capital stock pursuant to this Resolution shall not be taken into account in determining the amount of the unimpaired subscribed capital, reserves and surplus of the Bank for purposes of Article III, Section 3 of the Articles of Agreement of the Bank. 6. This Resolution shall not become effective unless: (a) all members have waived their right to subscribe to their propor- tionate share of such increase; and (b) the Main Resolution has become effective. (Adopted January 4, 1980) 249 Resolution No. 348 Membership of St. Lucia WHEREAS the Government of St. Lucia has applied for admission to membership in the International Bank for Reconstruction and Development in accordance with Section 1 (b) of Article II of the Articles of Agreement of the Bank; and WHEREAS, pursuant to Section 20 of the By-Laws of the Bank, the Executive Directors, after consultation with representatives of the Govern- ment of St. Lucia, have made recommendations to the Board of Governors regarding this application; NOW, THEREFORE, the Board of Governors hereby RESOLVES: THAT the terms and conditions upon which St. Lucia shall be admitted to membership in the Bank shall be as follows: 1. Definitions: As used in this resolution: (a) "Bank" means International Bank for Reconstruction and Develop- ment. (b) "Articles" means the Articles of Agreement of the Bank. (c) "Subscription" means the capital stock of the Bank subscribed to by a member. (d) "Member" means member of the Bank. (e) "General Capital Increase Resolution" means the resolution en- titled "1979 General Capital Increase" attached as Attachment 2 to the report dated June 28, 1979 of the Executive Directors to the Board of Governors entitled "IBRD General Capital Increase". (f) "Additional Capital Increase Resolution" means the resolution en- titled "1979 Additional Increase in Authorized Capital Stock and Subscriptions Thereto" attached as Attachment 3 to such report. 2. Subscription: By accepting membership in the Bank, St. Lucia shall subscribe to 29 shares of the capital stock of the Bank at par. 3. Payment on Subscription: (a) Before accepting membership in the Bank, St. Lucia shall pay to the Bank on account of the subscription price of one-half of such shares: (i) Gold or United States dollars equal to 2% thereof; and (ii) An amount in its own currency which, at the appropriate prevailing exchange rate, shall be equal to 18 % thereof. (b) With respect to the subscription price of the other one-half of such shares, the 2 % portion payable in gold or United States dollars and the 18 % portion payable in the currency of the member shall be left uncalled, as set forth in Resolution No. 129, on the same basis as the 2 % and 18 % portions of subscriptions made pursuant to Resolution No. 128 of the Board of Governors. 4. Representation and Information: Before accepting membership in the Bank, St. Lucia shall represent to the Bank that it has taken all action neces- 250 sary to sign and deposit the instrument of acceptance and sign the Articles as contemplated by paragraphs 5 (c) and (d) of this resolution and St. Lucia shall furnish to the Bank such information in respect of such action as the Bank may request. 5. Acceptance of Membership: St. Lucia shall become a member of the Bank with a subscription as set forth in paragraph 2 of this resolution as of the date when St. Lucia shall have complied with the following require- ments: (a) made the payments called for by paragraph 3 of this resolution; (b) furnished the representation, and such information as may have been requested, pursuant to paragraph 4 of this resolution; (c) deposited with the Government of the United States of America an instrument stating that it has accepted in accordance with its law the Articles and all the terms and conditions prescribed in this reso- lution, and that it has taken all steps necessary to enable it to carry out all its obligations under the Articles and this resolution; and (d) signed the original Articles held in the Archives of the Government of the United States of America. 6. Limitation on Period for Acceptance of Membership: St. Lucia may accept membership in the Bank pursuant to this resolution until June 30, 1980, or such later date as the Executive Directors may determine. 7. Additional Subscription on Terms and Conditions of General Capital Increase Resolution: (a) Subject to the approval of the General Capital Increase Resolution by the Board of Governors of the Bank, St. Lucia may subscribe up to 27 shares of the capital stock of the Bank, subject to adjust- ment as provided in paragraph 7 (b) of this resolution, on the terms and conditions specified in paragraph 4 of the General Capital Increase Resolution. (b) In the event that the number of shares authorized to be subscribed by each member under the General Capital Increase Resolution shall be reduced pursuant to paragraph 3 thereof, the amount au- thorized to be subscribed under paragraph 7 (a) of this resolution shall be reduced correspondingly (to the nearest number of shares) . (c) The provisions of paragraph 5 of the General Capital Increase Resolution shall apply to St. Lucia to the same extent as if the sub- scription authorized by paragraph 7 (a) of this resolution had been authorized under paragraph 2 of the General Capital Increase Resolution. 8. Additional Subscription on Terms and Conditions of Additional Capital Increase Resolution: (a) Subject to the approval by the Board of Governors of the Bank and effectiveness of the Additional Capital Increase Resolution, St. Lucia may subscribe to 250 shares of the capital stock of the Bank on the terms and conditions specified in paragraphs 2 and 3 of the Additional Capital Increase Resolution. 251 (b) Subscriptions to capital stock pursuant to paragraph 8 (a) of this resolution shall not be taken into account in determining the amount of the unimpaired subscribed capital, reserves and surplus of the Bank for purposes of Article III, Section 3 of the Articles of Agreement of the Bank. (Adopted January 9,1980) Resolution No. 349 Amendment of Section 14(b) of By-Laws of the Bank "RESOLVED: THAT, effective January 1,1980, Section 14(b) of the By-Laws of the Bank shall be amended to read as follows: "(b) Pending the necessary action being taken by members to exempt from national taxation salaries and allowances paid out of the budget of the Bank, the Governors and the Executive Directors, their Alternates, the President, and staff members and other employees of the Bank, except those whose employment contracts state otherwise, shall receive from the Bank a tax allowance that the Executive Directors determine to be reasonably related to the taxes paid by them on such salaries and allowances. "In computing the amount of tax adjustment to be made with respect to any individual, it shall be presumed for the purposes of the computation that the income received from the Bank is his total income. All salaries and allowances prescribed by or pursuant to this section are stated as net on the above basis." (Adopted February 18, 1980) Resolution No. 350 Administrative Tribunal RESOLVED: THAT, the Board of Governors: (a) accepts the report of the Executive Directors on the establishment of the World Bank Administrative Tribunal; and (b) adopts the Statute of such Administrative Tribunal.l (Adopted April 30, 1980) Resolution No. 351 Direct Remuneration of Executive Directors and Their Alternates RESOLVED: THAT, effective July 1, 1980, the annual rates of remuneration of Execu- tive Directors of the Bank and their Alternates pursuant to Section 14 (e) of the By-Laws shall be as follows: lSee page 294. 252 (i) As salary, $56,800 per year for Executive Directors and $47,500 per year for their Alternates; (ii) As supplemental allowance (for expenses, including housing and entertainment expenses, except those specified in Section 14(f) of the By-Laws), $6,200 per year for Executive Directors and $5,000 per year for their Alternates. (Adopted July 1,1980) Resolution No. 352 Salary Advances to Executive Directors and Their Alternates to Help Meet the Costs of Settling in and for Emergency Situations RESOLVED: THAT, the salary advances available to the regular staff of the bank (i) to help meet settling-in expenses and (ii) for emergency situations shall be available to the Executive Directors and their Alternates on the same basis as they are available to the staff. (Adopted July 1,1980) Resolution No. 353 Membership of St. Vincent and the Grenadines WHEREAS the Government of St. Vincent and the Grenadines has applied for admission to membership in the International Bank for Recon- struction and Development in accordance with Section 1 (b) of Article II of the Articles of Agreement of the Bank; and WHEREAS, pursuant to Section 20 of the By-Laws of the Bank, the Executive Directors, after consultation with representatives of the Govern- ment of St. Vincent and the Grenadines, have made recommendations to the Board of Governors regarding this application; NOW, THEREFORE, the Board of Governors hereby RESOLVES: THA T the terms and conditions upon which St. Vincent and the Grena- dines shall be admitted to membership in the Bank shall be as follows: 1. Definitions: As used in this resolution: (a) "Bank" means International Bank for Reconstruction and Develop- ment. (b) "Articles" means the Articles of Agreement of the Bank. (c) "Subscription" means the capital stock of the Bank subscribed to by a member. (d) "Member" means member of the Bank. (e) "General Capital Increase Resolution" means Board of Governors' Resolution No. 346 entitled "1979 General Capital Increase" adopted on January 4, 1980. 253 (f) "Additional Capital Increase Resolution" means Board of Gover- nors' Resolution No. 347 entitled "1979 Additional Increase in Authorized Capital Stock and Subscriptions Thereto" adopted on January 4, 1980. 2. Subscription: By accepting membership in the Bank, St. Vincent and the Grenadines shall subscribe to 13 shares of the capital stock of the Bank at par. 3. Payment on Subscription: (a) Before accepting membership in the Bank, St. Vincent and the Grenadines shall pay to the Bank on account of the subscription price of one-half of such shares: (i) Gold or United States dollars equal to 2% thereof; and (ii) An amount in its own currency which, at the appropriate prevailing exchange rate, shall be equal to 18 % thereof. (b) With respect to the subscription price of the other one-half of such shares, the 2 % portion payable in gold or United States dollars and the 18 % portion payable in the currency of the member shall be left uncalled, as set forth in Resolution No. 129, on the same basis as the 2 % and 18 % portions of subscriptions made pursuant to Resolution No. 128 of the Board of Governors. 4. Representation and Information: Before accepting membership in the Bank, St. Vincent and the Grenadines shall represent to the Bank that it has taken all action necessary to sign and deposit the instrument of acceptance and sign the Articles as contemplated by paragraphs S(c) and (d) of this resolution and St. Vincent and the Grenadines shall furnish to the Bank such information in respect of such action as the Bank may request. 5. Acceptance of Membership: St. Vincent and the Grenadines shall be- come a member of the Bank with a subscription as set forth in paragraph 2 of this resolution as of the date when St. Vincent and the Grenadines shall have complied with the following requirements: (a) made the payments called for by paragraph 3 of this resolution; (b) furnished the representation, and such information as may have been requested; pursuant to paragraph 4 of this resolution; (c) deposited with the Government of the United States of America an instrument stating that it has accepted in accordance with its law the Articles and all the terms and conditions prescribed in this resolution, and that it has taken all steps necessary to enable it to carry out all its obligations under the Articles and this resolution; and (d) signed the original Articles held in the Archives of the GO\lernment of the United States of America. 6. Limitation on Period for Acceptance of Membership: St. Vincent and the Grenadines may accept membership in the Bank pursuant to this reso- lution until December 31, 1980, or such later date as the Executive Di- rectors may determine. 254 7. Additional Subscription on Terms and Conditions of General Capital Increase Resolution: (a) St. Vincent and the Grenadines may subscribe up to 12 shares of the capital stock of the Bank, subject to adjustment as provided in paragraph 7 (b) of this resolution, on the terms and conditions specified in paragraph 4 of the General Capital Increase Reso- lution. (b) In the event that the number of shares authorized to be subscribed by each member under the General Capital Increase Resolution shall be reduced pursuant to paragraph 3 thereof, the amount authorized to be subscribed under paragraph 7 (a) of this reso- 'lution shall be reduced correspondingly (to the nearest number of shares) . (c) The provisions of paragraph 5 of the General Capital Increase Resolution shall apply to St. Vincent and the Grenadines to the same extent as if the subscription authorized by paragraph 7 (a) of this resolution had been authorized under paragraph 2 of the General Capital Increase Resolution. 8. Additional Subscription on Terms and Conditions of Additional Capital Increase Resolution: (a) St. Vincent and the Grenadines may subscribe to 250 shares of the capital stock of the Bank on the terms and conditions specified in paragraphs 2 and 3 of the Additional Capital Increase Resolution. (b) Subscriptions to capital stock pursuant to paragraph 8 (a) of this resolution shall not be taken into account in determining the amount of the unimpaired subscribed capital, reserves and sur- plus of the Bank for purposes of Article III, Section 3 of the Articles of Agreement of the Bank. (Adopted July 23,1980) Resolution No. 354 Amendment of Section 14(a) of By-Laws of the Bank RESOLVED: THAT Section 14(a) of the By-Laws of the Bank be amended as follows: Governors and Alternates shall receive their actual transport expenses to and from the place of meeting in attending meetings and $140 for each night which attendance at such meetings requires them to spend away from their normal place of residence, this amount being reduced to $25, for each night when accommodation is included in the price of transportation. (Adopted July 31,1980) 255 Resolutiou No. 355 Membership of Zimbabwe WHEREAS the Government of Zimbabwe has applied for admission to membership in the International Bank for Reconstruction and Development in accordance with Section 1 (b) of Article II of the Articles of Agreement of the Bank; and WHEREAS pursuant to Section 20 of the By-Laws of the Bank, the Executive Directors, after consultation with representatives of the Govern- ment of Zimbabwe, have made recommendations to the Board of Governors regarding this application; NOW, THEREFORE, the Board of Governors hereby RESOLVES THAT the terms and conditions upon which Zimbabwe shall be admitted to membership in the Bank shall be as follows: 1. Definitions: As used in this resolution: (a) "Bank" means International Bank for Reconstruction and De- velopment. (b) "Articles" means the Articles of Agreement of the Bank. (c) "Subscription" means the capital stock of the Bank subscribed to by a member. (d) "Member" means member of the Bank. (e) "General Capital Increase Resolution" means Board of Governors' Resolution No. 346 entitled "1979 General Capital Increase" adopted on January 4,1980. (f) "Additional Capital Increase Resolution" means Board of Gover- nors' Resolution No. 347 entitled "1979 Additional Increase in Authorized Capital Stock and Subscriptions Thereto" adopted on January 4,1980. 2. Subscription: By accepting membership in the Bank, Zimbabwe shall subscribe to 817 shares of the capital stock of the Bank at par. 3. Membership in the Fund: Before accepting membership in the Bank, Zimbabwe shall accept membership in and become a member of the Inter- national Monetary Fund. 4. Payment on Subscription: (a) Before accepting membership in the Bank, Zimbabwe shall pay to the Bank on account of the subscription price of one-half of such shares: (i) Gold or United States dollars equal to 2% thereof; and (ii) An amount in its own currency which, at the appropriate prevailing exchange rate, shall be equal to 18% thereof. (b) With respect to the subscription price of the other one-half of such shares, the 2 % portion payable in gold or United States dollars and the 18 % portion payable in the currency of the member shall be left uncalled, as set forth in Resolution No. 129, on the same basis as the 2 % and 18 % portions of subscriptions made pursuant to Resolution No. 128 of the Board of Governors. 256 5. Representation and Information: Before accepting membership in the Bank, Zimbabwe shall represent to the Bank that it has taken all action necessary to sign and deposit the instrument of acceptance and sign the Articles as contemplated by para!?raphs 6(c) and (d) of this resolution and Zimbabwe shall furnish to the Bank such information in respect of such action as the Bank may request. 6. Acceptance of Membership: Zimbabwe shall become a member of the Bank with a subscription as set forth in paragraph 2 of this resolution as of the date when Zimbabwe shall have complied with the following require- ments: (a) become a member of the International Monetary Fund; (b) made the payments called for by paragraph 4 of this resolution; (c) furnished the representation, and such information as may have been requested, pursuant to paragraph 5 of this resolution; (d) deposited with the Government of the United States of America an instrument stating that it has accepted in accordance with its law the Articles and all the terms and conditions prescribed in this resolution, and that it has taken all steps necessary to enable it to carry out all its obligations under the Articles and this resolu- tion; and (e) signed the original Articles held in the Archives of the Govern- ment of the United States of America. 7. Limitation on Period for Acceptance of Membership: Zimbabwe may accept membership in the Bank pursuant to this resolution until Decem- ber 31, 1980, or such later date as the Executive Directors may determine. 8. Additional Subscription on Terms and Conditions of General Capital Increase Resolution: (a) Zimbabwe may subscribe up to 765 shares of the capital stock of the Bank, subject to adjustment as provided in paragraph 7 (b) of this resolution, on the terms and conditions specified in para- graph 4 of the General Capital Increase Resolution. (b) In the event that the number of shares authorized to be subscribed by each member under the General Capital Increase Resolution shall be reduced pursuant to paragraph 3 thereof, the amount authorized to be subscribed under paragraph 7 (a) of this reso- lution shall be reduced correspondingly (to the nearest number of shares). (c) The provisions of paragraph 5 of the General Capital Increase Resolution shall apply to Zimbabwe to the same extent as if the subscription authorized by paragraph 8 (a) of this resolution had been authorized under paragraph 2 of the General Capital Increase Resolution. 9. Additional Subscription on Terms and Conditions of Additional Capital Increase Resolution: (a) Zimbabwe may subscribe to 250 shares of the capital stock of the Bank on the terms and conditions specified in paragraph 2 and 3 of the Additional Capital Increase Resolution. 257 (b) Subscriptions to capital stock pursuant to paragraph 9(a) of this resolution shall not be taken into account in determining the amount of the unimpaired subscribed capital, reserves and surplus of the Bank for purposes of Article III, Section 3 of the Articles of Agreement of the Bank. (Adopted August 29,1980) Resolution No. 356 Increase in Subscription of China to the Capital Stock of Bank RESOLVED: THAT, pursuant to Article II, Section 3(b) of the Articles of Agreement of the Bank, the Board of Governors hereby authorizes the acceptance by the Bank of the subscription of China to an additional 4,500 shares of the capital stock of the Bank, upon the following conditions: (a) That the subscription price per share shall be par; (b) That China's subscription shall be received by the Bank on or before December 31, 1980, or such later date as the Executive Directors may determine; (c) That with respect to the subscription price of one-half of such shares, the 2 % portion payable in gold or United States dollars and the 18 % portion payable in the currency of the member shall be left uncalled on the conditions set forth in Resolution No. 129 as governing subscriptions pursuant to Resolution No. 128 of Board of Governors; and (d) That before such subscription shall be accepted by the Bank, the following action shall have been taken: (i) China shall have taken all action necessary to authorize such subscription and shall furnish to the Bank such information thereon as the Bank may request; and (ii) with respect to and on account of the subscription price of one-half of such shares, China shall pay to the Bank gold or United States dollars equal to 2 % of such price and an amount in its own currency equal to 18 % of such price. (Adopted September3, 1980) Resolution No. 357 Number of Elected Executive Directors RESOLVED: THAT, if by the Regular Election of Executive Directors to be held during the 1980 Annual Meeting of the Board of Governors, China has subscribed to an additional 4,500 shares of the capital stock of the Bank, there shall be elected 16 Executive Directors at such Regular Election. (Adopted September 5,1980) 258 Resolution No. 358 1980 Regular Election of Executive Directors RESOLVED: (a) THAT the proposed RULES FOR THE 1980 REGULAR ELECTION OF EXECUTIVE DIRECTORS are hereby ap- proved; and (b) THAT a Regular Election of Executive Directors shall take place at the Annual Meeting of the Board of Governors in 1982. (Adopted September 8,1980) Resolution No. 359 Section 5 (b) of the By-Laws of the Bank WHEREAS, the provision on observers to meetings of the Board of Governors contained in Section 5 (b) of the By-Laws has given rise to a number of serious questions which cannot be resolved satisfactorily on the basis of the present wording; WHEREAS, therefore, an amendment to Section 5 (b) seems to be justi- fied and even necessary; HAVING REGARD to Section 23 of the By-Laws; NOW, THEREFORE, the Board of Governors RESOLVES: 1. THAT the Executive Directors shall consider the exact scope of Sec- tion 5 (b) and make such proposals for amendment as they believe neces- sary and that they shall report to the Board of Governors by March 1, 1981;and 2. THAT pending the outcome of action pursuant to paragraph 1 of this Resolution, attendance at the 1980 Annual Meeting or any meeting of the Board of Governors thereafter, shall be limited to those observers who were invited to the 1979 Annual Meeting. (Adopted September 19,1980) Resolution No. 360 Amendment of the Bank's By-Laws RESOLVED: THAT, the By-Laws shall be amended so as to read as indicated in Attachment . . .1 to the Report of the Executive Directors to the Board of Governors on Amendment of the Bank's By-Laws dated July 22, 1980. (Adopted September 26, 1980) 1 See page 301. 259 RESOLUTIONS ADOPTED BY THE BOARD OF GOVERNORS OF THE BANK AT THE 1980 ANNUAL MEETING Resolution No. 361 Financial Statements, Accountants' Report and Administrative Budget RESOLVED: THAT the Board of Governors of the Bank consider the Financial State- ments, Accountants' Report and Administrative Budget, included in the 1979/80 Annual Report, as fulfilling the requirements of Article V, Section 13, of the Articles of Agreement and of Section 18 of the By-Laws of the Bank. (Adopted October 3, 1980) Resolution No. 362 Allocation of Net Income RESOLVED: 1. THAT the Report of the Executive Directors dated July 29, 1980 on "Allocation of Net Income" is hereby approved; 2. THAT the Bank transfer to the International Development Association by way of grant the equivalent of $118 million out of the net income of the Bank for the fiscal year ended June 30, 1980 (of which the Association may use a portion for grants for agricultural research of up to 10% of the agricultural research center 1980 budget requirements approved by the Consultative Group on International Agricultural Research, and for grants for the control of onchocerciasis, of up to the equivalent of $2.0 million), such transfer to be made at the time and in the manner to be decided by the Executive Directors; 3. THAT the allocation of the balance of the net income of the Bank for the fiscal year ended June 30, 1980 to the General Reserve is hereby noted with approval. (Adopted October 3,1980) Resolution No. 363 The Application of the Palestine Liberation Organization for Observer Status The Board of Governors of the International Monetary Fund and the Board of Governors of the International Bank for Reconstruction and Development Whereas the Executive Directors of the International Bank for Recon- struction and Development approved a decision on July 25, 1980 recom- 260 mending to the Board of Governors a draft resolution on observers for a vote without meeting, Whereas the Executive Board of the International Monetary Fund approved the same decision on july 29, 1980, Whereas the Executive Boards of the International Monetary Fund and of the International Bank for Reconstruction and Development took deci- sions on September 9, 1980 extending the deadline for voting on the draft resolutions on observers from September 9 to September 19, 1980, Whereas the Executive Boards of the International Monetary Fund and of the International Bank for Reconstruction and Development took decisions on September 17 and September 18, 1980 denying member countries the right to withdraw their votes under the procedure of voting without meeting, Whereas the Board of Governors of the International Monetary Fund and the Board of Governors of the International Bank for Reconstruction and Development adopted on September 19, 1980 resolutions on observers, Whereas the above mentioned decisions taken by the Executive Boards and the resolutions adopted by the Boards of Governors on September 19, 1980 raise issues concerning Section 5 (b) and Section 13 of the By-Laws of the two institutions, 1 Whereas the Boards of Governors took note of the memorandum by the Arab Executive Directors in the two institutions dated September 28, 1980 and entitled "Outline of Legal Issues," 2 RESOLVED: 1. There shall be established a Joint Committee of the Boards of Governors of the two institutions on questions of interpretation of Section 5 (b), Section 13 of the respective By-Laws of the two institutions 1 and other related provisions arising out of the decisions taken by the Executive Boards on July 25, July 29, September 9, September 17 and Sepember 18, as well as of the Resolutions adopted by the Boards of Governors on Septem- ber 19, 1980. In its work the Committee shall take into account the questions formulated in the memorandum by the Arab Executive Directors in the two institutions dated September 28, 1980 and entitled "Outline of Legal Issues." 2 The Committee shall be entitled to seek and obtain objec- tive and independent legal advice as deemed desirable. 2. (a) The Committee shall consist of the following nine member coun- tries: Belgium, France, Germany, Indonesia, New Zealand, Nigeria, Pakistan, Sweden and Yugoslavia. (b) Each member of the Committee except the Chairman shall have one vote. (c) New Zealand shall act as Chairman with Mr. Muldoon in his personal capacity in the Chair. The Chairman will have a vote in case of a tie. (d) In order to emphasize the technical nonpolitical task of the Com- mittee, each member country may be represented by an eminent jurist. 1 As of September 26, 1980, Sections 5(b) and 13 of the By-Laws of the International Bank for Reconstruction and Development were renumbered 4(b) and 12, respeclit'el.v. 2 Joint Procedures Committee Document No. 10. 261 3. The Committee shall complete its work and report to the Boards of Governors not later than January 31, 1981. 4. The report of the Committee shall be taken into account by the Executive Boards in their work under paragraph 1 of the Resolutions of the Boards of Governors of the International Bank for Reconstruction and Development and the International Monetary Fund on Section 5(b)1 of the By-Laws approved on September 19, 1980. (Adopted October 3, 1980) 262 RESOLUTIONS ADOPTED BY THE BOARD OF GOVERNORS OF IFC BETWEEN THE 1979 AND 1980 ANNUAL MEETINGS Resolution No. 113 Membership of the Revolutionary People's Republic of Guinea WHEREAS the Government of the Revolutionary People's Republic of Guinea has applied for admission to membership in the International Finance Corporation in accordance with Section 1 (b) of Article II of the Articles of Agreement of the Corporation; and WHEREAS, pursuant to Section 17 of the By-Laws of the Corporation, the Board of Directors, after consultation with representatives of the Gov- ernment of the Revolutionary People's Republic of Guinea, has made recommendations to the Board of Governors regarding the application of said Government; NOW, THEREFORE, the Board of Governors hereby RESOLVES: THAT the terms and conditions upon which the Revolutionary People's Republic of Guinea shall be admitted to membership in the Corporation shall be as follows: 1. Definitions: As used in this resolution: (a) "Corporation" means International Finance Corporation. (b) "Articles" means the Articles of Agreement of the Corporation. (c) "Dollars" or "$" means United States dollars. (d) "Subscription" means the Capital Stock of the Corporation sub- scribed by a member. (e) "Member" means member of the Corporation. 2. Subscription: By accepting membership in the Corporation, the Revolu- tionary People's Republic of Guinea shall subscribe to 134 shares of the capital stock of the Corporation at the par value of $1,000 per share. 3. Payment of Subscription: Before accepting membership in the Corpora- tion, the Revolutionary People's Republic of Guinea shall pay $134,000 to the Corporation in full payment of the capital stock subscribed. 4. Information: Before accepting membership in the Corporation, the Revolutionary People's Republic of Guinea shall furnish to the Corporation such information relating to its application for membership as the Corpora- tion may request. S. Acceptance of Membership: The Revolutionary People's Republic of Guinea shall become a member of the Corporation with a subscription as set forth in paragraph 2 of this resolution, as of the date when the Revolu- tionary People's Republic of Guinea shall have complied with the following requirements: (a) made the payment called for by paragraph 3 of this resolution; (b) furnished such information as may have been requested by the Corporation pursuant to paragraph 4 of this resolution; 263 (c) deposited with the International Bank for Reconstruction and Development an instrument stating that it has accepted without reservation in accordance with its law the Articles and all the terms and conditions prescribed in this resolution, and that it has taken all steps necessary to enable it to carry out all its obligations under the Articles and this resolution; and (d) signed the original Articles held by the International Bank for Reconstruction and Development. 6. Limitation on Period for Acceptance of Membership: The Revolution- ary People's Republic of Guinea may accept membership in the Corporation pursuant to this resolution until June 30, 1980, or such later date as the Board of Directors may determine. (Adopted December 14,1979) Resolution No. 114 Membership of Barbados WHEREAS the Government of Barbados has applied for admission to membership in the International Finance Corporation in accordance with Section 1 (b) of Article II of the Articles of Agreement of the Corporation; and WHEREAS, pursuant to Section 17 of the By-Laws of the Corporation, the Board of Directors, after consultation with representatives of the Gov- ernment of Barbados, has made recommendations to the Board of Gov- ernors regarding the application of said Government; NOW, THEREFORE, the Board of Governors hereby RESOLVES: THAT the terms and conditions upon which Barbados shall be admitted to membership in the Corporation shall be as follows: 1. Definitions: As used in this resolution: (a) "Corporation" means International Finance Corporation. (b) "Articles" means the Articles of Agreement of the Corporation. (c) "Dollars" or "$" means United States dollars. (d) "Subscription" means the Capital Stock of the Corporation sub- scribed by a member. (e) "Member" means member of the Corporation. 2. Subscription: By accepting membership in the Corporation, Barbados shall subscribe to 93 shares of the capital stock of the Corporation at the par value of $1,000 per share. 3. Payment of Subscription: Before accepting membership in the Corpora- tion, Barbados shall pay $93,000 to the Corporation in full payment of the capital stock subscribed. 4. Information: Before accepting membership in the Corporation, Barba- dos shall furnish to the Corporation such information relating to its applica- tion for membership as the Corporation may request. 5. Acceptance of Membership: Barbados shall become a member of the Corporation with a subscription as set forth in paragraph 2 of this resolu- 264 tion, as of the date when Barbados shall have complied with the following requirements: (a) made the payment called for by paragraph 3 of this resolution; (b) furnished such information as may have been requested by the Corporation pursuant to paragraph 4 of this resolution; (c) deposited with the International Bank for Reconstruction and Development an instrument stating that it has accepted without reservation in accordance with its law the Articles and all the terms and conditions prescribed in this resolution, and that it has taken all steps necessary to enable it to carry out all its obligations under the Articles and this resolution; and (d) signed the original Articles held by the International Bank for Reconstruction and Development. 6. Limitation on Period for Acceptance of Membership: Barbados may accept membership in the Corporation pursuant to this resolution until June 30, 1980, or such later date as the Board of Directors may determine. (Adopted December 19, 1979) Resolution No. 115 Membership of the Solomon Islands WHEREAS the Government of the Solomon Islands has applied for admission to membership in the International Finance Corporation in accordance with Section 1 (b) of Article II of the Articles of Agreement of the Corporation; and WHEREAS, pursuant to Section 17 of the By-Laws of the Corporation, the Board of Directors, after consultation with representatives of the Government of the Solomon Islands, has made recommendations to the Board of Governors regarding the application of said Government; NOW, THEREFORE, the Board of Governors hereby RESOLVES: THAT the terms and conditions upon which the Solomon Islands shall be admitted to membership in the Corporation shall be as follows: 1. Definitions: As used in this resolution: (a) "Corporation" means International Finance Corporation. (b) "Articles" means the Articles of Agreement of the Corporation. (c) "Dollars" or "$" means United States dollars. (d) "Subscription" means the capital stock of the Corporation sub- scribed by a member. (e) "Member" means member of the Corporation. 2. Subscription: By accepting membership in the Corporation, the Solo- mon Islands shall subscribe to 11 shares of the capital stock of the Corpora- tion at the par value of $1,000 per share. 3. Payment of Subscription: Before accepting membership in the Corpora- tion, the Solomon Islands shall pay $11 ,000 to the Corporation in full payment of the capital stock subscribed. 265 4. Information: Before accepting membership in the Corporation, the Solomon Islands shall furnish to the Corporation such information relating to its application for membership as the Corporation may request. 5. Acceptance of Membership: The Solomon Islands shall become a member of the Corporation with a subscription as set forth in paragraph 2 of this resolution, as of the date when the Solomon Islands shall have complied with the following requirements: (a) made the payment called for by paragraph 3 of this resolution; (b) furnished such information as may have been requested by the Corporation pursuant to paragraph 4 of this resolution; (c) deposited with the International Bank for Reconstruction and Development an instrument stating that it has accepted without reservation in accordance with its law the Articles and all the terms and conditions prescribed in this resolution, and that it has taken all steps necessary to enable it to carry out all its obligations under the Articles and this resolution; and (d) signed the original Articles held by the International Bank for Reconstruction and Development. 6. Limitation on Period for Acceptance of Membership: The Solomon Islands may accept membership in the Corporation pursuant to this resolu- tion until June 30, 1980, or such later date as the Board of Directors may determine. ( Adopted February 5, 1980) Resolution No. 116 Amendment of Section 12(b) of the By-Laws of the Corporation "RESOLVED: THAT, effective January 1, 1980, Section 12(b) of the By-Laws of the Corporation shall be amended to read as follows: "(b) The Corporation shall pay Governors and Directors and their Alternates, the Chairman of the Board of Directors, the President, and staff members and other employees, except those whose employment contracts state otherwise, an allowance for taxes they are required to pay on their salaries and allowances on the same basis that tax allowances are paid by the Bank on corresponding salaries and allowances." (Adopted February 18, 1980) Resolution No. 117 Administrative Tribunal RESOLVED: THAT, the Board of Governors: (a) accepts the report of the Board of Directors on the establishment of the World Bank Administrative Tribunal; and (b) adopts the Statute of such Administrative TribunaP (Adopted April 30, 1980) 1 See page 294. 266 Resolution No. 118 Membership of the Republic of Seychelles WHEREAS the Government of the Republic of Seychelles has applied for admission to membership in the International Finance Corporation in accordance with Section 1 (b) of Article II of the Articles of Agreement of the Corporation; and WHEREAS, pursuant to Section 17 of the By-Laws of the Corporation, the Board of Directors, after consultation with representatives of the Government of the Republic of Seychelles, has made recommendations to the Board of Governors regarding the application of said Government; NOW, THEREFORE, the Board of Governors hereby RESOLVES: THAT the terms and conditions upon which the Republic of Seychelles shall be admitted to membership in the Corporation shall be as follows: 1. Definitions: As used in this resolution: (a) "Corporation" means International Finance Corporation. (b) "Articles" means the Articles of Agreement of the Corporation. (c) "Dollars" or "$" means United States dollars. (d) "Subscription" means the capital stock of the Corporation sub- scribed by a member. (e) "Member" means member of the Corporation. 2. Subscription: By accepting membership in the Corporation, the Repub- lic of Seychelles shall subscribe to 7 shares of the capital stock of the Corporation at the par value of $1 ,000 per share. 3. Payment of Subscription: Before accepting membership in the Corpora- tion, the Republic of Seychelles shall pay $7,000 to the Corporation in full payment of the capital stock subscribed. 4. Information: Before accepting membership in the Corporation, the Republic of Seychelles shall furnish to the Corporation such information relating to its application for membership as the Corporation may request. 5. Acceptance of Membership: The Republic of Seychelles shall become a member of the Corporation with a subscription as set forth in paragraph 2 of this resolution, as of the date when the Republic of Seychelles shall have complied with the following requirements: (a) made the payment called for by paragraph 3 of this resolution; (b) furnish such information as may have been requested by the Corporation pursuant to paragraph 4 of this resolution; (c) deposited with the International Bank for Reconstruction and Development an instrument stating that it has accepted without reservation in accordance with its law the Articles and all the terms and conditions prescribed in this resolution, and that it has taken all steps necessary to enable it to carry out all its obligations under the Articles and this resolution; and (d) signed the original Articles held by the International Bank for Reconstruction and Development. 267 6. Limitation on Period for Acceptance of Membership: The Republic of Seychelles may accept membership in the Corporation pursuant to this resolution until December 30, 1980, or such later date as the Board of Directors may determine. (Adopted August 19,1980) Resolution No. 119 Membership of Zimbabwe WHEREAS the Government of Zimbabwe has applied for admission to membership in the International Finance Corporation in accordance with Section 1 (b) of Article II of the Articles of Agreement of the Corporation; and WHEREAS, pursuant to Section 17 of the By-Laws of the Corporation, the Board of Directors, after consultation with representatives of the Government of Zimbabwe, has made recommendations to the Board of Governors regarding the application of said Government; NOW, THEREFORE, the Board of Governors hereby RESOLVES: ' THAT the terms and conditions upon which Zimbabwe shall be admitted to membership in the Corporation shall be as follows: 1. Definitions: As used in this resolution: (a) "Corporation" means International Finance Corporation. (b) "Articles" means the Articles of Agreement of the Corporation. (c) "Dollars" or "$" means United States dollars. (d) "Subscription" means the Capital Stock of the Corporation sub- scribed by a member. (e) "Member" means member of the Corporation. 2. Subscription: By accepting membership in the Corporation, Zimbabwe shall subscribe to 546 shares of the capital stock of the Corporation at the par value of $1,000 per share. 3. Payment of Subscription: Before accepting membership in the Corpora- tion Zimbabwe shall pay $546,000 of the Corporation in full payment of the capital stock subscribed. 4. Information: Before accepting membership in the Corporation, Zim- babwe shall furnish to the Corporation such information relating to its application for membership as the Corporation may request. 5. Acceptance of Membership: Zimbabwe shall become a member of the Corporation with a subscription as set forth in paragraph 2 of this resolu- tion, as of the date when Zimbabwe shall have complied with the following requirements: (a) become a member of the International Bank for Reconstruction and Development; (b) made the payment called for by paragraph 3 of this resolution; (c) furnished such information as may have been requested by the Corporation pursuant to paragraph 4 of this resolution; 268 (d) deposited with the International Bank for Reconstruction and Development an instrument stating that it has accepted without reservation in accordance with its law the Articles and all the terms and conditions prescribed in this resolution, and that it has taken all steps necessary to enable it to carry out all its obligations under the Articles and this resolution; and ( e) signed the original Articles held by the Intema tional Bank for Reconstruction and Development. 6. Limitation on Period for Acceptance of Membership: Zimbabwe may accept membership in the Corporation pursuant to this resolution until December 31, 1980, or such later date as the Board of Directors may determine. (Adopted August 29,1980) Resolution No. 120 Membership of the Republic of Maldives WHEREAS the Government of the Republic of Maldives has applied for admission to membership in the International Finance Corporation in accordance with Section 1 (b) of Article II of the Articles of Agreement of the Corporation; and WHEREAS, pursuant to Section 17 of the By-Laws of the Corporation, the Board of Directors, after consultation with representatives of the Government of the Republic of Maldives, has made recommendations to the Board of Governors regarding the application of said Government; NOW, THEREFORE, the Board of Governors hereby RESOLVES: THA T the terms and conditions upon which the Republic of Maldives shall be admitted to membership in the Corporation shall be as follows: 1. Definitions: As used in this resolution: (a) "Corporation" means International Finance Corporation. (b) "Articles" means the Articles of Agreement of the Corporation. (c) "Dollars" or "$" means United States dollars. (d) "Subscription" means the capital stock of the Corporation sub- scribed by a member. (e) "Member" means member of the Corporation. 2. Subscription: By accepting membership in the Corporation, the Repub- lic of Maldives shall subscribe to 4 shares of the capital stock of the Corporation at the par value of $1,000 per share. 3. Payment of Subscription: Before accepting membership in the Corpora- tion, the Republic of Maldives shall pay $4,000 to the Corporation in full payment of the capital stock subscribed. 4. Information: Before accepting membership in the Corporation, the Republic of Maldives shall furnish to the Corporation such information relating to its application for membership as the Corporation may request. S. Acceptance of Membership: The Republic of Maldives shall become a member of the Corporation with a subscription as set forth in paragraph 2 269 of this resolution, as of the date when the Republic of Maldives shall have complied with the following requirements: (a) made the payment called for by paragraph 3 of this resolution; (b) furnish such information as may have been requested by the Corporation pursuant to paragraph 4 of this resolution; (c) deposited with the International Bank for Reconstruction and Development an instrument stating that it has accepted without reservation in accordance with its law the Articles and all the terms and conditions prescribed in this resolution, and that it has taken all steps necessary to enable it to carry out all its obligations under the Articles and this resolution; and (d) signed the original Articles held by the International Bank for Reconstruction and Development. 6. Limitation on Period for Acceptance of Membership: The Republic of Maldives may accept membership in the Corporation pursuant to this resolution until December 30, 1980, or such later date as the Board of Directors may determine. (Adopted September 8,1980) 270 RESOLUTION ADOPTED BY THE BOARD OF GOVERNORS OF IFC AT THE 1980 ANNUAL MEETING Resolution No. 121 Financial Statements, Accountants' Report and Administrative Budget RESOLVED: THAT the Board of Governors of the Corporation consider the Financial Statements and the Accountants' Report, included in the 1979/80 Annual Report, and the Administrative Budget attached to the Report dated August l'2, 1980, as fulfilling the requirements of Article IV, Section 11, of the Articles of Agreement and of Section 16 of the By-Laws of the Corporation. (Adopted October 3,1980) 271 RESOLUTIONS ADOPTED BY THE BOARD OF GOVERNORS OF IDA BETWEEN THE 1979 AND 1980 ANNUAL MEETINGS Resolution No. 117 Additions to Resources: Sixth Replenishment Section A. Introduction 1. WHEREAS (a) The Executive Directors of the International Development Associa- tion have considered its prospective financial requirements and have con- cluded that additional resources should be made available to the Association for new commitments for the period extending from July 1, 1980 to June 30, 1983 in the amounts and on the basis described in the Report of the Executive Directors dated January 15, 1980 submitted to the Board of Governors; (b) The Part I members and certain Part II members of the Association believe that there is a need to increase the resources of the Association, that the amounts and conditions described in this Resolution form an appropriate basis for recommendation to legislatures, and consequently they intend to request, where necessary, their legislatures to approve these arrangements with a view to obtaining approval to commit the amounts listed in Table 1 attached hereto, it being understood that no commitment by a member government can be made until such approval has, where necessary, been obtained from its legislature; (c) In view of the resource requirements of the least developed and other poorest countries, member countries have recognized the desirability of obtaining additional resources which would be provided by way of additional voluntary contributions; such additional contributions would be accepted by the Association on terms to be agreed with the contributing members; 2. NOW THEREFORE the Board of Governors resolves that the said Report of the Executive Directors is accepted by the Board of Governors and its conclusions adopted. Section B. Additional Resources Provided by Part I Members 3. WHEREAS (a) The resources proposed to be made available by Part I members, in accordance with Section A of this Resolution, would be made available partly in the form of subscriptions carrying voting rights and partly in the form of contributions not carrying voting rights; (b) The respective portions of the total amount proposed to be made available by each such member by way of subscriptions have been calcu- lated in such a way as to result in the adjustment of each member's relative share in the aggregate voting power of the Part I members (not counting votes given in respect of membership) so as to correspond to the relative share in the total amount of resources which has been and is proposed to be made available by such members to the Association on the basis set forth in the said Report of the Executive Directors; 272 (c) Each Part I member of the Association has agreed to the foregoing arrangements to the extent that such arrangements require its agreement under Article III, Section 1 (c) of the Articles of Agreement of the Association; 4. NOW THEREFORE the Board of Governors resolves that (a) The Association is authorized to accept additional resources from the Part I members of the Association in the amounts set forth for each such member, respectively, in the attached Table 1, such amounts being divided into amounts for subscriptions carrying voting rights and con- tributions not carrying voting rights as specified in Table 2 attached hereto. (b) Each member shall, in respect of such subscriptions, have the voting rights specified for it in said Table 2, columns (B-4) and (B-5), calculated on the basis of 2,600 votes plus one additional vote per $25 of such sub- scription, and to be accorded as provided in Section G hereof. (c) Payment of each such subscription and contribution shall, except as provided below, be made in three equal annual instalments on or before November 8, 1980, November 8, 1981 and November 8, 1982, provided, however, that if the Replenishment authorized by this Resolution shall not have become effective in accordance with Section E below by October 8, 1980, payment of such instalments may be postponed until not later than 30 days after the date when the Replenishment shall have become effective. Such payment shall be made at the option of the member either (i) in the currency of the member if it is a freely convertible currency (as that term is defined in Article II, Section 2(f) of the Articles of Agreement of the Association), or (ii) with the approval of the Association, in the freely convertible currency of another member. (d) A member may at its option make payments in amounts and on dates other than those specified in subparagraph (c) above, provided that (i) no payment of an instalment, or part thereof, shall be postponed by more than one year, and (ii) each payment, together with any unused balance of previous payments of that member, shall at least be equal to the amount estimated by the Association to be required from that member, up to the due date of the next instalment, for purposes of disbursements on account of credits under the Replenishment authorized by this Resolution. (e) Notwithstanding the foregoing, any member which agrees to make payment of its subscription and contribution, or any part thereof, without exercising its right to substitute notes or similar obligations therefor may make such payment in amounts and on dates other than those specified pursuant to subparagraphs (c) and (d) above, provided that (i) in the judgment of the Association the terms of such payment shall be no less favorable to the Association than if notes or similar obligations had been deposited instead, and (ii) the requirement specified in subparagraph (d) (ii) above shall be satisfied. (f) The rights and obligations of the Association and the members in regard to the sUbscriptions and contributions shall be the same (except as otherwise provided in this Resolution) as those which govern the ninety percent portion of the initial subscriptions of original members payable 273 under Article II, Section 2 (d) of the Articles of Agreement by members listed in Part I of Schedule A of the Articles, provided, however, that (i) notes or similar obligations may also be substituted, as provided in Article II, Section 2 (e) of the Articles of Agreement, in respect of subscriptions and contributions of a member payable in a currency other than the cur- rency of that member, and (ii) the proviso of Article IV, Section 1 (e) and the provisions of Article IV, Section 2 of the Articles of Agreement shall not be applicable to the subscriptions and contributions. (g) If any member shall deposit an Instrument of Commitment (as referred to in paragraph 58 of the Report of the Executive Directors) after the date when the first instalment shall be payable including any post- ponement thereof (as provided in subparagraph (c) above), payment of any instalment, or part thereof, payable up to such date pursuant to the provisions of this Resolution by such member shall be made within 30 days after the date of such deposit. If a Qualified Instrument of Commitment (as defined in paragraph 58 of said Report) shall have been deposited and thereafter a notification of an unqualified commitment for an instalment or part thereof is deposited after the date when such instalment or part thereof shall be payable pursuant to the provisions of this Resolution, then payment of such instalment or part thereof shall be made by tht: member within 30 days after the date of such deposit. Section C. Additional Resources Provided by Certain Part II Members 5. WHEREAS (a) 8 Part II members (Argentina, Brazil, Greece, Korea, Mexico, Saudi Arabia, Spain and Yugoslavia) have expressed their intention to seek legislative approval to make available additional resources to the Association in usable form, partly in the form of subscriptions carrying voting rights and partly in the form of contributions not carrying voting rights on the basis set forth in the said Report of the Executive Directors; (b) With respect to such subscriptions carrying voting rights, the re- maining Part II members have waived their right to subscribe under the provisions of Article III, Section 1 (c) an amount which would enable each of them to maintain its relative voting power; 6. NOW THEREFORE the Board of Governors resolves that (a) The Association is authorized to accept additional resources from the members listed in subparagraph 5 (a) above in the amounts set forth for each such member, respectively, in the attached Table 2, column (C-5), such amounts being divided into amounts for subscriptions carrying voting rights and contributions not carrying voting rights as specified in said Table 2. (b) Each member shall, in respect of such subscription, have the voting rights specified for it in said Table 2, column (C-8), calculated on the basis of one vote per $25 of such subscription, and to be accorded as provided in Section G hereof. (c) Payment of each subscription and contribution shall be made in usable form but otherwise shall be made on the same basis, and the rights 274 and obligations of the Association and the member concerned with respect to such subscription and contribution shall be on the same terms and condi- tions, as provided in Section B of this Resolution for the subscriptions and contributions of Part I members. Section D. Part II Subscriptions: Article III, Section J(c) 7. WHEREAS proposed additional subscriptions are being authorized for Part I members under Section B of this Resolution and, therefore, under the provisions of Article III, Section 1 (c) of the Articles of Agreement of the Association, each Part II member shall be given an opportunity to subscribe, under such conditions as shall be reasonably determined by the Association, an amount which will enable it to maintain its relative voting power; 8. NOW THEREFORE the Board of Governors resolves that (a) The Association is authorized to accept additional subscriptions from the Part II members of the Association in the amounts and carrying the voting rights as set forth for each such member, respectively, in the attached Table 2, columns (C-l), (C-2) and (C-3), calculated on the basis of 2,600 votes plus one additional vote per $25 of such subscription, and to be accorded as provided in Section G hereof. (b) Payment of each such subscription shall be made in the currency of the subscribing member but otherwise on the same terms and conditions as those provided in Section B of this Resolution for the subscriptions of the Part I members. (c) The rights and obligations of the Association and the members in regard to such subscriptions shaH be the same (except as otherwise provided in this Resolution) as those which govern the ninety percent portion of the initial subscriptions of original members payable under Article II, Section 2(d) of the Articles of Agreement by members listed in Part II of Schedule A of the Articles, provided, however, that the provisions of Article IV, Section 2 of the Articles of Agreement shaH not be applicable to such subscriptions. Section E. Effectiveness 9. The Board of Governors hereby resolves that (a) None of the subscriptions and contributions authorized hereunder shall become payable unless the foHowing condition has been satisfied: Members, including at least 12 Part I members, whose subscriptions and contributions aggregate not less than the equivalent, determined as in the attached Table 1, of $9,600 million shall have given the Association, on or before June 30, 1980 or such later date as the Executive Directors may determine, formal notification, in the terms permitted under para- graph 58 of the Report of the Executive Directors, that they will make the total subscription and the total contribution authorized hereunder for each such member in accordance with the terms of this Resolution; pro- vided that for the purpose of determining whether the condition set forth in this subparagraph with respect to the aggregate amount of subscrip- tions and contributions has been satisfied, account shall also be taken of 275 any additional subscription and contribution authorized for any member of the Association to cover the amount remaining unallocated in the attached Table 1. (b) The Replenishment authorized by this Resolution shall become effective on the date when the condition specified in subparagraph (a) above shall have been satisfied; provided, however, that no member shall be obligated to make the subscription and contribution, or any part thereof, authorized hereunder for such member unless it shall have notified the Association without qualification that it will do so. Section F. Commitment of the Replenishment Resources 10. WHEREAS any member depositing a Qualified Instrument of Commit- ment (as defined in paragraph 58 of the Report of the Executive Directors) is expected to include in such Instrument a partial unconditional commit- ment, not subject to qualification, to pay a portion equivalent to at least 29% of its subscription and contribution authorized hereunder and, not later than October 8, 1981, and October 8, 1982, respectively, to deposit notifications of such unqualified commitments to pay a second and third portion equivalent to at least 33% and 38% (or the remaining balance), respectively, of such subscription and contribution; 11. NOW THEREFORE the Board of Governors resolves that (a) For purposes of credit commitments by the Association, all the subscriptions and contributions authorized hereunder shall be divided into three successive tranches of at least 29%, at least 33% and 38% (or the remaining balance), respectively, of the total amount of each such sub- scription and contribution. Unless notifications of unqualified commitments in these minimum amounts shall have been deposited by any member whose subscription and contribution to the Replenishment authorized by this Resolution represent more than 20% of the total amount thereof, the Association shall not enter into new credits, disbursements for which would be drawn from the respective tranche of SUbscriptions and contributions, except as provided in the following subparagraphs of this paragraph 11. Cb) If such member has deposited a notification of an unqualified com- mitment covering only part of any of said tranches of its subscription and contribution by the time such tranche is to be used for purposes of credit commitment by the Association, the Association is authorized to enter into new credits, disbursements for which would be drawn from such tranche, up to the aggregate at any time of: (i) the amount of unqualified commit- ments in respect of such tranche by the member responsible for such short- fall, and (ii) a proportion of the unqualified commitments in respect of such tranche by all other members which is equal to the ratio of the unqualified commitments in respect of that tranche of the member responsible for the shortfall to the total minimum amount of such tranche of the subscription and contribution of that member. (c) The foregoing provisions of this paragraph, however, shall not pre- clude the Association from entering into qualified credits, qualified in a manner whereby such credits would become effective and binding on the Association to finance disbursements thereunder, as and when the Associa- tion has received sufficient unqualified commitments to permit new credit 276 commitments under subparagraphs (a) or (b) hereof. (d) If a shortfall in the unqualified commitments of a member as re- ferred to in subparagraph (b) above is not made up by December 31 of the Association's fiscal year during which unqualified commitments for the tranche of subscriptions and contributions affected by such shortfall are scheduled, or if the Association, because of the provisions of subparagraph (a) or (b) above. is or may shortly be precluded otherwise from entering into new unqualified credits, the Association will thereupon request the Deputies to meet as soon as practicable thereafter in order to review the situation and in particular to consider what steps might be taken to obtain the necessary unqualified commitments. 12. Section G. Voting Rights The Board of Governors hereby resolves that voting rights in respect of the subscriptions authorized hereunder shall be accorded as follows: (a) As of November 8, 1980 (or, if the date for the payment of the first instalment of such subscriptions and of the contributions relating thereto is postponed in accordance with the provisions of subparagraph 4(c) hereof, such rescheduled date), November 8,1981 and November 8,1982, respectively, each member which has deposited an Instrument of Commit- ment or a Qualified Instrument of Commitment (as defined in paragraph 58 of the Report of the Executive Directors) shall be given, subject to the provisions of subparagraphs (b) and (c) below, one third of the subscrip- tion votes provided for it in the attached Table 2. Any member which deposits such Instrument after any of said dates shall be given, as of the date of such deposit and subject to the provisions of subparagraphs (b) and (c) below, the subscription votes to which it would have been entitled pursuant to the foregoing, if it had deposited such Instrument prior to the first of said dates. (b) Any member which has deposited a Qualified Instrument of Com- mitment shall only be given subscription votes as provided in the foregoing subparagraph to the extent of payments made in respect of its subscription (and of the contribution, if any, relating thereto) . (c) If any member which has deposited an Instrument of Commitment fails to make any payment on account of its subscription (and of the con- tribution, if any, relating thereto) as and when due in accordance with the arrangements set forth or referred to in subparagraphs (c), (d) and (e) of paragraph 4, subparagraph 6(c) and subparagraph 8(b) hereof, the number of subscription votes given or to be given from time to time to such member pursuant to subparagraph (a) above shall be reduced in proportion to such shortfall in payments. (d) Any member whose subscription votes have been adjusted pursuant to subparagraph (b) or (c) above shall be given the votes so affected as and to the extent that the shortfall in payments causing such adjustment is made up. (e) Each member shall be entitled to the additional membership votes in respect of its subscription authorized hereunder as of the date subscrip- tion votes are first given to such member in accordance with the foregoing provisions. 277 Amla: A Table 1 CONTRIBUTIONS TO THE SIXTH REPLENISHMENT 1 (In millions) National US$ SDR Unit of Country Currency Equivalent Equivalent Obligation Argentina 37087.50 25.00 19.07 US Dollar Australia 203.53 229.20 174.83 Nat'l Curro Austria 1034.20 81.60 62.25 Nat'l Curro Belgium 5743.58 201.60 153.78 Nat'l Curro Brazil' 1484.25 50.00 38.14 US Dollar Canada 601.81 516.00 393.61 Nat'l Curro Denmark 743.04 144.00 109.85 Nat'l Curro Finland 268.34 72.00 54.92 Nat'l Curro France 2672.78 645.60 492.47 Nat'l Curro Germany Ordinary 2535.41 1440.00 1098.46 SDR Extra 105.64 60.00 45.77 SDR Greece 220.85 6.00 4.58 Nat'l Curro (Iceland' 1373.76 3.60 2.75 Nat'l Curr.! Ireland 6.23 13.20 10.07 Nat'l Curr. Italy 377223.00 462.00 352.42 Nat'l Curro Japan Ordinary 322992.00 1440.00 1098.46 Nat'l Curro Extra 71224.22 317.54 242.22 Nat'l Curro Korea 1452.00 3.00 2.29 Nat'l Curro Kuwait 55.20 200.00 152.58 Nat'l Curro Luxembourg 170.94 6.00 4.58 Nat'l Curro Mexico 455.85 20.00 15.26 Nat'l Curro Netherlands 704.16 360.00 274.61 Nat'l Curro New Zealand 10.00 10.02 7.65 Nat'l Curro Norway 708.84 144.00 109.85 Nat'l Curro (Portugal'" 343/1 7.00 5.33 Nat'l Curr.! Romania' Saudi Arabia 1304.55 390.00 297.50 US Dollar South Africa 8.26 10.00 7.63 Nat'l Curro Spain 3303.90 SO.OO 38.14 Nat'l Curro Sweden 1497.24 360.00 274.61 Nat'l Curro UAE 300.96 79.20 60.42 Nat'l Curr. United Kingdom 554.97 1212.00 924.58 Nat'l Curr. United States 3240.00 3240.00 2471.53 Nat'l Curro Venezuela' 85.85 20.00 15.26 Nat'l Curro Yugoslavia 381.14 20.00 15.26 Nat'l Curro Sub-Total 11838.56 9030.71 Unallocated 161.44 123.15 GRAND TOTAL 12000.00 9153.86 IThis table IS based on IMF representative exchange rates and the SOR value of currenCies publishe1 by the IMF, on October 5, 1979. 2',Brazil intends S$2O.44 mtllion equivalent of its contribution to IOA6 throu.h release in usable form of the 90% portion of its initial subscription In the AsSOCI amount does not represent a new subscription, it IS not Included in the fiKure. for Brazil '" columns (C-4), (C·5), (C-6) and s~~-~Ii~ Table . 'e~~~rnY2~dr4Y;,nf~ei~~~s aa:: '~~t~::~ ~~r~e~~c~n t:e~~iion to take a decision on these amounts. , are not yet memben of IDA, but are considerin. membenhip in connection with the Sixth Replenishment; documents for that purpose would e separately. "Romania has previously stated Its intention to participate. 278 TUie 2 ADDmONAL SUBSCRIPTIONS, CONTRIBUTIONS AND VOTES· (Amounts in current dollars equivalent) Subscrj~tion' and Subscriptions and Contflbutions Contributions Throu,h IDA 5- Additional Resources and Votes Under IDA 6 ReflectinllDA 6 Contributions Contnb's Addit Addit Contnbutions carryin, Additional Addit carrYlnt subse's m'ship carryi", Part I Members Subscriptions no votes resources" subse's noyotes votes yotes Subscriptions no votes (A-I) (A-2) (8-1) (B-2) (B-3) (8-4) (8-S) (0-1) (0-2) Australia 25871776 346115297 229200000 346575 228853425 13863 2600 26218351 574968722 Austria 6594765 115396691 81600000 130875 81469125 5235 2600 6725640 196865816 Belgium 11231698 283601697 201600000 326975 201273025 13079 2600 11558673 484874722 Canada 50345462 1039424303 516000000 652625 515347375 26105 2600 50998087 1554771678 Denmark 11563983 215693851 144000000 224375 143775625 8975 2600 11788358 359469476 Finland 4987534 88292611 72000000 123375 71876625 4935 2600 5110909 160169236 France 68762782 1034819522 645600000 959475 644640525 38379 2600 69722257 1679460047 Germany 72045609 1856152547 1500000000 2578875 1497421125 103155 2600 74624484 3353573672 Iceland 135259 4078233 3600000 6400 3593600 256 2600 141659 7671833 Ireland 3846292 20725849 13200000 17725 13182275 709 2600 3864017 33908124 Italy 25064443 685300631 462000000 730250 461269750 29210 2600 25794693 1146570381 Japan 46786143 1584409639 1757540000 3367000 1754173000 134680 2600 50153143 3338582639 Kuwait 4854040 229795502 200000000 345200 199654800 13808 2600 5199240 429450302 Luxembourg 490310 8435882 6000000 9625 5990375 385 2600 499935 14426257 Netherlands 35493375 484148483 360000000 582900 359417100 23316 2eoo 36076275 843565583 New Zealand 77825 19313575 10020000 9925 10010075 397 2600 87750 29323650 Norway 8897943 180699238 144000000 242375 143757625 9695 2600 9140318 324456863 South Africa 12250890 30972618 10000000 500 9999500 20 2600 12251390 40972118 Sweden 15614202 706965327 360000000 476075 359523925 19043 2600 16090277 1066489252 United Arab Emirates 151050 50603930 79200000 164250 79035750 6570 2600 315300 129639680 United 167085164 1984238641 1212000000 1210243400 70264 un~i:~dom 1756600 2600 168841764 3194482041 States 414203536 5985703506 3240000000 4341400 3235658600 173656 2600 418544936 9221362106 Subtotal Pt I 986354081 16954887573 11247560000 17393375 11230166625 695735 57200 1003747456 28185054198 For foo/no/~s, see parr 283. 279 Additional Subscriptions, Contributions and Votes Under IDA 6 Sub$cnptions and Subsc's and Votes Contribution. Accorded for [Kerclse through IDA Se of Preemptive RIghts Contrib's Addit Addit carryin, Addlt subs m'ship Part 11 Members Subsc's no votes sUbSC'Sd votes votes (A-I) (A-2) (C-l) (C-2) (C-,) Afghanistan 1317645 0 21825 873 2600 Algeria 5260692 0 87625 3505 2600 Argentina 24585380 491173 410300 16412 2600 BallJladesh 7023946 0 117075 4683 2600 Benm 629300 0 10875 435 2600 Bolivia 1383222 0 22950 918 2600 Botswana 208897 0 3500 140 2600 Brazil" 24585380 491173 410300 16412 2600 Burma 2637641 0 44050 1762 2600 Burundi 992230 0 16500 660 2600 Cameroon 1317645 0 21825 873 2600 Cape Verde 104447 0 1750 70 2600 Central African Republic 652751 0 10875 435 2600 Chad 652751 0 10875 435 2600 Chile 4608512 0 76900 3076 2600 China 39504365 0 658375 26335 2600 Colombia 4609345 142665 77050 3082 2600 Comoros 104447 0 1750 70 2600 Congo 652751 0 10875 435 2600 Costa Rica 261164 0 4275 171 2600 Cyprus 992230 0 16500 660 2600 Dominican Republic 522563 68614 8825 353 2600 Ecuador 848935 0 14150 566 2600 6631700 0 110525 4421 2600 ~YPt E Salvador 391281 23707 6475 259 2600 Equatorial Guinea 417673 0 7000 280 2600 Ethiopia 652969 23707 10900 436 2600 Fiji 730970 0 12250 490 2600 Gabon 652751 0 10875 435 2600 Gambia, The 348523 0 5825 233 2600 Ghana 3080995 0 51275 2051 2600 Greece 3289771 0 54775 2191 2600 Grenada 117193 0 1850 74 2600 Guatemala 522195 0 8750 350 2600 Guinea 1317645 0 21825 873 2600 Guinea-Bissau 182115 0 2925 117 2600 Guyana 1057736 0 17650 706 2600 Haiti 992230 0 16500 660 2600 Honduras 391088 0 6450 258 2600 India 52678333 0 878325 35133 2600 Indonesia 14491113 0 241600 9664 2600 Iran 5927437 0 98825 3953 2600 Iraq 992230 0 16500 660 2600 Israel 2196937 934200 37675 1507 2600 Ivory Coast 1317645 0 21825 873 2600 Jordan 391088 0 6450 258 2600 Kampuchea Democratic 1332113 0 22300 892 2600 Kenya 2193262 0 36525 1461 2600 Korea 1648335 977950 28475 1139 2600 Lao People's Oem. Rep. 652751 0 10875 435 2600 Lebanon 587675 0 9900 396 2600 Lesotho 208897 0 3500 140 2600 Liberia 992230 0 16500 660 2600 Libya 1317645 0 21825 873 2600 Madagascar 1270839 0 21825 873 2600 Malawi 992230 0 16500 660 2600 Malaysia 3289771 0 54775 2191 2600 Maldives 39092 0 650 26 2600 Mali 1135526 0 18875 755 2600 Mauritania 652751 0 10875 435 2600 For footnotes, see pare 283. 280 Table 2 Sub's, Cont's & Votes for Res's in Subscnptions and Usable form In Excess of Subsc's Contributions Resources for Exercise of Preemptive Rights ReflectinllOA 6 in Usable Form from Contnb's AIIdit Contnb's Part II Addlt Addlt carrying subs carryina Men's'" Resources' subsc's no yotes votes Subse's no votes (C-4) (C-S) (C-6) (C-7) (C-6) (D-1) (D-2) 1339470 0 5348317 0 25000000 24589700 59650 24530050 2386 25055330 25021223 714I021 0 640175 0 1406172 0 212397 0 29560000 29149700 70725 29078975 2829 25066405 29570148 2681691 0 1008730 0 1339470 0 106197 0 663626 0 663626 0 4685412 0 40162740 0 4686395 142665 106197 0 663626 0 265439 0 1008730 0 531388 68614 863085 0 6742225 0 397756 23707 424673 0 663869 23707 743220 0 663626 0 354348 0 3132270 0 6000000 5945225 14425 5930800 577 3358971 5930800 119043 0 530945 0 1339470 0 185040 0 1075386 0 1008730 0 397538 0 53556658 0 14732713 0 6026262 0 1008730 0 2234612 934200 1339470 0 397538 0 1354413 0 2229787 0 3000000 2971525 7200 2964325 288 1684010 3942275 663626 0 597575 0 212397 0 1008730 0 1339470 0 1292664 0 1008730 0 3344546 0 39742 0 1154401 0 663626 0 281 AdditioRlI Subacriptiofll, Contributions and Votes Under IDA 6 Subscriptions Ind Sublc's and Votes Contributions Accorded for ExerCise throutll IDA 5" of Preemptive Rights Contrib's Addit Addit Cln')'inl Addit subs m'ship Part II Members Subsc's no vote. subsc'sd votes yotes (A-I) (A-2) (C-I) (C-2) (C-3) Mauritius llZ3602 35560 18825 753 2600 Mexico 11000949 0 190425 7617 2600 Morocco 4608512 0 76900 3076 2600 Nepal 652751 0 10875 435 2600 Nicaragua 391088 0 6450 258 2600 Niger 652751 0 10875 435 2600 Nigeria 4386427 0 73025 2921 2600 Oman 391281 23707 6475 259 2600 Pakistan 13174458 118533 219875 8795 2600 Panama 26682 0 550 22 2600 Papua New Guinea 1123287 0 18800 752 2600 Paraguay 391088 0 6450 258 2600 Peru 2228265 0 38650 1546 2600 Philippines 6581717 180180 110050 4402 2600 Rwanda 992230 0 16500 660 2600 Sao Tome & Principe 91401 0 1525 61 2600 Saudi Arabia 5872231 348902425 407025 16281 2600 Senegal 2193262 0 36525 1461 2600 Sierra leone 992230 0 16500 660 2600 Somalia 992230 0 16500 660 2600 Spain 13307199 33691800 256925 10277 2600 Sri lanka 3955261 2521947 65875 2635 2600 Sudan 1317645 0 21825 873 2600 Swaziland 417769 0 7000 280 2600 Syrian Arab Republic 1239851 0 20600 824 2600 Tanzania 2193262 0 36525 1461 2600 Thailand 3955261 0 65875 2635 2600 Togo 992230 0 16500 660 2600 Trinidad & Tobago 1699173 0 29400 1176 2600 Tunisia 1972176 0 32950 1318 2600 Turk'!. 7573876 186596 126575 5063 2600 Ugan a 2193262 0 36525 1461 2600 Upper Volta 652751 0 10875 435 2600 Viet Nam 1972176 0 32950 1318 2600 Western Samoa 117193 0 1850 74 2600 Yemen Arab Republic 561090 0 9350 374 2600 Yemen, POR 1540985 0 25800 1032 2600 Yugoslavia 5357416 17489892 105100 4204 2600 Zaire 3943047 0 65800 2632 2600 Zambia 3386157 0 58650 2346 2600 Sub-Total Pt II 354755196 406303829 6289225 251569 260000 Grand Total 1341109277 17361191402 282 Table 2 (cont.) Sub'S, Cont's & Votes for Res's In Subscriptions and Usable Form tn Excess of Subsc's Contributions Resources for ExerCise of Preemptive Rights Reflecting IDA 6 In Usable Form from Contnb's Addit Contnb's Part II Addit Addit carrying subs carrYing Mem'se Resources f subsc's no votes votes Subsc's no votes (C...) (C·S) (C ..) (C·l) (C-8) (0·1) (0·2) 1142427 35560 20000000 19809575 48050 19761525 1922 11239424 19761525 4685412 0 663626 0 397538 0 663626 0 4459452 0 397756 23707 13394333 118533 27232 0 1142087 0 397538 0 2266915 0 6691767 180180 1008730 0 92926 0 390000000 389592975 945200 388647775 37808 7224456 737550200 2229787 0 1008730 0 1008730 0 50000000 49743075 120675 49622400 4827 13684799 83314200 4021136 2521947 1339470 0 424769 0 1260451 0 2229787 0 4021136 0 1008730 0 1728573 0 2005126 0 7700451 186596 2229787 0 663626 0 2005126 0 119043 0 570440 0 1566785 0 20000000 19894900 48275 19846625 1931 5510791 37336517 4008847 0 3444807 0 543560000 541696675 1314200 540382475 52568 362358621 946686304 11791120000 1366106077 29131740502 · Assummg aU members live (unQualified) formal notification under the Third. Fourth and fifth Replenishments. nue lroounb hi'lt been caltulatetl, for purposes of the voting fllhts adjustment amon, Part I members, by multiplYing the subscriptions and contributions up to and meludm, the Third Replenishment (which were expressed In terms of United States dollars of the wel&ht and fineness In effect on January 1, 1960) by 120635 and adding thereto the dollar eqLlivalents of the SlIbscnptlons arid contributions under the Fourth and Fifth Replemshments, as of September 27, 1973 and March 14, 1917, respectively. b EQUivalent in current dollars at IMF representative elchanle rates as of October 5, 1979. These resources are diVided IOto subscriptions carryinll votes as shown 10 column (B·2) and contnbutions carrYlO1 no votes as shown In column (B-3). '" Assuminl 211\ members live formal notification under the Third, Fourth and Fifth RephHlishments and calculated as explained 10 footnote a. dEQuivalent In current dollars at IMF representative exchange rates as of October 5,1979. e EQurnlent in current dollars at IMF representative exchange rates as of October 5, 1979. These resources are payable in usable form, In amounts to be determined on tile baSIS of the respective units of obltlattOn specified In Table 1 to thiS Resolution. t Equivalent In current dollars at IMF representatrve exchanae rates as of October 5, 1979. The amounts shown in column (C-S) represent the total SUbScflptlons and contflbutlons of Part II members maklnl available resources In usable form under the Sixth Replenishment, as shown In column (C-<4), mtnus the additional subSCriptions for the extrClse of preemptive flaMs" as shown in column (C-l). The amounts In column (C·S) are divided Into subscriptions carryin, votes as shown tn column (C-6) and contributions carrYln, no votes as shown tn column (C.7). *N,t,: The votlnl power adjustment reflecting the Sixth Replenishment has been comPllted based on the assumption that the unallocated amount speCIfied In Table 1 II covered by additional subsCtiptlor'ls and contnbutlons of members for which votes would be accorded. "See Table 1 to this Resolution, footnote 2. 283 Resolution No. 118 Administrative Tribunal RESOLVED: THAT, the Board of Governors: (a) accepts the report of the Board of Directors on the establishment of the World Bank Administrative Tribunal; and (b) adopts the Statute of such Administrative Tribunal,1 (Adopted April 30, 1980) Resolution No. 119 Membership of Zimbabwe WHEREAS the Government of Zimbabwe has applied for admission to membership in the International Development Association in accordance with Section 1 (b) of Article II of the Articles of Agreement of the Associa- tion; and WHEREAS, pursuant to Section 9 of the By-Laws of the Association, the Executive Directors, after consultation with representatives of the Government of Zimbabwe, have made recommendations to the Board of Governors regarding this application; NOW, THEREFORE, the Board of Governors hereby RESOLVES: THAT the terms and conditions upon which Zimbabwe shall be admitted to membership in the Association shall be as follows: 1. Definitions: As used in this resolution: (a) "Association" means International Development Association. (b) "Articles" means the Articles of Agreement of the Association. (c) "Dollars" or "$" means dollars in currency of the United States of America. 2. Initial Subscription: (a) The terms and conditions of the membership of Zimbabwe in the Association other than those specifically provided for in this resolu- tion shall be those set forth in the Articles with respect to the membership of original members listed in Part II of Schedule A thereof (including, but not by way of limitation, the terms and conditions relating to subscriptions, payments on subscriptions, usability of currencies and voting rights). (b) Upon accepting membership in the Association, Zimbabwe shall subscribe funds in the amount of $4,120,000 expressed in terms of United States dollars of the weight and fineness in effect on January 1,1960. (c) Before accepting membership in the Association, Zimbabwe shall make all payments on its initial subscription which would have 1 See page 294. 284 been payable on or before the date of acceptance had it become a member of the Association as an original member listed in Part II of Schedule A of the Articles. 3. Acceptance of Membership: Zimbabwe shall become a member of the Association with a subscription as set forth in paragraph 2 (b) of this resolution as of the date when Zimbabwe shall have complied with the following requirements: (a) become a member of the International Bank for Reconstruction and Development; (b) made the payments called for by paragraphs 2(b) and (c) of this resolution; (c) deposited with the International Bank for Reconstruction and Development an instrument stating that it has accepted in accord- ance with its laws the Articles and all the terms and conditions prescribed in this resolution, and that it has taken all steps neces- sary to enable it to carry out all its obligations under the Articles and this resolution; and (d) signed the original Articles held in the archives of the International Bank for Reconstruction and Development. 4. Limitation on Period for Acceptance of Membership: Zimbabwe may accept membership in the Association pursuant to this resolution until December 31, 1980 or such later date as the Executive Directors of the Association may determine. 5. Additional Subscriptions: Upon or after acceptance of membership, Zimbabwe shall also be authorized at its option to make the following additional subscriptions: (a) An additional subscription in the amount of $407,413 which shall carry 17,373 votes and be subject to the following terms and conditions: (i) Payment of such additional subscription shall be made in the currency of Zimbabwe within 30 days after Zimbabwe notifies the Association of its intention to make such additional sub- scription. (ii) The rights and obligations of the Association and Zimbabwe with regard to such additional subscription shall be the same (except as otherwise provided in this resolution) as those which govern the 90% portion of the initial subscriptions of original members payable under Article II, Section 2 (d) of the Articles by members listed in Part II of Schedule A of the Articles, provided, however, that the provisions of Article IV, Section 2 of the Articles shall not be applicable to such subscription. (b) A further additional subscription in the amount of $89,325 which shall carry 6,173 votes, calculated on the basis of 2,600 member- ship votes and 3,573 subscription votes. The rights and obliga- tions of the Association and Zimbabwe with regard to such further additional subscription shall be the same as those which are ap- 285 plicable to the subscriptions authorized for Part II members under Section D of the Sixth Replenishment Resolution (No. 117) adopted by the Board of Governors on March 26, 1980. (Adopted August 29,1980) 286 RESOLUTION ADOPTED BY THE BOARD OF GOVERNORS OF IDA AT THE 1980 ANNUAL MEETING Resolution No. 120 Financial Statements, Accountants' Report and Administrative Budget RESOLVED: THA T the Board of Governors of the Association consider the Financial Statements, Accountants' Report and Administrative Budget, included in the 1979/80 Annual Report, as fulfilling the requirements of Article VI, Section 11, of the Articles of Agreement and of Section 8 of the By-Laws of the Association. (Adopted October 3, 1980) 287 REPORTS OF THE EXECUTIVE DIRECTORS OF THE BANK IBRD General Capital Increase A. Introduction 1. More than two years ago, the Executive Directors began consideration of a general increase in IBRD capital subscriptions. Agreement on the size and terms of a general capital increase has now been reached. The purpose of this report is to present the Executive Directors' specific recommendations on the General Increase to the Board of Governors. Subsequent sections describe: (a) the size of the increase; (b) the proportion of the increase to be paid in; (c) voting power and Board representation; and (d) the timing of subscriptions. 2. The basis for the Directors' deliberations has been several memoranda from the President, most notably "The Future Role of the World Bank and its Associated Capital Requirements" (R77-18, dated January 31, 1977). B. Size of the Increase 3. A first meeting of the Executive Directors on the Future Role of the Bank memorandum took place on March 8, 1977. The question of political support for further growth in World Bank operations was addressed in several important meetings which took place in the months following the March 8 discussion. First the representatives of the developing countries, meeting as the Group of 24 prior to the Development Committee session on April 27, 1977, issued a statement in which they urged that "the capital of the World Bank and the regional development finance institutions should have a sizeable increase." Second, the heads of state of seven major devel- oped countries and the President of the European Community addressed the Bank's capital requirements in the communique issued at the conclusion of their meeting in London in May 1977. They expressed support for the World Bank and stated that its "general resources should be increased sufficiently to permit its lending to rise in real terms." Thirdly, the countries represented at the CIEC conference issued a report in June 1977 in which they affirmed their agreement in the following terms: "The capital base of the World Bank should be increased sufficiently to permit its lending to rise adequately in real terms in the years ahead. Negotiations for a general increase in the capital of the Bank should be undertaken, as soon as possible, so as to allow the Bank to achieve its lending programme of $6.8 billion in FY1979 and thereafter further increases in its lending in real terms." 1 4. Against this background of political support for a Capital Increase a series of informal discussions was arranged to give the Executive Directors an opportunity to exchange views on the future growth rate of IBRD lending 1 The CIEC Report noted that this paragraph was to be read together with any agreed recommenda- tions relating to the financing of energy and other priority sectors in other conference documents. 288 and to discuss several other matters which have a direct bearing on the size of the Capital Increase. Discussion initially focussed on a series of variables that together determine the amount of additional capital needed by the Bank, specifically the real rate of growth in commitments, assumptions about inflation, the number of years of lending that the capital increase should finance, the terms of lending and the interpretation to be given to "non-disruptive adjustment." 1 Several Directors, however, suggested that the size of the increase not be rigidly tied to a particular set of assumptions concerning these variables. The management's proposal for a doubling of capital subscriptions-or an increase of approximately $40 billion-was based on this principle, and on this same basis Executive Directors accepted an increase of $40 billion. A $40 billion increase in IBRD subscribed capital will permit the Bank to maintain significant real growth in lending over the next several years. 5. It is proposed to divide the overall increase of $40 billion into two components. The first component, amounting to about 25,000 shares, would be set aside for special increases for which requests have already been re- ceived but not yet acted upon by the Executive Directors. The remainder of the $40 billion increase would be allocated as a uniform percentage in- crease in present allocations, i.e., subscriptions after full subscription to the Selective Increase of 1977 and to Special Increases recommended by the Executive Directors on March 15, 1979 (except for members that have formally notified the Bank that they do not intend to subscribe to previously authorized increases) .2 6. In order to translate the overall increase of $40 billion into a specific number of shares to be subscribed by each member, it is necessary to determine a subscription price per share. The IBRD Articles of Agreement express the Bank's capital in terms of 1944 dollars. Since April 1, 1978, the effective date of the Second Amendment of the IMF Articles of Agree- ment, currencies no longer have par values in terms of gold and the pre- existing basis for translating the 1944 dollar into members' currencies has ceased to exist. The implications of this change on the valuation of Bank capital stock are still being examined. Since April 1, 1978, the Bank has expressed the value of its capital stock on the basis of the SDR for purposes of its financial statements. The Bank has continued and will continue to accept capital subscriptions at 1.20635 current U.S. dollars to one 1944 dollar, the value of the 1944 dollar at the last par value of the U.S. dollar, subject to the possibility that adjustment may be required when the standard of value issue is resolved. 7. No decision has been made on the unit for valuation of capital and issues related to maintenance of value and the procedure for reaching a decision on these issues. It is expected that before subscriptions to the General Capital Increase take place, the Board of Executive Directors will be able to arrive at a definitive position on this matter and that the pro- 1 The issue 0/ "non-disruptil'e adjustment" is discussed in the Role of the Bank memorandum, para- graphs 109-115. · No shares would be allocated to Taiwan. The calculation would also take into account one pending increase under Resolution No. 258. 289 cedure for resolution of these issues will have been agreed upon. On the basis of one share being valued at $120,635, the proposed $40 billion increase translates into an increase of 331,500 shares. If, on the other hand, the price per share were set at SDRI00,000, the total number of shares corresponding to $40 billion would depend upon the relationship between the $ and SDR. At the present rate of 1 SDR = approximately $1.27 the number of shares would be 315,000. 8. As it is not foreseeable at this moment how the valuation issue will be resolved, a capital increase of 331,500 shares is proposed on condition that the increase in Authorized Capital and the allocation of shares among members will be scaled down in case the increase would exceed the amount of $40 billion. This scaling down would also apply to the total number of shares set aside for the special increases. In case agreement is only reached on the valuation issue after subscriptions have taken place and if subscrip- tions have been made that exceed the scaled-down figures, the excess sub- scriptions will be cancelled and the amounts paid-in will be credited to the respective members. C. Proportion Paid-In 9. Since 1959, when IBRD capital subscriptions were doubled with no additional paid-in, all new or increased subscriptions to the Bank have con- tained a 10% paid-in proportion. In deciding on the proportion of the present increase to be paid in, the Executive Directors have been guided by two main considerations: the Bank's need for additional income and re- serves; and the perception of shareholder support held by bond markets. It is generally recognized that from the perspective of the Bank and its borrowers a high proportion is to be preferred. Paid-in capital, however, represents concessional assistance and many member governments are concerned that the amount paid in be no greater than necessary to ensure the financial soundness of the Bank. 10. Analysis of the Bank's future income and reserve requirements suggests that a 7Y2 % portion (amounting to approximately $3 billion) would pro- vide a satisfactory increase in paid-in capital, and this is what the Executive Directors recommend for the second component mentioned in paragraph 5, whereas the portion to be paid in for the first component would be decided upon each time a portion of these shares is allocated. The Bank's key financial ratios would continue to remain within an acceptable range. The Directors also believe that insofar as the financial markets are concerned a 7Y2 % portion would be a clear sign of continued, strong shareholder support for the Bank and its programs. 11. The attached Resolution provides for % % of the price of each share to be paid in gold or dollars and 6% % to be paid in the members' own currency. This approach retains the proportions of gold or dollars and national currency established for initial subscriptions in the Articles. D. Voting Power and Board Representation 12. The proposed increase will approximately double the number of shares outstanding. It will not, however, result in a proportionate increase in the number of votes held by member countries because membership votes 290 are fixed by the Articles of Agreement at 250 votes per country. Because membership votes cannot be increased without an amendment of the Articles, a simple proportionate increase in each member's subscription would result in an unintended and unfortunate reduction in the voting power of the smaller member countries who benefit most from the existence of membership votes. Since the overwhelming majority of small countries are developing countries, this would have the effect of reducing the aggre- gate voting power of the developing countries. To overcome this unintended effect of the General Increase, it is proposed that a special allocation of 250 shares be made to each member country. These 250 shares would be separated from the General Increase in two ways: First, no part of the subscription price would be paid in. The purpose of this provision is to avoid imposing a financial burden on those member countries who are intended to benefit most from the extra 250 shares. These countries need the membership votes precisely because their small size and relatively poor economies prevent them from taking up large subscriptions in the Bank. It would be contradictory to offer them special shares intended to offset the dilution of their membership votes and also to expect payments which in some cases would be a multiple of that required to participate in the Gen- eral Increase itself. Second, in view of the purpose of authorizing these shares, the Directors have agreed they should not be counted as part of the capital base of the Bank for purposes of determining lending authority. This will enable the 250 shares to be outside the $40 billion limit to the General Increase and yet not to create additional lending capacity. A separate Resolution covering these shares is attached. 1 13. The Resolution provides for the authorization of 33,500 shares, or 250 shares per member. In order for this proposal to affect voting power as intended, it will be necessary for all members to waive their preemptive rights to a proportionate share of any increase in Authorized Capital. The draft Resolution provides that this increase will become effective only if all members waive preemptive rights. 14. For several years, Executive Directors have been concerned about the possibility of a change in the geographic pattern of representation on the Executive Board, particularly as a result of the sharp increase in the voting power of the major oil exporting nations. The greatest degree of concern has been expressed about the representation of the African coun- tries south of the Sahara and the countries of Latin America. The Directors have agreed that special efforts should be made to preserve a broad geo- graphic pattern of representation and that all major groups of countries should be represented. The Directors therefore recommend that at the time of elections of Executive Directors the Governors take special note of the risk that the representation of the sub-Saharan African and Latin American countries could be reduced and take whatever steps are necessary to ensure that these countries along with other groups of countries, especially the Asian and Pacific countries, are adequately represented on the Executive Board. 1 See page 248. 291 E. Timing of Subscriptions 15. The Bank's Articles of Agreement limit the amount of disbursed and outstanding loans to the total of subscribed capital and reserves. On the basis of the present subscribed capital plus allocations yet to be subscribed under the Selective Increase of 1977, the Bank's authority to make new commitments is expected to be exhausted by March 1982.1 It is highly desirable that the General Increase Resolution be approved by the Gov~ ernors well before that date in order to provide an assured base for proceeding with the Bank's lending program. Accordingly, it is recom~ mended that the Governors vote on the Resolutions by July 1, 1980. 16. Approval of the Resolutions would immediately increase the Bank's authorized capital. In order to avoid marked shifts in relative subscriptions and voting power, it is recommended that no subscriptions under these Resolutions be accepted until September 30, 1981. The component of the General Increase set aside for future special increases would not be subject to this restriction and subscriptions to this component could be accepted upon approval of the General Increase Resolution and any further resolutions allocating the shares set aside for special increases. Sub~ scriptions would be accepted until July 1, 1986 but it is expected that countries would begin subscriptions no later than FY83. This report was approved and its recommendation was adopted on January 4, 1980. Administrative Tribunal 2 1. The Executive Directors have approved the draft Statute attached hereto to create a World Bank Administrative Tribunal for the members of the staff of the Bank, the Association and the Corporation, and have authorized the submission of such draft Statute to the Board of Governors. The Tribunal would be judicial in nature and would be competent under the Statute to hear and pass judgment upon an application by which a member of the staff alleges non~observance of the contract of employment or terms of appointment. 2. The intent of creating the Tribunal is to afford a member of the staff judicial recourse against an action of the institution which is alleged to violate the legal rights of the staff member. It is intended that this recourse be exclusive in nature. 3. In connection with the scope of the Tribunal's jurisdiction, it should be noted that the legislative history of the corresponding provision in the United Nations Administrative Tribunal shows that the intent of such language is that the Tribunal has to respect the authority of the Board of Governors or the Executive Directors to make such alterations and adjustments in the staff rules and regulations as circumstances might require. 1 This is the date when new commitments would need to cease in order to prel'ent disbursed loans from exceeding the statutory limit in June 1984. The gap between the cessation oj commitments and technical violation of the statutory limit is created by the fact that with a growing lending program. disbursed loans will continue to increase for about 2 years after commitments stop. 2 Also applies to IFC and IDA. See pages 266 and 284. 292 Thus, when the General Assembly was considering, at its 4th session in 1949, the establishment of the UN Administrative Tribunal, the United States proposed an addition to Article 2 of the draft Statute whereby "Nothing in this Statute shall be construed in any way as a limitation on the authority of the General Assembly or of the Secretary-General acting on instruction of the General Assembly to alter at any time the rules and regulations of the Organization including, but not limited to, the authority to reduce salaries, allowances and other benefits to which staff members may have been entitled" (A/C.S/1.4/Rev. 2, reproduced in G.A.O.R., 4th sess., 5th Committee, Annexes, a.i. 44, p. 165). This amendment was eventually withdrawn, on the ground that on the basis of the debate it appeared that Article 2 ( 1) of the draft Statute was considered "broad enough to give sufficient scope to the General Assembly, and to the Sec- retary-General acting on its behalf, to carry out the necessary functions of the United Nations, in spite of the fact that such action might require changes and reductions in the existing benefits granted to the staff" (A/C.S/SR. 214, para. 40; see also paras. 25, 37 and 41). This inter- pretation was reflected in the Fifth Committee's report to the plenary as follows: "(b) That the tribunal would have to respect the authority of the General Assembly to make such alterations and adjustments in the staff regulations as circumstances might require. It was understood that the tribunal would bear in mind the General Assembly's intent not to allow the creation of any such acquired rights as would frustrate measures which the Assembly considered necessary. It was understood also that the Secretary-General would retain freedom to adjust per diem rates as a result, for example, of currency devaluations or for other valid reasons. "No objection was voiced in the Committee to those interpretations, subject to the representative of Belgium expressing the view that the text of the statute would be authoritative and that it would be for the tribunal to make its own interpretations" (A/1127, para. 9, reproduced in G.A.O.R., 4th sess., Plenary, Annexes, a.i. 44, p. 167 at p. 168)." The Executive Directors have endorsed this interpretation in their approach to the World Bank Administrative Tribunal. The World Bank Administrative Tribunal will be established and will function within the framework and rules set out in the Articles of Agreement of the Bank. The Tribunal will therefore have to respect the authority of the Board of Governors and the powers which the Board of Governors have delegated to the Executive Directors, in the same sense as indicated above with regard to the competence of the United Nations Administrative Tribunal. 4. The Executive Directors recommend the adoption by the Board of Governors of the following Resolutions .... 1 1 See pages 252. 266 and 284. 293 Statute of the Administrative Tribunal of the International Bank for Reconstruction and Development International Development Association and International Finance Corporation ARTICLE I There is hereby established a Tribunal of the International Bank for R.econstruction and Development (hereinafter referred to individually as the "Bank"), the International Development Association and the Inter- national Finance Corporation (together with the Bank hereinafter referred to collectively as the "Bank Group") to be known as the World Bank Administrative Tribunal. ARTICLE II 1. The Tribunal shall hear and pass judgment upon any application by which a member of the staff of the Bank Group alleges non-observance of the contract of employment or terms of appointment of such staff member. The words "contract of employment" and "terms of appointment" include all pertinent regulations and rules in force at the time of alleged non- observance including the provisions of the Staff Retirement Plan. 2. No such application shall be admissible, except under exceptional cir- cumstances as decided by the Tribunal, unless: (i) the applicant has exhausted all other remedies available within the Bank Group, except if the applicant and the respondent institution have agreed to submit the application directly to the Tribunal; and (ii) the application is filed within ninety days after the latest of the following: (a) the occurrence of the event giving rise to the application; (b) receipt of notice, after the applicant has exhausted all other remedies available within the Bank Group, that the relief asked for or recommended will not be granted; or (c) receipt of notice that the relief asked for or recommended will be granted, if such relief shall not have been granted within thirty days after receipt of such notice. 3. For the purposes of this Statute: the expression of "member of the staff" means any current or former member of the staff of the Bank Group, any person who is entitled to claim upon a right of a member of the staff as a personal representative or by reason of the staff member's death, and any person designated or otherwise entitled to receive a payment under any provision of the Staff Retirement Plan. ARTICLE III In the event of a dispute as to whether the Tribunal has competence, the matter shall be settled by the Tribunal. 294 ARTICLE IV 1. The Tribunal shall be composed of seven members, all of whom shall be nationals of Member States of the Bank, but no two of whom shall be nationals of the same State. The mt'mbers of the Tribunal shall be persons of high moral character and must possess the qualifications required for appointment to high judicial office or be jurisconsults of recognized compe- tence. 2. The members of the Tribunal shall be appointed by the Executive Di- rectors of the Bank from a list of candidates to be drawn up by the President of the Bank after appropriate consultation. 3. The members of the Tribunal shall be appointed for a period of three years; they may be reappointed. However, of the seven members initially appointed, the terms of three members shall expire at the end of two years. The names of those members shall be chosen by lot by the President of the Bank immediately after the first appointments have been completed. 4. A member appointed to replace a member whose term of office has not expired shall hold office for the remainder of his predecessor's term. 5. The members of the Tribunal shall hold office until replaced. ARTICLE V 1. A quorum of five members shall suffice to constitute the Tribunal. 2. The Tribunal may, however, at any time form a panel of not less than three of its members for dealing with a particular case or group of cases. Decisions of such a panel shall be deemed to be taken by the Tribunal. ARTICLE VI 1. The Tribunal shall elect a President and two Vice-Presidents from among its members. 2. The President of the Bank shall make the administrative arrangements necessary for the functioning of the Tribunal, including designating an Executive Secretary who, in the discharge of duties, shall be responsible only to the Tribunal. 3. The expenses of the Tribunal shall be borne by the Bank Group. ARTICLE VII 1. Subject to the provisions of the present Statute, the Tribunal shall estab- lish its rules. 2. The rules shall include provisions concerning: (a) election of the President and Vice-Presidents; (b) constitution of panels envisaged in Article V above; (c) presentation of applications and the procedure to be followed in respect of them; (d) intervention by persons to whom the Tribunal is open under para- graph 3 of Article II, whose rights may be affected by the judg- ment; 295 (e) hearing, for purposes of information, of persons to whom the Tribunal is open under paragraph 3 of Article II; and (f) other matters relating to the functioning of the Tribunal. ARTICLE VIII 1. The Tribunal shall hold sessions at dates to be fixed in accordance with its rules. 2. The Tribunal shall hold its sessions at the principal office of the Bank, unless it considers that the efficient conduct of the proceedings upon an application necessitates holding sessions elsewhere. ARTICLE IX The Tribunal shall decide in each case whether oral proceedings are warranted. Oral proceedings shall be held in public, unless the Tribunal decides that exceptional circumstances require that they be held in private. ARTICLE X 1. The Tribunal shall take all its decisions by a majority of the members present. 2. In the event of an equality of votes, the President or the member who acts in such place shall have a casting vote. ARTICLE XI 1. Judgments shall be final and without appeal. 2. Each judgment shall state the reasons on which it is based. ARTICLE XII 1. If the Tribunal finds that the application is well-founded, it shall order the rescission of the decision contested or the specific performance of the obligation invoked. At the same time the Tribunal shall fix the amount of compensation to be paid to the applicant for the injury sustained should the President of the respondent institution, within thirty days of the notification of the judgment, decide, in the interest of such respondent, that the appli- cant shall be compensated without further action being taken in the case; provided that such compensation shall not exceed the equivalent of three years' net pay of the applicant. The Tribunal may, however, in exceptional cases, when it considers it justified, order the payment of a higher compen- sation. A statement of the specific reason for such an order shall be made. 2. Should the Tribunal find that the procedure prescribed in the rules of the respondent institution has not been observed, it may, at the request of the President of such respondent and prior to the determination of the merits, order the case remanded for institution or correction of the required procedure. 3. In all applicable cases, compensation fixed by the Tribunal shall be paid by the respondent institution. 296 4. The filing of an application shall not have the effect of suspending execution of the decision contested. ARTICLE XIII 1. A party to a case in which a judgment has been delivered may, in the event of the discovery of a fact which by its nature might have had a decisive influence on the judgment of the Tribunal and which at the time the judg- ment was delivered was unknown both to the Tribunal and to that party, request the Tribunal, within a period of six months after that party acquired knowledge of such fact, to revise the judgment. 2. The request shall contain the information necessary to show that the conditions laid down in paragraph 1 of this Article have been complied with. It shall be accompanied by the original or a copy of all supporting documents. ARTICLE XIV The original copy of each judgment shall be filed in the archives of the Bank. A copy of the judgment shall be delivered to each of the parties concerned. Copies shall also be made available on request to interested persons. ARTICLE XV The Bank may make agreements with any other international organiza- tion for the submission of applications of members of their staff to the Tribunal. Each such agreement shall provide that the organization con- cerned shall be bound by the judgments of the Tribunal and be responsible for the payment of any compensation awarded by the Tribunal in respect of a staff member of that organization; the agreement shall also include, inter alia, provisions concerning the organization's participation in the ad- ministrative arrangements for the functioning of the Tribunal and concern- ing its sharing of the expenses of the Tribunal. ARTICLE XVI The present Statute may be amended by the Board of Governors of the Bank. ARTICLE XVII Notwithstanding Article II, paragraph 2 of the present Statute, the Tri- bunal shall be competent to hear any application concerning a cause of complaint which arose subsequent to January 1, 1979, provided, however, that the application is filed within 90 days after the entry into force of the present Statute. This report was approved and its recommendation was adopted on April 30, 1980. 297 CHINA-Increase in Subscription 1. China has requested an increase in its subscription to the capital stock of the Bank and to subscribe to 4,500 additional shares of said capital stock. 2. The attached resolution 1 is recommended for adoption by the Board of Governors. 3. This action has to be seen in conjunction with China's request to get an elected Executive Director on its own, as explained in the Report of Executive Directors to the Board of Governors on the Number of Executive Directors, dated August 8, 1980. This report was approved and its recommendation was adopted on September 3,1980. Number of Executive Directors 1. Section 4(b) of Article V of the Articles of Agreement of the Bank provides that there shall be twelve Executive Directors of whom five shall be appointed, one by each of the five members having the largest number of shares, and seven shall be elected according to Schedule B of the Articles by all the Governors other than those entitled to appoint Directors. Section 4(b) further provides that "When governments of other countries become members, the Board of Governors may, by a four-fifths majority of the total voting power, increase the total number of directors by increasing the number of directors to be elected." 2. Since the formulation of the Articles, the number of elected Executive Directors has been increased from time to time, raising the number from the original 7 to 15. The last increase in the number of elected Executive Directors was approved by the Board of Governors in 1964. 3. Following the 1964 Regular Election, when the total number of Executive Directors was increased to 20,34 countries have joined the Bank. Thus during this period the membership increased by 34%. These new members have a total of 20,368 votes. 4. It has not been considered necessary, hitherto, to increase the number of elected Executive Directors in response to this increase in membership. However, since 1974 the biennial Reports of the Executive Directors to the Board of Governors on Regular Elections of Executive Directors have stated the strong feeling among many Executive Directors that, if an election was likely to result in lack of wide geographic and balanced representation in the Board of Executive Directors, this would call for prompt corrective action. More specifically, the Report of the Executive Directors to the Board of Governors on the General Capital Increase included the following statement: The Directors have agreed that special efforts should be made to preserve a broad geographic pattern of representation and that all 1 See page 258. 298 major groups of countries should be represented. The Directors there- fore recommend that at the time of elections of Executive Directors the Governors take special note of the risk that the representation of the sub-Saharan African and Latin American countries could be re- duced and take whatever steps are necessary to ensure that these countries along with other groups of countries, especially the Asian and Pacific countries, are adequately represented on the Executive Board. 5. On May 15, 1980 the Government of the People's Republic of China assumed representation of China in the Bank. China has requested an additional subscription of 4,500 shares of the capital stock of the Bank. The Executive Directors have recommended as of today that these addi- tional shares be granted. If China subscribes these additional shares, it should be able to elect its own Executive Director, and representatives of the PRC have stated that China intends to subscribe such shares before the 1980 Annual Meeting in order to be able to elect an Executive Director in the 1980 Regular Election at the Annual Meeting. If China does elect an Executive Director and if the number of Executive Directors has not increased, one of the existing groups of members presently represented by an Executive Director would be adversely affected and the corrective action referred to in paragraph 4 would be required. In his letter dated June 10, 1980 to the President of the Bank, the Governor of the Bank for China suggested that the current number of twenty Executive Directors be in- creased to twenty-one so that the present representation on the Board of Executive Directors would not be affected by Chinese participation. The letter refers to an additional appointed Executive Director, but clarification has been obtained from the Chinese authorities that their essential objective is to obtain an Executive Director representing China by itself without upsetting the present distribution of Executive Directors and that an in- crease to sixteen Executive Directors would be acceptable. 6. In view of the foregoing, and bearing in mind the best interests of the Bank and its members, the Executive Directors recommend that, if China subscribes to an additional 4,500 shares before the 1980 Annual Meeting, the number of Executive Directors to be elected at the Regular Election of Executive Directors to be held during that Annual Meeting be increased to 16. 7. There is enclosed a draft resolution 1 embodying the above recom- mendation. This report was approved and its recommendation was adopted on September 5,1980. 1980 Regular Election of Executive Directors 1. Pursuant to Resolution No. 325 of the Board of Governors, a Regular Election of Executive Directors will take place at the 1980 Annual Meeting of the Board of Governors. 1 See page 258. 299 2. The Executive Directors recommend that, at the 1980 Regular Election, 16 Executive Directors be elected but that the election of the sixteenth Executive Director shall only take place if China has subscribed addi- tional shares of the capital stock of the Bank by the time of the election. 3. The Executive Directors recommend that the maximum and minimum percentages of eligible votes required in the election of 15 or 16 Executive Directors be ten percent and four percent respectively, as in the previous regular election in 1978. 4. The Executive Directors recommend that the date from which the 1980 Regular Election will be effective be November 1, 1980. 5. The Executive Directors consider the present structure of the Board acceptable and believe it desirable that both wide geographic and balanced representation be maintained. As in previous years there is strong feeling among Executive Directors that a lack of such wide geographic and bal- anced representation would call for prompt corrective action. 6. The Executive Directors recommend that the subsequent Regular Election of Executive Directors take place at the Annual Meeting of the Board of Governors in 1982. 7. The Executive Directors recommend the adoption by the Board of Governors of the attached draft Election Rules for the 1980 Regular Election of Executive Directors. 8. The following draft resolution, embodying the above recommendations, is proposed for adoption by the Board of Governors. . . .1 This report was approved and its recommendation was adopted by the Board of Govemors on September 8,1980. Amendment of the Bank's By-Laws The Bank's By-Laws have been reviewed, and amendments are now proposed to clarify or improve the language, to respond to changed circumstances or to reduce the necessity for future changes. In most cases they parallel similar changes made for the same purposes in the By-Laws of the International Monetary Fund which the Governors of the Fund approved in June 1978, subsequent to the extensive amendments of the Fund's Articles of Agreement which took effect on April 1, 1978 .... Attachment ... 2 shows the By-Laws as proposed to be amended. The Executive Directors recommend the adoption by the Board of Governors of the following Resolution .... 3 This report was approved and its recommendation was adopted by the Board of Governors on September 26,1980. 1 See page 259. 2 See page 301. 3 See page 259. 300 ATTACHMENT BY-LAWS OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (As amended through September 26, 1980) These By-Laws are adopted under the authority of, and are intended to be complementary to, the Articles of Agreement of the International Bank for Reconstruction and Development; and they shall be construed ac- cordingly. In the event of a conflict between anything in these By-Laws and any provision or requirement of the Articles of Agreement, the Articles of Agreement shall prevail. SECTION 1. Places of Business (a) The principal office of the Bank shall be located within the metropolitan area of Washington, D.C., United States of America. (b) The Executive Directors may establish and maintain agencies or branch offices and regional offices at any place in the territories of any member, whenever it is necessary to do so in order to facilitate the efficient conduct of the business of the Bank. SECTION 2. Meetings of the Board of Governors (a) The Annual Meeting of the Board of Governors shall be held at such time and place as the Board of Governors shall determine; provided, however, that, if the Executive Directors shall, because of special circum- stances, deem it necessary to do so, the Executive Directors may change the time and place of such Annual Meeting. (b) Special meetings of the Board of Governors may be called at any time by the Board of Governors or the Executive Directors and shall be called upon the request of five members of the Bank or of members of the Bank having in the aggregate one-fourth of the total voting power. When- ever any member of the Bank shall request the Executive Directors to call a special meeting of the Board of Governors, the President shall notify all members of the Bank of such request and of the reasons which shall have been given therefor. (c) A quorum for any meeting of the Board of Governors shall be a majority of the Governors, exercising not less than two-thirds of the total voting power. Any meeting of the Board of Governors at which a quorum shall not be present may be adjourned from time to time by a majority of the Governors present and notice of the adjourned meeting need not be given. SECTION 3. Notice of Meetings of the Board of Governors The President shall cause notice of the time and place of each meeting of the Board of Governors to be given to each member of the Bank by 301 rapid means of communication which shall be dispatched not less than 42 days prior to the date set for such meeting, except that in urgent cases notice shall be sufficient if dispatched by rapid means of communication not less than 10 days prior to the date set for the meeting. SECTION 4. Attendance at Meetings (a) An Executive Director and his Alternate may attend all meetings of the Board of Governors and may participate in such meetings, but an Executive Director or his Alternate shall not be entitled to vote at any such meeting unless he shall be entitled to vote as a Governor or an Alternate or a temporary Alternate of a Governor. (b) The Chairman of the Board of Governors, in consultation with the Executive Directors, may invite observers to attend any meeting of the Board of Governors. (c) The Executive Directors are authorized to invite the International Monetary Fund to send a representative of the Fund to meetings of the Board of Governors or of the Executive Directors who may participate in such meetings, but shall have no vote. (d) The Executive Directors are authorized to accept invitations from the Fund to send a representative of the Bank to participate in meetings of the Board of Governors or the Executive Board of the Fund. SECTION 5. Agenda of Meetings of the Board of Governors (a) Under the direction of the Executive Directors, the President shall prepare an agenda for each meeting of the Board of Governors and shall cause the agenda to be transmitted to each member of the Bank with the notice of the meeting. (b) Additional subjects may be placed on the agenda for any meeting of Governors by any Governor provided that he shall give notice thereof to the President not less than seven days prior to the date set for the meet- ing. In special circumstances the President, by direction of the Executive Directors, may at any time place additional subjects on the agenda for any meeting of the Board of Governors. The President shall cause notice of the addition of any subjects to the agenda for any meeting of the Board of Governors to be given as promptly as possible to each member of the Bank. (c) The Board of Governors may at any time place any subject on the agenda for any meeting of the Board of Governors even though the notice required by this Section has not been given. (d) Except as otherwise specifically directed by the Board of Governors, the Chairman of the Board of Governors jointly with the President shall have charge of all arrangements for the holding of meetings of the Board of Governors. SECTION 6. Selection of Chairman and Vice-Chairman (a) At each annual meeting the Board of Governors shall select a Governor to act as Chairman and at least two other Governors to act as Vice-Chairmen until the end of the next annual meeting. (b) In the absence of the Chairman, the Vice-Chairman designated by the Chairman shall act in his place. 302 SECTION 7. Secretary The Secretary of the Bank shall serve as Secretary of the Board of Governors. SECTION 8. Minutes The Board of Governors shall keep a summary record of its proceedings which shall be available to all members and which shall be filed with the Executive Directors for their guidance. SECTION 9. Report of Executive Directors The Executive Directors shall have prepared for presentation at the annual meeting of the Board of Governors an annual report in which shall be discussed the operations and policies of the Bank and which shall make recommendations to the Board of Governors on the problems confronting the Bank. SECTION to. Voting Except as otherwise specifically provided in the Articles of Agreement, all decisions of the Board of Governors shall be made by a majority of the votes cast. At any meeting the Chairman may ascertain the sense of the meeting in lieu of a formal vote but he shall require a formal vote upon the request of any Governor. Whenever a formal vote is required the written text of the motion shall be distributed to the voting members. SECTION 11. Proxies No Governor or Alternate may vote at any meeting by proxy or by any other method than in person, but a member may make provision for the designation of a temporary Alternate to vote for the Governor at any session of the Board of Governors at which regularly designated Alternate is unable to be present. SECTION 12. Voting without Meeting (a) Whenever, in the judgment of the Executive Directors, any action by the Bank must be taken by the Board of Governors which should not be postponed until the next regular meeting of the Board of Governors and does not warrant the calling of a special meeting of the Board of Governors, the Executive Directors shall request the Governors to vote without meeting. (b) The Executive Directors shall present to each member by rapid means of communication a motion embodying the proposed action. (c) Votes shall be cast during such period as the Executive Directors may prescribe. (d) The Executive Directors may provide that no Governor shall vote on a motion during such period after dispatch of the motion as the Executive Directors prescribe. (e) At the expiration of the period prescribed for voting, the Executive Directors shall record the results, and the President shall notify all mem- bers. If the replies received do not include a majority of the Governors exercising two-thirds of the total voting power, which is required for a quorum of the Board of Governors, the motion shall be considered lost. 303 SECTION 13. Terms of Service (a) Governors and Alternates shall receive reimbursement for reason- able expenses incurred in attending meetings of the Board of Governors. (b) Pending the necessary action being taken by members to exempt from national taxation salaries and allowance paid out of the budget of the Bank, the Governors and the Executive Directors, their Alternates, the President, and staff members and other employees of the Bank, except those whose employment contracts state otherwise, shall receive from the Bank a tax allowance that the Executive Directors determine to be reasonably related to the taxes paid by them on such salaries and allowances. In computing the amount of tax adjustment to be made with respect to any individual, it shall be presumed for the purposes of the computation that the income received from the Bank is his total income. All salaries and allowances prescribed by or pursuant to this section are stated as net on the above basis. (c) The salary of the President shall be determined by the Board of Governors and shall be included in his contract. The Bank shall also pay any reasonable expenses incurred by the President in the interest of the Bank (including travel and transportation expenses for himself, and ex- penses for his family, and his personal effects in moving once to the seat of the Bank during or immediately before his term of office and in moving once from the seat during or within a reasonable period after his term of office). The initial contract of the President shall be for a term of five years. Any renewal of the contract may be for the same or for a shorter term. (d) It shall be the duty of an Executive Director and his Alternate to devote all the time and attention to the business of the Bank that its interests require, and between them to be continuously available at the principal office of the Bank; however, in the event that both an Executive Director and his Alternate are unable to be available at the principal office of the Bank for reasons of health, absence while on business of the Bank, or similar reasons, the Executive Director may designate a temporary Alter- nate to act for him. A temporary Alternate shall receive no salary or expense allowance for his services in this capacity. The terms Alternate and Alternate Executive Director whenever used in these By-Laws shall, unless the context shall otherwise require, include any such temporary Alternate Executive Director. (e) (i) Executive Directors and their Alternates shall be entitled to remuneration in the form of salary and supplemental allowances at such annual rates as shall be determined from time to time by the Board of Governors. Remuneration as determined shall continue until changed by the Board of Governors. Such remuneration shall be prorated, in accor- dance with such rules and regulations as the Executive Directors shall from time to time approve, according to the time spent by the Executive Director or Alternate Executive Director in the service of the Bank. (ii) A standing Joint Committee on the Remuneration of Executive Directors and their Alternates, appointed by the Chairmen of the Boards of Governors of the Fund and Bank and consisting of one of the Chairmen and 304 two former Governors or Alternate Governors of the Fund or Bank, chosen by the Chairmen in consultation with the Managing Director of the Fund and the President of the Bank, shall be constituted following each Annual Meet- ing. The Joint Committee shall consider all matters affecting the remunera- tion and other benefits of the Executive Directors of the Bank and Fund, and of their Alternates, and from time to time, but at least by July 1 of each year in which a regular election of Executive Directors is scheduled to be held, shall make such recommendations for any action by the Board of Governors on the said matters as the Joint Committee shall deem advisable. Reports of the Joint Committee shall be submitted to the Board of Gover- nors for a vote on any recommendation contained therein without meeting in accordance with Section 12 of the By-Laws. In making proposals with respect to the remuneration of the Executive Directors and their Alternates, the Committee shall bear in mind their functions under the Articles of Agreement of the Bank in relation to those of the President. (f) The Executive Directors may by regulation make appropriate pro- vision whereby (i) each Executive Director and Alternate Executive Di- rector who shall at the request of the President perform designated service for the Bank shall be entitled to a reasonable allowance for expenses in- curred by him in the performance thereof; (ii) each Executive Director and Alternate Executive Director, but not a temporary Alternate Executive Director, shall be entitled to reasonable leave and resettlement allowances with due regard to the time spent by him in the service of the Bank; and (iii) each Executive Director or Alternate Executive Director shall be entitled to reimbursement of reasonable expenses incurred by him in con- nection with official Bank business to entertain senior officials of the governments or central banks or prominent representatives of the academic, public or private sectors of the countries that appointed, elected or desig- nated him. The allowances provided pursuant to this Sub-section shall be in addition to remuneration under Sub-section (e) (i) of this Section. (g) For any period in which an Executive Director or Alternate Execu- tive Director shall also be an Executive Director or Alternate Executive Director of the International Monetary Fund, the aggregate of the remuner- ation and leave and resettlement allowances received by him from the Fund and the Bank shall not exceed the maximum to which he would be entitled if he served either the Bank or the Fund on a full-time basis. (h) An individual claiming reimbursement or allowance for any ex- penses incurred by him shall include in his claim a representation that he has not received and will not claim reimbursement or allowance in respect to those expenses from any other source. (i) Secretarial and other staff services, office space, and other services incidental to the performance of the duties of the Executive Directors and Alternates shall be provided by the Bank. SECTION 14. Delegation of Authority The Executive Directors are authorized by the Board of Governors to exercise all the powers of the Bank except those reserved to the Board of Governors by Article V, Section 2(b) and other provisions of the Articles 305 of Agreement. The Executive Directors shall not take any action pursuant to powers delegated by the Board of Governors which is inconsistent with any action taken by the Board of Governors. SECTION 15. Rules and Regulations The Executive Directors are authorized by the Board of Governors to adopt such rules and regulations, including financial regulations, as may be necessary or appropriate to conduct the business of the Bank. Any rules and regulations so adopted, and any amendments thereof, shall be subject to review by the Board of Governors at their next annual meeting. SECTION 16. Vacant Directorships (a) Whenever a new Executive Director must be elected because of a vacancy requiring an election, the President shall notify the members who elected the former Executive Director of the existence of the vacancy. He may convene a meeting of the Governors of these members exclusively for the purpose of electing a new Executive Director; or he may request nomi- nations and conduct ballots by rapid means of communication. Successive ballots shall be cast until one candidate has a majority; and after each bal- lot, the candidate with the smallest number of votes shall be dropped from the next ballot. (b) When a new elective Executive Director is named, the office of Alternate shall be deemed to be vacant and an Alternate shall be named by the newly elected Executive Director. SECTION 17. Representation of Members not entitled to appoint an Executive Director Whenever the Executive Directors are to consider a request made by, or a matter particularly affecting, a member not entitled to appoint an Executive Director, the member shall be promptly informed by rapid means of communication of the date set for its consideration. No final action shall be taken by the Executive Directors, nor any question affecting the member submitted to the Board of Governors, until the member has been offered a reasonable opportunity to present its views and to be heard at a meeting of the Executive Directors of which the member has had reasonable notice. Any member, so electing, may waive this provision. SECTION 18. Budget and Audits (a) The Executive Directors shall have an audit of the accounts of the Bank made at least once each year and on the basis of this audit shall submit a statement of its accounts, including a balance sheet and a statement of profit and loss, to the Board of Governors to be considered by them at their annual meeting. (b) The President shall prepare an annual administrative budget to be presented to the Executive Directors for approval. The Budget as approved shall be incorporated in the annual report presented to the Board of Gover- nors at their annual meeting. 306 SECTION 19. Application for Membership (a) Any member of the International Monetary Fund may apply for membership in the Bank by filing with the Bank an application setting forth all relevant facts. (b) The Executive Directors shall report on all applications to the Board of Governors. When an application is submitted to the Board of Governors, with a recommendation that the applicant country be admitted to membership, the Executive Directors after consultation with the applicant country shall recommend to the Board of Governors the number of shares of capital stock to be subscribed and such other conditions as, in the opinion of the Executive Directors, the Board of Governors may wish to prescribe. SECTION 20. Suspension of Membership Before any member is suspended from membership in the Bank, the matter shall be considered by the Executive Directors who shall inform the member in reasonable time of the complaint against it and allow the member an adequate opportunity for stating its case both orally and in writing. The Executive Directors shall recommend to the Board of Governors the action they deem appropriate. The member shall be informed of the recom- mendation and the date on which its case will be considered by the Board of Governors and shall be given a reasonable time within which to present its case to the Board of Governors both orally and in writing. Any member so electing may waive this provision. SECTION 21. Settlement of Disagreements The President of the International Court of Justice is prescribed as the authority to appoint an umpire whenever there arises a disagreement of the type referred to in Article IX (c) of the Articles of Agreement. SECTION 22. Amendment to By-Laws These By-Laws may be amended by the Board of Governors at any meeting thereof or by vote without a meeting as provided in Section 12. Allocation of Net Income 1. The Bank's net income available for allocation for the fiscal year ended June 30, 1980 is estimated at $588 million. A net translation adjustment due to exchange rate changes of $88 million has been credited directly to the General Reserve. As of June 30, 1980, the Special Reserve created under Article IV, Section 6 of the Bank's Articles of Agreement totalled $293 million and, without regard to the 1980 fiscal year's income, the General Reserve amounted to $2600 million. Total reserves including accumulated net income therefore amounted to $3481 million, of which the $293 million in the Special Reserve is kept in liquid form, the remainder being used in the business of the Bank. 2. The Executive Directors have considered what action to take, or to recommend that the Board of Governors take, with respect to the net income for the fiscal year ended June 30, 1980. 307 3. The Executive Directors have considered what portion of that net income, if any, they should recommend that the Board of Governors transfer to the International Development Association and what portion thereof should be allocated to the General Reserve. The Executive Direc- tors have concluded that that part of such net income which it is not neces- sary to retain in the Bank's business amounts to $118 million. They have further concluded that the interests of the Bank and its members would best be served by the transfer of that amount to the International Develop- ment Association by way of grant. 4. The Executive Directors consider that from this grant there should be available to the International Development Association (i) for grants by it for agricultural research during calendar year 1981 up to 10% (or approximately $16 million under present estimates) of the agricultural research centers' 1981 budget requirements approved by the Consultative Group on International Agricultural Research and (ii) for grants by it during calendar year 1981 for the control of onchocerciasis in the Volta River basin, up to the equivalent of $2.0 million. Such grants would in each case be subject to specific approval by the Executive Directors of the International Development Association. Any amount not used for such grants will be available for lending by the International Development Asso- ciation. 5. The Executive Directors have allocated the balance of such net income to the General Reserve. 6. As far as drawings on the transfer are concerned, the attached draft resolution provides that the transfer would be made at the time and in the manner to be decided by the Executive Directors. 7. Accordingly, the Executive Directors recommend that the Board of Governors approve the present Report and adopt the draft resolution .... 1 This report was approved and its recommendation was adopted on October 3,1980. 1 See page 260. 308 RULES FOR THE 1980 REGULAR ELECTION OF EXECUTIVE DIRECTORS 1. DEFINITIONS: In these Rules, unless the context shall otherwise require, a) "Articles" means the Articles of Agreement of the Bank. b) "Board" means the Board of Governors of the Bank. c) "Chairman" means the Chairman of the Board or Vice Chairman acting as Chairman. d) "Governor" includes the Alternate Governor or any temporary Alternate Governor, when acting for the Governor. e) "Secretary" means the Secretary or any acting Secretary of the Bank. o "Election" means the 1980 Regular Election of Executive Directors. g) "Eligible votes" means the total number of votes that can be cast in the election. 2. DATE OF ELECTION: The election shall be held during the 1980 Annual Meeting of the Board at a time to be fixed by the Board. 3. BASIC RULES-SCHEDULE B: Subject to the adjustments set forth herein, the provisions of Schedule B of the Articles shall apply to the conduct of the election, except that: (a) If fifteen Executive Directors are to be elected: (i) "four percent" shall be substituted for "fourteen percent" in Paragraphs 2 and 5 and "ten percent" shall be substituted for "fifteen percent" in Paragraphs 3, 4 and 5 thereof; and (ii) "fifteen persons" shall be substituted for "seven persons" in Paragraphs 2, 3 and 6, "fourteen persons" shall be substituted for "six persons" in Paragraph 6, and "the fifteenth" shall be substituted for "the seventh" in Paragraph 6, thereof. (b) If sixteen Executive Directors are to be elected: (i) "four percent" shall be substituted for "fourteen percent" in Paragraphs 2 and 5 and "ten percent" shall be substituted for "fifteen percent" in Paragraphs 3, 4 and 5 thereof; and (ii) "sixteen persons" shall be substituted for "seven persons" in Paragraphs 2, 3, and 6, "fifteen persons" shall be substituted for "six persons" in Paragraph 6, and "the sixteenth" shall be substituted for "the seventh" in Paragraph 6, thereof. 4. EXECUTIVE DIRECTORS TO BE ELECTED: Sixteen Executive Directors shall be elected except that, if China has not subscribed additional shares of the capital stock of the Bank prior to the Election, there shall be elected fifteen Executive Directors. 309 5. NOMINATIONS: (a) Any person nominated by one or more Governors entitled to vote in the election shall be eligible for election as Executive Director. (b) Each nomination shall be made on a Nomination Form furnished by the Secretary, signed by the Governor or Governors making the nomination, and deposited with the Secretary. (c) A Governor may nominate only one person. (d) Nominations may be made until 12 o'clock noon on the day pre- ceding the election. The Secretary shall post and distribute a list of the persons nominated. 6. SUPERVISION OF THE ELECTION: The Chairman shall appoint such tellers and other assistants and take such other action as he deems necessary for the conduct of the election. 7. BALLOTS: One ballot form shall be furnished before a ballot is taken to each Governor entitled to vote. On any particular ballot only ballot forms dis- tributed for that ballot shall be counted. 8. BALLOTING: Each ballot shall be taken as follows: a) There shall be a call of members whose Governors are entitled to vote and each ballot, signed by the Governor, shall be deposited in the ballot box. b) When a ballot shall have been completed, the Chairman shall cause the ballots to be counted and shall announce the names of the persons elected as soon as practicable after the tellers have com- pleted their tally of the ballots. If a succeeding ballot is necessary, the Chairman shall announce the names of the nominees to be voted on and the members whose Governors are eligible to vote. c) If the tellers shall be of the opinion that any particular ballot is not properly executed, they shall, if possible, afford the Governor con- cerned an opportunity to correct it before tallying the results; and such ballot, if so corrected, shall be deemed to be valid. 9. When on any ballot the number of nominees shall not exceed the num- ber of Executive Directors to be elected, each nominee shall be deemed to be elected by the number of votes received by him on such ballot; provided, however, that if, on such ballot, the votes of any Governor shall be deemed under Paragraph 4 of Schedule B to have raised the votes cast for any nominee above ten percent of the eligible votes, no nominee shall be deemed to have been elected who shall not have received on such ballot a minimum of four percent of the eligible votes, and a succeeding ballot shall be taken for which any nominee not elected shall be eligible. 310 10. If, as a result of the first ballot, the number of Executive Directors to be elected in accordance with Paragraph 4 above shall not have been elected, a second and, if necessary, further ballots shall be taken. The Governors entitled to vote on such succeeding ballots shall be only: a) those Governors who voted on the preceding ballot for any nominee not elected; and b) those Governors whose votes for a nominee elected on the preced- ing ballot are deemed under Paragraph 4 of Schedule B to have raised the votes cast for such nominee above ten percent of the eligible votes. 11. If the votes cast by a Governor raise the total votes received by a nominee from below to above ten percent of the eligible votes, the votes cast by the Governor shall be deemed under Paragraph 4 of Schedule B not to have raised the total votes of the nominee above ten percent. 12. If on any ballot two or more Governors having an equal number of votes shall have voted for the same nominee and the votes of one or more, but not all, of such Governors could be deemed under Paragraph 4 of Schedule B to have raised the total votes received by such nominees above ten percent of the eligible votes, the Chairman shall determine by lot the Governor or Governors, as the case may be, who shall be entitled to vote on the next ballot. 13. ABSTENTION FROM VOTING: If a Governor shall abstain from voting on any ballot he shall not be entitled to vote on any subsequent ballot and his votes shall not be counted within the meaning of Section 4(g) of Article V towards the election of any Executive Director. If at the time of any ballot a member shall not have a duly appointed Governor, such member shall be deemed to have abstained from voting on that ballot. 14. ELIMINATION OF NOMINEES: If on any ballot two or more nominees shall receive the lowest number of votes, no nominee shall be dropped from the next succeeding ballot, but if the same situation is repeated on such succeeding ballot, the Chairman shall eliminate by lot one of such nominees from the next succeeding ballot. 15. ANNOUNCEMENT OF RESULT: After the tally of the last ballot the Chairman shall cause to be distributed a statement setting forth the result of the election. 16. EFFECTIVE DATE OF ELECTION: The effective date of the election shall be November 1, 1980, and the term of office of the elected Executive Directors shall commence on that 311 date. Incumbent elected Executive Directors shall serve through the day preceding such date. 17. GENERAL: Any question arising in connection with the conduct of the election shall be resolved by the tellers, subject to appeal, at the request of any Governor, to the Chairman and from him to the Board. Whenever possible, any such questions shall be put without identifying the members or Governors concerned. 312 EXECUTIVE DIRECTORS ELECTED AT 1980 REGULAR ELECTION Elected by Number Executive Director the Votes of: of Votes Y. S. M. Abdulai Botswana 293 (Nigeria) Burundi 400 Equatorial Guinea 314 Ethiopia 364 Gambia, The 303 Guinea 450 Kenya 650 Lesotho 293 Liberia 463 Malawi 400 Nigeria 1,402 Seychelles 261 Sierra Leone 400 Sudan 850 Swaziland 318 Tanzania 600 Trinidad and Tobago 785 Uganda 583 Zambia 898 Zimbabwe 1,067 11,094 David Blanco Argentina 4,951 (Bolivia) Bolivia 460 Chile 1,490 Paraguay 320 Peru 985 Uruguay 661 8,867 Guillermo Alberto Con stain Brazil 3,983 (Colombia) Colombia 1,425 Dominican Republic 425 Ecuador 618 Haiti 400 Philippines 1,965 8,816 Jacques de Groote Austria 2,946 (Belgium) Belgium 7,518 Luxembourg 547 Turkey 1,536 12,547 Earl G. Drake Bahamas 421 (Canada) Barbados 389 Canada 11,372 Dominica 266 Grenada 267 Guyana 421 Ireland 1,516 Jamaica 696 St. Lucia 279 15,627 313 Elected by Number Executive Director the Votes 0/: 0/ Votes Said EI-Naggar Bahrain 413 (Egypt, Arab Rep. of) Egypt, Arab Rep. of 1,900 Iraq 948 Jordan 437 Kuwait 3,453 Lebanon 340 Maldives 256 Pakistan 2,769 Qatar 577 Saudi Arabia 5,149 Syrian Arab Republic 758 United Arab Emirates 1,230 Yemen Arab Republic 335 18,565 Ismail Khelil Afghanistan 550 (Tunisia) Algeria 1,359 Ghana 1,106 Iran 1,830 Libya 450 Morocco 1,470 Oman 310 Tunisia 623 Yemen, People's Dem. Rep. of 498 8,196 Anthony 11. A. Looijen Cyprus 528 (Netherlands) Israel 1,358 Netherlands 7,929 Romania 1,871 Yugoslavia 1,428 13,114 Hans Lundstrom Denmark 2,774 (Sweden) Finland 2,217 Iceland 472 Norway 2,660 Sweden 3,926 12,049 Stanley A. McLeod Australia 6,700 (New Zealand) Korea, RepUblic of 1,643 New Zealand 2,097 Papua New Guinea 421 Solomon Islands 267 Western Samoa 267 11,395 Joaquin Muns Costa Rica 357 (Spain) El Salvador 370 Guatemala 373 Honduras 334 Mexico 2,530 Nicaragua 341 Panama 466 Spain 3,621 Suriname 412 Venezuela 2,222 11,026 314 Elected by Number Executive Director the Votes of: of Votes Giorgio Ragazzi Greece 1,195 (Italy) Italy 8,775 Portugal 1,574 Il,544 H. N. Ray Bangladesh 1,492 (India) India 11,583 Sri Lanka 1,211 14,286 Armand Razafindrabe Benin 350 (Madagascar) Cameroon 450 Cape Verde 266 Central African Republic 350 Chad 350 Comoros 266 Congo, People's Republic of 350 Djibouti 281 Gabon 370 Guinea-Bissau 277 Ivory Coast 615 Madagascar 469 Mali 423 Mauritania 350 Mauritius 471 Niger 350 Rwanda 400 Sao Tome and Principe 264 Senegal 612 Somalia 439 Togo 400 Upper Volta 350 Zaire 1,210 9,663 Wang Liansheng China 12,250 (China) Zain Azraai Burma 841 (Malaysia) Fiji 397 Indonesia 4,138 Lao People's Dem. Rep. 350 Malaysia 2,316 Nepal 396 Singapore 570 Thailand 1,728 Viet Nam 793 11,529 /s/ M. P. Sejanamane (Lesotho) lsi B. F. van Ittersum (Netherlands) Teller Teller 315 REPORT OF THE EXECUTIVE DIRECTORS OF IDA Additions to IDA Resources: Sixth Replenishment A. INTRODUCTION AND BACKGROUND The Institution 1. The International Development Association (IDA) was established in 1960 to provide financing for projects and programs in those developing countries whose prospects for economic advance were so difficult that it did not seem that they could prudently borrow except on the most highly con- cessionary terms. While the terms of IDA lending reflect this original pur- pose ... credits are for fifty years, with repayments starting after ten years and no interest is charged (only a service charge currently set at 0.75%) ... in all other respects the institution functions in the same way as the International Bank for Reconstruction and Development (IBRD). The development projects financed by IDA must meet the same economic and financial standards; the procedures for credit appraisal, approval, and super- vision are the same and identical procedures are applied in areas such as procurement and the control of disbursements to ensure that the proceeds of the credits are applied efficiently and for the purposes intended. The staff of IDA is common to that of the IBRD so that the same pool of technical and other expertise is available to carry out its operations and the Execu- tive Directors of IBRD are ex officio the Executive Directors of IDA. Through their Executive Directors the member governments establish the general policies of IDA and review each lending operation proposed by IDA's management. 2. In the years since it started operations, IDA has attracted the support of a growing part of the international community and a widening circle of countries contribute to its resources. Membership in IDA has increased from the original 68 to 122 currently, while the number of contributors has grown from 17 in 1960 to the 33 contributing to the Sixth Replenish- ment of IDA resources which is the subject of this report.! 3. IDA's Articles of Agreement provided for the initial subscriptions to finance IDA operations. Since that time, IDA's resources have been replen- ished on fiye occasions. IDA is currently entering into credits with bor- rowers from resources provided under the Fifth Replenishment on which agreement was reached in 1977. These resources will be fully committed by July 1980 when IDA will need fresh commitment authority.2 In order to provide IDA with new resources in time to lend when needed, governments of prospective contributors were invited in September 1978 to appoint Deputies to negotiate proposals for a Sixth Replenishment agreement. Sub- 1 A list of current members and the year in which they joined is attached as Table 1 in the Statisti- cal Annex appended to this report. 2 Because the projects financed by IDA jll\'oll'e inl'estments executed Ol'er a period of years, the disbursement of the credits is correspondingly spread out and at anyone time there is an amount 'outstanding and undisbursed' but which is full)' committed and awaits disbursement as orders are placed and the inrestments are actually carried out. 316 sequently, the Deputies have held five meetings and reached agreement on the proposals contained in this report in Paris in December 1979. The report has been reviewed and approved by the Executive Directors. The report and the draft Resolution for approval by the Governors 1 provides the basis on which it is now proposed that members will work to obtain legislative approval of the additional resources negotiated for the Sixth Replenishment. 4. During the negotiations, the Deputies focussed their discussions on the total size of the replenishment and the amounts and shares of the contribu- tions of their respective countries. The different considerations taken into account in this discussion are described in Sections Band C of this report. Various technical aspects of the financial arrangements were also reviewed by the Deputies such as the manner of making payments and tht~ currency of obligation and the results of this review are reflected in Section D of this report. A further section sets out the provisions under which the agreement will enter into effect and IDA be enabled to start making credits under the Sixth Replenishment. 5. In the course of the negotiations, Deputies requested and received information on many aspects of lOA's operations-the way it is building up its project capacity in the poorest countries, the sectors IDA is assisting and the way in which projects are being designed to reach the poorest peo- ple. Other aspects such as the way in which supervision, evaluation and audit is carried out were also described. The salient points of the informa- tion and analysis provided to the Deputies are included in this report start- ing with a brief account of the current direction of IDA lending which has provided the background against which the negotiations for the Sixth Replenishment have taken place. IDA's Current Operations 6. IDA's resources are scarce in relation to need and in making credits from the resources provided in the Fifth Replenishment IDA is continuing its well-established policy of giving priority to the poorest countries. There are 40 countries with a median per capita income level of $200 that receive 90% of IDA credits.:! 7. Per capita income is an incomplete measure of poverty and the analysis presented to Deputies distinguished between the dimensions of poverty and the prospects for alleviating it in three groups of countries that receive IDA credits: the primarily agricultural economies characteristic of two thirds of the countries that receive IDA credits; those economies with a better resources base because, for example, of mineral endowment; and, thirdly, the economies of a few large countries with a modern sector but which remain primarily ruraP (dualistic). It is estimated that in the first and third groups of countries, which receive 90% of IDA credits, over half of 1 See page 272. 2 The figures cited are in 1977 dollars. published in the World Bank Atlas 1979. 3 The countries falling in these groupings and selected po\'erty and resource base indicators are shown in Table 4 0/ the Statistical Annex. 317 the population lives in absolute poverty whose dimensions are summarized below. Primarily Better Agricultural Dualistic Resource Base Poverty Indicators Per Capita Income 200 160 460 Life Expectancy 46 51 48 Population per Physician (000) 18 6 8 Literacy Rate 19 34 50 IDA Lending n $ Per Capita 9.7 5.5 5.0 % of Lending 31 58 10 % of Operations 57 30 13 Memo: No. of Countries 35 5 14 % of Population in Rural Areas 86 78 64 R Figures on current IDA lendinl( gil'en in this section are for the period of credits made under the Fifth Replenishment of IDA and cOI'er fiscal years FY7S-S0 starting in July 1977 and including an estimate for the final part of the period endillg June 19S0. For further detail see Statistical Annex Tables 2 and 3. 8. Within these countries, despite some large urban concentrations, the bulk of the population lives in rural areas and it is the investments necessary to raise agricultural output that will be crucial for achieving faster income growth and alleviating poverty. Reflecting the importance of the agricul- tural sector, nearly one half of IDA lending is for agricultural and rural development. Investments in infrastructure (such as roads and telecom- munications) are also essential for growth, including the growth in incomes of the poorest elements of the community. Credits for this purpose continue to be an important part of IDA lending. IDA Lending by Sector (FY78-80) % of Lending % of Operations Agricultural and Rural Dev. 46 45 Basic Infrastructure a 24 19 Industry and Urbanization 10 12 Other 17 22 Non-Project 3 2 Total 100 100 a Power, telecommunications and transportation. 9. Not shown separately in the broad categories given above are a number of smaller but important developments in IDA lending in the Fifth Reple- nishment period: -the start of IDA lending for oil and gas development as part of the Bank Group's increased expenditure on resource exploration and pre- 318 investment activity in response to growing incentives for developing known energy resources in developing countries due to the rise in international energy prices. As many as 16 IDA operations are pos- sible in this sector over FY80-83. -a more broadly based approach to family planning involving not only health facilities but also training programs, technical assistance, nutri- tion and family education activities (7 operations are anticipated). -growing IDA involvement in agricultural research at the national level designed to adapt the technical base of knowledge to the local environ- ment (about 15 projects are being undertaken specifically for this pur- pose along with research components in other agricultural projects). -increased emphasis on small scale, labor intensive industries where 11 projects are being financed. 10. Extending across all sectors is an attempt to design IDA projects to increase the income and employment opportunities of those in the poorest income groups. This trend is exemplified by IDA lending in rural develop- ment for projects aimed to expand output of small scale farmers and tenants and bring the landless into the productive process. From the 93 agricultural and rural development projects undertaken in the first two years of the Fifth Replenishment period, about nine million rural families are expected to derive direct benefits of which about two thirds have income below either the absolute poverty level or the relative poverty level for their respective countries. 11. Although the major thrust of IDA lending directed to the poorest income groups addresses the problems of increasing income growth in rural areas, IDA is also increasing its lending aimed at improving the productivity of the urban poor. Initially such projects were centered around the provi- sion of sites and services housing lots but recent projects have been broad- ened to include water supply and sewerage, transportation and health com- ponents. Eight such urban credits are being undertaken in IDA's current program. 12. IDA lending is focussed on the poorest countries. Furthermore, a growing proportion of lending is directed to combatting poverty and mobil- izing human resources through an increase in productivity of the poorest income groups, as well as through efforts to ensure a more equitable dis- tribution of income and wealth. This is the institutional setting in which Deputies reached their decisions on the support to be proposed for IDA to carryon its operations in the three years FY81-83, starting in July 1980. In arriving at their pwposals. essential elements taken into account by the Deputies were the economic prospects of the poorest countries (their need for assistance from IDA). the capacity of IDA to expand and improve its operations and procedures in the directions desired and the economic situa- tion affecting the contributing countries themselves. These elements to- gether with the resulting proposal on the scale of the Sixth Replenishment of IDA are discussed in the following section. 319 B. THE AMOUNT OF THE SIXTH REPLENISHMENT Prospects of the Poorest Countries 13. The need of the poorest countries for greatly expanded external assistance on concessionary terms had been described in the World Bank's first World Development Report issued just prior to the start of the Sixth Replenishment negotiations. The analysis contained in that report (which was drawn upon in the analysis prepared for the Deputies) made clear that substantial and sustained progress in reducing poverty in these countries will be impossible without accelerating their growth rates. Mobilizing the domestic resources to achieve faster growth will require a major effort on their part; external assistance on appropriate terms can playa critical sup- porting role. The Bank's second World Development Report issued in August 1979 pointed to a deterioration in the prospects for developing countries since the first report was prepared. The Replenishment of IDA should be seen against this general background and should be taken into account in the International Development Strategy for the 1980s, presently under discussion in the United Nations. 14. The effort that IDA recipient countries themselves can make to develop their economies has to be seen against the background of poor physical resources in many cases and slow economic growth in the past. With only a few exceptions, the poorest developing countries have achieved a per capita income growth of only around 1 % per annum during the 1970s and savings and investment rates are low. The key to their future develop- ment is an acceleration of agricultural production. Although the sources of growth of agricultural output are different in different regions of Africa and Asia, large investments will be required, particularly in irrigation and physical infrastructure. The illustrative projections contained in the first World Development Report and described in the information given to Deputies suggested that a doubling of past rates of growth in agricultural output will be required if there is to be significantly faster progress in reducing poverty. 15. Exports from IDA recipient countries are predominantly primary commodities, vulnerable to sometimes large fluctuations in their prices while the heavy dependence on agriculture in the structure of production means that both export earnings and import needs can be adversely and severely affected by the vagaries of climatic conditions. The poorest countries can only to a very limited extent reduce their relative dependence on foreign resource inflows by increasing their domestic savings efforts. Concessionary assistance is therefore projected to remain very scarce in relation to urgent needs'! The 1978 World Development Report concluded that even with very major efforts by the poorest developing countries, additional conces- sionary resources would be required to achieve both higher rates of growth in the poorest countries and greater progress in poverty alleviation, a find- ing endorsed by the analysis in the 1979 World Development Report. 1 The most recent World Bank staff projection of the flow of ODA is attached as Table 6 in the Statistical Annex. 320 Economic Prospects of the Contributors 16. Against this background of the need for a substantial increase in IDA's resources in the Sixth Replenishment, Deputies were provided with illustra- tive estimates of how the economies of the countries that contribute to IDA might evolve over the medium to long term future in order to place the scale of the Sixth Replenishment within the context of the budgetary possibilities and resource transfer policies of contributors. A longer term perspective is necessary because while contributors will be providing IDA with renewed commitment authority in the early 1980s, the actual cash impact on con- tributors is spread out over the decade as a whole as IDA draws on the contributions to meet disbursements. The table below illustrates how the pattern of disbursements arising from Sixth Replenishment credits is pro- jected with two thirds of disbursements occurring in the mid-1980s. It is according to this pattern. modified in the light of actual experience with disbursements, that drawings will be made by IDA on commitments by contributors to the Sixth Replenishment. Percent Drawings on Commitments to IDA6 FY81 1% FY82 5% FY83 13% FY84 20% FY85 20% FY86 15% FY87 10% FY88 7% FY89 5% FY90 4% 100% 17. Projections of the economies of the contributing countries for such a period ahead must necessarily be regarded as highly approximate because there can be many differences of view about the long term prospects for real growth and the possibilities for restraining price increases. The illus- trative estimate made by Bank staff for the Deputies showed the Gross Domestic Product (GDP) for the group of 26 countries that contributed to the Fifth Replenishment rising in nominal terms at about 10% per annum in the 1980s. According to this particular assumption a level of IDA6 of $12 billion would maintain the ratio of commitments by contribu- tors to IDA6 at the same ratio to GDP as in IDA5. Commitments to IDA and GDP of Contributors! [VA5 [VA6 FY78-80 FY81-83 Commitments to IDA ($ billion) 8.7 12.0 GDP of Contributors ($ billion) 18,900.0 26,000.0 Commitments % of GDP 0.046% 0.046% 1 GVP is for the total three-year replenishment period. 321 The Purchasing Power of IDA 18. The price increases affecting the economic capacity of countries to contribute to IDA are also reflected in the cost of the goods and services purchased from the credits made by IDA and erode the purchasing power of IDA's resources. It has become increasingly accepted in the course of successive replenishment negotiations that the scale of the replenishment should take into account these price increases so far as possible in order that the purchasing power of IDA can be maintained and increased in real terms. 19. Purchasing power calculations involve not only the uncertainties con- nected with projecting price increases over the period IDA disbursements take place, but also other assumptions such as the exchange rates to be used in translating price increases into US dollars in which IDA expresses its credits. In whatever way measured, the level of replenishment for IDA6 actually agreed provides IDA with an increase in its resources in real terms. IDA's Project Work 20. The proposal to provide IDA with an increase in its Sixth Replen- ishment resources in real terms has also taken into account information provided on IDA's capacity to make effective use of the resources in the poorest countries on projects and programs that have a sound economic and financial justification. 21. As mentioned earlier, the standards IDA applies in its work on devel- opment projects are the same as those of IBRD. IDA draws on the same staff resources. IDA's record to date in building up its operations in the poorest countries is shown in the table below: Number of IDA Operations in the Poorest Countries l fDA1 IDA2 IDA3 IDA4 lDA5 FY65-68 FY69-71 FY72-74 FY75-77 FY78-80 No. of Operations 27 50 98 125 189 % of Total IDA 33% 39% 46% 60% 57% 135 Primarily agricultural countries receiring IDA credits with a median per capita income of $200 (In 1977 dollars) as listed in Table 2 of the Statistical Annex. 22. A number of factors have entered into this build-up of IDA opera- tions which hold promise that IDA can continue to prepare projects in the Sixth Replenishment that will meet the same standards: -increased emphasis in IDA's project work on the staff resources devoted to project preparation; -greater reliance on local capabilities in generating projects; -technical and financial assistance provided borrowers by IDA for proj- ect preparation including advances from a recently established Project Preparation Facility; -increased attention to choosing an appropriate technological package for a project rather than the most advanced technical solution; 322 -the benefits from moving on to second generation projects after financ- ing the first pilot projects in earlier replenishments. 23. A sample of recently prepared and approved IDA projects shows a projected economic rate of return of 20% and in some cases much higher. An example of the way in which projects designed to reach the rural poor are also aimed to achieve major output objectives and secure a high return to the economy is provided by IDA lending in agriculture. At full produc- tion, food output (which accounts for about 70% of the agricultural out- put) is expected to increase by about 4.1 million tons a year from agricul- tural credits approved in FY78 and FY 79. Total FY78-79 a Cereals 2742 OiIcrops & Other Foods 1405 Total Food 4147 Non-Food 1937 Total 6084 a Volume expressed in '000 metric tons. Supervision, Evaluation and Audit 24. It takes on average about three years from the initial identification of a project to be financed by IDA to the point at which the proposal is to be considered by the Executive Directors. After approval, IDA is typically involved in supervising the implementation of the project for a further eight years. Through its supervision efforts, IDA seeks to ensure not only that the project is implemented successfully and that the proceeds of the credit are used for the purpose intended, but also that the lessons to be learned from the experience with the project are analyzed and used to improve IDA's future project work. 25. The procedure used by the Bank and IDA in project supervision and evaluation and how the use of the funds is controIIed and audited were described in detail to the Deputies. The paper prepared for Deputies pointed out the need to strengthen procedures for financial control and auditing standards in many of the countries to which IDA lends and the ways in which the Bank is providing increasing assistance in this area. Contributions to IDA6 26. In the light of the considerations described above, as weII as other factors, those countries which contributed to the Fifth Replenishment and in addition certain countries that are contributing resources to IDA for the first time have reached agreement on a proposed level for the Sixth Replen- ishment of IDA of $12 billion (SDR9.2 billion). The proposed amounts for each contributor are set out in the table below 1 (also attached to the draft Resolution). 1 For conl'enience. this report refers at l'arioUs points to the amount of the Sixth Replenishment expressed in SDR or US dollars equil'alent as of October 5, 1979; howe!'er. the obligations of members are in the respective units of obligation in the amounts shown in this table. 323 27. Those countries intending to participate in the Sixth Replenishment believe that the amounts and conditions stated below form an appropriate basis for recommendations to legislatures. Consequently, they intend to request, where necessary, their legislatures to approve these arrangements with a view to obtaining approval to commit the amounts listed in the table below. It is understood that no commitment by a government can be made until approval, where necessary, has been obtained from its legislature. CONTRIBUTIONS TO THE SIXTH REPLENISHMENT 1 (In millions) National US$ SDR Unit of Country Currency Equivalent Equi,'alent Oblilfation Argentina 37087.50 25.00 19.07 US Dollar Australia 203.53 229.20 174.83 Nat'l Curr. Austria 1034.20 81.60 62.25 Nat'! Curr. Be!gium 5743.58 201.60 153.78 Nat'! Curr. Brazil 2 1484.25 50.00 38.14 US Dollar Canada 601.81 516.00 393.61 Nat'! Curf. Denmark 743.04 144.00 109.85 Nat'! Curr. Fin!and 268.34 72.00 54.92 Nat'! Cure. France 2672.78 645.60 492.47 Nat'! Curf. Germany Ordinary 2535.41 1440.00 1098.46 SDR Extra 105.64 60.00 45.77 SDR Greece 220.85 6.00 4.58 Nat'! Curf. (Ice!and 3 1373.76 3.60 2.75 Nat'!Curr.) Ireland 6.23 !3.20 10m Nat'! Curro Ita!y 377223.00 462.00 352.42 Nat'! Curro Japan Ordinary 322992.00 1440.00 1098.46 Nat'!Curr. Extra 71224.22 317.54 242.22 Nat'! Curro Korea 1452.00 3.00 2.29 Nat'! Curf. Kuwait 55.20 200.00 152.56 Nat'! Curf. Luxembourg 170.94 6.00 4.58 Nat'! Curro Mexico 455.85 20.00 15.26 Nat'! Curf. Netherlands 704.16 360.00 274.61 Nat'! Curro New Zealand 10.00 10.02 7.65 Nat'! Curro Norway 708.84 144.00 109.85 Nat'l Curr. (Portuga!3,4 343.71 7.00 5.33 Nat'l Curr.) Romania 4 * Saudi Arabia 1304.55 * 390.00 * 297.50 US Dollar South Africa 8.26 10.00 7.63 Nat'l Curro Spain 3303.90 50.00 38.14 Nat'l Curro Sweden 1497.24 360.00 274.61 Nat'! Curro UAE 300.96 79.20 60.42 Nat'l Curro United Kingdom 554.97 1212.00 924.58 Nat'l Curf. United States 3240.00 3240.00 2471.53 Nat'! Curro Venezuela 4 85.85 20.00 15.26 Nat'! Curf. Yugoslavia 381.14 20.00 15.26 Nat'! Curf. Sub-T~tal 11838.56 9030.71 Unallocated 161.44 123.15 GRAND TOTAL 12000.00 9153.86 --- l~his table is based on IMF represenratil'e exchange rates and the SDR l'alue of currencies pub- lished by the IMF, on October 5, 1979. 'Brazil intends to pay US$20,44 million equiralent of its contribution to IDA6 through release in usable form of the 90% pOrtion of its initial subscription in the Association' since this amount does not represent a n~w subscription, it is not incJuded in the figures for Brazil 'in columns (C -4). (C-5), (C-6) and (C-7) In Table 2 to the ResolutiOn, and no additional ,'otes are pro"ided in respect thereof. 'Tentath'e figures, since as of December 12, 1979, Iceland alld Portugal were not ill a position to take a deCISIOn on these amounts. 4 fortugal, ~oman~a and Ve,nezuela are. not yet members of IDA, but are considering membership ~~p~~/:t~i;.twn wah the S,xth Replemshment; documents for that purpose would be circulated · Romania has preriously staled its intention to participate. 324 Other Possible Resources 28. In view of the resource requirements of the poorest countries, mem- bers are invited, where they can, to make additional voluntary contributions to IDA. Such additional contributions would be accepted by the Associa- tion on terms to be agreed with the contributing members.! 29. Depending on the income and reserve position of IBRD, it is also possible that, as in the past, the Bank will be in a position to make grants to the Association during the Sixth Replenishment commitment period. Any such grants, as well as repayments on previous credits totalling about $135 million, would be available for commitment in the Sixth Replenish- ment period. The phasing of IDA's commitments and operations during the Sixth Replenishment is discussed further in paragraph 44 below. c. SHARES IN THE SIXTH REPLENISHMENT 30. In the negotiations for the previous replenishment of IDA's resources, it was found that there was little room for changes in the relative shares taken up by the participating countries (the burden sharing arrangements) . In their report on the Fifth Replenishment the Deputies recommended that in order to facilitate negotiations for future replenishments a comprehen- sive review of burden sharing should take place before the start of the Sixth Replenishment negotiations. 2 31. Accordingly, a special meeting of Deputies was held in London in June 1978 to discuss the principles of burden sharing on the basis of a paper prepared by IDA. The consensus reached was that no universally applica- ble criterion or formula could be found on which to base shares in IDA and that as a result the negotiations on shares in the Sixth Replenishment should take as their starting point the shares negotiated in the previous replenishment. It was widely accepted that adjustments would need to continue to be negotiated on an ad hoc basis and that some such ad hoc adjustments would be required in the Sixth Replenishment. 32. During the Sixth Replenishment negotiations, Deputies were provided with data on a number of economic and financial indicators that discussions had suggested might be relevant to the distribution of shares such as GDP and the flow of Official Development Assistance from each country. Also included were indicators of changes that had taken place in the economic status of individual contributing countries between the time of the negotia- tions on the Fifth Replenishment and the start of the negotiations on the Sixth. 33. In the event, a rearrangement of shares has been negotiated in the Sixth Replenishment involving, in the main, reductions in the shares of the United States, Sweden and Canada, and increases by Germany and Japan. ~Switzerland, which is not a member 0/ IDA, intends. suhject fo parliamenfar,v approl'al, to conl'ert the prel'ious two loans to IDA 0/ 1967 and 1972 ,"" i, 'I';' I 50 years inc/udin[? a Krace period of 10 years. free of interest), amounting to SwF51.5 ",dl, I, ~ Jriginai I'a/ue 0/ SwF52 million minus first repayment) and SwF130 million respectil'eiy, into grants. 2lh, mtended loan from Switzerland und.r th. Fourth Replenishment WII (lJ"ted in I refertlldum In Jun. 1976. 345 SELECfED BURDEN SHARING INDICATORS GOP Indicators Other Indicators Real GOp 1977 Shares Trade Ave. Annual Ex-change GOP in GOP IOAS as IOA6 as with lOCs Growth Rate Rate ($bJ' (%) GOP 'p.C,b % GOpe % GOP (%)4 1975-78 Chanle (%ol' Australia 101.1 2.0 7190 .042 .048 2.0 2.6 -7.7 Austria 48.0 1.0 6380 .032 .030 0.5 3.3 10.9 Belgium 79.5 1.6 8080 .047 .045 2.3 3.3 11.5 Canada 198.1 4.0 8500 .064 .060 2.0 4.0 -26.9 Denmark 43.1 0.9 8470 .058 .063 0.8 2.7 2.4 Finland 29.7 0.6 6270 .038 .050 0.4 0.2 -16.1 france 377.7 7.6 7120 .031 .030 7.7 3.9 4.9 Germany Iceland Ireland 513.0 1.8 9.2 . 10.3 0.2 8360 8140 2890 .051 .028 .026 .052 .067 .024 9.1 0.2 3.6 3.6 4.5 13.5 -86.5 4.3 Italy 193.8 3.9 3430 .042 .044 4.1 3.1 -5.4 Japan 684.9 13.7 6020 .035 .037 17.2 5.6 20.7 Korea Kuwait luxembourg Netherlands 31.6 12.8 2.7 106.0 . 0.6 0.3 2.1 870 11640 7580 7650 .001 .379 .040 .061 .001 .276 .039 .062 0.9 1.4 3.0 11.3 1.0 2.7 3.2 -10.9 -5.6 11.5 10.5 New Zealand 14.3 0.3 4550 .015 .015 0.4 0.1 -0.8 Norway 35.8 0.7 8860 .062 .074 0.8 4.7 -8.0 Saudi Arabia 82.9 1.6 9010 .103 .065 4.5 11.5 -5.3 South Africa 38.9 0.8 1420 .007 .005 0.8 1.3 -11.1 Spain 115.8 2.3 3200 .004 .006- 1.8 1.9 -12.9 Sweden 78.4 1.6 9500 .103 .095 1.3 -0.1 -15.2 UAE 15.8 0.3 22570 .086 .082 1.0 7.2 -8.2 United Kingdom 244.4 4.9 4380 .094 .083 6.8 2.1 4.3 United States 1890.8 37.9 8720 .036 .036 30.3 4.9 -11.1 Yugoslavia 39.2 0.8 1810 .005 .008 0.6 5.7 -13.4 TOTAL 4989.3 100.00 7390 100.0 other ---- GRAND TOTAL 346 Annex B Table 8 Other Indicators Memo IBRD Capital Subscription t IMF Quotas t Multilateral Number Shares as % Shares as % Shares as,*, Shares as % Shares 1978 aDA DDA % of of of all Bank of Contributors of all rMF of Contnbutors ;n % of GNP TotalODA Shares Members to ICAS SDRs m Members to ICAS IDAS 0.45 14.66 12737 1.9 2.7 !l85.0 2.0 2.9 1.91 0.27 25.00 5469 0.8 1.1 495.0 0.8 1.2 0.68 0.55 42.06 14321 2.2 3.1 1335.0 2.3 3.3 1.68 0.52 38.84 21782 3.4 4.7 2035.5 3.5 5.0 4.30 0.75 43.78 5136 0.8 1.1 465.0 0.8 1.2 1.20 0.18 57.14 4393 0.6 0.9 393.0 0.7 1.0 0.60 0.57 13.05 34260 5.3 7.4 2878.5 4.9 7.1 5.38 0.31 21.57 34347 5.3 7.4 3234.5 5.5 8.0 12.50 680 0.1 0.1 43.5 0.1 0.1 0.03 2701 0.4 0.5 232.5 0.4 0.6 0.11 0.06 86.50 19842 3.1 4.3 1860.0 3.2 4.6 3.85 0.23 30.88 34206 5.3 7.4 2488.5 4.3 6.2 14.65 2947 0.4 0.6 255.9 0.4 0.6 0.03 4.32 32.52 6451 0.9 1.3 393.3 0.7 1.0 1.67 825 0.1 0.1 46.5 0.1 0.1 0.05 0.82 26.40 15117 2.3 3.2 1422.0 2.4 3.5 3.00 0.34 18.18 3903 0.6 0.8 348.0 0.6 0.9 0.08 0.90 45.63 4916 0.7 1.0 442.5 0.8 l.l 1.20 2.17 30.35 ll212 1.7 2.4 1040.1 1.8 2.6 325 6954 1.0 1.5 636.0 l.l 1.6 0.08 9061 1.4 1.9 835.5 1.4 2.1 0.42 0.90 37.80 7367 1.1 1.5 675.0 1.2 1.7 3.00 5.36 16.26 2385 0.3 0.5 202.6 0.4 0.5 0.66 0.40 30.42 50586 7.8 10.9 4387.5 7.5 10.9 10.10 023 27.94 150745 23.4 32.7 12607.5 21.5 31.2 27.00 4631 0.7 0.9 415.5 0.7 1.0 0.17 0.37 27.84 466974 71.6 100.0 40353.9 68.9 100.0 97.60 209413 28.4 18257.0 31.1 2.40' 676387 100.0 58610.9 100.0 100.00 · GOP at market pme! converted into current US$ at average 1977 ex-chan,e rates. bGOP at market prices converted to current US$ at average 1971 exchange rates divided by mid·1977 population estimates. The results have been rounded to the nearest ten. ~ Contributions to the Fifth Replenishment (excluding special contributions) 10 national currencies expressed as a percent of the estimated or projected GOP of contnbutors in nahona! currenCies for the three years FY78-80. The median value IS 0.041%. dOefined to exclude members of DECO, oll-ellporl.ng countnes (Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Oman, Qatar, Saudi Arabia, United Arab Em.rates, Venezuela), other Europe (Faeroe IslandS, Finland, Gllbraltar, Greece, Iceland, Ireland, Malta, portul'al, Roman.a, Spain, Turkey, YUl'oslavlI), Australia, New Zealand, South Afflca, and the Centrarry Planned Economies . .. Indicates exchange rate change from the end of the IOAS negotiations to the beginning of the tOA6 negotiations. t On the assumption that each country takes up the subscflPt,on/quota available to It In the IBRO General Cap.tal Increase and the IMF Seventh ReView of Quotas. 1T0tai share of seven new donor countries (Argentma, Brazil, Greece, MalaySia, Mexico, Portugal, Venezuela) and unallocated. *Less than 0.1%. Anne.J: B Table 9 SUMMARY OF IDA RESOURCES (As of June 30, 1979) In Current $ Source ($ m.ll,ons) Initial Subscription (FY6J.64) 991 First Replenishment (FY65-68) 900 Second Replenishment (FY69·7J)· 1464 Th"d Replenishment (FY]2.74)· 2999 Fourth Replenishment (FY75·77J 4394 Fifth Replenishment (FY 78-80) 8534 Special Contributions' 133 Transfers frDm IBRO Profits 1368 Other Sources' 122 TOTAl 20905 · Includes SWISS Joan. bTotal of SpeCial Contributions for tOAl and IOAS qh,s includes the IDA's net lAcome, grant partiCipations and repayments to IDA. 347 VOTING POWER OF PART I MEMBERS Fifth Replenilhment MeMber Cumulative Resources ($th) Number Sublcrip Votll "PlI Votin, Power Number .. Addition.! Resources ($th) Australia 380,988 45352 2.12 52652 1.37 229,200 Austria 121,992 14522 .68 21822 .57 81,600 Ballium 294,833 35097 1.64 42397 1.11 201,600 Canada 1,089,171 129725 6.06 137025 3.57 516,000 Denmark 227,258 27053 1.26 34353 .90 144,000 finland 93,280 11104 .52 18404 .48 72,000 france 1,103,583 131369 6.13 138669 3.62 645,600 Germany 1,928,201 229531 10.72 236831 6.18 1,500,000 Iceland 4,214 502 .02 7802 .20 3,600 Ireland 25,980 3093 .14 10393 .27 13,200 Italy 710,366 84561 3.95 91861 2.40 462,000 Japan 1,631,198 194176 9.07 201476 5.25 1,757,540 Kuwait 254,650 30313 1.42 37613 .98 200,000 luxembourg 8,926 1063 .05 8363 .22 6,000 Netherlends 528,243 62882 2.94 70182 1.83 360,000 New Zealand 26,146 3113 .15 10413 .27 10,020 Norway 194,598 23164 1.08 30464 .79 144,000 South Africa 43,224 5145 .24 12445 .32 10,000 Sweden 722,581 86015 4.02 93315 2.43 360,000 United Arab Emirates 50,755 6041 .28 13341 .35 79,200 United Kingdom 2,152,870 256276 11.96 263576 6.87 1,212,000 United States 6,399,913 761839 35.57 769139 20.06 3,240,000 Sub-total PI·I 17,993,568 2141936 100.00 2302536 60.04 11,247,560 348 Amlex B Table 10 Sixth Replenishment Add.t Addit Cumutlltrve Subswp Votes Vot.ne Power Subs 10tl' Resources Votes Votes ($'" Number 'JI,PI) Number 'JI, 13863 16463 610,188 59215 2.08 69115 1.34 5235 7835 203,5~2 19757 .69 29657 .57 13079 15679 496,433 48176 1.69 58076 1.12 26105 28705 1,605,771 155830 5.46 165730 3.21 8975 11575 371,258 36028 1.26 45928 .89 4935 7535 165,280 16039 .56 25939 .50 38379 40979 1,749,183 169748 5.95 179648 3.48 103155 105755 3,428,201 332686 11.66 342586 6.63 256 2856 7,814 758 .03 10658 .21 709 3309 39,180 3802 .13 13702 .27 29210 31810 1,172,366 113771 3.99 123671 2.39 134680 137280 3,388,737 328856 11.53 338756 6.56 13808 16408 454,650 44121 1.55 54021 1.05 385 2985 14,926 1448 .05 11348 .22 23316 25916 888,243 86198 3.02 96098 1.86 397 2997 36,166 3510 .12 13410 .26 9695 12295 338,598 32859 1.15 42759 .83 20 2620 53,224 5165 .18 15065 .29 19043 21643 1,082,581 105058 3.68 114958 2.22 6570 9170 129,955 12611 .44 22511 .44 70264 72864 3,364,870 326540 11.44 336440 6.51 173656 176256 9,639,913 935495 32.79 945395 18.29 695735 752935 29,241,128 2837671 99.45 3055471 59.13" -Details may not add due to round In,. 349 VOTING POWER OF PART n MEMBERS Fifth Replenishment Cumulative SubstrlP Votes yotin. Power Addlt Resources Subs .Member (;th) Number % Pt II Number 'lb Votes Afghanistan 1,319 2784 .35 10084 .26 873 Algeria 5,261 11181 1.39 18481 .48 3505 Argentina 25,076 52355 6.52 59655 1.56 16412 )langladesh 7,025 14939 1.86 22239 .58 4683 Benin 653 1388 .17 8688 .23 435 Bolivia 1,382 2930 .37 lO230 .27 918 Botswana 209 447 .06 7747 .20 140 Brazil 25,076 52355 6.52 59655 1.56 16412 Burma 2,637 5622 .70 12922 .34 1762 Burundi 993 2107 .26 9407 .25 660 Cameroon 1,319 2784 .35 10084 .26 873 Cape Verde 105 222 .03 7522 .20 70 Central African Rep 653 1388 .l7 8688 .23 435 Chad 653 1388 .17 8688 .23 435 Chile 4,608 9813 1.22 17113 .45 3076 China 39,504 84011 10.47 91311 2.38 26335 Colombia 4,751 9832 1.23 17132 .45 3082 Comoros 105 222 .03 7522 .20 70 Congo 653 1388 .17 8688 .23 435 Costa Rica 262 544 .07 7844 .20 171 Cyprus 993 2107 .26 9407 .25 660 Dominican Republic 591 1126 .14 8426 .22 353 Ecuador 849 1807 .23 9107 .24 566 Egypt 6,631 14103 1.76 21403 .56 4421 EI Salvador 416 826 .10 8126 .21 259 Equatorial Guinea 417 892 .11 8192 .21 280 Ethiopia 677 1391 .17 8691 .23 436 Fiji 731 1562 .19 8862 .23 490 Gabon 653 1388 .17 8688 .23 435 Gambia, The 349 744 .09 8044 .21 233 Ghana 3,081 6543 .82 13843 .36 2051 Greece 3,290 6988 .87 14288 .37 2191 Grenada 117 237 .03 7537 .20 74 Guatemala 522 1117 .14 8417 .22 350 Guinea 1,319 2784 .35 10084 .26 873 Guinea-Bissau 182 374 .05 7674 .20 117 Guyana 1,058 2253 .28 9553 .25 706 Haiti 993 2107 .26 9407 .25 660 Honduras 391 824 .10 8124 .21 258 India 52,678 112075 13.97 119375 3.l1 35133 350 AmIeJ: B Table 10 Sixth Replemshment Resources Soec Addlt Cumulative Subscnp Votes VoMI Power In Usable Sub. Total Resources Form ($th) Yotes Votes (Ith) Number % Pt II Number % 3473 1,340 3657 .33 13557 .26 6105 5,349 14686 1.33 24586 .48 25,000 2386 21398 50,Q76 71153 6.43 81053 1.57 7283 7,142 19622 1.77 29522 .57 3035 664 1823 .16 11723 .23 3518 1.405 3848 .35 13748 .27 2740 212 587 .05 10487 .20 29,560 2829 21841 54,636 71596 6.47 81496 1.58 4362 2,681 7384 .67 17284 .33 3260 1,009 2767 .25 12667 .25 3473 1,340 3657 .33 13557 .26 2670 107 292 .03 10192 .20 3035 664 1823 .16 11123 .23 3035 664 1823 .16 11723 .23 5676 4,685 12889 1.16 22789 .44 28935 40,163 110346 9.97 120246 2.33 5682 4,828 12914 1.17 22814 .44 2670 107 292 .03 10192 .20 3035 664 1823 .16 11723 .23 2771 266 715 .06 10615 .21 3260 1,009 2767 .25 12667 .25 2953 600 1479 .13 11379 .22 3166 863 2373 .21 12273 .24 7021 6,742 18524 1.67 28424 .55 2859 423 1085 .10 10985 .21 2880 424 1172 .11 11072 .21 3036 688 1827 .17 11727 .23 3090 743 2052 :19 11952 .23 3035 664 1824 .16 11723 .23 2833 354 977 .09 10877 .21 4651 3,132 8594 .78 18494 .36 6,000 577 5368 9,290 9756 .88 19656 .38 2674 119 311 .03 10211 .20 2950 531 1467 .13 11367 .22 3473 1,340 3657 .33 13557 .26 2717 185 491 .04 10391 .20 3306 1,076 2959 .27 12859 .25 3260 1.009 2767 .25 12667 .25 2858 397 1082 .10 10982 .21 37733 53,556 147208 13.30 157108 3.04 * Details may not add due to round in,. 351 VOTING POWER OF PART II MEMBERS Fifth Replel'lishment Cumulative SUbscnp Votes Votinl Powllr Addlt Resources Subs Member ($th) Number % Ptll Number 'lb vohs Indonesia 14,492 30828 3.84 38128 .99 9664 Iran 5,927 12611 1.57 19911 .52 3953 Iraq 993 2107 .26 9407 .25 660 Israel 3,130 4807 .60 12107 .32 1507 Ivory Coast 1,319 2784 .35 10084 .26 873 lordan 391 824 .10 8124 .21 258 Kampuchea Democratic 1,332 2845 .35 10145 .26 892 Kenya 2,193 4660 .58 11960 .31 1461 Korea 2,626 3632 .45 10932 .29 1139 lao People's Oem Rep 653 1388 .17 8688 .23 435 Lebanon 587 1262 .16 8562 .22 396 Lesotho 209 447 .06 7747 .20 140 Liberia 993 2107 .26 9407 .25 660 Libya 1,319 2784 .35 10084 .26 873 Madagascar 1,319 2784 .35 10084 .26 873 Malawi 993 2107 .26 9407 .25 660 Malaysia 3,290 6988 .87 14288 .37 2191 Maldives 39 82 .01 7382 .19 26 Mali 1,135 2407 .30 9707 .25 755 Maurilania 653 1388 .17 8688 .23 435 Mauritius 1,159 2402 .30 9702 .25 753 Mexico 11,412 24299 3.03 31599 .82 7617 Morocco 4,608 9813 1.22 17113 .45 3076 Nepal 653 1388 .17 8688 .23 435 Nicaragua 391 824 .10 8124 .21 258 Niger 653 1388 .17 8688 .23 435 Nigeria 4,386 9319 1.16 16619 .43 2921 Oman 416 826 .10 8126 .21 259 Pakistan 13,293 28055 3.50 35355 .92 8795 Panama 27 69 .01 7369 .19 22 Papua New Guinea 1,123 2398 .30 9698 .25 752 Paraguay 391 824 .10 8124 .21 258 Peru 2,310 4931 .61 12231 .32 1546 Philippines 6,760 14043 1.75 21343 .56 4402 Rwanda 993 2107 .26 9407 .25 660 Sao Tome & Principe 105 195 .02 7495 .20 61 Saudi Arabia 354,775 51938 6.47 59238 1.54 16281 Senegal 2,193 4660 .58 11960 .31 1461 Sierra Leone 993 2107 .26 9407 .25 660 Somalia 993 2107 .26 9407 .25 660 Spain 49,521 32784 4.09 40084 1.05 10277 Sri Lanka 3.956 8405 1.05 15705 .41 2635 Sudan 1,319 2784 .35 10084 .26 873 Swaziland 417 893 .11 8193 .21 280 Syrian Arab Republic 1,240 2627 .33 9927 .26 824 Tanzania 2,193 4660 .58 11960 .31 1461 Thailand 3,956 8405 1.05 15705 .41 2635 Togo 993 2107 .26 9407 .25 660 Trinidad & Tobago 1,762 3750 .47 11050 .29 1176 Tunisia 1,972 4206 .52 11506 .30 1318 Turkey 7,760 16150 2.01 23450 .61 5063 Uganda 2,193 4660 .58 11960 .31 1461 Upper Volta 653 1388 .17 8688 .23 435 Viet Nam 1,972 4206 .52 11506 .30 1318 Western Samoa 117 237 .03 7537 .20 74 Yemen Arab Republic 561 1194 .15 8494 .22 374 Yemen, PDR 1,542 3291 .41 10591 .28 1032 Yugoslavia 22,847 13411 1.67 20711 .54 4204 Zaire 3,944 8397 1.05 15697 .41 2632 Zambia 3,512 7484 .93 14784 .39 2346 Sub-Total Part II 761,833 802522 100.00 1532522 39.96 251569 GRANO·TOTAL 18,755.401 2944458 3835058 100.00 352 AmIex B Table 10 Sixth Replenishment Rnollrces Spec Addit Cumulative Subscrip Votes Yotln. Power In Usable Subs Total Resources Form ($th) Votes Votes ,,'") Number 'Ii. PI II Number 'JI, 12264 14,733 40492 3.66 50392 .98 6553 6,026 16564 1.50 26464 .51 3260 1,009 2767 .25 12667 .25 4107 3,168 6314 .57 16214 .31 3473 1,340 3657 .33 13557 .26 2858 397 1082 .10 10982 .21 3492 1,354 3737 .34 13637 .26 4061 2,230 6121 .55 16021 .31 3,000 288 4027 5,626 5059 .46 14959 .29 3035 664 1823 .16 11723 .23 2996 597 1658 .15 11558 .22 2740 212 587 .05 10487 .20 3260 1,009 2767 .25 12667 .25 3473 1,340 3657 .33 13557 .26 3473 1,340 3657 .33 13557 .26 3260 1,009 2767 .25 12667 .25 4791 3,344 9179 .83 19079 .37 2626 39 lOB .01 10008 .19 3355 1,154 3162 .29 13062 .25 3035 664 1823 .16 11723 .23 3353 1,178 3155 .29 13055 .25 20,000 1922 12139 31,412 33838 3.06 43738 .85 5676 4,685 12889 1.16 22789 .44 3035 664 1823 .16 11723 .23 2858 397 1082 .10 10982 .21 3035 664 1823 .16 11723 .23 5521 4,459 12240 1.11 22140 .43 2859 423 1085 .10 10985 .21 11395 13,513 36850 3.33 46750 .90 2622 27 91 .01 9991 .19 3352 1,142 3150 .28 13050 .25 2858 397 1082 .10 10982 .21 4146 2,349 6477 .59 16377 .32 7002 6,870 18445 1.67 28345 .55 3260 1,009 2767 .25 12667 .25 2661 106 256 .02 10156 .20 390,000 3780B 56689 744,775 106027 9.58 115927 2.24 4061 2,230 6121 .55 16021 .31 3260 1,009 2767 .25 12667 .25 3260 1,009 2767 .25 12667 .25 50,000 4827 17704 99,521 47888 4.33 57788 1.12 5235 4,021 ll040 1.00 20940 .41 3473 1,340 3657 .33 13557 .26 2880 424 1173 .11 11073 .21 3424 1,261 3451 .31 13351 .26 4061 2,230 6121 .55 16021 .31 5235 4,021 11040 1.00 20940 .41 3260 1,009 2767 .25 12667 .25 3776 1,792 4926 .45 14826 .29 3918 2,005 5524 .50 15424 .30 7663 7,887 21213 1.92 31113 .60 4061 2,230 6121 .55 16021 .31 3035 664 1823 .16 11723 .23 3918 2,005 5524 .50 15424 .30 2674 119 311 .03 10211 .20 2974 570 1566 .14 11468 .22 3632 1,568 4323 .39 14323 .28 20,000 1931 8735 42,847 19546 L77 29446 .57 5232 4,009 11029 LOO 20929 .40 4946 3,570 9830 .89 19730 .38 543,560 52568 564137 1,305,393 ll06659 100.00 2096659 40.57" 11,791,120 1317072 30,546,521 3944330 5152130 99.70· -Details may not add due to roundln,. 353 REPORT OF THE CHAIRMAN OF THE DEVELOPMENT COMMITTEE September 29, 1980 Sir: As Chairman of the Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries (Development Committee), I have the honor to present herewith to the Boards of Governors a report by the Committee on the progress of its work during the period July 1979-June 1980. The report is presented in compliance with Section 5 (i) of the Bank Board of Governors Resolution No. 294 and the Fund Board of Governors Resolution No. 29-9, adopted on Ocotber 2, 1974. Sincerely yours, /s/ Cesar E. A. Virata 354 REPORT OF THE JOINT MINISTERIAL COMMITTEE OF THE BOARDS OF GOVERNORS OF THE BANK AND THE FUND ON THE TRANSFER OF REAL RESOURCES TO DEVELOPING COUNTRIES July 1979-June 1980 I. INTRODUCTON 1. This is the sixth annual report of the Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries (Development Committee). It covers activities from July 1979 to June 1980. 2. The Development Committee was established to provide a focal point in the structure of economic cooperation for formation of a comprehen- sive overview of the development process and to consider all aspects of the broad question of the transfer of real resources to developing countries. During the year under review the Committee sought to promote inter- national consensus at a high political level on a number of vital issues of mutual interest to the developed and the developing countries. The dis- cussions were designed to facilitate decisions on development issues III other appropriate bodies. 3. The Committee held two meetings during the year-the first in Belgrade on September 30, 1979 at the time of the Annual Meetings of the Boards of Governors of the Bank and the Fund, and the other in Hamburg on April 24, 1980. At the technical and preparatory level the two Task Forces set up by the Committee for the study of the role and scope of private foreign investment and of non-concessional capital flows held a series of meetings during the year. The Task Force on Private Foreign Investment is expected to present its final report and recommenda- tions to the next meeting of the Development Committee. The Task Force on Non-concessional Flows will present a progress report at that time and will submit its final report in 1981. 4. This was the first full year of the Committee's operations under the reorganization of its work and the restructuring of the Secretariat functions which were put into effect from April 1, 1979. The objective was to enhance the effectiveness of the Committee through a greater involvement of the staffs and the Boards of the two institutions. The changes introduced made the organization of the Committee's work the joint responsibility of the Chairman of the Development Committee, the President of the Bank and the Managing Director of the Fund, assisted by the Executive Secre- tary. This change, which will be more fully evaluated at the time of the review of the Committee now due to take place in 198 I, has already resulted in greater involvement of the management and the Boards of the two institutions. 5. The main thrust of the Committee's work in the period under review has been on concessional and non-concessional capital flows to developing 355 countries, the role and scope of private foreign investment and the contri- bution that the Fund and the Bank could make to meet the medium-long term needs of developing countries for structural adjustment. The study of these subjects was facilitated by a detailed analysis of the world economic situation, trends and projections contained in the World Development Report and the World Economic Outlook documents prepared by the Bank staff and the Fund staff, respectively. The Committee also gave pre- liminary consideration to the recommendations arising from the G-24 Program of Immediate Action and the Report of the Brandt Commission, and will be continuing its work in relation to these reports in the coming year. II. COMMITTEE CONSIDERATION OF MAJOR QUESTIONS AFFECTING RESOURCE TRANSFERS A. World Development Report and Economic Situation and Prospects Facing the Developing Countries 6. The World Development Report, 1979, was the second in the series and, with its global survey of the economic situation and future trends, statistical data and analytical work, served as a valuable background to the Committee's discussions on many current development issues. While the 1978 report gave particular attention to the problems and prospects of the poor countries of Asia and sub-Saharan Africa, the 1979 report paid special attention to the development issues faced by the middle-income countries, particularly in the areas of industrialization and urbanization and the importance of achieving balance and complementarity between industry and agriculture. 7. So far as capital needs are concerned, the net disbursements of medium and long-term capital to developing countries needed to support the relatively modest growth rates postulated in the report were estimated at $122 billion in 1985 and $183 billion in 1990, as compared with $46 bil- lion in 1976. These are formidable figures and massive efforts will be needed both on the part of the international community and of the developing countries. 8. The analysis in the report and the alternative set of projections for future developments up to 1990 highlight the crucial role of development strategies and policies in creating productive employment and alleviating poverty in the developing world-a task which can be accomplished only in an improved international environment of liberal trade regimes and increased capital flows. 9. The Committee discussed the deteriorating global economic situation. The background papers prepared by the Bank and the Fund depicted a severe and worldwide problem of high inflation, rising unemployment and slower rates of growth. The unfavorable impact on import costs of the 356 second major increase in oil prices and of higher rates of inflation in the industrialized countries, and the slower growth of the export earnings of developing countries in the face of sluggish growth rates in the industrial countries had a particularly severe effect on most developing countries. In this connection, the Development Committee has called for the avoidance and reduction of any protectionist trade measures which adversely affect the exports of developing countries. The oil-importing developing coun·· tries were expected to face massive current account deficits rising from $36 billion in 1978 to an estimated $68 billion in 1980, and as much as $80 billion in 1981. The position of the low- income developing countries is more vulnerable and serious as they have limited scope for adjustment in their economies and have to place greater reliance on official develop- ment assistance. ODA, as a whole, has shown little real growth; the Committee agreed that present flows of concessi anal assistance were in- adequate to meet the needs of the poorer developing countries and that unless urgent action were taken their condition would further deteriorate. The middle-income developing countries, which had been meeting and will continue to meet a large portion of their financial requirements through borrowings from the private sector, also face a difficult situation in the period ahead. In present circumstances, most countries will have to adjust and avoid over-expansionary policies. Developments in international financial markets particularly in early J 980 made it more difficult and expensive for developing countries to secure appropriate long-term financing for their development programs. The cumulative increase in debt as a result of prolonged deficits makes the adjustment process all the more necessary. 10. The Committee viewed this global economic deterioration with con- cern and recognized the need for prompt corrective action to avoid a sharp deterioration in the social and economic environment in many of the developing countries. The major studies undertaken and considered in this context are briefly described in the part of the report which follows. B. Financial Flows to Developing Countries and the Adjustment Process 11. The Committee, in the context of the marked deterioration of the external position of the developing countries, recognized that there was clear need for broad multilateral efforts to meet the situation. It considered, under several items, and, on the basis of different studies, a whole range of specific issues and methods for increasing the volume and quality of financial flows, including the extension of co-financing programs and close collaboration between the Fund and the Bank to deal with medium and long-term structural problems. (i) Improvements in Fund Facilities 12. The Committee noted with satisfaction a number of developments that had recently enhanced the Fund's capacity to assist its members, e.g., 357 agreement on the Seventh General Review of Quotas, the coming into force of the supplementary financing facility, the adoption of new guidelines on conditionality and improvements in the compensatory financing facility, making it a more effective mechanism to assist members in dealing with problems of fluctuations of export earnings. At their meeting in September 1979 the Committee requested the Executive Board of the Fund to give further consideration to increasing the maximum repurchase period of the extended fund facility from 8 to 10 years and at their meeting in April 1980 they noted the Board's decision to adopt this course, as well as to reduce the number and frequency of repurchase installments. The combined effect of these measures will be to increase the average life of drawings outstanding under this facility by almost one-fifth. This action will spread the adjust- ment effort over a longer period and lessen the financial burden of using the extended fund facility. 13. The Committee also considered the need to lower the cost of the Fund's new supplementary financing facility to encourage its greater use by member countries which require balance of payments financing in larger amounts and for longer periods than normally covered by the Fund's regular credit tranches. This improvement would be of special advantage to developing countries and the Committee expressed the hope that the Fund would develop appropriate mechanisms to this end. (ii) Funding of the World Bank and Regional Banks 14. The Committee welcomed the agreements on doubling the capital of :the World Bank and on substantial increases in the capital of the African Development Bank and the Inter-American Development Bank. It also Iwelcomed the conclusion of negotiations for the Sixth Replenishment of IDA at $12 billion for the period 1980-82, representing a significant in- ~rease in real terms, as well as similar replenishments of the concessional resources of the Inter-American Development Bank, the International Fund for Agricultural Development and The OPEC Fund for International Development (formerly The OPEC Special Fund). At the same time, however, they expressed concern at the delay in giving legislative effect to these agreements and urged member governments to take all necessary steps to ensure continuity in the operations of these institutions. (iii) aDA Flows 15. While recogmzmg the difficulties facing some donor countries, the Committee reaffirmed the strong and urgent need for increasing the volume 'Of official development assistance directed toward achieving the target of 0.7 per cent of GNP, particularly by those countries which are now at relatively low levels in relation to their GNP. Many Members stressed that the low performers should commit themselves to specific and substantial annual growth rates in their ODA programs in real terms. The Committee also stressed the need for ODA to be concentrated more particularly on 358 low-income countries. Moreover, while there has been a significant im- provement in the terms of aDA flows, more can be done to improve the quality of such flows through untying of aid, providing more quick dis- bursing type assistance and financing local costs. In view of the critical importance of concessional flows for the low-income countries, the Com- mittee has asked for a further study on the issue of aDA flows, both present and prospective, and on ways and means to improve the present unsatis- factory situation. (iv) Program Lending for Structural Adjustment 16. The Committee welcomed the Bank's proposal to increase its program lending and in particular to make structural adjustment loans on appropriate terms and conditions to countries which face a severe balance of payments deficit over a prolonged period. This type of assistance should help the affected countries to carry out structural adjustments in their economies that were necessary to avoid further balance of payments crises and to pursue an orderly and sustained program of development. The adjustment process would comprehend a widespread effort including a more effective use of capital, increased domestic savings, expansion in domestic production of energy and its conservation, larger output of food and efficient import substitution and export expansion and diversification. This challenging task will obviously require both additional resources and time, and the type of structural adjustment lending envisaged is designed to help the countries meet this challenge. Regional institutions were also invited to review their present policies and practices in the light of the current prospects for developing countries. (v) Co-financing 17. The Committee noted the rapid increase which had taken place in co-financing programs of the World Bank with official aid agencies, export credit institutions and private lenders. The volume of co-financing opera- tions is expected to reach almost $5 billion in FY80, which includes about $1.5 billion of co-financing with commercial banks. This rapid increase was, however, still small in relation to the need. The Committee therefore suggested that capital exporting countries should explore what further action could be taken to encourage greater use of this mechanism by their private banks. It also requested the World Bank and regional institutions to explore steps to further expand their co-financing programs. (vi) Task Force on Non-consessional Flows 18. The efforts of the two Bretton Woods institutions and the regional banks, though important both in themselves and as catalysts for stimulating additional flows from bilateral agencies and others, would clearly need to be supplemented by other sources of finance. There is a rising need for non-concessional funds to assist developing countries facing extraordinarily 359 large and persistent balance of payments deficits which could not possiQly be met by official financial flows. The Committee therefore decided to set up a Task Force to examine problems related to non-concessional flows as a matter of urgency and to report to the Committee with specific recommendations for action that will help in the solution of this problem. C. Stabilization of Export Earnings 19. This is a subject of great importance to many developing countries and particularly those which are heavily dependent upon primary com- modity exports. In 1978 the Committee had requested the Bank and the Fund to prepare a detailed study on this subject for its consideration. 20. This study was submitted to the Committee at its September 1979 meeting. The Committee recognized that through coordinated action the Bank and the Fund had developed the capacity to meet the needs of coun- tries suffering from shortfalls and noted in particular the progress that the two institutions had made in providing finance for medium-term commodity shortfalls and in reducing dependence on primary commodities. It re- quested the Executive Boards of the two institutions to keep this matter under review. 21. The Committee welcomed the recent decision of the Executive Board of the Fund to liberalize the Fund's compensatory financing facility by raising the limit on the amount of drawings outstanding under the facility, eliminating the annual limit on drawings and extending the coverage of the facility to include tourism and workers' remittances. The changes constitute a substantial improvement in the Fund's compensatory financing facility, making it a more effective mechnnism to assist members in dealing with problems of fluctuations of export earnings. The Committee noted that in the longer run vulnerability to fluctuating export earnings would be reduced by diversifying exports. The Bank and IDA resources should con- tinue to be made available to improve export potential through diversifica- tion. The Committee also welcomed the new convention replacing the Lome Convention and the new features of the ST ABE X incorporated in the new convention. They also noted with satisfaction the progress made in negotiations for the setting up of a Common Fund for commodities. 22. It was agreed that the subject of export earnings stabilization would be reviewed by the Committee in a year's time in the light of experience in operation of the recently improved CFF, the ongoing negotiations on the Common Fund, and the further study of the matter being undertaken in UNCTAD in cooperation with Fund staff. D. Group of Twenty-four Program of Immediate Action 23. At the Belgrade meeting of the Development Committee, the Group of Twenty-four, with the unanimous support of the Group of Seventy-seven, presented a detailed paper containing comprehensive proposals to achieve international monetary and financial reforms. The paper sketched out some 13 measures in the areas of money, trade, and transfer of real 360 resources to developing countries. Many of these proposals have also been supported in the report of the Brandt Commission. 24. The Committee took note of the document circulated at the meeting and agreed to keep its proposals in view in its search for specific measures within the framework of a broad multilateral effort which the world economic situation demanded. 25. The Committee at its Hamburg meeting reviewed the current state of discussions relating to the G-24 Program of Immediate Action. While recognizing that international agreement had been reached on some of the proposals and that some others were under discussion, they stressed the importance of reaching early agreement on other items of a developmental character, particularly an increase in the volume of ODA, completion of the process of the Sixth Replenishment of IDA and a significant increase in the amount of program lending. A number of the proposals in the G-24 paper relate to monetary issues; at its meeting in Hamburg, the Interim Committee requested the Fund to begin an in-depth examination of these issues with a view to substantive discussion at its September meeting. The Fund has begun this task and the Fund Board is discussing staff reports relating to a number of issues. A progress report is to be submitted to the Interim Committee on these matters. It will also be made available to the Members of the Development Committee. E. Brandt Commission Report-Preliminary Discussion 26. The Brandt Commission, which was set up in 1978 at the initiative of Mr. Robert S. McNamara, President of the World Bank, published its report in February 1980. The mandate of the Commission was "to study the grave global issues arising from the economic and social disparities of the world community and to suggest ways of promoting adequate solutions to the problems involved in development and in attacking absolute poverty". Further, the Commission was "to identify desirable and realistic directions for international development policies in the next decade ... ". 27. The Commission's report offers both a comprehensive analysis of the economic and development problems facing the world and directions in which solutions need to be found in the interests of both the developed North and the developing South. The report suggests that the growing and strong mutuality of interests between the North and the South and the increasing global interdependence are not yet fully understood and ap- preciated. The report therefore emphasizes that the self-interest of all the nations in a common approach must be recognized and must provide the framework for international action. It presents an emergency program for early adoption while work and preparation on its more far-reaching pro- posals are set in motion. The Committee, at its Hamburg meeting, wel- comed the publication of the Brandt Commission Report and viewed its recommendations as a useful basis for consideration by the interl!ational community. The Committee noted that a considerable number of the proposals related to the Bank, the Fund, and the regional banks and that 361 these institutions are currently examining these recommendations. They requested that specific papers should be prepared on those recommendations of the Commission's report that were of particular relevance to the Com- mittee's work. The work is currently in hand and reports by the Bank and the Fund will be considered by the Committee at its September 1980 meeting. F. Other Matters (i) Working Group Report on Multilateral Development Institutions 28. Among other matters considered by the Committee during the year was the Working Group Report on Multilateral Development Institutions. This report provided extensive statistical and analytical material on these institutions and highlighted the important role which they playas channels for the transfer of resources to developing countries. A desire was ex- pressed that periodic updating of a study of this nature and its presentation to the Committee would serve a useful purpose. (ii) Special Action Program 29. The Secretariat's brief progress report on the Special Action Program indicated that the whole of the $1 billion pledged by the donor government participants at the CIEC meeting in 1977 had now been committed to a variety of purposes and that the disbursements would be completed in the early 1980s. (iii) Restrictions on access to capital markets 30. The Committee welcomed the second annual Fund staff report on recent developments in developing country access to capital markets. The preparation of such a report, based on the Fund's regular consultations with member countries, was considered to be of particular importance in the light of the need for developing countries to secure non-concessional funds at longer maturities and to tap sources which they had not so far been able fully to exploit. m. FUTURE TASKS 31. The period ahead, when the world will continue to face acute and persistent economic difficulties, will be one of intense debate and search for solutions. Impending negotiations, particularly in the UN General Assembly, and the debate around the 73 recommendations in the report of the Brandt Commission and the Program of Immediate Action on In- ternational Monetary Reform prepared by the Group of Twenty-four will command the attention of all those concerned with deVelopment issues. In this context, the Development Committee, with its broad representation, its compact size, and the expertise of its Members, would seem to be an appropriate forum in which to promote international consensus particularly on issues relevant to the World Bank and in some cases the IMF and to facilitate decisions in appropriate bodies. 362 ANNEX A Members of the Committee Member Countries 1. The Honorable Bahrain, Egypt (Arab Rep. of), Iraq, Abdlatif Y. AI-Hamad Jordan, Kuwait, Lebanon, Maldives, Director General Pakistan, Qatar, Saudi Arabia, Syrian Kuwait Fund for Arab Arab Republic, United Arab Emirates, Economic Development Yemen Arab Republic Kuwait 2. His Excellency Argentina, Bolivia, Chile, Paraguay, Valentin Arismendi Uruguay Minister of Economy and Finance Uruguay 3. His Excellency Costa Rica, El Salvador, Guatemala, Jaime Garcia-Afioveros Haiti, Honduras, Mexico, Panama, Peru, Minister of Finance Spain, Suriname, Venezuela Spain 4. His Excellency Austria, Belgium, Luxembourg, Turkey Robert Henrion Minister of Finance Belgium 5. The Honourable Australia, Korea (Rep. of), New Zealand, J. W. Howard, M.P. Papua New Guinea, Solomon Islands, Treasurer (Australia) Western Samoa Australia 6. The Right Honourable United Kingdom Sir Geoffrey Howe, Q.c., M.P. Chancellor of the Exchequer United Kingdom 7. His Excellency Benin, Cameroon, Central African Republic, Abdoulaye Kone Chad, Comoros, Congo (People's Rep. of), Minister of Economy, Finance Gabon, Guinea-Bissau, Ivory Coast, and Planning Madagascar, Mali, Mauritania, Mauritius, Ivory Coast Niger, Rwanda, Sao Tome and Principe, Senegal, Somalia. Togo, Upper Volta, Zaire 8. The Honorable Bahamas, Barbados, Canada, Grenada, Allan MacEachen Guyana, Ireland, Jamaica Minister of Finance Canada 9. The Honorable United States G. William Miller Secretary of the Treasury United States 10. His Excellency France Rene Monory Minister of Economy France 1 L Honorable Major General Botswana, Burundi, Equatorial Guinea, Nasr Eldin Mustafa Ethiopia, The Gambia, Guinea, Kenya, Minister of National Planning Lesotho, Liberia, Malawi, Nigeria, Sudan Sierra Leone, Sudan, Swaziland, Tanzania, Trinidad and Tobago, Uganda, Zambia 363 Member Countries 12. His Excellency Germany Rainer Offergeld Federal Minister for Economic Cooperation Germany 13. The Honorable Greece, Italy, Portugal Filippo Maria Pandolfi Minister of the Treasury Italy 14. His Excellency Afghanistan (Oem. Rep. of), Algeria, Abdelkamel Rerhaye Ghana, Iran, Socialist People's Minister of Finance Libyan Arab Jamahiriya, Morocco, Morocco Oman, Tunisia, Yemen (People's Oem. Rep. of) 15. The Honorable Burma, Fiji, Indonesia, Lao People's Rachmat Saleh Oem. Rep., Malaysia, Nepal, Singapore, Governor Thailand, Viet Nam Bank of Indonesia Indonesia 16. His Excellency Japan Noboru Takeshita Minister of Finance Japan 17. Her Excellency Denmark, Finland, Iceland, Norway, Pirkko TyoHijarvi Sweden Minister in the Ministry of Finance Finland 18. His Excellency Cyprus, Israel, Netherlands, Romania, A.P.J.M.M. Van der Stee Yugoslavia Minister of Finance The Netherlands 19. The Honorable Bangladesh, India, Sri Lanka R. Venkataraman Minister of Finance India 20. The Honorable Brazil, Colombia, Dominican Republic, Cesar E.A. Virata 1 Ecuador, Philippines Minister of Finance Philippines 1 The Honorable Eduardo Fernandez. GOl'ernor of the Central Bank of the Dominican Republic, serl'ed as Alternate Member to permit The Honorable Cesar E.A. Virata to sen'e as Chairman. 364 Annex B Organizational and Administrative Aspects 1. The Committee of Twenty, in its final report in June 1974, recom- mended that two committees be set up: an Interim Committee in the Fund to deal with monetary reform, and a joint ministerial committee of the Bank and the Fund (Development Committee) to continue the study of the broad question of the transfer of real resources to developing countries. 2. It was hoped that the Development Committee would be helpful in pro- viding a focal point in the structure of economic cooperation for formation of a comprehensive overview of diverse international activities in the inter- national area, for efficient and prompt consideration of development issues, and for coordination of international efforts to deal with problems of financ- ing development. The Committee was expected to work in close association with the management and the boards of the two institutions. 3. The Development Committee was accordingly established pursuant to Bank Governors Resolution 294, October 2, 1974, and Fund Governors Resolution 29-9, October 2, 1974. The parallel resolution provided that the members of the Development Committee were to be governors of the Bank, governors of the Fund, ministers, or others of comparable rank. Each member government of the Bank or the Fund that appoints an execu- tive director or group of members that elect an executive director was to appoint one member of the Committee (in all: 20 in the Bank and 21 now in the Fund) and up to seven associates. The members were to be appointed in turn for successive periods of two years by the members of the Bank and the members of the Fund. 4. At the inaugural meeting of the Committee held October 2-3, 1974, Mr. Henri Kanan Bedic, Minister of Economy and Finance of the Ivory Coast, was selected as Chairman, and Mr. Henry J. Costanzo, Executive Vice President of the Inter-American Development Bank, was appointed Executive Secretary. At the seventh meeting of the Committee, held Octo- ber 6, 1976, Mr. Cesar E.A. Virata, Secretary of Finance of the Philippines, was selected as Chairman and Sir Richard King, Permanent Secretary of the Ministry of Overseas Development of the United Kingdom, was ap- pointed Executive Secretary. Mr. Virata was re-elected as Chairman on September 27, 1978 at the eleventh meeting of the Committee. 5. The organizations listed below were official observers to the Develop- ment Committee during 1979-80. In addition, the Government of Switzer- land was represented by an observer: African Development Bank Arab Bank for Economic Development in Africa Arab Fund for Economic and Social Development Asian Development Bank Commission of the European Communities Commonwealth Secretariat 365 Development Assistance Committee European Investment Bank General Agreement on Tariffs and Trade Inter-American Development Bank International Fund for Agricultural Development Islamic Development Bank OPEC Fund for International Development Organisation for Economic Cooperation and Development United Nations United Nations Development Programme United Nations Conference on Trade and Development ANNEX C The text of the parallel IBRD and IMF Resolutions establishing the Development Committee is reproduced in Summary Proceedings, 1974 (pages 180-183) and Summary Proceedings, 1978 (pages 301-305). ANNEX D Agenda of Development Committee Meeting, September 30, 1979 1. Financial Flows to Developing Countries and the Adjustment Process 2. Stabilization of Export Earnings 3. 1978/79 Annual Report 4. Working Group Report on Multilateral Development Institutions 5. Working Group Report on Private Direct Foreign Investment 6. Special Action Program 7. Restrictions on Access to Capital Markets 8. Future Work Program Agenda of Development Committee Meeting, April 24, 1980 1. Program Lending for Structural Adjustment 2. Co-financing 3. Progress Reports on: (a) Increasing the Repurchase Period of the EFF (b) Reduction of Costs of Using the SFF 4. Preliminary Report from the Chairman of the Task Force on Non- concessional Flows 5. Interim Report from the Chairman of the Task Force on Private For- eign Investment 6. G-24 Program of Immediate Action on International Monetary Reform Reform 7. Report of the Brandt Commission 366 ACCREDITED MEMBERS OF DELEGATIONS AT 1980 ANNUAL MEETINGS o 0 AFGHANISTAN Governor 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Fazl Haq Khaliqyar Alternate Governor 0 0000000000 0 0 0 0 0 0 0000 ··· 0 ·············· Hassan Ali Tayeb* Adviser: A. Wo Assefi o ALGERIA Governor .................................. 0 0 ········· oM'Hamed Hadj Yala Alternate Governor .. 0 · 0 ·· 0 · 0 ···· 0 ······················· Mohamed Terbeche Advisers: Mahfoud Aoufi Mahfoud Batata Bouasria Belghoula Faouzi Ben Malek Mohamed Bessekhouad Nourredine Boudoukha Ahmed Boutache Nourredine Kerras Redha Malek o 0 ARGENTINA Governor .......... 0 Jose A. Martinez de Hoz ······· 0 ··· 0 0 ······· 0 ·········· Alternate Governor .............................. Adolfo C. Diz 0 ··· 0 ········ Alternate Governor . ................ " .................... Juan M. Ocampo· Alternate Governor . .............. " ..... , .. " .......... Francisco P. Soldati* Advisers: Salvador Aisenstein Alejandro Aliaga Horacio Jose Alvarez Rivero Alejandro C. Antuna Ricardo H. Arriazu Alberto Ayerza Mario Baratella Julio Juan Bardi Habib Basbus Julio A. Bastitta Heguy Esteban Luis Berisso Guillermo Blanco Juan R. Branchi Roberto Bullrich Jose Maria Candioti Carlos Alberto Canedo Pero Carlos Alberto Cano Carlos Alberto Carballo Jorge Federico Christensen Antonio Conde Andres O. Covas Mrs. Leticia Debling Ms. Maria de los Milagros Donna Raballo Federico Dumas Antonio M. Estrany y Gendre Carlos Fabian Etcheverrigaray Antonio Ramon Falabella Hector Fernandez Conti Juan Carlos Fonseca Jorge Garfunke1 Hector Ghirlanda Jose Gonzalez Manuel R. Gonzalez Abad Alberto Patricio Huergo Eduardo Juan Huergo Juan Carlos Iarezza Roberto Kohen Jorge Osvaldo Lauria Pedro Camilo Lopez Antonio Lopez Figueroa p IFCMember t Executive Director tt Alternate Director IDA Member · Temporary 367 Raw L6pez Ruf Eugenio L. Malatesta Rodolfo A. Mancini Manuel Jorge Marino Pablo Maron Challu Mario R. Martinez Casas Cesar Marzagalli Ms. Monica Alica Merlo Horacio Nadale Jose Raul Palacio Horacio Patricio Peralta Ramos Julio A. Piekarz Angel J. Pini Bernardo Rave Armando Ribas Jorge Fernando Scosceria Dante Simone Alberto Sola t Pablo J. Teran Nougues Domingo Torea Paz A.rturo Valles Bosch Raul Ivan Yansen Ricardo Zinn Guillermo A. Zoccali Federico J. L. Zorraquin o 0 AUSTRALIA Alternate Governor . .......................... " ............... J. C. Ingram Alternate Governor . ..................... , ................... D. N. Sanders* Alternate Governor ..................................... . Robert J. Whitelaw· Advisers: N. 1. Brady MichaelJ. Callaghan Kevin B. Conlan J. H. Cosgrove Graham C. Evans Anthony M. Hinton J ames A. Hoggett John W. Keanyt G. M. Maughan 00 AUSTRIA Governor ................................................. Hannes Androsch Alternate Governor . ........................................ Mrs. Maria Pilz* Advisers: Wilfrid Gratz Herbert Sellner Herbert Suttertt BAHAMAS Governor . ................................................ Arthur D. Hanna A lternate Governor .................................... Mrs. Ethelyn C. Isaacs Advisers: Reno J. Browntt Edgar N. Hall Winston D. Munnings Patricia E. J. Rodgers Reginald L. Wood BAHRAIN Governor ............................................. Ibrahim Abdul Karim A lternate Governor ..................................... !sa Abdulla Burshaid Advisers: Ibrahim AI-Khalifa Ahmed Bokhammas Nooruddin A. Nooruddin p IFCMember IDA Member t Executive Director tt Alternate Director · Temporary 368 o ° BANGLADESH Governor .... 0 0 0 0 0 0 0 0 0 0 0 0 · 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 · 0 0 0 Saifur Rahman 0 · 0 0 0 0 Alternate Governor 000. 0 · 0 0 0 0 · 0 0 · 0 · 0 0 0 0 0 0 0 · 0 0 0 0 0 0 0 0 · 0 0 0 oAo Mo Ao Muhith 00, · Alternate Governor 0 ··· 0.0000000.0. 0 0.000 ··· 0. 00000 ··· oM. Syeduz-Zaman*tt Advisers: Enam Ahmed Chaudhury Abu Sayed Choudhury S. T. Hussain M. Lutfullahil Majid Abidur Rahman A. K. M. Rashiduddin A. Ho S. K. Sadique o BARBADOS Governor 0 0 0 ·· 0 0 0 ··· 0 ····· 0 ················ 0 · 0 · 0 · 0 ·· 0 ·· 0 J. M. G. M. Adams A {tern ate Governor o. 0 0 · 0 ·· 0 ··· 0 · 0 0 0 · 0 · 0 ·· 0 ···· 0 ····· 0 0 · 0 · Stephen E. Emtage Advisers: Winston A. Cox A. DeCourcy Edey Charles Skeete o ° BELGIUM Governor 0 0 0 ·· 0 ··· 0 0 0 0 ··· 0 ·· 0 0 0 · 0 0 0 ···· 0 ···· 0 ···· 0 ··· 0 ·· 0 ···· Paul Hatry 0 · Alternate Governor. 0 ·· 0 · 0 · 0 ·· 0 0 · 0 · 0 ·· 0 · 0 ······ 0 0 ····· 0 ·· 0 0 0 Cecil de Strycker Advisers: Jean-Pierre Arnoldi Luc Coene Jacques de Grootet Marcel de Moudt Jean Godeaux Bruno Guiot Jan F. M. Hendrickx Georges Janson Marc Otte Alain Mo J. Prigogine Jean-Jacques Rey Jan Vanormelingen Pierre A. Verly ° BENIN Governor 000 ·· 0000.0 ····· 0 ··· 0 · 0 ······· 0 0 0 0 ·· 0 ···· Abou Bakar Baba-Moussa Alternate Governor .......... 0 ··· 0 ·· 0 ····· 0 · 0 · 0 0 0 · 0 0 Paul Dossou ····· 0 · 0 ··· Advisers: Jerome Ahouanmenou Innocent P. D'Almerda Justin Gnidehou Toussaint Sossouhounto D IFC Member t Executive Director tt Alternate Director IDA Member · Temporary 369 00 BOLIVIA Governor . ............................................ Jose Sanchez Calderon Alternate Governor .............................................. Milton Paz Alternate Governor . ....................................... Hugo Duchen C. * Alternate Governor . ...................................... Carlos Morales N. * Advisers: Fernando Bedoya Carlos Calvo Felix Camacho Juan Cariaga Alfonso Criales Mauricio D'Avis Jaime Delgadillo Miguel Fabri Victor M. Flores Alberto Gonzalez Edgar Guzman Jorge Jordan William Joyce Jorge Lopez Pacheco Carlos Morales Jaime Mustafa Alejandro Pacheco Guido Quiroga Rene Rios Luis Saavedra Edgar Schwarz Joaquin Sejas Isaac Shiriqui Luis Eduardo Siles Carlos Taborga Jorge Tamayo Raul Tovar Mauricio Urquidi Alberto Valdes Jorge Valdes Anez Miguel Zalles 00 BOTSWANA Governor . .................................................. Peter S. Mmusi Alternate Governor . ........................................ Baledzi Gaolathe Advisers: Nelson D. Mokgethi Ernest Mpofu 00 BRAZIL Alternate Governor . .................................. Carlos Geraldo Langoni Alternate Governor . .................................. Oswaldo Roberto Colin* Alternate Governor ............................... Octavio Gouvea de Bulhoes* Alternate Governor . ... , ................. Antonio Francisco Azeredo de Silveira* Alternate Governor . ....................................... Alexandre Kafka * Alternate Governor . ......................................... Jose F. Pecora * Alternate Governor ............................ Jose Carlos Madeira Serrano* Advisers: Clovis L. A. Albuquerque Ruben Dario Almonacid Pedro Paulo Pinto Assump~iio Jose Luiz Silveira Baptista Jorge A. Baptista-Silva Luiz Barbosa Felismino de Figueiredo Barretto Paulo Vieira Belotti Lino O. Bohn Sebastiao B. Borges Antonio Bornia Jose Botafogo-Gon~alves Fernando de Arruda Botelho Fernao C. B. Bracher Elmo de Araujo Cam5es Americo Oswaldo Campiglia Amonio Carlos Yazeji Cardoso Wolmen Carvalho !;;J IFCMember t Executive Director tt Alternate Director IDA Member · Temporary 370 Pedro Paulo Gomes Castro Solomon Cohn Jose Maria Sampaio Correa Raul Jorge de Pinho Curro Herculano Borges da Fonseca Jose Carlos P. M. da Fonseca Pedro Jose da Matta-Machado MaiIson Ferrera da Nobrega Alvaro Pinto de Aguiar, Jr. Theophilo de Azeredo Santos Sergio de Castro Carlos Benigno Pare ira de Lyra Netto Jose Carlos de Oliveira Luiz Antonio Sande de Oliveira Mauricio Marques de Paiva Angelo Calmon de Sa Peter Egon de Svastich Abilio dos Santos Diniz Antonio Calmon du Pin e Almeida Dilson de Lima Ferreira Renato Francesco Fileppo Marcio Fortes Joao Batista Baldini Franco Sergio Silva Freitas Orlando Galvao Filho Carlos Augusto Garcia Eduardo da S. Gomes, Jr. Boris Gorentzvaig Henrique Sergio Gregori Richard E. Hayes Henri Claude Koersen Milton Lamanauskas Luiz Felipe Palmeira Lampreia Sergio Ulhoa Levy Dalton EsteIlita Lins Antonio M. Macedo Jose Padrosa de Paula Machado Werner M. M. Makowski Oscar da Costa Marques Netto Antonio Martinez Ermelino Matarazzo Adilson Sampaio Mayllart Adolpho Julio da Silva Mello Netto Jose C. Moraes-Abreu Lauro Barbosa da Silva Moreira Osvaldo Motta Zeuxis F. Neves Paulo Roberto Niccoli Jose R. Novaes de Almeida Joao Guilherme Sabino Ometto Ary dos Santos Pinto Carlos Eduardo Quartim Barbosa Eduardo P. Queiroz Jose Augusta Queiroz Joao Paulo Ricommard Joaquim Peixoto Rocha Jose Ruque Rossi Joseph Safra Sergio Moreira Salles Jorge Sant'Anna Jose Sousa Santos Matheus Schnaider Antonio Padua Seixas John Finlay Shuter Paulo Eduardo Tassano Sigaud Oscar Bloch Sigelmann Geraldo Fonseca Siqueira Swiatoslaw Sirks Oswaldo M. Souza Joao Maria Stefanon Paulo Roberto Teixeira Heitor Mendes Tepedino Francisco Thompson-Flores Netto Ivo Cauduro Tonin Jonice Siqueira Tristao Paulo d'Arrigo VelIinho Carlos Alberto Vieira Mauro Luiz Iecker Vieira Lydiberto dos Santos Villar Ary Waddington Tomas Zinner o ° BURMA Governor ...........................................·.·......... U Tun Tin Alternate Governor . ......................................... U Kyaw Myint* Alternate Governor . ................ " " ........................ Aung Pe*tt Advisers: U Kyaw Khaing U Nyunt Lwin o IFCMember t Executive Director tt Alternate Director o IDA Member · Temporary 371 o ° BURUNDI Governor ............................................. Astere Girukwigomba Alternate Governor . ..................................... Jean Ndimurukundo Advisers: Fran,