• INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNA TIONAL FINANCE CORPORATION INTERNA TIONAL DEVELOPMENT ASSOCIATION

1986 ANNUAL MEETINGS OF THE

BOARDS OF GOVERNORS

SUMMARY PROCEEDINGS

WASHINGTON, D.C. SEPTEMBER 30-0CTOBER 3, 1986

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INTRODUCTORY NOTE

The 1986 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 3D-October 3 (inclusive). The Honorable Virgilio Barco, President of the Republic of Colombia and Governor of the Bank and Fund for Colombia, served as Chairman at the Opening Session. succeeded by The Honorable Cesar Gaviria Trujillo. Minister of Finance and Public Credit and Governor of the Bank and Fund for Colombia, who served as Chairman for the remaining sessions. The Annual Meetings of the Bank's affiliates. the International Finance Corporation (IFC) and the Interna­tional Development Association (IDA), were held in conjunction with the Annual Meeting of the Bank.

The Summary Proceedings record in alphabetical order of member countries, the texts of statements by Governors relating to the activities of the Bank. IFC and IDA. The texts of statements concerning the IMF are published separately by the Fund.

Washington, D.C. January, 1987

III

T. T. THAHANE Vice President and Secretary

THE WORLD BANK

CONTENTS

Opening Remarks by Ronald Reagan President of the United States

Page

Opening Address by the Chairman Virgilio Barco Governor of the Fund and Bank for Colombia 8

Annual Address by Barber B. Conable President of The World Bank

Report by Ghulam Ishaq Khan

16

Chairman of the Development Committee 24

Statements by Governors and Alternate Governors .................. 30

Page

Afghanistan ............ 30 *Arab States, League of .. " 32 * Argentina .............. 35

Australia ..... . . . . . . . . .. 39 Austria ................ 44

*Bahamas ............... 46 Bangladesh ............. 50 Belgium ............... 54

*Belize ................. 60 Bolivia ................ 62 Canada ................ 65 China ................. 69

*Ecuador . . . . . . . . . . . . . . .. 71 Egypt ................. 76 Fiji ................... 80 France. . . . . . . . . . . . . . . .. 82 Germany. . . . . . . . . . . . . . . 85 Greece . . . . . . . . . . . . . . . .. 89 India .................. 93 Indonesia .............. 96 Iran. Islamic Rep. of ..... , 10 I Ireland ................ , 106 Israel ................. , 109 Italy ................... 112 Japan ................. , 119 Kiribati ................ 124 Korea ................. 124

* Speakinx on behalf' (If' (/ group of' countries

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Page

Lao People's Democratic Republic ............ 126

Malaysia ..... . . . . . . . . .. 129 Malta .................. 131 Nepal ................. 133 Netherlands ........... " 135 New Zealand ........... 140

*Norway ... . . . . . . . . . . . .. 143 Pakistan ............... 146 Papua New Guinea ., ... " 150 Paraguay .. . . . . . . . . . . . .. 156 Peru. . . . . . . . . . . . . . . . . .. 158 Philippines ............. 170 Poland. . . . . . . . . . . . . . . .. 174 Romania ............... 176 South Africa ............ 179 Spain. . . . . . . . . . . . . . . . .. 182 Sri Lanka .............. 185

*Sweden ................ 190 Thailand ............... 193 Turkey ................ 195 United Kingdom. . . . . . . .. 199

*United Kingdom. . . . . . . .. 203 United States ........... 207 Viet Nam .............. 214

*Western Samoa .......... 216 Yugoslavia ............. 217

*Zaire .................. 220

Page

Concluding Remarks by Mr. Conable ............................. 226

Concluding Remarks by the Chairman, Cesar Gaviria Trujillo .......... 228

Remarks by Ibrahim Abdul Karim, Governor of the Fund and Bank for Bahrain ................................ 229

Documents of the Boards of Governors ............................ 230 Schedule of Meetings ........................................ 230 Provisions Relating to the Conduct of the Meetings ................ 231 Agendas ................................................... 232

Joint Procedures Committee ..................................... 233 Report II .................................................. 234 Report III .................................................. 236

Resolutions Adopted by the Board of Governors of the Bank Between the 1985 and 1986 Annual Meetings ................. 237

No. 408 ... Salary of the President ............................ 237 No. 409 ... Number of Elected Executive Directors ............... 237 No.410 ... Increase in Certain Subscriptions to

Capital Stock .................................... 237 No.411 ... Membership of the Polish People's Republic ........... 241 No. 412 ... Membership of the Republic of Kiribati ............... 244 No. 413 ... 1986 Regular Election of Executive Directors .......... 246

Resolutions Adopted by the Board of Governors of the Bank at the 1986 Annual Meeting ............................... 247

No.414 ... Financial Statements, Accountants' Report and Administrative Budget ......................... 247

No.415 ... Allocation of FY86 Net Income ..................... 247

Resolutions Adopted by the Board of Governors of IFC Between the 1985 and 1986 Annual Meetings ................. 248

No. 149 ... Increase of Capital ............................... 248 No. 150 ... Membership of the Republic of Kiribati ............... 255

Resolutions Adopted by the Board of Governors of IFC at the 1986 Annual Meeting ............................... 257

No. 151 ... Financial Statements, Accountants' Report and Administrative Budget ......................... 257

VI

Page

Resolutions Adopted by the Board of Governors of IDA Between the 1985 and 1986 Annual Meetings ................. 258

No. 139 '" Membership of St. Christopher and Nevis ........ . . . .. 258 No. 140 '" Membership of the Republic of Kiribati .............. , 260

Resolution Adopted by the Board of Governors of IDA at the 1986 Annual Meeting ............................... 262

No. 141 ... Financial Statements, Accountants' Report and Administrative Budget ......................... 262

Reports of the Executive Directors of the Bank ...... . . . . . . . . . . . . . . .. 263 Number of Elected Executive Directors .......................... 263 Increase in Certain Subscriptions to Capital Stock . . . . . . . . . . . . . . . . .. 265 1986 Regular Election of Executive Directors ..................... 268 Allocation of FY86 Net Income ................................ 269

Rules for the 1986 Regular Election of Executive Directors ............ 270

Executive Directors Elected at the 1986 Regular Elections ............. 273

Report of the Board of Directors of IFC . . . . . . . . . . . . . . . . . . . . . . . . . . .. 278 Increase in Authorized Capital of the Corporation and Increase

of Members' Subscriptions Thereto ........................... 278

Report of the Chairman of the Development Committee ............... 291

Annual Report of the Development Committee ...................... 292

Accredited Members of Delegations at 1986 Annual Meetings ... . . . . . .. 293

Observer at 1985 Annual Meetings ............................... 329

Representatives of International Organizations ...................... 329

Executive Directors, Alternates and Advisors ....................... 330

Officers of the Boards of Governors and Joint Procedures Committee for 1986-87 ........................ . 331

Reference List of Principal Topics Discussed ....................... 332

VII

OPENING REMARKS BY THE HON. RONALD REAGAN PRESIDENT OF THE UNITED STATES

Mr. Chairman, Managing Director de Larosiere, President Conable, Governors of the International Monetary Fund and of the World Bank Group, and dis­tinguished guests:

Before I begin. I want to share with you an announcement that I made only an hour ago at the White House. Ten days ago. Soviet General Secretary Gorbachev proposed to me that we hold a preliminary meeting to make concrete preparations for his coming visit to the United States. And now that Nicholas Daniloffhas been released, as we insisted, an important obstacle has been removed. and I have accepted Mr. Gorbachev's proposal. We have agreed to meet in Iceland on October 11 and 12. It will be to prepare the ground for a productive summit covering all the issues on our agenda: arms reductions, human rights, regional conflicts. and bilateral relations.

For all the American people, I am pleased to welcome you once more to the United States for your Forty-First Annual Meetings and honored to address you once again. Let me note at the outset that both the IMF and the World Bank are in a year of changes at the helm.

At the IMF, Managing Director de Larosiere has announced his intention to resign after eight years of service-eight of the most challenging years in the Fund's history. I might add. He has met those challenges with strong leadership, a skillful negotiating style. and complete dedication to the mission of the institution he leads and serves. He has enhanced the prospects of the world economy for all of us. We salute him for his service.

At the World Bank, one of this century's most distinguished members of the U.S. House of Representatives. Barber Conable. has taken the tiller. In the United States. President Conable has been known for his extensive grasp of national finance. He had a profound influence on the development of American economic policy in the last decade. and now those same enormous talents will be guiding the Bank. He is also a good friend. Barber. congratulations.

If this is a time of changes for the Fund and for the Bank. these are even more dramatic times for the world economy. Throughout the world these last five years. we have seen men and women begin to challenge old dogmas and rediscover time­less truths. We have seen that nations that have embraced the enduring principles of economic growth have become more prosperous and secure. And those that have not. have weakened. faltered, and fallen behind.

We have heard many names given to these rediscovered economic insights­names describing policies of taxation, regulation. government spending. mone­tary management. and trade. But all these names-and the many theories with which they are associated--come down in the end to one name. one theory. one word. The word is "freedom." in this case economic freedom.

In so many addresses to so many international forums during the past 51/~ years, I have repeated America's vision of the future. It rests on that word: a word that

means trust in the people more than in governments. trust in what the people can achieve when they are able to reach and climb as far as their natural talents and native abilities will take them. And each time I have spoken about this vision I have said that, as with political freedom. economic freedom is not just a question of absolutes-not just a case of an open economy or a totalitarian one-but also of degree.

Even in free market economies. high taxes make people less free to work. save, and invest. Excessive regulation makes them less able to experiment and innovate. Too much government spending can rob those on the receiving end of a reason to labor and those who must pay of their incentive to strive. And restrictions on trade rob every worker of the opportunity to have the markets for his products grow to reach all mankind and rob every consumer of a better way of life.

In the last 5 Y2 years now. we in the United States have done our best to be faith­ful to this economic creed. When our Administration came into office. we found the American economy on the brink of disaster. A decade of rising inflation and soaring taxes had taken its toll. Our economy was stagnating and threatening to fall. dragging the entire world economy down with it. The sources of our problems weren't hard to find. The noted British historian. Paul Johnson. commented on the various studies of them this way: "The most detailed analysis of this stagnation and decline ... suggested the causes were ... failure to control the money supply. excessive tax burdens and above all government intervention and regula­tion ...

And so in 1981 America took a new course. We cut all forms of intervention in the economy; we cut the scope of regulation; we brought down tax rates; and we lowered the rate of increase in government spending. By early 1983. we began to see the results as America entered what is now one of our longest-lived expansions in the postwar era. an expansion that has been accompanied by falling inflation and falling interest rates. Today. a greater percentage of our people are at work than at any time in our history. And in the last four days we have just taken another great step on the road to sustained growth with the passage of historic tax reform legis­lation. We will never forget that our growth has been and remains important not only to Americans but to people everywhere. Our growth has fueled the growth of the entire world economy.

Two years ago, when I last addressed this body. I suggested that the lessons of freedom. the marketplace. and growth were ones that all nations could embrace. I suggested that if the world economy were to grow as all of us hoped it would. we needed to turn away from small-minded calculators in big state bureaus and look instead to large-minded entrepreneurs in small private enterprises-whether industrial. commercial. or agricultural-for these people know secrets more profound than those revealed in all of the charts and analyses produced by all the agencies and bureaus put together.

Again. a statistic from our own situation comes to mind. According to the M.I.T. Program on Neighborhood and Regional Change. between 1981 and 1985 businesses that were less than five years old and businesses that had fewer than 20

2

employees created more jobs than America as a whole. If we had had no entre­preneurs. we in America would have lost more than 3 million jobs in that time instead of the large gains we in fact enjoyed.

All of us here today can take great satisfaction knowing that this message of economic freedom is at last being heard and acted upon in Europe and Africa, in Asia and Latin America. Only a few years ago in Western Europe, for example, capital markets were, to a large extent. closed to entrepreneurs. in part because steep taxation sapped Europe' s risk-takers of any reason to take a chance on a new company or a new idea. And with labor regulations that made it more difficult to lose a job than get divorced, entrepreneurial activity was at a low ebb. Now, however, this is changing. As inflation and interest rates have fallen and new policies have been adopted to encourage growth and entrepreneurship, Europe has begun to put behind it a decade in which not one net new job was created. and once more is seeing new growth. new jobs, new companies. new opportunities-new hope.

And this progress has not been confined to the industrial world alone. Less developed countries have also caught the spirit of freedom and enterprise. In India we have seen-within just a few harvests-a country that imported agricultural products tum into a food exporter. this after incentives were introduced and controls removed. In China. too. we have heard the same story of incentive and bounty. And in famine-stricken Africa. we have seen some countries free their markets and give their farmers incentives to produce. and those countries did not suffer the devastation of their neighbors. Some in fact exported food to those who were starving around them.

As I mentioned in my address to the United Nations of a week ago, we welcome the resolution of the Special Session on Africa that calls for more free market in­centives. We in the United States are looking at ways the assistance we provide to African countries can best support development of free markets. especially in agri­culture. America hopes other donors will do the same.

All in all. we have made great progress toward a stronger world economy since I last addressed you, and yet problems remain. I would like to turn now to some of these problems and to what we can do to solve them. And let me look at them from three vantage points-that of the United States and the industrial world; that of the developing nations; and finally that of international organizations such as the IMF and the World Bank.

As President of the United States. I am particularly aware of the tasks we in America have before us. Highest among these is curbing the growth of our Government's spending. No nation can survive if government becomes like the man who in winter began to burn the wall boards of his house to keep warm until he had no house left and froze. We have made progress against those who would con­demn future generations of Americans to lives of pauperdom; the Gramm-Rud­man-Hollings legislation is evidence of this. But, we can and must do more. I pledge to you that I will do all in my power to stop this fiscal death march. And I believe the American people will support me in this effort.

3

We have other items of unfinished business in America-bringing interest rates down even further while keeping inflation under control is one. Reducing our trade imbalances while resisting protectionist pressures at home and abroad is another. We know the role our recovery has played in the world. We know how much rides, not only for ourselves but for much of mankind, in the completion of the work we began 5Y2 years ago.

But while America's expansion is beneficial, other industrial nations must also contribute their fair share to world recovery and adopt more growth-oriented policies. Of course, some dislocations may come in the process, but we must recognize that if we are all to prosper together then we must all work together toward that end. Every nation must contribute to world economic growth. And we must do more than repeat this high-sounding sentiment; we must take practical steps.

We have come a long way since I last spoke to you. The Plaza agreement, concluded last September among five industrial countries, was a beginning toward correcting the excessive volatility in our exchange rates. Since then, we have also coordinated the reduction of interest rates. And at the economic summit in Tokyo earlier this year we agreed to new mechanisms for closer economic cooperation. All of this helps foster world growth, not only for the major nations of the world, but for everyone.

The ·industrial countries have more, much more to do. So, too, do the develop­ing countries. Let me take up now the second great vantage point on the question of world economic growth-that of the developing nations. As I said, many of these nations have adopted policies that promote growth. These include lowering taxes, privatizing public enterprises, liberalizing trade and investment policies, and moving in general to more market-oriented economies. All this is important, not just for the developing countries but for all nations and people who will invest in their businesses, buy their products, sell them goods, and work with them to live in peace and brotherhood on our planet.

As Secretary Baker stressed in presenting the" Program for Sustained Growth" in Seoul last year, growth-oriented reforms are particularly important in the debtor countries. History has shown that when nations have rising popUlations and do not give their people the freedoms that fulfill their aspirations, those nations try to buy peace in their restless and unproductive populations by borrowing themselves into bankruptcy. Either that or they turn to oppression.

So, let us remember that growth is the key to repaying debt while fulfilling the dreams of the people. Several debtor nations have taken long steps up the path to renewed economic strength. Countries like Colombia and Argentina have brought inflation down and opened their markets. Other countries like Senegal and Cote d'Ivoire have made progress in liberalizing their economies. And Mexico and the Philippines both recently agreed to comprehensive, growth-oriented economic programs supported by the IMF and the World Bank. It is important that these programs-as well as the comprehensive programs of other debtor nations-be fully supported by commercial banks.

4

The IMF, of course, plays a central role in the drama of growth in debtor nations. The United States wants to see that role continue. We welcome the increased emphasis in the IMF on growth-oriented reform packages even while continuing the focus on financial stability. For the same reason, we welcome the recent establishment of the Structural Adjustment Facility. And, we urge the IMF to put even more emphasis on market-oriented structural reforms.

The World Bank also has a critical role to play in promoting growth in less developed nations, whether troubled debtor nations or not. We welcome an increase in the practice of lending contingent on countries' turning to more market­oriented policies. We also support the early completion of negotiations for re­funding of the International Development Association. And we support the imple­mentation of the convention that establishes the Multilateral Investment Guarantee Agency.

The future of world economic growth depends on choices made all over the world-in industrial countries, in developing countries, in the IMF, and the World Bank. The question is: will we tum toward uplands of freedom and growth, or toward the swamp of state control and stagnation? This is the question every nation and every institution must ask itself. The world's growth depends on our answers, and on something else, closely related to those choices.

This is the last area of problems I wish to discuss with you. This is the one area that can most easily jeopardize all we have achieved and hope to achieve. It might be said that since the end of the Second World War, we-all of the nations repre­sented here-have lived under an economic constitution. In the two decades before the adoption of that constitution, our peoples suffered the horrifying conse­quences of a collapse in international trade and monetary flows.

Since its adoption, we have had 40 years of a prosperity more widely shared and more generous than the world has ever known. I call the postwar arrangement a constitution, but it has been, in fact, not one constitution but three. I'm speaking of the collection of postwar international economic agreements that created the IMF, the World Bank, and the GAIT (the General Agreement on Tariffs and Trade).

Today, each of those agreements and institutions has come to a turning point. Each is grappling with new challenges, such as debt restructuring, financial in­stability, trade in new products and new industries, and the rise of worldwide protectionist pressures. Collectively these turning points represent a culmination of the policies that the nations of the free world established right after the war.

Those nations--our nations-saw that the best way to ensure a just and lasting peace was to build an open, growing, and prosperous world economy. The same era that produced the noble proposal of the United Nations also produced the IMF, the World Bank, and the GAIT. These institutions gave us a growing and prosperous world economy. But many of the arrangements originally incorporated into them presumed America's singular strength. And for more than a decade now, Europe and Japan combined have had a role equivalent to that of the United States in world trade and an increasingly important role in finance. Many other coun-

5

tries-those with open markets and low taxes-are growing rapidly, may soon become fully industrialized, and can expect to play more prominent parts, as well.

These have been healthy developments-and ones that reflect the success of our postwar vision. But they have led to strains in the postwar agreements; and these strains have given rise to a new round of significant questions about how the world economy should develop from here----questions such as how can we coordinate our policies to restore stability to exchange rates? How can we resist protectionist pressures as our nations become more nearly equal competitors and world trade grows? How can we manage our financial responsibilities without sacrificing growth? And how should we expand our international constitutions so that the hopes and opportunities of the last generation can also be the hopes and oppor­tunities of the next?

The recent GATT Ministerial was a good first step toward answering some of these questions. The ministers decided on comprehensive negotiations that would include trade in agriculture, services, investment, and intellectual property. But we need more steps. We need, first of all, to resolve that a further opening of the world economy is a goal worth working for.

I know I believe it is. I lived through the Great Depression. I saw what so-called protectionism brought the world-nothing was protected, everything was destroyed back in the 1930s. Today, the stakes are even higher. In my country, for example, up to 10 million jobs are tied to international trade, as is 20 percent of our gross national product, compared to 12 percent in 1929. The choice is simple-we can go forward or backward. I believe that we must move to a more open world economy.

This is why I have vetoed protectionist legislation. It's why I've supported strong and growing roles for the IMF and World Bank. It's why Secretary Baker presented his plan to strengthen our multilateral strategy for dealing with the debt crisis. It's why we've pressed for a new GATT round.

It is also why we have moved and will continue to move aggressively against unfair trading practices in other nations. No trading system among equals can survive if some feel they are being discriminated against and if there are enormous imbalances in trade flows. The only ways to resolve the external imbalances between countries are through increased growth abroad, a greater competitiveness for the U.S. dollar or both, coupled with the opening of markets.

My friends, I believe that the challenge before us is to develop a truly global economy--one that celebrates the diversity of our nations while it opens us to uninhibited trade and investment among our peoples. We have traveled a vast distance toward such a world in the last 40 years. We have come so far and now it is time for stock taking, for planning with open minds the next leg of the journey, and for beginning it.

Let us look with open minds at ways of promoting stable exchange rates and assuring sound money. Let us approach with open minds the next round of trade talks and push them as far as we can to our goal of eliminating all trade barriers.

6

We are, my friends, on a great journey of exploration. And as on all such journeys, from time to time, we tire. But if we are strong and if we continue onward, I believe we will find that a more bountiful land lies before us. Let us all join together on this great journey. Let us reaffirm our commitment to the insti­tutions that have brought us this far. Let us reaffirm our commitment to strengthen­ing them for the adventure that lies ahead.

Thank you, and God bless you all.

7

OPENING ADDRESS BY THE CHAIRMAN, THE HON. VIRGILIO BARCO

Governor of the Fund and Bank for Colombia

I want to welcome you to these Forty-First Annual Meetings ofthe International Monetary Fund and the World Bank. I look forward with much interest to our debates, which will help us to progress beyond the achievements made possible by our last Meetings in Seoul.

On behalf of all those who are gathered here, allow me to express our thanks to President Reagan and, through him, to the people of the United States, and particularly of the city of Washington, for their hospitality.

I take this opportunity to greet the representatives of Poland and Kiribati, whid have recently joined both institutions.

I am also pleased to welcome Mr. Barber Conable, the new President of the World Bank. We are certain that, with his experience and under his leadership, the Bank will be in a position to meet the new challenges that lie ahead.

In my capacity as Chairman of the Boards of Governors allow me to assure you, Mr. Conable, of our cooperation and support, and to wish you the best of success in your new position.

On the eve of these Meetings we were informed of the decision of Mr. Jacques de Larosiere to resign before the end of his second term as Managing Director. Since 1978, when he took office, the international economy has been exposed to the shocks of sharp changes in oil prices, excessive volatility of exchange rates, high interest rates and the problem of the external debt. In these circumstances, the Fund has provided strong support as the focal center of the international monetary system. On behalf of the Governors, may I express to him our appreciation for his achievements in office and wish him equal success in the months during which he remains at the helm of the Fund and in his subsequent activities.

The Fund and the Bank must playa leading role in coping with the difficult situation now confronting the world economy. A substantial part of our delibera­tions will continue to be devoted to the search for sustained growth of the world economy. By virtue of their responsibility for gathering and channeling financial and technical resources, and as providers of such resources, the two institutions have the mission of assisting developing countries so that they have the support they need to set their economies on the path of sustained growth.

Industrial countries

The crucial importance of the economic performance and of the policies of industrial countries for the developing world was clearly recognized at the last Annual Meetings in Seoul. Unfortunately, developments in the industrial econo­mies have not been overly favorable.

8

The economic recovery set in motion at the end of 1982 showed signs of weakness in 1985, and activity levels in the first half of this year fell far short of expectations.

Thus, the real growth of production in developed countries slowed down from approximately 5 percent in 1984 to about 3 percent in 1985. Reduced momentum in the United States was not offset, as would have been desirable. by higher growth in other industrial countries. In Europe, growth remained at the modest levels of 1984. This caused the economies of the developing countries to weaken further between 1984 and 1985.

This notwithstanding, it should be stressed that some important industrial countries have achieved encouraging progress in the coordination and direction of their economic policies. A positive step was taken at the meeting of the Group of Five, in September 1985. with the decision that their economic strategies should be aimed at achieving balanced growth. while exchange rates should refl~ct equilibrium positions. As a follow-up to this initiative. the seven major industrial countries reached further agreement on coordination of their economic policies at the Tokyo summit in May.

Many of the measures taken by the industrial countries have begun to exert a favorable impact on the international economic environment. Inflation has slowed to the lowest level since 1967. As a result, inflationary expectations have abated even more. facilitating a decline. which to some extent has been coordinated. in nominal interest rates.

Still, the industrial countries have the responsibility of making an even greater effort for creating a favorable and less uncertain external environment that will sustain growth, employment. and political and social stability in the developing countries. In addition, they must provide a dynamic market for exports, allowing free access to their markets and eliminating export subsidies for agricultural products.

What is more, the industrial countries must put into practice their good inten­tions to fight protectionism by deciding not only to resist protectionist pressures but also to eliminate existing barriers to international trade, particularly those that discriminate against the developing countries.

Further. within the framework of the GATT, they must ensure the success of the new round of multilateral trade negotiations recently initiated at Punta del Este, giving special consideration to the inclusion of agricultural products. The coun­tries meeting at Punta del Este affirmed the purpose of strengthening the links that should exist between world trade and policies promoting domestic growth in order to improve real flows of financing and investment to the developing countries. A major role in this process has been assigned to multilateral credit institutions, particularly the International Monetary Fund and the World Bank.

It is to be hoped that the industrial countries will adopt policies consistent with a further reduction in international interest rates. which continue to be high in real terms compared with historical levels. In this respect, the proposal for a more balanced budget in the United States is very important in that it would contribute to capital formation and economic growth throughout the world.

9

Those industrial countries that have succeeded in controlling inflation and are in a favorable exchange rate situation also have a very special responsibility to adopt economic policies enabling them to make a more positive contribution to world economic growth.

Developing countries

The slower growth of the world economy has had broad negative repercussions in the developing countries, whose export earnings are no longer growing satisfac­torily. This explains in part that decrease in the average growth of their aggregate product, which dropped from 4 percent in 1984 to less than 3 percent in 1985. This decline continued in the first half of 1986.

Most developing countries confront a wide range of problems, including particularly the following: high and growing external debt service payments, with the concomitant net outward capital transfers; low saving and investment levels; high inflation rates in some countries; high levels of unemployment and under­employment; widespread extreme poverty; and the political and social instability that usually accompanies such situations.

The debt problem continues to darken the picture for our economies. As I wrote in a letter to Mr. Alden W. Clausen on the occasion of last year's Meetings in Seoul, this problem must be attacked with a medium- and long-term strategy, a strategy based on the necessity of economic growth and acceptance of the fact that the debt burden must be distributed among all parties, not among the borrowers only. It is important to note that, since that time, the validity of this approach has at last been recognized.

The governments of the industrial countries are thus beginning to accept this premise. Under the leadership of the United States, and at the initiative of its Secretary of the Treasury, Mr. James Baker, the United States presented in Seoul a proposal which, besides recognizing the necessity of economic growth as a precondition for solving the debt problem, accepts the principle of the shared responsibility of creditors and debtors.

Although this represents progress and has aroused interest and expectations in the international community, and particularly in the developing countries, a more decisive contribution by this initiative to a solution of the debt problem is still awaited.

The program recently adopted for Mexico, which will require substantial financial support from the Fund, the Bank, commercial banks and bilateral sources, illustrates how a concrete program can combine the firm, sovereign decisions of a developing country with the ideas contained in the Baker initiative.

Obviously, it is necessary to bolster this strategy in order to develop an appropriate, equitable solution to the external debt problem. This will require active collaboration on the part of all the parties involved, in a spirit of compro­mise and commitment accepted by all. As for the debtor countries, they will need to reaffirm their determination to adopt structural reforms on the home front

10

designed to promote exports, saving, domestic as well as foreign investment, and greater economic efficiency, always striving to improve the living standard oftheir peoples.

Admittedly, there is an element of hope in this gloomy picture, thanks to the strong performance of some countries that export manufactured goods and of most of the Asian countries; they have maintained a good rate of growth, though it was lower in 1985.

These developments have yielded substantial progress in the management of the high external debt of some developing countries. It is also clear that these efforts at strengthening their balance of payments position have entailed excessive sacrifices in their investment levels, public as well as private.

But the overall picture is that the export earnings of the developing countries have ceased to grow, as a result of a decline of 2 percent in the terms of trade for basic commodities in 1985, combined with a slowdown in the growth of interna­tional trade.

This is largely due to higher protection in the industrial countries and to the increasingly alarming proliferation of nontariff barriers in markets for specific products. An international scenario is thus emerging in which the competitiveness of the developing countries depends less and less on their own efficiency and more and more on political decisions in the industrial countries.

'The developing countries, particularly in Latin America, have been implement­ing drastic economic reform programs. As a result, there has been an important change in the external current account position particularly for countries that are net importers of capital.

The combined deficit fell from about 18 percent of exports in 1982 to less than 4 percent in 1985, though all countries did not share equally in this achievement. But notwithstanding this success, the trade surplus barely covered net interest payments.

It would therefore be unrealistic to assume that these countries could restructure their economies without additional financial assistance. Yet the behavior of the international commercial banking community does not square with this fact: it has sought to reduce its exposure despite the improving balance of payments of the developing countries. An appropriate response is required to the need for greater flexibility and for the timely rationalization of the regulatory practices applied to commercial banking.

At the same time, the members of the Paris Club, and commercial banks in general. must address themselves more flexibly and appropriately to external debt restructuring and refinancing operations for the developing countries. They should also provide the resources needed to ensure implementation of the program of growth-oriented adjustment proposed at the Seoul Annual Meetings.

Africa's Sub-Saharan countries need special treatment in view of the severe economic and social problems they confront. The main evidence to that effect is that the lowest-income region in Africa is poorer today than it was in 1960. Though some of these countries instituted courageous changes in economic policy in 1985. more generous external support for them has not been forthcoming.

11

In this context it is vital that the Eighth Replenishment of Resources of the International Development Association be of sufficient scope to allow for an improvement of the African countries' growth prospects in coming years.

For their part, the governments of Africa must maintain the political resolve to ensure that domestic as well as external resources are used as efficiently as possible. Donors and lenders to Africa must act effectively to increase the volume of c'oncessional asssistance and so reduce the debt burden of the world's poorest countries.

Africa's development crisis is not solely an African problem; it concerns all of mankind. In view of the scope of Africa's internal and external problems, it needs the support of the entire international community without delay.

Colombia

Colombia has distinguished itself for some decades by the stable, steady economic growth it has achieved. However, it has not been immune to the problems that have affected the world economy, and particularly Latin America, in the last few years.

Although its economy has been beset by difficulties on the external front since the early 1980s, the country, faithful to its historic tradition, has fully respected its debt service commitments and has had no need to restructure its external public debt. As a result, it has been able to maintain its credit standing with foreign commercial banks.

These results must be viewed as part of a long tradition of pragmatic economic policies. Instead of being marked by abrupt changes, our policy-making has sought to keep economic, political and social considerations in balance and to maintain a positive relationship with multilateral agencies.

The role of the International Monetary Fund

The Fund has continued to play a leading role in the international monetary system. In fulfilling its responsibilities, it will be called upon to help formulate programs and policies that are viable in the medium term and promote growth with moderate inflation, high employment, expanding world trade and, above all, a progressive improvement in social conditions.

If stabilization programs are to be effective, apart from taking the special problems of each country into account they must reflect its specific economic structures and political sensitivities. The programs, in tum, will require deter­mined support from governments and public opinion; to that end, when their conditions are being agreed on, care must be taken that the sacrifices they impose do not fall unnecessarily on the poorest segments of the population.

No single policy formula is appropriate. for all countries, particularly develop­ing countries. The Fund must always respond flexibly and expeditiously to changing circumstances in the world economic environment. The formulation and

12

implementation of stabilization programs thus require flexible responses that take into account the frequent changes in the markets for commodities.

The Fund must continue to playa prominent role both in the effort to encourage commercial bank lending to the developing countries and, just as importantly, in promoting and shaping appropriate multi annual agreements for the refinancing and rescheduling of debt payments.

I ask the Governors to support the continuation of a policy of broader access to the Fund's resources and, when the Ninth General Review of Quotas takes place, to decide on a substantial quota increase. This task must be undertaken without delay.

The Fund must playa leading role in improving the coordination of economic policies among industrial countries. Further, the surveillance it regularly exercises under Article IV of its Articles of Agreement can and should be made more effective with regard to the economic policies of industrial countries. In relation to that task, fundamental importance attaches to the leadership the Fund assumes in the management of international monetary and financial problems, giving due consideration to world trade issues.

An allocation of SDRs can provide immediate support to countries facing balance of payments problems. It would be particularly useful given the growing tensions that may well develop in the reserve position of a number of countries in coming years. As a result, I take the liberty of directing a special appeal to the Governors to make known their political will to support a prompt allocation of SDRs.

There is a broad consensus in the Fund's Executive Board in favor of expanding the use of SDRs and possibilities for transferring them, while improving their distribution as part of members' reserves. As regards the latter, it should be noted that the governments of developing countries would view with particular interest the adoption of distribution guidelines that would accord with the needs of our economies.

The role of the World Bank

The World Bank's role has been the subject of major discussion recently. In my opinion, the intensity of the debate and the attention it has attracted are beneficial and fully justified.

The discussion is likely to go on for some time. So far, a relative consensus has been reached on three general areas in which this institution should have broader responsibilities:

In the first place, as suggested by the Development Committee at its April meetings, the Bank should enhance its capacity to support initiatives whose central object is to achieve stable economic growth in member countries. Naturally, this should be in the context of medium-term economic programs.

The Bank has been impro. ing this capability for some years. It has been making more use of various lending instruments, particularly structural and sectoral

13

adjustment loans. In certain circumstances the Bank has accelerated and increased disbursements to the most heavily indebted countries and, in some cases, it has worked with governments on the design and execution of medium-term stabiliza­tion programs.

The lessons learned throughout this experience indicate that if medium-term programs of growth with stability are to be given an effective impetus, they must be realistic, planned around specific objectives and appropriate time horizons, and supplemented with adequate and timely contributions of financial resources and technical assistance. These programs must be characterized by high quality and proper control in the planning, implementation and monitoring of economic policy.

The International Development Association will also have to share in this responsibility. As the major source of concessional funds for the poorest coun­tries, IDA exercises the leadership that befits it in assisting these countries to implement economic programs.

In the second place, the Bank must stress its role as coordinator and mobilizer of private and official resources in accordance with the needs of the developing countries. Here again, it bears stating that the Bank has made progress, having innovated and expanded its use of cofinancing as one of its regular tools while enhancing its contribution in the area of technical assistance.

For its part, the International Finance Corporation, having doubled its capital recently, is also playing an innovative role in attracting investment to the private sectors of developing countries.

Finally, a third dimension of the Bank's role, deriving from the other two, has to do with expansion of its program of support lending to meet the challenge arising from the implementation of policies directed toward growth with stability.

The Bank has a lending program of between US$40 billion and US$50 billion for the fiscal years from 1986 to 1988. In the first of these years the Bank has commitments totaling US$13. 2 billion, a 16 percent increase over fiscal year 1985 and near the upper limit of the planning range.

However, as pointed out by the Development Committee early this year, after the 1987 fiscal year the demand for loans from the Bank could easily exceed the level that can be met with its existing capital stock. This emphasizes the need for a positive response on the Governors' part to a new proposal for an increase in the Bank's capital. In addition, the Bank must make better use of its gearing ratio in order to enhance its financing capacity.

It is also important that the Bank carry out an adequate review of the costs of transfers of funds to member countries. Everyone is well aware of the com­paratively high level of these costs at the present time.

It is essential that the World Bank Group maintain its commitment to progress and to the eradication of absolute poverty in all countries, particularly in those with the lowest incomes.

The International Development Association has the responsibility of providing, on a world scale, the funds required to accomplish this purpose. Given the

14

importance of that institution, particularly as regards the poorest countries­special mention should be made of Sub-Saharan Africa and some regions of Asia and the Pacific-it is our duty to ensure that the Eighth Replenishment provides IDA with adequate funds.

Conclusions

Attainment of economic growth in the developing countries will require a commitment on their part to carry out substantive policy reforms.

The industrial countries, on the other hand, must keep their markets open to developing country exports and assure them of an adequate flow of financial and technical resources. The International Monetary Fund, the World Bank and the Inter-American Development Bank, on a par with other multilateral institutions, will playa crucial role in this process. Above all, close collaboration between the Fund and the World Bank, which has intensified in the past few years, will take on even greater importance in future.

Economic stabilization and restructuring must be pursued simultaneously in order to achieve economic growth with stability, a reduction in unemployment, and eradication of absolute poverty in all of the world's countries.

In turn, the ever-expanding and more dynamic role that we require of institu­tions such as the Fund and the Bank is intended to secure a more determined and stable contribution on the part of investment and commercial banks to the develop­ment process.

Given the guarantees represented by the financial participation of multilateral banks, and thanks to cooperation on the policy and program level with the Fund, the Bank, and the borrowing countries, these banks will have adequate incentive to provide more funds for the developing countries on more favorable financial terms.

The assistance provided by the Fund and the Bank, each in the area of its statutory mandate, must be given in a context of close mutual support. The Bretton Woods institutions must be creative and flexible, and must assume the leadership required to ensure that economic policies are designed for the achievement of lasting solutions-with a social content-to the problems of the international economy.

I must repeat that, if the Fund and the Bank are to meet their obligations successfully, they will need additional financial resources. In addition, their programs must seek the political support of all member countries.

Let us renew our commitment to economic and social progress through interna­tional cooperation. Let us see to it that the reordering of our economies is reconciled with higher growth and a better distribution of world economic progress to favor the poorest countries and the most needy popUlation groups.

15

ANNUAL ADDRESS BY

BARBER B. CONABLE President of the World Bank

Mr. Chainnan, Governors, Ladies and Gentlemen: Welcome to these Annual Meetings. Welcome especially to the delegates from our newest member nations: Kiribati and Poland.

I was born in a town named Warsaw. I was educated in Ithaca. I began my legal career in Batavia. For twenty years in the Congress of the United States, I represented the citizens of Lima, Attica, Avon, Castile. Java, and Greece.

Those place names in upstate New York are part of my heritage. These small communities bear witness to the wider world from which America drew its people and culture and to which Americans have turned again for commerce and counsel and collective action. Collective action against global poverty is the common purpose that brings us together today. It brought the World Bank into being four decades ago, and it still defines the goals which I intend to serve with all my energy for the next five years.

By training, I am a lawyer, a negotiator. I know the duties of the public servant who must both lead and respond to constituents. And though I am neither banker nor development technician, I am familiar with the challenges of international economics and trade. Moreover, the discipline of the politics of democracy has educated me not only in conciliating conflicting views and interests but also in seeing the impact of grand designs on individual lives and private aspirations.

I come to you and to this great institution, then, ready both to learn and to lead. Having reti!'ed from public life, I did not expect such an opportunity for public service. But I welcome the challenge with enthusiasm ... as I will welcome your advice and support in meeting it.

I will also, however, genuinely miss the help of two distinguished colleagues, leaders who have contributed much to strengthening international cooperation in the development field.

Ghulam Ishaq Khan is ending his extended term as Chainnan of the Develop­ment Committee. He has guided us wisely and finnly, endowing this Committee with lasting influence and significance. We owe him our deep thanks.

And Jacques de Larosiere, what a tribute you gave him this morning, will be leaving the helm of the Fund, where he has served the international community with sensitivity and distinction. He has contributed to intensified IMF-World Bank cooperation, and I personally wish to acknowledge his advice and help to me in recent months. He has been a superbly effective leader of the Fund. We all are grateful for his contribution and regretful of his departure.

* * * *

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The central challenge to the World Bank is the central concern of our world. It is the same in 1986 as in 1946: to mobilize the will and the resources of the affluent and of the afflicted alike in the global battle against poverty.

We have made real progress in that fight. We have much still to do. We have done well. We must, we can do better. For the Bank to achieve the results of which it is capable, it needs not a new

direction but a renewed drive, a reinvigorated dedication of its original and enduring purpose.

That purpose is development. The Bank's role is to lead in that process, and my priority as President will be to ensure resolute leadership for sustained development.

Ortega y Gasset has written: . 'Nations are formed. are kept alive by the fact that they have a program for tomorrow." The same is true of institutions, and the World Bank family of institutions must have a program for tomorrow not just to live itself. but to lead in making the lives of millions better, fuller. more promising.

The leadership program for sustained development that I wish to present to you today builds on the experience and expertise the Bank has accumulated-the solid, enormous assets of our dedicated and skillful staff. We do not have to reinvent the wheel of development. Its pioneers and past masters are already here and hard at work.

My program also capitalizes on the Bank's physical assets-the financial strength and high liquidity that enable us to move with speed and decisive impact, to lead where private initiatives and investors can confidently follow in imple­menting strategies of both adjustment and development.

Finally. I intend to use to the maximum the Bank's unique pivotal position in the development process--{)ur central place in the world of private and governmental finance and our broad and deep political support in the developed and the developing world.

Those sources of strength have made the Bank an institution that is larger and more powerful than its parts. We must use this power in a coordinated approach. to take the lead again in the quest for sustained development.

The ingredients of that approach blend the Bank's past accomplishments with its continuing and changing responsibilities. Let me spell out the elements that I believe are basic to leadership for sustained development.

First, let us be clear about our goal. We are a force for development. not primarily an agency for debt management. We will exert our influence

• to shield the development process from the volatility of global financial markets and aid flows,

• to encourage freer world trade, and • to help reduce the relative burden of Third World debt, so that, through a

resumption of growth, borrowing again can become a stimulus to progress. In these ways we can make genuine economic growth the healing antidote wherever poverty is poisoning people's lives and their hopes for the future.

17

These efforts must be both a strategy and a goal. They require that we draw deeply on the reservoir of skills and motivations that the exemplary leadership of the past has built up in the World Bank, and I note here in the audience today the presence of both Tom Clausen and Bob McNamara.

Second, in development lending, we must maintain on a country-by-country basis a thoughtful mix of investment and adjustment lending. The two must support each other, but in ways appropriate to each country's needs.

Third, as in the past, we will regard agricultural development in the poorest nations as central and critical in the battle against poverty.

Fourth, we will take account of long-term issues in our development activities-the need to stress population concerns, the need to protect the environ­ment as we promote economic advance. and the need to ensure that women are fully integrated in. contribute to and benefit from development programs.

Fifth-the final component that is crucial to the success of all the others-we must maintain flexibility both in the design and the management of the Bank's activities. We have new instruments to use and a talented staff. We must make certain that our structure provides the best match between those resources and our requirements.

As Henry David Thoreau observed long ago. "It is not enough to be busy ... The question is: what are we busy about?" The business of the Bank is develop­ment. We are in position to take the lead in that business, to show the way and to set the pace.

That is why the first element of my program is simply a restatement of our fundamental goal. the primacy of sustained development on the Bank's agenda for leadership.

We are all bitterly aware, of course, that development does not proceed automatically and smoothly on its own. In too many nations too many resources meant for development are being diverted into debt service. Stabilization plans, while essential to restore investsor confidence. are also acting in some situations as impediments to growth. Lack of coordination in movements of official capital accentuates the volatile movement of private funds, and one result is to deprive long-term programs of timely access to stable credit. And new threats of protec­tionism are shrinking the promise of an expanding global marketplace for devel­oped and developing nations alike.

It is not enough to list these problems or acknowledge the obvious linkage between their resolution and our prospects of progress. We must work for a resumption of growth-growth in credit. growth in trade. growth in the official and private resources committed to the fight against poverty. When nations seek the well-springs of economic growth, the Bank must be a guide, not a bystander. in their search.

There is no simple remedy or set of cures for destitution and its companions: disease and despair. But without continuing growth in the economies of the developed and developing nations and in the commerce among them, there is no cure at all.

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- -._._------------_._----

The World Bank is the most influential intermediary between what Cervantes called the' 'only two families in the world-the Haves and the Have-Nots." In that position, we must both mediate and lead. We must be both advisor and catalytic agent in promoting the coordination and cooperation of creditor and debtor, donor and recipient nation.

The Bank is already exercising that constructive influence. While total IBRD lending in the past fiscal year grew by 16 percent, our loans to ten highly indebted countries that have embarked on adjustment programs increased by 47 percent. And our fast-disbursing adjustment-lending accounted for more than a third of our programs in middle-income nations.

Adjustment lending and investment financing are not mutually exclusive. They need each other. What good can agricultural reforms do if inadequate irrigation leaves farmland parched or inadequate transport leaves farm produce to rot in storage? On the other side of the coin, how can investments bear fruit, how can investors have confidence in a policy environment hostile to change and enterprise?

The Bank's leadership task in the face of such questions is to ensure that adjustment efforts are synchronized with development work. that official capital flows stimulate and draw private investment with them and that the hardest cases get urgent attention.

Where debt and its servicing lie heaviest in the path of growth, where-as in Latin America and Sub-Saharan Africa-falling commodity prices have dras­tically eroded export earnings, there the Bank must be at the forefront in lending and in spurring other lenders both to reschedule debt and to invest anew.

It is not enough to endorse the proposals U. S. Treasury Secretary Baker made this time last year in Seoul. With regard to the middle-income nations, the private financial community must move from approval in principle to action in practice.

Where the World Bank and IMF are at work in helping debtor nations to mount comprehensive adjustment programs. the commercial banks must be promptly, generously, and imaginatively at our side. A waiting game will be a losing game­for creditors as much as for debtors.

Only growth will produce the income to ensure debt repayment. And only new capital flows at spreads as low as possible will promote higher growth. And for the very poorest nations. where lack of creditworthiness bars the door to commercial flows. substantial and sustained foreign aid must be available. Here a strong IDA is an imperative.

Equally important is the issue of trade expansion. With growth rates dropping nearly by half in the heavily indebted countries as a group over the last year, it is clear that their economies must generate export surpluses substantial enough to provide for both continued debt service and for new, growth-enhancing investments.

Yet how can they achieve that vital result if export markets shrink or close? Those who wish. as I do. to see the developing countries liberalize their own trade rules must themselves come to court with clean hands. No nations, however strong. can restrict imports and then expect easier entry for their goods and services to the markets of their trading partners.

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Growth and freer trade go together. The responsibility of the industrial countries to invigorate their own lagging economic growth is matched by their need to open and smooth the road for trade expansion. Such movement is clearly in the self­interest of the developed world, but it is also vital to the prospects for sustained development among the poorest and those most deeply in debt.

On their behalf, the World bank will do its utmost to ease and accelerate the new round of multinational trade negotiations under GATT auspices. As I did at Punta del Este two weeks ago, I again pledge the Bank's urgent support in the effort to reverse protectionist trends and revive trade expansion.

At the same time that the Bank continues and increases its engagement in improving the climate for developmental progress, we will also continue to expand and refine our investment lending. By giving so much attention to the complex issues addressed in the first point of my leadership program, I do not mean to leave the impression that the second point is in any way secondary.

The Bank has historically developed as a project lender. I intend to see that we go on to do it even better.

We have seen in Asia and Africa, in Latin America and in parts of Europe, how the foundation for growth is laid in the concrete of dams, in the asphalt of roads, in power and communications lines and in the fertile soil of educated minds. We have seen as well how--on such foundations-the countries of the Pacific Rim have built the momentum for export growth, how the world's two most populous nations, India and China, have scored their impressive progress.

Basic investments in development, thus, remain basic to sustained growth. That understanding will continue to direct our lending priorities even as we adjust them to mold new coordinated strategies of investment, a related subject that I will discuss shortly.

Before that, however, let me remind you of the third ingredient of sustained development: food. There is a zero-sum fallacy contending that agricultural trade--especially exports from rich to poor-will shrink as subsistence farmers increase their productivity.

The reverse is true. With development, most of the extra income earned by the poorest farmers goes to improve their families' diet. So investments in farm equipment and techniques, land reform, fertilizer, seeds and crop research can be investments in the long-term growth of international commerce as well as in the immediate improvement of human lives.

The Bank will therefore continue to stress agricultural development, from research to production, as a fundamental of sustained development. But in response to the fourth leadership concern I outlined, we will strengthen our work in all areas, rural and urban, to reflect new attention to the role of population, of the environment and of women in the lives and hopes of the world's poor.

These are not peripheral issues to development work. They are not frills hastily added to our design for growth.

High population growth rates strain both natural and financial resources.

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Environmental neglect destroys assets vital not just to the quality of life but to life itself.

Women do two-thirds of the world's work. They produce 60 to 80 percent of Africa's and Asia's food, 40 percent of Latin America's. Yet they earn only one­tenth of the world's income and own less than I percent of the world's property. They are among the poorest of the world's poor.

We cannot provide leadership for sustained development without providing leadership, as well, to restrain overpopulation, to balance growth with environ­mental protection, and to match the contributions women make with contributions to their welfare. We must integrate these concerns into our overall development strategy or risk the ultimate failure of our finest work.

Fortunately, the Bank has already accumulated much of the experience neces­sary to weave population, environmental and women's issues into a tighter fabric of development assistance. Now we must put our knowledge vigorously to work.

We should work on all three fronts at once. It is clear that popUlation pressures are one source of heavy environmental damage, so we must provide training to give women the skills to take charge of their productive and reproductive lives. And it makes little sense to fund agricultural extension services and credit programs in Africa that do not reach the real farmers, the women who work the land.

Similarly, where men and women are closer to the earth than they are in many industrialized nations, we should need little reminder of Francis Bacon's insight: "Nature, to be commanded, must be obeyed." To keep development in harmony with natural forces and resources, we must apply that lesson on the largest scale­from the planning stage through the execution of every significant project.

We can count on the governments of the developing nations as allies in these endeavors. Many of them have launched efforts of their own to meet these three interlocking concerns. The Bank should build on these beginnings to expand their scale and scope. We can add expertise-whether sophisticated satellite photog­raphy to catch the inroads of deforestation or simple, rural health and family clinics-and new funding.

The problems and the paths to their solution are of long standing. It is only our sensitivity to their importance that is new. The time has come to move from that awareness to a concerted, continuing plan of action for sustained development.

In leading that drive-to come now to the final element I have offered for your consideration-the Bank will need a new flexibility, a new impulse to experimen­tation in many aspects of its work. All institutions-no matter how fresh the challenges they face-grow cautious with age and risk being fettered as well as enriched by tradition.

The World Bank must not become like Eddie Rickenbacker's grandmother who beseeched the would-be aviation pioneer just before he entered pilot training to promise her that he would "always fly slowly and stay close to the ground." Unlike her, we must promise ourselves to be both daring and down to earth, open to innovation in the face of new and familiar challenges. One of the challenges of

21

leadership, which I accept, is to ensure that the Bank's structure is relevant to today's needs and expectations.

I attach particular importance to the IFC and to its role in promoting new, private sector equity investments in developing nations. The IFC has-and can augment-the flexibility to encourage entrepreneurs and innovators to play lead­ership roles in developing economies. It has-and must expand-the means of channeling the energies of business leaders in industrial countries into the develop­ment effort. Strengthened by new capacity to ensure domestic as well as foreign investors through MIGA, we are also acquiring added power to mobilize sources of capital far greater than our own resources.

We will need to develop new techniques to make the most of this promising opportunity and of our central position in the channel of development finance. As an example, we must seek ever-closer partnership with public, private, and voluntary institutions. We have what Archimedes wanted: a place to stand from which to move the earth. At the fulcrum of cooperation, we must be wise and purposeful in moving the levers of coordination.

We must also and always remember that the Bank embodies what Barbara Ward called" a community of moral purpose .. , The program of leadership for sustained development which I have presented to you today is one guide to my priorities. They are to maintain and strengthen the Bank

• as a central force for development, an arsenal of powerful weapons in the struggle against poverty;

• as a major influence for economic adjustment. debt rescheduling and trade liberalization;

• as a steady source of project lending~specially in advancing agriculture beyond subsistence levels;

• as a sensitive advocate of the importance of population. environmental and women's concerns in the developing world and the development process; and

• as a responsive institution, quick to adjust to new needs and to adapt its strength to new challenges.

These are priorities for action in the coming years. But I hope they also suggest a broader goal-to endow the work of the Bank with the sense of urgency that springs from taking sides in a great and righteous cause.

Our cause is the age-old aspiration of mankind, the goal proclaimed by John XXIII in Pacem in Terris: "the common good in human society."

To achieve that good, we must light the darkness of poverty with the sunshine of hope. We must temper prudence with compassion and adjust the self-interest of nation states to the all-encompassing interest of global well-being.

When we read statistics, we must see real people. When we confront problems, we must cast them as opportunities. When we doubt our energy or question our faith in development, we must take fresh resolve from the reality that on our work depends the fate of millions.

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I find, to conclude on a personal note. that it helps me to think of all the members of the World Bank family as developing nations. Relatively advanced as some of us are now, we are still like cyclists; we must go constantly forward to save ourselves from falling.

Coming from a region of America that was wilderness less than two centuries ago, I have profited from an inheritance of development. The earliest settlers, my family among them, benefited from the visionary risk-taking of investors in the Netherlands and from the skills and enterprise of the workers who dug the Erie Canal and thus connected the Commerce of the Great Lakes to the commerce of the Atlantic Ocean.

So as an American and an heir to earlier development, I can look to distant, less fortunate lands and I can see there my forebears and with the right help, the bright future they have yet to build. I can see as well the profound wisdom of an American Indian proverb that declares: "In the beginning God gave to every people a cup of clay. and from that cup they drank their life."

Our common cup is the earth. Let us make from it-for all mankind-a vessel of life. a cornucopia of hope.

As I begin my own work toward that end, I am grateful for the tools and the talents at hand, for the strength of the Bank and the counsel I rely on you to provide.

Our institution is mighty in resources and in experience. But its labors will count for nothing if it cannot look at our world through the eyes of the most under­privileged, if we cannot share their hopes and their fears.

We are here to serve their needs. to help them realize their strength, their potential, their aspirations.

Let us then rededicate ourselves and our institutions to the pursuit of that great and common good. With your support. we can make the dream of sustained development a sustaining reality.

I count on your unstinting help, and for it, I thank you all.

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REPORT BY GHULAM ISHAQ KHAN Chairman of the Development Committee

I have the honor to present the 1986 Annual Report of the Development Committee. The meeting held on Monday of this week was my last as the Committee's Chairman, and I wish to reiterate my profound appreciation and gratitude to all members of the Committee for the support I consistently received from them in the exercise of my duties. Working together, we have transformed the Committee into an effective forum for a meaningful discussion of global issues.

Recent Developments in the Global Economy

In my statement this morning I shall be covering the two most recent meetings of the Committee, the first held in Washington, D. C. on April to-II, 1986 and the second concluded on September 29. During this time a number of developments in the global economy have given rise to renewed concerned. The period has been marked by sluggish growth in major OECD economies, despite the terms of trade advantage resulting from the sharp drop in oil and commodity prices. The decline in OECD growth is adversely affecting the implementation of adjustment pro­grams and developing countries' growth. The World Bank's most recent estimate for per capita growth in developing countries taken as a group is only about 1.2 percent for 1986.

There has also been a deterioration in the trade picture. The volume of develop­ing countries' exports to all major industrial countries-with the exception of the United States-has either remained stagnant or fallen. Moreover, U. S. exports to developing country markets have been declining in volume as a consequence mainly of the renewed contraction in their economies.

These adverse trends in world trade affecting the developing countries have not been compensated by a"1 enhanced flow of capital to them. On the contrary: there has been a further reduction in the total net inflow of financial resources to developing countries. For the highly indebted countries these flows have actually turned negative. Moreover, flows of official development assistance (ODA), on which the low-income countries are so greatly reliant, have stagnated since 1980.

Issues Facing the Committee

It was against this background that the Committee considered the major issues facing it. These issues have included:

----"evelopments in the highly indebted, middle-income countries and the strat­egy unveiled by U . S. Treasury Secretary Baker in October 1985 for dealing with the problems of their external indebtedness;

-the economic prospects of both the low-income countries and those middle­income countries which have been able to avoid excessive levels of debt;

24

-the role of the World Bank and its lending program and resource requirements -the role of concessional flows in the restoration of growth and alleviation of

poverty in low-income countries; -the role of the International Development Association (IDA) and the progress

of negotiations for its Eighth Replenishment; -the special problems and needs of sub-Saharan Africa; -and the role of trade in development.

The Highly Indebted, Middle-Income Countries and the Baker Initiative

In its April meeting the Committee reviewed the progress that had been made in addressing the problems of the highly indebted, middle-income countries in the period following the announcement of Secretary Baker's initiative. The Commit­tee reviewed the background paper on this subject prepared at its request by the World Bank and endorsed the general approach set out in it for achieving sustained growth in these countries. The essence of the approach was that viable debt workout programs were only feasible in the context of growth. Joint actions are required by all major parties concerned, namely, the indebted countries them­selves, industrial countries, commercial banks, and international financial and development institutions.

In our meeting of this week the Committee reiterated the essential elements of the debt workout strategy and again emphasized the crucial relationships between adjustment supported by an adequate flow of financial resources; access to mar­kets; the servicing of debt; and growth. However, it also called attention to a number of difficulties that have marked the implementation of the strategy, such as the serious slowdown in the expansion of developing country exports and the failure of commercial banks to assume their intended role. This of course, does not take into account the Herculean efforts since made by the major partners which culminated last evening in the very welcome conclusion of the Mexican accord. The view was expressed that, while the central approach in the initiative remains valid, the strategy that was originally evolved to implement it may need to be re­evaluated. The Committee invited all concerned parties to redouble their energies in undertaking concerted actions, stressed the necessity of an increase in net flows from commercial banks, and emphasized the even greater role which the World Bank would have to play.

Other Countries: The Need for a Rededication to Development

While much of the Committee's recent attention was of necessity focused on the problems of the highly indebted, middle-income countries, it also addressed the requirements of other developing countries. A rededication to the task of pro mot -ing development and alleviating poverty was required, as emphasized by the World Bank's President in his annual address to these meetings. In this context the Committee stressed the Bank's traditional role as a provider of development

25

finance for investment projects, a role of heightened importance in the light of current global economic conditions.

The World Bank's Role

In recognizing the enhanced role that the Bank must play in debt workout programs while continuing to perform its more traditional functions in all its member countries, the Committee noted that this would entail a qualitatively and quantitatively different Bank. There needs to be more assertive and innovative Bank involvement in debt workout programs. The Bank should also assume an increased responsibility, in close collaboration with the Fund, to line up external finance from other sources. including the commercial banks. once developing countries have embarked on adjustment programs. The Bank needs to do more in ways that might not directly entail the provision of its own financial resources; it needs to increase its catalytic role.

At the same time, there was a general recognition that such a qualitatively different Bank, to command credibility, would have to be larger in size. Accord­ingly, the Committee in its April meeting reaffirmed its strong support for a substantial expansion of the Bank's lending program and reiterated the under­standing reached in the Seoul meeting that the Bank should at no time be con­strained by lack of capital or borrowing authority in meeting future demand.

In our meeting of this week, members noted that the size of the Bank's anticipated lending program for FY 1987 might bring it up against the sustainable lending level of approximately $14.5 billion or even in excess of it. Therefore, given the need to maintain the momentum of the reform efforts undertaken by developing countries with the help of the Bank and to permit the growth in Bank lending deemed essential for the period through FY 1990, the Committee agreed that a substantial general capital increase would be required. It urged the Bank's Executive Directors to conclude their discussions on the issues concerning a general capital increase as soon as possible to permit agreement on a proposal for such an increase in time to ensure that the Bank's lending program is not constrained by the availability of capital. Members of the Committee recognized that should quality lending materialize as projected, the program for FY 1988 might exceed the sustainable lending limit on a temporary basis.

Concessional Flows in the Low-Income Countries

Following up on the report of its Task Force on Concessional Flows, which was presented to the Committee and endorsed by it at its meeting in Seoul in October 1985. the Committee has concentrated much of its attention in its two most recent meetings on the subject of concessional assistance, particularly as it relates to the needs of the low-income countries. The Committee recognized the importance of official development assistance (ODA) flows for the improved economic per­formance and sustained growth of these countries. It expressed its concern,

26

however, that prospects for total aDA flows suggest a low level of future growth, inadequate to meet the pressing needs of low-income recipients. In the face of a prospective imbalance between the aid needs of recipients and aid supplies from donors, the Committee urged its donor-country members to make maximum efforts to increase their aDA budgets, especially to help meet the needs of the poor countries. In this connection the Committee also emphasized the value of a strong multilateral concessional assistance system. especially since multilateral aid has a particular focus on the poorest countries.

The Role and Resource Requirements of the International Development Association (IDA)

The Committee has given considerable attention to the replenishment status of the International Development Association (IDA). In April. Ministers emphasized the special importance of IDA to the success of development programs in poor countries throughout the world, and virtually all Ministers expressed the strong hope that an IDA-VIII Replenishment of $12 billion would be achieved. They urged donors to exert maximum efforts to reach a consensus on outstanding issues related to the Eighth Replenishment, including fair burden-sharing and an equita­ble allocation of resources. At our meeting this week Ministers welcomed the progress achieved in the negotiations while noting those issues which have prevented their conclusion. The Committee urged all parties contributing to IDA to conclude the negotiations at the next meeting of IDA Deputies scheduled in November 1986 and to replenish IDA at a level of $12 billion or more. It also urged additional voluntary contributions from all donors in a position to make them.

Developments in Sub-Saharan Africa

The severe difficulties of Sub-Saharan Africa have occupied the attention of the Committee for a considerable time. At its April meeting members reviewed the World Bank's most recent report on the region and agreed that concerted action is urgently needed to address the region's problems. The Committee noted with satisfaction the growing commitment of African governments to policy reform, but it stressed that success of medium-term, growth-oriented adjustment programs requires increased external capital flows, particularly in view of continued weak­ness in commodity prices and heavy debt service obligations. Members noted the Bank's estimate of $2.5 billion in additional concessional flows that would be needed annually, over the next five years, to help meet low-income Sub-Saharan Africa's needs. Members called upon industrial countries to exert their best efforts to close this gap by providing additional official development assistance, through both bilateral and multilateral channels, to countries in the region undertaking significant reform programs. Ministers also agreed on the need to enhance further the effectiveness of aid flows to Sub-Saharan Africa and noted World Bank

27

suggestions for strengthening donor aid coordination, while reaffirming that the central responsibility for aid coordination lies with each recipient government.

In our meeting this week, the Committee again reviewed recent developments concerning Sub-Saharan Africa, including the constructive outcome of the UN Special Session, which endorsed Africa's Priority Program for Economic Recov­ery from 1986 to 1990. Members noted that 1986 offered some welcome, albeit modest, relief from difficult economic conditions for many of the poorest African countries but recognized that these improvements did not indicate a significant break in the long-term declining trend in the region'S economic and social indicators. While African governments continue to make progress in policy reforms, resource availability continues to be a major constraint. The Committee this week reiterated its conclusion in April that industrial countries should exert their best efforts to close the estimated $2.5 bi11ion annual gap in concessional flows identified by the World Bank.

The Role of Trade in Development

The Committee has focused its attention on outstanding trade issues as these affect the prospects of the developing countries. In April the Committee called upon all governments to resist protectionism and encouraged them to launch a new trade round under GATT auspices at an early date with the view to further opening markets and strengthening the trading system. In our meeting of this week, members again expressed concern about growing problems in world trade, which are having an adverse impact on the growth prospects of developing countries, including increased protectionism and the spread of subsidies or other incentives to production and export of agricultural commodities. The Committee welcomed the Punta del Este decision to initiate a comprehensive new round of multilateral trade negotiations. The Committee has recognized that long-term improvement in world trade prospects wi11 require a considerable amount of economic restructur­ing in both developed and developing countries; urging developing countries to reform their trade regimes has meaning only if the countries can continue to gain access to industrial country markets.

The Future Work Program of the Committee

The issues I have discussed point to a number of areas to which the Committee needs to devote further attention in its future work program. First, the Committee will need to review the World Bank's resource situation so as to ensure that the Bank can carry out the roles which the Committee has identified for it. In this context the Committee will need to keep under review the timing and size of a general capital increase for the Bank. Second, the Committee will need to analyze periodically the capital flows situation and its relationship to the external resource requirements of the developing countries. Third, the Committee has agreed to look into issues of agricultural and commodities trade. This will require a special study

28

on the subject, which will, among other things, explore the effects that agricultural subsidies have on developing countries' economic prospects. Fourth, in the matter of concessional flows, the Committee will want to ensure progress in aid coordina­tion. The Committee will also continue with its follow-up work stemming from the report of the Task Force on Concessional Flows, reporting periodically on devel­opments in the areas of aid volume, aid effectiveness, and the support for aid.

Conclusion

It is readily apparent that the issues that have occupied the Committee's attention this year are of crucial importance for the global economy. We are living through a time of great change and uncertainty affecting both developed and developing countries alike. The recent deliberations of the Committee have helped to clarify many of these issues. I am confident that the Committee's future work under a new Chairman will continue to make a significant contribution to our understanding of the changing international economy and will offer suggestions for policy initiatives that will improve economic relations between nations in our increasingly interdependent world.

29

STATEMENTS BY GOVERNORS AND ALTERNATE GOVERNORSl

AFGHANISTAN: MOHAMAD KABIR Governor of the Bank

I am very pleased to represent the Democratic Republic of Afghanistan at these Annual Meetings of the Boards of Governors of the Fund and Bank.

At the outset, I want to congratulate the management of the Fund and Bank for the excellent arrangements made for the conduct of these Meetings.

Our delegation sincerely welcomes the new members that have recently joined the Fund and Bank.

The world economic situation in the past year was not as good as expected. World trade also slowed down lowering prices of goods, especially those of the primary commodities. As a result, the terms of trade of the developing countries were eroded, the purchasing power of their export earnings weakened, and their import capacity declined. Consequently, the economic activity in the developing countries was adversely affected and the rate of growth in these countries decreased.

Moreover, the continued protectionist policies of the Western industrial coun­tries, and inequitable trade relations resulting from these policies, compounded the current account deficits of the developing countries. Thus, the current account deficits of the developing countries rose to more than $47 billion in 1985, and they spent more than 12.5 percent of their export earnings for debt service.

The economic state of low-income, least-developed countries was, and still is, even more distressing.

The Democratic Republic of Afghanistan, as a free, independent, nonaligned, peace-loving, and progressive country has achieved great and astounding suc­cesses in the social, economic, and political arenas since its inception, in spite of the conspiracies, sabotages, economic restrictions, and depredations against our people, and the involvement of our country in an undeclared war imposed from abroad.

The main objective of the April revolution of 1978, which overthrew the oppressive feudal system of the past, was, and continues to be, the development of the economy with a view to raising the standard of living of our people and creating a new, just, and democratic society in which all the citizens enjoy equal rights and privileges. In the short period since our national democratic revolution, especially its new and evolutionary phase, we have implemented land and water reforms and other progressive measures for the uplifting of the downtrodden peasants and the working class. The pace of land reform was accelerated through the active partici-

lComprising statements relating to the work of !BRD, IFC and IDA. Omitted passages are indicated by dots ( ... ). Statements relating to the International Monetary Fund are produced in the IMF Summary Proceedings.

30

pation of farmers during last year. In 1364 (April 1985-March 1986), land was redistributed to 11,073 deserving farmers. Our gross domestic product is expected to grow by 5.5 percent in 1365 (April 1986-March 1987).

Of course, the large-scale economic assistance given by friendly countries has contributed enormously toward the implementation of various development pro­jects vital for the improvement of the economy.

The Government has all along followed a policy of encouraging private sector investment. The leadership of the Democratic Republic of Afghanistan has always emphasized the role of the private sector in the development of the national economy and lately has issued definite directives for creating a more favorable climate and sound guarantees for the active participation of that sector in the economic development of the country.

Remarkable achievements in the social and political life of our people have also been witnessed. Free election campaigns for representatives of local organizations of administrative power have been held and are currently under way in many provinces of the country. Formulation of the new constitution is almost com­pleted, and its promulgation will be finalized in early 1987. The new constitution will ensure the democratic and equal rights of all the people in Afghanistan without any discrimination and in accordance with the accepted and credible international rules and agreements, including the declaration of human rights.

Despite these efforts, our economy suffers from the destructive activities of counter-revolutionaries. actively assisted by international reaction and imperi­alism. The rebuilding of assets destroyed by this undeclared war of imperialism and reactionary forces absorbs a large part of our resources, which otherwise would be utilized for the creation of additional productive capacity and infrastruc­ture facilities.

Now, we are in the process of implementing the first five-year plan after the April revolution of 1978, which will continue through March 1991. According to this plan, the gross product of the country in the course of the next five years will increase by 25 percent. as compared to 14 percent in the past five years. The volume of industrial products will increase by 38 percent, compared to 28 per­cent, and agricultural and forestry products by 15 percent as compared to 4.8 per­cent in the past five years. The growth rate of national income will increase by more than twofold and, as compared to the II percent of the past five years, will have a 26 percent increase. Thus, an increase of 25.8 percent in the volume of national income is anticipated for the year ending March 21, 1991.

Upgrading the living standard of all the citizens, especially the toiling people, construction of new dwelling blocks, and provision of essential materials and sanitary drinking water for the populace, form salient features of the five-year plan. .

However, for the full implementation of various development projects, incor­porated in the five-year plan that would make an appreciable improvement in the living conditions of the vast masses of our people, capital transfer on a very large scale is, indeed, essential.

31

We regretfully witness that development assistance has been totally denied to us by the Western countries and also by some of the international financial institu­tions, such as the World Bank, contrary to the objectives underlying the establish­ment of these institutions. The latter institutions have not only withheld the release of loans for which agreement had been signed previously, but have also suspended disbursements for ongoing projects on which substantial progress had been made.

My delegation, representing the Democratic Republic of Afghanistan, a land­locked and least-developed country, earnestly hopes that the international finan­cial institutions in general, and the World Bank in particular, will review their policies toward the Democratic Republic of Afghanistan and take steps to contrib­ute toward the successful implementation of the first five-year plan of our post­revolution era. We appeal to these institutions to be guided in their decisions solely by economic considerations, and not only to release the disbursement of sus­pended credits for our disrupted projects, but also to extend further development assistance to our new projects, according to the spirit of the United Nations resolu­tions, including resolutions 173/40, 178/40, and 183/40, and thereby supplement our efforts in solving, to some extent, the dire and distressing problems of back­wardness in our country.

Finally, we express our hopes that the current deliberations come to a successful conclusion.

LEAGUE OF ARAB STATES Joint Statement of Fund and Bank Governors

We wish to welcome the new President of the World Bank, Mr. Conable, to his first Annual Meetings, and, at the same time, bid farewell to the Managing Director of the International Monetary Fund, Mr. Jacques de Larosiere. We are grateful for his invaluable services to the Fund. We will miss him and wish him well in his future endeavors. We also welcome Kiribati and Poland as new members.

Global economic developments in recent months have been disappointing. Growth rates in many countries have slowed down; world trade has continued to be sluggish; and primary commodity prices have deteriorated further. It is of particu­lar concern that the outlook for developing countries has worsened, mainly as a result of declining real export earnings. Moreover, the failure of the external im­balances among industrial countries to decline, despite all efforts, is disturbing.

Although the current recovery has reached a vulnerable stage, we believe that an economic downturn can be avoided. However, the return to satisfactory growth while maintaining the low rates of inflation will depend crucially on the economic policies pursued to address the immediate causes behind the current slowdown. It is important that the industrial countries maintain appropriate growth in aggregate demand and reduce their external imbalances. Budgetary adjustment, particularly

32

in the United States, is essential; but the cutback in fiscal stimulus in the industrial countries as a group must be accompanied by increased private sector spending to absorb the resources released by the public sector. To improve the growth potential in industrial countries over the medium term. structural adjustment policies should be continued and strengthened.

We urge the industrial countries to move ahead toward genuine multilateral sur­veillance. The work done by the Fund on economic indicators and in the World Economic Outlook provides a useful starting point toward that objective. How­ever. in spite of the attempts by large industrial countries to strengthen their policy coordination. and notwithstanding the improvement in exchange rate patterns over the last year, the exchange market remains volatile. We hope the countries con­cerned will show the necessary political will to deal with these problems. In our view, the Fund can provide a suitable framework within which policy coordination can be carried out.

What happens in the developing countries is also of concern to the industrial countries in this increasingly interdependent world. This is not only because the developing countries' debt situation has a direct impact on the international financial system, and on the world economy in general, but also because aggregate demand in developing countries is of increasing importance to the economic growth of the industrial countries. It is imperative. therefore. that high priority be given to fostering adequate growth in the developing countries. The industrial countries can facilitate this in a number of important ways, namely.

I. by sustaining their own economic growth and by pursuing appropriate poli­cies relating to interest and exchange rates;

2. by encouraging more adequate capital flows to developing countries, both official and commercial;

3. by resisting protectionist pressures and dismantling existing trade barriers and by avoiding capital market restrictions. including in particular the freezing by major countries of other members' assets, as happened recently. The freezing of member country assets is not only against the spirit of the Articles of Agreement of the Fund. but is also inconsistent with the principle of free trade and capital move­ments. It is also in conflict with the special responsibility of major currency countries in preserving the credibility of the international financial system.

At the same time. developing countries themselves need to intensify their efforts to make their economies more efficient by more effective resource alloca­tion and by the diversification of their exports. It is encouraging that developing countries are already implementing strong policies of adjustment and growth. It is important. however. that these countries persist in their efforts and that the interna­tional environment be conducive to the success of these efforts. Without adequate financial flows and a favorable environment for exports of developing countries. the adjustment process would have to rely on further import compression, thus jeopardizing the growth prospects of these countries. It is crucial. therefore, that financial support provided to developing countries be commensurate with the financing requirements of growth-oriented adjustment.

33

With the large drop in oil prices cutting deeply into the revenues of the oil exporting countries and the associated large income transfer to industrial coun­tries, which in 1986 alone is estimated to reach about $60 billion, there is an added reason for the latter to step up external financial assistance so as to compensate for the inevitable reductions in such flows from the former. External financial assist­ance provided by a number of Arab oil exporting countries over the past many years constituted a high proportion of their GNP. The national and regional funds established by these countries have played, and continue to play, an important role in extending financial assistance to other developing countries. As a result of the plunge in oil prices, several of these countries are having to make difficult financial adjustments of their own. Moreover, for a number of indebted countries, and this includes some large ones, which have been hurt directly or indirectly by the drop in oil prices, the external financing requirements have increased considerably.

The problem of international indebtedness continues to be a serious concern. In our view, a lasting solution to this problem has to be based on improved growth and export performance in indebted countries. Furthermore, the management of the debt situation requires close cooperation of all the parties concerned. The indebted countries need to pursue, with persistence, the implementation of their economic reforms. The industrial countries need to sustain their economic growth, reduce trade barriers, and facilitate capital flows. The commercial banks need to extend adequate relief on existing debts and to provide new financing flows. The Fund and the World Bank should continue to perform their catal ytic and financing roles and should increase their efforts in helping developing countries accelerate structural adjustment and growth and thus improve their debt-servicing capacity. We encourage the managements of both institutions to continue adapting their policies to deal with the evolving debt situation in the most effective manner ....

. . . The Arab countries attach considerable importance to the role the World Bank can play in fostering the process of development in the Third World. We therefore support a substantial increase in the lending programs ofthe World Bank over the coming years. To achieve this, it is important to accelerate efforts to complete the steps necessary to increase the Bank's resources.

We are pleased to see the progress that has been made on IDA-VIII. We note, in particular, that it is intended to use about half of the resources generated under IDA-VIII to help low-income countries in Africa and that Sub-Saharan Africa is getting additional financial resources in this manner. These resources will usefully complement those available under the World Bank's Special Facility for Sub­Saharan Africa. Moreover, the Fund's newly created Structural Adjustment Facility can play an important role in assisting low-income countries in achieving their reform and growth objectives. It is encouraging that a few countries have already started to benefit from this facility and that a number of others are expected to do so in the near future. The ongoing cooperation between the Fund and the Bank in the context of this facility can contribute significantly to its effectiveness. However, it is important that the conditions associated with drawing under this facility be applied in a flexible manner and that any cross-conditionality between

34

the Fund and the Bank be avoided. It is also essential that the resources available under this facility be augmented sufficiently by other resources if the objectives of the facility are to be fully achieved.

We welcome the establishment of the Multilateral Investment Guarantee Agency and hope to see it operational soon. We look forward to constructive cooperation between this agency and regional institutions which perform a similar function. We also commend the efforts of IFC in facilitating equity investment flows to developing countries. These efforts should enhance nondebt-creating flows to developing countries.

ARGENTINA: JUAN VITAL SOURROUILLE Governor of the Fund

I have the honor of addressing the meeting of Governors of the World Bank and its affiliates on behalf of Bolivia. Brazil. Colombia, Costa Rica. Chile. the Dominican Republic, Ecuador. EI Salvador, Guatemala, Haiti, Honduras. Mex­ico, Nicar~gua. Panama, Paraguay. Peru, the Philippines. Spain. Suriname. Uru­guay, Venezuela and. of course. my own country. Argentina.

Before moving on to other matters, we wish to join the other Governors in extending a cordial welcome to the countries that have become members since our last Meetings-Poland and Kiribati. We are also pleased that these discussions are led by Virgilio Barco. the President of Colombia. an unusual circumstance that gives special satisfaction to the countries I represent.

Our institution is now headed by Mr. Barber Conable. to whom we wish the greatest success in his mission. He will undoubtedly find his work a great challenge. given the conditions of the world economy that are necessarily his starting point and the opportunities he will find or create to move forward in the areas of growth. development and relief of poverty that make up the Bank's responsibilities.

The world climate that prevails as we meet here in Washington is hardly promising. especially for the developing countries.

The growth rate of the gross domestic product in the developing countries in 1986 appears to be between 2.5 and 3 percent. meaning a stagnation of per capita income.

But figures on the growth of productive activities do not fully reveal the seriousness of the situation in the developing countries. because the slow growth of output has been accompanied by a sharp deterioration of their terms of trade and by the persistence of a huge net negative transfer of resources as a result of the external debt burden.

35

The change in the tenus of trade has been caused to a great extent by the fall in oil prices. But the prices of other primary products have also dropped sharply.

The transfer of resources stemming from the external debt burden is shaped by two factors. the origin of which lies in the external debt. First. the commercial banks are continuing to reduce their lending. At the same time. the flow of amorti­zation and interest payments remains strong. amounting to more than $51 billion in 1985.

With respect to interest payments. we think it important to stress that real interest rates have declined much less than nominal rates. At more than 4 percent per annum. they are still significantly above their historical level. If we wish to summarize the difficulties facing the highly indebted developing countries. we can take as our guide the fact that interest rates. adjusted for changes in export prices (the prices that provide the purchasing power to pay the interest). have not only not fallen. but have risen by more than five points between 1984 and 1986, placing them this year at about the same level as in 1982.

Considering the combined effect of the deterioration in the tenus of trade and the resource drain stemming from the servicing of the external debt, it is not sur­prising that the national income available for consumption or investment in the developing countries has diminished. As a result. per capita consumption in the world as a whole will stagnate, dropping for the fifth consecutive year in the oil exporting countries. by more than 5 percent, and by 3 percent in the highly indebted countries. In the latter case. the cumulative decline since 1981 exceeds 14 percent.

The trend has been no better in the Latin American economies. Per capita output was 9 percent lower than in 1980, comparable to the 1977 level. Thus, this has been a lost decade for development. The terms of trade worsened. bringing the cumulative deterioration in five years to 17 percent. At the same time, the net out­flow of resources from the region as a result of capital movements and their servicing amounted to about $30 billion, equivalent to almost 30 percent of the total value of exports of goods and services. In a mere four years-from 1982 to 1985-financial flows have generated a resource drain of about $106 billion.

From the standpoint of the developing countries, therefore, it is not easy to join in the complacency about world economic developments that appears to prevail in the industrial countries. What is more, we must emphasize once again that, while the developing countries have made a mighty effort to solve their problems, the same has not happened in the industrial countries.

The developing countries have managed to reduce their current account deficit by almost 80 percent-$65 billion-between 1982 and 1985.

And this adjustment had to be made in an environment of abnormally high interest rates and declining terms of trade, an environment resulting largely from disequilibria in the industrial countries which, in addition, received the transfers generated in those amounts.

In actuality, the defeat of inflation in the industrial countries has been based on a deterioration in the terms of trade. Some recent studies have shown that the taming

36

of inflation in those countries can be largely explained by the fall in the prices of raw materials.

Nevertheless. growth in the industrial countries remains slow; this year again it is below the initial forecasts. Combined with the persistence. or rather the expansion. of the large imbalances in external payments. this slow growth threat­ens to unleash strong protectionist measures in addition to those that today hamper exports from the developing countries.

The latter countries have been forced to tum over increasing shares of their resources, exporting more in return for less. It has thus been necessary to achieve balance of payments adjustment by means of a sharp curtailment of imports.

This cutback in imports by the developing countries. which account for a quarter of all the imports of the members of this Bank, has been an additional factor in the recession of the world economy that has manifested itself in the industrial countries through the unemployment of 30 million persons.

A consensus now exists as to the need for vigorous growth in the industrial and the developing countries so as to solve the unemployment problem and resolve the present imbalances, such as the external debt. in a socially acceptable and politically viable manner. But there appears to be some reluctance to promote this growth in certain industrial countries. Should it not be done in the developing countries? There is strong pressure in those countries to return to the living standards achieved almost a decade ago and to enlarge the supply of goods and services to meet the greater needs of various rapidly growing segments of the population.

To do this, financing is needed. Funds must be mobilized to compensate for the phenomenal transfer of resources now taking place, which prevents any accumula­tion of capital.

No increase in the efficiency with which resources are used. whether it be called adjustment or structural reform. can offset the absence of resources as a result of their transfer abroad. Without resources there can be no expansion, and without expansion it will be impossible to create the dynamic climate needed to stimulate investment, the only path to growth.

I should also like to refer to the problem of capital flight. It must be stressed that, despite the high interest rates in our countries. the uncertainty resulting from the lack of external credit is contributing to the recession and encouraginc capital flight. In the meantime. the major industrial countries are racing to attract funds from all over the world through tax concessions and to finance fiscal deficits.

We must emphasize that the rekindling of growth requires funds, more financ­ing than has been forthcoming in recent years. And if new frustrations are to be avoided. the amount of financing must match that of the resource drain it is to offset.

Should no formula be found for a resumption of financial flows. it will be necessary to look into other solutions that will eliminate the dead weight of our countries' accumulated debt on our potential for economic expansion.

37

We are convinced that we successfully diagnosed the problem a long time ago. This authorizes us today to emphasize the need for a genuine solution to the debt problem. The argument that the cost thereof would make it impracticable fails to reflect the cost that all of us, developed and developing countries alike, currently have to pay.

The existing disequilibria can be corrected more easily within a framework of growth than in the present situation of stagnation. But to set such a process in motion it is essential to coordinate actions in such a way as to extend to other areas the progress made some time ago in the realignment of exchange rates.

Such coordination is inconceivable without the active participation of the developing countries in the mechanism set up to achieve it. The world can no longer sit back and watch a spectacle in which the fate of all is decided by the few.

Moreover, if this cooperation is to be fruitful. we must be capable of recogniz­ing a healthy diversity of views with respect to growth strategies and a flexible application of agreed policies. At times. we in the developing countries have the impression that we are being called upon to make adjustments of a scope and at a speed that have rarely been seen in the industrial countries. It is essential to keep constantly in mind that our initiatives are part of a social and political context that must be fully taken into account in order to foster the supreme ideal, namely the democratic coexistence and welfare of our peoples.

II

With their needs mounting and their aspirations passed over. it is natural that the countries of the region should exercise their legitimate right to tum to the institu­tions built by the international community and owned by all of us.

In this connection, it is important to recall once again that the principal mission of the World Bank is the promotion of development and the alleviation of poverty. If the intention of fulfilling that mandate is sincere, we must accept the need to adjust the global lending program to meet the increasing demand.

I do not wish today to dwell on technical arguments demonstrating the urgent need to provide the Bank with the necessary resources. But it is clear that if, on the basis of shared experience, we want to travel the road from rhetoric to true development, the first step is a general capital increase.

III

Lastly, allow me to make a brief reference to the economy of my country, the Argentine Republic.

Of all the middle-income developing countries, Argentina has among the highest debUexport ratios and debt/GOP ratios, even though it stands in only third place as regards absolute debt figures. As in many other cases, since almost all the external debt is in the hands of the Central Government, its accounts are heavily

38

affected by debt service, in addition to the impact of those payments on the avail­ability of foreign exchange and on investment capacity.

This is a situation that the democratic government inherited from the military dictatorship, which had prided itself on its efficiency. Its effects have been devastating.

And it is not surprising that the country should have been plagued by an extremely high level of inflation accompanied by recession, by a decline in real wages, and by reduced levels of consumption.

Our democratic government has opted for a resumption of growth on sound bases and without the inflation that robs the worker of his wages. In June 1985, we introduced an economic reform plan that the Argentine people dubbed the "Aus­tral" plan, after the new monetary unit introduced as part of the reform.

As the Austral plan was going into action, breaking the momentum of inflation, a far-reaching tax reform program was introduced and decisive steps were taken toward privatizing public sector enterprises. We shall be using the proceeds of these sales not to finance current expenditure but to set up a fund to stimulate the development of new high-technology sectors.

In 1986, the country has experienced a very serious new blow in terms of com­petition from subsidized grain on the international market, resulting in a loss on the order of three points of the national product. Despite this, inflation fell from 30 percent a month to 4 percent a month; while the rate has increased in the past two months, this should not be regarded as a fundamental alteration of our program.

As we have noted earlier, however, continued growth requires long-term financing and appropriate terms.

Finally, I should like to repeat a concept that is of fundamental importance to our countries: the decision to grow is not negotiable. We shall continue to act seriously and responsibly, but shall also continue to fight for an equitable interna­tional economic order in which economic development is truly a shared experi­ence. To achieve this, we know that we must place our best efforts and our tech­nical capacities in the service of the legitimate aspirations of our people.

AUSTRALIA: PAUL J. KEATING, Governor of the Fund and Bank

I take this opportunity to welcome Poland and Kiribati to membership of the Fund and Bank. Notwithstanding criticism of these two institutions from time to time, I notice that membership continues to grow. Countries prefer to be inside rather than outside. The Fund and Bank cannot be doing too badly after all.

I take this opportunity of welcoming Mr. Conable as the new President of the Bank. I also wish to express Australia's appreciation of the work done by Jacques de Larosiere as Managing Director of the Fund. He has displayed great patience

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and stamina in dealing with what at times seems to me to have been most difficult problems reflecting in part the particular peculiarities of the countries involved. He leaves a strong institution behind him and he goes with our best wishes for the future.

I would like to break a little with tradition in this plenary statement. Usually we try to cover the waterfront with a statement of our position on the numerous aspects of the work of the Fund and Bank. That seems to me to be something of a waste of time. Our views are well known to members of the institutions, either from what has been said through the year in the two Boards, or from what has been said in meetings of the Interim Committee or the Development Committee.

Today I am going to concentrate on talking about the world economic situation, viewed from our rather special position in the South Pacific. I will however make one exception to that. I refer to the problems of the Pacific Island countries.

While the Pacific Islands do not face the poverty of sub-Saharan Africa, and they do not have the debt problems of Latin America, they do face very special and very real development constraints. Illiteracy, lack of a resource base and geo­graphic isolation all work to compound their development problems. Kiribati, for example, our newest member, consists of 33 coral atolls, with a land area of 800 square kilometers, spread over 3.6 million square kilometers of sea. Such coun­tries present the Bank in particular with special problems in terms of development assistance. But I hope that the Bank will find a way to help such countries even though the scale of operations will necessarily be below those which the Bank normally undertakes.

The Pacific is an area of the world which is growing in importance in many ways-political, economic, and strategic. We trust that the World bank will do its best to promote the welfare of these Pacific Islands.

I move now to the main story. As we see it, these Annual Meetings are taking place at a particularly important time. To us, the world economy seems to be balanced on a knife edge. On the one hand, we have all those forces at work which give us hope for the future:

-inflation in industrial countries is running at low levels; -action is being taken in many countries to improve fiscal discipline; -interest rates are lower in nominal terms; and -there are some signs that exchange rate realignment may be nearing a more

stable and sustainable pattern. On the other hand, we have opposite forces at work which throw doubt on the

strength of the recovery: -some important surplus countries are hesitant lest increased economic

activity lead to a resurgence of inflation; -an adequate return to fiscal discipline in the United States is not assured; -interest rates may be low in nominal terms but they are still high in real

terms-investment is not strong; and -the exchange rate realignment is slow in working its way through to the

current account balance.

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The net result of all this is that, at the moment. the world economy is hanging in the balance. It has lost its forward momentum.

There has, in fact, been a slowdown of economic activity in the industrial countries: in 1984, the rate of growth in the industrial countries almost reached 5 percent; in 1986, this rate seems likely to fall to under 3 percent. There has been a slowdown in world trade: in 1984, world trade grew at a rate of 8.5 percent; in 1986, it seems more likely to grow at a rate of 3.5 percent. There has been no perceptible improvement in unemployment in the industrial countries: in 1984. unemployment rates stood at about 8 percent; in 1986. the figure is likely to remain at about 8 percent.

Meanwhile. balance of payments disequilibrium widens. The United States current account deficit continues at well over $100 billion a year. The current account surplus of Japan and the Federal Republic of Germany, taken together, is running at over $100 million a year.

We are aware of the kind of reasons why the industrial countries (and. I believe. the Fund as an institution) take the view that the present situation is but a temporary setback pending further advance. It was a very bad winter in Europe; there was a rundown in inventories in the United States; the first effects of the fall in oil prices have been negative for industrial growth; and the upward slope of the exchange rate J-curve takes time to materialize. But we can be forgiven for being not entirely reassured by such rationalizations.

For countries outside the major industrial group (and there are well over one hundred Fund members in that category) what happens to industrial growth is probably the single most important factor determining their ability to pay their own way, to avoid adding to debt, and to service existing debt.

It has been estimated that (other things being equal) a rate of growth in the industrial countries of at least 3 percent is needed to keep commodity prices stable in real terms. The rate of growth of industrial countries is below that modest figure at this time. And what is more. other things have not remained equal, as will be explained later.

In fact there has been a sharp fall in commodity prices in recent years: oil prices have fallen 50 percent in two years. and non-oil prices have also fallen though not so sharply. in the last two years. Non-oil prices. however. have been declining for some time and have fallen more over the past ten years than oil prices.

Associated with that decline in commodity prices, there has been a downturn in the fortunes of the developing countries. There has been a slowdown in the rate of growth of both oil exporters and non-oil exporters over the past few years, and the current account deficits of these countries have widened again. In 1985. their current account deficit was down to around $19 billion: in 1986, this is likely to increase to over $50 billion.

It follows from these trends that the debt of the developing countries is likely to continue to grow. In 1985, their debt is estimated to have reached over $900 billion: in 1986. it is forecast to grow to over $950 billion: and by 1987, it is likely to exceed $1.000 billion.

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It is a sobering thought that, given the slowdown in the rate of growth of developing countries in 1985 and 1986, and assuming a population growth of about 3 percent a year, it is quite likely that standards of living are actually falling at the present time in many, if not most, developing countries.

At the center of the decline in the fortunes of the non-industrial world has been the commodity price fall. This trend continues. Non-oil commodity prices are expected to fall by 18.5 percent in real terms in 1986. Given the continued firmness of industrial goods prices, there has been a sharp worsening in the terms of trade of the non-industrial world. Equally, it has meant a sharp improvement in the terms of trade of the industrial world.

What is happening before our very eyes today is a massive transfer of income from the developing world to the developed world because of changing terms of trade. The $50 billion improvement in the current account of the industrial countries expected in 1986 is more than accounted for by the improvement in their terms oftrade. This $50 billion is a large figure by any standards. It is a measure of the contribution developing countries are making to developed countries largely because of falling commodity prices. It is in fact almost as large as the expected current account deficit of $58 billion for developing countries as a whole in 1986. But the story gets worse.

As I suggested earlier, other things are not always equal in this imperfect world of ours. If this decline in commodity prices were not due to the slowdown in economic activity in industrial countries, and if the worsening in the terms of trade of developing countries were due to the natural forces of supply and demand, there would be no grounds for complaint. The slowdown in economic activity in the industrial countries, however, is only one factor, though a major one, leading to the weakening of commodity prices and the worsening of the terms of trade of the non-industrial world.

The other major factor is protection, and this particularly applies to agricultural protection. Let me put before you a few little items of agricultural protection graffiti. Do you know that the European Committee (EC) spent $23 billion in agricultural subsidies in 1984? And do you know that 70 percent of EC expendi­ture is incurred in respect of agriculture? What all primary producers know is that EC "self-sufficiency" in a number of primary products has increased to the point where there have become massive stockholders and major exporters of subsidized products to the outside world: wheat, sugar, dairy products, and beef are cases which come readily to mind.

I mention the EC partly because their case is the most glaring-and partly because I can do so without mentioning individual countries. But other industrial countries, outside the EC, are spending equally vast sums on agricultural sub­sidies. And the phenomenon, I have to admit, is not confined to the industrial world. There are exponents of agricultural protection in the developing world as well. We have reached the position where some of the major industrial countries are fighting a war of subsidies with one another over export markets.

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What should be clear is that, in an economic sense, no one gains from these war games in agriculture. The less efficient producers have to grapple with budget problems and taxation. The more efficient producers have to cope with falling prices and losses of markets. The economic gain from world production and world trade is the less because, frankly speaking, many of us are simply in the wrong business.

What conclusions are to be drawn from all this? I believe there are two. First, we must ask whether the surplus industrial countries are really doing all they can to maintain the rate of growth which they can affford in terms of sustainable noninflationary expansion. The United States clearly cannot go on running a current account deficit of over $100 billion a year. The correction of that situation should be at the expense of the surplus countries. The Federal Republic of Germany and Japan. taken together, are running a current account surplus of over $100 billion a year. The correction of the U. S. current account deficit should not be at the expense of increased deficits for the non-industrial world.

Second. the countries protecting agriculture by means of tariffs, nontariff barriers. and subsidies must begin taking action to reduce that protection. The case for this is based not only on a need to reverse an injustice to the developing world. It is also based on the argument of self-interest. properly conceived. Investment, production, employment. and trade all stand to benefit from a better and more efficient allocation ofresources. The trick is going to be to persuade all countries, industrial and non-industrial alike, to recognize those relationships-and where our true interests lie.

In all this we would be wise to reflect on the strong interrelations in an economic sense between the industrial and the developing worlds. As developing countries prosper, so does their trade with the industrial countries; and vice versa. Already the exports of the industrial countries have begun to slow in 1986. Import compression in the developing countries has played an important part in this.

In the five years to 1981, the value of imports of developing countries increased by 7.5 percent a year. In the five years since 1981. the value of imports of developing countries has fallen by 2 percent a year. This import compression in developing countries stems primarily from a weakening in theirterms of trade. It is estimated that exports of industrial countries have grown by 2.5 percent a year less than would have been the case if this recent import compression for developing countries had not taken place. In 1980, industrial country exports to the develop­ing world were rising at the rate of 24 percent a year. The trend then changed (coincident with a decline in commodity prices) and by 1985 they were declining at a rate of 1.5 percent a year. That is, from a rise of 24 percent a year to a decline of I Y2 percent a year.

The moral is obvious. The industrial countries should avoid protectionist policies which force import compression on developing countries. Prosperity cannot be achieved by some at the expense of others. We are all in this together.

I think the obvious. perhaps compelling. moral of all of this is that we all are in this together and that, therefore. the policies of the developed countries in terms of

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protectionism, growth, and all the other factors, which generate the capacity of the developing countries to compete in markets, to earn foreign exchange, to pay their debts is something which is now perhaps more interrelated than ever. And we certainly commend these thoughts to developed and developing countries alike.

AUSTRIA: FERDINAND LACINA Governor of the Bank

It is a great pleasure and honor for me to address the Annual Meetings of the International Monetary Fund and the World Bank for the first time. I would like to join the preceding speakers in welcoming Mr. Barber B. Conable as the new President of the World Bank and in wishing him well in the difficult task he has taken up by accepting this position. I would like then to extend my sincere thanks to the U.S. Government for its hospitality as well as my warmest welcome to the two newest members of our organizations, namely, Poland, as a rejoining mem­ber, and Kiribati.

The Fund staff is to be congratulated for its medium-term assessment as set out in the World Economic Outlook. Some of us may have reservations about certain assumptions and projections, but uncertainties remain high.

Recent developments in the world economy present a rather mixed picture. Counter to earlier, more optimistic expectations for 1986, output growth has slowed down in industrial countries, particularly in the United States. World trade has remained sluggish, primary commodity prices have declined steeply, whereas protectionist pressures have not abated.

These developments are deplorable, as they have not allowed the alleviation of the most disturbing problems the world economy faces today: unemployment and developing countries' indebtedness. In industrial countries the present pace of expansion is just sufficient to keep unemployment figures stable at an intolerably high level. Although the recently published OEeD Employment Outlook differ­entiates between employment prospects for individual OEeD member countries, the outlook by and large remains bleak. In developing countries, growth-oriented adjustment strategies have been frustrated by weak export earnings, resulting in a further worsening of debt-export ratios.

Still, certain improvements have been achieved. These include a further slow­down in inflation and lower nominal interest rates. It is, furthermore, encouraging that agreement could be reached in Punta del Este to launch a new GATT round and to refrain from taking any trade-restricting or distorting measures inconsistent with the GATT.

Developments in my country have largely followed trends in industrial coun­tries: output growth has been dampened by a weakening external demand, to probably 2 percent a year this year and in 1987. Price developments have been even more moderate than anticipated, boosting real incomes. However, domestic

44

demand, particularly private consumption, has not yet fully reflected this increase in purchasing power. The current account is expected to remain in equilibrium or show a slight surplus. The Austrian schilling has appreciated markedly, in line with the strongest European currencies.

The world economy is also threatened by financial and economic imbalances within industrial countries. The U. S. current account deficit as well as the still persistent uncertainties regarding U.S. fiscal policy are major factors. They have contributed to intensifying protectionist pressures which, however. the U.S. Administration by and large has successfully resisted so far. But this phenomenon is not at all confined to the United States. If we were not to succeed in warding off these pressures-and I would like to stress once again the encouraging prospects offered by the Punta del Este meeting-we could easily find ourselves involved in a trade war with very destructive effects on the world economy.

Policy action, therefore, is needed to enhance the chance for durable and noninflationary growth. One key element of this strategy is a correction of the fiscal and external deficits of the U. S. economy. But it is clear that this can only be achieved by mutually supportive and consistent policies of the major industrial countries ....

. . . The cooperation of the Bretton Woods institutions has considerably improved over the last year. The joint approach of the Bank and the Fund to formulate policy framework papers for the Structural Adjustment Facility (SAF) indicates the direction for further steps of cooperation. The Fund and the World Bank have played a major role in helping developing countries to overcome their financial difficulties. They have furthermore begun to respond to Secretary Baker's proposition that growth-oriented adjustment policies are essential to finding long-term solutions to the developing countries' problems. Only joint and decisive efforts of the Fund and the Bank, as well as of governments and the banking community, will bring a durable solution to the debt problem.

The interrelation between monetary and fiscal issues on the one side and developmental issues on the other side stresses the need for closer cooperation in the regions that deserve our attention most. Therefore, Austria welcomes the importance given to Sub-Saharan Africa within the SAF of the Fund. Preparing the ground for urgent action in favor of Sub-Saharan Africa, the Special Facility, to which Austria contributes was introduced at a time when several African countries undertook major reform programs. Considering the fast increase of Africa's popUlation, further steps will be required to provide the region's people, in particular the African youth, with adequate employment opportunities. The devel­opment of agriculture and agroindustries deserves priority; however, to cope with the future supply of labor, jobs in other sectors will be required. In this context, I particularly welcome IFC's initiatives of placing more emphasis on poorer or less developed member countries and of launching the Africa Project Development Facility.

When discussing adjustment programs and structural loans for Africa, one has to keep in mind that-like the development of other regions-Africa's develop-

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ment will require project financing, too. Besides expenditure in production­oriented projects and general infrastructure. investment in the environment, in particular reforestation, will be required in order to provide future generations with a sound basis for living.

In the course of the past few years. the World Bank has demonstrated its ability to swiftly adapt its policies to the changing needs of its borrowing member countries. Now, it is the shareholders' tum to demonstrate their support for the IBRD, IDA, and IFe. Another general capital increase for the Bank has been discussed for quite some time. It is evident that negotiations on such a capital increase have to start soon, if the growth of the Bank should not be interrupted. Especially, lending in support of structural adjustment requires flexibility with regard to the annual lending volume. Austria supports a substantial increase of the Bank's capital.

Austria appreciates the progress in the recent IDA negotiations. However, it is regrettable that the level of replenishment will not represent a real growth in relation to IDA-VII plus the Special Facility for Sub-Saharan Africa. Further­more, the maturities of IDA credits will be shortened; and finally, countries whose economic situation will improve in the course of the IDA credit are threatened by the introduction of interest charges and changes in the maturity. Austria believes that in a period when multilateral institutions are needed more than ever to coordinate between donors, recipients. commercial banks, and export agencies, it is necessary to provide these multilateral institutions with the necessary financial backing. To demonstrate her support for IDA. Austria has agreed to increase her share.

To increase capital flows to developing countries for high-quality projects, Austria is strongly interested in cooperation with the World Bank. Initially, the start of cofinancing between Austria and the World Bank was delayed by factors within my country, but work has progressed meanwhile. The shortfall due to the late start will be compensated by higher future volumes.

In concluding. I would like to reiterate the importance of further improvements in cooperation and policy coordination between developing countries, multilateral institutions, bilateral donors, and financiers in order to mobilize adequate domes­tic and foreign development resources to meet the formidable challenges lying ahead of us.

THE BAHAMAS: LYNDEN O. PINDLING Governor of the Fund and Bank

I have the honor and the privilege to address today's meeting on behalf of the Commonwealth Caribbean Constituency which consists of Antigua and Barbuda, the Commonwealth of The Bahamas, Barbados, Belize, the Commonwealth of

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Dominica, Grenada, Guyana, Jamaica, St. Christopher and Nevis, St. Lucia, and St. Vincent and the Grenadines.

I should like to take this opportunity to welcome Barber Conable to his new post. Mr. Conable joins the Bank at a critical juncture in its institutional evolution when decisive leadership is required to chart the future direction of the World Bank and its affiliates.

I also join fellow Governors in welcoming our newest members. Kiribati and Poland, who have joined the Bank since we last met in Seoul.

In many respects. the attention of the developing countries remains focused on substantially the same issues as those prevalent at the time of the 1985 Annual Meetings. Chief among these are the outlook for the external environment, particularly the international debt problem, the economic performance and pros­pects for growth in developing countries. and the corresponding role of multi­lateral development institutions.

It is now evident that expected improvements in the global economic environ­ment, which would have provided the stimulus for growth in developing coun­tries, have not materialized. Instead, we have had only sluggish growth in the industrial economies. Correspondingly, there has been less than modest perform­ance in international trade, and deteriorating terms of trade for primary products in particular. The momentum provided by the strong economic recovery of 1984 sputtered in 1985 and faltered in 1986 despite lower interest rates and declining oil prices. This is exacerbated by a disappointing and regrettably high and rising tide of protectionism in industrialized markets.

There is a widely shared view of what needs to be done both by the developing and industrial countries. The former are persuaded to implement, and many have initiated. substantial policy reforms and adjustment measures with growth­oriented and export-based objectives. In some cases, this has been done at uncon­scionably high social and political cost. The industrial countries must now pursue complementary action encompassing macro as well as sectoral adjustments that would strengthen and sustain a dynamic and vibrant economic environment and enhance levels of international trade. Unless the notion of free trade is dead, they must also provide access to markets for traded goods.

In terms of the availability of development financing. the discouraging outlook for external financial flows to developing countries is cause for concern. The lack of progress by industrial countries toward the achievement of internationally agreed targets for official development assistance is disheartening. We exhort donors to redouble their own efforts in this regard to complement the substantial internal efforts of developing countries. A wide scope exists for the removal of in­stitutional ridigities associated with ODA fIows-ridigities which only exacerbate imbalances between the availability and deployment of scarce aid resources. We would encourage a review of general repayment terms to reflect more sensitively the economic circumstances of individual borrowers; wider adoption of multi­annual commitments of official development assistance by donors; greater recog-

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nition accorded to national rather than donor priorities for financing; and shorter disbursement periods.

The recognition that stabilization arrangements must be supported by growth­oriented programs has led to enhanced collaboration between the Fund and the Bank. The wider collaborative efforts of these institutions are welcome. Neverthe­less, we view with concern the possibility of wide-spreading cross-conditionality consequent on overall resource scarcity. The consensus at Interim and Develop­ment Committee levels regarding the need to avoid cross-conditionality, both formal and informal, must be strictly enforced. The distinctive character and inde­pendence of these institutions must be zealously guarded and never compromised.

Similarly, the emphasis on policy-based lending to underpin the recovery of highly indebted countries and to address the needs of poorer IDA countries should not eclipse the needs of small middle- and low-income countries. We maintain that project financing, though less marked at this time, should remain the major focus of the Bank's lending program. Further, we urge that the Bank's participation in major adjustment programs should reflect a consistent policy to avoid taking on a disproportionate share of net new lending or replacing commercial bank financing.

The enhanced role of the Bank will require higher levels of sustained lending and a substantial increase in available resources. This would send a clear signal to the international financial community on the critical need to support the global development effort and also provide the Bank Group with the leverage to catalyze resources in support of growth-oriented programs. Accordingly, we support an appropriate and timely increase in the capital resources of the Bank and a corresponding Eighth Replenishment of IDA. The modalities for a general capital increase, however, should not lead to a maladjustment of relative shareholdings which would reduce the role of the developing country members in the decision­making processes of the Bank.

Concern for the acute problems of Sub-Saharan Africa and the highly indebted developing countries, however justified, tends to divert attention from the require­ments of small island states which fall outside either category. The Caribbean Group, for which I speak, is faced first, with graduation from IDA, and second, with graduation from the World Bank itself. For these states, the interim phasing­out process constitutes a transitional period during which new Bank lending is gradually diminished.

All of these countries have fragile economic bases. Because of physical size, degree of openness of their economies, limited resources, and dependence on a narrow range of primary commodity exports, their economies are vulnerable to internal and external economic shocks and natural disasters. It is true that their per capital income levels are above that of the "poor" IDA countries. However, the Caribbean countries have corresponding, if not more adverse, long-term develop­ment constraints. Economic fragility is exacerbated by the underdeveloped nature of private sectors, a high incidence of unemployment, a severely constrained tax base, and a low level of social and economic infrastructure. There is, indeed, a

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clear and impelling need for continued resource transfers at appropriate levels to sustain growth, reduce unemployment to tolerable proportions. and maintain ade­quate standards of living.

The transitional IDA arrangements are intended to improve creditworthiness. but there is no "bankable" assurance that this objective can be achieved by the target date. Should this be the case. where. pray tell, should these members tum to continue the quest for the "holy grail" of creditworthiness? The Bank must continue its search for a policy that reflects an understanding of the unique factors and special circumstances facing small island states if they are not to fall between the cracks because of indifference borne of small size.

Those states threatened with a phasing out from Bank resources are to be penalized because of their success in managing prudently the affairs of their fragile and limited resource base economies. Why should this be so when clear evidence exists of the need for institutional resources to support social and economic infra­structure programs? These have long payoff periods incompatible with conven­tional commercial financing. Excessive recourse to such flows would invite the very external debt disease which other countries are currently trying to cure. Further. the technical assistance support which goes hand-in-hand with access to Bank resources is vitally needed for the achievement of policy objectives and the design of investment strategies. programs. and projects. Therefore. active Bank involvement with these countries must continue. Lending opportunities should be explored even on a modified basis which would give a greater role to cofinancing from commercial sources. We exhort World Bank management to conscientiously pursue these issues and develop credible solutions to assist the governments of the region in achieving their development aspirations.

We note the continued coordination between the Bank and major donors in the context of the tighter consultative group mechanism. We welcome also the enhanced cooperation with the Caribbean Development Bank on operational matters and policy issues based on comparative advantage and cost effectiveness. While applauding this trend. we would caution that this should not be at the expense of direct access by members to World Bank resources. or otherwise curtail involvement with the Bank in those areas where Bank experience and expertise can be of assistance in resolving financial and investment issues.

Finally. let me say this: I should have thought that by now the development community would have recognized the substantial economic progress which has been made by the Commonwealth Caribbean member states on whose behalf I speak. This progress has been achieved in the relatively short timeframe since in­dependence. through diligence and keen husbandry. and despite limited resources and development options. The global economic environment has changed dras­tically since then and continues to be characterized by uncertainty and adversity. These changes constitute new challenges and present new opportunities for cooperation. We maintain simply that worthy achievement should not now be rewarded with future indifference.

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BANGLADESH:M.SYEDUZZAMAN Governor of the Bank

Allow me to extend a hearty welcome to Kiribati and Poland. Allow me also to share with you our pleasure in welcoming the new President of

the World Bank and our profound sense of sadness at the decision of the Managing Director of the Fund to relinquish his high office in the near future for personal as well as professional reasons. The refreshing breadth of Mr. Conable's vision of the World Bank's role reflected in his first address to the Annual Meetings is matched only by Mr. de Larosiere's contribution to the strength, resilience, and responsiveness of the Fund.

Mr. Conable, we have been heartened by, and we much admire, the spon­taneous manner in which you have identified yourself with the world development community in so short a time. This identification seems to be rooted in your heri­tage, and that augurs well for the institution. We eagerly look forward to many years of your able leadership at the world's premier development institution.

Mr. de Larosiere, I must confess I felt a sudden sense of loss when I learned of your decision to return to France at the end of this year. For nearly a decade you have led the Fund through the most difficult passage of its continuous voyage. You are leaving with this institution a permanent heritage of outstanding profes­sionalism combined with a constant awareness of the complex world outside. We will miss you very much, and we wish you and your family the best of happiness.

As we assemble for the Forty-First Annual Meetings of our aging but active twin institutions, some of the world's major stock markets are convalescing after disturbing free-falls presumably caused by an uncertain economic outlook. This has happened at a time when the real economies of our member countries continue to labor under grave imbalances unsustainable for all and damaging to most. This is true of developed as well as developing, surplus as well as deficit, creditor as well as debtor countries. These imbalances make up a tangled ball of threads which no country or institution can even begin to unravel single-handedly.

The most critical thread in the tangle of imbalances now on our hands is that of international capital flows, and it is to this that the first unraveling pull must be applied. The ruling conventional wisdom of recent years has relied heavily on automatic market mechanisms for the correction of imbalances and distortions in national economies as well as the global economy. The renewed emphasis on these mechanisms has served a useful purpose in domestic economic management by reminding everybody of the superior leverage of incentives as opposed to com­mands and also of several other realities. But the evidence is quite clear that, in the management of international capital flows, the move toward a heavy reliance on automatic market mechanisms has had perverse results. In the late 1970s it laid the foundation of the debt crisis of the 1980s. In the 1980s it persistently accommo­dated and encouraged growing imbalances between the major industrial countries, with global consequences, and also worsened the debt burdens and growth problems of developing countries. Finally, it contributed to a steady diminution in

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_._--_._---------- ........... _._._ .. _--_ .. _-----_._---

the support of several industrial countries to the role of public policy and multi­lateral development assistance in ensuring a soundly expanding world economy. This was partly arrested only by the bold departure of the U.S. Treasury Secretary from conventional wisdom at Seoul last year. Though his initiative was mainly focused on a subset of developing countries and their creditors, like all statesmanly initiatives it offers wider lessons and implications that need to be taken up and developed by others. I believe all of us would do well to set ourselves this task.

For those who will look around and beyond the immediate focus of Secretary Baker's initiative, it should serve as a forceful reminder of a simple perception underlying the Bretton Woods institutions: the developing countries can continue to interact constructively with the world economic system only when there is the right congruence of growth-oriented long-term capital inflows with efficiency in domestic management. This reminder came at a time when it was indeed sorely needed after several years of continuous decline in net long-term capital flows to developing countries.

During the year that has passed since we last met in Seoul. deliberations at all relevant forums of the Bank and the Fund as well as elsewhere have reflected a somewhat greater sensitivity to the importance of reviving capital flows of all kinds to developing countries. However, in trying to address issues that have matured to crisis proportions with varying degrees of visibility. we may now be developing certain approaches that require continuous reappraisal.

One such approach that deserves a great deal of caution and reappraisal is an emerging tendency to look at global development problems mainly in terms of immediately visible crises identified with specific areas of the world or a limited range of macroeconomic criteria. This tendency, unless constantly guarded against, may over time warp our view of the true role of development assistance and also lead to crises in the efficient and equitable allocation of global resources. The cost of such errors may indeed be very heavy, because the real distribution of development problems is not geographical, nor is it related to a limited set of macroeconomic criteria. It is true that the visible tips of the generalized crisis besetting all developing countries change their location from time to time, and adequate attention must of course be directed toward them. However, global policy must also take into account the need for balance, so as to prevent other crises, not immediately visible to an. from suddenly advancing upon us. The best safeguard against such an eventuality is to maintain the basic principle, reflected in long-standing resolutions of the United Nations. of looking at developing coun­tries in terms of a comprehensive set of criteria reflecting the essence of their varying problems and needs. The UN classification of least developed countries, for instance, very effectively captures the concerns of Sub-Saharan Africa as well as those of other countries in similar circumstances.

It must be said to the credit of the leadership in our two institutions that even while addressing immediate crises, they have hitherto retained their sense of balance. The new President of the Bank has reaffirmed in his perceptive maiden statements the essential business of the Bank. which is development, and he has

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also reminded us that the Bank's involvement in specific crises is to be seen against the background of their relation to development.

Unless we constantly guide and redirect ourselves in the light of this basic long­term objective, I am afraid we shall find ourselves facing frequent dilemmas in global development strategy. Indeed, we already have reached a dilemma in regard to an appropriate allocation of official development assistance, and the report of the President of the Bank to the Development Committee has called attention to it. The essense of the dilemma relates to the question, and I quote, "of how to meet Sub-Saharan Africa's external resource needs without sacrificing those of other needy aid-recipient countries." The recent deliberations on the Eighth Replenishment of IDA also reflect such a dilemma in respect of allocations. The equitable and workable resolution of allocation dilemmas, as the report of the President of the Bank to the Development Committee indicates, lies in increasing the total volume of official development assistance generally and concessional assistance in particular.

In joining others in emphasizing the need for deliberately increasing the volume of resource flows to developing countries, I do not at all intend to underplay the importance of parallel actions by the developing countries themselves in the areas of flexible adjustments and policy reforms. It must be noted, however, that the last few years have seen uninterrupted actions and efforts by the developing countries in these areas, but because of several factors beyond their control, including, but not limited to, inadequate net inflows of long-term capital, these adjustments and reforms are in many instances reaching points of diminishing returns. In my own country, as many of you may have noticed from an analytical inset in this year's World Development Report, we have been fortunate in achieving a satisfactory growth trend in agricultural production through market- and efficiency-oriented policy improvements. But in order to place this achievement on a sustainable basis, and to extend it across all other sectors of the economy including the crucial financial sector, we need to increase and diversify our development effort signifi­cantly, and this calls for substantial increases in capital inflows along with ever­vigilant policy improvements. I must also add that this task has not been made easier by the precipitous decline in the prices of commodities that are our major exports.

The various growth-inhibiting factors operating in the world economy today and the overwhelming external factors specially affecting economic performance in the developing countries have been exhaustively discussed in the Fund and Bank documents, and I do not propose to catalog them here. One must underline, however, two very special developments because oftheir general significance: the failure of growth performance in the industrial countries despite the stimulus of lower interest rates and energy prices, and the dramatic slowdown of export growth in many industrial countries. Many have placed considerable expectations on a proposed policy-directed stimulation of domestic demand in the surplus industrial countries for a resumption of the growth impulse. The adoption of this strategy and its possible consequences will perhaps continue to be subjects of

52

debate and deliberation for some time. But the link between the slowdown in the export growth of industrial countries and the dramatic reduction in the effective import demand of developing countries needs to be recognized immediately. The evidence is clear that the inability of the developing countries to sustain required imports because of the severest terms of trade losses in the postwar era and lack of adequate capital inflows is acting as a significant brake on faster growth in the industrial countries, to the detriment of the global economy.

The resumption of capital flows of all varieties to developing countries in sig­nificant volumes is an obvious policy imperative. Starting with the decade of the 1970s, the recycling function was moved, unwisely as we now see, toward the commercial banks. From the mid-1980s, for obvious reasons, the governments of the industrial countries, acting bilaterally and through the multilateral institutions, have to lead the way. with accompanying assumption of responsibility by the developing countries for growth-oriented adjustments and policy reforms on a sustained basis which will make the recycling productive. The confidence-build­ing effect of broad policy decisions and an affirmation of a multilateral political will on these general issues would far exceed the quantitative impact of specific decisions, which of necessity must be an emerging process, rather than a single dramatic event. The rapid growth of assistance from OPEC member countries to the developing countries set a spectacular example of the generous contribution that a genuinely constructive political will can make to the global development effort.

As the principal vehicles of international economic cooperation, our two institu­tions-the Bank and the Fund-have heavy agendas replete with issues whose resolution is vital for releasing the brakes on the world economy. Meaningful progress on these issues depends on the emergence of a workable consensus and collective goodwill among all the member countries. Allow me only to touch selectively on some of these issues that appear to be especially important from the standpoint of long-term capital flows to developing countries-a key factor in any lasting improvement of the world economic outlook:

-The IDA-VIII negotiations, which have been marked by some positive as well as negative developments, seem now to be held hostage to the resolution of certain issues that the recipient countries have very little ability to influ­ence. This situation is not entirely new in the history of IDA, though some of the specific points at issue are. We hope that the utmost effort will be made by the donor countries to resolve these issues while at the same time protecting IDA's concessional character for all borrowers, equity and flexibility in its resource allocation patterns, and the interests of developing countries in the patterns of representation in the Bretton Woods institutions.

-The most reasonable estimates of the Bank's lending program indicate that the institution's capital base will need to be strengthened with an early general capital increase. Some important contrary views have been expressed on the feasibility of quality lending in the near future which would justify an early general capital increase. Even allowing for differences of view in this

53

matter, the need for a positive policy decision on a substantial capital increase is obviously urgent because the Bank has to position itself for an effective role consistent with the broad spirit of Secretary Baker's initiative, with provision for the necessary lead time.

-The Structural Adjustment Facility of the Fund, which the Managing Direc­tor has put in motion so ably despite the numerous complexities surrounding the subject, needs to be nurtured carefully in order to ensure that it does not lose the essential features envisaged at its birth: growth orientation programs. a low level of conditionality, and induction of additional concessional resource flows.

-The International Finance Corporation, which has in recent years taken some very good policy initiatives in order to stimulate the growth of the private sector in the poorer countries. needs to be encouraged and helped in taking further active measures in diversifying its programs in these countries.

A lasting improvement of the world economic outlook will, of course. require a number of other collective measures involving the international monetary and trading system. These have been discussed at various forums before and during the current Annual Meetings, and will, we trust, continue to receive further collective consideration in the coming months. It must be our combined endeavor to arrive at viable agreements on these issues, including, in particular, the allocation and post­allocation distribution of SDRs aimed at improving the supply and distribution of international liquidity quantitatively as well as qualitatively-an indispensable minimum requirement for global production. trade, and growth.

The firmly neutral management of our two institutions and their thoroughly professional staff are eternally dependent on consensus among the member coun­tries, big and small. The issues that I have touched upon and others that my dis­tinguished fellow Governors have explored and will explore cannot be fruitfully resolved unless we present the President of the Bank and the Managing Director of the Fund with that consensus. The world economy needs that consensus urgently and I trust that it is within our power to achieve it, if we try hard enough.

BELGIUM: MARK EYSKENS Governor of the Bank

First and foremost, allow me to pay tribute to Mr. Jacques de Larosiere, a true statesman at the international community level who has set about serving this community with courage, with devotion, and with great effectiveness. As to Mr. Conab1e, whose generous eloquence was deeply appreciated by us, we extend our best wishes for success in meeting the many challenges that will face him.

At the last Annual Meetings of our institutions held a year ago in Seoul, some important conclusions were drawn and directions indicated.

Since that time, the international community, as represented at the International Monetary Fund and the World Bank, has been engaged in devising a constructive

54

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approach to the world debt crisis: constructive in the sense that it insists on the necessity of avoiding a slump in international trade. It is within this context that the Baker initiative has come into its own.

The Fund, under the leadership of its Managing Director, Mr. de Larosiere, has set up structural adjustment programs, thereby creating an environment favorable to debt rescheduling. The international financial community will always be grateful to Mr. de Larosiere for the decisive role he has led the Fund to play in the debt strategy.

For its part, the World Bank has added new initiatives which, taken together, reflect a radical transformation of its development strategy. The transfer of resources invested in microeconomic projects is increasingly giving way to the financing of macroeconomic programs aimed at improving fundamental condi­tions in the Third World countries. Mr. Conable possesses all the essential qualifications for assuring the success of this major shift in the institution of which he is President.

The major industrial countries making up the Group of Five have shown a keen sense of their global responsibility, enhancing the coordination of their policies, particularly in the monetary arena. We hope the spirit of the Plaza meeting will remain alive and unquenched. The international community certainly needs it.

Analysis of the world economic situation also reveals great progress in a number of essential areas: inflation has largely been mastered, especially in the industrial countries; industrial modernization is proceeding apace; investments are on the rise; and in the petroleum importing countries, the drop in oil prices is beginning to be reflected usefully in demand. In a number of developing countries, difficult and courageous efforts toward structural adjustment have been launched. The majority of the industrial countries, except the United States, have considerably reduced their budget deficits. The disequilibrium in the public finances of the world's largest power is a serious cause of international destabilization, not so much because of its relative size expressed as a percentage of the U.S. gross national product, but rather because of its magnitude in absolute numbers. because of the need to finance it, because of its distortion of capital flows, and because of its perverse effect on real interest rates. This deficit, which is definitely structural in origin, reflects the basic inadequacy of U. S. savings.

Thus there are still numerous causes of dissatisfaction and concern. In many countries economic growth has not come up to expectations. The basic balance of payments disequilibria among the major industrial countries and between North and South are in many cases still at unsustainable levels. The resumption of international trade leaves much to be desired. Protectionist tendencies are surfac­ing once more. Real interest rates are still too high. Many countries are still running high public deficits. and unemployment is stilI a frightening evil which strikes indiscriminately at most of the countries in the international community.

The abandonment of the monetary discipline imposed by the Bretton Woods agreement, and the lack of any type of operating standards in the present interna­tional monetary system, permits the major industrial countries to set their own

55

priorities and pursue their own political and economic objectives without paying much attention to one another, though it is precisely this inattention which prevents them from realizing the objectives which they have set for themselves. This represents a divisive force in the international community. The member countries of the EC, by establishing and reinforcing the European Monetary System, are pioneering in this area and represent, I am deeply convinced, an example to be emulated by or extended to more countries or groups of countries. Convergence of policies among industrial countries of comparable levels of activity is of paramount importance not only for those countries themselves but also for the rest of the world. Its realization will require political willingness to coordinate. It is the lack of convergence stemming from a lack of coordination which threatens to bring a deflationary crisis upon the world economy.

How should we meet the challenges of today, which in one form or another will also be the challenges of tomorrow and the day after?

As to the tormenting problem of the indebtedness of most of the Third World, we must find a way out of the dilemma which would now force us to choose between imposing on the indebted countries either an effort so impossible that it will plunge them all into deflation with grave damage to world trade, or virtual default, which would incurably cripple the confidence of financial circles, provoke a serious financial crisis, and confront the creditor countries with a situation out of control. This is why Belgium supports the Baker plan. It must be said that it has been slow to implement. This is doubtless not only because it requires the debtor countries to take appropriate measures, but also because of the inherent difficulty of coordinating the necessary actions on the part of all the concerned parties. It is therefore essential for the International Monetary Fund to continue strengthening its role as a prime mover and coordinator in implementing the plan.

The debt situation has led a number of countries to incur payments arrears to the Fund. It is in the interest of the indebted countries to avoid cutting themselves off from Fund financing. or from the support the Fund can give them in accomplishing their necessary structural adjustment.

Belgium welcomes the dynamism of the Bank's response to the Baker plan. The Bank is now engaged in a radical reform of its development strategy: it is supporting structural adjustment in the borrowing countries in order to improve growth conditions by creating dynamic and competitive structures. However. the weight of the debt burden is so great that it is impossible to promote growth exclusively by means of flows which create more debt. Private initiative must thus be the keystone of the new development concept. The International Finance Corporation plays a primary role in this respect. Its activities as promoter of private investment and consultant in the management of enterprises must be extended. For the same reasons, I strongly support exchanging the debts held by certain countries for participations in autonomous companies in the debtor coun­tries. The active promotion of these kinds of initiatives should result in the creation of a new form of collaboration among creditors, debtors, and multilateral organi­zations. I therefore propose a system of triangular program contracts, which would

56

create a general framework for the progressive conversion of maturing debts into flows which do not generate debt. This fundamental transformation of the modalities of development financing, in the framework of the triangular system I am proposing, would permit the industrial countries, under the aegis of the World Bank and the International Finance Corporation, to take an active part in the process of restoring the macroeconomic equilibrium of the debtor countries. This triangular approach could also be used on a case-by-case basis and contribute to perhaps the denationalization effort while at the same time avoiding the unduly political disadvantages of an inadequate denationalization.

Belgium considers the expeditious signing of the convention establishing the Multilateral Investment Guarantee Agency (MIGA) to be fully complementary to the above proposal.

My Government has also authorized me to announce that Belgium supports the Eighth Replenishment of resources of the International Development Association (IDA). This replenishment will enable IDA to continue, to the end of the decade, its support for programs of adjustment and development in its poorest member countries, as well as to take part in the activities of the Structural Adjustment Facility of the International Monetary Fund.

I welcome in this connection the consensus achieved for increasing the share of the Sub-Saharan African countries in IDA's programs to 50 percent during the period of the Eighth Replenishment. Central Africa still has great importance for Belgium because of its immense human and economic potential waiting to be tapped.

For the World Bank, the moment has come to press for a general capital increase.

The expansion in the Bank's operations, especially those directed toward the Baker plan countries (+ 38 percent), justifies such an increase. It would be paradoxical for us to support the Baker plan while refusing to furnish the Bank with the means to carry out its part. At the same time, it would not be necessary to pay in the capital increase immediately, because approval of the increase alone is enough to enable the Bank to expand its operations.

The events of the last decade--oil shock, dollar shock, oil countershock, and the debt crisis, which have hit hard, sometimes very hard, at all members of the international community-should cause us to pay greater attention to the obvious fact of interdependence and the consequent necessity for complementarity among the interests and the economic and industrial situations of all countries. These same considerations prompted me to propose, seven years ago now, in an entirely different context, the negotiation of a Pact for Growth with Solidarity between the industrial and the developing countries. Briefly stated, this plan aimed to link, flexibly but firmly, the growth rates of the industrial countries to the size of their official development aid. Its goal was to exploit, and to finance in a sustained manner, the complementarity among the differing economic structures of the participants in the pact, in such a way as to encourage the recipients of official aid to undertake economic activities calculated to have important multiplier effects on growth. Even though the world economic situation has greatly changed since then,

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it seems to me that the objectives of this proposal remain valid today: all actions in the area of development cooperation, whether multilateral or bilateral, must be based on the necessity of promoting the comparative advantages of all.

We must not underestimate the reorientation which has taken place in the policies of the Bank in response to structural changes in the world economy. The Bank's emphasis on a policy of macroeconomic restructuring seems to me of paramount importance if the goal is to promote convergence, balanced develop­ment, and the resurgence of international trade, which are possible only in a climate of free trade. This is why Belgium welcomes the cooperation between the International Monetary Fund and the World Bank and their joint initiation of continuous, shared, cohesive actions.

As to the reform of the international monetary system, Belgium has always favored a system of convergence and order, which is to say one resting on parities which are relatively stable but adjustable according to rules agreed on in advance. Events have shown, since the collapse of the Bretton Woods system in 1971, that floating rates do not impede the transmission of inflationary pressures; do not avoid but even encourage protectionist reactions; and most of all do not resolve the structural adjustment problems of countries whose money is affected by erratic swings. It is a snare and a delusion to suppose that a policy of depreciating its currency will enable a country adopting it to meet the challenges of adapting and modernizing its industrial structures.

In the absence of a truly cohesive view within the international community, we can approve the introduction of indicators of the course of economic policy in the largest industrial countries. These indicators should not be merely tools for describing imbalances but should become norms which are taken seriously by the countries concerned.

As for the policies launched by the Fund, the magnitude of the difficulties presently encountered by many countries justifies, in my view, the maintenance at their present levels of the limits governing the enlarged access policy and the compensatory financing facility.

Belgium also favors a new allocation of SORs. The difficulties of access to the capital markets facing many developing countries, the need to strengthen the present level of owned reserves in many countries without a crippling compression of their imports, and the need to avoid the risk of deflation associated with the debt crisis, militate in favor of such a decision. I repeat here the Belgian proposal concerning a new allocation of SORs. We have several times suggested a system of voluntary transfer to the Fund of the industrial countries' allocations for utilization on behalf of certain countries who really need them and who would agree to incorporate the SORs made available to them into a sufficiently coherent readjustment program.

I come, at last, to the problem of the Western triangle, consisting of the United States, Europe, and Japan, whose impact is being felt worldwide. Between 1981 and 1986, Japan and Europe have followed restrictive budgetary policies to reduce their internal demand. The United States has followed an opposite policy which

58

it seems to me that the objectives of this proposal remain valid today: all actions in the area of development cooperation, whether multilateral or bilateral, must be based on the necessity of promoting the comparative advantages of all.

We must not underestimate the reorientation which has taken place in the policies of the Bank in response to structural changes in the world economy. The Bank's emphasis on a policy of macroeconomic restructuring seems to me of paramount importance if the goal is to promote convergence, balanced develop­ment, and the resurgence of international trade, which are possible only in a climate of free trade. This is why Belgium welcomes the cooperation between the International Monetary Fund and the W orId Bank and their joint initiation of continuous, shared, cohesive actions.

As to the reform of the international monetary system, Belgium has always favored a system of convergence and order, which is to say one resting on parities which are relatively stable but adjustable according to rules agreed on in advance. Events have shown, since the collapse of the Bretton Woods system in 1971, that floating rates do not impede the transmission of inflationary pressures; do not avoid but even encourage protectionist reactions; and most of all do not resolve the structural adjustment problems of countries whose money is affected by erratic swings. It is a snare and a delusion to suppose that a policy of depreciating its currency will enable a country adopting it to meet the challenges of adapting and modernizing its industrial structures.

In the absence of a truly cohesive view within the international community, we can approve the introduction of indicators of the course of economic policy in the largest industrial countries. These indicators should not be merely tools for describing imbalances but should become norms which are taken seriously by the countries concerned.

As for the policies launched by the Fund, the magnitude of the difficulties presently encountered by many countries justifies, in my view, the maintenance at their present levels of the limits governing the enlarged access policy and the compensatory financing facility.

Belgium also favors a new allocation of SDRs. The difficulties of access to the capital markets facing many developing countries, the need to strengthen the present level of owned reserves in many countries without a crippling compression of their imports, and the need to avoid the risk of deflation associated with the debt crisis, militate in favor of such a decision. I repeat here the Belgian proposal concerning a new allocation of SDRs. We have several times suggested a system of voluntary transfer to the Fund of the industrial countries' allocations for utilization on behalf of certain countries who really need them and who would agree to incorporate the SDRs made available to them into a sufficiently coherent readjustment program.

I come, at last, to the problem of the Western triangle, consisting of the United States, Europe, and Japan, whose impact is being felt worldwide. Between 1981 and 1986, Japan and Europe have followed restrictive budgetary policies to reduce their internal demand. The United States has followed an opposite policy which

58

has increased both its deficit and its internal demand. The U.S. policy consisting of a tight monetary policy in combination with tolerance of a continuing and growing budgetary deficit although Mr. Baker this morning informed us of his Administra­tion's intention to considerably cut back that deficit; has kept real interest rates high notwithstanding the lowering of nominal rates. As a result it has become extremely difficult to stimulate investments, especially in Europe, where the difficulty is aggravated by an outflow of capital toward the United States. The rise in real interest rates is also inflicting an acute public debt problem in real terms on many European countries.

We must therefore work together, within the Western bloc, to bring down real interest rates. This is of paramount importance to our industrial restructuring and to the fight against unemployment. In recent years Belgium has undertaken an extensive program to reform its budget-in 1987, the public deficit will be reduced by 30 percent in a single year-to modernize its industry, to re-establish the competitiveness of its enterprises, and to gradually reabsorb unemployment. We must take care that our efforts are not in vain.

But we cannot retreat into economic unilateralism. Supply-side policy, which has great merit and which is absolutely indispensable to the modernization of our industrial plant, will tum out to be useless if it brings about the annihilation of demand. It is also true that a Keynesian stimulation of demand will be coun­terproductive if supply depends on enterprises which are unprofitable or crushed by regulation or fiscal and parafiscal pressures. We therefore favor a two-way policy, consisting of a supply-side policy based on modernization and a demand­side policy directed toward maintaining demand, but without increasing the costs of production. There are not 36 different means to this end. The only meaningful way of doing it is to reduce fiscal and parafiscal pressure. We welcome the decisions made in this area by the U.S. Government. Its fiscal reform will involve in the short term an increase in savings which will reduce the external deficit; these effects will lay the foundation for an economic expansion sustainable over the medium term, combining modernization of the means of production with demand support. In Europe also, fiscal reforms have been announced or implemented. This is the European contribution to the reflation of the economy by increasing net disposable purchasing power.

For the small countries, the international context remains the determining factor. This is why we are totally opposed to any form of protectionism. Belgium, which will soon preside over the councils of the European Community, will try to promote the creation of a single great internal market, on the scale of the European continent. At the world level, we hope that the trade negotiations recently begun at Punta del Este can rapidly lead to a faster liberalization of international trade. What we must do, in fact, is to integrate both our macroeconomic policies and our international trade policies.

The economic image of the world is reminiscent of a tachiste painting, with splashes of light and shade. The economists, who are never short of analyses but are much more parsimonious when it comes to clear and unequivocal conclusions,

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exhibit a certain confusion. This hardly makes them unique in today's interna­tional society, where the only constant is change after change. I am told that the economists have arrived at the conclusion that half their theories are wrong. The problem is they don't know which half. The political leaders, for their part, must reconcile the lucidity which comes with a certain degree of concern and pessimism with the optimism which comes from positive determination.

BELIZE: MANUEL ESQUIVEL Governor of the Fund

It is indeed a privilege to address this meeting on behalf of the Commonwealth Caribbean Constituency, namely, Antigua and Barbuda, the Commonwealth of The Bahamas, Barbados, Belize, the Commonwealth of Dominica, Grenada, Guyana, Jamaica, St. Christopher and Nevis, St. Lucia, and St. Vincent and the Grenadines.

I would like to begin by taking the opportunity to welcome our newest mem­bers, Kiribati and Poland, who joined us since we last met in Seoul. I would also like to take the opportunity, on behalf of the Caribbean Constituency, to say good­bye to Mr. de Larosiere, who I understand is attending his last joint meeting as Management Director of the Fund. We wish to thank him for his tremendous efforts over the last few years, and for the care and sensitivity with which he has discharged his functions. We wish him all the best in the future.

Since the last Annual Meeting, it has become clear that the projections of world economic performance have been overoptimistic. The recovery of the past three or four years has remained fragile, and its spread has continued to be unevenly distributed. It is no secret that rapid growth in the major industrial economies is important not only for those economies but for the rest of the world as well. Nearly two thirds of developing country exports go to the industrial countries, with developing countries using the proceeds of export sales both to purchase inputs from the industrial countries, inputs which are essential for our own growth and development, as well as to service debt. The low and declining rates of growth in the industrial countries have had serious implications for us.

Added to this, the unevenness of economic performance among the industrial countries has, among other things, created trade imbalances between some of them, and the responses and proposed responses to these imbalances-ranging from protectionism to demand restraint to interest and exchange rate changes-are likely to pose increased difficulties for us in the Third World.

Our situation has been further adversely affected by the behavior of commodity prices. Falling commodity prices, both nominally and in real terms, have contrib­uted to substantial deterioration in our terms of trade. Price support systems, subsidies to their own producers, quotas, and other trade protection devices in

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industrial countries have contributed to the downward pressure on commodity prices at least as much as have low aggregate demand and technological change. We recognize the need for export diversification and some of us are moving substantially in that direction. The shift will not be easy. Because of the small size of all of our countries, scale economies in production, necessary for reasonable product prices, have been achieved at the cost of many of us becoming monocrop producers. Mr. Chairman, I know that you will appreciate that the process of product diversification-while maintaining employment and incomes in a hostile economic environment-is fraught with danger and difficulty.

The issue of protectionism and associated trade protection devices~omestic price supports, quotas, and subsidies-is of particular concern to us. Many of us in the Caribbean are, for example, sugar producers; our recent general experiences over prices and over the quantities we sell to the United States and to the European Community have left us terribly disappointed. We, who have been making rum for 300 years, are now experiencing problems in some industrial countries over the definition of the product. Financing made available to some of us for export diversification and production expansion cannot be used for a range of products with which we have acquired some experience because of protectionism in donor countries. It seems sometimes that the harder we try, the more obstacles are placed III our way.

It is natural in times of difficulty and adversity to seek help and assistance from those who may be better placed to cope with the problems. However, it seems to us that help and assistance are commodities which are increasingly in short supply. with the small amounts that are being made available being accompanied by increasingly burdensome conditionality and now cross-conditionality arrange­ments. This is particularly true of the bilateral arrangements which seem to be supplanting multilateral arrangements-reflecting the inability or unwillingness of the major donor countries to provide the lending agencies with the resources the latter require to perform their functions adequately. What is of even greater concern, particularly to us who come from very small countries, is the approach being taken by some multilateral institutions. In the case of the World Bank, the attempt to graduate some of our regional borrowing members in the Caribbean from eligibility for IDA resources must be seen in the context of a parallel admission by the Bank that those same members are not creditworthy for resources on commercial terms and in the context of an apparent practice to provide only limited access to direct IBRD funding.

In the case of the IMF. the prescription of every Fund consultation mission continues to be for an exchange rate adjustment together with a contraction of public sector activity. These prescriptions continue to be provided even where the constraints are clearly on the supply side and are clearly structural, where output is priced in foreign currency, where all that can be produced is sold, and where the public sector has become involved in productive sector activity because of the absence of entrepreneurs in the private sector. requiring government to playa catalytic role in promoting development.

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It seems very clear to us that the World Bank and the Fund continue to pay insufficient attention to the peculiar circumstances and situation of their very small members, and that this leads to prescriptions which do not match our ailments, and that we are made even more ill as a result.

We note that it is precisely at a time when Third World countries need large amounts of financial assistance for restructuring their economies and for the expansion of production that there is a net inflow of resources into the Fund and that the net outflow from the Bank has fallen to relatively insignificant levels. How can the Fund justify the pace of adjustment it requires of developing countries which are forced to tum to it for assistance given this situation, and how can the Bank justify its current low level of net disbursements to our countries?

Lest this be interpreted as being wholly negative, we wish to place on record our hope that some recent developments signal a change of attitude on the part of some major actors on the international economic scene. In particular, given the tremen­dous difficulties some countries are experiencing with regard to debt servicing­many of them through no fault of their own-we welcome the approach taken by the Fund in the recently concluded agreement with Mexico, and hope that a similar attitude will prevail in other programs in the future. Also, we welcome the statement attributed to the Chairman of the Federal Reserve Board to the effect that world economic adjustment is a collective matter, in which all countries have a role to play. We note that for years now there have been calls for greater symmetry in the international adjustment process, so that deficit countries should not be required to carry the full burden of adjustment. We welcome the voice of the United States in joining this call.

The immediate future prospects for the world economy are not bright. Despite how gloomy these prospects may seem from the point of view of industrial countries, they are darker from our point of view. More than ever, all of us in the international economic community need each other's cooperation and goodwill if we are to overcome our problems and provide a better life for our peoples. There have been so many calls for cooperation and coordination over the years which have apparently gone unheeded that it is easy to become cynical and to want to resort to individual action to further individual interests. We are too interde­pendent to be able to afford to go this route. Moreover, it is extremely dangerous. We live in one world, and social and political discontent arising from differential economic development will not be contained within political boundaries. We should look at the state of our world very carefully. It is the only one we have.

BOLIVIA: JUAN L. CARIAGA OSORIO Governor of the Fund and Bank

Mr. Chairman, Governors, ladies and gentlemen: First of all, let me tell you that I am deeply honored to address this meeting on behalf of my country, Bolivia.

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At the outset, I should like to convey to Mr. de Larosiere our admiration for his outstanding leadership of the Fund during his terms of office, and I would like to convey our special vote of thanks for his assistance to the international financial community, and in particular to my country, in its very serious efforts to achieve stabilization.

I should like at the same time to extend my very best wishes to Mr. Con able for a very successful term of office as President of the World Bank.

The purpose of my statement is to inform you of my Government's concern with the marked deterioration of the developing countries' terms of trade, caused by the fall in the prices of the principal export commodities.

It is now necessary for the more developed countries to become aware of this important fact and to strive to help remedy this injustice, which affects hundreds of millions of people in a large number of countries in the world.

This situation is especially serious for countries in the midst of structural adjustments, which, by their nature, exert recessionary effects, further lowering the standard of living of their peoples and jeopardizing their social and political stability.

I am referring to countries like Bolivia, which, with a keen sense of responsibil­ity and determination, have introduced measures to contain inflation and revive their economies. May I remind you that three years of mismanagement of financial resources in the Bolivian economy unleashed hyperinflation of about 25,000 percent-the seventh highest inflation in the history of mankind and the worst between 1983 and 1985.

To remedy this situation, our country is carrying out a stabilization program with the support of the International Monetary Fund, designed in part to increase government revenue and substantially diminish expenditure, thus reducing the deficit, which was equivalent to 29.2 percent of GDP in 1984. These efforts reduced the deficit to 12.5 percent ofGDP in 1985, and it is expected to fall to only 3.7 percent in 1986.

Our adjustment program establishes a model in which prices are free and the exchange rate, determined by market forces through a public auction system, is flexible.

Also under this program, the Government has adopted a tariff reform which sets a single, uniform customs tariff of 20 percent. This makes the Bolivian economy one of the most open and transparent in world trade.

In addition, the democratic Government has carried out an innovative tax reform, replacing the traditional system of taxing income with one that taxes consumption and wealth as visible manifestations of income. This reform was adopted because inflation had changed the official Bolivian economy into an informal underground economy involving more than two thirds of the population.

Bolivia successfully negotiated a stand-by arrangement with the International Monetary Fund and is now negotiating a compensatory financing facility and a Structural Adjustment Facility program with both the International Monetary Fund and the World Bank. It also negotiated a restructuring with the Paris Club of

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all its past-due obligations and of those that will fall due during the adjustment period, thus obtaining significant balance of payments relief and renewed access to multilateral and bilateral credit.

All of these measures are already bearing fruit. Inflation, which reached an annual rate of 23,500 percent in August 1985, has been reduced to a moderate rate-only 2.1 percent in the last five months. The budget deficit, which exceeded 29 percent of GDP in 1984, is down to 3.7 percent in 1986. The National Treasury, which financed 85 percent of its expenditure by borrowing in 1984, now has balanced books, without any financing from the Central Bank.

Finally, the tax burden, which represented 3 percent of GDP in 1984, will rise to about 14 percent of GDP in 1986 with an indirect tax on gasoline.

Nevertheless, even with all these achievements, Bolivia cannot revive its economy, due to the critical deterioration in its terms of trade caused by the fall in tin, nonferrous metal, and oil prices. Our exports, which amounted to some $1 billion in 1980, fell to about $450 million in 1986, with more than half of those receipts being in kind. The amount of foreign exchange available to us is only one quarter of what it was in 1980, seriously reducing our ability to pay and to import goods and services and our economic growth. Despite our significant economic policy effort, which has given us a year of stability. Bolivia has yet to receive effective support from multilateral and bilateral organizations. The level of external financing has not been sufficient for the nation's needs. To cite one example, the only disbursements we have received to date are a portion of the resources under the stand-by arrangement with the IMF, while the funds from the World Bank, an organization that has always given us its institutional support, have not yet been made available to us due to procedural difficulties which prevent quick disbursement. It is therefore vital that the multilateral organizations make an effort to provide support more promptly to countries that are undertaking the major adjustments required in today's world.

It will take nothing less than a considerable inflow of external resources to save Bolivia from the crisis. To restore our growth rates of 20 years ago. we will need to grow 3 percent annually. To do so, we must have about $500 million of external resources annually on concessional terms. Only with the help of multi­lateral organizations and through bilateral agreements will Bolivia be able to avoid deepening its crisis and falling further behind in its growth.

I call upon all the developed countries represented in this world economic forum to develop an awareness of the deterioration that has taken place in the developing countries' terms of trade over the past year, seriously hampering their economic growth and development. This is an appeal to help those countries which, by their own efforts, have implemented adjustment programs enabling them to manage their resources more efficiently but requiring international support to improve their prospects for success. Similarly, if the industrial countries are to assist these efforts, they must avoid protectionist tendencies in international trade, whether through import prohibitions, quotas, or tariffs, that prevent the less developed countries from expanding their exports. Finally, I am appealing to the countries

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attending this important forum because only with the help of those now profiting from improved terms of trade will we have a world in which all human beings can look forward to a better future.

CANADA: MICHAEL H. WILSON Governor of the Fund and Bank

It is a great honor to take part once again in these important Meetings. I join in the welcome to Poland and Kiribati as new members of the International Monetary Fund and World Bank. I salute Mr. de Larosiere for his outstanding leadership of the Fund, and I warmly welcome Mr. Conable as the new President of the World Bank. His appointment will do much to ensure the continuity and reaffirmation of the vision underlying the creation of the Fund and the Bank four decades ago. I believe it is incumbent on all of us to join his commitment to the fight against global poverty.

There are two themes that I want to stress in my remarks today. One is the responsibility industrial countries have to pursue policies which ensure that economic growth strengthens and that healthy growth will be sustained. But I also want to deal realistically with the challenges developing countries must meet in order to ease the adjustment problems they currently face and to lay the ground­work for the eventual attainment of economic prosperity.

I attended the meeting of the Commonwealth finance ministers last week. I was encouraged by the strong statements of some ministers that developing countries can be in charge of their own destiny to a far greater extent if they implement policies that improve their opportunities for growth. This should be done, not simply because the Fund or the Bank prescribes them, but because they are in the self-interest of the country and because they are the best way to ensure higher living standards and greater job opportunities for their people.

The goals we seek together are worthy of our continuing and consistent pursuit. But achieving them requires determined, and often difficult, decisions by both developed and developing countries. None of us should succumb to the illusion that any grand design or quick fix will improve our ability to realize them.

What is required to ensure healthy world growth is a continued commitment to our strategy for reducing government deficits, for holding inflation in check, and for reducing current account imbalances through better international balance in domestic demand growth. To assist and complement this strategy, we also need to implement measures to promote a dynamic private sector and to lower unemploy­ment.

This has proved to be a less robust year than expected at the time of the meetings of the Interim and Development Committees last April. It is not surprising, therefore, that questions have arisen about the present course of our policies. We have reviewed these policies carefully over the past few days. I believe we should

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not change direction despite the disappointments, for the prospects are encourag­ing.

Let us consider a number of positive factors. -World growth is continuing. Growth rates are picking up and are forecast to

strengthen in the remainder of 1986 and in 1987. -Although oil price declines have hit a number of countries very hard­

including regions within my own country-we are now starting to see the offsetting benefits to the world economy.

-Major exchange rate realignments have taken place among the industrial countries. Although it may take some time, this will contribute powerfully to better current account balances.

-The outlook for inflation is very encouraging. Most periods of economic expansion have been choked off after a few years by the resurgence of infla­tion. This time, prudent monetary policies are keeping inflation in check.

-In the industrial countries, progress is being made in reducing fiscal imbalances. Budget deficits as a proportion of GOP are declining in most countries.

-As a result of better inflation prospects and improved fiscal positions, interest rates have fallen sharply.

-The new round of trade negotiations has been well launched. -There is growing recognition that tax reforms, market liberalization, and the

reduction of subsidies increase the growth potential of our economies. -Finally, there is continued determination among the major industrial coun­

tries to pursue more compatible policies in order to sustain noninflationary world growth.

If there is any single message that needs stressing, it is that temporary setbacks must not deter us from persisting in policies that will serve us well, not just in the next six months, but over the coming years. We must be patient in pursuit of our medium-term goals. Experience has demonstrated the pitfalls of macroeconomic "fine tuning" and of trying to avoid rather than adjust to market shocks.

In persevering with the policies we are pursuing, all of us have important roles to play. Industrial countries must accept the great responsibility of proceeding with policies that will promote a stable and vigorous economic environment in which a dynamic private sector plays a leading role.

This is essentiaL not only to ensure better conditions for our own people, but also to create an international environment that will permit the adjustment efforts of the developing countries to bear fruit.

Our monetary and fiscal policies must continue to be guided by the need to maintain financial stability and to ease the burden of public sector indebtedness. Important though they are, however, we need more than sound macroeconomic policies to ensure a bright economic future. Monetary and fiscal policies must be backed up by determined measures to remove the structural rigidities that con­strain private sector investment and job creation.

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More than lip service must be paid to the dismantling of interventionist and protectionist policies in both developed and developing countries. This year's World Development Report shows what harm has been done by the pursuit of such policies in the field of agriculture in both developed and developing countries. Canadian farmers know too well the effects of beggar-thy-neighbor trade policies.

I shall say a word here about our recent experience in Canada. I believe it offers a good example of the benefits of sticking to a sound medium-term strategy.

Since our Government took office two years ago. we have followed a deter­mined policy to reduce our deficit. to streamline and lighten regulations. to privatize state-owned commercial enterprises. and to remove other obstacles to private sector vitality and growth. We are reforming our tax system to ensure that it rewards success and promotes investment. We have re-established Canada's traditional welcoming approach to foreign investment, and we are actively pursu­ing trade liberalization, both in the new GAIT round and in bilateral negotiations with the United States.

These policies are working. The budget deficit has declined from 7.4 percent of GDP when we took office to 6 percent last year. It will decline further this year. Far from hurting our recovery. these policies have contributed to one of the highest growth rates' among industrial countries and a robust expansion of employment. Nor have we compromised our social or international responsibilities. We have maintained, and in some areas have strengthened, our social support programs, and we have kept our official development assistance close to 0.5 percent of GNP.

In recent years, Canada went through a period when our attitude toward foreign investment was considered ambivalent at best, and inhospitable by many of our trading partners. This resulted, through the I 970s and early 1980s, in an erosion of our competitive position and some loss of investment capital. When our Govern­ment took office, we dismantled the major impediments to foreign investment in Canada. More important, we set about, through our overall economic policies, to create a climate in which investors, Canadian and foreign alike. can feel more comfortable about doing business in Canada.

In the past year we have experienced a welcome increase in the inflow of foreign equity capital. This will help make our economy more productive and competitive and will reduce our reliance on debt financing.

I have spoken about the responsibilities of the industrial countries. Let me now tum to the challenges faced by the developing countries.

Improving economic growth in developing countries demands tough decisions, political courage, realistic expectations, and an unglamorous commitment to the ongoing discipline required to carry out necessary policy changes. I was encour­aged last week by the statements of some Commonwealth Finance Ministers that developing countries can be more in charge of their own destiny if they implement policies which improve their opportunities for growth. This should be done not simply because the IMF or the IBRD prescribes them, but because they are the best way to ensure higher living standards and greater job opportunities for our people.

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There is no simple recipe to meet this challenge. The most productive approach lies in a cooperative and comprehensive effort to deal with structural problems and to create the conditions for resumed growth. That is the basic strategy we adopted last year in Seoul. That initiative was not a master plan. It was a framework within which developed and developing countries could work together with commercial banks. the Fund, and multilateral development banks to lay the foundation for greater economic prosperity in debtor countries. We welcomed it then because it embraced a philosophy that we had been working toward for several years. We continue to believe it is the right strategy.

Developing countries clearly face a difficult situation. External debt loads carried by many of them are too high and are constraining their economies. Economic growth rates are picking up in a number of countries, but overall performance is being affected by weak commodity prices and barriers to their exports. Net financial inflows to the developing countries are barely positive.

In the face of these difficult circumstances. the developing countries must continue to pursue appropriate macroeconomic policies. These policies must be bolstered, if growth is to increase, by structural adjustments designed to strengthen the private sector and to create a better climate for investment. Equity capital is an essential element in achieving this growth, not only to reduce debt burdens but also to increase access to technology, to promote exports. and to expand the capacity to support debt.

How can equity capital be attracted? Measures are needed to reduce or eliminate foreign investment restrictions, to develop freer markets. to reduce price controls and subsidies, and to ensure realistic and flexible exchange rates.

Serious consideration should be given to the role of state-owned enterprises. Privatizing them or making them more market oriented can often result in greater efficiency and can help the creation of a dynamic private sector. These are all ways to increase equity investment in developing countries.

As I noted at the beginning of my address, industrial and developing countries today face important responsibilities and challenges. These responsibilities and challenges come together in our multilateral institutions. It is in these important forums that we pursue measures to encourage greater international cooperation. We must ensure that these institutions continue to be effective and capable of providing even greater support to their members. There are a number of ways in which this can be done.

First, we must persist in our efforts to strengthen multilateral surveillance to ensure a stable international monetary system and a vigorous economic environ­ment.

Second, the Fund must continue its policy of enlarged access. In the face of current external indebtedness problems. now is not the right time to end or to lower the temporary expansion of borrowing limits.

Third, the Fund and Bank must intensify and make more explicit their coopera­tion in supporting and developing joint stabilization and adjustment programs in both middle-income and poorer countries.

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Fourth, the increased cooperation between the Fund and the Bank must be backed up by greater coordination with the regional development banks and bilateral donors. Regional development banks must give greater emphasis in promoting policy reforms. The role of World Bank consultative groups should be strengthened to encourage better coordination among multilateral and bilateral donors in responding to policy reforms in recipient countries. The International Finance Corporation is playing an important role in raising equity capital and in developing imaginative financial techniques. These efforts should continue to be supported.

Fifth, the Bank must expand its lending for good quality projects and programs, and work should begin this autumn on a sizable general capital increase. The need for a capital increase is now obvious. Starting negotiations will do much to strengthen the confidence of private lenders and recipient countries that adequate official financing flows will be available to support continued adjustment efforts.

Sixth. and most important for the Bank's poorest members, we should conclude early this autumn the IDA-VIII Replenishment negotiations with the firm resolve to achieve a total of at least US$12 billion.

I have spoken today of the responsibilities and challenges we must meet together. I continue to believe that our strategy is the right one. With a shared commitment to this strategy, we can make progress toward improving the Jiving standards of all our citizens.

CHINA: WANG BINGQIAN Governor of the Bank

Please allow me to extend my warmest congratulations to Poland and Kiribati on their joining the International Monetary Fund and the World Bank, and to Mr. Conable on his assuming the Presidency of the World Bank.

The developments of the world economy since our last Annual Meetings have been disappointing in many aspects; the economic growth of the major industrial countries has undergone continued deceleration, and the developing economies remain in grave difficulties. Despite the many changes during this period-the fall in the nominal interest rates and oil prices, the significant correction of the serious exchange rate distortions among the major currencies, and the reduction of inflation to the lowest level in the past 20 years-the major industrial countries continue to have lackluster economic performance, with their trade and fiscal imbalances largely intact. What is particularly disturbing, however, is the fact that the external economic environment facing the developing countries has experi­enced further deterioration. The prices of primary commodities and petroleum have plunged while those of manufactured goods have risen, resulting in worsened terms of trade for the developing countries, which. combined with the prolifera­tion of protectionism, especially of a non tariff nature, has caused a sharp reduction

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in their export earnings. At the same time, there has been little increase in the capital flows to developing countries. For some of them, reversed transfers have taken place for years running. In consequence, quite a number of developing coun­tries have registered a negative rate of economic growth. With the world economy increasingly interdependent today, it is hardly imaginable that global economic prosperity and political stability can be sustained in an environment in which the developing countries are confronted with a deepening development crisis and eco­nomic difficulties.

I would now like to turn to some of the major topics on the agenda of this year's Annual Meetings.

International Debt

Over the past nine months, the debt problem has been getting worse, renewing concern over the possibility that the debt crisis may recur. Close to US$1 trillion in magnitude, the indebtedness not only imposes a heavy burden on the developing countries in their economic development, but also constitutes a major factor of instability in the world economy. The greatest attention of the international community is warranted by the seriousness of the problem. In striving for a solution to the debt problem, developing countries have made enormous efforts and paid a dear price therein. Similar efforts are now required of the developed countries and the creditor banks who should adopt effective measures to help the indebted countries revitalize their economies, including, for instance, reducing real interest rates, extending loan maturities, and liberalizing repayment terms. In addition, the major industrial countries must effectively curb protectionism to foster conditions that would permit expansion of developing countries' exports. We urge all parties--<iebtor countries, creditor countries, commercial banks, and international financial institutions-to join in the concerted efforts to tackle the debt problem.

Sub-Saharan Africa

The countries of Sub-Saharan Africa are still plagued with grave economic difficulties. We note that the World Bank, in helping to bring about economic recovery in that part of the world, has done much substantive work, such as establishing and implementing the Special Facility for Sub-Saharan Africa and playing an augmented role in aid coordination. The International Monetary Fund for its part has set up the Structural Adjustment Facility and commenced providing Sub-Saharan Africa with financial support for its structural adjustment. Industrial countries, too, have made a positive contribution in this regard. It is our hope, however, that developed countries will redouble their efforts to expand their assistance, especially concessional assistance to Sub-Saharan Africa, so as to help expedite the recovery and growth of the region's economies.

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General Capital Increase of the World Bank

The lending program that the World Bank planned for fiscal years 1986-90 to meet the needs of the developing countries for economic adjustment and develop­ment necessitates the undertaking of a general capital increase for the Bank. We consider that such an increase is entirely necessary and ought to be effected by the spring of 1987 in order to assure smooth implementation of the lending program. We urge that preparation work to this end be speeded up. For its part, the Chinese Government shall strive in close cooperation with other member countries for the earliest realization of the general capital increase.

Role of the World Bank

Helping developing countries accelerate growth and alleviate poverty has always been the fundamental objective of the World Bank as a long-term develop­ment institution. Investment lending for specific projects or for entire sectors has long been the mainstay of the Bank's operations. With much experience and many experts, the World Bank has made a commendable contribution to the expansion of productive capacity and the attainment of development goals by the developing countries. We concur that the Bank should playa new role under the circumstances to assist member countries in economic adjustment by appropriately increasing policy-based lending. But, it is also our view that the World Bank's assumption of the new role must not lead to the institution's assigning a lower priority to its traditional role ....

. . . China is presently engaging in the comprehensive reform of her economic management system as well as large-scale economic construction. We have made considerable headway and are proceeding as envisaged. It is our conviction that the development of China's economy cannot be achieved without the advance­ment of the world economy. China is, therefore, committed to full cooperation with other member countries to playa positive role in the World Bank and the International Monetary Fund with a view to creating a better international environ­ment.

It is with our profound regret that Mr. de Larosiere will leave the office of the Managing Director of the International Monetary Fund. During the period when the international financial situation was characterized by changes and fluctuations, Mr. de Larosiere through his efforts made significant contributions to the stabiliza­tion of the global financial situation and to the search for solutions to the debt problem. I wish you all the best in your future endeavors, Mr. de Larosiere.

ECUADOR: CARLOS JULIO EMANUEL Governor of the Fund

It is an honor, a pleasure, and at the same time a great responsibility for me to address this Meeting as spokesman for Argentina, Bolivia, Brazil, Chile, Colom-

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bia. Costa Rica. the Dominican Republic, EI Salvador, Guatemala, Guyana, Haiti, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, the Philippines. Spain, Suriname. Trinidad and Tobago, Uruguay, Venezuela, and my own country, Ecuador.

At a time when the international economic and financial system is experiencing growing disequilibrium and serious difficulties, it is an enormous responsibility to speak on behalf of a diverse group of countries, whose common denominator is uncertainty and discouragement in the face of a crisis that is becoming endemic.

It is a very difficult proposition to give uniform utterance to the different view­points and approaches to the crisis in the countries I represent. not only because of the differences in their economic and social structures, but also because of the variety of means they use to deal with the problems facing them. I shall therefore be making special reference to certain opinions voiced by the Ministers of the Group of Twenty-Four at their meeting in Washington on September 27, 1986.

There is widespread opinion that the continued slow growth of the world economy is the result of the deflationary economic policy being adopted by the industrial countries, which is seriously affecting our countries' growth and export potential and complicating the problem of the external debt. whose solution re­quires appropriate economic policies not only in our countries but also in the industrial nations. For if there is no economic growth in our countries, how can we possibly meet our debt service obligations?

This already serious situation is complicated by the constant proliferation of restrictions on free trade, by unjustified protectionism in the industrial countries, which, combined with the slow growth of the world economy, has weakened trade and led to sharp declines in the prices of raw materials and primary commodities, such as oil, cocoa, rice, soybean, wheat, cotton. meat, tin, and copper, which are the mainstay of many of the developing economies, especially in Latin America. Nor would there be any point in stepping up economic growth in industrial coun­tries if steps are not taken to check the march of protectionism, whose impact on our economies, for example through the subsidization of agricultural exports in the European Community and Japan. and now also in the United States, is truly devastating.

Although nominal interest rates have come down, real rates are still higher than our export growth rates. which gives an indication of the magnitude of the transfer of resources from our countries to the industrial countries. The potential saving of $15 billion in debt service resulting from the reduction in the nominal interest rate represents barely 40 percent of the loss of over $37 billion resulting from the deterioration in the terms of trade and the consequent reduction in export earnings projected for 1986.

The present economic crisis-a crisis without precedent in the history of our countries--does have certain cyclical aspects but certain of its effects point to a structural and long-term phenomenon. The debt burden is so heavy that an ex­tremely large part of domestic savings. of public revenues, and of foreign exchange derived from exports is used':"-and will continue to be used-solely to

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pay the interest on the debt, instead of meeting the economic development needs of our countries. And this situation is further aggravated by the negative net flow of resources to our countries both from the commercial banking system and from the international financial institutions, including the Fund and the World Bank.

It is truly surprising to realize that at a time of sharply falling commodity prices, resulting in a sudden drop in export earnings for nearly all the countries I represent, there has been not only a shortage of liquidity owing to the insufficiency of commercial bank flows-which has been the trend since 1 982-but also, and this is more serious, a negative net transfer of resources to our countries from the international financial institutions, which are called upon precisely to offset these shortages of liquidity. Thus the Fund's projections in the World Economic Outlook of September 1986 estimate net capital payments to the Fund in both 1986 and 1987, and in the year ended April 1986 repurchases from the Fund exceeded loans from that institution by over $400 million.

With respect to the World Bank, this organization has also become a net recipient of resources from some of the countries I represent. And as far as commercial bank lending is concerned, the experience of 1985-which has continued this year-speaks for itself: in 1985, commercial bank lending to Latin America was less than 10 percent of the total amount paid out to the banks in the form of interest.

This situataion, which involves a massive transfer of resources to the industrial countries, has seriously heightened our debt-servicing problems, and is therefore having a negative impact on the adjustment processes and economic growth prospects in our countries, while causing living standards to deteriorate. In these circumstances, our countries cannot be optimistic regarding the possibility of a quick exit out of the crisis affecting us, which was thought to be feasible when the Baker plan was announced at our meeting last year.

Most of our countries have been carrying out serious, costly, and prolonged economic adjustment programs to correct our internal and external imbalances, thereby demonstrating that we in the developing countries have not been standing still in the face of crisis; that we are not indulging in economic existentialism; that we have acted in spite of the fact that the measures adopted by our countries have a high social and political cost that is already reaching virtually intolerable limits. For this reason, it is difficult to contemplate greater adjustments, given the present situation and the discouraging prospects for the world economy.

The situation I have just described shows that despite the sacrifice inherent in the adjustment programs, it will be difficult, if not impossible, to achieve any level of economic growth, expand our export capacity, or meet our external obligations, unless there is a change of attitude internationally. This means, basically, that it is necessary to improve the external economic environment in which we, the debtor countries, have to operate, or, in other words, the world financial and development situation. Such improvement will involve the adoption of policies favoring eco­nomic growth and market accessibility, and recognition of the joint responsibility of debtors and creditors in both the creation and the solution of the debt problem.

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For this to come about, it is essential that the commercial banks make a serious effort to become effectively involved in solving the debt problem, for which they are jointly responsible, not only by making the debt restructuring process more flexible, but also by re-establishing voluntary flows of resources and agreeing to more suitable lending terms-such as lower real interest rates and margins-to facilitate payment of the debt and contribute to economic growth ....

. . . Despite the fact that the Fund and the World Bank have different functions and responsibilities, it is nonetheless true that these institutions have common objectives that oblige them to participate in interrelated activities in support of the developing countries; it is therefore essential to ensure ongoing coordination at an appropriate level between these two important organizations, without either one losing its identity or the goal for which it was created.

Unfortunately, the countries I represent have seen with some misgivings how these aims have been distorted, the proposed coordination being viewed and applied as cross-conditionality rather than as a formula for channeling more re­sources to the developing countries on improved terms. Furthermore, they regard it as neither appropriate nor reasonable that the World Bank's loans should increasingly demand conditionality in terms of economic policy, with charac­teristics similar to those of the Fund's conditionality.

In analyzing the present exchange system at the international level, the coun­tries I represent are of the opinion that results to date have been negative, since the exchange rates of the leading reserve currencies have maintained, over the short term, a high degree of volatility and persistent misalignment, which has bred uncertain future exchange rates and adversely affected trade development, invest­ment, and the allocation of resources.

On this point, we also endorse the proposal of the Group of Twenty-Four regarding the need to achieve adequate exchange stability through the establish­ment of "target zones" for the major currencies, with a view to improving eco­nomic policy coordination among the industrial countries, which in turn should adopt and maintain stable economic policies, giving greater significance to the international aspects, and particularly to the effects of application of those policies on the economies of the developing countries.

In general, our countries support stricter supervision of the exchange policies of the industrial countries. They also find it necessary to supervise international liquidity, which has recently been restricted, with the SDR being prevented from playing a major role in the international financial system through lack of alloca­tions, in violation of the basic tenet of the First Amendment to the Fund's Articles of Agreement creating the SDR, and requiring that it be made the principal reserve asset of the system. New and substantial allocations of SDRs, which should start immediately, would not only contribute to this aim, but would also help correct the persistent defects in the present international monetary system and the shortage of liquidity. These new allocations should also make it possible to set up a conces­sional fund to finance the excess of real interest rates over historical levels, which the debtor countries are obliged to pay on their debt to foreign commercial banks.

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Adjustment Policy in Ecuador

To illustrate the domestic effort being made in our countries to solve the crisis, I shall outline the adjustment measures recently adopted by the Ecuadoran Govern­ment to cope with the crisis after it worsened with the fall in oil prices beginning in January 1986, causing our exports to lose one third of their value and our government revenue to decline by a fourth. The reorganization of the nation's economy is based on twin foundations designed to reinvigorate the weakened external sector. One is the promotion of non-oil exports and the more efficient use of our scarce foreign exchange; the other is the encouragement of greater financial savings to reduce dependency on foreign savings.

The new foreign exchange system, in which the market sets the exchange rate forthe economy, is designed to make the private sector self-sufficient. The foreign exchange proceeds from the private sector's exports may be freely sold on the market to finance its imports and enable it to make other payments abroad, while the now reduced resources derived from oil will be used to cover public sector imports and pay the debt service. The philosophy behind this approach is that the nation cannot go on ad infinitum incurring new external debt to make good the entire foreign exchange shortfall from its exports and must instead seek a new eco­nomic reality for itself. This measure constitutes a dramatic shift in the direction of our country's foreign exchange policy from that which had prevailed for over half a century. It is also making us sellers rather than buyers, created not just to consume but especially to produce. The measures also involve the further liber­alization of our interest rate policy, designed to continue promoting financial savings and to provide higher earnings for lower-income Ecuadorans.

With Ecuador's economic policy being managed in this way, the Fund and World Bank understand that we are making considerable effort and sacrifice to overcome the serious financial crisis besetting us, without pressures or conditions from any organization inside or outside Ecuador. The Government conducting the affairs of Ecuador has not accepted and does not accept conditions. On the contrary, it has been applying its own economic program from the outset and has shown its ability to establish an objective, realistic economic policy that enables the nation to solve its major problems.

But it is important to emphasize at the same time that our Government refuses to sacrifice our country's economic and social development to payment of the external debt. Ecuador has stated more than once that it will service its debt to the extent permitted by its true ability to pay, not that it will pay its debts at any cost. The new plan now in effect, under which the debt is to be paid out of oil income, clearly reveals this policy objective.

Returning to those I represent, if there are no changes in the growth strategies and policies of the industrial countries or in international cooperation, so as to achieve a genuine opening of markets, the hopes of our countries for economic recovery will be vain, and this will aggravate the social tensions that already exist, perhaps leading not only to greater disequilibrium in the world economic system,

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but also to isolated, unilateral decisions out of desperation and mistrust, with undesirable consequences.

In conclusion, on behalf of the countries I represent, may I express our appreciation to the people and Government of the United States for the warm hospitality they have extended to us, and wish the greatest success to this important international meeting. We hope in particular that its results will help light the path to progress for our peoples, for that is the only way to lay the founda­tions for the peace to which we all aspire, in this year dedicated by the United Nations to peace.

I would not wish to conclude without expressing, on behalf of those I represent, and of Ecuador in particular, our deep appreciation and gratitude to Mr. de Larosiere, who has announced that he is leaving the Fund, for his superb manage­ment of that institution. May he enjoy the greatest success in his future activities.

EGYPT: KAMAL EL-GANZOURY, Governor of the Bank

In the name of God. It is a singular privilege to address this august body on behalf of the Government

of Egypt. Let me start by extending a warm welcome to the new President of the World Bank, Mr. Barber Conable. I wish him every success. At the same time, I would like to express my deep regret that these are the last Meetings in which Mr. de Larosiere participates as the Managing Director of the Fund. During his vigorous and inspiring leadership, Mr. de Larosiere has earned the admiration and gratitude of all those concerned with international economic cooperation. I would like also to welcome Poland and Kiribati to the membership of the Bretton Woods institutions.

When we met last year in Seoul, Korea, we had reason to be moderately optimistic about the prospects of the world economy. Today, unfortunately, we have much less ground for optimism. The world economy is clouded by a great deal of uncertainty. World output shows a marked slowdown, and prospects for the coming year are hardly encouraging. The slow rate of growth in the industrial countries is having an adverse effect on world trade. Protectionism is on the rise, and foreign exchange markets are dominated by wide swings in the value of the major currencies. At the same time, external imbalances have reached unsustain­able levels and could lead to a new wave of protectionist measures with ominous implications for the world economy and international economic cooperation.

Developing countries in particular are faced with an extremely difficult situa­tion. This is obvious in the case of oil exporters who suffered substantial losses in income and export earnings as a consequence of the sharp drop in oil prices. But it is no less true in the case of non-oil developing countries. Their situation has greatly worsened in view of depressed commodity prices, sluggish growth in

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exports, deterioration in terms of trade, and stagnation in financial flows. The position in the heavily indebted countries, whether oil exporters or not, remains a cause for serious concern.

The state of the world economy is simply untenable. We are confronted with a number of major economic issues at the global level which call for serious and immediate attention by the international community. These issues are not new. They have been with us for some time. As time passes, they become more intractable. We raise the level of our rhetoric, but we fail to muster the necessary political will to deal with them. The solution is evidently beyond the reach of any single country or group of countries. Our experience points clearly to the need for a higher level of international economic cooperation between all groups of coun­tries. Failing that, the world economy is condemned to unsatisfactory levels of performance, which could degenerate into a deep recession if not a devastating depression.

A great share of responsibility falls upon the major industrial countries. They are the richer, the more powerful, whose economic performance determines the health or malady of the world economy. Given the high degree of interdependence obtaining in the world economy, it is inconceivable to have prosperity if the major industrial countries fail to provide the stimulus to the rest of the world.

My delegation is dismayed by the news that the countries of the Group of Seven have failed to reach agreement on coordination of their policies. The cost of such a failure could be heavy, not only to themselves, but to developing countries which are least capable of facing a further deterioration in the world economic environ­ment. Obviously, the present framework for coordination is not functioning as well as what is called for by the occasion.

There is an urgent need to strengthen the mechanism of multilateral surveillance over the macroeconomic policies of the industrial countries. The purpose would be to eliminate inconsistencies between their policy positions, to take account of the international consequences of their national policies, to maintain minimum levels of noninflationary growth, and, no less important, to ensure an equitable distribu­tion in the burden of adjustment between deficit and surplus countries.

A higher level of international cooperation is also needed to deal with the debt problem. The debt overhang continues to pose a serious threat to the international credit system, the eonomic and political stability of the indebted countries, and indeed, the growth of the world economy at large.

At last year's Annual Meetings we were encouraged by the announcement of Secretary Baker's initiative. It contained many positive elements which were lacking in the conventional approach to the problem. The initiative recognized the structural nature of the problem, the vital importance of adjustment with growth, the need for balance between adjustment effort and availability of finance, and last but not least the role of the World Bank alongside the IMF in dealing with the debt problem. The results of the initiative, however, are yet to be seen. Some of the basic assumptions have not !TIaterialized, namely, a reasonable rate of growth in the industrial countries, a vigorous expansion of exports from the indebted

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countries, and above all the participation of commercial banks at appropriate levels.

In the view of my delegation, the Baker initiative needs to be reinforced by a higher level of international cooperation aiming at a long-term durable and equitable solution. So far the international community has failed to produce such a solution. We are still muddling through from one crisis to another. At the present levels of indebtedness, there is a basic contradiction between repayment and growth of the indebted countries, a contradiction that can only be removed by, on the one hand, a significant reduction in the debt service burden and, on the other, a substantial increase in export earnings and voluntary lending. We support the call of the Group of Twenty-Four for the creation of an ad hoc committee of Deputies from developed and developing countries to undertake a thorough and comprehen­sive review of the debt situation and to present a report to the Development Committee at its meeting in the spring of 1987. We also welcome the announce­ment by the Chairman of the Group of 77 to convene a consultative meeting on external debt to be held in November of this year.

A third area for a higher level of international cooperation is protectionism. My delegation welcomes the agreement reached in Punta del Este to launch a new round of trade negotiations in Geneva as soon as possible. It is hoped that these negotiations will diffuse the protectionist pressure and provide the occasion to address the problems of world trade in general and those of developing countries in particular .

The last few years have seen the proliferation of non tariff barriers in a variety of forms and descriptions. The burden of these barriers has fallen upon developing countries with particular severity. They tend to be more restrictive in precisely those lines of production in which developing countries enjoy a comparative advantage. In the context of adjustment programs these countries are urged to follow an outward-looking, export-oriented development strategy. No doubt this is more efficient than inward-looking import substitution. But what is the good of export-oriented development if the major export markets are not accessible? The problem is compounded by export subsidies, procurement practices, and indus­trial policies which discriminate, openly or subtly, against the more efficient production from developing countries. We hope that the new round of trade negotiations will start a new page and that the industrial countries will practice what they preach. It is also hoped that the Geneva round will not repeat the mistakes and shortcomings of previous rounds.

The fourth area for a higher level of international cooperation is that of energy. There is universal agreement that stability of energy supplies and prices are of vital importance for the health and prosperity of the world economy. However, the world oil markets have been subject to sharp and unpredictable fluctuations. The first and second oil shocks during the 1970s were blamed for all types of economic malaise in the world economy. This year has witnessed an oil shock in the opposite direction. The immediate effect was a massive transfer of wealth from the oil

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exporting to the oil importing countries, which is estimated at about $75 billion, 80 percent of which accrued to the oil importing industrial countries.

This net gain. however, has been associated with some adverse side effects. The most serious loss, of course, was suffered by the oil exporting countries. But many industrial and developing countries were also exposed to some negative fallouts. The present situation can be described as one of complacency on the part of the oil importing countries. particularly the beneficiaries among the major industrial countries.

My delegation believes that this is a dangerous and short-sighted policy. It carries the seeds of trouble in the not too distant future. At the present levels of oil prices. most alternative sources of energy will cease to be profitable. Sooner or later the fundamentals of the oil market will reassert themselves. Shortages will reappear, and oil prices will skyrocket once more. This is not a self-serving analysis. It represents a scenario which is espoused by a large number of analysts and energy experts. This would seem to be the most propicious time to initiate closer cooperation between oil producers and oil consumers, developed and developing. The purpose would be to ensure the long-term stability of oil supplies and prices.

Finally. there is room for a higher level of international cooperation in the field of financial flows. The link between international development and financial flows is too obvious to warrant elaboration. During the last decade capital flows have become a dominant feature of international economic relations. It is perhaps not realized that capital flows are now about ten times as large as trade flows.

The major portion of these flows is accounted for by private commercial lending. The privatization of international capital flows is a relatively new phe­nomenon which is characterized by a higher degree of volatility with important implications for foreign exchange stability and liquidity of the borrowing coun­tries. There is need for greater cooperation between the sources and users of private commercial funds to ensure a greater degree of stability in international lending.

At the same time. official development assistance represents the principal source of external financing for a large number of low-income countries. The flow of aDA has been virtually stagnating since the early 1980s. My delegation welcomes the recent agreement of IDA Deputies on the Eighth Replenishment of somewhat less than $12 billion, we believe that this amount is significantly less than what is warranted by the considerable needs of low-income countries, especially the Sub-Saharan African countries. We were hoping for a more gener­ous replenishment. given the massive transfer of wealth to the major industrial donors following the decline in oil prices. My delegation would like to express its opposition to any hardening in IDA terms at the present juncture.

The World Bank and the IMF have an important role to play in the adjustment process, both as sources of finance and as catalysts for mobilizing finance from alternative sources. My delegation supports a general increase in the capital base

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of the World Bank so as to enable it to reach a level of lending of $21.5 billion annually by fiscal 1990. This is the minimum level consistent with its increased role in the heavily indebted countries and its traditional role in other borrowing countries. At the same time we support the continuation of the IMF policy of enlarged access and oppose any reduction in the present access limits.

In conclusion, I hope that we will meet next year under better conditions for all our countries, and may the peace of Allah be with you.

FIJI: MOSESE QIONIBARA VI Governor of the Bank

I wish to join my fellow Governors in congratulating the new President of the World Bank, Mr. Barber Conable. His appointment comes at a time of continuing difficulty and uncertainty in the world economy. I have no doubt that Mr. Conable's wide experience and leadership will guide us through these troubled times. At the same time, I deeply regret the decision of the Managing Director of the Interna­tional Monetary Fund Mr. de Larosiere, to retire in the near future. Under his leadership, the Fund has played a very effective role in the international adjust­ment process. The Managing Director's role in managing the debt crisis of the 1980s has been one of the outstanding contributions he has made to the interna­tional financial system. I would also like to welcome the new members, Kiribati and Poland, to the International Monetary Fund and the World Bank.

I thank the President of the United States for his words of welcome. I also thank the Bank and the Fund for the excellent arrangements for our meetings this week.

Since we last met, the world economy and its outlook, as surveyed by the Bank and Fund staffs, leave little room for comfort. The global economic activity suffered a major setback from the widely shared optimism during our last meeting. The prospects for sustained and balanced recovery of economic activity are underlined by a number of uncertainties.

The risk of a further slowdown in the growth of industrial countries is quite real, particularly in the light of the expected fiscal retrenchment in the United States, uncertainties surrounding interest and exchange rate developments, the continuing fragility of the external positions of a number of indebted countries, and the intensifying protectionist pressures. In view of this difficult situation and the uncertain prospects, I believe that a coordinated policy action is needed by the international community. Given the predominant impact of the policies of the industrial countries on the world economy, greater policy coordination among these countries is needed to promote sustained and balanced growth of the world economy. In this regard, I welcome the current discussions within the Fund to employ economic indicators that would signal the need for policy coordination, particularly among the large industrial countries. At this juncture, I would like to note that the disappointing world economic prospects can be improved somewhat if the fiscal retrenchment in the United States can be offset through fiscal and

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monetary stimulus in those countries which are in a position to undertake expan­sionary policies.

The developing countries are facing worse prospects, both in the short and medium term. The outlook for commodity prices is bleak, with the terms of trade expected to be 18.5 percentage points below the level of last year. This is expected to fall by a further 7.5 percent in 1987. This trend needs to be reversed if the global debt problems are to be resolved. The importance of vigorous economic growth in the industrial countries cannot be overstressed, given the interdependence in the world economy; but this is not enough. We need to create opportunities for increasing exports from developing countries by reversing the protectionist mea­sures in industrial countries. Efforts on the part of the industrial countries alone will not steer the developing countries out of their difficulties. Developing coun­tries need to reduce their dependence on foreign capital through greater resource mobilization, through changes in domestic economic and financial policies that increase domestic savings, attract foreign capital, and prevent capital flight. Improvements in domestic argicultural policies and production incentives are also necessary to encourage efficiency and economic growth.

I now come to the role that the Bank and the Fund can play in the adjustment process, given the current and expected world economic climate. The continuing difficult debt situation and the low level of export growth of the developing countries suggest that both the Bank and the Fund will have a special role to play. In this connection, it is disconcerting to note that the Bank and the Fund net lendings in real terms have fallen in recent times. For these institutions to playa more meaningful role in the adjustment and growth process, I believe that action is needed in the following four areas: first, adequate funding through the Ninth General Review of Quotas in the Fund and a general capital increase in the Bank cannot be overstressed; second, access to the resources of these institutions must be commensurate with the development and adjustment needs of their member countries; third, a more flexible approach to conditionality is needed so that the long-term viability of adjustment programs is considered against the political and social realities of member countries; and, finally, because of the reluctance of the commercial banks to play their part in the global debt strategy and their participa­tion in the Baker initiative, the Bank and the Fund must playa bigger role in coordinating the flow of resources to capital-importing countries ....

. . . With regard to the World Bank Group, we are pleased with the progress in tackling the debt problem and the results of the policy based lending instruments. Mr. Chairman, we feel that the Bank, in addition to dealing with the urgent debt and adjustment problems, should still maintain its efforts with other developing countries, particularly in small island countries of the South Pacific. We are encouraged by the reassurances from the Bank that these countries will continue to receive adequate attention.

We would like to further encourage IFC in its efforts to develop private investments in developing countries. We are particularly pleased with the success in its capital markets and equities development initiatives. We have greatly

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benefitted from IFe investments and technical assistance. We look forward to a continuing fruitful relationship in the future.

FRANCE: MICHEL CAMDESSUS Governor of the Fund

The Annual Meetings of the Fund and World Bank are a high point in interna­tional concertation. They provide the opportunity for drawing up a balance of the past year's monetary and financial developments, identifying both the advances and the failures of our cooperation, and outlining prospects for the future.

I would like to begin our analysis of the world economic outlook with some remarks about the French economy. I will stress three developments which are striking in relation not only to the recent past, but also to a long tradition.

-First, the retreat-if not to say the disappearance--of inflationary expecta­tions and the slowdown of wage increases have placed our country, according to the Fund itself, in a good position as regards disinflation and controlling produc­tion costs.

-Second, there is an increasingly widespread perception that the Government cannot do everything and must leave more room for private initiative. The privatization of a large number of public enterprises and the reduction of taxes and of the weight of government expenditures have been undertaken and will be pursued in 1987, showing our determination in this regard.

-Third, the unequivocal acceptance of market discipline in such areas as employment, prices, exchange rates, monetary issues, and the financing of the economy.

I am convinced that this broadening of economic freedoms will in time lead to positive effects in the areas where there are weaknesses we refuse to condone. I would like to stress three of them.

-Unemployment, despite improved job creation. -Developments in the current account balance. Though favorable as a result of

falling oil prices. they mask a persistent weakness in the productive system, caused by too many years of insufficient investment.

-Interest rates. In spite of the marked decline in interest rates over the last year, real rates remain too high. But we cannot act alone in this area.

All in all. growth is still insufficient in France as in other countries, despite the recent recovery that is expected to continue in 1987. However, we are certain that the course we have chosen is the correct one, but more time is needed to reap its beneficial effects; continuity is needed as well to guarantee lasting progress.

It seems to me that many of the points just made concerning France also apply to an analysis of current international problems. We are suffering from a still inadequate growth, given the capacities of the world economy. Our economies also face external imbalances which are clearly unsustainable in the medium term.

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To achieve lasting growth, we must rediscover the path of equilibrium. But how? First, let us discard the false remedies. In my view, no true solution will be found in further exchange rate adjustments: a further decline of the dollar would not be a suitable answer to the imbalances that still exist. At this point, that would be trying to correct one imbalance by another.

We are all equally convinced that protectionism is not the way out: by isolating ourselves from each other we would be condemning all of us. I therefore hail the wisdom that prevailed at Punta del Este in strengthening our free trade system under the GAIT. Therefore, there is no choice but to seek a more balanced world pattern of growth rates, with deficit countries maintaining in particular the strictest possible control over their public demand, and surplus countries consolidating the current recovery of their domestic demand.

We must hence seek to improve the way the adjustment burden is shared. The United States must deal resolutely with the primary source of its external imbalance, the budget deficit. On the other hand, in countries where domestic saving exceeds financing needs, it may become necessary to adopt more flexible monetary policies or to stimulate domestic demand through tax measures. The monetary components of this improved adjustment deserve particular attention. Allow me a few words on this matter.

The high level of real interest rates remains harmful to the developing countries and to investment, a decisive component of growth-based strategy.

Instability of exchange rates can also be harmful to growth. A year ago, signature of the Plaza agreement marked a significant step forward

toward creating the conditions for improved exchange-rate equilibrium in our trade.

The events of this summer have given us cause for concern. We welcome the joint effort of analysis and cooperation that is now developing. The initial results ofthis effort have been truly encouraging. We must ensure that they continue to be borne out and that the parities of the major currencies are stabilized at their present level, which, all things considered, is satisfactory. France is ready to play its part in this effort.

Our country, as you know, has contributed without reservation to strengthening international cooperation, has actively sought and implemented concerted moves to lower interest rates. and has given its support to the introduction of a set of indicators. But we must not lose sight of the fact that beyond this exercise, we obviously also need to rebuild an international monetary system. Mere clever conjecture, even if based on the sound work of experts , cannot satisfy this need. In my view, what is at stake is quite simple: on the one hand, genuine financial freedom and freedom of trade; on the other, the legitimate desire of governments to retain autonomy in their economic choices. We must reconcile the two. This means that we must define actual procedures including automatic mechanisms, constraints, and a referee. We should focus our attention on the variables through which international influences are directly transmitted, namely balance of pay­ments, interest rates, and above all exchange rates. France has for several years

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been making serious proposals to its partners with a view to the adoption of a system of reference zones for exchange rates. It seems to me that the time has come to think seriously about this.

Regarding the situation of developing countries and the international debt, the experience of recent months has confirmed that the path chosen by the interna­tional community for dealing with the debt problem is a sound one: a case-by-case, concerted, and pragmatic approach. This approach stems from the shared under­standing that debt is not solely a financial phenomenon but reveals deeper imbalances related to the very nature and direction of the development process. No lasting solution can be found by treating the effects without attacking the causes, or by dealing with it as if it were the problem of the debtor countries alone.

This is why the search for a more sustained and lasting world growth must be the central objective of our cooperation. It is this search which must guide the actions of each partner, whether public or private, and each must be ready to play its part fully these days.

Indeed, the outlook for such world growth, however desirable, remains uncer­tain. The continuing deterioration of the debt ratios shows that the interest rate decline has not offset the impact of the continued worsening in the developing countries' terms of trade. The latest statistics reflect the growing reluctance of commercial banks to increase their exposure in developing countries. This con­junction of negative developments entails a risk of deflationary slippage that must not be underestimated. My sincere hope is that these recovery programs be implemented promptly, supported by one and all, and fully successful.

In this context, it is incumbent upon the World Bank and the Fund to take leading roles in the strategy defined in Seoul. These institutions have demonstrated over the last few months that they are capable of responding to the mandate given to them at that time by their shareholders. The World Bank has done so notably by increasing its commitments to indebted countries in the form of nonproject financing in cooperation with the Fund. Recovery programs have been designed which take into account both the constraints of adjustment and the needs of development, as in the case of Mexico.

Thus, it is necessary to provide these two institutions with the means they need to carry out their actions. It is essential to maintain the enlarged limits on access to the Fund's resources in the difficult period which developing countries are pres­ently going through; renewed SDR allocations would also be one way-and one which I believe involves no real danger-to attenuate the difficulties experienced by nearly all these countries in rebuilding their reserves to a minimum level.

The new role of the World Bank makes it more necessary to reach a rapid decision on a general increase of its capital. France is prepared to endorse such a decision immediately; at the very least, a timetable should be agreed upon without delay. The international financial community is awaiting such a signal from governments. By taking concrete steps toward fulfilling the intentions of Seoul, they would lay a stronger foundation for the strategy defined there. In exchange for their support, Mr. Chairman, the World Bank's shareholders expect this great

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institution to increase its commitments, develop new modes of intervention, and improve its productivity. In order to face these manifold challenges, I would like to say that President Conable has our fullest vote of support. and France considers that his success shall be our own.

At the same time. we must bolster the support given to the poorest developing countries, and especially to the countries of Sub-Saharan Africa. The report submitted by the World Bank to the spring meeting of the Development Commit­tee on the financing needs of Sub-Saharan Africa was highly enlightening. It demonstrated in particular the priority of mobilizing additional financial resources to support the structural policies upon which lasting development is based. Despite its strict policy of cutting back public expenditure, France is striving to contribute actively to this end: its contribution to development assistance, in addition to its efforts in favor of its overseas departments and territories, is expected to amount to 0.54 percent of gross domestic product in 1987. of which nearly two thirds is intended for Sub-Saharan Africa. This ratio was 0.36 percent in 1980. The Special Session ofthe United Nations made clear the full magnitude of this challenge. The French Government has noted with satisfaction that the conclusions of that meeting are largely in agreement with our own views of a year ago, as regards the objectives and means of development in Africa, the role of the various interna­tional institutions, and the nature of the pressing actions required of us. The creation of the Special Facility for Sub-Saharan Africa and, later, of the Structural Adjustment Facility, have charted the proper course of action. The rapid conclu­sion of an Eighth Replenishment of IDA Resources. in which the share of Sub­Saharan Africa would be significantly increased. has been a helpful extension to those first initiatives. We will see to it that this effort is continued.

You have here then my country's principal thoughts on the matters which concern us. Having shared them with you. I cannot fail to add that it is with great regret, though fully understanding the reasons why. that France has learned of Mr. de Larosiere' s intention to resign as Managing Director of the IMF. He has served the international community admirably in that position, and we wish at this time to thank him most heartily.

GERMANY: GERHARD STOLTENBERG Alternate Governor of the Fund

These Meetings provide an important opportunity to review the challenges we face in the management of our economies. to learn to better understand each other's problems, and to demonstrate the will to address these problems in a cooperative manner and with a sense of mutual obligation.

Fundamentally, our countries have the same task to fulfill. This is to enable each nation to develop, free of outside interference, in accordance with its traditions and values. The aim is to secure freedom and lasting prosperity for our citizens.

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There are hardly any other international organizations that have accomplished as much for their member countries as the Fund and the World Bank in fostering economic and social progress and, thus, working for a more stable and peaceful world. The need for an active role of the Fund and the World Bank is beyond doubt.

In cooperation with the Fund and the World Bank, developing countries have implemented bold reforms to make their economies more efficient, outward looking, and competitive. In the industrial countries, we can point to significant progress in removing obstacles to growth and restoring the underlying vitality of the economies. Low inflation and lower interest rates have enhanced the prospect that the recovery will last. The positive effects of the adjustments in the exchange rates of major currencies will increasingly come through in the period ahead. The international dimension of national policies and the benefits to be gained from a common, concerted approach have become more clearly recognized. This is manifested by the initiatives to strengthen the debt strategy, by the improved policy coordination among major industrial countries, and, in a broader context, by our intensified cooperation in the Fund and the World Bank. The agreement on the launching of a new round of multilateral trade negotiations has presented us with the opportunity of achieving a real breakthrough in liberalizing and expand­ing world trade to the benefit of all our countries.

The risks and unfinished tasks are obvious. Serious imbalances persist which may take longer to unwind than expected. A constructive solution to the interna­tional debt problems will require a high degree of international cooperation for years to come; Germany will remain a reliable partner in this cooperative effort. No one can ignore the very real social and political problems created for some developing countries by the decline of commodity prices, the contraction of imports, and the slowing of growth. The persistence of poverty and hardship in parts of the developing world is a continuing challenge. None of us can be satisfied with a situation in which, despite important gains in employment, large segments of the labor force remain unemployed in the industrial countries.

I want to assure you that Germany is playing its part. Our economic policy is aimed at achieving the maximum rate of steady, noninflationary economic expan­sion. Promoting the creation of jobs and bringing down unemployment remains a priority objective and, thus, no one should believe that the German Government could be satisfied with anything less than an optimum utilization of our resources. In fact, the German economy is now set again on a path of solid growth. As confirmed by the most recent indicators, the growth pause of last winter is now definitely a matter of the past. Gross national product (GNP) is expanding at an underlying rate of 3 percent. The internal sources of demand-buoyant investment and growing consumption-have become the mainstay of the recovery. Real domestic demand is expected to grow by 41'2 percent in 1986, and imports, in volume terms, are rising about three times as fast as exports.

The progress made in lowering the share of public sector expenditure in GNP and the reduction of the fiscal deficit in Germany have provided the basis for a

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series of substantial tax reductions put into effect since 1983. In the next legislative period beginning in early 1987, my Government will reinforce the process of tax reform and reduction to strengthen further the basis for rising investment, expand­ing employment, and stable growth.

We believe that credibility, predictability, and a clearly defined medium-term orientation are necessary qualities of a successful growth strategy. While we all have to follow the situation closely, it is essential to avoid drifting back to short­term economic fine tuning.

Germany has always supported effective measures to strengthen the interna­tional coordination of economic policies. Fund surveillance-the process of policy dialogue and peer pressure--<:an playa key role in this regard. However, surveillance will be effective only if we muster the political will. In this respect, a more systematic use of economic indicators can playa useful role. Competent economic analysis, based on relevant indicators, will improve our understanding of how national economies interact, help to identify possible points oftension, and encourage consistent and mutually supportive policies. However, the role of indicators can only be an auxiliary one. Indicators cannot serve as mechanistic triggers for policy actions. The most recent World Economic Outlook provides a constructive response to our deliberations in April, and it shows the direction in which we should move. Let me stress the following points.

First, the essential task is to enhance the current world economic recovery and, thus, to provide a more favorable environment for the efforts of the developing countries at achieving a more satisfactory path of development. Sound, credible financial policies and a more efficient functioning of markets have to provide the basis for growth that can and must be sustained. Artificial stimulation of demand would set the stage for the next stabilization crisis. The developing countries would be the hardest hit.

Second, where fiscal deficits are unsustainably large, the benefits of corrective action are beyond doubt. If part of a credible strategy, the positive effects of a reduction of budget deficits, notably lower interest rates and a fresh stimulus to private productive investment, are likely to come about quickly.

Third, our countries have benefited immensely from the postwar system of liberal, multilateral trade. We will all be the losers unless we resist the detrimental forces of protectionism and eliminate effectively existing barriers to trade. Both the industrial and the developing countries have a high stake in the timely, successful completion of the new round of multilateral trade negotiations in the GATT. The efforts of the administration of the United States to restrain the pressures for protectionism deserve the strong support of its partners in the European Communities and elsewhere.

Fourth, the adjustments that have taken place in the exchange rates of major currencies will foster the emergence of a more balanced external payments position among the industrial countries. The task is now to consolidate the progress achieved. Exchange rate adjustments cannot dispense with the required improvements in the underlying financial policies.

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In Germany, a significant reduction in the real trade surplus is under way, reflecting the strong rise in domestic demand as well as the responsiveness of the German economy to the exchange rate changes which have taken place. As a result, the surplus on current account, in 1987, will show a significant decline also in nominal terms.

Promoting sustainable growth remains our priority objective and the key to solving many of the problems with which the developing countries are faced. The Fund and the World Bank should continue to make every effort to encourage the macroeconomic and structural reforms necessary to achieve this all-important goal. The experience of indebted countries which have preserved their access to financial markets, although they, too. had to cope with a difficult external environment, demonstrates the difference that domestic policies can make. The Fund and the Bank should work with these countries to increase domestic savings, to make new growth less dependent on debt-creating external financing, and to foster the repatriation of flight capital. And they should promote policies designed to encourage a diversification of exports which will reduce the vulnerability to fluctuations of commodity prices and encourage efficient import substitution.

The removal of price distortions, the liberalization of the trade and payments regime, and a shift away from state interventionism in the economy toward greater reliance on market forces will foster the mobilization and more efficient use of domestic and external financial resources.

The situation of the indebted countries has become more differentiated and the need to work out solutions case by case has become more compelling. The deterioration in the economic indicators of the developing countries reflects to no small extent the particularly difficult problems of commodity-exporting countries. Within the framework of the enhanced debt strategy their problems can be effectively dealt with if all the parties concerned, including the commercial banks, play their part, and if we are mindful of the very real social and political constraints which these countries face. The positive results of the negotiations of the Mexican Government with the private banks, I think, are an encouraging example of possible progress.

The Fund and the World Bank should continue to remind the industrial countries of their co-responsibility and of their self-interest in contributing to the restoration of growth and financial stability in the debtor countries. Fund surveillance pro­vides the Fund with the opportunity to press for policies in the industrial countries conducive to enduring growth. price stability. low interest rates, and, thus, to the better functioning of the international monetary system.

Through their own lending and through their roles as catalysts of private and official financing the Fund and the World Bank can importantly contribute to providing the necessary financial backing of well-conceived adjustment pro­grams. The continuation of the enlarged access to the resources of the Fund in 1987 will ensure the necessary flexi~ility of the Fund to support adjustment through financing in excess of the normal lending limits in case of special need.

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However, financing does not provide an easy way out of the debt problems. Foreign borrowing will not serve its purpose unless it helps to strengthen the external position so that the debt service can be financed from additional export or import savings. Without adjustment, the debt burden would grow, the medium­term outlook could worsen, and the situation could become unmanageable. As far as the creditor countries are concerned, the provision of financing to the debtors cannot substitute for the removal of protectionist barriers to imports from the developing countries.

The World Bank has moved quickly to expand its lending and to assume the enlarged role it is expected to play. I reiterate what I have made clear on previous occasions: Germany does support a timely and substantial increase in the capital of the World Bank.

Enhancing the role of the World Bank is not merely a matter of raising the quantity of its lending. The maintenance and, where possible, improvement ofthe lending standards of the World Bank is both in the interest of the debtors and essential to preserve the credit standing of the World Bank.

The international community must be mindful of the severe problems with which the poorer countries are faced. We can take encouragement from the progress achieved in the negotiations on the Eighth Replenishment of the Interna­tional Development Association (IDA). Germany will make a special voluntary contribution to IDA-VIII, over and above its traditionally high share, to facilitate the early conclusion of the negotiations.

Mr. Conable, we are fortunate to have you at the helm of the World Bank. You have taken over from your predecessors a well-functioning organization. Thus you can build on new concepts and on past achievements in enhancing the role of the Bank as the partner in economic development of the developing countries.

Mr. de Larosiere, since you are about to relinquish your position as Managing Director of the Fund, I wish to express as many of my colleagues did, my sincere appreciation for the skill and dedication with which you have guided the Fund. We all owe a great deal to your personal effort and commitment.

The Fund and the World Bank are faced with demanding and growing tasks. Both institutions remain the centerpiece of our efforts to sustain, to enhance and spread the recovery, and to restore stability to the international financial system. These objectives can be attained. Our problems are man-made, and constructive solutions are well within our ability to achieve. We have made progress on which we can build. Let us seize the opportunities with which we are now presented. Let us come up to the great challenges of our time.

GREECE: CONSTANTINE SIMITIS Governor of the Fund and Bank

It is indeed a pleasure for me to address this distinguished assembly. First, I would like to join other speakers in expressing my appreciation to the management

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and staff of the Fund and the Bank for the excellent quality of their work and the arrangements for these meetings. I would like to associate myself with my colleagues in paying tribute to Mr. de Larosiere for his able leadership in a period of great challenge that has enabled the Fund to playa constructive role in dealing with exceptionally difficult world economic situations. I also wish to congratulate Mr. Barber Conable on his recent appointment as President of the Bank.

As the Annual Report of the Fund clearly states, a number of important developments over the past year or so have improved economic prospects. Since last year we have seen a substantial depreciation of the U.S. dollar against other major currencies; lower interest rates, especially long-term rates; and a sharp fall in oil prices. While this combination of positive developments has been expected to bring about substantial benefits for most countries, both developed and develop­ing, making conditions more favorable for lower inflation and higher growth, the performance of the world economy so far this year has been disappointing. Inflation abated further in the industrial countries, but the decline in interest rates and the stimulus given to demand in oil importing countries by the oil price fall have not yet been reflected in actual growth revival. In fact, growth has been unexpectedly weak in the industrial countries. The volume of world trade has stagnated, and unemployment remains very high, especially in Europe.

The growth of developing countries also has suffered a serious setback; their position was further aggravated by the steep decline in commodity prices, by difficulties in gaining access for their exports to industrial countries, by difficulties in obtaining new financing, and of course, by the heavy debt service burden. This was reflected, in many cases in sharp cutbacks in imports and national income. We all recognize the social and political hardships this entails.

It is indeed gratifying to note that current projections for the world economy point to an improvement ahead. However, the outlook is generally less encourag­ing now than a few months ago. While inflation in the industrial countries is expected, on average, to remain quite low, only a modest upturn in world trade and output is expected, and growth rates would not be adequate to prevent a further rise of unemployment in a number of countries or to solve the other acute problems that confront the developing countries.

What is more worrying is that a number of uncertainties and risks remain, which pose a serious threat to growth and financial stability. Some of these have been under discussion for a number of years, but seem to be more real now: the very large external imbalances between major industrial countries and the risk of overshooting in the adjustment of exchange rates in a direction that could provoke a renewed run up of interest rates, with unfavorable repercussions for the world economy.

It is generally recognized that the very large adjustments in exchange rates that have occurred so far are unlikely to prove sufficient in themselves to correct the continuing large external payments imbalances between major industrial coun­tries. I think we all recognize the dangers of protectionism arising from the continuation of these trends. Clearly, therefore, further complementary measures

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of internal policy adjustment are needed, especially in countries best placed to take such action, if these risks are to be avoided.

While we would all agree that attempts to remove the large external imbalances between major industrial countries must not prejudice the policy achievements in most countries that have led to lower inflation and created conditions for sustaina­ble growth, there is also a need for some countries to exercise flexibility in the pursuit of their fiscal and monetary policies. Success will clearly depend on the correction of the fiscal and external deficits of the United States because of the size of these deficits and because of the relative weight of the United States in the world economy. But as growth in the U.S. economy slows down it is essential that other industrial countries consider what scope they may have for policy action on a scale that would be sufficient to make an impact on the U. S. deficit and to support sustained growth of world output and trade.

Over the past year we have seen explicit signs of an effort to improve coordina­tion and consistency of policies among the major industrial countries. However, more remains to be done in achieving mutual consistency of policies among the major industrial countries and correcting the large imbalances in the world economy. We, therefore, welcome the recent commitment to strengthen IMF surveillance on a multilateral basis, aimed at more effective coordination and greater international compatibility of policies.

The IMF staff is to be complimented for its more systematic use of indicators in its analysis of the major countries' economic policies and performance, as set out in the World Economic Outlook. This is a helpful first step in making further progress toward improved economic cooperation and a useful basis for discussing how to achieve more effective international policy coordination. It should help improve our understanding of the actual economic linkages among countries and promote a more effective dialogue, especially among the largest countries, on how they could best cope with interdependence. Further cooperation is clearly needed to improve the functioning of the international monetary system and enhance the prospects for a more sustainable pattern of exchange rates.

All countries are obviously dependent on a stable international financial environment. For Greece this was never more apparent than during the recent past. We have recently embarked on a vigorous stabilization program aimed at restoring a sustainable external and internal balance in the economy and at drastically reducing our inflation differential in relation to our main trading partners. The improvements that we have seen so far indicate that we are on the right track and that our targets are feasible on the two main fronts-inflation and the balance of payments.

In regard to inflation, we are firmly on target: a substantial improvement has occurred since 1985. We are determined to stay on this course of sustained deceleration in the rate of inflation until we match the low-to-negligible inflation rates of our partners in the European Community. By the end of 1987 we expect to be down to single-digit inflation.

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Our balance of payments target is a reduction of the current account deficit to the equivalent of US$I. 7 billion (less than 41/2 percent of GDP) as against US$3.3 billion 00 percent ofGDP) in 1985 and, by 1988, to a level that would be financed by autonomous capital inflows, so that the external debt is stabilized. We have balance of payments data only up to the end of July. When they are seasonally adjusted and annualized, they imply a result close to the US$I. 7 billion target for the year. Moreover, supplementary measures to tighten credit and reduce absorp­tion which were taken in the course of 1986 provide additional help for the current account in the second half of the year. Thus we remain confident that the current account outturn for 1986 will be consistent with our target.

Our policies for 1987 will remain firmly consistent with the main objectives of the program. A key factor in my Government's economic strategy is also to emphasize efforts to promote structural adjustment, so as to improve the supply response of the economy and to increase its capacity to cope with rapid changes in the international economic environment. Yet, like so many other small open economies, we must recognize that, however critical the success of our efforts, ultimately we depend on the growth of our overseas markets and on a stable international financial environment for the resumption of sustainable growth and the expansion of employment in our economy.

I would like now to comment briefly on some of the other items on the agenda. I wish to welcome strongly the increasing emphasis that is being placed on growth in Fund-supported adjustment programs and the close cooperation of the Fund and the Bank in this field. The increasing recognition of the importance of growth in promoting structural adjustment and resolving domestic and external imbalances should open the way for ground-breaking new initiatives as regards both the design and the duration of programs, as well as the conditionality that will accompany them. Success on these issues will crucially depend on the mobilization of adequate resources. The overall picture, however, is not yet very satisfactory. It is indeed disappointing to see, as we did during the first half of this year, a net outflow of capital from the debtor countries, reflecting a rising volume of repay­ments. If this situation continues and if the worsening of developing countries' terms of trade persists, we are likely to see very strong deflationary pressures developing over wide areas of the world, which are bound to impede the adjust­ment process and exacerbate instability and the difficulties relating to the debt problem. For this reason there is an increased and urgent need to meet the liquidity requirements of developing countries and to find a lasting solution to the debt problem, based on particular requirements of individual countries.

In these circumstances, the role of the Fund and the Bank, both as direct suppliers of finance and as catalysts for the supply of finance from other sources in support of structural adjustment with growth, is more crucial than ever. In the light of these considerations and the probable demands that will be made on the resources of both institutions, we believe that it is essential to avoid in the first place any decisions that might appear to impair the ability of the Fund and the Bank to intervene adequately and effectively in support of the twin goals of stability and

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growth. We warmly support therefore the maintenance of the enlarged access facility, as well as all other special facilities in the Fund, without reduction in access limits. We believe, however, that positive actions are required that will be clearly perceived as enhancing the ability of these institutions to play the role expected of them. The replenishment of IDA resources at the level of US$12 bil­lion is one such action, and we further look forward to the same positive attitude presiding over the forthcoming discussions on the review of quotas and the increase in the capital of the Bank ....

. . . Finally, I want to stress that growth is the key to debt repayment. We support therefore actions that would foster growth. The capital increase of the World Bank is one of them. It would help supply developing countries with the necessary means to face their problems.

INDIA: R.N. MALHOTRA Alternate Governor of the Fund

Mr. Chairman, we congratulate you on your election as Chairman of these Annual Meetings.

I would like to join my fellow Governors in welcoming Kiribati and Poland as new members of the International Monetary Fund and the World Bank.

I would like to record our appreciation of the valuable services of Mr. Ghulam Ishaq Khan who is completing his extended term as Chairman of the Development Committee.

We are also happy to welcome Mr. Conable to his first Annual Meetings as President of the World Bank. He brings with him rich and varied experience of public service which we are sure will enable him to provide effective leadership to the Bank to achieve the objectives emphasized by him in his address yesterday.

We would like to associate ourselves with the warm appreciation expressed by other Governors for the outstanding services rendered by Mr. de Larosiere to the Fund and the international financial system. It was indeed fortunate that at a most difficult time for the world economy, we had a man of his caliber, imagination, and perseverance to lead the Fund. We wish him all the best in his future endeavors.

Fellow Governors, the world economy is beset with serious problems, many of which are structural in nature. After the recession of 1980-82 and during the short­lived and uneven recovery of 1984, some believed that the widespread application of monetarist remedies had restored the world economy to a path of sustained growth with price stability. It is true that inflation in industrial countries has declined substantially in recent years, nominal interest rates have fallen, and there has been a reduction in misalignment of exchange rates of key currencies. Despite these developments and the large gains that have accrued to industrial countries due to the sharp reduction in the prices of primary commodities, especially that of oil, their real output growth has been sluggish in the first half of this year. Indeed,

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the projections of growth in developed and developing countries have had to be brought down, and the prospects for growth, in the near and medium term, are un­certain. The deterioration in the international environment has had severe conse­quences for developing countries. Their terms of trade have greatly deteriorated. The flow of official development assistance to low-income countries has declined, and the serious weakness in private lending continues to persist. Indeed, there is a large net transfer of resources from several highly indebted countries. It is particularly disturbing that during 1980-85 there was stagnation or decline in per capita GDP of as many as 70 developing countries.

We welcome recent moves toward better coordination of industrial countries' policies. However, to achieve the universally shared goal of growth and develop­ment, we must adopt far-reaching initiatives to harmonize international policies in order to change the current environment of deflation and flagging economic activity, reverse the declining flow of capital to developing countries, and roll back the growing protectionist barriers to their exports.

The 1980s have witnessed a sharp increase in protectionist sentiment and measures in industrial countries. This protectionism has been characterized by proliferation of nontariff barriers (NTBs), deployed in a discriminatory manner. It is ironic that this wave of protectionism continues unabated, despite the high cost it entails, not only for exporting developing nations but also for importing industrial countries. Against this background, we are happy that an agreement has been reached to launch a new round of multilateral trade negotiations. It is particularly gratifying that at Punta del Este, through a spirit of cooperation and accommoda­tion, we were able to arrive at an agreement which protects the interests of developing countries. We hope that matters which are outstanding from the last round of trade negotiations will be quickly and effectively addressed.

The debt problem continues to bedevil the world economy. It is now widely appreciated that the problem cannot be resolved by prolonged suppression of demand and output in debtor countries. There has been a welcome recognition of the importance of growth in fashioning adjustment programs as indicated by the Mexican case. We would hope that the application of these new ideas would become the norm rather than the exception. Meanwhile, it would appear that, while several highly indebted countries have adopted strong adjustment programs, substantial results by way of increased new lending by commercial banks and restoration of access to capital markets have yet to emerge. The resolution of the debt problem of both middle-income and low-income developing countries would require concerted and bold action on several fronts: trade and commodities, a further decline in real interest rates, a halt to the large net outflow of resources from indebted countries, and more imaginative restructuring of debt. Serious considera­tion should also be given to ameliorating the debt problem of countries with a heavy burden of official repayments ....

. . . I would like to make some observations regarding a few issues pertaining to the World Bank. Fellow Governors, the World Bank is an important source for providing external resources to developing countries. However, the trends in Bank

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lending, particularly with regard to net transfers, have become a cause for concern. It is the net transfers that are really available to the developing countries for investment, and they alone represent the true measure of the Bank's contribu­tion to development. It is, therefore, disappointing that the Bank's lending program for the next five years will not result in any significant improvement in net transfers, which are likely to become negative by next year. We believe that projections of net transfers should be an important consideration for determining the size of the Bank's lending program and related capital requirements.

It is clear that even the current lending program cannot be sustained by the Bank's present capital base, and an agreement on a general capital increase has therefore become a matter of urgency. Indeed, the Bank's five-year lending program up to 1990 would appear to have been overtaken by events and needs upward revision. Naturally, the Bank's capital requirements should be based on lending plans well beyond 1990. We urge the Bank's Executive Board to resolve quickly the issues affecting the size of the general capital increase so that an agree­ment can be reached at an early date.

For low-income countries, the stagnation in ODA flows is particularly disturb­ing. There are large populations in many parts of the world, including in our region, who continue to live at unacceptable levels of poverty. The large invest­ment requirements of these countries need to be effectively supported by multi­lateral and bilateral sources. The Task Force on Concessional Flows set up by the Development Committee has also underscored the importance of concessional flows for meeting the development needs of all low-income countries and has called for greater effort to increase the supply of ODA.

The Bank's initiative toward resolution of the deep-seated problems of the Sub­Saharan African countries, where real incomes continue to decline, is welcome. There has been a slight improvement this year, largely on account of better weather conditions. The problems of these countries are, however, complex, and substantial resources will need to be provided to them by the international community. We hope that this can be achieved by a genuine overall additionality of concessional resources without adversely affecting the requirements of other low-income countries.

We are glad to learn that there are now good prospects for an agreement on IDA­VIII of the size of at least $12 billion. This is a welcome development, even though a $12 billion amount would represent no increase in real terms over the combined size of IDA-VII and the Special Facility for Sub-Saharan Africa. In this connection, we understand that, in return for higher contributions to IDA-VIII, improvement in the voting power in the World Bank of some countries is contem­plated. This should be done in a manner that does not lead to an adverse effect on the voting power or ranking of any developing country. The integrity and the present character of IDA must be maintained.

I would like to wholeheartedly endorse the view expressed by Mr. Conable in his address yesterday that, while the Bank would play its important role in support of international efforts to resolve the debt problem, its main aim must remain the

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alleviation of poverty through programs and projects for development. Before concluding, we would like to thank the Government and people of the United States for their warm welcome and hospitality.

INDONESIA: RADIUS PRA WIRO Governor of the Fund

Each year at this time, as the Governors of the International Monetary Fund and the World Bank converge for the joint annual meeting of the Fund and the Bank, we find ourselves looking out at an altered world--different both from the one we knew a year earlier and different also from the one predicted to emerge, in spite of our best efforts, as some of the world's foremost economists and policymakers, to set a clear agenda for economic development. With reflection on the nature of economic change and on the role we play in influencing its direction, two obser­vations come to mind.

The first is a comment made by Guido Carli, Governor of the Bank of Italy, during the early 1970s. The course of economic affairs, he observed, is "like a constant explosion, a powerful, relentless cataclysm, with each new development, as it occurs, captured, for an instant in time, in slow motion." I would also like to take this opportunity to record our appreciation of the valuable services of Mr. Ghulam Ishaq Khan, who is completing his extended term as Chairman of the Development Committee.

The second is an observation taken not from the textbooks of economics, but rather from the laws of physics, known as Newton's Third Law. This law estab­lishes the principle that "for every action, there is an equal and opposite reac­tion. "

What relevance have these remarks to us as we survey the altered economic landscape of 1986? They speak to me of two things: first, that we must make it our goal to do more than merely respond, from one year to the next, to what Carli describes as those moments captured in "slow motion"-as such moments, of course, represent symptoms, not causes. Second, that achieving this goal will require a more acute sensitivity to the root causes of economic change and, in the manner suggested by Newton's Law, greater foresight in projecting the conse­quences of our actions.

The economic landscape of 1986 presents us once again with the usual intrigu­ing shifts and realignments in global economic difficulties and challenges. A number of issues that were of paramount concern a year ago have since been "resolved"--only to give rise to new dynamics, which in tum have created, within the overall world economic order, a different configuration of stresses and imbalances. It is almost like the slow, gradual rotation of a giant global kaleidoscope .

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Let me cite two of the most obvious examples. First, the realignment in the world's major currencies-specifically, the decline in the value of the dollar­following the 1985 Plaza accord was hailed last year as an important spur to export-led expansion within the U.S. economy, and hence toward broadly based world economic growth. While this hope has been partially vindicated, the impact of currency realignment has certainly been far less salubrious than anticipated. More relevant, however-because the extent of the dollar's fall could not be foreseen-what was not contemplated was the "indirect" negative impact this was to have on many developing countries, such as my own. The unintended effect has been a dramatic plunge in our export earnings-which are pegged largely to the falling dollar-and a corresponding surge in debt obligations in non-dollar­denominated currencies.

The other obvious example, of course. is the cataclysmic change in energy pricing. I need hardly dwell on the evident short-term benefits accruing to the oil importing nations-largely the industrial countries-nor the serious economic strains this places on the oil exporters. What is more important to us at these meetings is the disruptive and uncertain impact this unforeseen development is having on overall economic stability and on the orderly policy planning of our members.

Currency and energy pricing shifts represent the unforeseen elements in global trends during the past year. But what about the concern we already knew about­the problems that dominated discussion and cried out for remedial action during our last round of meetings in Seoul, Republic of Korea, and in previous years?

In some cases the news is good. We can observe with some considerable satis­faction, for example, that two long-standing and apparently intractable prob­lems-inflation and high interest rates-hardly figure on this year's agenda. Through the combined impact of decisive policy shfits by pace-setting economies, together with responsible economic management across a broad range of indi­vidual national economies, these two ills are no longer dangerously clogging the arteries of economic growth in most-if not all--of our members' individual national economies.

Unfortunately, in the case of other perennial problems, we have been less successful in making progress. World trade remains depressed; problems of debtor nations, if anything, have become worse; commodity prices have deteriorated further; and currency alignments-in addition to the dimensions that I cited a moment ago--remain a major destabilizing force in the future direction of world­wide economic development. Most acutely, these prevailing forces have taken their greatest toll during the past year on the world's developing nations, including my own. In aggregate, the decline in the overall rate of growth of industrial economies, the slowdown in the expansion of world trade, the persistence of protectionism, and the continuing slump in commodity prices have had the harmful effect of largely smothering any hoped-for improvements in growth and development among the majority of countries in the developing world.

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Worse, in the countries where it has been most acutely felt, this reduced growth has also brought about serious overall financial deterioration. Loss of liquidity, drains on foreign reserves, crises in debt-servicing capacity, and severe budgetary restraints have swelled the ranks at the economic infirmary, ranging from nations suffering from mere anemia to those with life-threatening economic illnesses.

Every year at this important round of meetings, we have the opportunity to make progress on three critical fronts. On the national level, we can help to instill an awareness of enlightened policies and practices within the internal economies of every member nation. On the bilateral level, we can encourage the pursuit of constructive synergistic actions brought about through increased cooperation and joint efforts. And on the multilateral level, we can endow our two leading organi­zations-the Fund and the Bank-with a mandate to pursue specific surveillance.

With an eye to the economic landscape of 1986, let us look briefly at each of these levels to see where we go from here.

At the national level, most policies and priorities cannot be generalized, but there are several key exceptions. We are all generally in agreement that certain principles of policy management apply to countries across the board at the present time. It is probably sufficient to cite three. First is the need for continued prudent fiscal and monetary management-balancing the importance of stimulating growth against the burdens of excessive indebtedness. Second is the need for sustained improvements in economic efficiency, administrative reform, and all other measures necessary to achieve comparative levels of competitiveness. Third is openness to trade and international cooperation--or, put another way, the rejection of protectionism.

If we move beyond generalities to examine specific nations, we can identify policies in a more explicit and focused manner. In fact, each of our member countries has a clear list of priorities and remedial measures that it should be pursuing to maximize effectiveness and bolster its economic strength. My own country, for example, has a number of unequivocal priorities that we must pursue in order to improve our economic performance.

In regard to bilateral priorities, there are again myriad policy adjustments that are needed to enhance economic development on a sectoral and regional basis throughout the world. In this area, I will restrict my comments to two key issues. These are, first, currency fluctuations and, second, financial flows from industrial to developing countries.

In the case of world currency alignments, there is little doubt that we are presently poised at the brink of major structural changes. Already, the "floating rate" system has been altered by the Plaza accord to which I alluded earlier. This in itself is good news in view of the tremendous hardships and uncertainties experi­enced by many member countries during the past several years of debilitating currency fluctuations.

The next moves are far from clear. A number of constructive-and hotly contested-possible scenarios are currently under review. What is clear is that the future system of world currency valuation is now a matter of bilateral concern. An

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early settlement of this matter among the members of the Group of Seven-in con­sultation with all other appropriate bilateral and multilateral parties-is a matter of utmost importance.

On the second issue, the matter of financial flows from industrial to developing countries, important first steps have also been set in motion. I am referring to such proposals as the plan by U.S. Treasury Secretary Baker-announced at our meeting one year ago--and more recently to an even more ambitious funding proposal advanced during the past summer by U. S. Senator Bradley at an indepen­dent monetary conference in Zurich.

In addressing this issue, what is of paramount importance is that the flow of funds from the industrial to the developing world-through whatever means-be increased. Flows are especially needed in the form of direct foreign investment in developing countries, and, in the case of debtor nations, through increased access to loans. It has been stated before, by those more eloquent than I, "that the issue here is not the "bailing out" of the world's poorer nations-but rather the sustained health and vigor of the entire world economic order.

Finally. we come now to the issues of a multilateral dimension-specifically, to the role played by the two organizations on whose behalf we are all gathered here in Washington for these important meetings. I remain convinced that. in all our efforts, both at the national and bilateral levels, the Fund and the Bank are best equipped to serve as the primary catalysts and orchestrators of all we undertake. In this spirit, let me comment briefly on two broad areas affecting the future perform­ance of these two institutions: first. on the resources they have at their disposal and, second, on the role they have to play through the policies they pursue at this juncture in world affairs.

On the matter of resources, it is my view that if the Fund and the Bank are to be able to carry out their central role in providing member countries with needed financial and technical assistance, they cannot be effective if constrained either through inadequate resources or diminished authority. In this regard, I am pleased with the consensus we have reached on the need for substantial expansion of the Bank's lending program. Furthermore, the integrity and the present character of IDA must be maintained unimpaired.

However, we must recognize that this expanded operation will soon be con­strained by the capital presently available to the Bank. Therefore. I would urge that an acceleration of the process leading to the ninth general capital increase is now becoming urgent. The fulfillment of the IDA-VIII replenishment of $12 billion, as well as the settlement of the outstanding issues relating to the next IDA replenish­ment, is also essential if we wish to ensure the continued effectiveness of this institution.

Effectiveness. of course, can only be achieved through appropriate allocation of those resources and through judicious application of policy. In this regard. I have three comments to make, bearing in mind today's economic landscape and the needs of our member countries in 1986 and beyond.

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First, programs that impose extreme fiscal and monetary austerity on member nations are no longer valid as the sole criterion for access to funds. So great is the current economic strangulation confronting many member countries that the Bank must be prepared to consider economic stimulus as an equally valid-and essen­tial-criterion for determining loan eligibility. There is no doubt that the dra­conian approach imposed during the past several years has been helpful in ridding certain countries of unhealthy policy practices-but, not unlike radiation therapy, it cannot be continued forever.

Second, as the Bank continues to broaden its mandate beyond its traditional focus on project loans and moves increasingly into the realm of longer-term "policy" lending, the issue of so-called conditionality must not be used as a blunt instrument. Whatever adjustment efforts are stipulated under new lending agree­ments must be imposed with acute sensitivity to, as well as a realistic assessment of, the member country's social and political tolerance for assimilating mandated changes.

Third, in view of the financial constraints currently facing many of the develop­ing member countries, it is time for the Bank to revise its rule regarding" matching funds" from member countries. Specifically, lending policies must be adjusted to relax the formula with respect to local cost financing and foreign currency loans. In many cases, loans conditional upon matching funds are, to all intents and pur­poses, useless, in that the member country simply cannot afford to take them up. In fact, even at the favorable interest rates provided by the Bank for many member countries, any increase in foreign currency debt represents an insupportable burden at the present time.

Fellow Governors, ladies, and gentlemen, we are not the sole players on the stage of world economic growth and prosperity. Many of the men and women who generate the wealth of our nations are entrepreneurs and industrialists who scoff at the very regulations and controls that serve as our mechanisms for action. Such is the vast complexity of the world's economy-that constant ongoing explosion.

Yet, it is the smooth and orderly functioning of that economic system, and the equitable distribution of the world's resources, in which all nations have the right to share, that is uniquely in our hands. Within both the International Monetary Fund and the World Bank, let us always uphold these principles-and let us never lose sight of the responsibility we all share for the consequences of our actions.

May I conclude by heralding the arrival of two new member nations within the family of the Fund and the Bank-Poland and Kiribati. Allow me also to echo the sentiments expressed by my fellow Governors in welcoming the new leadership provided to the Bank under Mr. Conable. On the other hand, we heard with regret of Mr. de Larosiere' s decision to step down before the end of his second term and would like to place on record our deep appreciation for the great contribution by Mr. de Larosiere during his tenure with the Fund.

Before concluding, we would like to thank the Government and the people of the United States for their warm welcome and hospitality.

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ISLAMIC REPUBLIC OF IRAN: MOHAMMAD JAVAD VAHAJI Governor of the Fund

IN THE NAME OF ALLAH If the people of the towns had but believed and feared God, We should indeed

have opened out to them [all kinds of] blessings from heaven and earth; but they rejected [the truth], and We brought them to book for their misdeeds.

(Holy Quran, VII: 96)

I am deeply honored to address this distinguished gathering. I also wish to join the other speakers to express our appreciation of the efforts by Mr. de Larosiere in his position as Managing Director of the Fund and wish him success in his future career. Let me also take this opportunity to welcome the two new members of the International Monetary Fund and the World Bank.

Since our gathering in Seoul, we have witnessed a marked slowdown in the economic performance of nearly all countries contrary to the pervasive expecta­tions. In the case of developing countries, mainly as a result of a sharp decline in their export earnings, the growth rates are expected to decline to levels which will, surely, not be sufficient to preclude their already low standard of living from dropping even further. What we see is another prelude to a new round of protracted low growth rates, liquidity shortages, mounting balance of payments deficits, and crippling accumulation of foreign debts.

In my country, we have also been affected by these unfortunate developments but we have tried hard to mitigate their inimical impact. Therefore, in spite of the fall in oil prices and the sharp reduction in the volume of our oil exports, our external current account during the last Iranian calendar year (ended March 20, 1986) showed a surplus of more than $1.5 billion. This favorable balance was achieved through pursuing strong adjustment policies despite the hardships that they have entailed. In our economic policies, the main emphasis throughout has been on careful management of the country's foreign exchange resources on the basis of changing the pattern of consumption toward encouraging frugality, and discouraging the consumption of lUxury and nonessential commodities. More­over, despite the fact that the imposed war and its inevitable burden on our foreign exchange reserves has entered into its seventh year, we have managed to meet our import needs without recourse to foreign borrowing. While our Government does not have any intention to change this policy as far as official borrowing by the Government is concerned, we shall continue honoring all the repayment obliga­tions made by individual Iranian entities in their cash and also credit purchases from abroad.

The effective management of our reserves has been made possible with recourse to the mechanism of foreign exchange allocation as it is embodied in the parlia­ment-approved foreign exchange budget. Every year during the last three years, a

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foreign exchange budget is submitted alongside the conventional rial budget, to the Parliament for approval. This budget sets an overall ceiling for the total foreign exchange expenditures of the country. Within the framework of that budget, the "Foreign Exchange Allocation Committee" comprising responsible authorities then decides about the allocation of foreign exchange for current and development needs of each sector and subsector. Through the same mechanism, the foreign exchange cash flow of the country is closely watched and monitored in order to ensure not only the most efficient use of foreign exchange reserves of the country, but also to curtail the overall foreign exchange spending while providing for the essential needs of the economy. We continue to follow these policies to make sure that we would not face any problem in meeting all and every foreign exchange payment commitment made by our country.

On the other hand, a profound effort is under way in Iran by both private and public sectors to shift the production pattern away from industries with high foreign exchange dependency. This task had not been made easier by what was once, before our Islamic revolution, an import-substitution policy aimed at sup­posedly an economy with less foreign dependency. That policy had actually led to the establishment of industries producing nonessential products with meager, domestic added value unable to survive the slightest interruption in a huge flow of imports. There is a crusade under way not only to dismantle this wasteful machinery but to create a new industrial base capable of developing a sectorally balanced growth for our economy aimed at less reliance on foreign supply for our basic needs and led by expansion of non-oil exports. This year alone we expect a rise in our non-oil exports of about 80 percent. This undeniably started from a small base, but all the necessary incentives and policy guidelines have been provided for our exporters to ensure the continuation of this rapid growth. In agriculture. which has achieved a position of prominence and priority in our new economic blueprint, serious steps are being taken aimed at eventual food self­sufficiency. The agricultural sector, through the supply of exportable food items, is actively participating in our new export expansion drive.

The Government of Iran looks at the recent developments in our economy as a blessing in disguise. It is true that owing to foreign exchange restrictions, we have had to postpone a number of our development projects with consequences for the overall rate of growth of output, but our expectation is that the economy as a whole will be moving on a healthier path. The future, as we envisage it in light of the recent continued and persistent efforts by our productive sectors, will undoubtedly be the one in which our society has freed itself from the boundaries of a mono­culture economy. The potential of our country for such overhaul is aplenty and the determination, manifested in our Government's "New Economic Program," is there to engage all our human and natural resources in all out effort to achieve this goal.

The Islamic Republic of Iran is now in its third year of Islamic banking operation inside the country, conforming to the principles of the Islamic Sharia. In fact. instead of embarking on a piecemeal and gradual approach to the Islamization

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of banking procedures, a process that could well have compromised some of the most basic injunctions of Islamic banking, we decided to change our domestic financial operations in conformity with Islam, in one single comprehensive and all-embracing step.

I am now happy to announce that the favorable results achieved after two and a half years of operation have greatly surpassed our earlier expectations. Our depositors have responded enthusiastically to the new interest-free financial sys­tem. Total private sector deposits that had grown by 5.7 percent during the year ended March 20, 1985, which was the first full year of the operation of the new system, rose by a further 15.3 percent in the second year, which ended on March 20, 1986. All signs at present point to a further considerable rise in the third year.

New banking facilities and credits granted to the private sector, which amounted to Rls 671 billion at the end of the first year of interest-free banking operations, rose to two-and-a-half times this amount, after the second year, as investors became more familiar with the new banking techniques. These results point not only to the feasibility and desirability of the new system, but also to its acceptance by both depositors and investors.

Along with the operation of Islamic banking in our country, the training of bank personnel has continued through the use of seminars and on-the-job programs; so far more than 70 percent of eligible bank personnel have received intensive training in the implementation of the new banking techniques.

At the international level , we at the Central Bank, organized for the first time an international Islamic banking seminar in Tehran, in June 1986, during which we presented our progress report and our experiences to international experts and invited their comments. This seminar was very useful, as we were able to share our experience with other countries and gain insight into areas that needed further elaboration and clarification.

Our Islamic beliefs coupled with our recent experience indicate that in addition to being practical and adaptable, Islamic banking allows monetary policy to accommodate the real economic development needs of the country. We believe that Islamic banking, with the elimination of the concept of a predetermined fixed and guaranteed return to capital funds and with due emphasis on the performance of the real sectors of the economy, is better equipped than the interest-based system to ensure economic growth and stability. Fortunately, various research, scientific, and theoretical deliberations expounded in the many international seminars and conferences on the subject point to similar conclusions.

I take this opportunity to thank the International Monetary Fund for organizing a seminar on Islamic banking which was held in July 1986. This was the first seminar of its kind in the Fund, and we urge the fund to continue its research efforts on other aspects of Islamic economics and finance. We also invite other interna­tional financial and development institutions to follow suit and explore and various aspects of Islamic economics more akin to their lines of activity. Paying due attention to a new system that is of great interest to many Islamic nations comprising more than one billion people and almost one third of the membership

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of international financial and development institutions, is the least that can be expected of these institutions. We hope that in the endeavor to find appropriate solutions to the complex economic problems of our time, a new outlook toward far-reaching and fundamental frontiers would be formed that would bring the divine concepts closer to access.

The outcome for developing countries of the recent sharp fall in the oil prices, apart from some very short-term and limited gains, is that developing countries as a group will lose as we always lose when the price of any other primary commodity falls. It should be noted that less than one fourth of developing countries' exports of oil is to each other and the rest is to the industrial countries. Among the developing countries, while the 24 net oil exporters' loss this year as a result of the price decline approaches $70 billion, the more than 100 net importers will have a meager gain of less than $20 billion. Even this small reduction in their import bill will, according to all predictions, be wiped out as a result of increased payments for their high-cost imports from industrial countries and servicing their huge foreign debts. This is why the combined current account deficit of developing countries this year is expected to jump by an almost unprecedented percentage to the level of $66 billion with huge increases in the deficits of nearly all subgroups in the category of developing countries. Never before, even when the price of oil had increased, have we witnessed such a colossal increase of almost 200 percent in developing countries' current account deficit. So the cause of the problem should be looked for elsewhere and mostly, and above all, in the developing countries' ill­conceived dependency on economic policies and developments of major industrial countries.

It is a fact that the existing rigidities in the economy of the developing countries and their external dependency make them pay even when the prices of their exportable commodities rise. This is evident from historical calculation of the real value of exportable primary commodities deflated by the index of prices of imports from industrial countries. This, together with the resultant uncertainties, makes any sharp fluctuation of commodity prices undesirable for all of us. It is more so when it comes to a strategically important commodity like oil which is a major variable in the world economy.

Therefore, in our view, the recent unjustified decline in the oil prices will, through creation of a totally distorted price structure, lead to even more violent price changes with harmful impact on the development of the world economy, and especially the economy of more vulnerable countries among us. The decline of oil prices will also have a severe negative impact on developing countries' ability to develop their own sources of energy. This, in the longer run, will undoubtedly make them more dependent on foreign energy supplies and, as it is the case of the majority of resource-poor countries, they will certainly become a helpless client for technologies exported by the rich countries with undeniably dire political consequences.

The persistent decline in the prices of the major commodities, amounting to an average of 8 percent during the last.five years, was not the only factor which has

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contributed to the harrowing deterioration of the external position of developing countries. The picture has been made even worse as a result of the gyrations in the exchange rates which helped to push up the unit value of manufactured goods exported by industrial countries, and this in the face of declining prices of commodities, led to further deterioration of the terms of trade of developing countries. Never in the last 20 years have we witnessed worsening of developing countries' terms of trade of a magnitude we are expecting this year. It is therefore evident that the developments in the foreign exchange markets during the last five years have turned these markets into a monstrous engine of universal financial instability.

The explosive increase in the volume of daily transactions in these markets has taken place at a time of relative stagnation in the volume of world trade. This, together with a huge share of interbank transactions, clearly reveals the fundamen­tally speculative nature of foreign exchange transactions with a dissolutely inim­ical impact on the external position of developing countries. This is a direct product of the existing international monetary system under which no effective counter-speculative mechanism is available to the monetary authorities of the countries. And what was started on September 22 of last year and was heralded as a concerted effort to limit these speculative activities is an exclusive club of major industrial countries formed in the most undemocratic manner basically to safe­guard the interest of its powerful members.

On the other hand, the existing international monetary arrangements, contrary to the premises of a floating exchange rate regime, obligate the rest of the countries in the world to align their financial position with the level of interest rates in one major country at the cost of mounting unemployment and stagnation. The system also allows the largest member of the club to continue financing its huge current account deficit in its own currency-a privileged position enjoyed partially by only a handful of other major countries.

In the face of such deficiencies, we are yet to design a monetary system under which such disparities cease to exist, and at least the process of liquidity creation would not depend on the domestic policies of a few industrial countries. Unfortu­nately, even absolutely meager measures in this regard, such as allocation of a modest amount of SDRs, have met with severe and irrational resistance of the industrial countries that are benefiting from the present highly unequitable mone­tary system.

The assessments made by the Fund and other international organizations point to disappointing economic performance of industrial countries and severe worsen­ing of developing countries' situation during the first six months of this year, and contrary to some optimistic predictions, there is no strong evidence to expect any improvement in the months ahead. Even if we witness a mild recovery for industrial countries, it is hardly imaginable that in the face of existing rigidities and the protective walls erected around the major markets, the developing countries could have the opportunity to benefit from such an economic turnaround. There­fore, what is needed is adoption of some quick measures to alleviate the short- and

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medium-term problems of developing countries through support programs for compensation of fluctuations in commodity prices, establishment of unconditional facilities to lessen the burden of their external deficit, and cooperation by surplus countries for more access to their markets for exports of developing countries. Without these minimal measures, we shall definitely be witnessing more suffering in the oppressed areas of the world conducive to a gloomy future in which the very dignity of human societies will be in danger.

IRELAND: JOHN BRUTON Governor of the Fund and Bank

All of us have our own concerns in our own countries. Let us get them into proportion by looking at the World Bank's World Development Report presented to us recently. The report draws attention to the justifiable concern about the malnutrition which still remains in many parts of the world. The scale of the problem is evident from recent World Bank estimates which put the number suffering from chronic malnutrition in developing countries somewhere between 340 million and 730 million people. This situation is due more to poverty and the uneven distribution of income rather than to an inherent incapacity to produce sufficient food to feed all the people in the world. Policies to redress this situation are and must remain the focus of the Bank's activities. The message in the report that, in the long run, people can obtain food security only if they have adequate incomes highlights the overriding need for appropriate development policies. Only through such policies can we ensure access by all people to enough food at all times for an active and healthy life.

The report highlights the role of agriculture in the world economy. One of the major themes in the report is the extraordinary contradiction that developing countries, which have inadequate food supplies and are heavily dependent on agriculture, have tended to adopt policies which are biased against agricultural development, while industrial countries have done the opposite.

In many countries, and not only the developing ones, there are very close links between policies to promote general economic development and policies to improve the well-being of people earning their living from the land. Trade, exchange rate, fiscal, and monetary policies have an impact on agriculture which often entirely overshadows sector-specific policies. These more general macro­economic policies are often the principal source of bias against growth of real incomes in rural areas.

In the past few years indebted countries have experienced exactly the same problems as indebted businessmen and farmers in the private sector. When people ask how the public debts have piled up, the easiest illustration is the comparison with private sector business.

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Take the example of the farm sector. Three causes have been identified for the problems farmers in the developed world face today in servicing these debts:

-erroneous expectations in the I 970s that burgeoning exports would continue, leading to mistaken overborrowing;

-an inflationary psychology wherein farmers invested in assets for their own sake without due regard to long-run value or return;

-in 1979-81, an abrupt change in conditions, including a contraction of world trade and a demand for credit that outpaced supply, which led to a simul­taneous drop in earnings and an increase in interest rates.

Many nations are themselves in a similar position. Things would be completely different, however, if the apparently benign conditions of the late 1970s had continued. They did not continue and are unlikely to return. An understanding of how the problems arose, of how national policymakers, like businessmen and farmers, made what appeared to be reasonable decisions in the late 1970s but which now appear so unreasonable, is necessary in order to avoid a repetition of such errors.

The IMF's World Economic Outlook gives grounds for sober reflection on the magnitude of the global economic problems facing us today. While there may be some disagreement on the assessment of the short-term prospects, one would not wish to challenge it~ main conclusions: we are not yet on a path which will lead to satisfactory progress on the major problems confronting us-unemployment, the persistence of major imbalances, the plight of the developing debtor countries, and insufficient growth in world trade.

Current account imbalances also endanger progress and stability. It is only by reducing these imbalances in the context of continuing economic growth that we can give hope to the unemployed and to those developing countries overburdened with debt.

There are no easy solutions. However, it is clear that the policies adopted to date need reinforcing. In particular, failure to take account of the international implica­tions of policies will lead to overreliance on exchange rate adjustments and will encourage protectionist pressures. This will not only worsen the medium-term prospects but will also threaten the progress which we have already made in the past few years. We, therefore, strongly support moves to strengthen international policy coordination as a means of maintaining and accelerating the growth of the world economy and avoiding excessive fluctuations and, possibly, recession.

The challenge is to maintain a balanced and buoyant growth in world trade while reducing the international imbalances. If this twin action does not suceed, the plight of the developing countries will become more acute. You will recall that this was the main theme of the recent UNCTAD Trade and Development Report. The developing countries have not only seen growth in their export markets weaken, but have also suffered severe export price reductions. It is not realistic to expect these countries to rely solely on increased efficiency and adjustments to their domestic policies-usually entailing reductions in their already very low standards of living-to provide for their rapidly growing popUlations. Equally, the

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modest growth in industrial countries does not offer the prospect of a recovery in commodity prices. The industrial countries must be willing to translate some of their real terms of trade gains into positive opportunities for the developing countries. The single most important way of doing this is to ensure the continuance of the open trading system and the expansion of demand in our economies to the maximum sustainable extent.

Other countries, especially those in the process of fiscal adjustment, also need a higher growth of world trade than is now envisaged to support their adjustment efforts. My own country exemplifies this situation. With external trade equivalent to almost 140 percent of GNP we rely heavily on export-led growth and hence on growth in world trade. Domestic demand cannot provide the necessary stimulus, given the scale of the fiscal adjustment now being implemented and the high level of unemployment.

Sustained growth must have for its basis a continuous rise in investment. Such investment would be facilitated by a climate which includes lower interest rates than those prevailing currently. The high level of interest rates weakens growth of output in many industrial countries and affects the prospects for world trade.

Progress has been made in the coordination of policies in recent times. This is evident from the Plaza agreement and subsequent interest rate and exchange rate developments, as well as the Tokyo economic summit. Coordination and interna­tional surveillance require reliable and acceptable indicators of performance. The efforts of the Fund to improve the analysis of international disequilibria using relevant indicators are welcome. In reaching agreement on the indicators to be adopted, it is essential that due prominence be given to unemployment.

There has been some progress on the international debt situation over the past year. The size of the problem is such that it can only be solved gradually over a period of years. I would like to compliment both the Fund and the Bank on the positive role they are playing. In particular, the increased cooperation between the two organizations is welcome. It gives confidence that an integrated and compre­hensive approach will be developed to both the short-term and long-term adjust­ment needs of the debtor countries. The emphasis must be on growth-oriented adjustment policies. The substantial increase last year in the Bank's new loan commitments to the heavily indebted countries to support structural and sectoral reforms augurs well for the future. It is to be hoped that this will encourage the commercial banks to play an increased role in the debt strategy. . . .

. . . I would like to take this opportunity to express my regret that Mr. de Laro­siere is leaving the IMF in the near future. He has played a crucial role in his time at the Fund. He has been a figure who had the confidence of the developed countries and the trust of the less developed. He has not allowed his understandable preoccupations with the major international monetary issues of the past decade to obscure his concern with the problems of the smaller countries, and it can truly be said that he has left the Fund a stronger institution than he found it.

I would also like to welcome Mr. Barber Conable, the Bank's new President. He assumes his responsibilities at a very important time in the Bank's develop-

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ment, and I wish him every success in the challenging task ahead. The role which the World Bank has to play in reviving economic growth in developing countries is a key one. It is essential that the Bank's efforts should not be constrained by lack of resources. Ireland, therefore, supports a general capital increase which would enable the Bank to maintain and improve on the impetus which has already been generated. We look forward to early agreement on this issue.

I would also like to put on record Ireland's continued support for the activities of the International Development Association. IDA's concentration on the needs of the poorest developing countries, and especially those in Sub-Saharan Africa, is very similar to the emphasis of our own bilateral aDA program. We look forward to early completion of negotiations on the Eighth Replenishment. The level of resources provided to IDA should be commensurate with the likely needs of the recipient countries in the years ahead.

A significant feature is the increasing emphasis on the promotion of direct investment flows to developing countries. The International Finance Corporation continues to be innovative in this area. The Multilateral Investment Guarantee Agency will also have a key role to play. Ireland has recently joined the growing list of countries which have signed the MIGA Convention and we hope to see the agency become operational at an early date.

ISRAEL: MICHAEL BRUNO Governor of the Bank

It is an honor and privilege to address this distinguished gathering on behalf of the State of Israel.

The early 1970s constituted a watershed in the development of the world economy and in the macroeconomic performance of most individual economies. The collapse of the Bretton Woods international monetary system in 1971 proba­bly marked more than anything else the onset of a period of turmoil in the world economy. The sharp oil and other commodity price increases of 1973 and 1979 induced stagflation in the industrial countries and recession in many developing ones. In the early 1980s sharp rises in real interest rates shocked many Third World borrowers into a similar mix of inflation and unemployment problems of an unprecedented magnitude.

The most recent gyrations in world exchange rates, closely related to the fiscal and monetary stance of the United States and other major industrial countries, are compounded by the debt overhang afflicting much of the industrializing Third World and aggravated by the sharp drop in oil and commodity prices. All of these emphasize the failure of the international monetary system to produce an alter­native monetary, trade, and payments regime simulating the seeming tranquility which the Bretton Woods Agreement managed to instill into it for a quarter of a century.

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At the onset of the second half of the 1980s, Europe and many Third World countries are reeling under heavy unemployment, which is giving rise to sharp protectionist trends and serving as an expedient but sad answer to the unsolved world trade and payments questions. Yet, some progress has been made, and there is reason for guarded optimism. World inflation, at least, is back to where it was before the period of turmoil started. Growth and employment have yet to follow.

The study of world developments over this period has taught us the paramount importance of policy coordination among the major industrial countries, and the need for continuing dialogue on many levels between North and South. We have also witnessed the increasingly important role that the great institutions that were founded at Bretton Woods some forty years ago and assembled here today can indeed play in the reshaping of the world economy. I can only offer full moral support on behalf of my small country for these great efforts.

Barred from the ability to exercise influence over the turbulent world environ­ment, small, open economies must learn to adjust to these external shocks in the best possible way. Each country must strive to learn from its own past mistakes, and there is also an important element of sharing of similar past experiences, of both success and failure of macroeconomic adjustment, that our countries can freely exchange with each other. Keeping our own house in order is one contribu­tion that each one of us can make to the restructuring of the world economy.

For my own country, like for many others, the 1970s marked a very sharp switch from a period of rapid growth (close to 10 percent per annum), full employment, and relative tranquility on the inflation and balance of payments fronts, to one of stagnation and protracted internal and external imbalance. Government budget deficits, quickly rising to the order of 12-15 percent of GNP, became the major factor contributing to the subsequent failure of the economy to adjust to the external shocks of the 1970s. As a result, Israel, an otherwise high savings and industrial export-led economy, had to resort to continuing outside help and a sharp cut in investments as a means of overcoming its balance of payments problems. Moreover, monetary accommodation, as applied in the past, taking the form of nearly automatic adjustment of money and credit, exchange rates, and wages to price level shocks, helps to explain Israel's step-wise acceleration of inflation from around 10 percent a year at the onset of the 1970s to some 400-500 percent by 1984-85.

It is important to stress that Israel's failure for more than a decade to extricate its economy from inflation, low growth, and intermittent balance of payments diffi­culties, has a lot to do with the partial and single-target nature of macro-policies that were adopted by various governments. To improve the balance of payments deficits, subsidies were being cut and devaluations decreed, leading in turn to a sharp acceleration of inflation and a further erosion of government tax revenues. On other occasions, partial attempts to decelerate inflation by slowing down the rate of devaluation or by temporary wage restraint, without accompanying mone­tary and fiscal discipline, led to the renewal of balance of payments problems. It is the lessons of these failed partial attempts and the general deterioration of both

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inflation and the state of foreign exchange reserves that paved the way for the comprehensive approach on which our recent stabilization program and economic reform were based.

The new approach marking Israel's July 1985 program differed from previous attempts in two major respects. The program was comprehensive in that it attacked both the inflation and balance of payments targets simultaneously. Second, it took explicit account of the need to reduce inflation alongside all other related nominal aggregates (wages, exchange rates, and bank credit) in a synchronized manner, all at once, and not in a gradual manner. It was for this reason that not only a conventional devaluation but also sharp fiscal and monetary restraint were intro­duced. An important part of the program consisted of an explicit tripartite stabilization bargain that was negotiated and signed by the trade unions, the employers' association, and the Government. It included a temporary suspension of wage indexation (over and above an agreed fixed initial and subsequent compensation), a price freeze, and a declaration of intent on the stabilization of the exchange rate. A corresponding nominal bank credit target was also introduced, and indexed demand deposits were abolished. In this way, the program established an immediate new nominal anchor (or rather, a set of consistent anchors) to the reformed monetary system. Under the declaration of intent on the exchange rate, which has recently been publicly reiterated, the exchange rate is kept stable (first to the dollar and since August 1986 against a basket of currencies) provided that the trade unions restrain wages. General price controls have in the meantime been lifted to a large extent.

The results have so far been quite satisfactory. The government budget deficit has been eliminated, the monthly inflation rate is down from 15 percent to about 1-1.5 percent, and the balance of payments in 1985 and probably also in 1986 is in a surplus. (Temporary aid and the unanticipated drop in oil and commodity prices have, of course, greatly helped.) This, plus the public support for the program and its continued credibility, virtually eliminated unofficial exchange markets by bringing the exchange rate premium to an all-time low. At the same time, the program's cost in terms of unemployment, which rose by less than 2 percentage points, has been minimal. Stability, however, is still vulnerable, depending on continued wage restraint and a balanced budget, none of which is guaranteed.

However, the true test of a reform program like this is its ability to move the economy into a phase of growth while maintaining relative price and balance of payments stability. This. hardest of all, is still far from having been attempted. While recent export performance has improved, domestic private consumption demand is rising too rapidly and investments are still depressed. Also high real estate rates, the affliction of all stabilization efforts. are yet to come down more as the government is gradually relaxing its stifling grip on the capital market. Continued budget balance may for the first time enable the gradual introduction of a far-reaching capital market reform. Still the hardest problem of all is bringing about a coordinated tax-cum-public-expenditure cut, a prerequisite for a structural

III

change that is necessary if the economy is to reach at least half of its pre-1970s growth performance.

Going through the exacting experience of adjustment, we have learned two important lessons that I would like to share with my distinguished colleagues at this important assembly. One is the paramount importance of assuring social consensus for the stabilization efforts so as to avoid the pitfalls of undesirable distributional consequences. There is hardly any other way of attaining rapid and yet sustained stabilization in a democratic society. The other lesson goes back to the overriding importance of availability of external support to countries embark­ing on the process of adjustment. Such support can come only from industrial countries and from the major international institutions gathered here this week.

Before concluding, please allow me, ladies and gentlemen, to congratulate Mr. Conable on his assuming the challenging position in steering the world development effort and highly salute Mr. de Larosiere for the ability and style with which he led for almost a decade the international monetary system during its most difficult times.

ITALY: GIOVANNI GORIA Governor of the Fund

We should like first of all to extend our warmest greetings to Poland on its reaccession to membership and also to the youngest of the newly formed nations, Kiribati.

The World Bank has a new President, in the person of a distinguished official who possesses great political experience and remarkable negotiating ability. We wish to assure him of our firm support in the performance of his demanding task and to offer him our very best wishes for success in his new work.

These arrivals coincide with the departure of the Chairman of the Development Committee, Mr. Ishaq Khan, from whose wisdom we have all benefited, and in particular of the Managing Director of the International Monetary Fund.

The contribution made by Mr. de Larosiere in an international monetary situa­tion over which debt problems have cast sometimes threatening clouds has earned him a permanent place in the history ofthe International Monetary Fund, which he has directed with so much competence and wisdom and with such a sure touch. We extend to him our sincere thanks, together with our heartfelt good wishes for his future success.

The International Economy

Despite the decline in the prices of oil and raw materials and the successes achieved in the fight against inflation, economic developments in the first few

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months of the current year have been disappointing in relation to the general improvement of the world economy that was expected.

Nevertheless, we share the more optimistic view of recent studies, which hold out hopes of more sustained growth in the end of the current year and in 1987.

Still, the general climate is worrisome in several respects. First, external account disequilibria are still pushing both the external debt of

the United States and that of the developing countries toward an intolerable position. In this connection there do not appear to be sufficient grounds to expect substantial changes in the short term: the underlying deficit of the United States' current account still exceeds $100 billion, and for the developing countries the terms of trade have deteriorated considerably.

Moreover, we must bear in mind the way in which the world economy has reacted to the fall in international prices. The contraction of domestic demand in countries that show a deficit or for which the terms of trade have deteriorated has been much more rapid than the expansion of domestic demand in countries that are in an opposite situation.

In view of the present phase of the economic cycle and the medium-term prospects, it seems unrealistic to us to believe that a fundamental improvement in the international economic situation will be sufficient to expand world demand. Rather, the best possible use should be made of the interaction of major countries' economic policies so as to bring about a more rapid reaction to the stimuli already given.

In particular, we feel that the United States should take full advantage of the leeway it has available to restore equilibrium in the federal budget, so as to facilitate the adjustment of its external accounts.

It would be desirable, however, for the restoration of U.S. budgetaryequi­librium to be counterbalanced by more dynamic policies in other countries. I am thinking not only of the possible contribution of countries which have already largely balanced their budgets, but also of a substantial effort by all industrial countries.

The offsetting action, which is essential to reduce the still-high unemployment rates, should also involve monetary policy. To be sure, it is illusory and dangerous to believe that interest rates can be lowered much further, but we do feel that care should be taken not to apply an overly stringent monetary policy which could hinder the reduction of real rates.

Inability to resolve these problems might well translate into abrupt adjustment measures; I am thinking in particular of the exchange policy conducted thus far by the United States, which, if it were to persist, would have considerable and hardly tolerable consequences for the relationships among major currencies.

Moreover, if no solution is found for the problems of the international trade and payments system, trade difficulties and the dangers of protectionist pressures, in the United States in particular, might well intensify.

While at the recent GAIT meeting in Punta del Este the participants arrived­with difficulty-at an understanding on certain points, basically in the areas of

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policy and procedure, one should not conclude that the differences in views on the major topics of the negotiations have been overcome. Should the negotiations bog down, the resulting impasse would leave a clear field to the champions of protectionism, and consequently to an increase in recessionary forces.

We must resist the temptation to use unilateral shortcuts; they procure a brief respite, but also provoke a chain reaction of retaliatory measures.

Low growth rates and protectionism would have particularly tragic effects on the economies of the indebted developing countries. Although interest rates are declining and some developing countries have benefited from the decrease in oil prices, developments in the current year and the prospects for 1987 add up to a very critical situation.

Only a high level of growth in the OECD countries, accompanied by a greater openness to exports from the developing countries and by continuation of the present adjustmenUfinancing process, will make it possible to change this reality to any substantial extent. Moreover, the debt situation has taken a different turn for different groups of countries, and this phenomenon calls for action adapted to the specific requirements of those countries. There is no valid alternative to a strategy that bases economic rehabilitation on both financial efforts and structural reforms.

The recent financial negotiations between Mexico and the International Mone­tary Fund have demonstrated, however, the need also to take account of the difficulties caused by the fall in oil prices. It appears necessary, therefore, to update the framework for action presented at last year's Meetings, so as to take account of this new reality and of the additional difficulties of countries to which the Baker Plan did not originall y refer. We are obliged to note in particular that one year later, the financial commitment of the international banking system has proved to be insufficient and below the initial forecasts.

Failing closer coordination of the major countries' economic policies, it would appear, unfortunately, that the concerns we expressed at the Interim Committee meeting last spring, regarding the possibility of an economic downturn and the risks posed to the world economy by a reduction of the United States' fiscal and external deficits, are being confirmed.

The progress of coordination of national economic policies is laborious; more in-depth discussion is needed to bring about agreements on policy, technical and procedural matters. Clearly, the IMF's studies on economic indicators are an important contribution to the work on multilateral surveillance of the economic policies of key countries. In this connection, the choice of indicators is important, as is the value that the major countries would be willing to assign to changes in these indicators.

We feel that the exercise of surveillance in all its aspects should be given a more operational and more constraining character; we think it necessary, therefore, to concentrate on economic policy. To complete the analytical framework, it would be well to take into account the experience gained with economic policy coordina­tion in the EMS.

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We think that effective coordination of economic policies can find a preferred, but not exclusive, forum in the IMF; we wish to say sincerely, however, that we greatly appreciate the contribution the IMF has made, both through the improve­ment of instruments for providing data and through the preparation of a special chapter on the interaction of economic policies, as was done in the recent World Economic Outlook analysis.

The Italian Economy

The process of combating inflation. in which we have been engaged for some time, is being assisted today by the fall in energy costs and by continued low raw materials prices-two factors that have helped to bring inflation down to levels close to the European average (the average rate will be less than 6 percent in 1986 and will be 4 percent in 1987), and to restore equilibrium in the external accounts. For this year, a significant current account surplus is forecast for the first time since 1979.

The improvement in the terms of trade is due to a marked drop in import prices, which is itself linked to the dollar decline. Export price developments have been characterized by a moderate increase. The growth of import volume, which has certainly been'stronger than that of export volume, will nevertheless not be large enough to cancel out the gains in terms of prices.

In the medium term, however, there is no lack of causes for concern. In particular, unemployment, though it has stabilized, is still at a level that is hardly tolerable from the political and social points of view. Our aim is to speed up, through demand expansion, the decline in the unemployment rate-still about II percent today-which will result from demographic factors, In 1987, assuming the international environment is favorable, the growth of GDP should be about 3 percent and the growth of demand around 4 percent, which would make it possible to increase employment while still maintaining a surplus on the balance of current transactions.

Beyond world economic growth prospects, the possibility of consolidating the improvement in Italy's economic situation depends primarily on our ability to increase the efficiency of our productive apparatus. Production facilities have already been improved to some extent by massive investments. Moreover, the effort made in recent years to contain the increase in labor costs through a balanced incomes policy has been substantial. These two actions have been of appreciable help in improving the profitability of enterprises and their competitiveness. In this connection, the agreement concluded with the trade unions. involving a reform of the wage-indexing system, is particularly significant. Thus, the conditions have been created for expansion of the productive base and, consequently, the creation of skilled jobs. particularly in sectors where Italy has a greater comparative advantage, has been favored.

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The rehabilitation of the public finances is proceeding today along the same lines. In addition to the possible medium-term limitation of the public sector deficit, which will decline from 16.1 percent ofGDP in 1985 to 14.3 percent this year and 12 percent next year, a number of structural reforms are being imple­mented to ward off the dangers of an automatic increase in public expenditure. In particular, the reform of the social security system and that of the local finances, both intended to establish a closer link between contributions and benefits, are under way.

The reduction of public sector financing requirements should produce positive results not only as regards inflation, but likewise as regards the formation of savings, which should also be better utilized.

It should be borne in mind, however, that these prospects are closely linked to developments in the world economy, and the state of the world economy, while improving, presents considerable uncertainties, as we have seen ....

World Bank Policies

Since the developing countries are in profoundly different economic situations, the activities of multilateral development institutions are all the more important, whether they take the form of direct financial support or of a role as catalyst for other types of financing.

Since the Baker initiative was presented in Seoul, the World Bank, with other financial institutions, has increased its loan volume and modified the composition of its loan portfolio, increasing the portion of loans whose disbursement is more rapid and is linked to the implementation of economic policy reforms rather than specific investment projects; lastly, it has undertaken to strengthen its capacity to conduct macroeconomic analysis, which will make it possible to keep the quality of this type of loan high.

We expect of the commercial banks that they will appreciate at its true value the action taken by the World Bank and the IMF to help heavily indebted countries apply their adjustment programs and thus improve the quality of their debts to the banks themselves.

While the Bank has had no shortage of capital in the year that has just passed, we must prevent a shortage from developing during the current fiscal year, as present projections indicate may happen. It is therefore important in our opinion that the discussions on loan programs be accompanied by a proposal for a capital increase.

In contrast to the general trend, Italy's development assistance programs. both multilateral and bilateral, have been growing extremely rapidly. Italy will main­tain its commitment by being prepared to increase its share in the Eighth Replenishment of IDA resources and in the capital of the Bank. We hope that the negotiations on replenishment of IDA's resources will be concluded quickly. and are convinced that Italy's stance will contribute to a satisfactory solution.

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Conclusions

In an extremely delicate international situation, a situation that could usher in a new cycle of durable and sustained development or could degenerate into a new recession, many of us have come to these Meetings with a precise conviction and a clear purpose.

Our conviction concerns concepts that are wrongly regarded as self-evident, i.e., that the problems of some countries are also the problems of others and that the success of some is also the success of others.

Our purpose is just as clear: to reaffirm that discussion and collaboration make more sense than conflict and discord.

In the case of those questions that concern the functioning of our institutions, our success in the area of discussion and collaboration has been total. Never have our discussions been so convergent and our conclusions so unanimous as they have been this year. We have succeeded, in particular, in reaching agreement on:

-maintenance of the limits on enlarged access to the resources of the Fund at their present level instead of lowering them, as was in principle expected;

-replenishment of the resources of the International Development Association which, taking voluntary contributions into account, will come close to $12 billion. This will enable the Eighth Replenishment of resources of IDA to enter into effect in July 1987;

-the necessity to pursue without delay the work already begun with a view to obtaining a general increase in the capital of the World Bank to enable it to continue and step up its lending programs.

On the other hand, less progress appears to have been achieved than was expected on questions relating to the international monetary system. In my view the disappointment with the amount of agreement on these topics is only partially justified. The fact is that there are no substantial differences of opinion among us concerning the necessity to pursue a medium-term economic policy geared to stable and balanced growth.

The basic objective that we have set for ourselves is to strengthen international cooperation. While this undoubtedly presupposes the existence of instruments such as indicators, it is not limited to that. Such cooperation is necessary both to create a more stable economic and, in particular, financial environment and to help the affected countries to escape from the scourges of underdevelopment and excessive indebtedness.

Similarly, the short-term problems are by no means being neglected, as is shown very clearly by the exchange market developments of the last few days. It is indeed essential that the short-term component be restored to economic policy, if only because the financial and exchange markets react more quickly than the commodities markets. The phenomena of "overshooting" and "undershooting" can affect not only monetary equilibria and output levels but also the utilization of savings and resources in general and therefore, in the last analysis, development.

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But it is true that the impression we risk giving to markets and observers is that our agreements are relatively fragile; an impression that does not favor stability and progress.

Moreover, the threat of protectionism is stirring in the most highly developed country. If the free trade system succumbs to this threat, the last pillar of the Bretton Woods system will collapse, in spite of the conferences and of the effort to extend to other fields the discipline that has until now governed trade relations in the Western world.

It is up to us, or rather to those among us who have greater responsibilities, to do everything we can to avert this risk and all the uncertainties to which it gives rise. To that end it appears essential to reaffirm a number of specific points on which we could take a common position.

First of all, no one can regard the problem of the U. S. external deficit as one that concerns only that country, just as the enormous surpluses posted by some countries must be a matter for concern to all.

Second, no one can regard the economic adjustment problems of the developing countries and, for some of them, their external debt as anything but problems that we all share.

Third, no one can in good conscience agree to tackle these problems through the instrument of deflation, thereby rendering all the solutions socially more difficult and less tolerable.

Fourth, no one should imagine that market freedom, the expression and founda­tion of so many other freedoms, can be limited with impunity.

While the above factors are not open to dispute, we nevertheless need to show consistency. Maximizing growth cannot fail to become the goal of the countries that post enormous or even only significant surpluses, the sole absolute obligation being to preserve a noninflationary environment. This is the objective of the policies carried out by Italy; an objective that is all the more significant in that it is geared also to a fundamental necessity for most of us: the combating of unemploy­ment, especially among the young. That having been said, we all know that this maximized growth will be achieved only if the enhanced capacity of markets to react is accompanied by a firm and at the same time prudent package of economic policy measures that accords priority attention to the goals of unemployment reduction and price stability.

By showing that we understand the problems and are capable of devising the most suitable courses of action to resolve them, we shall greatly enhance our sense of responsibility to make the choices that these solutions entail.

By resolutely confirming, all of us, that we feel this sense of responsibility, we shall be able, I am convinced, to effectively allay the deep-seated anxieties of our peoples.

That is what Italy, for its part, proposes to do, and we earnestly look forward to playing a not inconsiderable role in a common program of action.

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JAPAN: KIICHI MIYAZAWA Governor of the Fund and Bank

Mr. Chairman, my fellow Governors, distinguished guests, ladies and gen­tlemen:

It is a pleasure to be with you here today and to be able to give my maiden speech as Governor for Japan. Actually, this is not the first session of the IMF-World Bank meetings that I have attended. Thirty-odd years ago I came to Mexico as personal secretary to the Governor for Japan when Japan was admitted to mem­bership. That was, incidentally, the same year that I left my job with the Ministry of Finance to go into politics. Now I am back--once more with the Ministry of Finance.

Before turning to the issues before us, I would like to thank the United States for the excellent arrangements that have been made for these Meetings and to extend a very warm welcome to the two new members who are here with us today: Kiribati and Poland.

At the same time, I would also like to express my appreciation to Fund Managing Director de Larosiere, to the Executive Directors, and to their staffs for the efforts that they have made over the past year in keeping the global economy on track. I had been very much looking forward to working with Mr. de Larosiere, and I am sure his wise counsel will be sorely missed in the months and years ahead.

While we are all sorry to see Mr. Clausen leave the World Bank, he has a worthy successor in incoming President Barber Conable. President Conable's reputation precedes him, and I am confident that his presidency will be good for the World Bank.

1. The World Economy

Outlook

In formulating our policies for the future, it is important first to have a clear understanding of where we stand today. Many people have expressed concern about the slower rate of growth in production and world trade early this year. But we should not forget the bright spots.

After seeming to stagnate in the first half of this year, the world economy is set, according to Fund forecasts, to achieve approximately 3 percent growth in both 1986 and 1987. The outlook is thus for sustained growth, albeit at a slower rate than we might like.

Inflation is down, especially in the industrial countries. With sharply lower prices for oil and other primary commodities, the Fund is forecasting inflation in the 3-4 percent range for the industrial countries in 1986.

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Interest rates are conspicuously lower than they were last year or the year before.

Exchange rates for the leading currencies are now sharply different from what they were at this time last year. Although these exchange rate adjustments have not had much visible impact yet on the global balance of payments disequilibria, I am hopeful that they will have a tangible effect soon, together with concurrent measures being taken in other areas.

Much of the credit for this promising outlook must go to the efforts being made by our countries individually and in concert.

Issues

However, the world economy is not out of the woods yet, and there are still a number of critical issues that need to be addressed.

The first of these issues is the need to roll back protectionism. It is imperative that the protectionist fires be banked and extinguished, and I see the recent declaration of the ministerial conference at Punta del Este and its commitment to a new round of multilateral trade negotiations-the Uruguay Round-as very promising signs here. Determined to work for the preservation and strengthening of the free trade system, Japan will continue to actively promote this new Uruguay Round. Japan will also, it should be noted, continue to take the lead in further opening its markets and facilitating imports.

The second issue that needs to be addressed is that of achieving greater stability in foreign exchange markets. I am thus hopeful that the agreement among the leading industrial countries for multilateral surveillance and policy coordination within the Fund framework will prove fruitful, and I am encouraged at the progress being made in studies on the details of implementation. Japan is cooperating and will continue to cooperate as an active participant in this effort to improve the functioning of the international monetary system.

The third issue is the need to solve the debt and development problems. As mentioned, the combined cooperation of international institutions, the industrial countries, and the commercial banks alike are needed to solve the debt problem. While the developing countries' self-help efforts are obviously indispensable, these countries cannot be expected to cope with their debt and development problems unless they are assured of continued access to export markets and en­hanced capital availability.

The prerequisite for solving these three issues is the need for the industrial coun­tries to achieve sustained and noninflationary growth while reducing their interna­tional balance of payments disparities.

2. Internationally Responsible Economc Management

Japan has been a major beneficiary of the IMF-World Bank regime. Soon after becoming a member in 1952, Japan exercised its right to draw $125 million from

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the Fund and took out its first loan from the World Bank in 1953. At the time, Japan's trade balance was, believe it or not, chronically and massively in the red.

Japanese development in the years since then has benefited from financing from the World Bank and a host of other public and private financial institutions. Weathering a number of harsh trials, including the recent oil crises, Japan has grown to account for approximately 10 percent of total world GNP. Ironically, our trade balance is again in heavy disequilibrium, and we seem to be confronting the same problems as three decades ago, this time from the other side of the problem.

Japan is determined to do everything that it can to preserve and strengthen the free trade system, to resolve the economic friction with its trading partners, to live up to its international responsibilities, and to be a country that can be counted on to do what is right.

Given this situation, I think Japan can take positive action in two areas: The first thing Japan is doing is to pursue internationally responsible policy management to achieve sustained and noninflationary growth while treating its international imbalances of payments.

The attempt to reduce the balance of payments disequilibrium has been a special focus of Japanese efforts, and we have cooperated strongly with currency realign­ment. As a result, the yen has appreciated more than 50 percent against the dollar over a ten-month period-an unprecedentedly fast change.

Because this foreign exchange realignment has generated sluggishness in Jap­anese industry, especially in the manufacturing sector, the Government has moved both to restore business confidence by dispelling uncertainty from the economic outlook and to contribute to the reduction of the balance of payments disequi­librium by strongly stimulating Japanese domestic demand.

Illustrative of our efforts is the package of comprehensive economic meas­ures-totaling some Y 3.6 trillion, or $23 billion at current exchange rates-that Japan announced on September 19. First, Y 3 trillion of this will go to expanding the scale of public works and other investments, including both additional imple­mentation of projects that are especially important to mobilizing private sector energies and enhancement of home financing schemes to promote housing invest­ment. This is the largest such package in Japanese history, and it is, given the current state of Japanese Government finances, the very most we can possibly do here.

Second, we will continue to ease regulatory restrictions and provide incentives to promote greater private sector involvement in urban redevelopment and other public interest projects.

Finally, there will be a determined effort made to promote personal consump­tion by seeing that the benefits of yen appreciation and lower oil prices are passed along, to encourage accelerated implementation of private sector capital invest­ment, and to foster continued employment stability.

Japanese structural adjustment is another element essential to achieving a more harmonious trade balance, and the Government is making every possible effort to

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transform the Japanese economic structure into one oriented toward international coordination.

3. Debt and Development Problems

The debt and development problems are not simply an issue for the developing countries. They are everybody's concern. Determined not to let a stalemate develop, Japan supports the thrust of Secretary Baker's proposal last year. Assum­ing that the debtor countries themselves persevere with their self-help efforts, Japan is prepared to do what it can to facilitate the support they need from the leading international institutions, the industrial countries, and commercial banks. This is, I think the second field where Japan can take positive action for global prosperity, and I would like to outline three specific areas of action here.

Strengthening the World Bank

It is essential that the World Bank's financial base be strengthened to enable it to continue to playa central role in resolving the debt and development problems. Given the special urgency of development assistance to the Sub-Saharan region and Asia and the importance of IDA's role, Japan has approached the negotiations for IDA-VIII very positively. We believe it is critically important that IDA achieve its original replenishment target of $12 billion, and Japan has backed its very positive statements on this issue by announcing its readiness, conditional on an increase in Japan's share in the IBRD, to provide $350 million of the yet­unsubscribed $500 million needed, thus bringing our IDA-VIII subscription to $2.5 billion of the total $12 billion. Disappointed though I am that these IDA-VIII negotiations have yet to be concluded, I am nevertheless hopeful that all of the subscribing countries will work together in a spirit of cooperation to bring the IDA-VIII negotiations to a successful conclusion as soon as possible.

Japan has long been an active subscriber to the World Bank. We intend to continue cooperating positively with efforts to strengthen the Bank's financial base, and we stand ready to contribute to the next general capital increase on a scale reflecting our economic strength.

Financial and capital market cooperation is also important, and it is significant that about one fifth of the World Bank's borrowing has taken place in the Tokyo markets. Japan will continue to contribute, through ongoing deregulation and internationalization of its financial and capital markets, to providing the funding needed for resolving the debt and development problems.

Yet if Japan and the other industrial countries are to continue cooperating this way despite their very tight fiscal situations, it is imperative that the international organizations, starting with the World Bank itself, operate efficiently. It is also necessary to review the World Bank organization in light of its changing functions and increased policy advisory role.

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Utilization of Japanese Public and Private Financial Resources

As noted in Secretary Baker's proposal last year, commercial banks have a key role to play in resolving the problems of debt and development. Commercial financial institutions from Japan and the other industrial countries are already playing a critical role in this field, and we recognize that the combined cooperation of multilateral institutions such as the Fund and the World Bank, the industrial countries, and commercial banks alike will be needed to solve these problems.

Japan has, as you know, cooperated positively with efforts to help Mexico improve its debt and development positions. We have indicated a willingness, assuming that a framework of international coordination and other financing climate essentials can be arranged, to provide Export-Import Bank of Japan financing in the amount of $1 billion for three major projects as requested by Mexico.

Japan also intends to do what it can to facilitate the flow of public and private financial resources to the middle-income countries through the Export-Import Bank of Japan's untied loan scheme, including cofinancing with the World Bank, within the framework of international financial cooperation.

Japan has a high regard for the role that the Paris Club has been playing, in cooperation with the Fund, to solve the debt problems, and we intend to continue these efforts in cooperation with the other industrial countries.

Private sector direct investment is important to solving debt and development problems. We expect that MIGA (Multilateral Investment Guarantee Agency) will make a major contribution in this area.

4. Conclusion

Never before has the need for policy coordination been as great as it is in today's increasingly interdependent international economy. With our interlocking ties born of expanded trade and more active capital flows, it would be disastrous for any of our countries to pursue narrow national policy goals in disregard of their international impact.

The IMF-World Bank organizations now embrace some 151 countries around the globe. Just as this breadth makes the problem of policy coordination all the more difficult, so does it promise all the greater rewards for success. I am encouraged by the fact that the international system has endured and grown for more than four decades despite the many trials that it has been subjected to.

I have today tried to express Japan's determination to tackle the great issues facing the world economy and to indicate some of the actions that Japan is taking. While Japan is determined to do its part within the IMF-World Bank organizations and in every other way, these problems cannot be resolved by one or two nations acting alone. They need the cooperation of all of us here today in a coordinated policy effort, and I sincerely hope, for all of our sakes, that these Meetings will serve to reaffirm and strengthen this international cooperation.

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KIRIBATI: BOANEREKE BOANEREKE Governor of the Fund

Mr. Chairman, Managing Director of the Fund, President of the World Bank, fellow Governors, distinguished guests, ladies and gentlemen, it is my honor and pleasure to address you as my country's representative on the occasion of our first attendance at the Annual Meetings as a full member of both the Fund and the World Bank. Thank you all for your welcome.

My country is pronounced Kiri-Bass, and it is in the center of the Pacific. Though relatively small in terms of land area and population, my country is relatively large in terms of ocean. This is a new concept that is nevertheless growing in acceptance.

It is my Government's intention to exploit our economic potential, little appre­ciated though it may be at present, in order to realize our deeply felt commitment to self-reliance. It is with this commitment in mind that my Government decided to join your associations. We need help in order to achieve our goals. For Kiribati, at this stage of our development, this help lies as much in a need to learn as in a requirement to borrow.

KOREA: IN YONG CHUNG Governor of the Fund and Bank

May I begin, on this auspicious occasion, by saying how deeply honored the Korean Government was by the opportunity of hosting the Joint Annual Meetings last year in Seoul. The wholehearted cooperation of member governments and the excellent preparation of the staffs of the Fund and the Bank were indispensable to our own endeavors toward making those Joint Meetings successful.

This year marks the Forty-First Anniversary of the Fund and the Bank. With the addition of Kiribati and Poland, the membership has grown to 151 members. In the name of my Government, I wish to extend to them a warm welcome. These are the first Annual Meetings for Mr. Conable in his capacity as President of the World Bank. We congratulate him and look forward to his resolute and sagacious stewardship in the coming years. And these are the last Annual Meetings for Mr. de Larosiere as Managing Director of the Fund. I would like to join my fellow Governors in expressing my heartfelt gratitude for his contribution and dedication to the prosperity of the world economy. We will greatly miss him.

Since our last Meetings in Seoul, the world economy seems to have made only slight progress. In spite of the substantial decline in energy prices and generally lower interest rates, real growth has been less than expected. Economies of indus­trial countries remained sluggish through the end of 1985, although they have shown some signs of improvement this year. In the developing countries as a whole, growth in output and employment did not pick up, except for a few small

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----------------_ ... _----_ ... _-----_ .. _---------_.

economies. Demand management by industrial countries, the downturn in com­modity prices, and restricted access to markets abroad for manufactured goods from developing countries significantly dampened their economic activities.

This year, world trade volume is projected to rise by 3.5 percent, with unit value declining by about 9.5 percent. As a consequence, trade is generating little growth momentum in most developing countries. To make things worse, trade­restrictive policies in major markets have not been eased, but, in many cases, have even been strengthened against manufactured products, mostly through unilateral means.

The substantial realignment of major currencies which began last year has not so far had a major impact on the current accounts of the large industrial economies. This is strong evidence of the rigidity of the structure of the world trading system. Nonmarket forces appear to have overwhelmed potential trade flows. At this juncture of the world economy, we believe that there is ample room for noninfla­tionary growth. We therefore urge member countries to seize this opportunity to pursue growth-oriented policies and provide greater trade opportunities for developing countries.

At the same time, we welcome that the GAIT ministerial meeting in Punta del Este agreed on launching the new round of multilateral trade negotiations. We hope this round will be successful.

I am pleased to report that Korea's real growth in the first half of 1986 was significantly improved. This recovery has been accompanied by continued price stability and by a shift in the external current account from deficit to surplus, reflecting the continued rise in the domestic savings and favorable external factors, particularly the decline in oil prices. The new economic environment has provided an opportunity for Korea to slow down the increase in its external indebtedness and rationalize its debt structure, while still providing for adequate increases in international reserves ....

. . . The international debt situation requires multifaceted solutions. Robust growth in the developed economies, the abatement of protectionism, lower international interest rates, and the recovery of commodity prices would all have beneficial effects on the debt situation of developing countries generally. For individual developing countries whose debt service obligations are inconsistent with sustainable growth objectives, new capital inflows as well as debt reschedul­ing within the context of sound medium-term economic programs may be re­quired. In the formulation of such programs in the light of individual circum­stances, the national authorities, the international financial institutions, and the banking community all have complementary roles to play.

The World Bank has had a profound impact on developing countries in their en­deavors for growth and the alleviation of poverty. My Government endorses the projected increase in the lending level up to $21.5 billion in fiscal year 1990 and, correspondingly, urges an early agreement on an increase in the general capital increase of the Bank to make this possible. During the course of the negotiations for the general capital increase, it is our hope that the previous failure to adopt a

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selective capital increase based on parallel adjustments with Fund quotas would be taken into account.

Recognizing the benefits of development projects funded by IDA resources in . low-income countries, my Government also endorses an IDA-VIII Replenishment of $12 billion. This amount would at least maintain the real value of resources available through IDA-VII and the Special Facility for Sub-Saharan Africa. To this end, Korea will join the above Replenishment with enthusiasm.

Regarding the lending modalities, we note that the Bank has been diversifying its transfer channels more effectively than most other multilateral development banks. We commend this trend and urge the management to maintain and expand its interest in sector, program, and structural adjustment loans. We are also pleased to see the increase in the resources of the International Finance Corpora­tion. IFC has given irreplaceable services in promoting the private sector in many member countries.

I am pleased to note that the preparatory committee meeting for establishing the Multilateral Investment Guarantee Agency made successful and valuable pro­gress. We hope that a solid start would be made rapidly on its operational aspects in order to effectively realize MIG A ' s goal of facilitating private direct investment to the developing world.

For 40 long years, we have together changed a large part of the world, changed it for the better. Many sacrificed their resources for others so that the others might become like them some day, at least in the physical sense. Many in the developing world who have not even heard of our organizations were able to cross the bridge arching between misery and dignity in life. We happen to know how one feels on that bridge because we were there not too long ago.

LAO PEOPLE'S DEMOCRATIC REPUBLIC: KIKHAM VONGSAY

Governor of the Fund and Bank

I consider it a great personal honor to represent the Government of the Lao People's Democratic Republic at the Forty-First Annual Meetings of the Boards of Governors of the International Monetary Fund and the World Bank.

On behalf of the Lao delegation, I wish to congratulate the President of the World Bank, the Managing Director of the International Monetary Fund, their associates, and the authorities of the host country for the excellent arrangements made for this conference.

My delegation would also like to take this opportunity to extend a warm welcome to the delegations of the friendly countries that have become full members of our two institutions.

Finally, I would like to welcome the new President of the World Bank, who is taking part for the first time in the Annual Meetings of the Boards of Governors of the World Bank and the International Monetary Fund.

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After almost two years of strong expansion, economic growth slowed in the industrial countries in 1985, affecting world trade. Since the economic per­formance of the developing countries depends in large measure on the general economic trends, there was a significant reduction in the prices of primary commodities and a pronounced slackening in the expansion of world trade.

With economic activity slowing in the industrial countries, the growth of the world economy, which had registered almost 5 percent in 1984, dropped to less than 3 percent.

The impact of this on the economies of the developing countries was aggravated by the deterioration of their terms of trade, itself the consequence of the lower raw material prices.

The slackness of the developing countries' export markets affected their domes­tic economic activity. Quite logically, efforts to exploit natural resources suffered from these unfavorable developments, with the most severe impact being felt by the oil exporting and commodity exporting countries.

In addition, the debt problems of many developing countries and the budgetary austerity which prevails in a number of industrial countries are increasing the uncertainties weighing on development finance.

In the first quarter of 1986 there were unmistakable signs of improvement in the international economic environment; stronger-than-expected world growth, infla­tion-related factors, and the downward trends of interest rates and petroleum prices have been confirmed, and there has recently been a correction of exchange rates from levels that had contributed to disequilibrium-such rates now more accurately reflecting economic realities. While unemployment remains high in most industrial countries, a coordinated effort will be required in order to strengthen medium-term growth without inducing a new surge of inflation.

I would now like to tum to the development strategy and plans that have been implemented in the Lao People's Democratic Republic in 1985.

We are pleased to report that the past year has been marked by a number of successes, despite the enormous difficulties resulting from natural disasters, and especially from the pressures exerted on and the subversion, aggression, and sabo­tage against our country perpetrated by the enemies of the Lao Revolution.

In 1985, we completed the implementation of the fifth year of our first Five­Year Plan, the initial results of which have been encouraging.

National income rose by 8 percent over the 1984 level, while agricultural production rose by 8 percent, industrial production by 55 percent, and export receipts by 20 percent. These successes are due to the determined efforts of our people, to internal reorganization, and to fruitful cooperation with brother socialist countries, friendly countries and international organizations, including the World Bank and the International Monetary Fund.

On behalf of the Lao people and Government, I would like to take this opportunity to extend my sincere thanks and profound gratitude to the Bank and the Fund for their valuable and beneficial assistance.

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The results of implementing our first Five-Year Plan for 1981-85 are relatively satisfactory. This year, the Government of the Lao People's Democratic Republic is beginning the execution of the second Five-Year Plan, covering 1986-90, taking as its basis the physical and technical infrastructure established under the first Plan.

But our country is still experiencing innumerable difficulties, principally in the areas of basic construction in various economic sectors, including transportation, communications and industry, which normally require sizable investment.

For this reason, our country requires substantial amounts of capital both for improving and constructing roads, promoting agriculture, intensifying the exploi­tation offorest resources with a view to increasing export-oriented production, and developing hydroelectric potential so as to promote industrialization. In this regard, the Lao Government is counting on increased close cooperation with all the development finance institutions, including the World Bank and the Interna­tional Monetary Fund.

Concerning Bank policy, we would like to state our views on several issues: -In order to be able to meet international needs, we believe it will be necessary

to proceed forthwith to an increase in the resources of the Bank. -We support the policy of cofinancing with suitable agencies with a view to

creating additional financing resources and truly promoting economic growth and development in the developing countries.

-We ask that the Bank give consideration in future to a special assistance program and to increasing the flexibility of its rules for intervention as regards financing local costs, project cost overruns, and interest during the construc­tion period, sectoral lending, and program lending. Finally, it must mobilize the resources essential for financing the program submitted in support of the increase in its resources, and in particular achieve its priority objectives with regard to the poorest countries.

-The activities of the Bank should also be aimed at structural adjustment and development in the least developed countries.

-As regards IDA-VIII, we urgently call on donor country groups to redouble their efforts rapidly to increase flows of official development assistance, so as to permit a replenishment on the order of $10.5 billion to $12.5 billion, thereby meeting the growth needs of all the low-income countries and helping them in their fight against poverty. In this context, we urge the donor countries without delay to take steps to achieve the internationally agreed target of official development assistance amounting to 0.7 percent of GDP, while taking into account the objective of 0.15 percent earmarked for the least developed countries.

-My delegation is strongly encouraged by the Bank's commitment to assist the Lao People's Democratic Republic which was made at the last meeting of the Round Table of April 21, 1986, in Geneva, organized as part of the new program of action for the least developed countries. To us, this undertaking is indicative of more predictable long-term cooperation between our country

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and the Bank. The recent visit of a programming mission to the Lao People's Democratic Republic has enabled the two parties to draw up the program of cooperation on which we will embark together in a spirit of mutual respect and trust.

-As regards the policy of granting loans to member countries, my delegation once again calls upon the management of the Bank to reconsider its suspen­sion of the financing of projects already being executed as well as of loan applications from certain member countries that had already been formulated and which met the required terms ....

. . In conclusion, I would like to extend my warmest congratulations to the President of the World Bank and the Managing Director of the International Monetary Fund for the outstanding manner in which they are carrying out their duties. and to wish the greatest success to the work of these Forty-First Annual Meetings.

MALA YSIA: DAIM ZAINUDDIN Governor of the Fund and Bank

I would like to begin by extending my warmest congratulations to Mr. Conable on his appointment as President of the World Bank. I am confident that Mr. Conable will bring with him new perspectives and fresh ideas which will invigorate the Bank in the years ahead. At the same time. let me also say how sorry we are that Mr. de Larosiere will soon be leaving the Fund. He has steered the Fund through a difficult period with vision and incisive leadership. and we would like to thank him sincerely for his contributions and wish him well in his future undertakings.

When the Interim and Development Committees met in the spring, expectations were high for a strong global economic revival following the decline in world oil prices and interest rates. We were also encouraged by the progress made on several fronts-namely. historically low inflation rates. a better alignment of exchange rates. and an apparent convergence of economic policies in the major industrial countries. However. this optimism proved short lived. as the world economy continues to be plagued by mounting problems. Trade imbalances remain large; protectionist pressures have intensified; fiscal consolidation in industrial countries has not had much impact; and the terms of trade and real incomes in developing countries continue to deteriorate.

With these uncertainties, the medium-term growth of 3 percent a year projected in the World Economic Outlook looks unlikely to be achieved. so that a world recession cannot be ruled out. Of equal concern. a sustained recovery in com­modity prices and exports by developing countries remains doubtful. The situation calls for stronger efforts at reflation. especially by countries which can afford to do so, and greater commitment toward policy coordination among the industrial countries to strengthen world growth and trade.

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Without such concerted measures, the developing countries will face an even more inhospitable international environment and dimmer prospects for resolving their debt problems. Falling commodity prices, deteriorating terms of trade, and declining real incomes underscore the importance of strengthening the global economic recovery, and reviving the expansion of world trade. The new GATT round must aim for this. Debtor countries cannot be expected to resolve their current problems of indebtedness if the markets of industrial countries continue to be protected. Resolution of the global debt problem will hinge critically on freer trade and a revival in world economic growth.

We have seen over the last few years, a marked contraction in financial flows to developing countries. This is most disheartening. In strengthening the global debt strategy, a critical element is the availability of sufficient external financing to support the adjustment efforts. The Fund and the World Bank must playa more important role by strengthening their financial support, while also acting as a catalyst for increased lending from commercial sources. It is in this context that I urge for early implementation of the near universal agreement on an allocation of SDRs, an adequate replenishment for IDA-VIII, and a substantial general capital increase for the Bank. These are not new issues. I will not therefore elaborate on them further beyond expressing my hope that the obstacle which has stood in the way of their implementation will soon be removed. The case is clear and well established. It is only the political will that is lacking.

Given the uncertain international economic environment, the Fund and Bank must work closely together in ensuring progress and development in the world, especially in the developing countries. The Bank needs to respond more positively to the needs of the developing countries. To be an effective partner in development, the Bank must remain true to its fundamental purpose as a development institution. We have seen in recent years the profits ofthe Bank increasing, net disbursements declining, and conditionality rising. The Bank must find new, innovative ways of doing things in an environment where many governments are undertaking fiscal adjustment in response to the more difficult external circumstances. One example is the increasing trend toward privatization. The Bank must explore more imagina­tive and innovative ways of assisting in that process ....

. . . In conclusion, I urge a greater sense of urgency to tackle the problems of slow growth, decline in commodity prices, stagnant world trade, and the inequity in the process of decision making. These problems are interconnected and they need to be tackled in a concerted and coordinated manner. For the developing countries, in particular, the outlook is increasingly more serious and grim. No one owes us a living; but by any standard, most of us have made and are making politically difficult decisions to bring about the necessary adjustments. A suppor­tive external environment can make the difference between success and failure. It is my hope that the decisions taken during these Annual Meetings will consolidate and strengthen such an environment, which is after all in the interest of all of us in an interdependent world.

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MALTA: WISTIN ABELA Governor of the Fund and Bank

The two underlying themes of the world economic situation in recent years have been the fragility of the recovery from the recession of 1980-82 and the uneven­ness of this recovery.

With regard to the first theme, there have in recent months been sharp dif­ferences of opinion. Some authoritative voices have expressed fears of another impending recession; others claim that, after the short pause in the first half of this year, the world economy is set for a period of stable growth. The Fund itself seems to take a middle view between these two extremes but has recently revised down­ward its projections for growth in the industrial world. There is no doubt that output growth in the first six months of 1986 has been unexpectedly sluggish, and this has dented in no small way the relative optimism prevailing until a few months ago. As to the second theme, there remain serious reasons for anxiety about the unbalanced nature of the recovery: not only among and within the industrial countries but, above all, between developed and developing countries.

The general failure of the developed countries' recovery in recent years to relieve the critical situation prevailing in much of the developing world has indeed been cause of great concern. The bleaker economic outlook. the steep fall in the prices of internationally traded commodities, and the decline in new financial flows to the developing countries have rendered these countries' plea even more desperate. Indeed. these adversities have all compounded doubts about the like­lihood that growth in the industrial countries will be transmitted, rapidly and effectively, to the developing world.

Although the two themes of fragility and unevenness in the recovery have been with us for the past three years, this year has also seen some important new developments. One has been the collapse of oil prices, the immediate effect of which has been a massive transfer of income from the oil exporting countries to the industrial countries. The other has been in the realm of policy and consists in the recognition by the leading industrial countries of the need for more active manage­ment of the world economy to achieve stable economic growth. These changed perceptions have so far led to a coordinated realignment in the exchange rates of the major currencies, a reduction in the general level of interest rates, and some progress toward recognizing the importance of the role of surveillance by the Fund. The developing country debt problem has also benefited from a more active involvement by the governments of the major countries and, in particular, from a recognition of the need for greater flexibility and a larger scale of official financ­ing. There has been, too. greater attention to the acute problems of Sub-Saharan Africa and, more generally, to questions of how developing country adjustments can be made more "growth-oriented."

Although it is still too early to say whether these changes in attitudes will be ade­quately translated into effective policies that will be commensurate with the scale of the problems besetting the world, they are nonetheless welcome. It is impera-

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tive, however, that they should be so translated. For despite the opportunities for greater growth presented by lower oil prices and falling inflation, the possibility of the world economy sliding into another period of recession definitely exists. If this should happen, the outlook for many developing countries, which is already poor--especially on account of the adverse trends in international trade-would become bleak indeed.

Macroeconomic policy coordination among the industrial countries and meas­ures to support "growth-oriented adjustment" in the developing countries will avail little if nothing is done to roll back the tide of protectionism. At our meeting last year, we had expressed fears of an impending trade war between the world's major economies. While this danger, which has not yet been completely over­come, must be resisted at all cost, we must not underestimate the lesser evil of "creeping" protectionism either. In this respect the latest ministerial declaration on the Uruguay Round of multilateral trade negotiations is most welcome. It is now hoped that unified action on a broad front would produce concrete results in the shortest possible time, thus paving the way for a more open multilateral trading system.

"Growth-oriented adjustment" is also implausible without greater external support. The weakness of commodity prices over the last few years, even in the face of the recovery, coupled with the current somewhat poor outlook for world growth, point to the need for greater realism in expectations of what the develop­ing countries can themselves achieve through export growth.

In this context we feel that the external financial requirements of the developing countries are being seriously understated in most scenarios. Moreover, given the difficulties of achieving an early revival of private financial flows, a greater responsibility falls on official flows. Thus, while the recent commitment to increase finance for the multilateral development banks is welcome, a more credible policy should also include the provision of more resources through the Fund and the World Bank. There is an urgent need not only to reactivate dis­cussions on SDR allocations but to explore ways and means as to how their distri­bution could be directed to those countries most in need. Preparations should also be taken in hand for the Ninth Review of Quotas, so that a decision on quota increases can be taken by next year's Annual Meetings. If necessary, new credit lines should also be arranged, so that when existing borrowing arrangements run out, the Fund will still be in a position to meet the growing demands on its resources. Furthermore, a substantial capital increase for the World Bank and a strong replenishment of IDA are also called for.

Complementing the resource flows channeled through the Fund and the Bank, there should be increases in bilateral official development assistance. These should reflect the windfall gains made by the industrial countries from the decline in commodity prices and the aid-giving capabilities of countries with large surplus savings.

However, it is not just the quantum of aid that is important, but also the quality. The recent steps taken by the Fund and the Bank to implement U. S. Treasury

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Secretary Baker's initiative launched at last year's Meetings in Seoul are welcome as far as they go, but there is a need to achieve a better balance between adjustment and financing in all Fund-supported programs. To this end we feel the Fund should review its conditionality guidelines with a view to ensuring greater growth orientation in such programs. Furthermore, current access limits under the enlarged access policy should be maintained at least up to the Ninth Quota Review, and the compensatory financing facility liberalized further. We also feel that resources supplementary to those available under the Structural Adjustment Facility (SAF) should be provided so as to ensure larger financial support to low­income countries. It is important also to avoid linkages between the use of SAF resources and drawings under the normal facilities of the Fund, as well as cross­conditionality between the use of Fund facilities and Bank loans ....

. . . The attention of the international community-and of the Fund and Bank-is focused at the moment on three main groups of countries. These are the most heavily indebted countries, the very low-income countries (especially those of Sub-Saharan Africa), and the so-called "blend" countries of Asia, in which live the largest proportion of the world's poor. This is understandable in the cir­cumstances, but I should like, before concluding, to put in a word on behalf of my own country which faJls into none of these three categories. For Malta too has been adversely affected by the recession and has yet to benefit from the recovery­especiaJly on the employment front. One initiative which my Government had hoped would be of particular benefit to Malta was the establishment of the Multi­lateral Investment Guarantee Agency (MIGA) which, we augur, should encourage more flows of private investment to developing countries. We note with satisfac­tion that considerable progress has been made toward the realization of this new in­stitution. The exhaustive efforts made by the World Bank toward this end are indeed to be commended. However, we had hoped that MIGA's coverage would also include export credits since, for various reasons, small countries like Malta encounter considerable difficulty in operating an export credit guarantee facility on their own. May I therefore repeat the request I had made at last year's Meetings, that the Bank should consider the inclusion of export credit guarantees, at least for small developing countries like Malta, in the MIGA's coverage.

FinaJly, I wish to extend a warm welcome to the two new members of the Fund and the Bank, Poland and Kiribati.

NEPAL: BHARAT BAHADUR PRADHAN Governor of the Bank

It is a great pleasure for me to address this august gathering. The opportunity of meeting many friends and cOJleagues is a unique advantage of these Meetings. I have been listening to so many enlightening and constructive speeches in the Interim and Development Committees and in this forum over the last few days. I have been very much impressed with the general concern expressed by all the speakers over the none-too-happy world economic situation and the plight of the

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developing countries in particular. The interest shown by the developed countries in improving the global economic environment and in helping the developing countries is most encouraging. Given the collective will to solve the problem, one can look forward to the future optimistically.

I would first like to express my sincere appreciation and grateful thanks to Mr. Ronald Reagan, the President of this great country, the United States. for gracing the opening session and delivering a very inspiring speech. The support he pledged to the International Monetary Fund and the World Bank is indeed en­couraging and reassuring.

I would like to join earlier speakers in extending my hearty welcome to Mr. Barber Conable, the new President of the World Bank. With his vast back­ground and wide experience, I am sure he will lead this institution to greater success in alleviating the poverty of its member countries.

On this occasion, I would like to record my sincere appreciation to Mr. A.W. Clausen for his dedicated service to the Bank in a most difficult period. I wish him well.

It is a matter of regret for all of us that Mr. Jacques de Larosiere is leaving the Fund at the end of this year. He has made a far-reaching contribution to the Fund during the most difficult times of its existence. We remain very appreciative of his contribution and wish him well in his future endeavors.

Let me also take this opportunity to extend my warm welcome to the new members of the Fund and the Bank. Poland and Kiribati.

In the past year, developments in the world economic situation have not been encouraging. The decline in the growth of the industrial countries, the erosion in the prices of primary commodities. a contraction in financial flows to the develop­ing countries. the volatility of the exchange rates, etc. have vitiated the global economic environment and adversely affected the growth of the developing countries. The fall in energy prices has. however. had some positive impact. though at the cost of the oil exporting countries. The decline in international interest rates has also provided some relief to the debt-ridden countries. On the whole, however. while some developing countries could somehow maintain their growth, most developing countries. the least developed ones in particular. are facing great difficulties in their development efforts.

We are very happy to note very frank deliberations taking place on the issues confronting us today. While some issues such as promotion of growth in some developed countries, the general capital increase of the Bank. the SDR allocation, etc. do not seem to be resolved, there is general consensus and agreement on many other issues. The willingness to reduce protectionism. the prospect of the IDA­VIII replenishment, the stress on the flow of commercial credit to the developing countries, etc. are most welcome developments. Most encouraging is, however, the acknowledgement by all of the need for helping the developing countries facing severe economic difficulties in their structural adjustment programs. The remark of Mr. Conable, the President of the World Bank, in this context is quite reassuring: "In development lending. we must maintain ... a thoughtful mix of

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investment and adjustment lending [and] we must maintain flexibility both in the design and the management of the Bank's activities." We are particularly happy to note the flexible approach advocated by the President.

The remark of Mr. de Larosiere, the Managing Director of the Fund, is no less encouraging: "In the period ahead the Fund will not only be capable of acting as a financial catalyst, but will also be able. at this critical juncture, to provide significant financial support for the strong adjustment efforts of its members. " The proposed Structural Adjustment Facility of the Fund is a most welcome develop­ment. We look forward to the new approach and assistance of the Bank and the Fund with great hope and enthusiasm.

I would now like to mention briefly our efforts for adjustment and growth. During the past 25 years. though there has been significant progress in establish­ing infrastructure in our country, economic growth has been sluggish. Moreover, the continuously widening budgetary deficit in the last four years had led to ex­cessive pressure on demand, deterioration in the balance of payments, and decline in foreign exchange reserves. In order to address this problem, Nepalese currency was devalued by 14.7 percent in November 1985, and we took other economic measures for demand management. But demand management is only a short-term measure. It does not solve the basic problem. We are therefore embarked on a structural adjustment program with an emphasis on economic growth. In this respect, we are negotiating with the Bank for the necessary support for this program. Also, we are looking forward to availing ourselves of assistance under the Fund's newly created Structural Adjustment Facility. With the assistance of the Bank and the Fund, together with the support of our bilateral donors, we hope to bring about the structural changes in our economy which will ensure economic growth with stability. With the takeoff of this program, we hope to be able to ensure a sustained growth to provide the basic minimum needs of the people by the tum of the century. This is the challenge before the nation as called upon by our leader, His Majesty the King.

Before concluding, we would like to express our deep gratitude to the donor countries for their generous contributions to the Fund and the Bank. Given the crucial role of these institutions in restoring global, economic health and, in particular, in alleviating poverty in the developing countries, we hope that there will be a better response from these countries in the years ahead.

Let me express our grateful thanks to the management and staffs of the Fund and the Bank for the excellent arrangements made for these Meetings. They also deserve our sincere appreciation for their efficient performance in the past year.

NETHERLANDS: H.O. RUDING Governor of the Bank

World Economic Outlook

In the past several quarters, economic growth in the number of industrial countries has been slower than expected. Nevertheless, this slowdown appears to

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be transitory. For many countries the decline of oil prices and interest rates has improved prospects for economic growth over the medium term.

Given this fact and the unpredictable impact of short-term discretionary pol­icies, considerations of demand management should not be allowed to prevail over longer-term structural efforts to promote sustainable and noninflationary growth. We should all work toward reducing budget deficits wherever these are still too large and toward containing them where they are already low, for in many countries, including my own, budget deficits and public debt-service obligations are still far from being under control. Monetary policy in nations with high inflation rates should be directed toward reducing price increases, while nations with low inflation should choose money growth objectives high enough to permit sufficient real economic growth, but not so high as to give rise to new inflation. Only such a sound mix of fiscal and monetary policies will create conditions for sustainable low interest rate levels, increased business investment, and reduced unemployment, which is still much too high in many countries, including my own. Furthermore, countries should continue and, if necessary ,intensify policies aimed at structural adjustment and overcoming supply-side rigidities.

International Policy Coordination

The world economy continues to be plagued by the effects of the last decade's dramatic shifts in current account positions, sharp turns in international capital movements, and wide swings in exchange rates. In recent years we have observed that it is possible for highly competitive economies rapidly to become high-cost producers and vice versa, as a result of swings in real exchange rates. Protracted delays in adjustment may not be the rule but neither are they the exception. The temptation to pass the buck. to attack symptoms instead of causes, and to politicize economic issues is not always resisted. With regard to capital movements, we have seen that countries that were flush with recycled petrodollars not so long ago are now struggling to restore their creditworthiness.

Predictable, noninflationary, and growth-oriented policies are necessary but not sufficient conditions for a more stable, sustainable development of both exchange rates and balance of payments positions. We clearly need concerted international efforts, especially among the major industrial countries. to counter these threats to stable growth of the world economy. These efforts should take place within the framework of the existing multilateral financial and economic institutions. Only through increased international cooperation and coordination, based on objective analysis of economic facts and policies. can we achieve our goals of correcting balance of payments imbalances, fostering exchange rate stability, rolling back protectionism, and solving the international debt problem. Only in this way can balanced, worldwide economic growth be put on a firm footing.

The depreciation of the U. S. dollar against the yen and the deutsche mark since the Plaza agreement improved prospects of a return to more balanced current account positions in the medium term, but if I may quote the World Economic

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Outlook: "exchange rate changes are not a substitute for required policy changes." In particular, a reduction of the federal deficit in the United States is indispensable for achievement of a sustainable pattern. On the other hand, surplus countries with appreciating currencies must pay attention to an adequate level of output and growth, in particular where the domestic economic situation permits them to do so. The measures announced by Japan are to be welcomed for this reason.

Based on the individual interests of all countries concerned, policy coordination should focus on the mutually consistent development of all economies in order to achieve a sustainable pattern of balances of payments. International surveillance activities should aim at identifying the conditions for such a medium-term pattern and at monitoring the compatibility of short-term economic policies of individual countries with this pattern.

In this context, I welcome the first attempt at the use of objective indicators in multilateral Fund surveillance in the recent World Economic Outlook exercise. Based on this experience, we should work at improving the analytical framework and the procedures for the use of indicators as a means of strengthening multi­lateral surveillance.

International cooperation is also needed to roll back trade protection. The present tendency toward increasing protectionism and bilateralism in foreign trade, as well as more frequent recourse to countertrade practices, is in blatant contradiction with our declared orientation toward open markets and with effi­ciency and fairness. It adds to the urgency of stronger international action in a multilateral context toward restoration of free trade. In this respect the new round of trade negotiations within GATT is very important and we should join forces to ensure its success.

Debt Strategy

The debt problems of many developing countries continue to require our full attention. Developments since last year, especially the precipitous fall in oil prices, underline the aptness of the case-by-case approach. I fully support the current debt strategy, as reinforced and supplemented by the ideas put forward by Secretary Baker a year ago. Progress has been made in implementing some elements of this strategy. Both the IMF and the Wold Bank are now actively involved in supporting growth-oriented adjustment programs in various major debtor countries. It is gratifying to note that such programs in many instances are in place. and in others are about to be implemented.

Current adjustment efforts by debtor countries should be continued, and in some cases intensified. in order to improve growth prospects and debt-servicing capac­ity. Such adjustment is also indispensable to diminish capital flight and should lead to a repatriation of flight capital. Only under such conditions can creditor confi­dence be restored.

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However, the current debt strategy requires that all the parties involved assume their share of common responsibility. The commercial banks should follow up their support of the current debt strategy by jointly increasing their net lending to those debtor countries that have adopted comprehensive adjustment programs. Adjustment programs can only succeed when supported by sufficient financing. In addition, both industrial and developing countries should intensify efforts to roll back trade protectionism, which forms a major obstacle to a satisfactory solution of the debt problem. Finally, the industrial countries have a special responsibility in reducing real interest rates by following sound fiscal policies.

It is of crucial importance that the IMF and the World Bank continue to playa prominent part in solving country debt problems, and that they should be enabled to do so. Taking into account the current magnitude of the problems of a number of these countries, especially those that are heavily dependent upon oil for their export earnings, access to Fund credit should remain unchanged in 1987. How­ever, I continue to view the policy of enlarged access as being of a temporary nature, to be normalized by the time of the Ninth Quota Review.

General Capital Increase

The World Bank substantially increased its commitments during the last fiscal year. In fact, commitments turned out at the upper end of the original planning range. I want to praise both President Conable and his predecessor, Mr. Clausen, for this achievement.

This brings me to the important issue of the timing of a general capital increase. For the current fiscal year another substantial increase in commitments is projected and the sustainable level of lending may well be surpassed. Earlier it was agreed that the Bank should not be constrained by a lack of capital in meeting future demand. The fact that the past fiscal year witnessed a significant fall in disburse­ments below original projections might appear to make a general capital increase less pressing. The ebb and flow of disbursements, however, are hard to control if the Bank's conditionality is to be maintained. Commitments reveal intentions and possibilities. Moreover, there is an intimate link between the ratio of readily call­able capital to outstanding loans and the capital market status of the World Bank. The paradoxical impression should be avoided of stretching the output of the World Bank to its limits, while procrastinating in providing the necessary inputs. A general capital increase could also increase the leverage of the World Bank vis­a-vis the private banks and debtor countries. Therefore, I think it wise to start negotiations on a general capital increase soon, given the time period needed for reaching agreement and ratification.

At the last Annual Meeting I mentioned the high profits of the World Bank. In the past fiscal year, net income even s~rpassed the preceding year's figures and reached an all-time high. For a development finance organization these profits could be called into question. However, in the current circumstances I welcome them since they preserve the financial strength of the Bank and allow a substantial

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transfer to IDA. If they appear to be lasting, however, reflection on all aspects of the Bank's financial policies would be warranted.

Net Disbursements

During the past fiscal year, disbursements turned out to be much lower than projected due to problems with project implementation and delays in reaching agreement on adjustment programs. Since the Bank adheres to strict condi­tionality, which I support, it can only control the disbursement rate to a certain extent.

Nevertheless, I am confident that the Bank will achieve positive net disburse­ments to developing countries that implement adjustment programs, given the need for both project and nonproject lending.

Low-Income Countries

Turning to the needs of the low-income developing countries I think there are four important points to make:

-Many low-income countries, especially in Sub-Saharan Africa, have-with the assistance of the World Bank-embarked on far-reaching economic reform programs; the programs are essential for the reactivation of productive capacity and the resumption of economic growth over the longer term; success, 'however, also depends heavily on the availability of additional financial resources.

-In this connection it is gratifying to note that the IDA-VIII negotiations have almost been concluded; we welcome the fact that a replenishment of $11.5 billion is now supported by all donors; I hope, however, that it will still be possible to attain a replenishment of $12 billion or more; the Netherlands is willing to consider participation in such an extra effort.

-The structural problems of many low-income countries, especially those in Sub-Saharan Africa, call for close cooperation and coordination between the Fund and the Bank; I am pleased to note that the staffs of both the Fund and the Bank, in close consultation with the borrowers, have drawn up the first joint policy framework papers; the Fund has already committed the first concessional loans under the Structural Adjustment Facility within the con­text of such a joint policy framework; in the future, IDA's non project lending will also be allocated, to the extent feasible, in conjunction with the resources of the Structural Adjustment Facility; not only the Fund and the Bank, but also other donors should so direct their programs that they support and complement to the maximum extent the implementation of a joint policy framework; such coordination should preferably take place within the exist­ing mechanisms of consultative groups or UNDP round tables; at the local level the establishment of joint monitoring committees should be intensified.

-Some problems are beyond the operational scope of the Bank which never­theless deserve serious attention; in particular, I am thinking ofthe deteriorat-

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ing tenns of trade of many Sub-Saharan countries and their impoverishing effects as well as the alanning population growth rates; both deserve proper attention in the competent forums.

Environment

The precarious situation of many Sub-Saharan countries focuses our attention on the importance of environmental issues such as erosion control, reforestation, soil conservation, and watershed protection. These and other similar activities are proving increasingly important to many countries where years of environmental neglect have contributed to their impoverishment. The World Bank itself has recognized that the economic and social return on these "environmental-type" projects can be substantial relative to other projects. Also for good economic reasons, therefore, the Bank should give due consideration to the longer-tenn environmental impact of development projects. This purpose would be served by more economic and sector analyses as well as systematic monitoring throughout the project cycle. I am certainly encouraged to see the World Bank giving more attention lately to the environment, as evidenced, for instance, by its recent action program for forest conservation in Africa and its wildlands management policy.

Netherlands Antilles and Aruba

We are grateful for the recent economic studies by the Bank on the Netherlands Antilles and on Aruba, which on January 1, 1986 became autonomous territories within the Kingdom of the Netherlands. These two reports will be most valuable for the design of the future economic development of the two territories.

Multi/aterallnvestment Guarantee Agency (MIGA)

Finally, I am very pleased with the progress that has been made in establishing MIGA. Many countries have signed the Convention and the Preparatory Commit­tee has already reached agreement on the internal rules and regulations. I hope that MIGA can soon start supporting and promoting private direct investments, which are badly needed and can play such an essential role in the development process.

I want to extend a word of welcome to Mr. Conable; we look forward to working with him. I join other Governors in paying tribute to Mr. de Larosiere. His leadership and comprehension of the issues are outstanding and we shall miss him.

NEW ZEALAND: DAVID F. CAYGILL Governor of the Fund

I would first like to take the opportunity to extend a warm welcome to our newest constituency member, Kiribati, which has recently joined the Fund and the

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Bank. New Zealand is pleased to see the Pacific island states taking an active role in the international arena.

I should also like to thank our hosts here in Washington and to join other countries in extending a warm welcome to Mr. Conable. I congratulate him on an outstanding address yesterday. I believe he successfully encapsulated the current position of the developing countries and the role of the Bank in their development. in a lively and illuminating way. I am confident Mr. Conable will be able to meet admirably the many tasks facing the Bank.

Finally, I would like to pass on New Zealand's best wishes to Mr. de Larosiere. In our view he has provided most effective leadership of the Fund over the last eight years and has contributed in a large measure to the central position the Fund holds in the financial and developmental world today.

I think one of the most extraordinary aspects of these Annual Meetings, and of the Commonwealth Finance Ministers meeting I attended last week, is the extent of the broad agreement between member countries about the measures needed to improve each country's position.

In listening to the speeches made here by ministers of finance from all over the world and by the heads of the most prominent global multilateral institutions, it seems that there is little disagreement over the fundamental policies that are required. Everyone supports the need for comprehensive structural change in many if not most economies in the world. Nobody is arguing that protectionism is a good thing. Quite the reverse, it is now generally agreed that it must be rolled back as a matter of urgency. The agreement reached at Punta del Este has been widely welcomed. There is to my way of thinking an unusual degree of comple­mentarity between our collective positions.

Where, I think, there is some divergence is in the length of time being taken to implement adjustment policies. There seem to be two main reasons for delay. First, the extent of the adjustment required is significant in many cases. Many countries are concerned about jumping in at the deep end of the adjustment process and finding that it is not possible to stay afloat. Radical change can be daunting. Second, and related to the degree of change required, there are fears about the maintenance of popular support for structural change. Change usually involves difficult social adjustments, and the risks to the government promoting it can be high.

With these concerns in mind let me briefly outline to you the position New Zealand is in at present. The New Zealand Government has undertaken a program of structural reform, the like of which New Zealand has never seen before. It is fair to say that we have succeeded in moving faster and more comprehensively in implementing adjustment policies than almost any other country. And we have done so to date without losing the support of the New Zealand people. We have, I should add, had to come up from a long way back. The rest of the field had passed us in many respects some years ago.

In 1985 we floated the New Zealand dollar and have succeeded in moving from a fixed to floating regime, even with a popUlation of only 3 million people. There

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have been extensive deregulation in many sectors of the economy. We have lifted comprehensive controls on interest rates, prices, wages, rents, and dividends and have outlawed restrictive trade practices in many professions. As many bankers present may know, we have almost totally deregulated our financial sector, including the lifting of restrictions on banking and sharebroking. There has been a rapid development of the New Zealand capital market, which will, I fully expect, become more and more integrated with world markets over the next few years. These moves have been supplemented by the removal of controls on foreign investment, including those in our domestic airlines.

We have exposed our manufacturing and agricultural sectors to much needed competition by removing quota restrictions against most imports and by axing farm subsidies and export incentives. By next year the average tariff on imports will have been reduced from 25 percent to 15 percent in three years. Just today we have implemented a comprehensive taxation reform, including the introduction of a 10 percent value-added tax on all goods and services, together with matching reductions in the rates of personal income tax.

In virtually all this change we have acted unilaterally. We have not sought reciprocal concessions from our trading partners. We undertook this program because we believe it is the correct and best thing for us to do and because we believe it will be to New Zealand's advantage in the medium term. We decided that we could not wait for our trading partners to undertake similar reform. We needed to reap the benefits for New Zealand sooner, rather than later.

Of course, we have by no means completed our adjustment process. We are in the middle of a program of revitalizing our public sector. We have undertaken systematic reviews of public expenditure and are proceeding with significant corporatization of public utilities. We also have more work to do in labor market reform, but this process too is under way.

The New Zealand economy had deteriorated progressively since the early 1970s. The extensive use of policies that were short term and demand-driven had left us economically stranded. Bold action was necessary, and it has been under­taken. We are confident that we will see a more flexible, stronger, and more competitive economy as a result.

Some may argue that it is harder for larger nations to mobilize their economies in such a fundamental way. We would respectfully regard this point as unproven. In fact, the recent experience in some larger South American countries in their comprehensive and drastic attack on inflation suggests that a greater degree of success is possible than that arising from a more cautious and painfully drawn-out method.

To summarize, I have attempted to make just two points here today. The first is that there seems to be a very considerable degree of agreement on the policies necessary to lift the performance of our economies. The second is that the New Zealand experience suggests we do not need to be lukewarm or halfhearted in implementing those policies. In fact, I would leave you with the suggestion that

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the chances of success are greater when the commitment to change is undertaken vigorously and comprehensively.

NORWAY:KNUTFRYDENLUND Governor of the Bank

Speaking on behalf of the five Nordic countries, Denmark, Finland, Iceland, Sweden, and Norway, I would like to begin by welcoming Kiribati and Poland as new members of the Bank.

We are pleased to congratulate Mr. Conable on his appointment as President of the World Bank. We have listened carefully to his opening statement and his reflections on Bank policies. The Nordic countries certainly support his program for sustained development and his objective of maintaining the Bank as the most important multilateral development institution. The President's concept of devel­opment coincides with long-standing Nordic positions, and we look forward to collaborating closely with him.

The economic prospects for most developing countries are not encouraging, and the international economic environment has not been conducive to the promotion of growth and development in Third World countries. There have been positive developments, such as the reduction in interest rates. These, however, have been offset by a considerable worsening in the terms of trade, owing primarily to all­time low commodity prices. As President Conable did yesterday, I should like to stress the link between finance and trade, which clearly illustrates the close relationship between economic growth, export earnings, and debt-servicing capacity. Developing countries are frequently urged to pursue export expansion and diversification strategies at the same time erosion of the multilateral trading system takes place. We therefore support the new round in the framework of GAIT, which should reinforce GAIT and serve the interest of all countries, developed and developing partners alike. Also in the area of commodities there is an urgent need for multilateral cooperation and policy measures.

The Nordic countries continue to stress the fact that satisfactory economic progress in the developing countries can be achieved only if economic growth in the industrial world is improved. Better coordination of economic policies among the pace-setting countries is urgently needed. In the present conjunctural situation Europe and Japan could contribute more to global economic growth.

One of the most important economic and political problems facing us today is the increasing Third World debt and the heavy burden it places on the countries affected. The Nordic countries believe that the responsibility for dealing with these issues must be shared by the debtor and creditor countries, commercial banks, and multilateral finance institutions. For some of the poorest countries, the debt-servicing burden has reached a critical level, presenting a serious obstacle to

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development. The gravity of the problems facing these developing countries requires renewed and strengthened efforts on the part of the international commu­nity, including the consideration of additional debt relief measures.

The Bank has responded quickly to the call for increased lending for economic growth in the heavily indebted countries. The Nordic countries have supported this initiative, and we welcome the initial progress made. In a joint effort, the participation of the commercial banks has been lagging behind, and their share of net financial flows has been drastically reduced over the last few years. On the other hand, many developing countries have undertaken strenuous efforts to reorient their economies, and the multilateral finance institutions have clearly increased their lending. It would be in the self-interest of the commercial banks to join in this common effort. The World Bank has an important catalytic role to play in this respect.

The necessary reorientation of the economic policies in many developing countries has led to a rapid increase in the support of the World Bank for policy reforms. Adjustment lending is a valuable instrument and corresponds to needs equally recognized by the borrowing countries themselves. It is, however, impor­tant that adjustment programs incorporate longer-term development objectives and reconcile objectives of growth and poverty alleviation.

The main objective of adjustment is to promote a more effective use of scarce resources. This is necessary to achieve long-term development objectives. How­ever, adjustment programs often imply painful reductions in imports, public expenditures, and employment and are very likely to increase the hardship of the poorest groups of the population. Many developing countries have repeatedly stressed the danger of political and social destabilization inherent in a too harsh economic adjustment program. The Nordic countries therefore agree with the Bank that more attention should be paid to the social implications of these programs. The redistributional effects of reforms must also be carefully consid­ered, and policies aiming at the creation of income opportunities for disadvantaged groups must be given due attention. The Bank's recent report, Poverty and Hunger, contains several valuable recommendations to this end.

In the present situation net inflows to Third World countries are vital. It is increasingly important that the World Bank maintains its development perspec­tive, that is, the promotion of economic growth and the alleviation of poverty. The Bank's performance as a force for development will have an impact on continued public and political support in the Nordic countries.

We think the World Bank has demonstrated its ability to adapt to changing needs. After approximately five years of experience with adjustment lending, the Bank has now completed its evaluation report on this experience. We will certainly study its findings with particular attention.

In the Development Committee, the Nordic countries have proposed that the Committee, at its next meeting, undertake a study on structural adjustment and poverty orientation on the basis of a special report by the Bank. I have full confidence in the ability of the Bank to translate the lessons from such an exercise

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into even better development policies. The Bank will then be well equipped to design programs and projects which can reinforce the development character of the institution.

Having said this, I think we can all agree that the main focus of the Bank will continue to be project lending. There is, however, an important link between adjustment and project lending. The improved economic environment resulting from adjustment will also benefit the Bank's project-financing activities. At the same time, a growth-oriented adjustment calls for increased project lending to guarantee that the longer-term objectives are achieved. As pointed out in the Bank's last report on Sub-Saharan Africa, Bank programs should strengthen support for sectors with long-term productivity gains, such as health and educa­tion.

Sustained economic development requires a dynamic private sector. However, an efficient public sector is usually a precondition for a thriving private sector and equitable social and economic growth. Many countries have successfully followed strategies with an effective blend of public and private sector investments. No particular form of ownership structure is thus in itself a universal key to successful development.

To achieve sustainable economic growth, it is important to incorporate environ­mental considerations in all phases of the project cycle. The irreversible effects of environmental negligence will seriously hamper the achievement of development objectives. The Bank has increased its awareness of environmental problems and has launched measures to improve its performance in this area. The Nordic countries encourage the Bank to strengthen these efforts, which should include consideration of indigenous populations.

For a long time, the Nordic countries have advocated that the role of women in development should be given greater attention in the work of the Bank. The full participation of women in development is necessary for making efficient use of available resources. Many agricultural and rural development projects have failed, simply because they were designed in a way which ignored the central role of women in agriculture. The Bank has made only modest progress in integrating the role of women in preparations of programs and projects. I was, however. encour­aged by the importance the President attached to this matter in his speech. We also support him on the need to stress population concerns as a central issue in the development process.

The development objectives of the Bank require provision for adequate resources to effectively support growth-oriented policies in the borrowing coun­tries. The need for increased resources is perhaps most pressing for the poorest countries. Concessional capital flows to low-income Africa were largely stagnant from 1980 to 1985. Such flows need to be substantially expanded if Africa is to recover from its economic crises.

The replenishment of IDA cannot therefore be considered as entirely satisfac­tory, in spite of the relative success of the negotiations given the point of departure. We regret that the level in commitments from IDA will not be more in

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1990 than it was in 1980. In addition, the hardening of terms implies that the concessional value of IDA credits has been reduced.

We also regret that the replenishment negotiations for IDA-VIII have not been completed in time for the Annual Meetings. However, we hope that a total replenishment in excess of $12 billion is within reach, if expected voluntary contributions are taken into consideration. We encourage all donors to contribute toward this end.

The World Bank has made realistic projections for its lending program over the next few years. The Nordic countries maintain that the Bank should be provided with the necessary resources to attain the upper end of the planned lending levels, which represent a potential level of lending above $20 billion annually. The Bank's assessment is that its present capital base allows for an annual level of sustainable lending at $14.5 billion. At the present rate of lending, this level will be passed during the present financial year.

The projections show that the Bank soon will be a net recipient of resources. This gives reason for grave concern. To maintain the Bank's ability to continue providing substantial net resources to the developing countries, the negotiations for a general capital increase must therefore start immediately and be finalized by June 1987, at the latest. The Nordic countries will support and participate fully in the general capital increase.

In conclusion, I have mentioned our priorities for action in the coming years. We join in President Conable's broader goal as presented yesterday: to endow the work of the Bank with the sense of urgency that springs from taking sides in a great and righteous cause.

PAKISTAN: MIAN MUHAMMAD YASIN KHAN W ATTOO Governor of the Fund

I would like to join my colleagues in extending a warm welcome to the Governments of Kiribati and Poland who have joined our ranks by becoming members of the Fund and the Bank since the last Annual Meetings were held in Seoul.

I also take this opportunity to welcome Mr. Con able as the President of the World Bank and offer my congratulations on the assumption by him of this important office. He assumes leadership of this great institution at a critical stage in the relations between the countries of the North and the South. Serious problems confront various parts of the developing world and we need firm leadership from this institution. I am confident that a man with Mr. Conable's wisdom and experience will tailor the policies of the World Bank to help achieve a better future for the global economy.

Mr. de Larosiere' s decision to retire from the Fund has created a vacuum which will not be easy to fill. He has rendered extremely valuable service to the international community by providing leadership at a time when a strong multi-

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lateral hand was needed to guide the world economy toward financial stability. Mr. de Larosiere will long be remembered for his accomplishments.

The Annual Reports and other documents issued by the Fund and the Bank for these Meetings show remarkable progress made by the family of Bretton Woods institutions. The reports embody a clear enunciation of the issues faced by the world economy. The lucid treatment of these issues in the opening speeches by the President of the Bank and the Managing Director of the Fund have provided a sound basis for our deliberations in these Meetings.

We are also inspired by President Reagan's inaugural address which provided deep insight into the problems that confront us today. We particularly welcome his forthright denunciation of protectionist policies.

We meet at a time when the world economy, although in the fourth year of recovery from the deep recession of 1980-82, is still in an uneasy and unsettled state. Developments in the first half of 1986 have compelled the Fund staff to revise downward its projection for economic growth for the current year. The growth of world economy in 1986 initially projected at 3.1 percent has now been scaled down to 2.9 percent. Industrial countries are now expected to grow by only 2.8 percent while the projection of the growth rate of developing countries has been reduced to 2.7 percent. In other words, the expected rate of growth in the developing world is only marginally above the increase in population; conse­quently, once again, per capita incomes in developing countries will not improve. Such growth rates are more akin to a growth recession than a recovery. Moreover, average growth rates of developing countries disguise the disparities among the various regions. China and some other Asian nations including Pakistan have contributed to the positive average growth rate for the developing world, while most developing countries in Africa and Latin America continue to suffer stagna­tion and show no sign of recovery. Their problems must be addressed urgently and with imagination but, at the same time, nothing should be done to hamper the prospects of the countries that have, until now, done well.

The slowdown in the rate of growth in developing countries has resulted from a combination of circumstances including very modest expansion in the industrial world, low levels of official and private lending, sharp reductions in commodity prices, and weak prospects for export earnings. Widespread use of agricultural subsidies by industrial nations has distorted the markets for traditional exports of developing countries and is threatening to play havoc with their adjustment efforts. Commodity prices have fallen to unprecedented low levels. Increased protectionism has restricted industrial exports from newly emerging developing countries. A fundamental change is required in the developing countries external environment before they can return to the path of sustained development. The problems confronting us are enormous, and a serious effort will have to be made by developing and developed countries alike, in a spirit of cooperation and interdependence, to restore development in the Third World.

For the revival of meaningful growth in the world economy with full participa­tion of the industrial countries and the developing nations, it is necessary that the

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severe decline in net transfer of resources to the developing countries is reversed. In some countries the transfer is already negative, implying a flow of resources to the industrial world and in some others, this situation of negative transfers may be reached very soon. The World Bank and its affiliates have a vital role to play in this connection. At a time when transfer of private resources to developing countries is declining sharply and the prospects of any appreciable increase in bilateral economic assistance are not good, the quantum of Bank and Fund lending and their catalytic role in inspiring confidence among other lenders has assumed crucial importance.

Even though Bank lending, after remaining stagnant for two years, registered an increase in 1986, the impact of enlarged commitments on disbursement will take some time. Disbursements by the Bank during 1986 were roughly $400 million less than in 1985. The net transfer of resources to current borrowers by the Bank and IDA declined during this period from $4.9 billion to $3.2 billion. The problems faced by many developing countries were magnified by these trends. The level of lending by the Bank should be greatly increased and arrangements should be made to sustain the higher level of lending in the medium term. It should be ensured that the net disbursements from the Bank do not become negative in case of any of its current borrowers. My delegation fully endorses the recommen­dations of the Development Committee for a Bank lending program of $45-50 billion over the three-year period of 1986-88 rising to an annual level of $21.5 billion by 1990. In this context the general capital increase of the World Bank assumes great urgency. I am pleased at the consensus reached in the meeting of the Development Committee that the Bank will need a substantial increase in its capital in order to sustain the program which was earlier endorsed by Development Committee Ministers. I urge that this question of general capital increase be attended to expeditiously so that the necessary formalities can be completed in time, and the Bank is in a position to step up its lending program to meet the pressing requirements of structural adjustment in heavily indebted middle-income countries without constraint on its lending to other countries for development finance.

The role of the World Bank is critical for the revival of growth in the medium­and high-income countries. However, for the low-income countries, the transfer of resources on concessional terms remains the central issue. It is a sad reality that net flow of aid from the members of OECD has continued to fluctuate between 0.35 and 0.40 percent of the GNP of the aid donors for a long period. The crying need for large-scale concessional resource flows to Africa has not been met by an increase in overall flows, but by a reallocation from other poor countries. The OECD estimate that net disbursement of concessional resources over the next few years is not likely to increase by more than 2 percent a year is extremely disappointing in the light of a global consensus that a substantial increase in aid resources is required for resumption of sustained growth in low-income countries. The task force set up by the Development Committee which submitted its report last year urged the world community to redouble its efforts to increase the volume

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of concessional resources. The important point about the report was the unanimity of views on the part of the officials and experts appointed by the governments both from donor and recipient countries. This consensus on the effectiveness of aid utilization and the useful role it plays in world development is an important starting point for building up the political will for increasing concessional aid in donor countries.

IDA has been the main vehicle for providing concessional assistance to low­income developing countries. It has established a record for aid effectiveness and contributed to healthy growth particularly in Asia. There is now a pressing requirement for concessional finance in Africa. However, increase in the flow of aid to Africa should not be allowed to reduce the flow of aid to Asia. Any reduction in resources flowing to the low-income countries of Asia could disrupt their transition from poverty to sustained growth. The Eighth Replenishment of IDA, is. therefore, of vital importance to poor developing countries. Efforts should be made to complete the process of replenishment as soon as possible. The proposed $12 billion is the minimum that would meet the requirements of developing countries and I would urge that serious consideration be given to increasing this amount to ensure that the present level of inflow of funds to recipient countries is not reduced. While I am pleased that. through additional voluntary contributions by some donors, it may be possible to achieve a level of replenishment higher than $12 billion, I am concerned that the IDA Deputies have agreed to recommend differentiation in terms between different groups of borrowers. If this were to happen, the universal character of IDA would be seriously compromised. I would urge that the level offunds received by eligible countries in the past should at least be maintained in real terms and the credit terms on which funds are provided should not be hardened.

The Bretton Woods system has shown great resilience in meeting the challenges of a rapidly changing international economic situation. It has time and again demonstrated the capacity to introduce changes from within, consistent with the continually evolving world economy. In this context, I would strongly urge the need for accelerating the process for arriving at a consensus on the reform of the international monetary system while taking into consideration valuable reports by the Group ofTen and Group of Twenty-Four. I hope that before reaching the stage for decision making, arrangements will be made to ensure that all points of view including those of the developing countries are fully taken into consideration as structural changes evolve in the system. A joint examination at the Deputies level by representatives of the Development Committee and the Interim Committee may provide a way for narrowing the differences and arriving at an urgent consen­sus ....

. . . The external debt problem is one of the most important issues facing the developing countries. Their indebtedness has grown rapidly during the past few years. The external debt of capital importing developing countries is projected to reach nearly $1 trillion in 1986. The problem has recently received a great deal of attention and innovative suggestions have been made for solving it. The most

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notable of these suggestions is the Baker initiative. While the recent decline in interest rates has provided some relief, the ratio of debt to export of goods and services is projected to rise from 169 percent in 1985 to 180 percent in 1986. The ratio of service payments of developing countries on long-term debt to exports increased from 20 percent in 1984 to 22 percent in 1985. While at times wrong policies and reckless borrowing of an individual country might have contributed to the problem of debt, the harsh external environment over which the borrowing countries had no control has mainly contributed to it. For a successful resolution of the debt problem there is now the need to adopt a mutually supportive policy to which all parties contribute and assume their respective responsibilities. The aim should be to restore the creditworthiness of the borrowers by supporting their growth-oriented policies, rather than by denying them resources and finance that would only thwart the process of growth and make the problem more acute.

It is now generally recognized that economies of developed and developing countries are interdependent. Economic problems of our rapidly shrinking world can only be resolved on the basis of international cooperation. It is essential that there should be coordination of economic policies among the developed countries as well as between the developed and the developing countries. The Bank and the Fund provide us with excellent forums for deliberation on economic issues. Unfortunately it has been difficult to arrive at international consensus on the shape of a new world economic system, as our international policies are being conducted on the basis of short-term national interests and it is not easy to reconcile these interests. May God give us the vision and statesmanship to take decisions in the context of the long-term interest of humanity, so that the brotherhood of man is not a mere cliche-and we leave for our children a better world than we found.

PAPUA NEW GUINEA: JULIUS CHAN Governor of the Bank

Ten years ago, I spoke for the first time as Governor, representing a newly independent Papua New Guinea, at the Annual Meetings of the World Bank and the International Monetary Fund in Manila.

I fondly remember the warm reception we received. Now it is our tum to welcome new members, and I join others before me in welcoming Poland and a neighbor and Pacific friend, Kiribati, as the newest members of the World Bank and the International Monetary Fund.

I would also like to express my cordial greetings to the new President of the World Bank, Mr. Conable, and to thank the host country for the excellent arrangements they have made for our meeting.

Much has happened in Papua New Guinea over the past decade, but essentially it has been a period of construction and consolidation since our attainment of independence in 1975.

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As is the case for all members of the international trading community, our economic progress has been determined in large part by external forces. Because we are a very small and open economy, this outside influence is particularly important to us.

A healthy world economy injects vigor and life into all its members. The reverse is also true. It is crucial that recent efforts at international dialogue on the world economy be sustained. Better policy coordination of the wealthy countries is crucial.

The world enjoyed a long period of rapid and sustained growth after the Second World War. But then, the period of the 1970s saw the average GOP growth rate for the industrial countries fall to 2.8 percent a year. This industrial world slowdown was due in part to rising world oil prices.

The industrial economies have themselves only recently clambered out of the 1980-82 recession. This recovery shows signs of faltering. It is vital for all of us that this faltering be forestalled. The industrial countries must continue to intensify their current efforts to invigorate their own economies. This is especially so of the large surplus countries such as Japan and the Federal Republic of Germany.

The developing countries have also felt the pain as world aggregate demand dropped and world commodity and metals prices plummeted. Most developing countries have experienced very poor growth performances in recent years.

In many areas we are still feeling the pinch. For example, the price of copper, a very important export for Papua New Guinea and for many other developing countries, has never recovered to the peak levels of the late 1960s. Nor does it seem likely to do so in the immediate future.

"Times are tough now" is a sentiment echoed in many of the speeches I have been listening to. Papua New Guinea is no exception to that generalization. We too have fallen prey to volatile commodity and metal prices.

If there is one message that I wish to share with the other developing countries, it is simply that we should not expect a recovery by the industrial countries to bring demand for all traditional products back to those levels previously experienced. The demand functions of the industrial countries are continually changing as new goods and substitute products enter the marketplace. Developing countries need to be able to quickly adapt to changing technology and world circumstances, if they are to progress.

Optical fibers and other innovations have cut the industrial demand for copper, and growing supplies of vegetable oils-particularly soya bean and palm oils­have limited the recovery of coconut product prices. Many other products have suffered a similar fate, for similar reasons. This' 'substitution factor" is important because its impact is permanent. Cyclical upswings are unlikely to compensate entirely for these permanent falls in world demand for particular products. This is a reality that many developing nations must come quickly to grips with.

The only viable long-term response to the ~ubstitution problem is to develop new products and markets. The new activities will help to compensate for reduced demand for traditional products-the diversification inherent in developing new

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products will reduce the risks in future. In Papua New Guinea we have been diversifying our export base and exploring avenues for the introduction of new industries.

During the late 1970s and early 1980s some developing countries responded to declining demand for their products by adopting the easy option-borrowing to fill the growing income gap rather than cutting back on imports and generally restraining expenditure.

A large pool of readily accessible funds, largely the product of OPEC oil revenues, and contemporary economic thinking facilitated these countries' rush toward growing indebtedness. It was believed that, if enough money and capital were pumped in, then these economies would magically "take off" on a path of self-sustaining growth. Now, the repercussions of those overly optimistic days are clearly evident in the debt service ratios of various member developing countries.

The world as a whole must live with the consequences as developing countries face the unenviable task of lifting themselves out of their trough of indebtedness and, in many cases, of persistently low growth rates. Responsibility for the success of these efforts lies with all members of the world economy.

The benefits of any industrial growth continue to be diminished by the onset of the "new protectionism" since the early 1970s. The record of the 1980s continues to be poor, with growing levels of protection evident, especially through nontariff barriers and increased recourse to bilateral sector-specific arrangements.

There are many areas of ongoing controversy. Agricultural assistance schemes applying in the EC, Japan, and the United States are prominent, as are the Multifiber Arrangement and a host of other restrictions in critical areas such as clothing, footwear, automobiles, and other manufactured goods.

Our own position is to support the general liberalization of trade. While it is true that a range of preferential trade schemes exist for many developing countries, we see these as being very much second-best options, often leading only to changes in the direction of trade rather than to increased volumes-and certainly not to increasing competition. We would prefer to compete in a freer system rather than rely on preferential schemes-provided meaningful trade reform can be achieved. Of course, until real changes occur in world trading patterns the question of market access remains important, especially for newly independent states.

In this regard, the recent GATT talks and the role of the international organiza­tions are very important. The proposed new GATT round is crucial for several reasons. First, the Talks must call to answer those industrial countries which have failed to honor their obligations under the Tokyo Round with regard to freeing-up trade in manufactured goods. Second, the talks must continue the process of reducing the restrictions on agricultural trade. Finally, the talks must make some progress on freeing-up trade in services.

We are heartened by apparent progress made in Punta del Este. However, our optimism is tempered by a realization that much of the developed world has yet failed to implement promises made in the Tokyo Round. We are also frustrated that a four-year time period has been allowed for the proposed talks to drag on.

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Let me now tum to questions of aid and resource flows. I would like to take this opportunity to observe that there appears to be a growing reluctance on the part of many donors to fulfill the old goal of contributing 0.7 percent of their GNP to the developing world. This goal seems to have been foresaken, even though it is still written into the political manifestos of many of the political parties currently in government around the world.

Increasing resource flows to the developing world, including aid flows, remains of crucial importance. Disappointment at the lack of progress has produced a general malaise in the developing countries, and aid fatigue in the developed ones.

Some of those who do not want to provide aid for their own domestic reasons are now trying to justify this by inappropriate reference to theoretical concepts, along the lines of the "'Dutch aid syndrome." This argument claims that it is possible to get too much capital clustered in an oversized public sector, leading to excessive wages and overvalued exchange rates among other distortions, thus staving off the private sector.

Independence from the need for aid is to be preferred. In any case, we certainly favor providing the private sector as much scope as possible to operate. In our view, it is the private sector that ultimately will provide the growth that will alleviate our difficulties. We therefore must avoid any possible adverse effects of aid, implausible though that might seem to developing countries. Those of us who deal daily with massive problems of illiteracy, poor health, inadequate transport systems, and so on have considerable reservations about the bland application of such all-encompassing theory to our economies.

There are real constraints on our ability to pursue an effective restructuring and growth program.

Even our traditional and generous neighbor Australia is going through difficult economic times. As a result, the Australians have recently decided to go back substantially on a signed international aid agreement between our two countries. Such creation of uncertainty by wealthy nations has been attacked for years in forums such as this, because of the difficulties implied for good planning in the developing world.

We live in a turbulent world in which we are frequently buffeted by the ebbs and flows of world trade, capital markets, and the policies of industrial countries. This volatility feeds instability and uncertainty into the system. Investors are hesitant and afraid to take risks. Government budgets and business plans are formulated on tentative forecasts of expected export receipts and domestic demand.

Amid this muddle of uncertainties, it is important that other sources of income assistance, such as aid flows, be kept as stable and predictable as possible. There is no argument for tying aid flows to the vagaries of trade cycles in the developed countries.

Direct aid is not the only concern. The institutions also have an obligation and an important role to play. We are concerned at the trend toward decreased resource flows between the developed and developing worlds. We view with alarm fore­casts that suggest major institutions such as the Bank and the Fund may shortly

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reach the stage where they drain more resources from the developing world than they send to it. We face a very dangerous and conflicting future if this trend is not reversed.

The institutions must be provided with adequate resources and their policies must be realigned to allow speedy and productive use of these resources in order to cushion the huge impact of economic and human catastrophe. The Replenishment of IDA-VIII must be supported by this meeting. A figure of $12 billion should be regarded as a minimum starting point. Increased lending by the Bank to a level of at least $50 billion over the period 1986-88 is also crucial.

We support the Baker proposals put forward last year to increase resource flows to indebted developing countries, in a growth-oriented framework. However, we are dismayed at the slowness in implementing the proposals. We would also like to see more general application to the developing world.

The problems I have outlined in relation to growth, trade, commodity prices, aid, and resource flows are of significant concern to the developing world. However, as the 1986 World Development Report noted, the next five years provide hope for a period of "hesitant recovery" in the world economy. the speed of which will depend on the policies we all pursue.

Lower oil prices. lower inflation, declining interest rates, and currency realign­ments still provide a potential base for sustainable growth, the prospects for which would be helped by some modest reflation in surplus countries such as Japan and the Federal Republic of Germany. Good budget management and sensible eco­nomic policies. combined with the continued generous support and assistance from the Bank and others, will see us through the present period of austerity, to reap fully the benefits of the hoped-for "hesitant recovery."

We have all experienced the many lessons of history not to make ourselves overly dependent on the whims of the industrial economies-they have their own interests to look after and will often adopt narrow policies to promote these interests. The resurgence of protectionist tendencies throughout the world is a case in point.

International financial relationships constitute something of a partnership in growth between countries. The economically powerful industrial economies are inevitably the leaders of these partnerships. But that is no excuse for timidity or passivity on the part of the developing economies. Good policies, strong economic management. and innovative investments on the part of the developing countries can play a significant role in invigorating the world economy and in turning a hesitant recovery into a dynamic one. We have very little choice and cannot continue to pray for money or hope for generosity from the giants.

Let me now turn briefly to discuss the role of the Bank and the Fund, in the current world climate. and especially their role in my own region of the world.

While we have valued the services of the Bank and the Fund in our establish­ment phase. the policies of both organizations have not always been conducive to our needs as a small Pacific state. The international organizations and those highly priviledged and paid individuals who work for them must develop greater convic-

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tion and vision in formulating and implementing development strategies. The capacity for complex theorizing on global. regional. and sectoral issues must be converted into greater understanding of the realities of underdevelopment at the level of nations and individuals ....

. . . In regard to the Bank, a particular concern of small island countries, such as my own, is that even if increased resources become available, the small often have difficulty getting access to them. The needs of the small are often brushed aside because of administrative and other difficulties of the large institutions. We need to set up very high-powered but appropriate administrative systems to assess and service projects even down to the level of mini-loans. For such projects as small wharves, small hydropower schemes. and health centers. sometimes ongoing and supervisory costs of such projects exceed originally planned targets. The needs of our people are no less pressing if not greater than elsewhere. Many of us must try to cope with poor resource bases, illiteracy, and poverty.

The Bank could do much for the small states by rethinking the question of who gets access to IDA. Current definitions based on adjusted per capita income are inappropriate and in need of urgent revision to take account of the pressing problems of smal.l states.

Many of the smaller Pacific states consider the Bank and the Fund could playa far greater role in the strengthening and development of key institutions in the region. Much Bank lending has been very much one off, and ad hoc, without the development of coherent overall approaches. Many nations would like to see the Bank play a much expanded role in the formulation of appropriate planning capacities and the development of skills within the island countries.

In view of recent aid cutbacks infticted on ourselves and other Pacific nations we would like to diversify and expand the sources of our aid. We would like the Bank as a matter of urgency to appraise the feasibility of establishing an aid consultancy group to better channel and coordinate forms of assistance coming to the region. There may well be a role for the Bank in managing and providing the Secretariat for such a group.

In my own region of the world. the Bank could very much improve its development impact by establishing a regional office for the Pacific. The role of the Asian Development Bank has been welcomed and will continue to be sup­ported. However. only by setting up an office of the World Bank with adequate resources can we hope to properly coordinate and plan our approaches to c?nces­sional funding. I would like to propose here and now that Port Moresby in Papua New Guinea be chosen as the site for such an office. The office could also deal with the aid consultancy group I have already referred to.

Let me conclude on a philosophical but factual testimony of the world all of us aspire to mold. It seems a regrettable fact of life that, in spite of all good intentions. we cannot ever achieve total equality. It appears there will always be rich and poor. both at the level of individuals and countries. Our vision must be set at considerably improving the living standards of the poorest groups. moving them to

a higher plane of existence. The fortunes of the rich and the poor are heavily

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interrelated. If the poor are not kept too poor to prevent them from wanting and consuming the products of the rich, we have the potential to coexist happily together on this planet, despite our natural and obvious differences. It is time to strive toward improved equity and recognition that the abundance of the earth's resources must be shared. The alternative is bleak.

PARAGUAY: CESAR ROMEO ACOSTA Governor of the Bank

On behalf of the Government of the Republic of Paraguay we have the honor to convey our most cordial and friendly greetings to the Chairman of these Annual Meetings, to the President and Executive Board of the World Bank, to the Managing Director and Executive Board of the International Monetary Fund, and to the Governors and Delegates of the member countries and participating institu­tions.

The Forty-First Joint Annual Meetings furnishes a fresh opportunity to consider the factors that hamper, first, the implementation of enlarged technical and financial assistance policies and, second. the strengthening of the multilateral institutions and thereby access to their resources by the developing countries on more flexible terms.

The new efforts accomplished to provide these institutions with instruments for expanding their financing programs have achieved some success; however, some important issues remain on which short-term solutions are needed in order to achieve solid progress in assistance to adjustment programs that require strong financial support.

To achieve this we must ensure that members' participations in the increase in the Bank's capital and the replenishment of resources of the International Devel­opment Association are equitable and are large enough to enable the Bank to playa greater catalytic role in the transfer of resources to the developing countries.

In our view the increase in the capital of the World Bank will foster more resolute participation by the commercial banks in loan financing. We note with concern that, despite the recommendations of the Development Committee, official development assistance has not been sufficient to support the adjustment process of the developing countries successfully.

World Bank financing needs to be increased in order to reverse the recent trend of net transfer of capital recorded recently by the borrowing countries. Assistance to the less developed countries will have to be based on criteria of broad conces­sionality in order to deal with the problems that stem from the structural rigidity of their economies.

Turning to the world economic environment and the prevailing international financial conditions, we consider that trade protectionism should be abolished and appropriate interest rates established in order to improve balance of payments, current account situations, and increase external debt service capacity. The

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prospect of sluggish economic growth in the industrial countries in the next few years is cause for concern because of the adverse repercussions it will have on the developing countries in the form of deferred investment and loan decisions ....

. . . I should like now to make a few remarks concerning the recent economic situation and prospects of my own country. As in most countries with a limited market, particularly those which. like Paraguay. are eminently agricultural and exporters of raw materials and semifinished products, Paraguay's economy is influenced to a significant degree by the aggressive protection and subsidy policies that are being increasingly applied by the industrial countries and their distorting impact on world trade.

In the face of this situation of uncertainty, and despite the difficulties of applying corrective measures to its economy, Paraguay has been making very large efforts to raise and consolidate the quality of life of its people.

The economic growth experienced in the 1970s was succeeded by a sudden period of stagnation in 1982 and 1983, followed by partial recovery of 3.1 percent in 1984, 4 percent in 1985 and an estimated 3 percent in 1986.

Domestic prices have been subjected to pressures due to an expanded money supply resulting from the increase in public current and capital expenditures and the difficulty of compensating for these through budgeted fiscal resources. The reduction in goods and services supply depressed aggregate domestic demand. The deterioration in import capacity that accompanied the rise in domestic liquid­ity boosted the annual inflation rate from 25 percent in 1985 to 35 percent in 1986.

The international trade prices index has shown signs of deterioration in recent years, especially 1986. The prices of raw materials are falling and those of imported products are rising. The export/import ratio was 65 percent in 1984 and 69 percent in 1985; it is estimated at 51 percent in 1986. Moreover, external capital inflows were lower and the balance of payments situation unfavorable during those years; the deficits were financed by drawing on international mone­tary reserves.

On July 31, 1986, net international monetary reserves stood at US$357.4 mil­lion, a fall of 24 percent from their December 31, 1985 level. These reserves represented nine months of imports. They comprised US$279.4 million in trans­ferable foreign exchange and US$78 million in nontransferable external holdings. External payment obligations have been met regularly out of export earnings and other foreign exchange sources and in part out of the drawdown of international reserves. Paraguay has not sought external balance of payments financing.

Paraguay's public external debt will reach US$I .725 million in December 1986 and its private external debt US$25 million. Debt service will reach US$185 mil­lion. compared with US$175.5 million in 1985. Undisbursed loans totaled US$671.5 million as of June 30, 1986.

Paraguay's economic recovery prospects depend not only on the domestic effort put out by the Government but also. to a substantial degree, on the opening up and viability of the external market, which is currently beset by considerable uncer­tainty. It is to be expected. however, that international cooperation can be

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strengthened and consolidated through appropriate measures and instruments to safeguard world economic equilibrium and extend more equitable treatment to the developing countries.

In this spirit the Government of Paraguay has taken a series of measures to help strengthen the economy, in the form of a program designed to increase production, reduce the fiscal deficit, rationalize domestic credit, bring inflation under control, increase savings and productive investment, protect wages and salaries, support exports, bring the balance of payments into equilibrium, and increase external investment. Through these measures the Government hopes to boost the economic growth rate, raise real incomes, and correct external disequilibria, reducing international trade deficits and strengthening external capital inflows.

We wish to stress the decisive role that falls to international financial coopera­tion, particularly to the Bank and the Fund, in accomplishing these objectives. We are therefore confident that we shall continue to receive a timely and adequate flow of resources to enable us to carry out the necessary investments to propel the country toward more ambitious goals of development and well-being.

The delegation of Paraguay expresses its appreciation to the people and Govern­ment of the United States of America for their magnificent hospitality and the efficiency they have brought to bear for the successful organization of these meetings. We have pleasure in extending a cordial welcome to Mr. Barber Conable, the distinguished President of the World Bank, and in wishing him every success at the head of our prestigious international financial organization, whose mission is the progress and well-being of our peoples.

PERU: LUIS ALVA CASTRO Governor of the Bank

At the last jOint Annual Meetings of the International Monetary Fund and the World Bank, we referred to the urgent need to draw up a kind of all-out program of action in the monetary and financial field. We therefore urged that a United Nations Conference on Currency and Finance be convened in order to lay the bases for a new international monetary and financial order.

In doing this, we did not seek solely to stress the great monetary and financial goals that the international community needed to achieve during the following period. We wished also to indicate the path we needed to follow and the steps we needed to take to achieve those goals. We therefore spoke not only of the great tasks that lay before us but also of the smaller actions, the more urgent changes, required because the real world cannot wait for us to finish our discussions on, much less to complete, the negotiations that necessarily have to be conducted.

Today, a year later, we have to say that while we have continued to move forward in the field of analysis and discussion, with the formation of an increasingly clear consensus among the countries of the South, we have made very little progress in the North-South dialogue. Yet that progress is absolutely essen-

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tial to the formation of the required consensus in order to implement the reform of the international monetary system and resolve the pressing debt problems of the Third World.

Similarly. we have to say that we have done little to introduce changes--even small changes-into the rules and procedures of the International Monetary Fund and the World Bank, two basic agencies of the system that we wish to reform or, if that is preferred, to adapt to the needs of the present-day world ....

Limitation of Debt Service

When we assumed responsibility for the Government of Peru we decided, and we so notified the international financial community, to limit transfers of resources abroad. We said, precisely, that public external debt service would be limited to a maximum of 10 percent of the value of our goods and services exports.

That decision followed upon a serious and realistic analysis of our own situation and, of course, of the trend of international finance. For us, as for other developing countries, the time had come to limit service of the debt. The inflow of new loan funds from all sources had begun to decline rapidly and the commercial banks had already ceased to grant new medium- and long-term loans.

The policy to be adopted by the new government could not be any other than the one to meet an extremely serious situation. We could not allow the economic, social. and political fabric to continue deteriorating. We consequently proposed to put our house in order by reorganizing the changes necessary to enable the Peru­vian economy to move along the path of development. We, therefore, proposed progressively to raise our income, domestic demand, and consequently national production and employment, and on this basis to implement a virtuous circle that would enable us to increase income, demand. investments, and once again production. In other words, we proposed to go through a radically different path from the path the country had gone through in previous years.

I would like to tell you that the results of the implementation of the new eco­nomic policy have been positive.

Moreover, the fall in Peru's export receipts and the extremely high interest rates had seriously eroded our international purchasing capacity. As a consequence precisely of this reduction in our purchasing capacity, and at the same time in our payment capacity, the banks had cut off the flow of credit to Peru. They were trying to recover the loans they had made in the past. focusing their attention on collecting interest in view of the difficulty of obtaining repayments of principal.

It should be remembered that in 1985 Peru was in the position of having virtually ceased to make repayments. The Government that preceded us had ceased to meet its debt service obligations regularly but had not set any precise limit or offered any official explanation of its action.

Limiting external debt service payments was for us the only realistic course, the only one that did not lead us either to declare a general moratorium or to repudiate the debt.

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I want you to know that we have devoted the greater part of the resources allocated to debt service to repaying the loans made to us by the World Bank and the Inter-American Development Bank. Those two institutions have received approximately 50 percent of the resources we allocated to public external debt service during the period August 1985 to July 1986. Even so, we have experienced difficulty in keeping up to date with the payments and thereby avoiding the halting of disbursement in the case of some loans.

As you all know, the Articles of Agreement of both institutions require that a country be up to date if it is to continue to receive disbursements against loans already made. Relatively small payment delays result in the immediate halting of disbursement and thereby alter the execution timetables of the investment proj­ects.

Let us pause a moment at this point. Lending by the World Bank and the regional banks has been far from adequate

to meet our countries' needs. It has generally been tied to the purchase of equipment and the contracting of consultancy services in the industrial countries. We have been compelled to import goods and services beyond what we strictly needed; in many cases these loans have constituted a sort of export credit on the part of the industrial countries.

That circumstance demanded that we look closely at this type of loan, intensify the investment structuring process we have already initiated, and pay scrupulous attention to the actual flow of resources. We have ascertained that a significant proportion of loan resources goes to finance imports that are not really essential, while the debt is serviced in foreign exchange obtained at considerable effort. The resulting careful programming of imports and of foreign exchange utilization in general compels us radically to change our policy with respect to new loans and even to those in process of disbursement. It also compels us to ask for changes in the rules, already inherently complicated by the conditionality imposed by those institutions themselves.

I should like to say a few more words on the limitation of payments before passing to the subject of conditionality.

The limiting of payments was more than a necessity imposed by the drastic fall in our export receipts. It was a dramatic necessity to enable us to reorient economic policy by assigning more or less clearly defined parameters to it.

Thus, the effect of limiting our external debt payments was to quantify the outflow of foreign exchange for that purpose and thereby to clear up a basic unknown factor in our external accounts. Previously, the uncertainty with respect to refinancing operations and the actual debt burden in a given period sharply de­pressed the quotation of the Peruvian currency. But this depreciation was never sufficient because the volume of foreign exchange required to service the debt exceeded the volume of disbursements against existing loans.

Another effect of limiting debt service payments was to quantify the proportion of fiscal resources to be applied to that purpose and, therefore, the actual volume of current expenditure. The uncertain~y that prevailed until then compelled us to

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apply, as it were, a permanent austerity program which generated distortions of every kind. It was known that interest and amortization payments were rising rapidly as a consequence of devaluation and that debt service volume was rising continuously. This constant increase in debt service payments compelled us to reduce current expenditure, particularly Civil Service pay. Since it is not possible to reduce nominal incomes at the present time, inflation was the only way to reduce real incomes.

It is pointed out that the monetary devaluation, the method used to reduce the demand for imported goods and services, helped to fuel inflation, for two reasons: first, it raised the actual cost of all imported goods and services; second, it generated inflationary expectations which were built into all prices.

For its part. inflation brought with it a real fall in income in all categories. First of all. it reduced wage-earners' incomes. though unequally. for serious distortions appeared in the wages and salaries structure. Second, it reduced the incomes of self-employed persons, both urban and rural, in various types of businesses. Third, it reduced enterprise profits. whose share in total national income increased but which also developed unequally.

This reduction in income in turn led to a contraction of demand for goods and services. This contraction was also unequal, since it affected most those most badly hit by inflation. For that reason the prices of foodstuffs-particularly scarce products-and of wage goods rose more slowly than other prices.

It should be noted that. in the first instance, the fall in demand, by affecting imports, boosts the country's foreign exchange payment capacity. For its part, the reduction in public expenditure and the increase (in some degree) in tariffs boosts the Government's payment capacity (again initially).

However, the decline in output for the domestic market, in circumstances in which export activity is also contractng, leads to deterioration of the country's production structure and therefore of the Government's payment capacity. In the medium term it affects the growth possibilities of the export sector itself. which not even the more important devaluations can help to develop. In fact. in the second stage, the contraction of output affects the income of the Government, which is not in a position to generate the necessary surplus to finance even a more or less significant portion of external debt service. The surplus foreign exchange tends rather to be used by local and foreign entrepreneurs who, seeing their local investment possibilities curtailed, decide to take money out of the country. This flight of capital naturally impairs the country's investment capacity and, therefore, the very possibilities for development of production and, of course, of the export industry ....

The Situation of Peru

The lack of viability of the IMP's policies is clearly evident in the case of Peru but also in that of other countries. Nor are the consequences of applying these policies more serious in our country than in others. They are probably the same.

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Nevertheless, the overall pattern of evolution of Peruvian society places it at a particularly difficult and complex juncture.

I should like therefore to refer in greater detail to the situation of Peru so as to clarify where we stand and what are our current objectives.

First of all, I should point out that the most far-reaching changes in Peruvian society-after the conquest and Spanish colonization--occurred following the end of the Second World War. Previously, the Peruvian social order and economy had achieved a sort of equilibrium, of poverty it is true, but in the final analysis an equilibrium. Spanish colonization destroyed the old Inca civilization and suc­ceeded in constructing a new social and economic order. The advent of the Republic did not alter the preceding social and economic order to any substantial degree. Other powers came to replace Spain at the end of the war of independence. Yet the old economic and social organization did not undergo major changes. The export activities that were developed during the nineteenth and twentieth centuries also operated in the form of enclaves. And they gave rise to other activities but did not alter the traditional life of Andean Peru in any way.

According to the 1940 census Peru's population was two thirds rural and one third urban. The regional distribution was as follows: 66 percent in the Sierra, where Peru's population had traditionally been concentrated, 28 percent in the Costa, whose population had been increasing since the middle of the nineteenth century, and 6 percent in the Selva. Metropolitan Lima, with just over 600,000 inhabitants, contained 10 percent of the population.

The 1981 census reported that two thirds of the population was urban and one third rural. The regional distribution was Costa 50 percent, Sierra 40 percent, and Selva 10 percent. Nearly 30 percent of the population is now concentrated in metropolitan Lima.

Peru thus underwent a change of physiognomy following the Second World War. It changed from a predominantly rural into an urban country, with an increased population density, and from a Sierra country, just as during the Incan era, to a Costa country. Lima, already relatively important, turned into a metropo­lis capable of absorbing every imaginable resource.

On the other hand, to the traditional export activities there was added a predominantly industrial activity controlled by multinational enterprises and based not on the expansion of surplus farm production but on the foreign exchange earnings of the traditional export sector. The period was marked also by the development of a whole range of infrastructures: electricity and water for the towns and industry and ports, airports, and highways to improve communication with the interior of the country. It should be borne in mind that the lack of access roads to the interior brought about not only the settlement of the population but also the development of important local productive activities. The development of communications between and along the Costa and Sierra regions played a decisive role in the development of a domestic market.

The changes that took place were not unconnected with the changes that occurred in the world economy. The emergence of a new economic and financial

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order was decisive, particularly the demand for raw materials and the new supply of products from the industrial countries. Peru's mineral resources made it a favored area of development of mining production: but it also became a purchaser of surplus farm produce and an expansion market for the industry of the developed countries.

We thus participated in the long process of postwar expansion as exporters of mining products and shared in the fruits of this development. At the same time we participated as importers of cheap foodstuffs so that agriculture suffered the consequences of the importation of cheap farm surpluses. Imports of grain (especially wheat) and meat (especially beef) symbolized the new situation. Farming and stockraising oriented to the domestic market did not develop ade­quately, apart from some development of fruit and vegetable growing. But the most important factor was the closing off of possibilities for the small farmers of the Sierra to produce grain and meat.

For its part, industry, which uses very little labor, developed using basically imported machinery and inputs. This was true even of the agrofood industry, which was based on the importation of grain, edible oil, and milk. The transna­tional companies, whose development belongs to the postwar period, were partic­ularly active in the process of expansion of the Peruvian economy.

The activity of Peru's Government sector expanded rapidly, for two reasons: first, it assumed responsibility for providing employment for the growing labor force concentrated in the cities, especially Lima; and second, it progressively took up the task of developing the infrastructure needed by the country. It was also through public sector activity that electricity, water, and other services could be progressively brought to all the cities of Peru.

Because fiscal revenue was traditionally based on export and import activities, the fluctuations in the external sector strongly affected the budget. And the fact is that in the postwar period expenditure requirements were much more rigid than in the prewar years. It is pointed out that external loans financed a large part of the public investment that was required under the new scheme of things: the disequi­libria that arose were covered by additional loans (and minor adjustments).

The end of the long postwar growth cycle and the crisis in the industrial countries finds Peru with an export sector in stagnation, cities experiencing chaotic growth, an industry excessively dependent on imported inputs, and a growing external debt.

Clearly, the solution for Peru was not to increase its debts, particularly if these were increasingly tied to goods and services imports. It has to be borne in mind that the new indebtedness dates from the 1970s, i.e., from the years that mark the end of the long cycle of expansion of the world economy.

But a rapid increase in the developing countries' external debt was a necessity for the industrial country banks. They gave the developing countries, including Peru, larger and larger loans.

It was clear for several years that there was no way out of the debt problem and that it could not therefore be resolved by traditional methods. The course we had

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to follow-including from the I 970s-was to absorb this internal disequilibrium, which is reflected also in external maladjustment. This meant that efforts had to focus on the development of agriculture, through which it would be possible also to contain the urbanization process and drastically reduce the country's foreign exchange and unemployment problems. It was also sought to promote import substitution and new export lines; the latter signifies much more than manipulating the exchange rate and granting direct and indirect subsidies. Finally, it was sought to adapt all infrastructure investment projects to local possibilities and under no circumstances to promote "turnkey" projects.

What was required, then, was a true production revolution and not simple corrective adjustments of the kind suggested in the letters of intent.

The evolution of the crisis, especially what is happening in the 1980s, has sharpened the existing problems. Export activities have been severely affected by the fall in oil and mineral prices. The debt service burden has increased substan­tially owing to the rise in interest rates. The flow of medium- and long-term credit has dried up since 1983.

As a result, requirements have increased in the last few recent years, making the application of a policy for the restoration of domestic equilibrium even more urgent. Nevertheless, the policies recommended by the International Monetary Fund continued to be applied-with or without letters of intent.

In 1985, when we took up the reins of government, the situation was particu­larly critical: galloping inflation, deepening recession, growing unemployment, increasing dollarization for the economy and exodus of capital, ever-increasing public and private investment needs, and fiscal chaos. Labor demands had brought a large part of economic activity to a standstill. The government apparatus was in disarray.

The Emergency Program

The policy approach of the new Government had to correspond to an extremely serious situation; we could not allow the economic, social, and political fabric to continue to deteriorate.

We therefore proposed to set matters right again so that later it would be possible to make the changes required to enable the Peruvian economy to take the path of development.

Our aim, therefore, was gradually to increase revenue, domestic demand, and as a consequence, domestic production and employment, and on this basis to set in motion a beneficial cyclical process that will make possible further increases in revenue, demand, investment, and production. In a word, we proposed to follow a path that differed radically from the one taken by the country in previous years.

The key to this approach was the limitation of external public debt payments to 10 percent of the value of goods and services exports. This decision was essential so as to initiate the process of reactivating demand and domestic production, and would raise the possibility of spending more resources within Peru itself.

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The reduction in debt service beginning in the second half of 1985 made it possible to reduce interest outlays, in tum facilitating an increase in civil service compensation which was particularly low in July 1985. It also allowed for an improvement in investment expenditure, the level of which had dropped off significantly in the middle of last year. although the reduction in the sales tax was also an important factor affecting income transfers.

This development in the government budget has naturally had an impact on production and employment trends. As the Government desired. the State began to be a lever promoting reactivation rather than recession. The idea was to transfer to the economy the resources saved by reducing debt payments.

The revitalization of production should quite properly result in an increase in imports. In theory. it would be expected that the foreign exchange savings would be used to import what was needed for the country' s productive plant. Assuming a growth rate of 6 percent and an elasticity of imports with respect to production of 1.5. there would have been an increase of approximately $180 million in imports. Even with such an increase. however. the import level would be scarcely half that of 1981 in terms of value.

This means that it would be possible to revitalize the Peruvian economy without any difficulty whatever by limiting external debt service. Assuming the same level of export proceeds as in 1985. when they were a third lower than in 1980. economic revitalization would be possible without any loss of reserves or further borrowing. This is so despite the fact that the Government placed no limits on private debt service. which continued normally. or on the remittance of profits. depreciation. or royalties of foreign firms. There was also the possibility of continuing to increase production and imports by showing some favoritism to domestic industry in government procurement.

It is important to note that the Government adopted a number of complementary measures with a view to reducing inflation. of which the primary and fundamental one. of course. was the aforementioned limitation on external debt payments. Indeed. the ceiling on debt-related transfers abroad was intended not only to have a positive impact on the pattern of reserve holdings. It was intended as well to be a factor promoting order and stability to the rate quoted for the sol. a key component in the inflationary process.

To put it as clearly as possible. central government transfers to the various economic transactors were to be financed largely by the savings achieved by limiting external debt service payments. In no case was it assumed that the Central Reserve Bank would be called upon to finance a massive government deficit. It was also hoped that the revitalization of the economy would enable us to collect greater and greater amounts of tax revenues.

We thought it would be proper temporarily to freeze prices, with the exception of those for perishable agricultural products and for internationally traded raw ma­terials. This was designed to make it possible effectively to control inflation driven by expectations, the effects of which are extremely difficult to eliminate even in cases in which the true problem is being met head-on.

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The Government also decided to increase wages and salaries. as it wanted them to improve in real terms. These increases were offset by the reduction of interest rates in the first months of implementation of the program. easing the financial burden on businesses and thereby promoting cost reductions at the same time as the expansion of productive activities. Obviously. this is a measure with a clear impact over the long term. and it is of fundamental importance to the promotion of production.

Results

Implementation of the policy and the measures briefly described above has had exceptionally clear results.

Production. which had been declining in the second and third quarters of 1985. began to increase in the fourth quarter. and has risen sharply in the first few months of 1986. It is estimated that it could reach 6 percent. which would still be below the production level of 1982. much less the historically high per capita output of 1976. To achieve the GOP level of 1982 would require approximately 3 percent growth in 1987. but reaching the same level of per capita output as in 1976 would necessitate annual growth of 6 percent until 1990.

The inflation rate for the August 1985-July 1986 period was 67.6 percent. while it had been 183.6 percent in the preceding twelve months and was an annualized 250 percent for the first seven months of 1985. It is estimated that prices will increase by about 65 percent in 1986.

The results of this field could have been even better. given the real evolution of the basic costs in the economy. However. we encountered two major problems: on the one hand. the prices of perishable agricultural products increased more than was expected: on the other hand. there was an acute and unforeseen deterioration in the external sector.

The price increases for perishable agricultural products were reflected in the prices of a vast range of services. even affecting the prices and rate schedules for labor-intensive informal activities. The latter were strongly influenced by the increase in the minimum wage. which is used as a reference point for determining compensation.

It is noteworthy that the increase in the wages of low-income workers stimulated increased demand for foodstuffs. Owing to the fact that supply did not increase at the same pace and considering the lack of organization of the agricultural markets. there were strong upward pressures on these prices.

I should now like to make a few remarks on the development of the external sector and of government finance.

First. there was a sharp decline in export proceeds. down almost $600 million in 1986 from the already depressed level of 1985. This approximately 20 percent drop in the value of exports means that they amounted this year to only 60 percent of the value exported in 1980.

The decline in export proceeds stemmed largely from the price declines for petroleum (two thirds of the total) and minerals. It would be no overstatement to

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assert that no one was in a position to predict, and no one did predict, a drop of such magnitude, especially in oil prices.

Second, there was an increase in imports, which rose in value by $300 million, i.e., an increase of 17 percent over the 1985 level. In addition to the increased demand for inputs and capital goods stemming from the reactivation of produc­tion, there was a substantial increase in imports of agricultural products. In fact. these account for over 50 percent of the increase.

This is a circumstance that is inconsistent with the priority that we have accorded to the development of the agricultural sector. As it happened, the improved level of food consumption on the part of the people could not be met by the growth of agricultural production. In these circumstances, it was necessary to increase imports in order to meet the most urgent needs of the people. Of course, domestic production will not be affected by competition from these imports. The Central Government guarantees remunerative prices as part of a process of transferring resources to agriculture, the country's most depressed sector.

Consequently, the trade balance would be only $200 million in surplus, i.e., $900 million below the level of 1985.

If to this we add the drop in agreed loan disbursements from $650 million in 1985 to $325 million in 1986, it becomes easy to understand the magnitude of the deterioration of the balance of payments and the need to take additional measures. In any case, it is important to note that the deterioration in the external accounts is not explained by the policy to reactivate production. As noted earlier, the expan­sion of production and revenue could basically have been financed by the savings resulting from the limitation on external debt payments. It was the unforeseen decline in export receipts and the reduction in capital flows that complicated matters, explaining why the Government had to adopt additional measures last July as regards payment of the private debt and the repatriation of profits. Even so, reserves are expected to decline by about $250 million in 1986.

However, I must mention that the decline in oil prices and other primary products and the protectionism of industrial countries has had and continues to have adverse effects on the evolution of the Peruvian economy. In 1986 our export revenue will be lower by almost 20 percent over 1985. I must tell you that this trend has seriously affected our ability to pay in the near future.

The drop in petroleum and mineral prices also had an impact on the develop­ment of government finance, in particular as regards the incomes of public enterprises in the petroleum and mining sectors. At the same time, however, there were no additional inflationary pressures and no disproportionate increase in the money supply.

These developments were firmly managed by the Government and produced no distortions of any kind, but they were noted with concern by economic transactors. Inflationary expectations resulted in relatively sizable price increases. It would appear that short-term expectations are all that can have an impact on decisions in such unstable economies.

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In any case, what is most important is what such developments represent for the future.

It is estimated that 1987 export revenues will be the same as in 1986, assuming some recovery of oil and mineral prices and declines in coffee prices and the export volume of crude. On the other hand, it is estimated that imports will increase by about $150 million, assuming some reduction in agricultural and livestock imports and a rational evolution of imports of inputs and capital goods.

Consequently, the country's 1987 trade surplus would be on the order of $50 million. If we subtract from this amount the balance of nonfinancial services, we have a negative balance of slightly more than $ 100 million. This could be covered by grants, which have traditionally amounted to about $100 million.

Thus, the country's payment capacity would be virtually nil. All that could be paid would be an amount equivalent to inflows in the form of disbursements from new loans if it is desired to avoid the loss of reserves. This is the basis for our present and future negotiations, for it is obvious that the country cannot devote the scarce reserves at its disposal to payment of the debt.

As this situation is not likely to change significantly in the years to come, it is essential to move beyond the limitation on external debt service, which was obviously an emergency measure. This was done to establish the foundations for long-term expansion of the country's production, which is the only way to prevent the economic, social, and political collapse of Peru. It is also, I might add, the only way we will be able to pay the debt in the future, as it is unquestionable that only growth can permit real payment of the debt. Paying it with the hunger of our people is not only unacceptable from a moral standpoint, it is absolutely impossible given the degree of deterioration in their standard of living.

Along these lines, I am convinced that the agricultural sector requires priority attention. Beginning this year we are implementing a program in support of agricultural production. Through it, we have established guaranteed prices and a fund for the purchase of part of production. There have also been cost adjustments for the purpose of promoting the use of certain agricultural inputs and increasing productivity in the field.

Nevertheless, we deem it essential to proceed further with such actions and, above all, to do what is necessary to ensure that the producer receives what the consumer pays. The lack of job opportunities has excessively lengthened the distribution chain for agricultural products, especially at the retail level. The intermediaries therefore strive to absorb a disproportionate share of the realized price of goods, making them genuine parasites on farmers.

The development of agriculture, which above all requires organization, should fulfill various basic functions: first, increased production must make it possible continuously to improve the alimentary level of the country, without recourse to additional imports, and it should be possible to replace imports by domestic products; second, agriculture must become a continually expanding market for industry, the development of which must be supported by growth in the domestic market; third, agriculture and 'agroindustry located where the raw materials are

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grown must provide jobs for the present and future rural population. and even make it possible to absorb some of the current population of some cities; and fourth, agriculture and agroindustry can earn foreign exchange.

But it is the development of agroindustry that has the greatest potential. in particular in the textile industry which in Peru has possibilities of selling garments of pima cotton and alpaca wool. both being fibers of exceptional quality.

On the other hand. industry oriented toward the domestic market must be re­vamped so as to minimize imports and guarantee future growth.

A third line of priority action is the restructuring of existing investment projects, especially in the public sector. Most projects have been developed without regard to the country's true needs and possibilities. The World Bank and the IDB have been participating in projects by partly financing the external component thereof. In this sense they share responsibility for the excessive size of projects, which we are beginning to correct. They also share the responsibility for supporting projects that are not profitable or that fail to generate foreign exchange. but which do incorporate high proportions of imported equipment and services.

In this regard. I wish to note that this is not a recrimination, but only an observation regarding the shared responsibility of debtors and creditors. which comes into play in this field as well. Along these lines. we consider it of fundamental importance that the international financial agencies support invest­ment projects that do not stimulate imports and unnecessary borrowing. It makes no sense, for example, to advocate exchange rates that do not stimulate imports when import operations are carried out directly through credits extended by the international organizations.

Conclusion

The difficulties of the world economy have put all the developing countries at a crossroads. Peru. as we have stressed. cannot use the traditional path out. In reality. it is not a viable option for any country in the Third World. Only by adopting a policy distinct from that proposed thus far will we be able to move forward.

But I wish to make it clear also that Peru has no intention of isolating itself. It simply happens that its current capacity to pay is virtually zero. if not to say negative. Austerity for the sake of paying a few million dollars more makes no sense whatever for a country as poor as our own. On the contrary, a further decrease in the standard of living of the population could prove counterproductive. In truth, there is nowhere to put the belt to tighten it.

The only possible path is a profound transformation of the Peruvian economy and society. and here neither the traditional recommendations of the International Monetary Fund nor those of the World Bank are useful.

Accordingly. I seek the understanding of the international community and ask that it not shove our country into a blind alley.

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"Debt or democracy," stated President Garcia at the United Nations General Assembly in 1985. "Debt or life," he said to the Non-aligned Summit in 1986. And these are truly the alternatives before Peru today.

If Peru is not paying more it is because it is not possible. To do so would be extremely irresponsible of us. Is there anyone who argues that we should reduce our population's consumption even more and further feed the despair which exists today?

I urge the International Monetary Fund to welcome the proposals of the Group of Twenty-Four and make it possible to reschedule countries' repurchases. I further request that it allow us to continue on the path we have shown and not let this stand as an obstacle to our active participation in the life of the organization. We would like the World Bank to know that we are making great efforts to meet our commitments and hope that the credit flow to our country will encounter no unexpected setbacks.

We wish to live in peaceful coexistence with all nations. We recognize the external debt and seek to continue paying to the extent we are able to do so and as an expression of our good faith. We have done and will continue to do so with the commercial banks, with which we met in New York just a few days ago. We have done and will continue to do so with the government-financing agencies, with which we are in constant contact.

It should be noted, however, that in the future these payments will be much more modest than in 1985 and 1986, as our capacity to pay has become smaller. In the years ahead, when production grows at a sustained rate and the Peruvian economy recovers. we shall be able to commit ourselves to making larger payments.

I wish to repeat to you, then. our original proposal. The debt problem can only be effectively resolved within a framework of global solutions and as part of a reform of the international monetary system. But for us, the time of waiting is over; we have for quite some time now been taking action.

The representatives of many governments are gathered here. To all of them I wish to say that Peru seeks to maintain cooperative relations on the basis of equity and mutual respect.

This is the message, these are the words we wished to convey.

PHILIPPINES: JAIME V. ONGPIN Governor of the Bank

Mr. Chairman, please accept my personal congratulations and those of the Government of the Philippines on your election as Chairman of this assembly. The long association of the Philippines and Colombia in the World Bank gives us full confidence that your stewardship of these Meetings augurs well for their suc­cessful outcome.

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I would also like to take this opportunity to welcome Mr. Conable formally on his assumption of the World Bank presidency. Already we have come to appreci­ate the exceptional qualities of his leadership, combining, as he does, pragmatism and human understanding. These are qualities which can only have a positive influence on the Bank's operations and its relations with member countries.

This has to be the occasion too for bidding Mr. de Larosiere farewell. His initiative, which has often led to the creation of Fund mechanisms responsive to member country needs, has always reflected a management stance deeply sen­sitive to the moods and impulses of the global economic environment. We are deeply grateful to him and would assure him that our best wishes go with him for continued success.

Allow me, finally, to extend a warm welcome to the two new member countries of these institutions, Kiribati and Poland, whose points of view, I know, will enrich Bank/Fund deliberations.

Such small island economies of the Pacific as Kiribati have their own specific development needs which, we believe, ought to receive meaningful World Bank attention.

If today we were to take a poll among those who have journeyed here on the occasion of these Meetings, I daresay that everyone would readily state that the mood of the moment is one of urgency; urgency over the world economic outlook; urgency over developments in the implementation of the debt strategy; urgency over the lags that have emerged in international capital markets; and, indeed, urgency over the roles that the World Bank and the Fund must play. These are crucial roles which, as Governors of both institutions, we have the power-but so far, I must remark in all candor, have not had the political will-to perform.

The world has seen many changes since our last Annual Meeting. Our expecta­tions had been buoyed then by Mr. Baker's initiative on a growth-oriented debt strategy. Needless to say, we regret that developments since then have generally turned for the worse. Prognoses for the world economy give no further grounds for optimism. Growth projections for industrial countries in 1986 have been revised downward to 2Y4 percent. and growth in world trade is forecast to decline in value terms by 9 1/" percent.

Financial prospects for developing countries, particularly those which are heavily indebted, have become bleak. A renewed buildup in arrears is now forecast and a steep rise in amounts of debt to be rescheduled is anticipated. The pace of official lending is seen as somewhat subdued and that of private lending continuing its sharp downward trend. We are concerned, moreover. that the level of cohesiveness among various sectors engaged in international lending seems to be declining and, consequently, concerted lending, which has played a major role in the debt strategy, is becoming more and more difficult to arrange-this, at a time when financing needs are rising substantially among countries with no normal access to the credit markets.

When the Baker initiative was launched from this very forum last year. all who remarked on its promise stressed that its success depended on the exercise of co-

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responsibility by creditors, debtors, and trading partners. The trends in the world economy in general and in the capital markets in particular have to date not been auspicious for this initiative. To be sure, developing countries have subjected themselves, and continue to subject themselves, to severe adjustment. To date, since the beginning of the 1980s, the Fund has arranged stand-by and extended arrangements for over 40 percent of its membership, including 12 from among the 15 most heavily indebted countries. That lately, adjustment has at last been recognized as necessitating accompanying growth packages is a welcome devel­opment. It should mitigate the severity of reforms in demand management with the expectations of growth that supply measures evoke.

Speaking on behalf of the Philippines' new Government, I am pleased to report that we have recently come to full agreement with the Fund on a new stand-by arrangement which significantly improves on the adjustment program the country has had since 1984 by following a design that is as growth oriented as it is con­sistent with prudent demand management. We have broadened our tax base even as we have improved the system's progressive character and elasticity. We have adopted measures that would improve the efficiency of our financial institutions and have rendered our agricultural sector more responsive to market influences. We have continued to maintain a market-determined exchange rate, halted the flow of capital flight, and nearly doubled our foreign exchange reserves. We have virtually eliminated inflation and have substantially liberalized our trade system. We have, in sum, sought to foster an economic recovery grounded in a revived private sector within an environment of price and balance of payments stability.

I should quickly add that our efforts to adjust have received some support from the international community, both official and commercial. Indeed, it has been recognized, after all, that international support is necessary if any debt strategy is to succeed. For this reason, we commend the Japanese Government for having committed a loan of $3.5 billion toward buttressing the Fund's resource base.

It is clear that the developing countries are doing their part, not without sacrifice and pain. They are doing so, moreover, not without expectations of some match­ing manifestation of co-responsibility on the part of creditors, commercial as well as official, and meaningful support from the international financial institutions. If, at this point, however, many begin to exhibit symptoms of adjustment fatigue, it cannot be for lack of perseverance or determination. It is rather because their per­ception of international response-from the commercial banking community and from the leadership of those countries who dominate the economic and financial systems of the world as well as the decision centers of multilateral institutions-is that response has been, at best minimal, and at worst, insensitive to the exigencies of the debt strategy. For how else are they to interpret the continuing substantial decline in commercial bank lending to developing countries and the refusal to open doors to compromises on debt service and interest payment levels'? How else to fathom the phenomenon of negative transfers from many indebted countries to the multilateral financial institutions? How else to explain the suspension of SDR

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allocations during the fourth basic period, and now again at the beginning of the fifth-in spite of strong positive recommendatioms from the Fund staff and a significant majority of Executive Directors from countries at all levels of develop­ment? How else to grasp the significance of the reluctance to initiate the reviews that would lead to the increase of quotas in the Fund and of capital in the World Bank? How else to justify the rise of protectionism, the heavy subsidies for agri­culture on the European and American continents, and the renewal of a more broadly restrictive Multifiber Arrangement? Indeed, how else are they to under­stand the half-hearted commitments to policy coordination for global growth?

It is fitting and, indeed, proper that the urgency we all feel should find full expression in this forum. The special role, after all, for which the Bank and Fund have been designed, is that of catalyst, that of evoking fully and effectively the potential of every major agent in the debt workout process. Though the recent in­tensification of Bank/Fund cooperation and coordination is not without its pit­falls-the danger. for example, of succumbing to the temptation of cross­conditionality in all its forms-we believe that, with appropriate safeguards and vigilance on the part of Executive Directors, both institutions are now better able to complement each other's operations in the catalytic process. It may be useful, nevertheless, to clarify their relative roles, on a case-by-case basis, of course, according to their specific competencies and expertise. It remains for us, as Governors, to ensure the adequacy of Fund/Bank resources to the level required if both institutions are to become truly effective catalysts in country financial programs.

We must, therefore, resolve to accelerate the completion of increases in Bank capital and Fund quotas. We must resolve to support approval of SDR allocations through the fifth basic period that would at least restore the ratio of SDRs to non­gold reserves to its 1972 level. This, we are convinced, accompanied by continued adjustment on the part of developing countries, is the necessary condition for relieving pressures on the international reserve system and for providing room for maneuvering in developing country-commercial bank relations. We must, more­over, resolve to maintain extraordinary access to the use of Fund resources as long as quotas remain inadequate for the needs of the present crisis. By so strengthening both institutions and filling the managerial void the Baker initiative has to date suffered from, we should be able to rescue it from its faltering first stages and move it forward to the benefit of all.

We do recognize at the same time that we must take positive measures that would encourage the flow of direct investment into developing countries. In this connection, beyond the reforms I have described above which have liberalized our investment and trade systems, we have made our commitments to support interna­tional initiatives that would create an international climate conducive to equity capital flows, particularly into the highly indebted developing countries. We know that, in the last analysis, we must depend largely on our own initiatives if we are to brighten our growth prospects. It is also a truism, however, that this is possible

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only so long as exports from developing countries are allowed to flow freely into their proper markets. We therefore look with hope to the efforts begun in Punta del Este to seek liberalization of the international trade system under the GATT.

The figure of Sisyphus is a tragic one in ancient classical myth. It reflects a vision of human life which is at once as full of anguish as it is absurd. Winging my way across the skies between Manila and Washington, D.C., and pondering the present predicament of the developing world, I could not help but note the analogy emerging between the fate of Sisyphus and that of the most heavily indebted countries. The same laborious struggle is there, and the same absurd odds; so too the same irrational law of adhering to pre-ordained terms in spite of new circum­stances and more practical exigencies; the same frustration, therefore, and the same sense of always arriving no place in the end. I submit that the story of development in our time cannot be that of Sisyphus-not, indeed, when only a few decades ago human wisdom saw fit to create these twin institutions in Bretton Woods which, to this moment, have served international commerce so well. The urgency of the moment lies, indeed, in this: that developing countries remain convinced that economic well-being is not a pipe dream but a credible option for all.

POLAND: BAZYLI SAMOJLIK Governor of the Fund

I would like to express my thanks to all those states that voted for the admission of Poland to the International Monetary Fund and the World Bank, and to those representatives of many countries who have welcomed Poland's return to both institutions during the current session. Poland was one of the founding members of the International Monetary Fund as well as the International Bank for Reconstruc­tion and Development. However, 36 years have passed since my country partici­pated in Annual Meetings. We hope that Fund and Bank memberships will facilitate our active role in international financial cooperation. We want to collabo­rate with both organizations in implementing their objectives and to participate constructively in their functions.

We are convinced that in contemporary times economic interdependence is growing. Our common interest is to strengthen all factors and forces that unite the world economy. We believe that the Fund and the Bank can contribute to further development of international economic and financial cooperation, stabilization of economic relations without any form of discrimination, and elimination of the factors that make those relations dependent on the political mood and are conse­quently detrimental to mutual confidence.

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I would like to say a few words about the economic situation of Poland. Let me tum your attention to two problems. First, after a recent period of serious economic difficulties, Poland is stabilizing its economy and improving its external position in spite of various restrictions and limited cooperation by creditors. Our trade and financial relations with CMEA countries are growing up.

Beginning in 1982, we have achieved a relatively high trade surplus. During this period, it has constituted about one fourth of our export revenues. This has occurred because of very considerable effort in relation to our economic pos­sibilities and development needs. Unfortunately, the trade surplus has been inade­quate to balance current account, especially taking into consideration the rela­tively high level of real interest rates. I must add that, in spite of our serious efforts to service our debt, we do not have access to new credit. Almost 90 percent of our imports from Western countries is financed on a cash or semicash basis.

Second, we have undertaken complex changes in our economic management, to create the foundation for a sustained growth. We have started the second phase of a serious economic reform, a program of speeding up qualitative changes in our economy. We assume that, while maintaining the budgetary balance, we shall achieve a drastic decrease in subsidies and a reduction of the inflation rate from 18 to 6 percent annually.

We will fix the rate of exchange closer to the equilibrium level and adjust structural prices. We have created the legal basis for an increase in the propensity of enterprises to establish capital and production ties abroad.

I would like to stress that my Government, in its effort to speed up reforms, enjoys the support of all political forces in Poland. This direction of economic policy has also been confirmed recently by the Tenth Congress ofthe Polish United Workers' Party.

I would like to take the liberty of saying a few words on the world economy as a whole. We fully share the apprehensions and concerns expressed here regarding prospects for the stable economic development of the world. In spite of improve­ments in certain countries and regions, there are still destabilizing factors creating danger in others.

Poland, prior to its membership in the Fund and the Bank, closely observed the efforts of both organizations aimed at improving international monetary and financial relations.

We notice a gradual change of climate and an increasing understanding of the sources of difficulties encountered by individual member countries. We appreciate the work done by the previous and present sessions of the Boards of Governors. It is of particular importance to understand that the problems of indebtedness cannot be solved at the country. regional, and global level without the creation of realistic conditions for the long-term development of the indebted countries and without taking into consideration the interests of creditors as well as those of the debtor countries.

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Serious structural adjustments require considerable resources. It is necessary, therefore, to correlate adjustment programs properly with the real capabilities of indebted countries. They also require time. One should not forget the saying, "Quick fixes don't fix big problem. " Indebtedness is undoubtedly a big problem for many countries.

In conclusion, I would like to stress that Poland looks forward to close coopera­tion with the International Monetary Fund and the World Bank for mutual advantage.

ROMANIA: ALECSANDRU BABE Governor of the Fund and Bank

It is a particular pleasure for me to join my colleagues who have already spoken in congratulating the new members of the Fund and the World Bank-Kiribati and Poland.

Allow me to express our willingness to cooperate actively, both here and now and also in the future, in the effort to solve the complex and difficult problems facing these two organizations, problems that concern us all. Such cooperation is of great interest to us.

The International Monetary Fund and the World Bank, two prestigious financial organizations, in accordance with their Articles of Agreements and in light of the decisions they have made, have important responsibilities in the preparation and implementation of strategies that are viable, efficient, and acceptable to all their members. But I would like to stress that, in our opinion, which I hope is also shared by my colleagues, the Fund and the Bank should playa more active role in the complex situation now facing us and expand certain of their functions, affording greater support, particularly of a preventive nature, to the developing countries, which have been the most seriously affected by the world economic crisis.

The world today is not the world of yesterday, nor is the world of tomorrow that of today. If we do not act resolutely and with lucidity, the economic contradictions will become more serious and more widespread, and events, whether we like it or not, will have passed us by. Hence the particular responsibilities incumbent upon all of us; history will judge us mercilessly if we do not look at the situation objectively, disregarding certain limited and subjective interests, and if we do not take action to improve it.

We share certain views that have been put forward at this meeting, which essentially express one of the inescapable realities of today's world: the world economy is still far from recovery and consolidation. Certain promising signs in

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the industrial countries have become clouded and have sometimes even been eliminated throughout the world economy by more serious issues facing the developing countries. The external debt burden is growing heavier and heavier; capital market interest rates are too high and barely tolerable; and the continued high levels of inflation are producing negative effects on the achievement of economic objectives and leading to lowered standards of living for the peoples concerned. In many countries, we are, in fact, seeing an economic decline.

When the developing countries obtain new loans, the terms imposed are often hard, which then lead to a new increase in the external debt; interest payments are sometimes higher than the principal to be repaid.

At the same time, we must recognize that, despite the desire to discuss in the international organizations the serious consequences of external debt, there has sometimes been a tendency to stop short of adopting a concrete solution. The experts have also conducted a number of studies covering certain ideas and have made valuable proposals. which have unfortunately not been fully acted upon.

Romania, on the basis of the precepts of its President, His Excellency Nicolae Ceau§escu. believes that the issue of the external debt of the developing countries calls. first and foremost. for a global political and economic approach with the par­ticipation of all the countries involved, of the International Monetary Fund and the World Bank, and of the other international financial organizations and the com­mercial bank representatives. This approach would comprise the following prin­cipal proposals:

-in the case of the poorest countries, with per capita incomes not exceeding $500-600, forgiveness of the external debt;

-in the case of developing countries with per capita incomes not exceeding $1.000-\ ,200, a substantial reduction of the debt;

-in the case of the other developing countries, classified into two or three groups according to their national income and economic potential, a 50-70 percent reduction of their debt;

-rescheduling over \5-20 years of repayments of the balance of the debt. at a reduced interest rate of 3 to 4 percent. or without any interest for a period of 3 to 5 years.

-for the developing countries, the setting of a ceiling to ensure that their external debt payments do not exceed \ 0 percent of their export earnings;

--establishment of a maximum interest rate level of 3 to 4 percent for existing loans. any amounts paid in excess of that ceiling being regarded as reducing the volume of the external debt;

--continuation of new lending to the developing countries on concessional terms, with interest rates of up to 5 percent.

As I have already mentioned. this suggestion represents the general conceptual framework on which the external debt negotiations with each country should be based, taking into account the concrete conditions and the options for development objectives in each case.

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We are happy to note that some of our proposals are quite close to those expressed by other countries. This boosts our confidence in the fairness of the solu­tions based on Romania's firm position of promoting a new international economic order grounded in a relationship of collaboration, equality, and mutual advantage.

At the same time, we are ready to discuss now, or in the future, any other suggestions concerning the external debt question, in order to support the develop­ing countries.

To assist the organization which we are representing in contributing more to the identification of solutions to the external debt problem, Romania will be support­ing a new allocation of SDRs and a general increase in the capital of the World Bank, together with calls on capital markets in order to obtain supplementary funding.

Certainly, the measures we have in mind, or those upon which we shall be agreeing, will yield their results only to the extent that the developing countries resolve to intensify their efforts to ensure better utilization of their own resources, based on economic development programs that take account of the concrete potential of each country, on sociopolitical options, and on the need to raise the living standards of their peoples.

In our opinion, the problems requiring solution call for a certain redefinition and restructuring of the policies and operating methods of the national and interna­tional financial and banking organizations, areas in which the Fund and the World Bank should play leading roles by offering workable and sound models for adoption. There are indeed many points to be discussed in this area. Allow me to advance the idea that by concerted efforts it is possible to create the conditions in which at least part of the developing countries' debt would be paid in their domestic currencies, thereby enabling the interests of both creditor and debtor countries to be better served.

Thus, for example, taking account of the present level of our country's develop­ment, we intend, with the financial and banking organizations, to promote medium- and long-term current operations in lei-Romania' s national currency­in both the export and the import sectors, at mutually advantageous prices and exchange rates. We are ready to begin specific discussions on this point with all parties involved in operations of this type.

On the basis of the economic and scientific policy of our country's President, Romania is at a stage where all efforts are concentrated on intensive development of the economy. We shall be maintaining sustained growth rates and we shall be carrying out new investment projects in order to continue to modernize our economy, so as to fit it more closely into the international division of labor, with the cooperation of all the countries of the world, without regard to their social system, in a spirit of equality and mutual advantage. We are making efforts to reduce our external debt in the future, to bring us up to date on all our payment obligations.

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We shall act on several fronts. We have taken steps to strengthen the economic management of enterprises; we have programs to raise the quality of our produc­tion; we are now reorganizing our production processes in line with the require­ments of the scientific and technological revolution and with the possibilities for enhancing labor productivity; we have already revised our domestic financial and credit policy, and some of the measures we have taken and those we shall take in the future are indeed fundamental. I assure you that our objectives are analytically sound and, therefore, realistic.

Of course we have certain difficulties (many of them owing to factors indepen­dent of our economy). I think it essential to be fully aware of the deeper causes and interconnections and then to take steps to eliminate the adverse factors.

We are convinced that, with the joint efforts of all the world's countries, through calm discussion conducted in a constructive spirit, it will be possible to resolve or alleviate the severe financial and monetary problems facing the present international mechanisms. The Romanian Government, following the economic strategy of the nation's President and his policy of peace and international cooperation, is resolutely committed to improving activities in all fields, thus finding.concrete ways and means to enhance economic, financial. and monetary efficiency and to promote international trade and cooperation.

SOUTH AFRICA: B.J. DU PLESSIS Governor of the Fund

In the face of the volatile and unpredictable trends within the global economic environment the Fund and the Bank once again succeeded during the past year in promoting international financial cooperation in an increasingly interdependent world. For this they deserve our appreciation.

We wish to join other Governors in recording our appreciation for the service Mr. de Larosiere has rendered to the international financial community and to wish him well in his future activities. We also join other Governors in welcoming Mr. Conable as the new President of the World Bank and also Poland and Kiribati as new members.

The Annual Reports of the Fund and the Bank make it clear that while inflation receded further during the past year. the economic slowdown in the industrial countries was sharper than expected. And while the depreciation of the previously overvalued U. S. dollar in terms of other major currencies has resulted in an improved pattern of exchange rates, the beneficial effects of this on the United States will only be felt with the usual time lag.

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For many developing countries the situation remains parlous. The reduction in growth rates in the industrial countries has led to a deceleration in the expansion of international trade and to a decline in real primary product prices. These develop­ments, in tum, have adversely affected export earnings and living standards in developing countries. Rising unemployment, coupled with a high rate of popula­tion growth, therefore remains a major challenge for these countries.

The strenuous efforts of many developing countries to solve their external debt problems were further frustrated by the reluctance of the banks of the world to spontaneously extend new loans to them.

According to the Fund's Annual Report, net new lending by banks to these countries declined from $51 billion in 1982 to $14 billion in 1984 and a meager $3 billion in 1985. To exacerbate the situation, protectionist pressures for trade restrictions continued unabated over the past year.

In analyzing capital flows to and from developing countries it is relevant to note that South Africa has experienced an abnormally large withdrawal of foreign capital and credits during the past two years. This left it no option but to impose a partial debt standstill in September 1985 and to reintroduce exchange control on non resident equity investments through the financial rand system.

It remains a basic principle of debt rescheduling arrangements that debtor countries should treat all creditors on a fair and equal basis. This principle, how­ever, does not always apply to the treatment given to the debtor countries by credi­tors. In the case of South Africa, we received no support from foreign govern­ments or from any specialized international institutions engaged in this field such as the Fund and the Bank. On the contrary, we continued punctually to meet all capital redemption and interest commitments on outstanding loans to such cred­itors from our own domestic resources. Moreover, more than 40 percent of our outstanding foreign debt, representing mainly loans due to governments and inter­national institutions, remained free of any repayment restrictions. Compulsory repayments on outstanding drawings from the Fund are indeed absorbing a substantial part of the scarce domestic savings of the country at a time when there is a great need for increased domestic expenditure on social, economic, and political reform programs.

In addition to repayments on maturity of the' 'unaffected" debt, South Africa also came to an interim debt arrangement with its other creditors during the past year in terms of which 5 percent of all maturing "affected" debt would be redeemed, and 95 percent would automatically be extended until June 30, 1987. Provision was also made for the payment of a higher interest rate margin on the affected debt.

South Africa succeeded in reducing the amount of its outstanding foreign debt by $2.3 billion, that is, from $23.7 bill ion at the end of August 1985 to $21 .4 bil­lion at the end of June 1986, valued at the exchange rates of August 30, 1985. This achievement placed a heavy burden on the domestic adjustment process and could only be achieved through an unsustainably low level of domestic absorption.

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In line with the traditional approach of the Fund and the guidelines for adjust­ment as reiterated by the Managing Director in his address to these Meetings. South Africa has had to cope with its difficulties the hard way, that is, by applying monetary and fiscal discipline, by belt tightening, by producing large surpluses on the current account of its balance of payments in adverse world conditions, and by transferring real resources to the rest of the world. The fact that the country has already repaid about $3 billion of foreign debt since the end of 1984 bears testimony to the results produced by this approach. A substantial part of this net repayment accrued to the banks of the world. It is noteworthy that the total amount of the net redemption of debt by South Africa over this period equals the net increase in 1985 in the total amount of new loans extended by the international banks to all the developing countries of the world together.

The debt and other economic problems of Sub-Saharan African countries are no less serious than those of other developing countries. Both the Fund and the Bank have done much to assist these countries in coping with their difficulties. More­over, it is evident from the statements made by Mr. Conable, Mr. de Larosiere, and others at these Meetings that the need to promote economic development in Sub-Saharan Africa remains high on the list of priorities of the world' s financial leaders.

South Africa is singularly aware of the magnitude and complexity of the economic challenges currently facing this region. We are part of Africa. and we understand the challenges of Africa since we also face them. We therefore fully support all efforts to combat the poverty still prevailing in some areas, and to raise the standard of living and the quality of life in the Sub-Saharan region as a whole.

The development potential of Sub-Saharan Africa is large. In this part of the developing world the basic requirements for sound and rapid economic growth are basically fulfilled. Many countries in the region have rich mineral resources; they have the potential for increased food production and a growing availability of trained manpower. Southern Africa also has a well-developed infrastructure, a sophisticated financial system, and special skills and techniques for dealing with the conditions unique to Africa. This region is a part of the developing world where adject poverty can be reduced if not eliminated. and where the average standard of living can be raised substantially.

To realize this development potential, further transfers of real resources from the developed countries to this region will be necessary. Since this is not likely in the first place to take the form of increased commercial bank lending mobilized in terms of the Baker plan, but rather of concessionary lending, the Eighth Replen­ishment of IDA deserves the fullest support from an African point of view.

In addition to its moderate direct contribution to this end. South Africa has every intention to continue playing a constructive role in the development of the Southern African region through its wide-ranging economic and financial interac­tion with other countries in the region. By providing markets for the labor and produce from neighboring countries. by continuing to make its well-developed transport facilities and other infrastructure available to them, by offering the

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available know-how of its private sector and public sector institutions, and by transferring financial and technical assistance through the Development Bank of Southern Africa and other channels, South Africa can and is prepared to contribute meaningfully to the viability of development projects in other countries in South­ern Africa, some of which are at present under consideration by the World Bank.

In this connection, South Africa fully endorses the approach to development in Sub-Saharan Africa adopted in recent World Bank reports. The emphasis in those reports on more market-oriented policies, on the streamlining of public sector institutions, on agricultural development, and on the better utilization of existing as against the creation of new infrastructure, deserves endorsement. We also subscribe to the guidance given by the Fund and the Bank in regard to privatization and the deregulation of small businesses and the informal sector. We, in fact, have already made substantial progress in these areas and stand ready to share our experience with other countries, and also to learn from their experience.

SPAIN: CARLOS SOLCHAGA Governor of the Bank

As has become the pattern in recent years, we come to these Annual Meetings disappointed by economic developments since our last Meetings.

The optimism that prevailed a few months ago has tended to diminish consider­ably. It was thought that the fall in oil prices, the downturn in prices of foodstuffs and raw materials, and the depreciation of the dollar would lead, outside the United States, to a rapid strengthening of domestic demand; we were hoping for a fall in inflation rates, more rapid growth of output and employment, and a reduction in the serious external accounts imbalance in the industrial countries; and we were confident that the stronger expansion in the industrial countries would, through increased trade, give the developing countries the relief that many of them so badly and urgently need in the difficult situation they find themselves in.

Yet the summer is over and most of these favorable expectations remain unfulfilled. The Fund, in its excellent report on the World Economic Outlook, has found itself obliged to revise downward the moderately optimistic forecasts it made in April on real growth over the year in the industrial and the developing countries, and to draw attention to the extreme slowness of the adjustment taking place in international payments.

The report points to a combination of special factors that had an adverse impact on the various industrial countries in the early months of the year. It emphasizes that, in a complex situation in which economies have been reacting to major changes in important variables, the factors with negative effects have tended to make themselves felt before those other factors which, it is hoped, will have positive effects. This is certainly true, and it is thus also true that recent trends in economic indicators cannot be taken as reliable guides to future prospects. It is

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certainly to be hoped that the effects of the favorable elements will start to become more noticeable in the coming months and that the industrial countries wiII improve their performance during the second part of this year and throughout 1987.

Nevertheless. only a modest improvement is expected, and it will not be enough to bring about a rapid correction of balance of payments disequilibria in the industrial countries or to provide sufficient external stimulus to growth in the developing countries. Moreover, as the Fund report itself points out, the prospects for improvement are threatened by a number of significant uncertainties and stresses.

The major industrial countries that have completed their basic adjustments are not taking advantage of the opportunity offered by favorable world economic developments to stimulate their recovery and growth. Their positive experiences are the best proof of the desirability of maintaining policies to strengthen their economies, reduce inflation, and increase the flexibility of their economies. Nevertheless, the ground they themselves have gained appears to offer those countries sufficient leeway to adopt stimulative measures without deviating from the basic line of those policies or jeopardizing what the policies have achieved. What is needed is a correction of the United States budget deficit and a strengthen­ing of domestic demand in countries with stable prices, swollen current account surpluses, and currencies under pressure to revalue, so as to speed up a reduction in international payments disequilibria, allay the uncertainties that are discourag­ing investment and growth, and increase the pace of world economic progress.

We are faced with a problem of coordinating national economic policies so as to take into account their interaction and their international consequences. We can agree on the need for surveillance to facilitate this coordination; we can select a group of indicators to help detect and analyze the problems; and we can design a framework and rules for discussing them. But ultimately, coordination will be possible only if we have the political will to achieve it.

My country's view is that the desire for coordination is particularly important today and that its expression in a concrete strategy would be beneficial, primarily to the countries implementing it, but also to the industrial world as a whole and to the developing countries, whose growth crisis constitutes, as the Fund has rightly pointed out, the real crisis of the middle of this decade.

We can and we must insist that the developing countries strive to overcome their grave problems by means of policies to rehabilitate and increase the flexibility of their economies, so as to eliminate disruptive distortions, and by means of strategies to encourage export-oriented growth based on the criterion of com­parative advantage. But these recommendations will lose much of their purpose if, at the same time, the industrial countries do not facilitate more vigorous growth of world trade by making use of their own leeway for expansion, or if they allow their protectionist policies to hinder the export strategies they are urging on the countries that are being stifled by external accounts difficulties. This year's magnificent World Development Report prepared by the World Bank, examining

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the situation and outlook for economic growth in the world, presents a discourag­ing picture of the advance of protectionism, especially in the sphere of agricultural commodities, and offers an assessment-which we would be well advised to heed-of the major benefits of reducing protectionism in this field, not only for the developing countries but also, and especially, for the industrial countries. It is to be hoped that the new round of the GATT negotiations will be inspired by the desire of the participating countries to check the spread of this grave evil, which is increasingly burdening the world economy.

The fact of the matter is, however, that the adoption of a coordinated short-and medium-term economic policy strategy by the major industrial countries is a somewhat unlikely prospect for the immediate future, and that at best it will be some time before the drive toward greater liberalization of trade bears fruit. In these circumstances, we should use the instruments that are available to us to prevent the world economy from sinking into a deflationary process and to spare the developing countries, burdened by their lack of financial resources, from having to impose drastic reductions in their imports, consumption, and standards of living even when they are willing to implement correct adjustment and growth policies ....

. . . I now tum to the institutions of the World Bank and, guided by the same criteria, I must begin by expressing our pleasure at the change in the trend of loan commitments. Their 16-percent increase represents a substantial recovery, although it should be remembered that the comparison figure-the volume of loans in fiscal year I 985-was the same as in 1983, so that this one-year increase is also the increase over three years.

Another point to stress is the extremely rapid response by Bank management to the recommendations regarding adjustment loans. The $2,283 million allocated to this category represent 14 percent of total commitments, three times their share of three years ago.

These two observations demonstrate quantitatively and qualitatively that the Bank is striving to carry out its role in solving the problem of development financing according to the guidelines sets forth by the Development Committee at its last two meetings. To be sure, the volume of disbursements, which had been stagnant since 1984, has fallen even in nominal terms during this fiscal year; but the larger commitments made, and, above all, the growing proportion of adjust­ment loans, will soon make it possible to correct this figure.

The effort to sustain these new trends will require that the institution be provided with more capital of its own. Spain is aware of the difficulties confronting a general capital increase in the present context, but it is our view that, in the light of the known alternatives relating to the lending program for the next three years, it is incumbent on the member countries to support such an increase.

We should like to reiterate our opinion that, even after the needed increase in capital, the Bank must continue to consider the financing of specific investment projects as the crux of its activities. This does not rule out a certain channeling of quick-disbursing structural and sectoral adjustment loans, which are instruments

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--_._---- -----"-.-----.-~-----"---,---

of crucial importance to many borrower countries in the present situation, and we support more frequent provision of such loans by the Bank.

As regards the International Development Association, Spain has participated actively in the negotiations on the Eighth Replenishment of resources and has accepted the commitment to increase its contribution. The Spanish Government's position on this issue is consistent with the one it has taken over the last few years, during which Spain has cooperated with all the Association's efforts to channel new resources toward the lowest-income countries, in particular, those in Sub­Saharan Africa.

We also take a positive view of the cooperation that has been initiated between the International Monetary Fund and the International Development Association for purposes of carrying out structural and sectoral adjustment programs in the countries of that region. We are thus pleased that the Structural Adjustment Facility has begun operations with funds from the IMF Special Disbursement Account. We hope that, after the Eighth Replenishment, the Association will rapidly be able to play its proper role in this joint task.

To sum up, Spain wants our two institutions-by virtue of their approaches, their resources, and the criteria and rules for use of those resources-to be in a position to play the important role that is incumbent on them in today's difficult conditions. It is conceivalbe that some of the problems we are encountering today would be less serious if an attempt had not been made to reduce this role in the past. But, in the final analysis-and this brings me back to the first part of my statement-action by our institutions can never substitute for the impulse toward growth stemming from a concerted strategy of the major industrial countries that makes for an external environment conducive to healthy economic policies in the developing countries.

Mr. Chairman, allow me to conclude by conveying to Mr. de Larosiere our deep gratitude to him for the excellent work he has carried out over the last eight years, for his fine leadership at a time of very serious threat to the international monetary system. Thank you very much.

SRI LANKA: RONNIE DE MEL Governor of the Fund and Bank

At the outset, let me recall that I first addressed this distinguished assembly in 1977. Since then, I have had the good fortune to address you ten times in succession as the Finance Minister of my country. Ten years is a long time in the history of any nation; ten years is also a long time in the development of the international economy. Many events have occurred during this long period, and I think it would be appropriate if I reflect on some of the problems we have faced, the solutions we have urged, and the successes and the failures of our efforts to meet the main challenges of our time, namely, the fashioning of a more orderly and a more equitable international financial system, which would enable industrial

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countries tQ grow steadily while containing inflation and unemployment and would permit the developing countries to overcome the problems of endemic poverty.

When I first came here in 1977, the world was yet struggling to recover from the recession of 1974-75 and was primarily concerned with the questions of how to promote worldwide economic growth without rekindling inflation and how to promote an expansion of world trade with beneficial effects on developing coun­tries. An expanding Fund, Bank, and IDA were in the forefront of the ongoing adjustment process. My country, Sri Lanka, had just decided to abandon a longstanding inward-looking economic strategy and to open out by liberalizing its economy. The next year, we were in the midst of the second oil shock, which dampened prospects of recovery in the industrial world. Following this, com­modity prices collapsed and non-oil developing countries commenced a long period of severe deterioration in the terms of trade. Protectionism was rearing its ugly head. World inflation and interest rates rose to intolerable levels, and official development assistance declined. World trade was constrained, and current account deficits of developing countries escalated in an unprecedented manner. My country's new open market policies came under severe strain, with the cost of critical development projects rising several fold.

In the early difficult years of 1977-82, I repeatedly urged a greater and more positive role for the Fund and the Bank to take the lead in arresting a serious slump in the world economy. This was because our Bretton Woods institutions were in the unique position of catalyzing adequate resources in support of orderly adjust­ment. We urged the increase in quotas in the Fund and in the capital of the Bank, relaxation of lending conditionality, and enlarged access to Fund-Bank facilities. Meanwhile, the industrial countries had come to grapple with adjusting to the emerging realities of high inflation and economic stagnation, and private financial markets had come to the fore in recycling the surpluses of oil exporters. But this was also a time when industrial countries commenced to review the role of the Fund and the Bank in a fundamental manner, with a distinct orientation toward greater emphasis on adjustment than on provision of adequate finance, an unfortu­nate juxtaposition of policy orientation, in my view.

A new situation arose in 1982. The world's economic ills were compounded by the emergence of the debt crisis in 1982, just when the world economy was showing some signs of recovery from the recession of 1978-82. Perhaps the debt crisis was the inevitable result of the way we tackled the recession, by overcon­centration on demand-containing adjustment and overdependence on private markets to finance the growing current account imbalances. In my first address in 1977 , I had suggested the search for means of recycling the surpluses via the Fund and the Bank, with an increased lending role for these institutions in promoting orderly adjustment. But such views were not fashionable in a world that was gradually coming to give primacy to adjustment over finance and that had considerable faith in the efficacy of private financial markets.

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Thus, although Fund quotas were increased somewhat modestly, access to Fund resources was progressively curtailed in formal terms and. further by practice. Conditionality grew in creeping fashion. SDR allocations, which were originally expected to relieve worldwide liquidity needs. were allowed to fall into abeyance. Ad hoc interventions in the most affected countries-the so-called "case-by­case" approach-probably averted a massive catastrophe, but the deeply underly­ing problems worldwide kept simmering and frequently boiled over. Even those severely affected countries that benefited by the crisis-management approach found adjustment excruciatingly difficult in the face of loan retrenchment by nervous commercial banks and export difficulties arising from growing protec­tionism in traditional markets. Threats of unilateral action by debtors shook the foundations of the international financial system. However, the hopes of industrial economies to resume sustained noninflationary growth were often thwarted by slower-than-anticipated responses in their economies. We have now come to identify their ills as primarily caused by misalignment of their currencies and deeply imbedded structural rigidities in their economies. Recently, some progress has been made by the industrial countries to better align their currency relativities, but the structural rigidities in these countries appear to be pervasive and difficult to tackle. A promising dialogue among industrial nations has started. with a view to better coordinating their internal policies and recognizing the international implications of their domestic policies. But. as is evident by recent disagreements, this dialogue too has proved to be difficult. Given these travails of industrial economies, the developing countries have taken a further beating. in terms of a dramatic fall in commodity prices, which has once again seriously affected their terms of trade. Their situation has become intolerable. Tea prices in Sri Lanka are less than half of what they were in 1984; coconut prices a fourth of what they were before. The same is generally true of other commodities like rubber. palm oil, sugar, jute, copper. tin. oil, and a host of others.

In my later interventions after the debt crisis, I have repeatedly focused on the inadequacy of our global response to meet the emerging problems. I think that it was a fundamental mistake not to expand the Fund-Bank role in the ongoing crisis. We seem to be fighting fires here and there, not realizing that what we face today is a potential global conflagration. The easy prescription of adjustment and more adjustment by developing countries ignores the fact that it is the developing world that has adjusted the most to the emerging global difficulties. They have depreci­ated their currencies, reduced their fiscal deficits, tightened their monetary pol­icies, and reduced their tariffs and balance of payments deficits. But where has it taken them so far?

In this regard. my country is a good example to study. We have opened our economy. created better production incenti ves. and gotten the economy moving­but every time we see a better tomorrow, we are confronted with unbearable deterioration in our terms of trade or difficulties in expanding our exports because of protectionism. Such problems are endemic in the developing world. When we

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come to the Fund and the Bank for assistance, despite their recent commitment to growth-oriented adjustment, we are confronted with a thick blank wall of higher conditionality, Fund-Bank cross-conditionality, inadequate resources, and tighter and higher repayment terms. I anticipated this problem way back in 1980, when I said in my speech to this same assembly that year-let me quote-"A year or two from now, there should be no cause to say: the Fund has finance, but conditionality prevented its utilization; the World Bank had policies which encouraged its 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 .... "

In my past interventions in this assembly I have often drawn attention to the imperatives of global interdependence. The industrial and developing countries are in a symbiotic relationship-each group unable to grow without the aid of the other. However, the synergic effects of their collaboration would be considerable. It was this realization that guided the Bretton Woods founders. Today, it is a sad reflection that we have drifted so far away from the spirit that guided our founding fathers. This is the essence of my experience during the past decade. We meet twice a year, undertake some patchwork, and depart, hoping for some world recovery. This recovery has proved to be elusive for the past ten years. Under a regime of volatile exchange rates, discordant economic policies, and structural inflexibilities, the world appears to be heading toward a phase of "beggar-thy­neighbor" policies, which on previous occasions have preceded great economic recessions. These worldwide uncertainties have made adjustment by our develop­ing countries almost impossible. It would increasingly appear that the Bretton Woods institutions are losing their influence on industrial countries and are losing the faith of developing countries. What we need today is to strengthen and liberalize these institutions by a rededication to the original spirit of Bretton Woods.

Having said that, let me now come briefly to some of the issues on our current agenda. I shall concentrate on three issues that are of fundamental importance to my country.

First, I am sure nobody will disagree that commodity prices today, in real terms, are at their lowest levels since World War II. The magnitude of the losses being suffered by developing countries could be gauged by the fact that last year, developing countries are estimated to have lost $50 billion by the fall in com­modity prices, at least half of which came from non-oil developing countries. It is ironic indeed that the only positive achievement in recent times, the apparent victory in the fight against inflation, has been largely achieved via drastic declines in primary commodity prices, with severe costs to developing countries. This situation may not be tenable in the long run. Therefore, the need for substantial and meaningful assistance under the compensatory financing facility (CFF) now is greater than ever before. As you are all aware, the CFF was originally designed to safeguard the interest of highly vulnerable primary producers. Its distinguishing features were low conditionality, quick disbursement, and a great deal of automat-

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icity. However, as it operates today, the CFF has been subject to extraordinarily high conditionality through highly restrictive interpretation of the "test-of-coop­eration" requirement. This defeats the very purpose for which this facility was designed. The recent drastic reduction in the CFF disbursements is clear evidence of the inflexibility of the prevailing approach. It is imperative that the original features of the CFF are restored forthwith, to make it more responsive to the most urgent needs of the commodity-producing developing countries. Furthermore, it is necessary to reintroduce the automaticity of the facility to ensure quick disburse­ment. Also the current access limits do not permit the facility to compensate the affected countries adequately. It is, therefore, vital to delink access limits from quotas and to relate them instead to the size of the export shortfalls.

Second, when the Structural Adjustment Facility (SAF) was introduced, we welcomed it as a much needed source of concessional assistance to low-income countries to overcome the structural rigidities that hindered the effectiveness of shorter-term demand-management policies implemented under traditional stand­by arrangements. There was also a great expectation that SAF borrowing would catalyze supportive additional finance from the Bank and other sources. However, to our great disappointment, we find severe constraints that are preventing eligible countries from obtaining assistance under this facility. The SAF is being increasingly linked to stand-by arrangements and is being subjected to rigid performance criteria-euphemistically called' 'benchmarks"-that would be more appropriate for stand-by arrangements. Additionality of resources has proved to be a mirage, and the Fund's SAF access is constrained to a mere 47 percent of quota over three years. If the SAF is to be effective in promoting "growth-oriented adjustment" in low-income countries, it is imperative that it be emancipated from inflexible conditionality and be able to catalyze greater resources. The efforts of the Fund and the Bank must be directed to ensure that adjustment and growth would be facilitated by an appropriate balance between stabilization and liberalization policies. The procedures will have to be greatly simplified and the negotiating process speeded up.

Third, we have been repeatedly calling for adequate financial flows to facilitate growth-oriented adjustment. In this respect the World Bank must take the lead in inducing concessional flows to developing countries that are making difficult sacrifices and pursuing painful adjustment programs. The Bank should be able to meet its resource requirements through the general capital increase, so that lack of capital will not constrain the Bank from performing an expanded role in promoting development. This is vital in view of the fact that many developing countries have been experiencing falling living standards since the beginning of the decade. As for IDA, we all appreciate the role it has played in promoting socioeconomic development in the poorest countries. It is, therefore, most disconcerting that the anticipated IDA-VIII Replenishment will be grossly inadequate to accommodate the needs of an expanded membership and the enhanced pressing needs of Sub­Saharan Africa, without crowding out other needy members. Furthermore, in view of the declining trend in aDA flows. we recognize the increasing importance

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of supplementing concessional flows to developing countries with nondebt-creat­ing flows of foreign direct investment. In this respect, I hope MIG A will serve to catalyze enhanced flows of private capital. Sri Lanka will be a party to MIGA by signing the convention this week,

Finally, let us welcome Kiribati and Poland to our midst. Also, we warmly welcome Mr. Barber Conable to lead the World Bank at this critical juncture. He has the daunting task of innovating new policies to take the lead in promoting growth-oriented adjustment in the developing world. We wish him well in his difficult task. It is with deep regret that we bid adieu to Mr. Jacques de Larosiere, our able Managing Director of the Fund. The whole world owes a deep debt of gratitude to him for the promptness and efficiency with which he brought the Fund into the center of the international debt crisis. By that action, he probably helped to avert another worldwide depression of the scale that we witnessed in the 1930s. When we think of the criticism that the Fund's response was inadequate to the needs, we should also remember that a Managing Director can only be what we the Governors want him to be. Hence, given the constraints under which he worked, he has done a truly magnificent job. He has a tremendous capacity for work. He has a deep understanding of the realities of international finance, and has great sympathy for developing country problems and aspirations. Mr. de Larosiere, we will indeed miss you in the difficult days ahead, and we wish you all success in your new endeavors. Last, but not least, let me thank the Japanese authorities for their generous gesture of making $3.5 billion of resources available to the Fund for lending to developing countries. We hope that the Fund will make effective use of these additional resources by reviewing its current policies on access and conditionality.

SWEDEN: KJELL-OLOF FELDT Governor of the Bank

Let me start by expressing a warm welcome--on behalf of the five Nordic countries-to the two new members of the Fund, Kiribati and Poland.

World Economic Outlook

I agree with those who have voiced their disappointment and concern about the course of the world economy in the most recent period. Like others, we had expected declining interest rates and lower oil prices to provide sufficient stimulus to sustain and even increase the rate of economic growth in many countries. Instead, we have seen a marked slowdown of economic growth in industrial countries, sluggish world trade, and deteriorating prospects in many developing countries.

Admittedly, it is difficult to interpret developments correctly at a time when the world economy is in the process of adapting to large shifts in exchange rates, interest rates, and raw material prices. Hopefully, we have witnessed only a pause

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in the recovery, to be followed by renewed growth this year and next. Indeed, economic activity is likely to strengthen as the effects of lower interest rates and oil prices work themselves through our economies.

But this higher activity may be short-lived, and the weaker, underlying trend we have seen earlier this year may reappear. Adjustment needs are currently great and will remain so both within and between countries. As efforts to reduce and eliminate imbalances proceed in many economies simultaneously, a deflationary bias is easily created in the world economy as a whole. Economic policy must be vigilant against this risk. Seen from an international viewpoint, its central task ahead must be to achieve progress in correcting the present large payments imbalances while avoiding adverse effects on output growth.

But such adverse effects may be very difficult to avoid unless domestic eco­nomic policies in some countries are adjusted. The United States is now, hope­fully, embarking on an ambitious course of fiscal consolidation in the years ahead. I am sure that we all agree that this is a highly desirable course of action to which we wish to give our fullest support. A lower budget deficit in the United States is a necessary and crucial element in the overall adjustment process.

But ifan ambitious fiscal consolidation in the United States is combined with an exceedingly cautious policy in Japan and major European countries, while debtor and raw-material-producing countries continue to be forced to restrain their imports-well, then it is difficult to see how a deflationary bias can be avoided. There is a risk that fiscal policy in the industrial countries on aggregate will have a very significant restrictive impact on world demand in the period ahead, and this is a source of serious concern to my constituency.

We therefore continue to argue that Europe and Japan must be asked to contribute more to world economic growth. Adjustments in present policies should be possible for countries with a comfortable balance of payments position and with inflation and public expenditures under reasonable control.

Coordination of monetary policy in major countries has been helpful in reducing interest rates and in improving the pattern of exchange rates. It is essential that cooperation in this field be intensified in the present circumstances.

Stronger growth in Europe and Japan will help speed up progress in correcting the current account imbalances of major industrial countries. This correction should not take place by exchange rate adjustments alone, but also by coordinated adjustments in domestic economic policies in major countries aimed at achieving a more satisfactory pattern of growth.

Assessing the compatibility of economic policies and ensuring their coordina­tion should be at the core of international economic cooperation as it is pursued in the Fund and other forums. It is obvious that this task is becoming particularly important in the period ahead.

The Debt Situation

In spite of substantial reductions in current account deficits since 1982, develop­ing country debt ratios have continued to mount, and economic growth has been

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generally disappointing. The prospects for sustained growth for the developing countries as a group seem even bleaker than before. Some countries are beginning to reap the benefits of adjustment, but for Sub-Saharan Africa developments dur­ing the past few years have been very unfavorable. Present projections for the developing world as a whole are beset with even greater uncertainties than usual, given the evolution of oil prices and commodity prices in general.

It is now one year since the U. S. Secretary of the Treasury presented his initiative to deal with the debt problems. My constituency remains convinced that the debt problems are best addressed in the framework of a coherent, long-term strategy which builds on and supplements the traditional case-by-case approach.

Promoting sustainable growth in the industrial countries is of singular impor­tance for such a common strategy. The prospects for the developing countries, and thereby prospects for effectively tackling the debt crisis, depend crucially on the growth and openness of markets in the industrial economies. The strong Nordic support for the new round of trade negotiations should be seen in this context.

However, determined action is also required from other partners. The commer­cial banks must play their part in supporting effective adjustment.

The debtor countries for their part will have to continue on their path of adjustment, mobilizing domestic savings and using scarce resources as effectively as possible. Credible economic policies will also help reduce the problem of capital flight. The Nordic countries welcome the growth-oriented agreement recently concluded between the Fund and Mexico and the agreement reached with the commercial banks yesterday. But we want to emphasize that such programs will have to be tailored to the specific circumstances of each applicant country. The provisions of the Mexican agreement are not necessarily applicable in arrangements with other countries.

For the poorest countries additional efforts are needed. We would like to see all industrial countries join in a coordinated action to assist these countries. An effective implementation of growth-oriented adjustment in these countries to a large extent depends on adequate concessional resources. For several years now, aDA flows have been largely stagnant, and prospects for the future point to a declining ratio of aDA to GNP. Increased debt relief in individual cases may also constitute an element in a program to assist the poorest countries. Some of our countries are actively considering additional aDA contributions specifically designed to help the poorest debtor countries reduce their debt burden. And we would encourage others to consider similar action. The multilateral financial institutions must also be provided with the necessary means to fulfill their part of the task in tackling the debt problem ....

. . . Let me conclude by joining others in paying tribute to Mr. de Larosiere. His legendary capacity for work and his firm and imaginative leadership have been crucial in guiding the Fund through a particularly difficult period for the world economy. The Nordic countries express their warm appreciation for Mr. de Larosiere's dedicated service and wish him well for the future.

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THAILAND: PANAS SIMASATHIEN Governor of the Bank

On behalf of the Government of the Kingdom of Thailand and myself. permit me to join my fellow Governors in expressing our warmest welcome to Mr. Cona­ble as President of the World Bank. I am confident that he will be able to lead the World Bank in our common quest of accelerating the pace and improving the quality of socioeconomic development for the developing world.

At this time, I wish to express our deep appreciation and sincere regret at the great loss of Mr. de Larosiere whose stewardship of the Fund in the past eight years in the most trying circumstances has been most exemplary. We will surely miss him and his wise counsel.

I wish to also welcome Kiribati and Poland as our two newest members and look forward to their active participation in our two institutions.

Permit me also to express our warmest appreciation for the visionary address of President Reagan and his call for economic freedom for all countries. It is most heartening to note his announcement to continue the fight against protectionism which must begin first in the United States and the industrial countries as well as in the developing countries. We shall await most eagerly the lead of the United States in concrete action toward this end. It is imperative that these noble ideals be trans­mitted into immediate concrete actions.

We are gathered once again to review the prospects for the world economy and to forecast as well as reinforce new directions to cope with the problem of developmental growth and the continuing problem of bringing about financial and monetary stability in the world economic arena. We are saddened by the fact that economic output in major industrial countries grew at a very moderate pace. World trade and terms of trade for developing countries. although improved, remain at stagnant levels. Indebtedness. a critical issue four years ago. continues to be a primary concern. Although we are heartened by some significant progress as enumerated by Mr. de Larosiere in his address to this assembly. much more remains to be done. The Baker initiative launched in Seoul continues to be a viable framework from which it is possible to see some medium- and long-term relief, provided that the major industrial countries. the commercial banks. and the World Bank and the Fund can cooperate meaningfully to reduce the staggering debt burden of developing countries in a meaningful way.

While the outlook may seem more optimistic than last year. for many of us in the developing countries who are undergoing necessary yet very painful structural readjustments. the world economy has turned increasingly more hostile. The reduction in interest rates and lowering of oil prices had some positive effects for developing oil importing countries; however. at the same time declining com­modity prices. increasing protectionism, and the continuing unwillingness of developed countries and commercial banks to provide increased financial resources at better terms and lower official development assistance levels have combined to merely keep the developing countries at a stationary level. Growth in

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the developing countries is definitely the key to the solution and no matter how much we of the developing countries work to attempt to actively mobilize and use our own domestic resources rather than relying on external flows of capitaL the debt overhang will remain the albatross for many years to come.

Permit me to comment on the role of the World Bank that we would like to see in enabling growth with stability for the benefit of developing countries in the coming years.

We believe today that the Bank is now at a crossroad. We note the direction and ideals that Mr. Conable has announced at these Annual Meetings of trying to come to grips with poverty. The World Bank has a leadership role to play in accelerating developmental progress both in traditional projects and structural adjustment lending as well as a catalyst through IFC in promoting investments in the developing world. We would urge that the Bank would also make a reassessment of its own direction and begin new initiatives toward a more innovative and responsive delivery of its services and resources to a much more varied clientele. The "volume driven" concept which emphasizes an overobsessive requirement on quantity must also be tempered by a more heightened quality consciousness. If project lending may be categorized as hardware, the technical expertise and advice of the Bank is the software that is today more needed in assisting member countries to develop a more flexible response to cope with a more complex world economy. While there remains a need for some traditional project lending, we would like to put forward that the quality aspect-which is infinitely more difficult to measure in monetary terms-is a critical area that the Bank is now neglecting.

On the financial front, the Bank now has a very important role to play and one that has direct bearing on the relief of the debt-servicing burden of developing members who are major borrowers from the Bank. While we agree that the financial stability of the Bank remains a cornerstone in financial markets, the present currency-pooling arrangements whereby all currency exposure risk is passed on to all borrowing countries have created a substantial additional burden on the debt-servicing capacity of borrowing countries, especially during this extremely volatile period of major currency realignments. In this respect we wish to request the Bank to reassess and review the impact of such policies and take immediate measures to adjust the existing currency-pool arrangements and mini­mize such burden where possible through a transfer of profit into a currency risk equalization fund whose benefit is passed on to borrowing countries rather than retained in the Bank itself.

As an alternative, we would like the Bank to study the possibility of refinancing existing projects of high-cost loans whose values have increased by more than 30 or 50 percent and to find effective ways of reducing these costs to more realistic market levels as an immediate step. These are concrete action and concrete steps beyond the review of loan charges to effectively assist member countries in reducing their debt burden from development loans from the World Bank whose terms and costs today are harder than commercial market terms.

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Exchange risk, which is passed on entirely to the borrowing member countries in the present monetary system of flexible exchange rates, needs to be carefully re­considered so that its impact on borrowing member countries is minimized.

Additionally, we wish to urge that the terms and conditions of loans take into account the complexity and various facets of developing countries at various stages of development. Variable and differentiated loan charges are issues that need to be addressed and, if possible, implemented. This would be more reflective of credit standing and the ability to service these debts as well as the recognition of the varying degrees of adjustment and growth of individual borrowing countries. I submit, that consideration of these issues and their implementation would not be detrimental to the financial status of the World Bank and would definitely enhance its development goals of generating more benefits to borrowing member coun­tries ....

TURKEY: I. KAY A ERDEM Governor of the Fund

It is indeed a great honor and pleasure for me to address this distinguished gathering. First of all, I would like to express my sincere gratitude to Mr. Clausen, who as President steered the World Bank safely through the rocks and shoals of an extremely difficult economic environment over the last five years. I would also like to convey my best wishes to Mr. Conable on his accession to the Presidency of the World Bank, and to congratulate Mr. de Larosiere for his success in carrying out his extremely delicate and difficult tasks. And finally, I would like to welcome Kiribati and Poland, the newest members of our institutions, to their first Annual Meetings.

Mr. Chairman, in my statement, which is being distributed, I have expressed my views on the world economic situation, debt problems, protectionism, and other agenda items. Because of the time constraint we have, I will only be concentrating on the Turkish experience in the economic adjustment process due to its continuing importance for most of us.

Although the international economic situation has improved markedly since the emergence of widespread difficulties in the early 1980s, considerable strains and uncertainties still remain. Policies oriented toward establishing demand and supply equilibria have enabled the industrial countries to realize noninflationary growth in the medium term and the developing countries to pursue adjustment with a certain degree of success. However, during the first half of 1986, despite lower oil prices and lower interest rates, a number of key economic indicators have shown a poor performance. This has given rise to concern over sustainability of the recovery. Short- and medium-term prospects seem cloudy as the weakness of economic activity in the industrial countries continues and as commodity prices remain low. Also, declining export earnings in the developing countries and depressed world trade have affected projections. Many non-oil developing coun-

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tries will face serious domestic and external problems for years to come, and the situation of a number of oil exporting debtor countries will remain critical. The continued success of the developing countries' growth-oriented adjustment pol­icies is threatened by the continuing movement toward protectionism, restricted access to the international capital markets, and depressed real export earnings. There is increasing concern over the sustainability of the adjustment process being followed by the developing countries.

In the face of their efforts to regenerate the necessary external resources and to restore domestic growth to adequate levels, we welcome Secretary Baker's initiative proposed last year at Seoul. I believe it is an important step toward a new and bold approach to the dilemma of the indebted developing countries. In my view, the ultimate success of growth-oriented adjustment efforts will depend not only on the volume of financial flows toward the indebted countries but also and even more decisively on exogenous factors, such as economic, commercial, and monetary events within the OECD countries. The policies of the developing countries should be carefully oriented to eliminate economic imbalances and accomplish a transition to a more sustainable fiscal and balance of payments position. This should be done without adverse short-term effects on the growth of output. On the other hand, the industrial countries should assume a fair share of the responsibility for sustaining the world recovery and for dismantling protec­tionism.

Protectionism is generally accepted as a major threat to the world economic recovery. Pressure for protectionist measures has been increasing steadily for some years now. In the recent past, most liberalization efforts have been offset by the introduction or intensification of trade restrictions. These restraints have destroyed the credibility of accepted trade norms, distorted the allocation of resources, and damaged trade-related investment. The matter is one of serious concern because sustained world economic growth and progress toward the solution of the debt problem depend crucially on the smooth expansion of international trade. The call for a new round of trade negotiations is a positive development, but does not lessen the urgency of more immediate action.

Now I would like to touch briefly on the Turkish experience. Faced in the late 1970s with the most severe economic crisis in the history of the Turkish Republic, the authorities realized the need for fundamental reform and launched a major reorientation of the Turkish economy in January 1980. Mustering the political determination needed to implement a painful adjustment program, the authori­ties undertook a comprehensive and internally consistent package of radical measures aimed at achieving sustainable growth and balance of payments vi­ability in the medium term. Despite the unfavorable international environment of this period, this program has been extremely successful. Internal and external imbalances were corrected, and the structural reforms exceed expectations.

In carrying out this program, I might say that we began to implement the Baker initiative in advance of its formulation. The first step was realizing the need for a comprehensive economic reform program combined with structural reforms

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aimed at an outward-looking reorientation of the economy and a greater play of market forces. Privatization of the State Economic Enterprises is another issue of particular structural significance. In fact, this is one of the principal ingredients of the industrial development strategy adopted by the new Turkish Government within the conceptual framework of a liberal economy. Flexible exchange rate and realistic interest rate policies, a greater reliance on market forces, much reduced government subsidies and intervention helped improve resource allocation. The liberalization of imports and the removal of certain exchange restrictions also enabled more efficient use of resources. Second, the support ofthe IMF, the World Bank, and the OEeD made it possible to implement a growth-oriented strategy. And third, although it took a long time for the Turkish' 'success story" to persuade the commercial banks and the official insurance agencies of the creditor countries to resume medium-term lending, the conditions for access to the international capital markets have gradually been re-established in parallel with Turkey's increasing creditworthiness.

I feel that the results achieved so far are impressive. In 1984 and 1985, real GNP increased by 5.9 percent and 5.1 percent, respectively. The first preliminary estimate for GNP growth in 1986 based on the results of the first two quarters is 7.8 percent. These growth rates are among the world's highest during the same period. Thanks to a pursuit of export-led growth strategies, the balance of payments position has been substantially improved with the current account deficit having been narrowed to a level sustainable in the medium term. In fact, the share of exports in GNP has increased from about 5 percent in 1980 to around 15 per­cent in 1985. The gains in competitive environment and the trend toward reliance on free market principles are continuing. But we are also determined not to let these encouraging developments lead to a relaxation of our efforts. The achieve­ment of sustainable and outward-looking development is a process requiring continuing determination and timely implementation of appropriate measures.

With respect to international monetary affairs, I am very pleased with the constructive discussion of the issues raised by the G-IO and G-24 reports. The coordinated actions taken by the major industrial countries to safeguard the orderly functioning of the international monetary system are also encouraging. The Plaza meeting a year ago was a promising beginning toward the elimination of excessive short-term exchange rate fluctuations and long-term misalignments between major currencies. This year's efforts to intensify the coordination of economic policies have demonstrated their usefulness not only for the countries directly involved but for the world economy as a whole.

The willingness of the major industrial countries to establish a set of indicators related to policy actions and economic performance is also a healthy step toward the strengthening of international surveillance. Effective multilateral surveiJIence using such indicators and performed in connection with the world economic outlook exercise would be beneficial in assessing members' domestic policies for their international consistency and compatibility with the stability of the exchange rate system. However, I am also of the view that a sound international monetary

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system needs to be supported by a stable reserve system which would allow countries to offset temporary disturbances arising from the exchange and financial markets. The limited access of the developing countries to the international capital markets, despite their strong adjustment efforts, necessitates this support. I therefore feel there is a need to supplement the existing sources of reserves in order to aid the smooth expansion of world trade, improve the composition of members' reserve assets, and increase the stability of the reserve system. Furthermore, strengthening the SDR' s role in the present system would enable it to be more than a safety net.

With respect to the roles of the Fund and the World Bank in the adjustment process, through which the international community can support the adjustment and development efforts of member countries, I believe it is time to pay greater attention to development as the inevitable accompaniment to adjustment. It is now more important than ever to increase the support coming from these two institu­tions. Since the world recession of the early 1980s many developing countries have been left with insufficient external resources and, in addition, with an unsustainable balance of payments position and poor growth prospects. The stubborn disequilibrium of the developing countries is often structural in nature, and those countries cannot correct them by their own unaided efforts, but must obtain a substantial increase in the resources at their disposal. The conditions and criteria attached to such assistance must be realistically and flexibly designed and applied.

I would also like to express to the Fund and the Bank our appreciation for their increased and very fruitful collaboration in the area of structural adjustment and indebtedness. We feel that this collaboration merits special commendation. The recent joint initiatives of the Bank and Fund have greatly raised our hopes for easing the problems of the developing world. I also welcome the ingenuity of these two institutions, which have found ways of implementing mutually supportive and complementary actions without sacrificing the independence of either one.

On a more somber note, I must voice my disappointment that the management's efforts to expand the World Bank's role in the changing economic environment of the late 1980s have not yet resulted in solid, concrete plans for a general capital increase. In the light of the latest projections concerning net transfers, which is a matter of great concern to the Bank's borrowing member countries, Turkey believes that a sufficient general capital increase is urgently needed. I have no doubt that there is unanimous agreement that sooner or later we will have to consider an increase in the Bank's capital, because we must enable the Bank to increase its lending base in order to facilitate adjustment and accelerate the development process. I therefore hope that we will very soon be able to reach a consensus on the magnitude and conditions of a general capital increase.

I appreciate the efforts of the Board and management of the Bank in formulating and providing advice, support, and assistance to Sub-Saharan Africa, where problems of a structural nature require special attention and carefully tailored concessional aid. In this context, Turkey has launched a program to grant $10 mil-

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lion and the Turkish people have started a countrywide campaign to secure funds for further contribution.

In conclusion, I would say that a stable and more supportive international economic environment would ease many current problems and would permit many countries to resume development. Intensified efforts by the industrial countries to harmonize and coordinate their economic policies, to lessen the threat of protectionism, and to further stabilize the international monetary system would do much to improve the health of the world economy.

UNITED KINGDOM: NIGEL LAWSON Governor of the Fund

I have the honor of addressing this meeting as Presidency of the European Community, which since the start of the year has for the first time comprised 12 nations, with the welcome inclusion of Spain and Portugal. The Bank and Fund have also acquired two new members-Poland and Kiribati-and I welcome them, too.

I shall deposit the full text of my Presidency speech with the Secretariat, but I should like to make some of the main points here, before I tum to my remarks as U.K. Governor.

Economic activity in most industrial countries. particularly industrial produc­tion, has been somewhat sluggish since the final quarter of 1985. While this is disappointing, it is likely to prove a transitional phase as the world economy adjusts to the major shifts in relative prices which have occurred over the past year or so.

There is a reasonable expectation that economic activity in industrial countries will pick up as domestic demand responds to lower nominal interest rates and higher real incomes. Indeed, signs of a pick-up of activity in a number of European countries are apparent.

But in many countries government deficits need to be reduced further. The United States has a major role to play here because of the size of the federal government deficit and because of the contribution which its correction can make to reducing current account imbalances. It is crucial that Japan should make its contribution by implementing rapidly the recommendations of the Maekawa Commission designed to reduce the export-oriented nature of the Japanese econ­omy and to increase its openness to imports, thus sustaining a faster rise in domestic demand. The Community countries are also aware of the need to contribute to the correction of existing imbalances and to the maintenance of sustained growth of world demand and trade.

The European Community will enter the forthcoming GATT talks with the objectives of consolidating and further developing the open trading system. The EC welcomes the progress made at the September GATT ministerial meeting in Uruguay.

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The Fund continues to have a central role in the adjustment process, and the countries ofthe Community stand fully behind it in its work. In view ofthe serious payments difficulties that many Fund members continue to face, the EC member states welcome the decision by the Interim Committee to maintain the policy of enlarged access for another year and to keep the access limits unchanged for 1987. The member states of the Community are prepared to participate constructively in the discussions on the Ninth Quota Review.

On behalf of the member states of the Community. I would like to congratulate Mr. Barber Conable on his appointment as President of the World Bank and welcome him to our regular discussions at these meetings. His appointment comes at a time when the World Bank is embarking on important new developments.

We recognize that the Bank requires sufficient resources to enable it to fulfill its role in tackling the problems of major middle-income debtor countries. We are therefore ready to support a substantial increase in its capital.

We look forward to very early finalization of an Eighth IDA Replenishment. with extra voluntary contributions. of $12 billion.

We welcome the role of the International Finance Corporation in support of private investment and enterprise in the developing countries.

Good progress has also been made with MIGA-the Multilateral Investment Guarantee Agency. More than 35 countries have now signed the Convention. and a few days ago the Preparatory Committee agreed on the internal regulations and operations guidelines. We hope that the agency can be established quickly and can begin to play its part in supporting and promoting private direct investment.

Let me now make some additional remarks in my capacity as Governor for the United Kingdom.

At previous Annual Meetings I have had occasion to remark on the encouraging consensus that has grown up through the world on the monetary and fiscal policies necessary to secure sustainable noninflationary economic growth. What is new is that the consensus over macroeconomic policy has been extended into the micro­economic sphere. Governments of all political persuasions throughout the world are increasingly coming to recognize that sound macroeconomic policies need to be accompanied by the liberation of marke.t forces: privatization. deregulation. and tax reduction. All have become part of the new world consensus.

Free Markets. Trade, and Protectionism

Nowhere is the proper functioning of free markets more important than at the international level. We have seen at Punta del Este a real breakthrough. The world is now committed to a genuine attempt to bring down trade barriers right across the board. in industry and agriculture. goods and services. It is vital that we now carry this through to a successful conclusion.

I know that the U.S. Administration is deeply concerned about the strength of bipartisan protectionist pressure in Congress. We all share that concern. But equally. it is right to point out that over the past year alone we have seen three

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important achievements in the international sphere, each of which will strengthen the open trading system:

-Since the Plaza agreement, there has been a major realignment of exchange rates to much more realistic and sustainable parities.

-At the Tokyo economic summit in June, we resolved to improve the process by which we work toward greater consistency in our economic policies.

-Following the GAIT ministerial meeting at Punta del Este earlier this month, we are on the road to a worldwide comprehensive reduction of trade barriers on both goods and services.

Armed with these achievements, it is not unreasonable to expect the U.S. Administration to overcome protectionist pressures from within its own shores.

One area of the world economy where market forces are still conspicuously cribbed, cabined, and confined in agriculture. As a result, we have perverse agricultural policies throughout the world, which may well present the greatest challenge of the next decade. We encourage production in high-cost OECD countries and discourage it in developing countries that have a comparative advantage. We continue to arrange that the taxpayers of the western world finance food aid to the Soviet Union.

Low world prices for agricultural exports, as a result of industrial countries' subsidies, represent a major loss for developing countries and are particularly serious for many debtors. The sums involved are enormous. This year's World Development Report shows that worldwide liberalization-after allowing for losses to producers--{;ould produce overall gains in the region of $20 billion for developing countries and up to $50 billion for OECD countries.

Let there be no doubt: the potential gains from better pricing policies and trade liberalization are vast and infinitely larger than any feasible increase in aid. The United Kingdom certainly needs no convincing that major changes in agricultural policies are needed by industrial and developing countries alike.

At this year's summit in Tokyo, the main industrial countries agreed that international cooperation was needed to bring agricultural production into line with demand and to tackle subsidies. What we need is multilateral disarmament among the subsidizers. Clearly, it cannot be achieved overnight. But equally, a start has to be made without delay. I am pleased that the Development Committee has adopted my proposal that this vital issue should be discussed at its next meeting.

The U.K. Economy

Finally, let me say something about the experience of my own country this year. In general, developments in the United Kingdom have mirrored the pattern of

the industrial world as a whole. Domestic demand has been as buoyant as I suggested at the time of the budget in March. But in line with the sluggishness of world trade generally and as a result of weaknesses in a number of markets (particularly those affected by the sharp fall of the oil price). exports have been

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flatter than I expected then. As a result, overall output growth this year will be less than I envisaged in March.

This slowdown comes after four years of steady growth of about 3 percent a year, the longest period of growth we have known for a considerable time. The important question is whether it represents the beginning of the end of the cyclical upswing that started in the United Kingdom in 1981, or whether it is merely a short pause in that upswing.

Some months ago I ventured the view that what we were experiencing was merely a short pause before the beneficial effects of lower oil prices on world and U.K. activity came through. I see no reason to change that judgment. Indeed, there are already signs of a pick-up of exports, and with continued strength of domestic demand there is every prospect of faster growth next year.

But within this overall economic growth, there have been profound changes in the pattern of the economy, associated with changes in the pattern of world supply and demand, and the need for British industry to restructure itself to meet those changes. In particular, there has been a long-established trend for services and oil to grow faster than manufacturing. But even within manufacturing-which over­all accounts for roughly a quarter of GOP-performance has been far from uniform.

In some industries-mostly the metal-using industries, textiles, and clothing­output is still below the prerecession peak of 1979. But in other important manufacturing industries-such as chemicals. food, and engineering--{)utput is well above the prerecession level.

At the same time. inflation has fallen rapidly. The underlying rate may now be around 31/4 percent. I do not expect to see much change in that figure over the coming months.

In common with other countries, we have to accept that the sharp fall in the oil price and most other commodity prices means that the underlying rate of inflation is not quite as low as that recorded in the latest figures. But given the continued pursuit of policies of sound money, inflation can be kept at a low rate and eventually eliminated altogether.

As the fifth largest oil producing nation in the world--even though oil is only some 5 percent of our GOP-the U. K. economy has been affected more than most by the collapse of the oil price. This is reflected most notably in the current account of the balance of payments, where the sizable contributon of North Sea oil to our export earnings has been halved. As a result, non-oil exports, both visible and invisible. will have to rise to make good the drop in oil exports.

The need for this rise in non-oil exports-although not of course its immi­nence-was always foreseen. As I explained in a speech I made at Cambridge some three years ago, a lower real exchange rate would be part of the mechanism that would lead to the necessary improvement in the non-oil balance. Since the oil price halved, we have duly experienced a substantial but on the whole orderly fall in the exchange rate. Inevitably, it will take time to have its full effect on the current account.

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Moreover, we have deliberately followed a prudent policy with regard to North Sea oil, and a high proportion of the revenue has been invested abroad to give a permanent inflow of foreign currency income. The United Kingdom's net over­seas assets have risen from £12 billion, or under 7 percent of GOP, in 1979 to some £80 billion, or 23 percent of GOP, by the end of 1985. Our net overseas assets are now second only to those of Japan. The income from these assets will provide a useful offset to a lower contribution from the North Sea.

In the early stages following the fall in oil prices, the United Kingdom was often encouraged to join in a program to restrict oil output and raise prices. We have always had the freest oil province in the world, in which it is up to companies, not government, to decide how much to produce. I have never believed it would be in the interests of the United Kingdom or the world for us to depart from that policy. And I am glad to say that since the spring Interim Committee meeting our position has been more widely understood and accepted.

A bigger worry is unemployment, which not only remains far too high but has risen further over the past year-although in recent months there has been a welcome improvement in the trend. And the composition of unemployment in the United Kingdom is changing. Youth unemployment is lower than in most of the European Community, and falling. We have tacked this serious social problem by a substantial expansion of youth training and through policies aimed at pricing youngsters back into jobs.

By contrast, our most difficult problem has been the growth of long-term unemployment. Accordingly, we have now devised a package of measures care­fully designed to help the long-term unemployed in their search for work. There is increasing evidence that this will prove successful.

In conclusion, let me pay a brief tribute to the Managing Director of the Fund, Jacques de Larosiere, who has sadly announced his impending retirement. During his eight years as Managing Director he has had to tackle tasks tougher and more intractable than those faced by any of his predecessors. He has done so in a manner that has earned the admiration and respect of the entire world. We are fortunate indeed to have been served by so dedicated and sure a guide, and we are inspired by his example as we resolve to tackle the problems that still lie before us.

UNITED KINGDOM: NIGEL LAWSON Governor of the Fund

Before I enter into the main body of my speech I would like to pay a very brief tribute to the Fund's Managing,Director, who very sadly has announced his impending retirement. We shall, of course, have many occasions over the next few days to pay fuller tributes to him, so I shall be brief on this occasion. But I am sure that my colleagues in the European Community would wish to take this first opportunity to register our enormous admiration for him during his tenure of office; for the way he has tackled tasks, which I believe have been tougher and

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more difficult than any of his predecessors have ever had to tackle; for the leadership he has given to the whole of the free world in tackling these problems; and our gratitude to him for setting us on the right path to a successful resolution of the many problems that still remain.

I have the honor of addressing this meeting on behalf of the member states of the Community, which since the start of the year includes Spain and Portugal. Economic activity in most industrial countries, particularly industrial production, has been somewhat sluggish since the final quarter of 1985. While this is disap­pointing, it is likely to prove a transitional phase as the world economy adjusts to the major shifts in relative prices which have occurred over the past year or so. The price of oil on world markets is now about half of its level of a year ago, the prices of many other primary products have weakened, and there has been a substantial realignment of exchange rates between the major currencies-the exchange rate of the U.S. dollar has. for instance. fallen by about a fifth in effective terms since the Plaza agreement last September. These developments have contributed to a further fall in inflation-to its lowest rate in 20 years-and have facilitated a general reduction in interest rates, although they are still high in real terms. While the adverse impact of the fall in the oil price on world trade and demand has been rapid, the favorable effect of the increase in oil consuming countries' real income is taking time to feed through into higher domestic demand. The depreciation of the dollar is also altering the balance of domestic and external demand in the economies of the countries whose currencies have appreciated, as well as in the United States.

The delay before the full effects on output of lower oil prices become apparent is not unprecedented-the response of output to the oil price increases in 1973-74 and 1979 also took some time to take effect. There is. therefore, a reasonable expectation that economic activity in industrial countries will pick up as domestic demand responds to lower nominal interest rates and higher real incomes. And, indeed. signs of a pickup of activity in a number of European countries are apparent.

However. some risks remain in the outlook. Perhaps foremost among them are the very large current account imbalances in some of the major industrial coun­tries-which are incompatible with the orderly expansion of the world economy and are unsustainable over the medium term-as well as the protectionist senti­ment caused by these and other tensions in the world trading system. But exchange rates now better reflect economic fundamentals, though we must accept that current account positions will take rather longer to adjust.

We believe that the industrial countries should continue to pursue policies which provide the sound financial framework essential to achieving sustained non­inflationary growth and expanding trade. In particular. monetary policy in all countries must be committed to preventing a resurgence of inflation. But in many countries government deficits need to be reduced further to permit a lasting reduction in real interest rates. The United States has a major role to play here because of the size of the Federal Government deficit and because of the contribu-

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tion which its correction can make to reducing current account imbalances. It is crucial that Japan should make its contribution by implementing rapidly the recommendations of the Maekawa commission designed to reduce the export­oriented nature of the Japanese economy and to increase its openness to imports, thus sustaining a faster rise in domestic demand. The Community countries are also aware of the need to contribute to the correction of existing imbalances and to the maintenance of sustained growth of world demand and trade.

Unemployment remains a major problem which is particularly serious in the member countries of the European Community. The European Council at its meeting in The Hague last June confirmed the necessity of continuing macro­economic and microeconomic policies aimed at structural improvement, in com­bination with additional efforts to generate gainful employment. The Community countries are committed to continue their efforts to increase the flexibility of their economies and thereby their capacity for domestically generated growth. Struc­tural rigidities in our economies have to be tackled, and the evolution of real in­comes and costs in the member states of the Community must be consistent with the goal of reducing unemployment. Some progress has been made in recent years, but much remains to be done. The next few years provide a major opportunity for advance.

Despite the success of the major industrial countries in reducing inflation, sub­stantial current account imbalances have persisted, in large part through failure to take account of the international repercussions of the mix of domestic policies.

The EC member states welcome the steps that have been taken over the past year to improve international policy coordination. They also welcome the decisions which have been taken at the recent meetings of the Interim Committee and at the Tokyo summit in May 1986 for strengthening Fund surveillance and improving its multilateral setting. The Community countries consider that the special chapter in the World Economic Outlook in which the policies of the large countries are analyzed on the basis of quantitative indicators offers an encouraging starting point for regular discussions in the framework of the Fund. This should help improve understanding of the international dimension of domestic decisions, thereby providing essential background for policy discussions aimed at correcting imbalances and making the exchange rates of the main currencies more stable. Such steps should contribute to the improvement of the functioning of the inter­national monetary system, which remains one of our main tasks.

Over the last year changes in the world economy have probably had, on balance, a beneficial effect on the debt problem, although the situation of some countries has seriously deteriorated. The fall in the dollar has lessened the effective debt burden of the many debtors having a large share of their debt denominated in dollars. Lower interest rates have reduced the cost of servicing debt, although real rates remain at high levels. The reduction in oil prices has helped many developing countries, although it is having very serious implications for those debtors relying on oil exports; the situation of a number of them has been worsened by the fall in export prices.

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These developments over the past year-particularly the fall in oil prices­underline the fact that the case-by-case approach to the debt problem is the most appropriate strategy; each country faces different problems and needs to look for different solutions. They also reinforce the need to make changes to structural policies designed to foster balanced growth and a sustainable external position, the central planks of any realistic long-term solution to individual countries' debt problems. Major oil producing debtors, in particular, need to undertake a compre­hensive adjustment to lower oil prices, since their economic development will have to become less dependent on the oil sector. The EC countries recognize that structural changes will be neither easy nor painless, and consider that the interna­tional financial institutions should strengthen their vital role in assisting countries to develop structural reform policies appropriate to their individual situations, and in helping to mobilize financial resources to support them. In particular, the con­tinuation of the role of the Fund is of crucial importance for an adequate partici­pation of commercial banks in the present debt strategy. The member states of the European Community welcome the considerable progress that some developing debtor countries have already made in implementing structural reforms in their economies.

The governments of the industrial countries can best contribute to easing debt problems by pursuing policies to achieve sustainable growth and by widening access to their markets, in addition to their contribution through official develop­ment assistance, officially guaranteed export credits, Paris Club rescheduling, and ensuring that the international financial institutions have adequate resources.

The forthcoming GAIT round provides the most comprehensive opportunity for multilateral negotiations on the opening of markets since the Tokyo Round a decade ago. The European Community will enter these talks with the objectives of consolidating and further developing the open-trading system. We hope too that the negotiations will bring a fuller participation of individual developing countries commensurate with their stage of economic development. The European Commu­nity welcomes the progress made at the September GATT ministerial meeting in Uruguay.

On behalf of the member states of the Community, I would like to congratulate Mr. Barber Conable on his appointment as President of the World Bank and welcome him to our regular discussions at these Meetings. He brings to the job a wealth of relevant experience. His appointment comes at a time when the World Bank is embarking on important new developments.

The EC countries endorse the need for the Bank to build on its role, in close coordination with the Fund and alongside the commercial banks, in tackling the problems of the middle-income debtor countries. We welcome the substantial increase in its new loan commitments to these countries in the past year although we note that total disbursements have fallen somewhat short of expectations. The Bank has the necessary expertise in analyzing and implementing changes in structural policy, and the ability for greater longer-term involvement in the development of individual economies.

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Naturally, we recognize that the Bank requires sufficient resources to enable it to fulfill this role. We are, therefore, ready to support a substantial increase in its capital. We welcome the discussions on this that have already begun in the Executive Board and hope that they will be brought to an early conclusion.

At the same time, it is right that the Bank should continue to support the poorest countries, especially in Sub-Saharan Africa, through the International Develop­ment Association. We look forward to very early finalization of an IDA-VIII Re­plenishment, with extra voluntary contributions, of $12 billion. This will be a welcome increase in the funds available. We hope it will still be possible to find ways to increase the amount further.

We welcome the role of the International Finance Corporation (lFC) in support of private investment and enterprise in the developing countries. We welcome the recent increase in the capital of IFC and its initiatives to increase flows of equity investment through the Emerging Markets Growth Fund and the Guaranteed Recovery of Investment Principal Scheme.

Good progress has also been made with the Multilateral Investment Guarantee Agency (MIGA). More than 35 countries have now signed the Convention, and a few days ago the Preparatory Committee agreed on the internal regulations and operations guidelines. We hope that MIGA can be established quickly and begin to play its part in supporting and promoting private direct investment.

UNITED STATES: JAMES A. BAKER, III Governor of the Fund and Bank

We meet at a promising yet trying time. Our nations are constructing, piece by piece, a strengthened framework for

cooperation on economic issues. This framework builds on the foundation of established institutions and agreements-the International Monetary Fund, the World Bank, and the GATT-while enhancing their roles. This framework also includes new features, such as the improved multilateral surveillance system called for at the Tokyo economic summit.

The problems we seek to address through this evolving system are difficult, complex-and at times the cause of discord. This dissonance is to be expected. Indeed, it is a sign of any pluralistic governing process. The key point is that we now regularly review the effects of our individual actions on matters of common concern. In doing so, wit each periodically expect to promote, discuss, and defend our actions within agreed forums. The process itself creates a discipline, even when we may disagree.

Our political processes must, however, result in substantive progress on the critical economic issues of our times. As I see it, these issues are three: restoring balance to our trading system; relieving the burden of developing nation debt; and sustaining non-inflationary global growth. My remarks today will focus on the first two. (Sustained global growth is of course inextricably linked to both of them.)

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Before moving to these issues, we might reflect that the success of nations, institutions, and the processes that bind them depend importantly on the leadership of individuals. Today we mark the departure of a special leader, Jacques de Larosiere, and the new stewardship of another, Barber Conable.

During the past eight years of stress and change, Jacques de Larosiere has played a vital role in strengthening the Fund and the international financial system. His many accomplishments will affect the destiny of nations for years to come. The progress that we have made in the areas of debt policy and economic coordination is, in no small part, due to his effective leadership. His dedication to greater harmony and prosperity in the world economy has been an inspiration to us all, and we have deeply appreciated his wise counsel. Jacques, I wish you and your family all the best as you return to France.

We warmly welcome Barber Con able as the new President of the World Bank. His record commands our respect; his vision warrants our support. We can only move forward if we continue to inspire the commitment of individuals like these two extraordinary public servants.

The Imbalances of Trade

Today's trade imbalances, particularly among industrial nations, are no secret to any of us. They affect all of us, large and small nations alike. Our challenge is to rectify these imbalances in a manner that supports a growing world economy and helps those nations coping with large debt burdens. If we do not, I would fear for the future in view of the haunting spectres of protectionism and isolationism.

There are many factors that contribute to these imbalances of trade. None of us now doubts that the exchange rate relationship of last September needed to adjust to fundamental underlying economic conditions. Since our Plaza agreement, the dollar has depreciated substantially.

The dollar has reversed the appreciation against the yen that took place earlier in the 1980s and turned around much of its rise against the deutsche mark. While there may be disagreements about degrees of further adjustment, I think that we all concur that the changes in exchange rates of key currencies that have already taken place should facilitate more balanced trading patterns. Exchange rates should not, of course, be the sole instrument of adjustment. We must examine the effect of industrial nations' growth prospects on their major trading partners and on devel­oping countries as well.

Growth in the United States has helped sustain world economic growth in recent years. Real output in the United States has risen at an annual rate of 4.3 percent since our current economic expansion began at the end of 1982. We created II million jobs and reduced our unemployment rate from 10.6 percent to 6.7 percent. In the process, from 1982 to 1985, the U. S. market absorbed almost 60 percent of the increase in non-oil developing nation exports.

As the U.S. economic expansion has slowed to a more sustainable pace, we have urged the other industrial nations to grow more quickly. Surplus nations, in

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particular, must spur domestic demand to grow faster than GNP. Some of these countries appear to be taking steps to enhance growth, although not as rapidly as the trade imbalances may necessitate. Moreover, troubling forecasts suggest that some nations' growth may slow over the course of the next year and that average growth rates abroad may slip below that of U.S. expansion.

Our coordination efforts have focused attention on the connection between national growth and trade balances. The Tokyo summit agreed to a collective review of economic objectives and forecasts, relying on a range of indicators, with a view toward examining their mutual compatibility and the need for remedial measures. This weekend we completed the first of these reviews.

Of course it would be fortunate if such reviews could result in immediate agreement. But often they won't. Indeed, the fact that we are forthrightly discuss­ing some of our most sensitive economic policies almost ensures that at times we will differ. After all, we are engaged here in a process of trying to solve significant problems.

The process can and will work. It produces both improved understanding and further incentive to coordinate policies. What matters most, however, is whether good intentions are carried out. As the President of the United States told us yesterday the only way to resolve the external imbalances among countries is through increased growth abroad, a greater competitiveness for the U.S. dollar, or both.

The President also pointed out that open world markets are essential for adjustment of trade imbalances. And open markets provide debtor nations the outlet for exports that are essential if they are to service their debt.

Therefore. we are encouraged by the ministerial agreement at Punta del Este to launch a new trade round under the GATT. This declaration is an excellent example of how previous arrangements for international economic cooperation can evolve to meet changing demands. The rules of the open trading system must now encompass agriculture, services, investment, and intellectual property rights--or else the principle of comparative advantage upon which the system is founded will be overpowered by protectionism. The spirit of cooperation among a large number of diverse developed and developing nations at Punta del Este augurs well for the long, difficult negotiations ahead.

Our commitment to free but fair international trade should not be underesti­mated, but neither should the forces of protectionism. President Reagan has taken unyielding and sometimes unpopular stands against protectionism at home­vetoing textile, copper, and shoe quota legislation; opposing a dangerous trade bill passed by our House of Representatives; and leading liberalizing initiatives both multilaterally and bilaterally. The President has also acted against protectionism abroad. He is the first President to initiate action against such practices under his retaliatory authority. While resisting protectionism at home, the United States must deal firmly with unfair trade practices overseas to maintain domestic support for the open trading system.

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I recognize that it is also incumbent upon the United States to do its part to reduce the trade imbalances and encourage noninflationary growth.

-First, we are reducing our budget deficit. At this moment, our Congress is working on legislation to meet the Gramm-Rudman-Hollings budget deficit target for fiscal year 1987. Between calendar years 1986 and 1987, our federal deficit as a percentage of projected GNP should fall from 4.7 percent to about 2.9 percent. Among the five major natons, only Germany would have a budget deficiUGNP ratio substantially below ours.

-Second, we are lowering federal outlays as a percent of GNP. We now project them to be at 21.9 percent of GNP for this fiscal year, down from 23.9 percent in fiscal year 1986.

-Third, we have cut our interest rates, a major determinant ofthe well-being of the international community. In 1980, the prime lending rate in the United States rose to 21. 5 percent; it is now down to 7.5 percent. The rate fell by 2 percent this year alone.

-Fourth, while lowering interest rates and nurturing world economic growth, we have brought inflation under control, and kept it that way. Our 3--4 percent inflation of recent years is a far cry from the double-digit increases early in this decade. Our current inflation rate is even lower because of the reduction in crude oil prices. Perhaps more important for the future. the pressure for inflationary wage increases has dissipated.

-Fifth, our Congress has just enacted an historic revenue-neutral reform of our tax system. This legislation broadens our tax base in order to lower rates, thereby increasing incentives for truly productive economic activity. We cut the top statutory individual income tax rate from 50 percent to 28 percent, our lowest top rate in over half a century and less than half of the 70 percent top rate that constrained Americans in 1981. We hope and expect that such base­broadening and rate reduction will prove to be a model for other nations.

The United States will not rest on these laurels. We know that we must take more steps to improve our international competitiveness. We must enhance productivity, boost private savings, and orient our business culture more toward exports. But these improvements will take time and great effort to achieve. Moreover, they will not right the trade imbalance unless our major trading partners also adjust their economies and attitudes. We must act in concert over time.

My final point on trade imbalances is their relation to the debt problems of developing nations. The developing nations are critical partners in our interdepen­dent economic system. Our growth fuels their economies and their economic energy drives much of our trade and investment.

The Program for Sustained Growth

One year ago we proposed an initiative by debtor nations, international institu­tions, and private banks to help nations cope with their debt burdens and get on the track of sustained growth. In doing so, we stressed that this program was a long-

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term effort. The debt problem took years to unfold and each nation's challenge is unique. So we must expect that they will progress at different paces, and that the overall solution will be neither quickly nor easily attained.

To recognize our substantial success to date, we must focus on specific actions by various nations and the building of new institutional capabilities that will further the next steps. The sum of these particulars is encouraging. Considerable progress has been achieved, not by command, but through the interaction of all parties pursuing mutual interests.

Virtually all the major debtor nations have emphasized the need for greater economic freedom through the adoption of more open, market-oriented econo­mies.

First, many nations are implementing monetary and fiscal reform programs to establish the vital prerequisites for growth and stability. In large part, these programs concentrate on eliminating inflation and reversing capital flight. Major reforms in Bolivia and Argentina have cut inflation rates enormously, and most other major debtors continue to make steady progress.

Second, several key debtor nations have recognized the heavy structural burden of inefficient or highly subsidized public enterprises. These operations siphon off crucial national savings and sharply increase external indebtedness. Several countries have moved to transfer government-owned industries to private ownership and management. Mexico for example, has made a good beginning in this area.

Third, debtor economies are placing greater reliance on markets to allocate resources. More leaders have recognized that efficient markets can improve growth prospects and the well-being of their people. Colombia has reduced government interference in its import, export, and foreign exchange system, and implemented more market-sensitive agricultural policies. Turkey has lowered trade barriers and deregulated its domestic economy. Ecuador is opening up its investment regime and is encouraging foreign investment. Mexico's recent steps to liberalize free trade, which have received both IMF and World Bank support, provide a sound basis for its accession to the GATT.

The earliest returns for the debtor nations are encouraging. We expect real GNP growth for 137 non-OPEC developing natons to average about 3.5 percent in 1986 and more than 4.0 percent in 1987, a threefold increase above the rate of growth in 1983. Moreover, the 40 percent reduction in interest rates since 1985 has sharply reduced the burden of debt service. We must acknowledge, however, that some oil exporters are facing a special challenge.

The international lending institutions are the second major force behind this growth program. They have been working more closely with debtor nations, and with one another, to promote adjustment policies, achieve market-oriented struc­tural change, and build vital institutional capabilities for the subsequent stages ....

. . . The Bank, in tum, has increased its structural and sectoral adjustment lending and enhanced its relations with other international institutions. Aggregate

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Bank loan commitments to the major debtors increased by nearly 40 percent, to $6.1 billion, between July 1985 and June 1 986-including $4.2 billion to commit­ments in the first half of this year alone.

This loan commitment volume is linked to intensified Bank support of growth­oriented policies. The Bank has extended nearly $3 billion in new policy-based loans to 8 of the major debtors since we unveiled our strengthened debt strategy last year. Negotiations on an additional $5 billion in policy-based loans are now under discussion with 11 of these countries.

We compliment these advances. We also counsel that it is essential, as the Bank continues to provide more fast-disbursing sectoral and structural adjustment loans, that their high quality be maintained. And as I suggested in the Development Committee on Monday, in making these loans, the Bank should intensify its efforts to reduce adverse effects on the wildlife and natural resources of our environment.

The Fund, the Bank, and the nations they serve have made a good start. But more can and should be done to strengthen the private sector, reform tax policies, improve domestic capital markets, liberalize trade, and reduce capital flight.

The Fund should give more attention to these matters when it designs its programs. Both institutions should lend greater encouragement to foreign direct investment. The developing nations must welcome and draw more equity invest­ment if they wish their citizens to enjoy flourishing, productive economies.

We are also strengthening our ability to help the developing mitions by forging new tools for specific problems. The Structural Adjustment Facility can help us promote growth policies for poorer nations with protracted balance of payments problems. The Multilateral Investment Guarantee Agency could encourage badly needed investment.

The third mutually reinforcing element of our program for sustained growth is increased private bank lending to support comprehensive adjustment programs. While most banks have pledged their commitment to this effort, we should not score this as a success until the financing to support the adjustment programs is in place and the bank loans are made.

The Mexican discussions are providing the first test of the banks' willingness to provide a major new money package. As we now all know, just yesterday, Mexico and the banks reached an agreement in principle on a substantial loan package. This is an important, concrete example of the banks' willingness to support the strengthened debt strategy. We look to the prompt completion of this agreement so that Mexico will be assured of the financing to implement its growth program.

And as important as the Mexican loan package is, we should not lose sight of some significant early efforts: Banks have already provided new loans to Uruguay and Cote d'lvoire, and an oil facility loan for Ecuador is nearing completion. In addition, new multiyear reschedulings have been completed with Yugoslavia and Cote d'lvoire, while negotiations are now under way with Bolivia. Morocco, Nigeria, and Uruguay. In light of all of these developments, then, I think we can

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look forward to the increased private financial flows called for by the strengthened debt strategy.

Conclusion

My comments today have focused on the two critical issues of trade imbalances and the debt problem in developing nations. With the decline of inflation, interest rates, and oil prices, there is a signal opportunity for industrial nations in surplus to help on both these fronts by boosting their growth. I urge these countries to seize the moment.

My remarks also have addressed a third topic, albeit more obliquely. We all sometimes feel the frustrations of our labor on the most demanding international economic problems of our era. This is natural, for our aims are great.

Once we acknowledge the scope of our ambition, we can also observe that something exciting is occurring. Our nations are fashioning new practical means to work in concert toward vital ends. Sometimes this evolving framework will produce grand accords. Other times we will be airing differences in the process of constructing responses to new problems. Most of the time we will be working together to make persistent progress on the world's principal economic chal­lenges. Such is the nature of a resilient political process. Its effective operation necessitates tenacity, patience, and a continuing genius for compromise.

International economic policy coordination is difficult but possible. It has been a long time since we have coordinated as well as we have over the past year as a whole. Much more is possible if we persevere. Drawing from recent experience in the United States, many people said we would not achieve fundamental tax reform; they claimed the political system would not permit it. Yet we maintained a steady course and in the end accomplished what we set out to do. With what is at stake for the well-being and economic freedom of people around the globe, there is no reason we cannot complete this quest as well.

In a sense, our nations are working on a puzzle-an intricate, difficult, but solvable puzzle. We're sorting out a number of pieces. With ingenuity, time, and testing, we will find the perfect fit for each piece. We keep going because we know that there will be a solution and that the pieces will form a whole. Unlike the players in a puzzle game, our search is a serious one. With persistence and vision we can complete this important design for the future.

One of my predecessors at the Treasury, Henry Morgenthau, opened the Bretton Woods Conference 42 years ago by telling the delegates that the problems in the international economy were "beyond the capacity of anyone country, or any two or three countries." They were, he said, multilateral problems that required multilateral cooperation.

After three weeks of intensive work the delegates concluded their mission successfully. Amid this great achievement, Morgenthau added a caution: "We are at a crossroads, and we must go one way or the other. The Conference has erected a

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signpost-a signpost pointing down a highway broad enough for all men to walk in step, and side by side. If they set out together. there is nothing on earth that need stop them."

Our predecessors chose the right path. and we all have gained through their wisdom. Now it is our tum. Let us face our common challenge as well as they did theirs, so that future generations from all nations will have the best opportunity to pursue their aspirations together.

VIET NAM: LE HOANG Alternate Governor of the Fund and Bank

Allow me first to extend my greetings to our two new members, Poland and Kiribati, which are attending these Annual Meetings for the first time.

Since the 1985 Annual Meetings, the world has seen extraordinary changes which have had diametrically opposite effects on economic growth, the financial and monetary system, and the international payments situation; thus creating conditions that are favorable for the industrial countries but quite unfortunate for the developing countries.

Contrary to what might be expected, the recovering economies of the industrial countries are no longer playing a locomotive role for the world economy, especially for the economies of the developing countries. It is disturbing to note today that the resources of the developing countries are flowing more and more to the developed countries. The decline in commodity prices alone, particularly those of oil and basic agricultural products, has produced a windfall of up to $100 billion for the developed countries. while the developing countries in 1985 had to pay over $60 billion in interest on the debts they had contracted and the investments they had received. It is deplorable that the flow of resources from the developed countries to the developing countries is far from proportionate to the torrent pouring each moment in the other direction. All of the developing coun­tries' efforts to boost their export volume thus do not suffice to offset their losses due to the decline in export prices. The poor countries relying on financial aid from the major oil exporting countries are being hit hard from this angle as well. The balance of payments of the developing countries is deteriorating seriously.

In these circumstances, the economic growth of the developing countries has slowed down, their investment plans have not been realized for lack of capital, unemployment has risen, and inflation has become very serious and chronic. To survive in such an adverse world economic environment, these countries have had to make the adjustments needed to adapt to reality. Many have had to formulate rigorous adjustment programs, tantamount in fact to economic austerity policies, involving strict containment of domestic demand and the channeling of all resources toward exports, at a time when world market prices are falling sharply. As a result, they are constantly in a vicious circle-weak economic growth, flight of capital abroad, declining creditworthiness, expanding external debt, ever

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greater difficulty in repaying their debts, and the impossibility of raising living standards.

We consider it necessary for the Fund and the Bank to face head-on this state of affairs in the developing countries, especially the poorer among them. The policies of both institutions should help these countries make adjustments oriented toward economic growth, so they can overcome their problems instead of sinking further and further into difficulty. We therefore favor an allocation of SDRs in the fifth period to provide additional funds for countries needing them. Reforms in the international monetary and economic system must take place at the same time, creating a favorable climate for world trade and for the economic development of various countries. We are pleased that the Fund and Bank have moved forward with the new Structural Adjustment Facility. Thus far, however, very few coun­tries have been able to benefit from it because its conditionality is too complex and rigorous. The Fund requires its members to implement flexible policies but rigidly applies its Articles of Agreement in helping them overcome their difficulties. The elimination of these impediments will create conditions conducive to the provision of more adequate funding for countries in need, thus contributing effectively to the establishment of the new economic order that has been justly demanded at several intemational conferences. It is our hope that the policies agreed to at this year's Annual Meetings will have a direct impact on the problems we have just mentioned.

May I tum now to a brief sketch of the economic situation in Viet Nam. We have just completed the 1981-85 economic and social development plan and achieved significant progress. While agricultural production increased at an annual rate of 4.9 percent during the five-year period, the food problem persists, with output prospects uncertain due to adverse weather conditions. Marked changes have taken place in industry, especially small-scale and handicraft industries and the provincial industrial sectors. Industrial production has increased at a rate of 9.5 percent per year. But these results fall far short of meeting the needs of economic development and of improved living standards in a country with a population of 60 million.

The consequences of a long war, an economic blockade by hostile forces, and natural disasters have compelled us to cope with a number of difficulties­shortages of raw materials, energy, and goods in addition to financial and mone­tary instability. In view of these difficulties, Viet Nam has formulated and adopted a series of adjustment measures designed to bring about positive changes in production, expand export volume, and gradually stabilize and raise the standard of living. However, it will take time for these measures to yield viable results.

It is against the background of these achievements and problems that we enter the five-year period 1986-90. Our economic progress will be much greater if we can obtain the necessary aid from international organizations and friendly coun­tries. But it is regrettable that, for quite illegitimate reasons, the World Bank has until now remained aloof from our efforts. From the lessons of the past, with the determination of all our people and with effective support from friendly countries and international organizations, we firmly believe we shall be able to achieve further successes.

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WESTERN SAMOA: FAASOOTAULOA S.P. SAILI Governor of the Fund and Bank

I have the honor to speak not only on behalf of Western Samoa but also on behalf of two other small-island developing country members of our constituency, Solomon Islands and Vanuatu.

At the outset, we take great pleasure in welcoming Kiribati and Poland as members in the family of Fund-Bank institutions. Kiribati joins the increasing number of small-island member states who, we believe, have special problems to which the standard solutions can rarely be successfully applied.

Let us take, for instance, the uniform insistence on a policy of aggressive export orientation with a generalized depreciation of currencies recommended as a panacea for developing countries. There is now a realization that excessive preoccupation with external trade as an engine of growth has tended to saturate commodity markets and depress prices.

Under these circumstances, the adjustment measures imposed on the least developed countries-and I must stress the least developed countries and Western Samoa is one of them--often produce intolerable strains. Devaluations followed by higher inflation rates, distorted growth, increased unemployment, and social tensions hardly seem to be a recipe for improvement.

Concurrently, the larger economies pursue fiscal, monetary, and trade policies without due regard to their international repercussions. As a result, world eco­nomic growth has become uneven. There is a disturbing and disheartening tendency among the larger nations to opt for bilateralism in economic relations rather than multilateral cooperation. If economic history has taught us anything, it is that such an approach may give temporary gains, but may create divisions and unnecessary barriers to the realization of an acceptable world economic order. The true spirit of cooperation, as envisaged at Bretton Woods, can be regained only by political initiative and direction at the highest level.

Passing to the individual topics of discussion, I see a common thread and rationale running through all of them. That common thread is the insufficiency of external financing flows to help the developing countries to achieve and sustain a rate of economic growth appropriate to their social needs and aspirations. A further reduction in the availability in real terms of external resources now lends more urgency to the problems of deteriorating current accounts and large debt burdens, which are compelling many developing countries to contract the growth ofreal domestic demand.

Turning to the question of an SDR allocation, it is disheartening that, despite the existence of such an overwhelming case, no allocation has taken place since 1981. Limits of enlarged access have been reduced in stages, while the quota increase under the Eighth General Review was restricted to less than half the increase favored by a majority of the Fund membership. Thus, there are genuine fears of a further tightening of conditionality attached to Fund financial assistance to low­income countries. May I repeat again: there are genuine fears of a further

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tightening of conditionality attached to Fund financial assistance to low-income countries.

The small quotas of the smallest member countries of the Fund result in our access to Fund resources being tiny in absolute terms and in relation to our financing needs in the adjustment process. We have very limited access to other sources of financing. In these circumstances, the value to us of the Fund's technical assistance and training programs is especially important. Prospective cuts in the real level of such assistance on the part of the Fund are of considerable concern to us. We request, in the strongest possible terms, the maintenance of the real level of technical assistance and training available to us in recent years. The cost, in relation to the Fund's operations--or the cost of these Annual Meetings­is insignificant. For us, it is the greatest, perhaps often the only, benefit of membership.

I now tum to the role of the World Bank. It is obvious that the growing demand from developing members for World Bank assistance can be met only if its capital base is augmented, and I therefore urge an early initiation of discussions on a general capital increase. Concessional flows, particularly through IDA, have played a pivotal role in progress and development. Such flows have, however, been constantly cut back since IDA-VI. It is hoped that the IDA-VIII negotiations will result in a replenishment of at least the $12 billion considered the minimum required to regain the former momentum in concessional assistance.

In conclusion, I wish to make a special request on behalf of the developing member countries of the South Pacific. The region is decades behind many developing countries in Asia in terms of social, economic, and infrastructural progress, and therefore deserves closer attention from world bodies. Recognizing this need, the Asian Development Bank has set up a regional office in the area. It would greatly assist the needs of the region if the World Bank also established a regional office in the South Pacific, which consists of a multitude of small-island economies each facing its own particular difficulties.

YUGOSLA VIA: SVETOZAR RIKANOVIC Governor of the Bank

It is my pleasure and honor to address this eminent gathering for the first time in my capacity as Governor for Yugoslavia in the World Bank. May I join earlier speakers in expressing our congratulations and gratitude to the outgoing Managing Director of the International Monetary Fund, Mr. Jacques de Larosiere, as well as our best wishes for his successful work and endeavors to the new World Bank President, Mr. Barber Conable. May I also warmly welcome the new members of the Fund and the Bank, Poland and Kiribati.

We are deeply concerned over the lack of essential improvement in the interna­tional economic environment since the last Annual Meetings held in Seoul. The

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developments in the world economy strongly affinn that economic progress in the developing countries is an essential precondition and assumption for sustained economic growth of the world as a whole. The interdependence of national economies obliges all of us to jointly and more efficiently remove obstacles impeding a stable and lasting growth. As many speakers have stressed, those obstacles are the following:

-heavy indebtedness of developing countries; -lack of development; -protectionism in the world economy; -insufficient increase of aid funds for the least developed countries; and -a permanent increase in one-way conditionality accompanied by scarce

financial support. The depth of the external debt crisis has led the non-aligned countries assembled

at their summit conference in Harare, Zimbabwe to voice their deep concern over the lack of an appropriate and durable solution for these problems. They have, therefore, emphasized that conditionality of the financial support to debtor coun­tries has to lead more clearly toward ensuring their lasting economic growth and must not serve as a means of political pressure.

By borrowing abroad, the developing nations intended to provide a foundation for their economic and social progress. They have, instead, found themselves in even more seriously pronounced economic and financial difficulties. It is recog­nized that investments have not always been rational. The responsibility inevitably lies with both debtors and creditors. But one should not ignore the fact that commodity exports from developing countries have been facing serious restrictions, often in the countries from which the developing countries borrowed. Also, their access to the most sophisticated technologies has frequently been hampered. Rather than being conducive to the further expansion of growth, all of these factors have jointly contributed to indebtedness resulting, as well, from the heavy borrowings in the past.

The solution of the debt crisis cannot, therefore, be reduced to ensuring only debt servicing. Such practices have already led to a negative net transfer of funds from developing to industrial countries and further deterioration of economies in the developing nations. The response to the debt crisis can be just one: efficient development of the highly indebted countries. It is encouraging that there is wide agreement on this issue. However, general verbal agreements are essential but not sufficient. Development of the less developed countries requires a capital increase for the World Bank and other institutions and adequate commitments from commercial banks, accompanied by their full economic responsibility for the quality of investments. It is also essential to shift the focus of conditionality to the economic perfonnance of investments because only such conditionality can spur development.

More favorable credit arrangements are needed in terms of interest rates and repayment periods, especially for the most indebted countries. But particular care should be taken that a drop in interest rates is not always accompanied by a drop in

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the prices of raw materials and the other export commodities of less developed nations.

This permanently existing phenomenon is as disastrous for the development of less developed nations as unsustainably high interest rates.

I wish to particularly recall that the developing countries have presented their overall platform through the Group of Twenty-Four. They are calling for a broader framework to be established through a dialogue among creditor and debtor countries, international financial institutions, and other financial organizations in search of a solution for the debt crisis within the framework of development and by taking into account specific conditions of each individual nation.

Nothing and nobody can replace the historical responsibility and role of our institutions in encouraging the economic growth of developing nations. That is why we are supporting the capital increase of these institutions.

I wish to particularly stress the need for an IDA capital increase since the countries eligible for IDA resources are facing severe economic, financial, and development difficulties. In the present environment and in view of the needs of developing nations, there is, in our opinion, no logical justification for further hardening the terms and conditions of IDA credits. Neither is it justified to intro­duce enlarged conditionality in using these resources.

We are also concerned about the policy of further narrowing access to Fund resources. Access is already too constrained in view of the financial needs of less developed nations, low quotas, and strict procedures for triggering the funds under the General Arrangements to Borrow. The Fund should, instead, resume the enlarged access policy, as long as the ratio between quota limits and world development needs has been established.

The economic growth of developing nations can be ensured only by simul­taneous adjustments of international financial institutions and industrial countries. It cannot be accomplished only by economic adjustments of debtor countries to the targets set for balancing the world economy. A more efficient multilateral sur­veillance is needed for this purpose, as well as further strengthening of interna­tionalliquidity through a major role and new allocation of SDRs.

We are aware that the observations made on the importance of the debt problem and on the need to seek global solutions point to the reform of the international monetary and financial systems. We therefore deplore the lack of at least an initial step in establishing a joint ministerial body that would prepare and convoke an international monetary conference.

Yugoslavia, as one of the founding members of the International Monetary Fund and the World Bank has been supporting their development, in line with its economic capacity. This is also in line with our development needs. I would finally say that my country is currently undertaking important and austere adjustment measures. We expect our current efforts and achievements to be backed in the future with a major understanding, as well as support both to help solve the developmental and structural problems and to further encourage the positive trends already initiated in Yugoslavia's ·economic growth.

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ZAIRE: LOMA OKITONGONO DJAMBOLEKA Governor of the Bank

First of all, on behalf of the African Governors of the Fund and the Bank and myself, I should like to wish Mr. Barber Conable, President of the World Bank, every success in his new duties. It is our hope that the close relationship that evolved between the World Bank and its member countries, particularly the African countries, during the tenure of Mr. A. W. Clausen will be maintained and strengthened, and we wish to assure him that we are fully prepared to work with him in enhancing the contribution of the World Bank to the social and economic development of the African continent. Let me also take this occasion to welcome Kiribati and Poland as new members of the Fund and the Bank. I would like also to seize this opportunity to express the regret of African Governors about the forthcoming departure of Mr. Jacques de Larosiere as Managing Director of the Fund and the Chairman of its Board of Executive Directors. Mr. de Larosiere has guided in a master craftsman-like fashion the Fund over years during which many member countries have experienced serious economic and financial problems. The African Governors would like particularly to pay him homage for his attempts to reconcile the divergent views, positions, and interests of member countries. We wish him very well in his future endeavors.

In reviewing the developments in the world economy in 1985, it appears clearly that economic activity has slowed down considerably in industrial countries. Indeed, from a healthy rate of almost 5 percent achieved in 1984, economic growth is estimated to have fallen to 3 percent last year. The sharpest slowdown among the major industrial countries took place in the United States, where the rate of economic expansion fell by more than half. Despite the efforts of some of these countries, fiscal imbalances remain large. Trade flows also slackened considerably. The volume growth of both exports and imports of industrial countries has fallen by more than half in 1985. On the whole, the current account balance of industrial countries has again registered a large deficit. This generaliza­tion, however, conceals significant disparities with countries like Japan, and to a lesser extent the Federal Republic of Germany, which continued to record increas­ing surpluses while, despite the significant fall in oil and non-oil commodity prices, the current account gap of other countries like the United States widened. One of the very few bright spots in an otherwise generally poor picture is the continuing decrease in inflation.

The overall picture of economic and financial development is no better in 1986. There are strong indications that economic growth might remain weak in industrial countries at less than 3 percent, that the fiscal deficit of the major industrial countries taken together might also remain large, and that export growth may weaken further. Even after more than a year of almost uninterrupted depreciation of the U.S. dollar and decreasing oil prices, the U.S. external current account deficit has widened. However, owing to sharply higher surpluses than might be recorded by Japan and Germany, the current account of the industrial countries

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taken together might be near equilibrium in 1986. Altogether, the much heralded economic recovery has not only been narrow based, but has also been emphe­meral, as we had feared. The apparent cohesion of the large industrial countries that led to the depreciation of the U. S. dollar since September 1985 appears to have weakened or is waning. The persistence of large fiscal and trade imbalances continues to create uncertainties and instability in the international monetary system and to weaken prospects for strong and broad-based economic growth. Prospects for 1987 are not bright, with economic growth in industrial countries likely to stagnate, with relatively marginal progress being anticipated on the fiscal front, and with a marginal expansion of exports projected, together with some deterioration in the external current account position of these countries.

Since all countries are economically interdependent, the adverse developments in industrial countries have been hard felt in developing countries, where, under the influence of a retrenchment of capital inflows and falling prices, of primary commodities and weak oil prices economic growth has slowed down considerably in 1985, and short- and medium-term prospects are less than bright. The African Governors are very concerned about these unfavorable developments and the uncertain outlook. They are even more concerned about the situaton and prospects of the Sub-Saharan group of African countries. On average, growth in GDP per capita continues to be negative, especially in Sub-Saharan Africa, and the export prices of our commodities continue their unrelentless decrease, with the sharpest fall yet recorded over the past several years being projected for 1986. Further­more, the prices of our imports, which have fluctuated over these years, are projected to jump significantly in 1986. As a result, the sharpest decrease in the terms of trade of African countries is projected to occur in 1986. Confronted with such a deterioration in our terms of trade , with inadequate capital inflows, and with mounting debt service obligations, the African countries had little choice but to curtail imports to reduce their external imbalances. Strenuous efforts were also made to reduce the fiscal imbalances. Despite these multifaceted efforts, the medium-term prospects of our economies remain generally very clouded and bleak in several respects. On balance, the economic growth of African countries, which is forecast to be minimal in 1986, could fall further in 1987, with dire consequences on the already low living standards of the populations of the continent. The prices of our main export products are likely to fall further, while those of our imports are expected to rise, thereby perpetuating the downward trend of our terms of trade. Consequently, despite the efforts undertaken, the fiscal and external imbalances of our countries are forecast to remain large.

The African Governors are worried about this gloomy picture of developments and the outlook for their economies. As I stated during our meeting in Seoul in 1985, the economies of all our Bank/Fund members, in particular those of the African countries, are interdependent, and it is our collective responsibility to search and find realistic and durable solutions to the problems that confront us. Industrial countries, developing countries, multilateral institutions, and commer­cial banks must work actively and cooperatively to find and implement appropriate

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solutions. In the past, the African countries have shouldered their share of responsibility and taken wide-ranging, socially and politically painful actions to adjust their economies. As a result, in many instances, internal and external imbalances have been reduced. Looking ahead, our governments intend to build on the progress made thus far. However, given the international transmission mechanism of growth through trade, the economic expansion of developing countries, and more particularly of African countries, depends to a large extent on the volume and price of their exports. Therefore, it is of paramount importance that industrial countries take decisive actions to establish an international environ­ment that, among others, is conducive to: (I) a sustained and noninflationary economic growth, (2) a durable reversal of the declining trend of the export prices of primary commodities, (3) freer trade, (4) less volatility in interest and foreign exchange rates, and (5) net positive transfers of financial resources to developing countries, especially to African countries. The role of multilateral institutions in achieving these objectives of economic growth, enhanced trade, and stability in financial markets cannot be overstated.

The African countries have made progress in reducing their economic and financial imbalances and in improving the efficiency of their economy. However, considerable difficulties persist and need to be addressed with some urgency. As evidence of their intention to take steps toward achieving these objectives, the African governments have adopted a five-year economic program known as the Priority Program for Economic Recovery. The main thrust of this program was submitted in May 1986 to a Special Session of the United Nations General Assembly, which in tum adopted and called for the implementation of the United Nations Program of Action for African Economic Recovery and Development. To demonstrate their determination for increased self-reliance, the African countries intend to provide two thirds of the financial requirements of the program (totaling $128 billion), with the balance being met from external sources. The African Governors would like to call on the international financial community to meet this challenge. We would like to assure this community here gathered of our resolute commitment to undertake the policy reforms necessary to achieve the rehabilita­tion of the agricultural sector and, more generally, to enhance the performance of our economies.

One of the burning issues in Africa today-and also a crippling obstacle to the development of our continent-is that of external indebtedness. Let me mention just a few figures to illustrate the magnitude of the problem. In 1980, on average, African countries were devoting less than 14 percent of their export earnings to the payment of their external debt service obligations. This ratio has risen steadily to some 27 percent five years later and is forecast to approach 34 percent in 1986. Implicit in these statistics is also a steady increase in the share of those export receipts applied to the payment of interest alone. This share is projected to virtually triple by the end of this year, amounting to more than 15 percent. As our countries are implementing austere fiscal measures, closing down public enter­prises, and cutting down on critical imports, the debt service burden, instead of

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getting lighter. is worsening. Simply put, the stronger our adjustment efforts, the more we have to adjust. More generally, in connection with the debt problem, the representatives of African countries have supported the Baker initiative in differ­ent forums. We must stress. however, that we deplore the fact that this initiative ignores the debt problems oflow-income countries, the category to which the great majority of African countries belong. Although our debt problem is acute, the international community has not given it all the attention that it deserves. As we have stressed on various occasions, the problem of Africa's debt does not lie in its size in absolute terms, but rather in Africa's limited ability at this time to cope with the fast-growing service of its debt. For this reason, we firmly believe that the specific nature of the African debt problem calls for the adoption of an equally specific approach which measures up to the problem. Consequently, I would like to reiterate the appeal made to donors by the Twenty-First Summit of Heads of State and Governments of the Organization of African Unity on the need to hold an international conference on Africa's external debt and also to request the support of the World Bank and the International Monetary Fund for this conference. In the meantime, we request from the international community effective debt relief and better financing packages, because the rate of increase of our debt service obliga­tions is such that they cannot be honored from our meager resources. In this connection. steps should be taken to improve the framework for commercial and official debt renegotiations. Specific features should include the conversion of official debt obligations into grants, consolidation of nonofficially guaranteed debt due from 1986 to 1990 into long-term loans, and the conversion of loans granted on commercial terms into concessional loans ....

. . . I will now tum to the matters concerning the World Bank and its affiliates. It is clear that the difficult economic circumstances facing the majority of the member countries and the environment in which these institutions have to operate, and under which they will be operating in the coming years, remains a troubling one. It also poses difficult challenges for us all.

The 1986 World Development Report has again reviewed the recent economic trends since 1980 and the world economic outlook for the next ten years. The significant conclusion that emerges from the examination of the world economy in the first half of the 1980s is that further policy reforms are needed in the coming years at the domestic and international levels if the stimulus to the world economy now at work is to be sustained. This report also makes clear that, if one were to disaggregate the global figures of prospective growth, it can be seen that, for low­income African countries in particular, the period ahead will continue to present very acute adjustment and development difficulties. In short, Africa will remain in a deep economic crisis unless immediate and drastic measures are taken.

During the Special Session of the United Nations General Assembly, there was better recognition of the fact that many African governments have already taken, and continue to take, the difficult economic measures and reforms that they deem appropriate to address the problems they face. The Bank's latest report on Africa, entitled Financing Adjustment with Growth in Sub-Saharan A/rica, /986-90,

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makes this point abundantly clear also. An improvement in the international economic environment, coupled with the pursuit of the vigorous adjustment efforts we have pledged to undertake, and together with an effective debt relief will contribute a great deal toward brightening the prospects for resolving the economic crisis confronting the African continent. Chances for these efforts to succeed will be undoubtedly heightened by the provision of appropriate financing, not only of a commercial type, as I mentioned earlier, but also from official concessional sources. I woud like, therefore, to call on the industrial countries to take steps to reverse the decline in official development assistance. In this context, I would like to urge them to redouble their efforts to achieve the ODA target of 0.7 percent of GNP set by the United Nations, while ensuring that the subtarget of 0.15 percent of GNP earmarked for the least advanced countries is also met. The substantial transfer of income toward industrial countries arising from the sharp fall of oil prices should make this objective more quickly attainable. Furthermore, this assistance must be better coordinated and become more predictable. The situation also calls for greater quick-disbursing assistance at the present time in many low-income African countries. This brings me to the question of IDA.

IDA has played, and continues to play, a very critical role in the financing of development in our countries. We were, therefore. encouraged by the Tokyo Economic Declaration of the major industrial countries. which offered their commitment to maintain and, where appropriate, to expand both bilateral and multilateral development assistance. It is our hope that the spirit of that declaration will be translated into early agreement on an adequate size for IDA-VIII. commen­surate with the challenges that it will help address in low-income countries. We are also encouraged that the Development Committee as well as IDA deputies have already agreed that an IDA replenishment of no less than $12 billion is essential. It is also clear from the use to which the resources of the Special Facility for Sub­Saharan Africa have been put, that the demand for quick-disbursing concessional assistance in Africa is quite large. We do hope that all countries that are eligible will gain access to the resources of the facility. IDA-VIII should. therefore, not only fill the gap of the facility. but should also present additional resources beyond IDA-VII and the facility. In this connection. the latest Bank report on Africa estimates that over the next five years, there will be a gap of at least $1 Y2 billion a year that will need to be filled if the momentum of reform measures in low-income Sub-Saharan Africa is not to be lost. This. of course. is a very conservative estimate, which omits other Sub-Saharan countries that are in need of concessional resources.

Before I leave this topic. let me make some comments on another matter that is touched upon in the Bank's Africa report. That is the question of aid coordination.

While aid coordination can play an important role in the improvement of delivery and the effectiveness of assistance given, we continue to believe that this task is primarily one for the recipient government concerned. However. agencies and institutions certainly have a role to play. but at the request of host governments that role should be to help improve their capacity to fulfill this function more

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efficiently. Donors cannot and should not seek to substitute their own agents in this important function.

As for the Bank, last year we noted that the discussion and debate on its future role had been concluded by the Executive Directors. We urged then that there be a quick agreement on the modalities of a general capital increase. At the Develop­ment Committee meeting in April, it was agreed that the Bank should be provided with the capacity to increase its quality lending and that it should not be con­strained by lack of capital or borrowing authority in meeting future demand.

We believe that the case for a general capital increase has been made and made convincingly. At a time when private flows, especially commercial flows to the middle-income indebted countries, have been declining, multilateral financial institutions are well placed to potentially compensate for this decline by increasing their own lending. The World Bank's leadership role in this exercise has been well articulated in the recent past. The Baker initiative with respect to highly indebted middle-income countries also assumes that the Bank will playa pivotal role in the resumption of growth in these countries. We would hope therefore that Governors shall soon be presented with a clear definite plan for a general capital increase to ensure the adequacy of capital in the period ahead.

But. it is clear that, given the resource needs of the developing countries. the Fund has to playa complementary role in the mobilization of resources for the developing world. In this regard, we note that there has been a pilot program of intensive collaboration between the Bank and the Fund in eight developing countries. African Governors have always welcomed the collaboration between these institutions when it is necessary. These institutions remain. however, bound by their distinct mandates. We again would caution against attempts to enforce cross-conditionality and unanimity of views and of prescriptions between the two institutions. A healthy debate and diversity of views may serve the countries better than artificial unanimity on actions to be implemented.

A sensitive, flexible, and highly pragmatic modus operandi will have to be evolved if the new Structural Adjustment Facility recently constituted in the Fund will live up to its promise. Both the Bank and the Fund will need to ensure that no implicit or explicit cross-conditionalities emerge as a result of their collaboration. Furthermore. the African governments believe that such collaboration between the two institutions should not cause any delay in countries' access to the facility. We also look forward to clear and equitable operational guidelines on how countries will gain access to these resources. In offering assistance at the technical level, the Bank and the Fund are called upon to confine themselves to designing flexible policy frameworks to avoid prescribing detailed fiscal and credit targets and to show greater sensitivity to the established systems of member countries.

African Governors consider that the mobilization of resources from all sources including the private sector is vital for the resumption of growth and development to take place in their countries. The role of IFC in this process cannot be overemphasized. We note the good progress IFC is making in the implementation of its five-year plan, whose stated goal, among others, is to expand substantially

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the volume as well as the quality of operations in Sub-Saharan Africa. We note with satisfaction that the African Project Development Facility, which is an IFC initiative and is cosponsored by the ADB and WDF and has financing from other donors as well, has now become operational. We hope that this facility will in the long run increase the volume and quality of investments in the member countries. Donor agencies are therefore urged to support this institution with additional financial and technical resources to improve the effectiveness of its operations.

Another institution that may be a catalyst for more private flows to developing countries is MIGA. We note the Bank management's success in establishing this institution, and we hope that it will live up to its objectives.

Before I conclude, let me make some comments on a situation that is still quite critical in a number of our countries. I refer to the drought and famine. As is well known, among the factors that have been responsible for the serious situation in Africa, especially in the Sub-Saharan countries, is the drought that has ravaged the region over the past few years. In some regions even today, the drought has not been broken and famine persists. The situation has been further worsened by the invasion of locusts. In the declaration at the UN Special Session, the international community is expected to commit itself to increasing its support to the countries affected by drought and desertification, with special attention being given to their technical and financial requirements. There are also programs that have been out­lined at the national, subregional, and regional level for action by all concerned. The Bank has itself initiated lending programs related to drought and agricultural recovery and has also initiated the Special Program for African Agricultural Research, which should help harmonize planned research in all these areas.

I have attempted to describe the seriousness of Africa's economic crisis--one worsened by drought, famine, and the increasing burden of external debt service. Considering the gravity of the situation, and given the adoption of Africa's Priority Program for Economic Recovery by the Special Session of the United Nations, we urge the World Bank, the International Monetary Fund, and the international community to lend us their support in the search for a solution to this crisis.

CONCLUDING REMARKS BY MR. CONABLE

I want to welcome our newly elected Executive Directors to the Board of the Bank. Policy development and continuity require election of officials of such personal attainment and quality. I also want to congratulate His Excellency Bernard Chidzero, Governor of Zimbabwe, on his election as Chairman of the Development Committee. We are all grateful for his leadership.

We are particularly grateful to President Reagan for his confidence in the World Bank's efforts to promote sustained growth and development in our developing member countries. We have had a productive week's work, and we are encour­aged by the degree of real agreement on essential issues.

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. ·····_· __ ···_·.o_o_···. ____ .

Governors have also voiced strong explicit support for the Bank, IDA, IFC and MIGA. Governors have also generally supported the Bank's contributions to the adjustment effort. Some feel that we could accelerate our work in this area. We shall certainly try to do so, in a manner consistent with our obligation to maintain the quality of our loan portfolio. At the same time project lending will remain the mainstay of our activities, as the crucial complement to our adjustment work.

Support for a continuing expansion of the Bank's activities has been coupled with some concern over the adequacy of resources to permit that expansion. The prospect of an imminent agreement on a substantial Eighth Replenishment of IDA is therefore very good news. With regard to the IBRD, there was strong support for a capital increase that is timed to ensure that necessary expansion of IBRD lending is not constrained. The resource strategies already agreed to should allay concerns about the ability of both the IBRD and IDA to expand their activities.

The importance of increasing the flow of concessional funds to our poorest developing member countries, especially those of Sub-Saharan Africa, has been stressed repeatedly this week by Governors from all regions of the world.

The problems of the heavily-indebted middle-income countries have also been discussed at great length. The potential of U.S. Treasury Secretary Baker's approach to the restoration of growth and creditworthiness in these countries has been confirmed by the agreement reached this week affecting Mexico. The current strategy, based on wide external support for growth-oriented programs of policy reform, has passed an important test. We must now build on that.

Governors from developing countries have voiced particular concern over the deterioration in their terms of trade. They are disappointed at the failure of the industrial nations to provide the economic stimulus upon which the developing countries' export earnings are so dependent. We have noted their concerns, and have heard repeatedly of the opposition to protectionism and of support for a more open international trading regime. When Governors return to their capitals, we hope the strong anti-protecti<)nist views expressed here this week will encourage them to strengthen opposition to protectionism within their own governments.

One overriding message emerges from the Governors' speeches. Governors expect the Bank to playa still stronger leadership role in sustaining development. We now have to respond to those expectations, and demonstrate that the World Bank is, as it should be, the central global institution supporting the development process.

Mr. Chairman, we have done a very solid week's work here. Much credit for that is due to President Barco's and your own fine leadership of these meetings. We thank you both warmly for guiding us.

My congratulations to the Governor of Bahrain, who will be Chairman of our meetings next year.

We look forward to welcoming you back in Washington a year from now. We hope that we can then look back on a year of effective cooperation in the battle against poverty and suffering wherever it exists.

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Thank you for your help and support, best wishes for a safe journey home, and we look forward to seeing you at next year's meeting.

CONCLUDING REMARKS BY THE CHAIRMAN THE HON. CESAR GAVIRIA TRUJILLO.

Three days ago President Barco of Colombia opened these Annual Meetings; it is now my privilege to bring these Meetings to a close. I think we can all agree that, at this critical juncture for the world economy, our discussions have been pur­poseful and productive. I would like to take this opportunity to thank my fellow Governors, the Managing Director of the Fund, and the President of the World Bank for their thoughtful contributions and. personally for their assistance to me in carrying out my duties as Chairman. I am also grateful to my colleagues from India and Norway who. in their capacity as Vice-Chairmen of the Boards of Governors, assisted me particularly with the process and procedures pertaining to the election of the Executive Directors of the Fund and the Bank.

The heads of our institutions have already reviewed the broad economic issues of concern expressed by Governors in these and other meetings during this past week. I do not wish to repeat these points at this stage. Let me just add that we are all now aware of the major areas where further immediate action is necessary: to develop policies aimed at achieving growth with stability and to promote a strong world trade so as to tackle the fundamental causes of the debt problem; to push for increased financial flows-from both public and private sources-to the develop­ing countries; to increase the resources of our multilateral institutions; to resist and roll back protectionism; and, more generally, to create an international environ­ment conducive to the pursuit by individual countries of their economic goals without adversely affecting the performance of others. The basic formulae for success are simple; the challenge is to implement them. Many speakers have focused on the respective roles to be played by our institutions in achieving the goals we have set for ourselves ....

. . . Regarding the World Bank, Governors have made several points very clear. First, the Bank must continue to pursue its fundamental mission: to acceler­ate economic growth and alleviate poverty in its borrowing member countries. Second, it must assist member governments in formulating programs aimed at structural changes. In implementing such programs, the Bank ought to take a leading role, particularly in helping to resolve the debt problems. At the same time, it must maintain its role as the world's premier development institution. It was gratifying that, in his first annual address, Mr. Con able emphasized this historic commitment of the Bank and expressed the intention to build upon its past achievements and reservoir of expertise.

To achieve these objectives, the Bank must be ready to expand the scale and range of its activities and be able to respond quickly to changing circumstances;

IMr. Cesar Gaviria Trujillo assumed the chairmanship on the second day of the Meetings and pre­sided thereafter.

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but it must also be assured of a sufficient resource base. On this point, Governors gave a strong and clear message that the Bank's ability to play its vital role must not be constrained by a lack of capital.

Concerning IDA, Governors believed it imperative that negotiations on the Eighth Replenishment be completed very quickly now, and at a minimum level of US$12 billion.

Another major point underscored by Governors was that the Bank's capabilities to act as a catalyst for both financial and nonfinancial assistance must be max­imized. The importance of private flows to the developing countries was empha­sized, as were the important catalytic contributions to be made by the Multilateral Investment Guarantee Agency and the International Finance Corporation.

I would like to take this occasion to express my appreciation to Mr. de Larosiere, who has at our Meetings formally announced his intention to resign from his post as Managing Director of the International Monetary Fund. We have been fortunate to have benefited from his guidance during a challenging period for the global economy. I thank him and wish him well in his future endeavors. I should also like to pay my respects to Mr. Conable and wish him good luck in his new undertaking.

Before concluding, I would like again to extend my congratulations and best wishes to the Governor for Bahrain who succeeds me as Chairman of the Board of Governors. Finally, I wish you all a safe journey home. The 1986 Annual Meetings of the Fund and World Bank and its Affiliates are hereby adjourned.

BAHRAIN: IBRAHIM ABDUL-KARIM Governor of the Fund and Bank

Bahrain is privileged to have been selected for the chairmanship of the Boards of Governors of the World Bank and the International Monetary Fund and views it as an honor for itself and the region.

Bahrain, though small in area, has recently developed as a regional financial market and is therefore not alien to the environment of international cooperation. It is in this spirit that we shall endeavor to carry out the duties of the chairmanship with the same enthusiasm, efficiency, and diligence as that demonstrated by our Chairman for this year's Annual Meetings, His Excellency, the President of the Republic of Colombia.

I would like to take this opportunity to express our gratitude and admiration for Mr. de Larosiere, who will be stepping down from his position as Managing Director of the Fund. He has led the institution through a difficult and challenging period, demonstrating remarkable imagination and skill in addressing the chang­ing circumstances in the world economy and in promoting international monetary cooperation.

I look forward to working closely with President Conable and the Managing Director of the Fund in the coming year and to welcoming all of you to the 1987 Annual Meetings.

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DOCUMENTS OF THE BOARDS OF GOVERNORS

Tuesday September 30

Wednesday October 1

Thursday October 2

Friday October 3

SCHEDULE OF MEETINGS·

10:00 a.m.

3:00 p.m.

9:30 a.m. 3:00 p.m.

9:30 a.m. 3:00 p.m. 5:30 p.m.

9:30 a.m.

--Opening Ceremonies Address from the Chair Annual Address by Managing Director.

IMF Annual Address by President, IBRD,

IFC, IDA -Annual Discussion

-Annual Discussion -Annual Discussion -IMF Election of Executive Directors -IBRD Election of Executive Directors

-Annual Discussion -ICSID Administrative CounciF -Joint Procedures Committee

-Annual Discussion Joint Procedures Committee Reports Comments by Heads of Organizations Adjournment

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

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PROVISIONS RELATING TO THE CONDUCT OF THE MEETINGS·

ADMISSION I. Sessions of the Boards of Governors of the Fund and the Bank, IFC and IDA

will be joint and shall be open to accredited press, guests, and staff. 2. Meetings of the Joint Procedures Committee shall be open only to Governors

who are members of the Committee and their advisers, Executive Directors, and such staff as may be neliessary.

PROCEDURES AND RECORDS 3. The Chairman of the Boards of Governors will establish the order of speaking

at each session. Governors signifying a desire to speak will generally be recognized in the order in which they ask to speak.

4. With the consent of the Chairman, a Governor may extend his statement in the record following advance submission of the text to the Secretaries.

5. The Secretaries will have verbatim transcripts prepared of the proceedings of the Boards of Governors and the Joint Procedures Committee. The transcripts of proceedings of the Joint Procedures Committee will be confidential and available only to the Chairman, the Managing Director of the Fund, the President of the Bank and its Affiliates and the Secretaries.

6. Reports of the Joint Procedures Committee shall be signed by the Committee Chairman and the Reporting Members.

PUBLIC INFORMATION 7. The Chairman of the Boards of Governors, Managing Director of the Fund and

the President of the Bank and its Affiliates will communicate to the press such information concerning the proceedings of the Annual Meetings as they may deem suitable.

lApprm'ed on July 8. 1986 pursuant to the By-Laws. IBRD Section 5(d). IFe Section 4(d) and IDA Section I(a).

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BANK AGENDAl

1. 1985/86 Annual Report 2. Financial Statements and Annual Audit 3. Allocation of Net Income 4. Administrative Budget 5. Joint Development Committee 6. Rules for the 1986 Regular Election of Executive Directors 7. Officers and Procedures Committee for 1986/87

IFe AGENDAl

1. 1985/86 Annual Report 2. Financial Statements and Annual Audit 3. Administrative Budget

IDA AGENDAl

1. 1985/86 Annual Report 2. Financial Statements and Annual Audit 3. Administrative Budget

IApproved on August 6. 1986 pursuantto the By-Law~.IBRD Section 5(a).IFC Section 4(a). and IDA Section I(a).

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JOINT PROCEDURES COMMITTEE

Chairman .................. , Colombia Vice Chairmen .............. , India

Norway Reporting Member . .......... , Germany

Algeria' Barbados2

Bolivia Burma Congo France Guinea-Bissau Hungary Japan

INot a member of IFe 2Not a member of IDA

Other Members

Jordan Luxembourg Rwanda Saudi Arabia Somalia Trinidad and Tobago United Kingdom United States Western Samoa

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REPORTIP

October 3, 1986

At the meeting of the Joint Procedures Committee held on October 2, 1986, the items of business on the agendas of the Boards of Governors of the Bank, IFC and IDA were considered.

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

1. 1986 Annual Report The Committee noted that the 1986 Annual Report and the activities of the Bank

and IDA had been discussed at these Annual Meetings.

2. 1986 Regular Election of Executive Directors The Committee noted that the 1986 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 1988.

3. Financial Statements, Annual Audits, and Administrative Budgets The Committee considered the Financial Statements, Accountants' Reports,

and Administrative Budgets contained in the 1986 Bank and IDA Annual Report, together with the Report dated August 20, 1986.

The Committee recommends that the Boards of Governors ofthe 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 31,

1986 on the Allocation of the Net Income .... 3

The Committee recommends that the Board of Governors of the Bank adopt the draft resolution .... 4

The Committee submits the following report and recommendations on IFC business:

1. 1986 Annual Report The Committee noted that the 1986 Annual Report and the activities of IFC had

been discussed at these Annual Meetings.

'Report I related to the business of the Fund. 2See pages 247 and 262. 3See page 269. 4See page 247.

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2. Financial Statements, Annual Audit, and Administrative Budget The Committee considered the Financial Statements and the Accountants'

Report contained in the 1986 Annual Report, and the Administrative Budget attached to the Report dated August 20, 1986.

The Committee recommends that the Board of Governors of IFC adopt the draft resolution.. 1

Approved: /s/ Cesar Gaviria Trujillo Colombia-Chairman

ISee page 257.

/s/ H. Tietmeyer Germany-Reporting Member

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REPORT III

October 3, 1986

The Joint Procedures Committee met on October 2, 1986 and submits the following report:

1. Development Committee The Committee noted that the Annual Report of the Joint Ministerial Committee

of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries (Development Committee) has been presented to the Boards of Governors of the Fund and the Bank pursuant to paragraph 5 of Resolutions Nos. 29-9 and 294 of the Fund and the Bank, respectively. I

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 1986/87 The Committee recommends that the Governor for Bahrain be Chairman, and

the Governors for Argentina and New Zealand be Vice Chairmen, of the Boards of Governors of the Fund and of the Bank and its affiliates, to hold office until the close of the next Annual Meetings.

It is further recommended that a Joint Procedures Committee be established to be available, after the termination of these Meetings and until the close of the next Annual Meetings, for consultation at the discretion of the Chairman, normally by correspondence and, ifthe occasion requires, by convening; and that this Commit­tee shall consist of the Governors for the following members: Argentina, Bahrain, Belgium, Burundi, France, The Gambia, Germany, Greece, Guatemala, Jamaica, Japan, Korea, Malta, Mauritania, Mauritius, New Zealand, Saudi Arabia, Sin­gapore, Tunisia, United Kingdom, United States, and Venezuela.

It is recommended that the Chairman ofthe Joint Procedures Committee shall be the Governor for Bahrain, and the Vice Chairmen shall be the Governors for Argentina and New Zealand, and that the Governor for the United States shall serve as Reporting Member.

Approved: /s/ Cesar Gaviria Trujillo Colombia-Chairman

ISee page 292.

/s/ H. Tietmeyer Germany-Reporting Member

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RESOLUTIONS ADOPTED BY THE BOARD OF GOVERNORS OF THE BANK

BETWEEN THE 1985 AND 1986 ANNUAL MEETINGS

Resolution No. 408

Salary of the President

RESOLVED:

THAT effective January I, 1986, the annual salary of the President of the Bank shall be $129,600.

(Adopted March 7, 1986)

Resolution No. 409

Number of Elected Executive Directors

RESOLVED:

THAT, at the Regular Election of Executive Directors to be held during the 1986 Annual Meeting of the Board of Governors. there shall be elected 17 Executive Directors.

(Adopted May 9, 1986)

Resolution No. 410

Increases in Certain Subscriptions to Capital Stock

WHEREAS in their Report, dated May 24, 1984, entitled "Increase of $7 Billion in Authorized Capital Stock and Special Increases in Subscriptions to Capital Stock," the Executive Directors have recommended that the Board of Governors adopt a resolution (herein called the Special Capital Increase Resolu­tion) approving an increase of 70,000 shares in the authorized capital stock of the Bank and an increase in the subscriptions of certain members of the Bank to the capital stock corresponding to increases in such members' quotas in the Interna­tional Monetary Fund under the Eighth General Review of Quotas;

237

WHEREAS, under the terms of the Special Capital Increase Resolution, the said Resolution would become effective only if all members waived their right to subscribe their proportionate share on the increase in the authorized capital stock, and all members have waived such right;

WHEREAS the Executive Directors in their Report to the Board of Governors dated July 31, 1984 have recommended that members facing a loss of relative voting power as a result of such Special Capital Increase be given an opportunity to maintain their relative voting power to the extent shares authorized and not allocated for subscription are available for this purpose, up to a total of 2,128 shares;

WHEREAS by Resolution No. 398, which became effective on September 12, 1984, the Board of Governors authorized increases in the capital subscriptions of such members, up to a total of 600 shares, as a first step in the allocation process;

WHEREAS certain shares of the Bank's capital stock, which the following members were authorized to subscribe under previous resolutions of the Board of Governors, are now part of the authorized and unallocated capital stock of the Bank:

Member Resolution No. Number of Shares

Afghanistan 314 49 Afghanistan 346 49 Burundi 314 24 Burundi 346 24 Kampuchea, Dem. 314 40 Kampuchea, Dem. 346 40 Somalia 346 77 United Arab Emirates 395 598

WHEREAS the Executive Directors have recommended that the Board of Governors complete the allocation process begun under Resolution No. 398 by authorizing an increase of 1,000 shares in members' subscriptions and by authoriz­ing the Executive Directors to permit further increases in members' subscriptions from time to time, up to a total of 528 shares, as and when the Executive Directors shall determine that a sufficient number of authorized but unallocated shares is available for the purpose, taking into account the requirements of the Bank's Articles of Agreement;

NOW THEREFORE the Board of Governors hereby resolves: THAT, pursuant to Article II, Section 3(b), of the Articles of Agreement of the

Bank, the Bank is hereby authorized to accept additional subscriptions to shares of its capital stock upon the following conditions: 1. Each member of the Bank listed in the table below may subscribe up to the maximum number of shares of capital stock of the Bank set forth opposite its name

238

in columns (1) and (2) of the said table, provided, however, that such member shall have notified the Bank in writing on or before June 23, 1986 of its intention to subscribe such shares:

(1) (2) (1) (2)

Afghanistan 3 Lesotho 6 3 Algeria 6 4 Liberia 2 2 Australia 117 61 Madagascar 1 Bahrain 1 Malawi 1 Bangladesh 19 10 Malaysia 9 5 Barbados 9 5 Maldives 6 3 Benin 1 Mali 3 Botswana 4 2 Mauritius 1 Burma 10 6 Morocco 28 14 Burundi 3 Nepal 10 5 Central African Rep. New Zealand 32 17 Chad 1 Pakistan 31 16 Cyprus 10 6 Paraguay 3 Dominican Rep. 2 1 Philippines 25 14 Egypt, Arab Rep. of 38 19 Rwanda 2 2 Equatorial Guinea I 1 Sierra Leone 3 I Ethiopia 10 5 Somalia 2 2 Fiji 7 4 Sri Lanka 17 9 Gambia, The 1 Sudan 5 3 Ghana 9 5 Swaziland 7 4 Guinea 2 Syrian Arab Rep. 5 2 Guinea Bissau 1 Tanzania 2 1 Guyana 10 5 Thailand 15 9 Haiti 2 Turkey 14 8 Iceland 9 5 Vanuatu 7 4 India 384 204 Venezuela 8 3 Indonesia 47 24 Yemen, People's Dem. Rep. 6 3 Ireland 2 Zaire 9 5 Kampuchea, Dem. 5 2 Zambia 14 7 Lao People's Dem. Rep. 2 2 Zimbabwe 11 6

2. Upon the coming into effect of this resolution, each member may subscribe up to the number of shares set forth opposite its name in column (1) of the table in paragraph I, above. In addition to such shares, each member may subscribe a portion of the shares set forth opposite its name in column (2) of the said table. The maximum number of shares each member may so subscribe shall be calculated by apportioning among the members which shall have notified the Bank pursuant to paragraph 1, above, all shares in column (1) of the said table with respect to which

239

members shall not have so notified the Bank. The Bank shall promptly notify each member of the additional shares such member may subscribe. 3. Each subscription authorized pursuant to paragraphs I and 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 September 1, 1988; (c) the subscribing member shall pay to the Bank (i) gold or United States

dollars equal to 0.875 percent of the subscription price of the shares sub­scribed and (ii) an amount in its own currency equal to 7.875 percent of such subscription price;

(d) the Bank shall call the amounts of the 2 percent and 18 percent portions of subscriptions which are not required to be paid under paragraph 3(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; and

(e) before any subscription shall be accepted by the Bank, the following action shall have been taken: (i) the member shall have taken all action necessary to authorize such sub­

scription and shall furnish to the Bank such information thereon as the Bank may request; and

(ii) the member shall have made the payments provided for in paragraph 3(c) above.

4. The Executive Directors shall be authorized to permit from time to time the members which shall have notified the Bank pursuant to paragraph I, above, to subscribe such part of the shares of capital stock of the Bank set forth in column (2) of the table in paragraph I, above, as members shall not have been authorized to subscribe pursuant to paragraph 2 hereof, as and when they shall determine, taking into account the requirements of the Articles of Agreement of the Bank, that a sufficient number of unallocated shares of the capital stock of the Bank is available for the purpose. 5. Each sUbscription authorized pursuant to paragraph 4 above shall be on substantially the same terms and conditions as those specified in paragraph 3 above, except that, notwithstanding the provisions of paragraph 3(b), a member may subscribe the shares allocated to it from time to time during the period of 29 months immediately following the date of the decision of the Executive Directors to allocate the shares. 6. Shares, which members are authorized to subscribe under or pursuant to paragraphs 2 or 4 and which shall not have been subscribed prior to their respective subscription deadlines, shall be part of the Bank's authorized and unallocated capital stock and members may be authorized to subscribe them at a later date.

(Adopted May 19, 1986)

240

-----------------_ .. __ ....... -....... -.... --.. -----

Resolution No. 411

Membership of the Polish People's Republic

WHEREAS the Government of Poland 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 19 of the By-Laws of the Bank, the Executive Directors, after consultation with representatives of the Government of Poland, 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 Poland 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 Development. (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' Reso­

lution No. 346 entitled" 1979 General Capital Increase" adopted on January 4, 1980.

(f) "Additional Capital Increase Resolution" means Board of Governors' Resolution No. 347 entitled" 1979 Additional Increase in Authorized Capital Stock and Subscriptions Thereto" adopted on January 4, 1980.

2. Subscription: (a) By accepting membership in the Bank, Poland shall subscribe to 249 shares

of the capital stock of the Bank at par. (b) Poland shall also subscribe to an additional 2.784 shares when the Execu­

tive Directors shall have determined that a sufficient number of shares of the capital stock of the Bank is available for the purpose and shall have authorized Poland to subscribe to such shares. In authorizing Poland to subscribe to such shares, the Executive Directors shall determine the date by which Poland shall subscribe to such shares.

3. Membership in the Fund: Before accepting membership in the Bank, Poland shall accept membership in and become a member of the International Monetary Fund.

241

4. Payments on Subscription: (a) Upon accepting membership in the Bank, Poland shall pay to the Bank on

account of the subscription price of one-half of the shares in paragraph 2(a) of this resolution: (i) Gold or United States dollars equal to 2% thereof; and (ii) An amount in its own currency which, at the appropriate prevailing

exchange rate, shall be equal to 18% thereof. (b) With respect to the subscription price of the other one-half of such shares,

the 2% portion payable in gold or United States dollars and the 18% portion payable in the currency of the member shall be left uncalled, as set forth in Resolution No. 129, on the same basis as the 2% and 18% portions of subscriptions made pursuant to Resolution No. 128 of the Board of Governors.

5. (a) Before the Bank shall accept Poland's subscription to the shares set out in paragraph 2(b) of this resolution, the following action shall have been taken: (i) Poland shall have taken all action necessary to authorize such subscrip­

tion and shall furnish to the Bank all 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, Poland 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.

(b) The provisions of paragraph 4(b) of this resolution shall apply to one half of the shares set out in paragraph 2(b) hereof.

6. Representation and Information: Before accepting membership in the Bank, Poland 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 7 (d) and (e) of this resolution and Poland shall furnish to the Bank such information in respect of such action as the Bank may request.

7. Effective Date of Membership: Poland shall become a member of the Bank with a subscription as set forth in paragraph 2(a) of this resolution as of the date when Poland shall have complied with the following requirements:

(a) become a member of the International Monetary Fund; (b) made the payments called for by paragraph 4 of this resolution; (c) furnished the representation, and such information as may have been re­

quested, pursuant to paragraph 6 of this resolution; (d) deposited with the Government of the United States of America an instru­

ment 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

242

(e) signed the original Articles held in the archives of the Government of the United States of America.

8. Limitation on Period for Fulfillment of Requirements of Membership: Poland may fulfill the requirements for membership in the Bank pursuant to this resolution until December 31, 1986, or such later date as the Executive Directors may determine.

9. Additional Subscription on Terms and Conditions of General Capital Increase Resolution:

(a) When the Executive Directors determine that a sufficient number of shares of the capital stock of the Bank is available for the purpose and authorize Poland to subscribe to such shares, Poland may subscribe up to 2,839 shares, subject to adjustment as provided in paragraph 9(b) of this resolu­tion, on the terms and conditions specified in paragraph 4 of the General Capital Increase Resolution, provided, however, that notwithstanding the provisions of paragraph 4(b) of the General Capital Increase Resolution, Poland may subscribe to such shares from the date the Executive Directors authorize Poland to do so to a date to be determined by the Executive Directors which shall be not less than one year from the date of such authorization, and provided further that Poland shall have subscribed the shares set out in paragraph 2(b) of this 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 9( 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 Poland to the same extent as if the subscription authorized by paragraph 9(a) of this resolution had been authorized under paragraph 2 of the General Capital Increase Resolution.

lO. Additional Subscription on Terms and Conditions of Additional Capital In­crease Resolution

(a) When the Executive Directors determine that a sufficient number of shares of the capital stock of the Bank is available for the purpose and authorize Poland to subscribe to such shares, Poland may subscribe to 250 shares on the terms and conditions specified in paragraphs 2 and 3 of the Additional Capital Increase Resolution, provided, however, that notwithstanding the provisions of paragraph 2(b) of the Additional Capital Increase Resolution, Poland may subscribe to such shares from the date the Executive Directors authorize Poland to do so, to a date to be determined by the Executive Directors which shall be not less than one year from the date of such authorization, and provided further that Poland shall have subscribed the shares set out in paragraph 2(b) of this Resolution.

243

(b) Subscriptions to capital stock pursuant to paragraph I O( 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 June 20, 1986)

Resolution No. 412

Membership of the Republic of Kiribati

WHEREAS the Government of Kiribati 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 19 of the By-Laws of the Bank, the Executive Directors, after consultation with representatives of the Government of Kiribati, 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 Kiribati 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 Development. (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' Reso­

lution No. 346 entitled "1979 General Capital Increase" adopted on January 4, 1980.

(f) •• Additional Capital Increase Resolution" means Board of Governors' 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, Kiribati shall subscribe to 11 shares of the capital stock of the Bank at par.

3. Membership in the Fund: Before accepting membership in the Bank, Kiribati shall accept membership in and become a member of the International Monetary Fund.

244

4. Payment on Subscription: (a) Upon accepting membership in the Bank, Kiribati shall pay to the Bank on

account of the subscription price of one-half of the shares in paragraph 2 of this resolution: (i) Gold or United States dollars equal to 2% thereof; and (ii) An amount in its own currency which, at the appropriate prevailing

exchange rate, shall be equal to 18% thereof. (b) With respect to the subscription price of the other one-half of such shares,

the 2% portion payable in gold or United States dollars and the 18% portion payable in the currency of the member shall be left uncalled, as set forth in Resolution No. 129, on the same basis as the 2% and 18% portions of subscriptions made pursuant to Resolution No. 128 of the Board of Governors.

5. Representation and Information: Before accepting membership in the Bank, Kiribati 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 6(d) and (e) of this resolution and Kiribati shall furnish to the Bank such information in respect of such action as the Bank may request.

6. Effective Date of Membership: Kiribati shall become a member of the Bank with a SUbscription as set forth in paragraph 2 of this resolution as of the date when Kiribati shall have complied with the following requirements:

(a) become a member of the International Monetary Fund; (b) made the payments called for by paragraph 4 of this resolution; (c) furnished the representation, and such information as may have been re­

quested, pursuant to paragraph 5 of this resolution; (d) deposited with the Government of the United States of America an instru­

ment 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

(e) signed the original Articles held in the archives of the Government of the United States of America.

7. Limitation on Period for Fulfillment of Requirements of Membership: Kiribati may fulfill the requirements for membership in the Bank pursuant to this resolution until December 31, 1986, or such later date as the Executive Directors may determine.

8. Additional Subscription on Terms and Conditions of General Capital Increase Resolution:

(a) When the Executive Directors determine that a sufficient number of shares of the capital stock of the Bank is available for the purpose and authorize Kiribati to subscribe to such shares, Kiribati may subscribe up to 10 shares of the capital stock of the Bank, subject to adjustment as provided in

245

paragraph 8(b) of this resolution, on the terms and conditions specified in paragraph 4 of the General Capital Increase Resolution, provided, how­ever, that notwithstanding the provisions of paragraph 4(b) of the General Capital Increase Resolution, Kiribati may subscribe to such shares from the date the Executive Directors authorize Kiribati to do so to a date deter­mined by the Executive Directors which shaH be not less than one year from the date of such authorization,

(b) In the event that the number of shares authorized to be subscribed by each member under the General Capital Increase Resolution shaH be reduced pursuant to paragraph 3 thereof, the amount authorized to be subscribed under paragraph 8(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 Kiribati to the same extent as ifthe 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) When the Executive Directors determine that a sufficient number of shares of the capital stock of the Bank is available for the purpose and authorize Kiribati to subscribe to such shares, Kiribati may subscribe to 250 shares on the terms and conditions specified in paragraphs 2 and 3 of the Addi­tional Capital Increase Resolution, provided, however, that notwithstand­ing the provisions of paragraph 2(b) of the Additional Capital Increase Resolution, Kiribati may subscribe to such shares from the date the Executive Directors authorize Kiribati to do so to a date determined by the Executive Directors which shall be not less than one year from the date of such authorization,

(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 June 20, 1986)

Resolution No. 413

1986 Regular Election of Executive Directors

(a) THAT the attached Rules for the 1986 Regular Election of Executive Directors are hereby approved; and

(b ) THAT a Regular Election of Executive Directors shall take place at the Annual Meeting of the Board of Governors in 1988,

(Adopted September 9, 1986)

246

RESOLVED:

RESOLUTIONS ADOPTED BY THE BOARD OF GOVERNORS OF THE BANK

AT THE 1986 ANNUAL MEETING

Resolution No. 414

Financial Statements, Accountants' Report and Administrative Budget

THAT the Board of Governors of the Bank consider the Financial Statements, Accountants' Report and Administrative Budget, included in the 1985/86 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, 1986)

Resolution No. 415

Allocation of FY86 Net Income

RESOLVED:

I. THAT the Report of the Executive Directors dated July 31, 1986 on "Allocation of FY86 Net Income" is hereby approved;

2. THAT the allocation of $962.8 million equivalent of the net income of the Bank for the fiscal year ended June 30, 1986 to the General Reserve is hereby noted with approval; and

3. THAT the Bank transfer to the International Development Association by way of grant the balance of such net income ($280.7 million equivalent) expressed in terms of Special Drawing Rights of the International Monetary Fund (at exchange rates in effect on a date not later than five business days after the date of adoption of this Resolution); such transfer shall be made at a time and in a manner decided by the Executive Directors.

(Adopted October 3, 1986)

247

RESOLUTIONS ADOPTED BY THE BOARD OF GOVERNORS OF IFC

BETWEEN THE 1985 AND 1986 ANNUAL MEETINGS

Resolution No. 149

Increase of Capital

WHEREAS the authorized capital of the International Finance Corporation (the Corporation) is $650,000,000, in terms of United States dollars, divided into 650,000 shares having a par value of one thousand United States dollars each, of which 544,238 such shares are issued; and

WHEREAS the Directors of the Corporation have concluded that it is desirable that the capital of the Corporation be increased and subscriptions to the increased capital be authorized and have submitted proposals therefor to the Board of Governors on the basis set forth below;

NOW THEREFORE THE BOARD OF GOVERNORS RESOLVES THAT: A. The authorized capital stock of the Corporation is hereby increased to $1,300,000,000, in terms of United States dollars, by the creation of 650,000 additional shares having a par value of one thousand United States dollars each, the issuance of such shares being authorized as set forth herein; B. Each member of the Corporation may at any time, or from time to time, on or before February 1, 1986 (or such later date as the Directors may determine), subscribe up to the number of shares of capital stock of the Corporation set opposite the name of such member in Table I attached to this Resolution; C. The provisions of this Resolution shall become effective when Governors exercising not less than three-fourths majority of the total voting power shall have voted in favor of this Resolution on or before December 31, 1984, or such later date as the Directors may determine; D. Each subscription authorized hereunder shall be on the following terms and conditions:

1. The subscription price per share shall be $1,000 in terms of United States dollars or other freely convertible currency or currencies; provided that, if payment is made in such currency or currencies other than United States dollars, the Corporation shall exercise its best efforts to cause such currency or currencies to be promptly converted into United States dollars and the same shall constitute payment of, or towards, the subscription price only to the extent that the Corporation shall have received effective payment of United States dollars.

2. Payment of the subscription price for shares subscribed shall be made either: (a) in cash in full, for all such shares at any time or for some such shares from

time to time, provided that such payment shall not be made in amounts

248

and at times less favorable to the Corporation than those specified in paragraph D.2(b) of this Resolution; or

(b) in the manner and on the dates following: (i) payment in respect of 20% of the total number of shares subscribed,

in cash in full on August 1, 1985, or, at the election of the subscrib­ing member, within a period of six months after such date;

(ii) payment in respect of 20% of the total number of shares subscribed, in cash in full on August I, 1986, or, at the election of the subscrib­ing member, within a period of six months after such date;

(iii) payment in respect of 20% of the total number of shares subscribed, in cash in full on August I, 1987, or, at the election of the subscrib­ing member, within a period of six months after such date;

(iv) payment in respect of 20% of the total number of shares subscribed, in cash in full on August 1, 1988, or, at the election of the subscrib­ing member, within a period of six months after such date;

(v) payment in respect of 20% of the total number of shares subscribed, in cash in full on August 1, 1989, or, at the election of the subscrib­ing member, within a period of six months after such date;

provided that, if any member shall so request, the Directors may, at any time, determine that anyone or more of such periods shall be extended by an additional period, not in any case exceeding six months; and provided further that, if any member shall, pursuant to this Resolution, be authorized to subscribe after the expiry of anyone or more of such periods, such member shall, upon subscription, pay in cash all amounts theretofore expressed to be payable according to the foregoing schedule (as the same may be extended by the Directors) and the balance in accordance with such schedule (as the same may be so extended); or (c) in the case of any member which shall be in circumstances of economic

hardship, on such date or dates not, in any case, later than August 1, 1991, as the Directors may determine at the request of such member.

3. Each subscription shall be made by the subscribing member depositing with the Corporation not later than February 1, 1986 (or such later date as the Directors may determine), in a form acceptable to the Corporation, an Instrument of Subscription whereby the member: (a) subscribes to the total number of shares specified in such Instrument; and (b) commits itself to pay for such total number of shares in a manner

consistent with paragraph D.2 of this Resolution; provided that, in cases where qualification is required by legislative procedures, such commit­ment shall be unqualified as to payment for not less than the first 20% of the total shares subscribed but may be qualified by a condition that payment for not more than 80% of the total shares subscribed is subject to appropriate legislative action which that member undertakes to seek as soon as practicable. consistent with the schedule set out in paragraph D.2(b); and

249

(c) represents to the Corporation that it has taken all action necessary to authorize such subscription; and

(d) undertakes to furnish to the Corporation such information as to the foregoing matters as the Corporation may request.

4. Shares of capital stock shall be issued to a subscribing member, which has delivered an Instrument of Subscription in accordance with paragraph D. 3 of this Resolution, only as full cash payment is made for such shares at any time or from time to time, and such member shall hold such shares upon such issue; provided always, however, that no shares shall be issued before August 1, 1985, or the date on which the provisions of this Resolution become effective in accordance with paragraph C of this Resolution, which­ever is later.

E. To the extent that any shares of capital stock, which have been subscribed pursuant to this Resolution, shall not have been paid for in cash in full on or before the last date prescribed for payment for such shares in accordance with this Resolution, the subscription of such shares shall become void. F. Any shares of capital stock remaining unsubscribed after the date prescribed under paragraph B hereof shall remain authorized and unissued, issuable by the Corporation in accordance with its Articles of Agreement.

(Adopted December 26, 1985)

250

INTERNATIONAL FINANCE CORPORATION

Capital Stock Offered for Subscription

Number of Percentage Member Shares Offered of Total

Afghanistan 133 0.02 Argentina 1l,730 1.80 Australia 14,560 2.24 Austria 6,073 0.93 Bangladesh 2,780 0.43 Barbados 111 0.02 Belgium 16,390 2.52 Belize 31 * Bolivia 585 0.09 Botswana 35 0.01 Brazil 12,145 1.87 Burma 795 0.12 Burundi 119 0.02 Cameroon 585 0.09 Canada 25,024 3.85 Chile 2,780 0.43 China 4,961 0.76 Colombia 2,488 0.38 Congo, People's Republic of the 80 0.01 Costa Rica 293 0.05 Cyprus 658 0.10 Denmark 5,708 0.88 Djibouti 25 * Dominica 13 * Dominican Republic 365 0.06 Ecuador 805 0.12 Egypt, Arab Republic of 3,731 0.57 EI Salvador 13 * Ethiopia 39 0.01 Fiji 88 0.01 Finland 4,829 0.74 France 35,266 5.43 Gabon 512 0.08 Gambia, The 42 0.01

*Less than .005 percent.

251

Number of Percentage

Member Shares Offered of Total

Germany, Federal Republic of 39,657 6.10 Ghana 1,560 0.24 Greece 2,122 0.33 Grenada 25 * Guatemala 365 0.06 Guinea 160 0.02 Guinea-Bissau 22 * Guyana 440 0.07 Haiti 365 0.06 Honduras 220 0.03 Iceland 13 * India 23,633 3.64 Indonesia 8,780 1.35 Iran, Islamic Republic of 444 0.07 Iraq 80 0.01 Ireland 397 0.06 Israel 657 0.10 Italy 22,828 3.51 Ivory Coast 1,090 0.17 Jamaica 1,317 0.20 Japan 30,510 4.69 Jordan 512 0.08 Kenya 1,243 0.19 Korea, Republic of 2,926 0.45 Kuwait 5,414 0.83

Lebanon 60 0.01 Lesotho 22 * Liberia 99 0.02

Libya 66 om Luxembourg 658 0.10

Madagascar 133 0.02 Malawi 440 0.07 Malaysia 4,683 0.72 Maldives 5 * Mali 139 0.02 Mauritania 66 0.01 Mauritius 512 0.08 Mexico 7,171 1.10 Morocco 2,780 0.43

*Less than .005 percent.

252

Number of Percentage Member Shares Offered of Total

Nepal 365 0.06 Netherlands 17,268 2.66 New Zealand 1,102 0.17 Nicaragua 220 0.03 Niger 80 0.01 Nigeria 6,658 1.02 Norway 5,414 0.83 Oman 365 0.06 Pakistan 5,268 0.81 Panama 411 0.06 Papua New Guinea 585 0.09 Paraguay 147 0.02 Peru 2,122 0.33 Philippines 3,878 0.60 Portugal 2,561 0.39 Rwanda 365 0.06 St. Lucia 23 * Saudi Arabia 11,049 1.70 Senegal 844 0.13 Seychelles 8 * Sierra Leone 99 0.02 Singapore 211 0.03 Solomon Islands 13 * Somalia 99 0.02 South Africa 4,906 0.75 Spain 7,171 l.l0 Sri Lanka 2,195 0.34 Sudan 133 0.02 Swaziland 220 0.03 Sweden 8,268 1.27 Syrian Arab Republic 86 0.01 Tanzania 865 0.13 Thailand 3,366 0.52 Togo 440 0.07 Trinidad and Tobago 1,265 0.19 Tunisia 1,098 0.17 Turkey 3,658 0.56 Uganda 878 0.14 United Arab Emirates 2,195 0.34

* Less than .005 percent.

253

Number of Percentage

Member Shares Offered of Total

United Kingdom 45,265 6.96

United States 175,162 26.95

Upper Volta 293 0.05

Uruguay 1,098 0.17

Vanuatu 30 * Venezuela 8,487 1.31

Viet Nam 198 0.03

Western Samoa 11 * Yemen Arab Republic 220 0.03

Yugoslavia 3,439 0.53

Zaire 2,304 0.35

Zambia 1,536 0.24

Zimbabwe 652 0.10

Total Shares Offered 650,000 100.00

*Less than .005 percent.

254

Resolution No. 150

Membership of the Republic of Kiribati

WHEREAS the Government of Kiribati 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 Kiribati, 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 Kiribati shall be admitted to membership in the Corporation shall be as follows:

1. Definitions: As used in this resolution:

(a) "Corporation" means International Finance Corporation. (b) "Articles" means the Articles of Agreement of the Corporation. (c) "Dollars" or "$" means United States dollars. (d) "Subscription" means the Capital Stock of the Corporation subscribed by

a member (e) "Member" means member of the Corporation.

2. Subscription: By accepting membership in the Corporation, Kiribati 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: Upon accepting membership in the Corporation, Kiribati shall pa¥ $7,000 to the Corporation in full payment of the capital stock subscribed.

4. Information: Before accepting membership in the Corporation, Kiribati shall furnish to the Corporation such information relating to its application for mem­bership as the Corporation may request.

5. Effective Date of Membership: Kiribati shall become a member of the Corpora­tion with a subscription as set forth in paragraph 2 of this resolution, as of the date when Kiribati 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;

255

(c) furnished such information as may have been requested by the Corporation pursuant to paragraph 4 of this resolution;

(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 International Bank for Reconstruc-tion and Development.

6. Limitation on Periodfor Fulfillment of Requirements of Membership: Kiribati may fulfill the requirements for membership in the Corporation pursuant to this resolution until December 31, 1986, or such later date as the Board of Directors may determine.

(Adopted June 20. 1986)

256

RESOLVED:

RESOLUTION ADOPTED BY THE BOARD OF GOVERNORS OF IFC AT THE 1986 ANNUAL MEETING

Resolution No. 151

Financial Statements. Accountants' Report and Administrative Budget

THAT the Board of Governors of the Corporation consider the Financial Statements and the Accountants' Report, included in the 1985/86 Annual Report, and the Administrative Budget attached to the Report dated August 20, 1986, 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, 1986)

257

RESOLUTIONS ADOPTED BY THE BOARD OF GOVERNORS OF IDA

BETWEEN THE 1985 AND 1986 ANNUAL MEETINGS

Resolution No. 139

Membership of St. Christopher and Nevis

WHEREAS the Government of St. Christopher and Nevis has applied for admission to membership in the International Development Association in accor­dance with Section I (b) of Article II of the Articles of Agreement of the Associa­tion; and

WHEREAS, pursuant to Section 9 of the By-Laws of the Association, the Executive Directors, after consultation with representatives of the Government of St. Christopher and Nevis, 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. Christopher and Nevis shall be admitted to membership in the Association shall be as follows:

I. 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 St. Christopher and Nevis

in the Association other than those specifically provided for in this resolu­tion shall be those set forth in the Articles with respect to the membership of original members listed in Part II of Schedule A thereof (including, but not by way of limitation, the terms and conditions relating to subscriptions, payments on subscriptions, usability of currencies and voting rights).

(b) Upon accepting membership in the Association, St. Christopher and Nevis shall subscribe funds in the amount of $130,000 expressed in terms of United States dollars of the weight and fineness in effect on January I, 1960.

(c) Before accepting membership in the Association, St. Christopher and Nevis shall make all payments on its initial subscription which would have been payable on or before the date of acceptance had it become a member of the Association as an original member listed in Part II of Schedule A of the Articles.

258

.. _-_. __ .. _----._._._._------

3. Acceptance of Membership: St. Christopher and Nevis 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 St. Christopher and Nevis shall have complied with the following requirements:

(a) made the payments called for by paragraph 2 of this resolution; (b) deposited with the International Bank for Reconstruction and Develop­

ment an instrument stating that it has accepted in accordance with its laws the Articles and all the terms and conditions prescribed in this resolution, and that it has taken all steps necessary to enable it to carry out all its obligations under the Articles and this resolution; and

(c) signed the original Articles held in the archives of the International Bank for Reconstruction and Development.

4. Limitation on Period for Acceptance of Membership: St. Christopher and Nevis may accept membership in the Association pursuant to this resolution until June 30, 1986, or such later date as the Executive Directors of the Association may determine.

5. Additional Subscriptions: Upon or after acceptance of membership, St. Christopher and Nevis shall also be authorized at its option to make the following additional subscriptions:

(a) An additional subscription in the amount of $15,655 which shall carry 9,846 votes and be subject to the following terms and conditions: (i) Payment of such additional subscription shall be made in the currency

of St. Christopher and Nevis within 30 days after St. Christopher and Nevis notifies the Associaiton of its intention to make such additional subscription.

(ii) The rights and obligations of the Association and St. Christopher and Nevis 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 its 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 $1,175 which shall carry 1,247 votes, calculated on the basis of 1,200 membership votes and 47 subscription votes. The rights and obligations of the Association and St. Christopher and Nevis with regard to such further additional subscription shall be the same as those which are applicable to the subscriptions authorized for Part II members under Section E of the Seventh Replenish­ment Resolution (No. 132) adopted by the Board of Governors on August 6, 1984.

(Adopted January 6, 1986)

259

Resolution No. 140

Membership of the Republic of Kiribati

WHEREAS the Government of Kiribati 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 Association; and

WHEREAS, pursuant to Section 9 of the By-Laws of the Association, the Executive Directors, after consultation with representatives of the Government of Kiribati, 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 Kiribati 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 ofthe United States of Amer­

ica.

2. Initial Subscription: (a) The terms and conditions of the membership of Kiribati in the Association

other than those specifically provided for in this resolution shall be those set forth in the Articles with respect to the membership of original members listed in Part II of Schedule A thereof (including, but not by way of limitation, the terms and conditions relating to subscriptions, payments on subscriptions, usability of currencies and voting rights).

(b) Upon accepting membership in the Association, Kiribati shall subscribe funds in the amount of $60,000 expressed in terms of United States dollars of the weight and fineness in effect on January 1, 1960.

(c) Upon accepting membership in the Association, Kiribati shall make all payments on its initial subscription which would have been payable on or before the date of acceptance had it become a member of the Association as an original member listed in Part II of Schedule A of the Articles.

3. Effective Date of Membership: Kiribati 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 Kiribati shall have complied with the following requirements:

(a) become a member of the International Bank for Reconstruction and Devel­opment;

260

(b) made the payments called for by paragraph 2 of this resolution; (c) deposited with the International Bank for Reconstruction and Development

an instrument stating that it has accepted in accordance with its laws the Articles and all the terms and conditions prescribed in this resolution, and that it has taken all steps necessary to enable it to carry out all its obligations under the Articles and this resolution; and

(d) signed the original Articles held in the archives of the International Bank for Reconstruction and Development.

4. Limitation on Periodfor Fulfillment of Requirements of Membership: Kiribati may fulfill the requirements for membership in the Association pursuant to this resolution until December 31, 1986, or such later date as the Executive Directors of the Association may determine.

5. Additional Subscriptions: Upon or after acceptance of membership, Kiribati shall also be authorized at its option to make the following additional subscrip­tions:

(a) An additional subscription in the amount of$7, 199 which shall carry 9,605 votes and be subject to the following terms and conditions: (i) Payment of such additional subscription shall be made in the currency

of Kiribati within 30 days after Kiribati notifies the Association of its intention to make such additional subscription.

(ii) The rights and obligations of the Association and Kiribati 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 $550 which shall carry 1,222 votes, calculated on the basis of 1,200 membership votes and 22 subscription votes. The rights and obligations of the Association and Kiri­bati with regard to such further additional subscription shall be the same as those which are applicable to the subscriptions authorized for Part II members under Section E of the Seventh Replenishment Resolution (No. 132) adopted by the Board of Governors on August 6, 1984.

(Adopted June 20, 1986)

261

RESOLVED:

RESOLUTION ADOYfED BY THE BOARD OF GOVERNORS OF IDA AT THE 1986 ANNUAL MEETING

Resolution No. 141

Financial Statements, Accountants' Report and Administrative Budget

THAT the Board of Governors of the Association consider the Financial Statements, Accountants' Report and Administrative Budget, included in the 1985/86 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, 1986)

262

REPORTS OF THE EXECUTIVE DIRECTORS OF THE BANK

Number of Elected 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 16. The last increase in the number of elected Executive Directors was approved by the Board of Governors in 1980.

3. Following the 1980 Regular Election, when the total number of Executive Directors was increased to 21, 14 countries have joined the Bank. These new members have a total of 9,719 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 feelings 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 1979 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 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 Sub­Saharan 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.

5. By letter to the President ofthe Bank dated November 2, 1985, the Governor of the Bank for Saudi Arabia expressed the Saudi Government's wish to be represented on the Board of Executive Directors of the Bank by its own Executive Director. Saudi Arabia has sufficient votes to elect an Executive Director in the

263

forthcoming 1986 Regular Election. If Saudi Arabia elected an Executive Director and if the number of Executive Directors was 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. Several years ago the Saudi Government advised the Bank that it was considering the possibility of electing its own Executive Director and, although no action was taken by the Saudi Government, this possibility was provided for in the 1982 Election Rules approved by the Board of Governors.

6. In its letter the Saudi Government recommends an approach whereby the number of Executive Directors would be increased to twenty-two (to be accom­plished by increasing the number of elected Executive Directors to 17) in time for the 1986 Regular Election of Executive Directors. The letter, in part, states as follows:

"As in the past, we give great importance to avoiding, pursuant to the Saudi action, any possible problems with respect to the adequate repre­sentation of other shareholders-in particular those from Latin America and Africa-on the Board of the World Bank. We strongly support, therefore, an approach that would increase the number of Executive Directors in the Bank to twenty-two, i.e., the same number as in the IMF. We are informing you of our plans sufficiently in advance of the fourthcoming elections to give the Bank management and the Boards time to complete the necessary procedures for this purpose."

It is therefore clear that the essential objective of the Saudi Government is to obtain an Executive Director representing Saudi Arabia by itself without upsetting the present distribution of Executive Directors and that an increase to twenty-two Executive Directors would accomplish this objective.

7. In view of the foregoing, and bearing in mind the best interests of the Bank and its members, the Executive Directors recommend that the number of Executive Directors to be elected at the 1986 Regular Election of Executive Directors to be held during that Annual Meeting be increased to 17.

8. There is enclosed a draft resolution embodying the above recommendation. l

This report was approved and its recommendation was adopted on May 9, 1986.

ISee page 237.

264

Increases in Certain Subscriptions to Capital Stock

1. In their Report dated May 24, 1984, entitled "Increase of $7 Billion in Authorized Capital Stock and Special Increases in Subscriptions to Capital Stock," the Executive Directors recommended that the Board of Governors approve a resolution (hereinafter called the Special Capital Increase Resolution) authorizing an increase of $7 billion (in terms of 1944 gold dollars) in the capital stock of the Bank and the allocation of shares to members based on their respective quota increases in the International Monetary Fund under the Eighth General Review of Quotas. The Report also recommended that the Special Capital Increase Resolution become effective only if all members waived their preemptive right to subscribe their proportionate share of the increase, and all members have waived such right. The Board of Governors adopted the Special Capital Increase Resolu­tionon August 30, 1984.

2. In their Report dated July 31, 1984, the Executive Directors stated their belief that all members facing a loss in relative voting power as a result of the Special Capital Increase should be given an opportunity to maintain their relative voting power, to the extent shares were available for the purpose. The Executive Directors stated that up to a total of 2,128 shares may be allocated for this purpose and recommended that the Board of Governors adopt a resolution allocating up to 600 shares as a first step in such an allocation process. The said resolution was adopted, and became effective on September 12, 1984 (Resolution No. 398).

3. As a result of actions taken by the Executive Directors and the Bank's Management to increase the number of unallocated shares, through releases of allocated shares, there are currently 1,338 shares available for allocation, which is less than the 1,528 shares required to complete the allocation begun under Resolution No. 398. The Executive Directors believe that the allocation should be completed as early as possible and, for this purpose, recommend that the Board of Governors: (a) approve the allocation of a total of 1,000 shares to the members which notify the Bank of their intention to subscribe the balance of the shares they are entitled to subscribe in the allocation scheme; and (b) authorize the Executive Directors to allocate to such members up to 528 shares under similar terms and conditions to complete the allocation scheme, as and when they determine that a sufficient number of shares is available for the purpose, taking into account the requirements of the Articles of Agreement of the Bank. A draft resolution provid­ing for the completion of the allocation process is attached.

4. In making this recommendation, the Executive Directors are aware that two applications for membership are now pending and that the number of shares left after the allocation now recommended for immediate implementation is approved may not be sufficient to complete the membership process if the Bank's usual criteria are to be followed in the case of the pending applications. Nevertheless, in view of the special nature of the allocation process started under Resolution

265

No. 398, the Executive Directors recommend that the proposed further allocation be made now. It is expected that additional shares, including shares needed to complete the allocation program, will be obtained from unsubscribed shares that were allocated under other resolutions.

5. The proposed increases in subscriptions would be authorized generally under the same terms and conditions as those authorized in Resolution No. 398 and would include the following features;

(a) members eligible to receive an increase in their share subscriptions are those with respect to which the number of shares allocated under the Special Capital Increase Resolution is less than the number of shares these members would have had the right to subscribe if they had exercised their preemptive rights (the United Kingdom and China, although eligible, have already indicated in connection with Resolution No. 398 that they did not wish to participate in this allocation);

(b) the number of shares allocated to each eligible member is based on the member's subscribed capital on June 15. 1984;

(c) members would be required to notify the Bank in writing on or before June 23, 1986 of their intention to subscribe the shares allocated to them to complete the allocation scheme;

(d) shares included in the 1,000 shares members may subscribe upon the effectiveness of the draft resolution with respect to which members shall not have notified the Bank of their intention to subscribe shall be added to the shares allocated to members who notify the Bank, so that all such 1,000 shares may be subscribed by members who so notify the Bank (subject to the maximum number of shares each member may subscribe under the scheme);

(e) the subscription period for the 1,000 shares whose allocation is recom­mended now would commence on the date the draft Resolution became effective and end on August 31, 1988; the subscription period for any further allocation would commence on the date of the decision of the Executive Directors to make such an allocation and would end on a date 29 months thereafter; the Executive Directors would not be authorized to postpone the terminal dates for subscription; and

(f) shares not subscribed at the end of the subscription periods would be part of the authorized and unallocated capital stock of the Bank.

6. Subscription terms for the shares allocated to complete the allocation scheme would be those set forth in the Special Capital Increase Resolution. The price of shares would be par. The paid-in portion would be 8.75 percent ofthe subscription

266

~-~~--.--------.-----

price, with respect to which 0.875 percent would be payable in gold or U.S. dollars and 7.875 percent would be payable in the member's currency.

7. The Executive Directors recommend that the Board of Governors adopt the draft Resolution .... 1

This report was approved and its recommendation was adopted on May 19, 1986.

ISee page 237.

267

1986 Regular Election of Executive Directors

1. Pursuant to Resolution No. 396 of the Board of Governors, a Regular Election of Executive Directors will take place at the 1986 Annual Meeting of the Board of Governors.

2. In accordance with Resolution No. 409 of the Board of Governors, seventeen Executive Directors shall be elected.

3. The Executive Directors have noted that there continued to be some uncertainty as to the voting power certain members will have at the time of the election because members could subscribe shares under various capital increase resolutions at any time prior to the election. In view of this uncertainty, the Executive Directors recommend that the maximum and minimum percentages of eligible votes required for election of an Executive Director be ten percent and three percent, respectively.

4. The Executive Directors recommend that the date from which the 1986 Regular Election will be effective be November I, 1986.

5. The Executive Directors consider the present structure of the Board acceptable and believe it desirable that both wide geographical and balanced representation be maintained. As in previous years there is strong feeling among Executive Direc­tors that a lack of such wide geographical and balanced 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 1988.

7. The Executive Directors recommend the adoption by the Board of Governors of the attached Rules for the 1986 Regular Election of Executive Directors.

8. The draft Resolution, embodying the above recommendations, is proposed for adoption by the Board of Governors 1

This report was approved and its recommendations were adopted on Sep­tember 9, 1986.

·See page 246.

268

Allocation of Net Income

1. The Bank's net income available for allocation for the fiscal year ended June 30, 1986 amounts to $1,243.5 million. A net translation adjustment due to exchange rate changes of$353.2 million has been credited directly to the General Reserve. As of June 30, 1986, the Special Reserve created under Article IV, Section 6 of the Bank's Articles of Agreement totalled $292.5 million and, without regard to the 1986 fiscal year's income, the General Reserve amounted to $4,917.6 million. Total reserves (excluding accumulated provisions for loan losses) and accumulated net income therefore amounted to $6,453.6 million, of which the $292.5 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, 1986.

3. The Executive Directors have allocated $962.8 million equivalent of such net income to the General Reserve.

4. The Executive Directors have concluded that it is not necessary to retain in the Bank's business the balance of such net income, amounting to $280.7 million equivalent. They have further concluded that the interests of the Bank and its members would best be served by the transfer of such balance to the International Development Association by way of grant. As far as drawings on the transfer are concerned, the attached draft Resolution provides that the amount to be transferred will be defined in terms of Special Drawing Rights of the IMF and that the transfer would be made at a time and in a manner decided by the Executive Directors.

5. 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, 1986.

ISee page 247.

269

Rules for the 1986 Regular Election of Executive Directors

1. Definitions: In these Rules, unless the context shall otherwise require, (a) "Articles" means the Articles of Agreement of the Bank. (b) "Board" means the Board of Governors of the Bank. (c) "Chairman" means the Chairman of the Board or a Vice Chairman acting

as Chairman. (d) "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. (f) "Election" means the 1986 Regular Election of Executive Directors. (g) "Eligible votes" means the total number of votes that can be cast in the

election.

2. Date of Election: The election shall be held during a plenary session of the 1986 Annual Meeting of the Board to be held Wednesday, October I, 1986.

3. Basic Rules-Schedule B: Subject to the adjustments set forth in the Rules, the provisions of Schedule B of the Articles shall apply to the conduct of the election, except that:

(a) "three 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

(b) "seventeen persons" shall be substituted for "seven persons" in Para­graphs 2,3 and 6, "sixteen persons" shall be substituted for "six persons" in Paragraph 6, and "the seventeenth" shall be substituted for the "sev­enth" in Paragraph 6 thereof.

4. Executive Directors to be Elected: Seventeen Executive Directors shall be elected.

5. Nominations: (a) Any person nominated by one or more Governors entitled to vote in the

election shall be eligible for election as Executive Director. (b) Each nomination shall be made on a Nomination Form furnished by the

Secretary, signed by the Governor or Governors making the nomination, and deposited with the Secretary.

(c) A Governor may nominate only one person. (d) Nominations may be made until 12 o'clock noon on the day preceding the

election. The Secretary shall post and distribute a list of 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.

270

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 distributed for that ballot shall be counted.

8. Balloting: Each ballot shall be taken as follows: (a) There shall be a call of members whose Governors are entitled to vote and

each ballot, signed by the Governor, shall be deposited in the ballot box. (b) When a ballot shall have been completed, the Chairman shall cause the

ballots to be counted and shall announce the names of the persons elected as soon as practicable after the tellers have completed their tally of the ballots. If a succeeding ballot is necessary, the Chairman shall announce the names of the nominees to be voted on and the members whose Governors are eligible to vote.

(c) If the tellers shall be of the opinion that any particular ballot is not properly executed, they shall, if possible, afford the Governor concerned an oppor­tunity to correct it before tallying the results; and such ballot, if so cor­rected, shall be deemed to be valid.

9. When on any ballot the number of nominees shall not exceed the number of Executive Directors to be elected, each nominee shall be deemed to be elected by the number of votes received by him on such ballot; provided, however, that, if on such ballot the votes of any 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 three percent of the eligible votes, and a succeeding ballot shall be taken for which any nominee not elected shall be eligible.

to. 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 who voted on the preceding ballot for any nominee not elected; and (b) those Governors whose votes for a nominee elected on the preceding ballot

are deemed under Paragraph 4 of Schedule B to have raised the votes cast for such nominee above ten percent of the eligible votes.

II. 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 not to have raised

271

the total votes of the nominee 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, 1986, and the term of office of the elected Executive Directors shall commence on that 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, subjectto appeal, atthe 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.

272

EXECUTIVE DIRECTORS ELECTED AT 1986 REGULAR ELECTION

Number Executive Director Elected by the Votes of of Votes

Fawzi Hamad AI-Sultan Bahrain 816 Egypt, Arab Republic of 3,869 Iraq 1,456 Jordan 733 Kuwait 6,701 Lebanon 340 Maldives 512 Oman 872 Pakistan 5,377 Qatar 1,346 Syrian Arab Republic 1,483 United Arab Emirates 2,635 Yemen Arab Republic 705

--26,845

Paul Arlman Cyprus 1,038 Israel 1,358 Netherlands 15,367 Romania 2,251 Yugoslavia 1,759

21,773

Mourad Benachenhou Afghanistan 550 Algeria 5,005 Ghana 1,106 Iran, Islamic Republic of 11 ,179 Libya 2,201 Morocco 2,862 Tunisia 623 Yemen, People's Oem. Rep. of 586

24,112

Felix Alberto Camarasa Argentina 9,601 Bolivia 514 Chile 2,625 Paraguay 865 Peru 1,188 Uruguay 1,828

16,621

273

Number Executive Director Elected by the Votes of of Votes

Jacques de Groote Austria 6,459 Belgium 16,516 Hungary 4,453 Luxembourg 1,075 Turkey 3,929

32,432

Ronald H. Dean Australia 12,987 Kiribati 261 Korea, Republic of 3,629 New Zealand 3,858 Papua New Guinea 496 Solomon Islands 533 Vanuatu 573 Western Samoa 532 --

22,869

Mario Draghi Greece 1,195 Italy 20,092 Malta 816 Portugal 3,063

25,166

C. Ulrik Haxthausen Denmark 6,003 Finland 5,054 Iceland 930 Norway 5,602 Sweden 7,617

25,206

Mitiku Jembere Botswana 581 Burundi 400 Ethiopia 783 Gambia, The 303 Guinea 963 Kenya 1,565 Lesotho 612 Liberia 463 Malawi 432

274

Number Executive Director Elected by the Votes of of Votes

Mozambique 522 Nigeria 3,191 Seychelles 261 Sierra Leone 400 Sudan 850 Swaziland 690 Tanzania 600 Trinidad and Tobago 917 Uganda 583 Zambia 1,401 Zimbabwe 1,067

16,584

Pedro Sampaio Malan Brazil 12,098 Colombia 3,749 Dominican Republic 839 Ecuador 1,212 Haiti 839 Philippines 3,848

22,585

Andre Milongo Benin 350 Burkina Faso 350 Cameroon 450 Cape Verde 516 Central African Republic 350 Chad 350 Comoros 266 Congo, People's Rep. of the 746 Cote d'Ivoire 1,084 Djibouti 281 Equatorial Guinea 314 Gabon 370 Guinea-Bissau 527 Madagascar 469 Mali 423 Mauritania 600 Mauritius 928 Niger 600 Rwanda 837

275

Number Executive Director Elected by the Votes of of Votes

Sao Tome and Principe 264 Senegal 862 Somalia 439 Togo 400 Zaire 2,893

14,669

Frank Potter Antigua and Barbuda 270 Bahamas, The 421 Barbados 769 Belize 289 Canada 22,032 Dominica 266 Grenada 267 Guyana 829 Ireland 3,208 Jamaica 696 St. Christopher and Nevis 275 St. Lucia 279 St. Vincent 263

29,864

Mohd. Ramli Wajib Burma 1,644 Fiji 759 Indonesia 8,027 Lao People's Dem. Rep. 350 Malaysia 4,877 Nepal 783 Singapore 570 Thailand 3,361 Tonga 527 Viet Nam 793

21,691

C.R. Krishnaswamy Bangladesh 2,945

Rao Sahib Bhutan 259 India 24,085 Sri Lanka 2,382

29,671

276

Executive Director

Mrs. Mercedes Rubio

Elected by the Votes of

Costa Rica

Number of Votes

381 391 667 360

EI Salvador Guatemala Honduras Mexico Nicaragua Panama Spain Suriname Venezuela

Jobarah E. Suraisry Saudi Arabia

Xu Naijiong China

/s/ K.L. Deshpande (India) Teller

277

/s/ B.H. Lund (Norway) Teller

6,610 341 466

10,544 412

7,810

27,982

22,633

23,732

REPORT OF THE BOARD OF DIRECTORS OF IFC

Increase in Authorized Capital of the Corporation and Increase of Members' Subscriptions Thereto

1. The Board of Directors of the International Finance Corporation (the Corpora­tion) has considered the Memorandum to the Board of Directors from the President dated May 31, 1984, on the subject of an increase of the Corporation's capital. This Memorandum is attached.

2. After considering the President's Memorandum, the Board of Directors con­cluded that the Corporation's available resources will not support a satisfactory level of future operations.

3. The Board of Directors, having duly considered the matter and having taken into account the President's Memorandum dated May 31, 1984, has found the recommendations set out in paragraphs 19, 20 and 21 of such Memorandum to be desirable. Accordingly, the Board of Directors submits to the Board of Governors, for a vote without meeting, the proposal which is set out in the draft Resolu­tion .... 1

4. The Board of Directors recommends that the Board of Governors of the Corporation adopt such draft Resolution.

Memorandum to the Board of Directors

SUBJECT: Increase in Capital

1. This Memorandum recommends that the resources of the International Finance Corporation (IFC or the Corporation) be enlarged through additional subscriptions of $650,000,000 to its capital stock and that the Board of Directors submit a proposal to this effect to the Board of Governors for its approval. The proposed increase is necessary to support the planned level of operations of the Corporation for the period of FY85-89 (the Five Year Program).

2. The recommendations made in this Memorandum are in furtherance to the Memoranda distributed to the Board (lFC/R84-1O) in early February, 1984: (a) a Memorandum containing the Corporation's Five Year Program for FY85-89, and

lSee page 248.

278

(b) a Memorandum containing the President's recommendation that the autho­rized capital stock of the Corporation be increased by $750,000,000 and that 750.000 shares of the Corporation be offered to member countries.

3. An initial version of the Five Year Program, which covered FY84-88 (lFc/ R82-96, dated October 29. 1982). was discussed with the Board at a Seminar in December 1982. A modified Five Year Program for FY85-89 (IFc/R84-1O) was discussed by a Committee of the Whole of the Board of Directors on March 8, 1984. A document containing Questions and Answers concerning the Five Year Program (IFC/Sec M84-18) was circulated to the Board in March of 1984. IFC has subsequently met with individual Directors and officials of member countries to discuss their questions about the Five Year Program. At the April 13, 1984, Development Committee Meeting. the Corporation received broad support for the Five Year Program and the related increase in capital, and the Committee called for early action by the Directors. However. while fully supportive of the expansion of the Corporation' s activities and a corresponding capital increase, the consensus among IFC Directors was that, in the present environment, the proposed $750,000,000 capital increase should be reduced.

4. Since I believe it is imperative that the Corporation proceed with a substantial capital increase at this time in order to avoid further delay in the Corporation's assistance to developing member countries, I am proposing that the authorized capital stock of IFC be increased by $650,000.000 by the creation of 650,000 additional shares and that such shares be offered for SUbscription to member countries. This will entail a reduction of $100,000,000 from the previously proposed $750,000,000 capital increase and a consequent reduction in the activities programmed for the FY85-89 period.

5. This Memorandum (I) highlights the adjustments in the Five Year Program necessitated by the reduction of the capital increase to $650,000,000; (2) describes the legal requirements and procedures for approval of the capital increase; and (3) provides specific recommendations for action by the Board of Directors.

FY85-89 Program Adjustments

6. In view of the endorsement of IFC's original Five Year Program, including each of the new and expanded initiatives, the program adjustment necessitated by the reduction of the capital increase to $650,000,000 has been applied to all elements of the Program in a substantially uniform way. Table I summarizes these reductions:

279

Table 1 IFC Original and Revised FY85·89 Program

Original Revised Percentage Program Program Difference Reduction

Number of Projects Regular 213 192 -21 10% Restructuring-New 40 36 -4 10% Financial Markets/DFCs 100 91 -9 9% Sub-Saharan Africa 102 93 -9 9% Energy Exploration 25 23 -2 8%

Total 480 435 -45 9%

Net Volume ($m.) 4920 4400 -520 11% Of Which:

Equity + Quasi-Equity ($m.) 990 880 -1l0 11%

Growth Rate in Projects 9.3% 7.5% -1.8%

Growth Rate -Net Real Volume<' 10.0% 7.0%b -3.0%b

aAverage growth rate is calculated in FY83 constant dollars over the actual results of the Five Year Program for FY79-83.

bAbout 1% of this reduction is due to a change in the Bank Group's assumptions on commitment deflators.

7. The energy exploration program to be undertaken during FY85-89 has been reduced from 25 projects to 23 projects. The 2 project reduction will be made up in FY90, and this will maintain the overall minimum size of this initiative necessary to assure adequate diversification of IFC's risk. The other special initiatives in the Program, depending on successful implementation during FY85-89 and further assessment of developing country needs and priorities, will also continue and be expanded further in FY90 and beyond.

8. In total, the numberofIFC projects for FY85-89 has been reduced by 9%, from 480 to 435 projects. IFC net investment has been reduced by ll%, from $4920 million to $4400 million, with a proportional reduction in the volume of equity and quasi-equity investment. In terms of average annual program growth, the number of projects will increase by 7.5% per annum, compared to 9.3% in the original program. Net investment volume in real terms will increase by 7.0%, compared to 10.0% in the original Program. This greater than proportional reduction in real net investment volume reflects an upward revision in the Bank Group's assumptions on commitment deflators.

280

9. The year-by-year phasing of the revised FY85-89 investment program is presented in Table 2 below, with comparison to the original Five Year Program.

Table 2 IFC Original and Revised FY85·89 Program

FY85 FY86 FY87 FY88 FY89 FY85-89

No. Projects Approved: Original 74 88 101 107 110 480 Revised 76 83 88 92 96 435

--------------- in current dollars millions ---------------

IFC Net Investment: Original 630 820 1020 1160 1290 4920 Revised 590 740 880 1030 1160 4400

Participations: Original 440 570 720 810 910 3450 Revised 310 520 620 720 810 2980

Gross Investment: Original 1070 1390 1740 1970 2200 8370 Revised 900 1260 1500 1750 1970 7380

10. The phasing of the Five Year Program has been adjusted in line with IFe's current state of readiness for FY85 and the reduced number of projects and investment amounts during the five year period. As described in IFe's FY85 program and budget presentation (due for discussion by the Board in late June, 1984), the Corporation's FY85 program is well under way, with an unusually strong pipeline ofFY85 projects now at advanced stages of processing. Therefore, the FY85 program has been maintained at close to the original Five Year Program level. For the later years of the Five Year Program, the reduced overall number of projects is reflected in a more gradual year-to-year build-up.

11. The distribution of the investment activities set out in the original Five Year Program in terms of country income group, region and sector will be maintained in the revised program. As indicated in the original Five Year Program document, these allocations of IFC investment activities are planning assumptions which will guide the Corporation's investment strategy and particularly its promotional activities during the program period. They will be periodically reviewed in light of experience and adjusted as appropriate.

281

12. Revised financial projections for FY85-89. assuming a $650 million capital increase with five installments of $130 million beginning in FY86. are set out in Appendix A. This amount of capital and the schedule of payments represent the minimum required to ensure that the Corporation will maintain a sound financial condition while undertaking the revised Five Year Program. The financial projec­tions represent a scaling back of the projections associated with the original Five Year Program and related $750 million capital increase proposal.

13. In summary, the revised Five Year Program now presented to the Directors for submission to the Board of Governors represents a scaled down version of the original Five Year Program presented in February, 1984. The revised program involves:

i) An annual average growth in IFC project approvals of 7.5%. ii) An annual average real growth in IFC net investment of 7.0%.

iii) Initiatives in restructuring assistance, financial market development, Sub­Saharan Africa and energy exploration with the same relative emphasis as in the original Five Year Program.

iv) Country income group. regional and sectoral distribution in the same proportions as the original Program.

v) A FY85 program level consistent with IFe's current pipeline of FY85 projects in advanced stages of processing. with a gradual program build­up in FY86-89.

vi) Revised financial projections consistent with the reduction and revision in the FY85-89 program of investments.

vii) Borrowing requirements for FY85-89 totalling $2.2 billion. viii) A $650 million capital increase to support the programs indicated.

Legal Requirements and Procedures

14. The implementation of the revised Five Year Program requires an increase of $650,000,000 in the Corporation's resources. Accordingly, 650.000 shares would be offered for subscription. The 650,000 shares would be offered for subscription at par payable in US dollars or other freely convertible currencies, as described in more detail in paragraph D.2 of the draft Resolution ... 1 The 650,000 shares would be offered to member countries pro rata to their shareholdings in the Corporation on March 31, 1984. Therefore. if all offered shares were taken up. the shareholdings of member countries in IFe s capital stock would remain in the same proportions as on such date. Appendix B lists the number of shares held by each member country on March 31, 1984, together with each member's pro rata entitlement to the 650,000 shares to be offered.

'See page 248.

282

15. The projections set out in the Five Year Program show that it is not necessary for the full amount of all offered shares to be paid for at one time, although this would be welcome. Instead, members would be given the option to pay for their subscriptions in five equal annual installments beginning in FY86, with the flexibility to make each such payment within a specified six month period in each year. The proposal would have further flexibility in that it would allow the Board of Directors, if necessary, to extend the relevant dates for subscription and permit late subscribers to "catch-up" by making past due payments. Also. to accommo­date particular members in circumstances of economic hardship, it would be appropriate to provide additional time for payment by authorizing the Board of Directors to extend the payment schedule. but not beyond a seven-year (instead of a five-year) period.

16. As set out in the draft Resolution ... I approval of this proposal would require an affirmative vote of the Board of Governors by a three-fourths majority of the total voting power. It would be helpful if this vote were to be completed promptly, so that IFC would have reasonable certainty as regards its future operations (although it is noted that approval of the draft Resolution ... would not in itself obligate any member to subscribe additional shares of IFC). It is contemplated that each subscribing member would deposit an Instrument of Subscription with IFC as early as possible after approval of this proposal by the Board of Governors. whereby such member would commit itself to pay for a specified number of shares. Shares would be issued to the extent cash payments are made. No subscription would become effective before August I. 1985. so as to allow fair opportunity for all subscribing members to acquire shares. and the voting priv­ileges attached thereto. at the same time.

17. On March 31. 1984. the authorized capital of the Corporation was $650.000.000 and the subscribed capital was $544.238.000. Consequently, 105.762 shares were authorized but unissued. I consider that such unissued shares constitute a sufficient number of authorized shares to accommodate new members and existing members which might wish to request allocation of shares in excess of those being offered under the proposed draft Resolution (Annex 2). Any such request would be submitted to the Board of Governors. at the time of such request. under ordinary procedures provided for in the Articles.

18. Finally. it should be noted that the terms of the draft Resolution ... I are substantially the same as those of Resolution No. IFC-IOO adopted by the Board of Governors on November 2.1977. by virtue of which the Corporation's autho­rized capital was increased to $650.000.000.

'See pliRe 248.

283

Conclusions and Recommendations

19. In conclusion, I recommend that:

(a) The authorized capital stock of IFC be increased from $650,000,000 to $1,300,000,000 by the creation of 650,000 shares having a par value of $1,000 each.

(b) 650,000 shares be offered for SUbscription to member countries pro rata to their shareholdings in the Corporation on March 31, 1984, as specified in Appendix B hereto.

(c) Subscriptions and payments be made on the terms and conditions specified in the attached draft Resolution .... 1

20. I further recommend that an in-depth review be undertaken by the Board of Directors by the end of CY86 on the implementation of the Five Year Program so far and its implications for IFC.

21. I further recommend that:

(a) The Directors approve, for circulation to the Board of Governors, this Memorandum and the following documents:

(i) Draft Report ofthe Board of Directors to the Board of Governors ... 2

(ii) Draft Resolution for adoption by the Board of Governors ... 3

(iii) President's Memorandum to the Board of Directors with regard to the Five Year Program for FY85-89 which was distributed to the Board of Directors on February 3, 1984 (IFClR84-1 0). Such Memorandum would be accompanied by a notation indicating that the Five Year Program had been amended according to this Memorandum; and

(iv) Draft Letter of Transmittal to the Board of Governors. (b) The Secretary take action as he shall deem necessary or appropriate to carry

out the purposes of the foregoing.

A.W. Clausen

This report was approved and its recommendations were adopted on Decem­ber 26, 1985.

'See page 248. 2See page 278. JSee pgae 248.

284

----------------- _ .. -

APPENDIX A

INTERNATIONAL FINANCE CORPORATION FINANCIAL AND OPERATING DATA FY85-8«Ja

($ millions, fiscal years)

Actual Estimate Proiected Cumulative 79-83 1984 1985 1986 1987 1988 1989 85-89 90-94

BALANCE SHEET

Cash and Securities 26.3 19.9 6.0 6.0 6.0 6.0 6.0 6.0 6.0 Investments: Loans b 1.587.8 1.743.4 2.071.4 2.508.4 3,037.5 3.661.2 4,345.8 4,345.8 8,053.6

Equity 294.1 348.2 420.2 508.3 612.6 725.4 845.8 845.8 1,680.1 Less: Reserve Against Losses c 99.6 129.6 157.5 187.7 229.4 280.6 337.1 337.1 706.9 N Net Accruals and Other Assets 4.5 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 00

VI TOTAL ASSETS 1,813.1 1,987.9 2,346.1 2.841.0 3,432.7 4.118.0 4,866.5 4.866.5 9,038.8

Undisbursed Commitments: Loans b 500.5 554.6 752.6 951.4 1,173.0 1,400.8 1,607.6 1,607.6 2,485.3 Equity 29.1 63.7 115.7 136.9 160.1 173.4 190.8 190.8 308.9

Undisbursed Loans and Equity 529.6 618.3 868.3 1,088.3 1,333.1 1,574.2 1.798.4 1.798.4 2,794.2 Loans from IBRD and Others 1.012.0 1.038.5 1,291.9 1.589.2 1,949.3 2.369.7 2,819.1 2,819.1 5,615.8 Less: Undrawn Loans 476.0 440.5 609.6 791.4 969.9 1.119.4 1.231.4 1,231.4 1,406.9 -- --Withdrawn Loans 536.0 598.0 682.3 797.8 979.4 1,250.3 1,587.7 1.587.7 4,208.9 Capital d 543.7 544.3 544.3 674.3 804.3 934.3 1.064.3 1,064.3 1.194.3 Accumulated Earnings 203.8 227.3 251.2 280.6 315.9 359.2 416.1 416.1 841.4

TOTAL LIABILITIES AND CAPITAL 1.813.1 1.987.9 2.346.1 2.841.0 3,432.7 4.118.0 4.866.5 4,866.5 9,038.8

Actual Estimate Proiected Cumulative 79-83 1984 1985 1986 1987 1988 1989 85-89 90-94

INCOME STATEMENT

Operating Income e 537.0 148.9 165.0 198.7 240.0 289.9 347.7 1,241.3 2,821.4 Less: Administrative Expenses 164.0 46.7 54.0 65.6 72.9 80.9 87.9 361.3 590.1

Charges on Borrowings 190.3 48.6 59.2 73.6 90.2 114.5 146.4 483.9 1,436.2

Income from Operations 182.7 53.6 51.8 59.5 76.9 94.5 113.4 396.1 795.1 Provisions for Losses 86.3 30.0 28.0 30.1 41.6 51.2 56.6 207.5 369.7 Recovery of Write-offs 7.6

NET INCOME 104.0 23.6 23.8 29.4 35.3 43.3 56.8 188.6 425.4

SOURCE AND APPUCATION OF FUNDS

Net Income 104.0 23.6 23.8 29.4 35.3 43.3 56.8 188.6 425.4 Provisions for Losses 86.3 30.0 28.0 30.1 41.6 51.2 56.6 207.5 369.7 Receipts from Capital Subscriptions 399.9 0.5 0.0 130.0 130.0 130.0 130.0 520.0 130.0

IV Drawings on Borrowings 205.8 95.6 160.8 168.3 251.6 350.5 438.1 1,369.3 3,594.3 00 Repayments to IFC 441.0 120.0 140.0 172.1 200.1 230.3 269.3 1,011.8 2,418.3 0-

Receipts from Portfolio Sales 23.7 9.0 10.0 14.4 17.3 20.9 25.7 88.3 179.1 Calls on Participants 874.8 150.0 200.0 256.0 365.0 469.0 581.0 1.871.0 4,188.0

TOTAL SOURCES 2,135.5 428.7 562.6 800.3 1,040.9 1,295.2 1,557.5 5,256.5 11,304.8

Disbursements: For IFC 1,134.4 250.0 300.0 491.6 606.1 746.5 876.0 3,020.2 6,143.4 For Participants 874.8 150.0 200.0 256.0 365.0 469.0 581.0 1,871.0 4,188.0

Repayments to IBRD and Others 127.9 33.6 76.5 52.7 69.8 79.7 100.5 379.2 973.4 Increase in Net Accruals -2.4 1.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0

TOTAL APPLICA nONS 2,134.7 435.1 576.5 800.3 1,040.9 1,295.2 1,557.5 5,270.4 11,304.8

Increase (Decrease) in Cash 0.8 -6.4 - 13.9 0.0 0.0 0.0 0.0 - 13.9 0.0 Cash and Securities at Year-end 26.3 19.9 6.0 6.0 6.0 6.0 6.0 6.0 6.0

MEMO ITEMS

Number of Investments Approved! 282 60 76 83 88 92 96 435 534 Gross Approvals During Year g 3,373 650 900 1,260 1,500 1,750 1,970 7,380 12,930 Less: Original Participation Approved 1,446 250 3\0 520 620 720 8\0 2,980 5,330

--IFC Net Approvals 1,927 400 590 740 880 1,030 1,160 4,400 7,600

N 00 -.I

Gross Disbursements h

Borrowing by IFC Debt to Equity Ratio Interest Coverage Ratio

a Projections assume:

2,008 635 1.4 1.5

400 200 1.4 1.5

500 330 1.6 1.4

748 350 1.7

1.4

971 430 1.7 1.4

1,215 500 1.8 1.4

1,457 550 1.9 1.4

4,891 2,160

1.9 1.4

10,332 3,770

2.8 1.3

-Average real growth rate in IFC net investments of 7% per annum in the projection period FY85-89 as compared to the actual results of the first Five­Year Program FY79-83. The average real growth rate in IFC net investments for the period FY90-94 is assumed at 5% per annum.

--Commitment deflator derived from disbursement deflator (see footnote h) taking into account the normal lag between commitments and disbursements.

-Equity and quasi equity investments account for about 20% of net IFC commitments. -Driginal participations amount to about 70% of net commitments. -A positive spread of 2% between lending rates and borrowing costs. -Borrowings to: i) provide matched funding for a portion of IFC's loan investments (this proportion varies according to the currencies of investments

and the expected net cash inflow for such currencies) and ii) provide sufficient liquidity balance to cover between 6 to 12 months of net cash requirements for US dollar operations. For details of borrowing policies, see IFClR83-113 dated December I, 1983.

-Terms of lending for new investments are 4 years grace, 12 years final maturity and equal semiannual repayments of principal. -Terms of new borrowing are 4 years grace, 15 years final maturity and equal semiannual repayments of principal. -Dividends on equity investments commence two years after commitment and yields increase gradually with the age of the investments. -Equity investment sales commence four years after commitment. Equity sale rates and associated capital gain rates increased gradually with the age of

the investments. b Including quasi equity investments. C Provision for losses is projected at 2.5% of loan disbursements, 15% of regular equity disbursements, 7% of quasi equity disbursements and 75% of

equity disbursements for oil exploration investments. d Payments for a capital increase are assumed to total $650 million over the period FY86-90 in annual installments of $130 million each. e Including realized capital gains. Allowance is projected for possible loss of income resulting from investment losses by deducting the income on 50% of

the loss provisions. f The number of IFC operations excludes exercise of preemptive rights by IFC under $250,000. g Before cancellation and including original participation. h The disbursement deflator translates disbursements into constant FY84 purchasing power. The deflator is based on indices of manufactured exports from

developed market economies to developing countries. In these financial projections, the changes in index assumed are 5.7% for FY85, 8.5% for FY86, 9.0% p.a. for FY87-88 and 8.2% for FY89.

APPENDIX B

INTERNATIONAL FINANCE CORPORATION Distribution of Capital Stock

Member

Afghanistan Argentina Australia Austria Bangladesh Barbados Belgium Belize Bolivia Botswana Brazil Burma Burundi Cameroon Canada Chile China Colombia Congo, People's Republic of the Costa Rica Cyprus Denmark Djibouti Dominica Dominican Republic Ecuador Egypt. Arab Republic of EI Salvador Ethiopia Fiji Finland France Gabon Gambia, The Germany, Federal Republic of Ghana Greece Grenada Guatemala Guinea

Number of Shares held on March 31. 1984

288

111 9,821

12,191 5,085 2.328

93 13,723

26 490

29 10,169

666 100 490

20,952 2,328 4,154 2,083

67 245 551

4,779 21 II

306 674

3,124 11 33 74

4,043 29,528

429 35

33,204 1,306 1,777

21 306 134

Number of Shares Offered

133 11.730 14,560 6,073 2.780

111 16,390

31 585

35 12,145

795 119 585

25,024 2,780 4,961 2,488

80 293 658

5,708 25 13

365 805

3,731 13 39 88

4,829 35,266

512 42

39,657 1,560 2,122

25 365 160

Number of Shares held on Number of Member March 31, 1984 Shares Offered

Guinea-Bissau 18 22 Guyana 368 440 Haiti 306 365 Honduras 184 220 Iceland II 13 India 19,788 23,633 Indonesia 7,351 8,780 Iran, Islamic Republic of 372 444 Iraq 67 80 Ireland 332 397 Israel 550 657 Italy 19,114 22,828 Ivory Coast 913 1,090 Jamaica 1,103 1,317 Japan 25,546 30,510 Jordan 429 512 Kenya 1,041 1,243 Korea, Republic of 2,450 2,926 Kuwait 4,533 5,414 Lebanon 50 60 Lesotho 18 22 Liberia 83 99 Libya 55 66 Luxembourg 551 658 Madagascar III 133 Malawi 368 440 Malaysia 3,921 4,683 Maldives 4 5 Mali 116 139 Mauritania 55 66 Mauritius 429 512 Mexico 6,004 7,171 Morocco 2,328 2,780 Nepal 306 365 Netherlands 14,458 17,268 New Zealand 923 1,102 Nicaragua 184 220 Niger 67 80 Nigeria 5,575 6,658 Norway 4,533 5,414 Oman 306 365 Pakistan 4,411 5,268 Panama 344 411

289

Number of Shares held on Number of Member March 31. 1984 Shares Offered

Papua New Guinea 490 585 Paraguay 123 147 Peru 1,777 2,122 Philippines 3,247 3,878 Portugal 2,144 2,561 Rwanda 306 365 St. Lucia 19 23 Saudi Arabia 9,251 11,049 Senegal 707 844 Seychelles 7 8 Sierra Leone 83 99 Singapore 177 211 Solomon Islands 11 13 Somalia 83 99 South Africa 4,108 4,906 Spain 6,004 7,171 Sri Lanka 1,838 2,195 Sudan III 133 Swaziland 184 220 Sweden 6,923 8,268 Syrian Arab Republic 72 86 Tanzania 724 865 Thailand 2,818 3,366 Togo 368 440 Trinidad and Tobago 1,059 1,265 Tunisia 919 1,098 Turkey 3,063 3,658 Uganda 735 878 United Arab Emirates 1,838 2,195 United Kingdom 37,900 45,265 United States 146,661 175,162 Upper Volta 245 293 Uruguay 919 1,098 Vanuatu 25 30 Venezuela 7,106 8,487 Viet Nam 166 198 Western Samoa 9 11 Yemen Arab Republic 184 220 Yugoslavia 2,879 3,439 Zaire 1,929 2,304 Zambia 1,286 1,536 Zimbabwe 546 652

TOTAL 544,238 650,000

290

Sir:

REPORT OF THE CHAIRMAN OF THE DEVELOPMENT COMMITTEE

September 29, 1986

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 1985-June 1986. The report is presented in compliance with Section 5(i) of the Bank Board of Governors Resolution No. 294 and the Fund Board of Gover­nors Resolution No. 29-9, adopted on October 2, 1974.

Sincerely yours,

Ghulam Ishaq Khan

291

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 1985-June 1986)

I. INTRODUCTION

1. This is the twelfth annual report of the Joint Minist~rial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries (Development Committee). It covers the period from July 1985 to June 1986. 2. During the year under review the Committee addressed a range of current international economic issues facing the developing countries. There were two meetings during the year under the chairmanship of H.E. Ghulam Ishaq Khan, Chairman of the Senate of Pakistan. The first was held in Seoul on October 7, 1985 at the time of the Annual Meetings of the Boards of Governors of the Bank and the Fund; the second meeting took place in Washington on April 10-11, 1986. Both meetings followed the new format adopted in April 1985 which reduced the length of the plenary session and allowed more time for discussion in an informal session between Members. A joint luncheon for members of the Development Committee and the Interim Committee, held in April 1986, provided an occasion for a discussion on matters of common interest. 3. In the context of the new format, observers were asked to present their statements in advance so that they could be sent to Members. Some observers have done so, others made their papers available at the meeting. During the year, the Committee received documents from the President of the African Development Bank, the Commonwealth Secretary General, the Director General of GAIT, the President ofthe Inter-American Development Bank, the President of the Interna­tional Fund for Agricultural Development, the Vice-President of the Islamic Development Bank, the Director General of the OPEC Fund for International Development, the Secretary-General of UNCT AD, the United Nations and the State Secretary for Switzerland. 4. The major subjects on which the Committee focused attention in the year were the World Bank's lending program and resource requirements, the resource problems of Sub-Saharan Africa, a strategy for sustained growth of the heavily indebted middle-income developing countries, and issues arising from the Task Force report on concessional flows. Other subjects addressed were the eighth re­plenishment of the International Development Association (IDA), the status of the Convention for a Multilateral Investment Guarantee Agency (MIGA), develop­ments on international trade issues and reports by the Group of Ten (G-IO) and Group of Twenty-Four (G-24) on international monetary reform.

292

II. GLOBAL ECONOMIC SITUATION AND PROSPECTS FOR THE DEVELOPING COUNTRIES

5. The Committee discussed the major international economic issues against the background of the Bank's World Development Report 1985, the Fund' s World Economic Outlook and the opening statements by the Chairman of the Committee. The Managing Director of the International Monetary Fund reported to the Committee on discussions in the Interim Committee on the world economic outlook. 6. In October 1985. the Managing Director noted progress in the world eco­nomic situation as reflected in a decline in the rate of inflation and nominal interest rates, efforts to secure a better adjustment of the major exchange rates and a reduction in the balance-of-payments deficits of the developing countries. Never­theless, uncertainties in the world economic outlook remained as indicated by uncertain growth prospects in the industrial countries. slowing down in growth of world trade, weakness in commodity prices, high real interest rates and the reluctance of commercial banks to resume lending. Thus. achievement of devel­opment objectives along with the servicing of debt in the face of growing protectionism continued to be difficult. 7. At the April 1986 meeting, the Managing Director reported that develop­ments in the world situation had, on the whole. generally improved the outlook for sustainable growth. Several favorable developments were referred to: the adjust­ment in exchange rates of the major currencies, the continued decline in interest rates. the reduction in inflation and the sharp fall in oil prices. The decline in oil prices from 1985 to 1986 involving a large transfer of income from oil-exporting developing countries to the industrial world. presented opportunities which should be seized by the industrial countries to promote non-inflationary growth. The Managing Director referred to the emphasis placed in the Interim Committee on the decline in interest rates and improvement in managing fiscal and inflationary pressures which would particularly assist the situation of the indebted countries. The exceptionally difficult economic situation which continued to be faced by the low-income countries in Africa was particularly noted. 8. Since April 1985 the Chairman has circulated in advance to Members an opening statement aimed at guiding the discussions in the Committee. In present­ing his views on the prospects for the developing countries in his statement in October 1985. the Chairman pointed to the impact of the slowing down in economic activity in the industrial countries on economic growth in the developing world, also noting the volatility in exchange rates, increased protectionism and the decline in commodity prices. The special problems of Sub-Saharan Africa. par­ticularly with the decline in official development assistance (ODA). were empha­sized. The particular difficulties of the heavily indebted countries of Latin Amer­ica in the face of declining commercial flows and. protectionist barriers against manufactured exports. were also highlighted. The Chairman recommended a framework for adjustment based on a cooperative effort from the industrial

293

countries to open their trading systems and increase financial flows, from the developing countries with a continuation of the adjustment process in order to achieve medium-term economic growth; from the multilateral financial and devel­opment institutions an appropriate approach to advice on structural reform and from the commercial banks a revival in voluntary lending. 9. In April 1986, the Chairman stressed that on balance the international en­vironment in 1985 was less supportive of the developing countries and adjustment in the indebted countries' than a year before as a result of a variety of adverse factors. These included a slowdown in OECD countries' growth rates, a slacken­ing in world trade, increased protectionism, persistence of high real rates of interest, the continued slump in commodity prices, further decline in financial flows to the developing countries from commercial banking and private sources and the dramatic decline in oil prices with its impact on the major oil exporting countries. The projected growth in developing countries in 1985-95 was expected to average well below the rate attained in 1973-80, and ~ntailed difficulties in finding a long-term solution to the debt problem and alleviation of poverty in Sub­Saharan Africa. The Chairman noted, however, the encouraging developments in cooperation among the major industrial countries (Group of Five) on exchange rates in the Plaza Agreement and the recognition given at the October 1985 meeting of the Committee, that a process of sustained growth in the developing countries was essential for a solution to the debt problem. The Chairman also appealed to the industrial countries gaining from the decline in the oil prices to be more generous with assistance to the developing world.

III. CURRENT DEVELOPMENT ISSUES OF MAJOR FOCUS DURING THE YEAR JULY 1985 TO JUNE 1986

A. World Bank's Lending Program and Resource Requirements

10. A major subject on which the Committee concentrated its attention during the year was the World Bank's lending program and its resource requirements. In the April 1985 meeting, the stage for these discussions had been set by the Committee's consideration of the subject of the future role of the World Bank. The Committee had then endorsed the broad consensus emerging from a year-long dis­cussion in the Bank's Board. In calling for an expanded lending program by the Bank in light of agreement on the qualitative aspects of the future role of the Bank, the Committee had requested the Bank's management to submit five-year projec­tions of Bank lending in a report to its October 1985 meeting. This report should also examine the implications of the lending program in terms of resources with a view to seeking an early consensus on the future financial requirements of the Bank, including the possibility of a capital increase. II . At the Seoul meeting in October 1985, the proposals by Bank management were presented to the Committee. These proposals involved a projected lending

294

.---------------.... --

program of US$40-45 billion over the three-year period (FY86-88) rising to an annual level of between US$16.5 billion and US$20 billion by the end of the five­year period (FY90). The projections implied a 6-8 percent increase in nominal Bank commitments in the low case and 9-12 percent in the high case as compared to a growth rate in the past decade (FY75-85) of 10.2 percent. It was noted that the Bank management had started discussions with the Executive Board on the resource and borrowing implications for the Bank. In this connection, it was reported that the additional capital required to support the upper range of the Bank lending proposed for FY90 would be US$53 billion on current repayment terms, while, if the lower end of the lending range was adopted, the comparative figure would fall to between US$31-38 billion. Other factors to be considered are the share of fast disbursing lending, possible changes in repayment terms of Bank loans and the prospects for expanding borrowing requirements associated with the proposed range of lending. 12. After careful consideration of a report by the World Bank President on lending prospects and their implications for future financial requirements of its October 1985 meeting, the Committee gave its support for an expanded role for the Bank to assist countries in adjusting to the external economic environment. To help deal with the problem of the heavily indebted countries, a consensus was reached that sustained economic growth was necessary in all countries, and that in this situation the World Bank had an increasingly important role to play. The Committee accordingly expressed strong support for a substantial expansion in the Bank's lending program in order that it could be more responsive to the needs of its borrowers and agreed that there should be no constraint by inadequacy of capital or lack of borrowing authority to increase quality lending by the Bank in meeting future demand. The Bank's management was urged by the Committee to com­mence discussions with the Executive Board on proposals that would enable the Bank to meet its resource requirements over the next five years, including the possibility of a general capital increase (GCI) and to report on this matter at the April 1986 meeting of the Committee. 13. The discussion on the World Bank's lending program and resource require­ments continued to be pursued at the April 1986 meeting based on the Bank Presi­dent's Report to the Committee which covered the agenda item, the World Bank's lending program and resource requirements, and a Bank staff paper on the "Achievement of Sustained Growth in Middle-Income Countries Encountering Debt Servicing Difficulties and Its Impact on the World Bank's Overall Lending Program and Resource Requirements. " The Bank paper indicated that the man­agement of the Bank proposed to increase the upper limit in the range of Bank lending over the period FY86-88 to US$50 billion, as compared with an upper limit of US$45 billion proposed in October 1985. Proposals for expanded lending by the Bank followed on a revision of the medium-term strategies for the heavily indebted countries and a revised assessment of the overall requirements of its borrowing member countries. The new planning assumptions also proposed a wider range of possible outcomes for FY90 from US$16.5-21.5 billion.

295

14. The Committee at its April 1986 meeting reviewed the report by the Bank noting the increased projections of lending for FY86-88 and reaffirmed strong support for the Bank's lending program. In particular, the Committee welcomed steps taken by the Bank to assist the heavily indebted countries and the prospect that in 1986 lending for adjustment purposes to these countries would increase substantially. The consensus reached in Seoul that the Bank should be uncon­strained by lack of capital or borrowing authority in meeting requirements for quality lending was reaffirmed. Note was taken of the fact that Bank lending for FY87 might possibly exceed the level of lending that could be sustained by the current levels of capital. In welcoming the discussions which were scheduled in the Bank Board on issues relating to the general capital increase, the Members agreed that the Executive Board of the Bank should come to an early resolution so that agreement on a general capital increase could be reached quickly. The Committee underlined the importance of continuing to monitor closely progress in meeting the capital requirements of the Bank and the need to ensure adequate capital. The World Bank was requested to prepare a progress report on their work on the Bank's lending program and the adequacy of its capital for discussion at the September 1986 meeting.

B. The Resource Problems of Sub-Saharan Africa

15. The Committee continued to pay special attention to the difficult economic situation of Sub-Saharan African countries. Following on the creation of the Special Facility for Sub-Saharan Africa by the World Bank on July I, 1985 in response to a request by the Committee at its September 1984 meeting, progress in providing contributions to the Special Facility was kept under review. It was noted with satisfaction that some US$1.2 billion had been contributed to the Special Facility for Sub-Saharan Africa when it became effective and that in April 1986 the Special Facility stood at US$1.6 billion with widespread support from the donor community. At its October 1985 meeting, the Committee took particular note of the severe debt situation of Sub-Saharan Africa and its continued resource problems. The use of IMF Trust Fund reflows was seen as making a contribution to a solution of these problems. The World Bank and the Fund were requested to strengthen their cooperation in policy advice to Sub-Saharan African countries with a view to the alleviation of poverty and the promotion of growth in the region. The World Bank was asked to prepare a study on the resource problems of Sub­Saharan Africa to be considered at the April 1986 meeting. 16. A report entitled, "Financing Adjustment with Growth in Sub-Saharan Africa, 1986-90," prepared by the World Bank was reviewed by the April 1986 meeting of the Committee. The report stressed that medium-term programs of growth-oriented adjustment are essential if Africa's decline is to be reversed. These programs of policy reform, which have been adopted by a significant number of African Governments, need to be supported by adequate external capital flows. Note was particularly taken of the fact that low-income Africa is

296

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poorer today than in 1960 with a fall in per capita income in the region between 1980 and 1986 of about 12 percent. The sharp increase in debt service payments especially of some low-income African countries with acute debt difficulties created severe problems. The minimum objective should be a growth rate of at least 3-4 percent a year by 1990 and concessiona1 flows of US$35.3 billion a year between 1986 and 1990. Taking into account the flow of other resources to Africa, there was likely to be a resource gap of US$2.5 billion a year to be filled by addi­tional concessional flows and debt rescheduling. Bilateral and multilateral agen­cies needed to act in a concerted fashion to encourage and support the efforts of African governments. 17. In reviewing the World Bank' s report, the Committee in April 1986 agreed on the need for concerted action to tackle the region's problems. The industrial countries were urged to exert their best efforts to close the gap in concessional flows to countries in the region undertaking significant reform programs. The Committee also emphasized the need for strengthening donor aid coordination to improve the effectiveness of aid flows to Sub-Saharan Africa. The Bank was asked to lead in working closely with interested governments as well as with the UNDP. OECDIDAC, the European Community and other concerned parties in improving aid coordination and to report back to the next meeting on progress achieved, in­cluding progress on the establishment of improved monitoring mechanisms. A request was also made by the Committee for a study on the market prospects of raw materials to be considered at a future meeting of the Committee.

C. Strategy for Sustained Growth in the Middle Income Heavily Indebted Developing Countries

18. In their discussions in October 1985. the Committee concluded that despite the progress made by many heavily indebted countries in their adjustment efforts, it was essential that all countries needed to move as quickly as possible toward sus­tained economic growth. A number of elements were noted by the Committee to achieve this objective. including sustained growth in the industrial countries, open markets. stable exchange rates, lower interest rates, comprehensive structural and development policies. as well as provision of net new resources by commercial banks and greater participation by the multilateral development banks and the IMF. In this context. the Committee came to the conclusion that the World Bank had an increasingly important role to play in the restoration of growth in the developing countries. The Bank's management was requested to prepare a report for the April 1986 meeting of the Committee on how sustained growth could best be achieved by these countries. A Bank staff paper entitled. "Achievement of Sus­tained Growth in Middle-Income Countries Encountering Debt Servicing Diffi­culties and Its Impact on the World Bank's Overall Lending Program and Resource Requirements." was accordingly considered by the April 1986 meeting of the Committee.

297

19. The Bank paper outlined the adjustment and growth packages which needed to be adopted by the developing countries and supported by the complementary action by industrialized countries. These adjustments and growth packages should include attention to exchange rates, appropriate pricing policies, rationalization of the public sector, encouragement of domestic and foreign investment. On the part of the industrial countries essential elements were, an environment of sustainable growth, increases in commodity prices, improvements in terms of trade, and a lowering in real rates of interest. The consensus reached at the Committee's meeting in October 1985 on the importance of concerted action by all the major parties-the indebted countries, the industrial countries, the commercial banks, and the multilateral financial institutions, was reiterated. It concluded that even with substantial policy reforms in the developing countries, large amounts of net flows of capital estimated to be about US$14-21 billion annually, would be required to restore growth and creditworthiness of the developing countries over a five-year period. The paper pointed out that the initiative by the U. S. Secretary of the Treasury Baker in Seoul in October 1985 could provide a strong stimulus in attracting external flows for any financing program in which the commercial banks would be a critical component. The World Bank, in association with the IMF, had an important role in helping to establish and implement domestic policy reform programs needed to attract lenders and investors. 20. The general approach set out in the World Bank's paper for achieving sus­tained growth in the heavily indebted countries was endorsed by the Committee at its April 1986 meeting. All the major parties-the indebted countries, the indus­trial countries, the commercial banks and international and financial development institutions-were urged to redouble their efforts for the design and implementa­tion of medium-term growth-oriented programs. There was also agreement that a lasting solution to the debt problem required not only adjustment and growth on the part of the developing countries but a range of policies in the industrial countries as well, which would promote expansion in international trade. greater stability in exchange markets, lower real interest rates, improvements in com­modity prices and increased external capital flows. The Committee emphasized the need for a rollback in protectionism. 21. As a source of external financing, the Committee particularly drew attention to the importance of external credit agencies (ECAs) and welcomed the intention of the World Bank to work toward timely and adequate support by ECAs in countries undertaking adjustment and growth programs. Commercial bank flows could also be encouraged to assist the medium-term programs if creditor govern­ments were not unduly restrictive in regulating the banks which would inhibit such flows. The necessity for greater flows of foreign investment to support such pro­grams was also noted. While stressing the need to avoid cross-conditionality and maintain their respective areas of competence, a strengthening in the collaborative roles of the World Bank and the IMF in the design, financing and monitoring of growth-oriented adjustment programs was re-emphasized by the Committee as

298

important in helping build confidence in the steps being taken by the heavily indebted countries to restore strength to their economies.

D. Task Force Report on Concessional Flows

22. The report prepared by the Task Force on Concessional Flows, a group set up by the Committee in May 1982, was presented to the October 1985 meeting of the Committee by its Chairman, Mr. John P. Lewis. The Task Force comprised representatives from 18 developing and industrialized countries. The report was discussed by the Committee under the agenda item "Issues Arising from Recom­mendations of the Task Force on Concessional Flows. " The Task Force was given a broad mandate to study the problems that affect the volume, quality, and effective use of concessional flows, as well as the effect of such flows in the developing countries and on international economic developments. The report reached three broad conclusions. On aid effectiveness-that most aid had been productive and helpful to development although there was room for improveri;tent. On public support for aid-this varied between countries but did not appear to have weakened in recent years. There was a need for political leadership to playa role in strengthening support for aid. And, as regards the volume of aid, donor governments should exert redoubled efforts to increase aid flows to low-income countries, as a matter of urgency, particularly as official development assistance (ODA) is forecast to grow by only about 2 percent annually for the rest of the decade, as compared with 6 percent in the 1970s. This implied that available resources of ODA needed to be used more effectively. 23. In expressing appreciation for the report and the conclusions reached on the critical issues, the Committee urged that the report and its suggestions should be taken into account by all governments concerned. The Committee asked the World Bank to take the lead in following up on the Task Force's conclusions and to report to future Development Committee meetings on the progress achieved. At its April 1986 meeting, the Committee requested the World Bank to prepare a report for its next meeting on the volume of ODA flows forecast for the period 1986-90.

IV. OTHER DEVELOPMENT ISSUES ADDRESSED BY THE COMMITTEE

A. IDA 8

24. A progress report on the status of the eighth replenishment of IDA was made to the October 1985 meeting of the Committee. A Bank report on IDA 8 referred to the request made at the meeting of IDA Deputies in January 1984 for a mid-term review of IDA 7. In this context, the Committee's attention was drawn to the Task Force Report on Concessiona1 Flows indicating the clear need for increased flows of concessional assistance. Following the meeting of the IDA Deputies at Seoul,

299

Korea on October 5, 1985, the Chairman of the IDA Deputies, Mr. Moeen Qureshi, Senior Vice President, Finance, in the World Bank made a report on that meeting to the Members of the Committee. The Committee urged that a successful and adequate replenishment of IDA should be achieved by September 1986. A further progress report was made to the Committee by the Chairman of the IDA Deputies at its April 1986 meeting on current negotiations for the replenishment of IDA. Virtually all Members of the Committee hoped for an IDA replenishment of some US$12 billion which would maintain in real terms the concessionary resources now available through IDA 7 and the Special Facility for Sub-Saharan Africa and enable IDA to continue its role in poverty alleviation, economic development, and to provide necessary support, in conjunction with the IMF, to IDA-eligible countries undertaking growth-oriented adjustment programs. The Committee reiterated its hope that the negotiations for IDA 8 should be concluded before its next meeting in September with the reaching of a consensus on out­standing issues such as fair-burden sharing and the equitable allocation of resources.

B. Structural Adjustment Facility

25. The Committee at its April 1986 meeting welcomed the IMF decision to establish a Structural Adjustment Facility (SAF) to provide concessional assistance to low-income countries with protracted balance-of-payments problems in support of medium-term macroeconomic and structural adjustment programs. While expressing the hope that additional bilateral and multilateral concessional assistance would complement Structural Adjustment Facility resources in support ofthose medium-term programs, the importance of close coordination by the Fund and the World Bank in the formulation of a comprehensive medium-term policy framework was underlined. The Committee reaffirmed that arrangements to complement SAF would not adversely affect the availability of concessional assistance for low-income countries not utilizing Trust Fund reflows.

C. International Trade Issues

26. As in previous meetings, Mr. Dunkel, the Director General of GAIT, was invited to inform the Committee of current developments on international trade issues. 27. At the October 1985 meeting, the Committee welcomed the agreements reached in the GAIT concerning preparations for a proposed round of multilateral trade negotiations. The Committee also renewed its call for governments to resist protectionism. The Committee was further advised at its April 1986 meeting by the GAIT Director General of progress made in GAIT's Preparatory Committee in defining the agenda for the proposed new round of trade negotiations. The Committee encouraged governments to launch the new round at an early date and

300

expressed the hope that the contracting parties would take into account trade liberalization measures adopted in developing countries' programs in the context oftrade negotiations within the GATT framework. The Director General of GATT was requested to continue to keep the Committee informed of further develop­ments.

D. Group ofTen/Group of Twenty-Four Reports on International Monetary Reform

28. At the October 1985 meeting, the Committee took note of the preliminary discussions which had taken place in the Interim Committee on the reports on the functioning of the international monetary system by the Group of Ten (G-I 0) and Group of Twenty-Four (G-24). It welcomed the commitment of the Chairman of the Interim Committee to communicate with the Chairman of the Development Committee on possible arrangements for cooperation on matters relating to devel­opment arising in these reports. At the April 1986 meeting of the Interim Commit­tee, the Chairman of the Development Committee presented his views in a state­ment to the Interim Committee on the developmental aspects of issues in the G-I 0 and G-24 reports. Chairman Khan noted that the developmental concerns of mone­tary reform are not peripheral to, but constitute an integral part of, the mainstream analysis on international monetary reform issues. 29. At the April 1986 meeting of the Development Committee, the discussions in the Interim Committee on the G-lO and G-24 reports were noted. Members requested the Chairman, taking note of his intervention in the April meeting of the Interim Committee, to report to the September 1986 meeting of the Committee, after consultations with the Chairman of the Interim Committee, his views on the modalities of cooperative arrangements for improvement in the financial and monetary system's impact on growth and development.

E. Multilateral Investment Guarantee Agency (MIGA)

30. At its meeting in April 1985, the Committee encouraged the Bank to hold further discussions with governments on the creation of MIG A with a view to reaching an understanding among governments. Progress in preparing a draft Convention for MIGA was noted at the Committee's meeting in October 1985 with the transmittal of the Convention to the Boards of Governors of the World Bank recommending that it now be opened for signature by interested govern­ments. 31. In April 1986, the Committee discussed the role of MIGA in the context of the need for greater flows of foreign investment to developing countries and noted that the Convention had now been signed by 19 governments, including 4 industrial countries. Other interested governments were encouraged by the Com­mittee to ratify the Convention as soon as possible so that it could be put into force.

301

l.

2.

3.

4.

5.

6.

7.

8.

9.

10.

ANNEXA

Members of the Committee

Member

His Excellency Sheikh Mohammed Abalkhail Minister of Finance and National

Economy Saudi Arabia

The Honorable James A. Baker III Secretary of the Treasury United States

His Excellency Edouard Balladur Minister of Economy. Finance and

Privatization France

His Excellency Mohamed Berrada Minister of Finance Morocco

His Excellency DAIM Zainuddin Minister of Finance Malaysia

His Excellency Uffe Ellemann-Jensen Minister of Foreign Affairs Denmark

His Excellency Mark Eyskens Minister of Finance Belgium

The Honorable Giovanni Goria Minister of the Treasury Italy

His Excellency Ghulam Ishaq Khan I Chairman of the Senate Pakistan

The Honourable Paul J. Keating, M.P. Treasurer Australia

Countries

Saudi Arabia

United States

France

Afghanistan, Algeria, Ghana, Islamic Republic of Iran. Morocco, Tunisia

Burma, Fiji, Indonesia, Lao People's Democratic Republic. Malaysia. Nepal, Singapore, Thailand, Viet Nam. (Tonga)

Denmark. Finland, Iceland, Norway, Sweden

Austria. Belgium, Hungary, Luxembourg. Turkey

Greece, Italy, Malta, Portugal

Bahrain, Iraq, Jordan, Kuwait, Lebanon, Libya, Maldives, Oman, Pakistan, Qatar, Somalia, Syrian Arab Republic. United Arab Emirates, Yemen Arab Republic, People's Democratic Republic of Yemen

Australia, Korea, New Zealand. Papua New Guinea, Philippines, Seychelles, Solomon Islands. Vanuatu, Western Samoa

IMr. Faisal A. Al-Khaled. Director-General. Kuwait Fund/or Arab Economic Development. Kuwait. served as Alternate Member to permit His Excellency Ghulam Ishaq Khan to serve as Chairman at the October 7.1985 Meeting and Dr. Moinuddin 8aqai. Secretary. Planning Division. Pakistan served as Alternate Member to permit His Excellency Ghulam 1shaq Khan to serve as Chairman at the April 10-11. 1986 Meeting.

302

Member

II. His Excellency Abdoulaye Kone Minister of Economy and Finance Cote d'Ivoire

12. The Right Honourable Nigel Lawson, M.P. Chancellor of the Exchequer United Kingdom

13. The Honourable Chu S.P. Okongwu Minister of Finance Nigeria

14. His Excellency H.O. Ruding Minister of Finance Netherlands

15. The Honourable Vishwanath Pratap Singh Minister of Finance India

16. His Excellency Carlos Solchaga C. Minister of Economy and Finance Spain

17. His Excellency Francisco X. Swett2

Minister of Finance and Public Credit Ecuador

18. His Excellency Noboru Takeshita Minister of Finance Japan

19. His Excellency WANG Bingqian State Counselor and Minister of

Finance China

20. His Excellency Juergen Warnke Federal Minister for Economic

Cooperation Germany

2l. The Honourable Michael H. Wilson Minister of Finance Canada

22. His Excellency Ricardo Zerbino Cavajani Minister of Economy and Finance Uruguay

Countries

Benin, Burkina Faso. Cameroon, Cape Verde. Cen­tral African Republic, Chad, Comoros, Congo, Cote d'Ivoire. Djibouti. Equatorial Guinea, Gabon, Guinea-Bissau, Madagascar, Mali, Mauritania, Mauritius, Niger. Rwanda, Sao Tome and Principe, Senegal, Togo. Zaire

United Kingdom

Botswana. Burundi, Ethiopia, The Gambia, Guinea, Kenya, Lesotho, Liberia, Malawi, Mozambique, Nigeria, Sierra Leone, Sudan, Swaziland. Tanzania, Uganda, Zambia, Zimbabwe

Cyprus, Israel, Netherlands, Romania, Yugoslavia

Bangladesh, Bhutan. India, Sri Lanka

Costa Rica, EI Salvador, Guatemala, Honduras, Mexico, Nicaragua, Spain, Venezuela

Brazil, Colombia, Dominican Republic, Ecuador, Guyana, Haiti, Panama, Suriname, Trinidad and Tobago

Japan

China

Germany

Antigua and Barbuda, Bahamas, Barbados, Belize, Canada, Dominica, Grenada, Ireland, Jamaica, St. Christopher and Nevis, St. Lucia, St. Vincent

Argentina, Bolivia. Chile, Paraguay, Peru, Uruguay

2H is Excellency Alberto Dahik became Minister of Finance and Public Credit of Ecuador in June /986.

303

Observers to the Committee

African Development Bank Arab Bank for Economic Development in Africa Arab Fund for Economic and Social Development Asian Development Bank Commission of the European Communities Commonwealth Secretariat Development Assistance Committee European Investment Bank General Agreement on Tariffs and Trade Inter-American Development Bank International Fund for Agricultural Development Islamic Development Bank OPEC Fund for International Development Organisation for Economic Cooperation and Development Switzerland United Nations United Nations Conference on Trade and Development United Nations Development Programme

ANNEXB

ANNEXC

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).

304

Agenda of Development Committee Meeting October 7, 1985

ANNEXD

I. IBRD Lending Prospects and their Implications for Future Financial Require­ments

2. Issues Arising from Recommendations of the Task Force on Concessional Flows

3. Progress Reports

4. Annual Report of the Committee

5. Other Business

Agenda of Development Committee Meeting April 10 and 11, 1986

I. Achievement of substained growth in the middle-income countries encounter­ing debt-service difficulties and its impact on the World Bank's overall lending program and its future resource requirements

2. The resource problems of Sub-Saharan Africa

Progress Reports:

-The World Bank's lending program and resource requirements -Eighth replenishment of IDA. Oral Report by the Chairman of IDA Deputies -Follow-up on the conclusions reached by the Task Force on Concessional

Flows -Report on the Convention establishing the Multilateral Investment Guaran­

tee Agency (MIGA).

305

ACCREDITED MEMBERS OF DELEGATIONS AT 1986 ANNUAL MEETINGS

Afghanistan

Governor Mohamad Kabir

Alternate Governor Rajab Ali Yagana*

AIgeria<>

Governor Abdelaziz Khellef

Alternate Governor M'hamed Oualitsene*

Advisers Mustapha Achour Fawzi Benmalek Cherif Chikhi Mourad Khellaf Sid Amar Lazli Ferhat Lounes Mohamed Sahnoun Mahfoud Zerouta

Antigua and Barbuda<>#

Alternate Governor Ludolph Brown

Argentina

Governor Jose Luis Machinea

Alternate Governor Juan Fernando Sommer

Advisers Ubaldo Jose Aguirre Horacio A. Alonso Hugo Arbarello Enrique E. Ariotti Raul Baglini Felix Alberto Camarasa + + Enrique Candioti Carlos Alberto Carballo Pablo Maron Challu Alfredo V. Chiaradia Jorge F. Christensen Ramon da Bouza Santiago del Puerto J. Julio Dreizzen

* Temporary < > Not a member of IFC # Not a member of IDA + E\ecutlve Director

+ + Alternate E"<.eculn:e Director

Eduardo J. Escasany Ernesto Feldman Santiago J. Galindez Carlos Garcia Tudero Rene Santiago Giorgis Jorge Gonzalez Gustavo Grinspun Mrs. Beatriz Harretche Luis Herrera Guillermo J. Hunt Alberto F. Ibanez Mario Luis Kenny Crist ian Andres Koch Oscar Lamberto Benito J. Lucini Roque Maccarone Daniel Marx Jorge Matzkin Daniel Merino Ms. Monica Merlo Fernando L. Nebbia Arturo O'Connell Juan Manuel Peire Horacio Patricio Peralta Ramos Luis Remaggi Alberro Antonio Martin Rivolta Rodolfo Rua' Boiero Jesus Sabra Jorge Sakamoto Arturo Valles Bosch Oscar Jose Viglianco Mario Alejandro Weitz Eduardo A. Zalduendo Raul Zavalla Carbo A. Guillermo Zoccali

Australia

Governor PaulL Keating

Alternate Governors Laurence Corkery* D.N. Sanders*

Advisers Grant A. Bailey William Bowen Ronald H. Dean + LA. Fraser Barry Hughes

306

.------.--------........ _--_._---------_ .. ---_._--_ ...

W.E. Norton Brett G. Rowse Ewen L. Waterman

Austria

Governor Ferdinand Lacina

Alternate Governor Othmar Haushofer

Advisers Gerhard Janschek Heiner Luschin Herbert A. Lust Gerhard Praschak Christian Prosl Hans-Dietmar Schweisgut

The Bahamas< > #

Governor Sir Lynden O. Pindling

Alternate Governor James H. Smith*

Adhsers Gerard Burrows Mrs. Carlene Francis Edgar N. Hall Calvin Knowles Alfred T. Maycock Margaret E. McDonald Elkin Storr

Bahrain<>#

Governor Ibrahim Abdul Karim

Alternate Governor Ibrahim A. Alhamer*

Advisers Abdul Hamid AI-Arady Abdulla Isa Albinali

Bangladesh

Governor M. Syeduzzaman

Alternate Governors A.Z.M. Obaidullah Khan* Gholam Kibria* + + M.K. Anwar

Tempomry < > Not a member of IFC # Not a member of IDA + Executive Director

+ + Alternate Executtve Director

Advisers M.A. Halim Chowdhury A.K. Nasim Hyder

Barbados#

Governor Richard C. Haynes

Alternate Governor Stephen E. Emtage

Advisers Winston A. Cox Peter D. Laurie Rashid O. Marville George L. Reid

Belgium

Governor Mark Eyskens'

Advisers Jean-Pierre Arnoldi Jacques de Groote + Dirk P.M.F. Heremans Georges A.E. Janson Christian Petit Jacques Roelandts Andre Taymans Alois van de Voorde Walter Van Gerven Jan M.B. Vanormelingen Pierre Verly

Belize

Alternate Got'ernors Mrs. Yvonne S. Hyde* Sir Edney Cain

Advisers Edward A. Laing Nestor Vasquez

Benin<>

307

Governor Zul Kill Salami

Alternate Governor Didier Dassi

Advisers Placide Azande Constant B. Koukoui

Bhutan<>

Governor Dawa Tsering

Alternate Governor Kanna Dorjee

Bolivia

Governor Juan Cariaga Osorio

Alternate Governors Fernando IIIanes de la Riva* Adolfo Linares*

Advisers David Blanco Roberto Capriles Miguel Fabbri Carlos Fernandez Fernando Gonzalez Guido Hinojosa Jose Justiniano Julio Leon Prado Luis Minaya Ramiro Moreno Luis A. paz Edgar Schwarz

Botswana

Alternate Governors Serwalo S.G. Tumelo* Baledzi Gaolathe

Advisers Ben I. Gasennelwe Mrs. Bame M. Kgari K. Kuiper

Brazil

Governor Joao Sayad

Alternate Governors Alvaro Gurgel de Alencar* Fernao C.B. Bracher Camillo Calazans de Magalhaes* Alexandre Kafka* Luiz F.P. Lampreia* Antonio de Padua Seixas* Francisco Thompson-Flores Netto*

* Temporary < > Not a member of IFC /I Not a member of IDA + Executive Director

+ + Alternate Ex.ecutive Director

Advisers Sergio Silva do Amaral Joaquim Ferreira Amaro Carlos Alberto Amorim, Jr. Eimar A. Avillez Luiz Barbosa Paulo Nogueira Batista, Jr. Luiz G.M. Belluzzo Antonio de Azevedo Bonfim Marco Antonio Diniz Brandao Carlos R. Cristalli Luiz Fernando Monteiro Faria Steven Charles Kanitz Dalmir Sergio Louzada Francisco Vidal Luna Alexandre Augusto de Faria Machado Pedro Luiz Carneiro de Mendonca Roberto Muller Ivo Pereira de Oliveira Filho Jose Roberto Procopiak Adroaldo Moura da Silva Jose Souza Santos Mrs. Maria Celina Arraes Vinhosa

Burkina Faso

Governor Talata Eugene Dondasse

Adviser Moussa Kone

Burma

Governor Tun Tin

Alternate Governor U Nyunt Lwin*

Advisers U Aye Lwin U Win Naing Aung Pe

Burundi

308

Governor Pierre Ngenzi

Alternate Governor Anselme Habonimana

Advisers Francois Barwendere Edouard Kadigiri

P. Mikanagu Bernard Sunzu

Cameroon

Governor Sadou Hayatou

Alternate Governors Paul Pondi* Simon Ngann Yonn

Advisers Henri Epanda Martin A. L. Okouda Idriss Vessah Njoya

Canada

Governor Michael H. Wilson

Alternate Governors Fred W. Gorbet* Frank Potter* +

Advisers William Bain Richard B. Davis Robert R. deCotret Gerry Grant D. Edward Hobson Glen D. Hodgson Paul Krukowski Soe Lin Don McCutchan Blaine Modin Richard Remillard Ms. Karen Richter Philip M. Smith Ms. Jacqueline Snyder David S. Wright

Cape Verde<>

Governor Arnaldo C. de Vasconcelos Franca

Alternate Governor Antonio Hilario Cruz

Advisers Manuel Jesus Costa Corentino Vergilo Santos

* Temporary < > Not a member of IFe # Not a member of IDA + Executlve Director

+ + Alternate Exccullve Director

Central African RepubJic< >

Governor Guy Darlan

Alternate Governors Casimir Oye Mba* Gregoire Zowaye

Advisers Jean Baptiste Assiga Ahanda Constant Gouyomgbia-Kongba-Zeze Christian Lingama-Toleque Maurice Moutsinga X.L. Nguyen

Chad<>

Governor Mahamat Soumaila

Alternate Governor Ahmed Kerim Togoi

Adviser Clabe Guile

Chile

309

Governor Heman Buchi

Alternate Governor Claudio Pardo*

Advisers Mrs. Lucia Avetikian de Renart Marcos Ayala Julio Barriga Silva Leon Dobry Folkman Alvaro Donoso Heman Felipe Errazuriz Francisco Javier Errazuriz T. Juan Andres Fontaine Roberto Kelly Vasquez Jorge Lezaeta Eliodoro Matte Larrain Benjamin Mira Mrs. Maria Elena Ovalle de Vigneaux Andres Pasicot Vladimir Radic Piraino Adolfo Rojas Gandulfo Cristian A. Salinas Heman Somerville S. Boris Subelman B. Roberto Tosso Jorge Valenzuela

China

Governor Wang Bingqian

Alternate Governors Wang Baoliu* Xu Naijiong* + Yang Guanghui* + + Li Peng

Advisers Chang Liangcai Ms. Li Shurong Shi Zhong Wen Duanyu Zhang Shengman Ms. Zhang Xiaokang Zhang Yuanzhong Zhou Yuequn

Colombia

Governors Virgilio Barco Cesar Gaviria Trujillo

Alternate Governors Mauricio Cabrera Galvis* Ms. Maria Mercedes de Martinez* Samuel Alberto Yohai*

Advisers Enrique Arias Jimenez Julio Manuel Ayerbe Juan Mario Calderon Fernando Castro-Plaza Feroce S. Dean Ernesto Franco-Holguin Luis Jorge Garay Ms. Fiorangela Gomez de Arango Cesar Gonzalez Munoz Edgar Gutierrez-Castro + Antonio Hernandez Carlos Alberto Hernandez Cruz Oscar Jaramillo Alvaro Jaramillo V. Mrs. Consuelo L1eras Andres L10reda Armando L10reda Rodrigo Llorente Oscar Marulanda Fernando Montes Roberto Pardo-Vargas Luis Perez

Temporary < > Not a member of IFC # Not a member of IDA + Executive Director

+ + Alternate Executive Director

Alfredo Quintero Fernando Rey Bernardo Rueda Osorio James A. Therrien Gabriel Turbay Enrique Umana Leopoldo Villar-Borda Guillermo Villaveces Medina Alvaro Villegas Villegas Roberto Wills Obregon

Comoros<>

Governor Mikidache Abdou'Rahim

Alternate Governor Ahmed Abdou

Adviser Caabi Elyachroutu

People's Republic of the Congo

GOl'ernor Pierre Moussa

Alternate Governor Andre Batanga

Advisers Mr. Bokatola Dieudonne Dibady-Mayla Alphonse Ekagna Leroy Celestin Gaombalet Henri Blaise Gnali Adoum Malloum Jean-Marie Omog-Samnick

Costa Rica

Governor Fernando E. Naranjo

Alternate Governor Ernesto Rohrmoser Garcia*

Advisers

310

Federico Alvarez Fernandez Ms. Silvia Charpentier Luis Liberman Roberto Picado Hidalgo Silvia Saborio Guillermo Solorzano A.

Cote d'ivoire

GOl'ernor Abdoulaye Kone

Alternate GOl'ernor Leon Naka

Advisers Tiemoko Yade Coulibaly Aboubakaar Diaby-Ouattara Tiebenon Diarrassouba Mrs. Nicole Diaw Lancina Dosso Augustin Douoguih Tekalign Gedamu Charles Gomis Yao Patrice Konan Babacar N'Diaye Roger Ngosso Martin Ogang D.G. Rwegasira Oumar Alpha Sy Daouda Tanon Mamadou Taofiqui Toukourou

Cyprus

Governor Christos Mavrellis

Alternate Governor George V. Hadjianastassiou

Adl'iser A. lacovides

Denmark

GOl'ernor Bjorn Oben

Alternate GOl'ernor Sten Lilholt*

Advisers Niels Bodelsen Niels Egerup C. Ulrik Haxthausen + Eigil Jorgensen B. Dan Nielsen

Djibouti

Governor Mohamed Djama Elabe

Temporary < > Not a member of (Fe

# Not J member of IDA + Executive Director

+ + Alternate Executive Director

Dominica

GOl'ernor Mary Eugenia Charles

Alternate GOl'ernor Alick B. Lazare

Advisers McDonald Benjamin William G. Demas Crispin Sorhaindo

Dominican Republic

Governor Luis Julian Perez

Alternate Governor Francisco Guerrero Prats

Advisers Juan Jose Arteaga Jose Miguel Bonetti Rafael Herrera Cabral Roberto Liz Castellamos Luis Manuel Piantini Felipe Vicini

Ecuador

Governor Jaime Zeas

Alternate Governor Marco Flores T.

Advisers Raul Basantes Juan F. Casals Victor Eastman Marcos Espinel Rodrigo Espinosa Michael Hollihan Mauro Intriago Mario Ribadeneira Patricio Rubianes + + Alberto Sanchez Edgar Teran Bernardo Traversari Jacinto Velez

Egypt

Governor Kamal El Ganzoury

311

Alternate Governor Erfan A. Shafey

Advisers Mahmoud Abdel-Wahab Abdel Halim Ali Mohamed Mohamed Badr Kazim H. Barakat Mohamed EI Gawaly EI Sayed Abdel Raouf EI Reed Said EI-Naggar A. Abdel Ghaffar Ahmed Ismail Mohamed A wny Mahfouz Mahmoud Ahmed Rouby

El Salvador

Alternate Governor Alberto Benitez Bonilla*

Adviser Alfredo Milian

Equatorial Guinea< >

Governor Felipe Hinestrosa Ikaka

Alternate Governor Efua Efua Asangono

Advisers Amine Ben Barka Angel N. Eman George Khamis Daniel Turover

Ethiopia

Governor Ato Tesfaye Dinka

Alternate Governor Legesse Tickeher

Adviser Alemayehou Daba

Fiji

Governor Mosese Qionibaravi

Alternate Governor Rigamoto Taito

* Temporary < > Not a member of IFC # Not a member of IDA + Executive Director

+ + Alternate Executive Director

Adviser Navitalai Naisoro

Finland

Governor Pekka Vennamo

Alternate Governors Martti Ahtisaari * Osmo Sarmavuori

Advisers Mrs. Inga-Maria Grohn Veikko Kantola + + Tapani Kaskeala Asko Lindqvist Kari Rainer N ars Kalevi Pykala Paavo Rantanen Mrs. Hannele Tikanvaara

France

312

Governor Edouard Balladur

Alternate Governors Mrs. Helene Ploix* + Denis Samuel-Lajeunesse* Daniel Lebegue

Advisers Philippe Adhemar Pierre de Lauzun Bertrand de Mazieres Jean de Rosen Olivier Debains + + Alain Dromer Jean-Claude Faure Michel Flesch Robert Granet Paul Lemerle Philippe Marion Bernard Morizet Thierry Moulonguet Christian Noyer Mrs. Ariane Obolensky Alain Remy Benoit Tellier Jean-Pierre Teyssier Patrice Vial Jacques Waitzenegger

.---_. __ ._ .. ---------

Gabon

Governor Pascal Nze

Alternate Governor lean-Felix Mamalepot

Advisers Marcel Doupamby-Matocka Maurice Eyambat-Tsimat Pierre-Parfait Gondjout Alfred Mabika Mouyama Narcisse Massala-Tsambat Samson Ngomo Emmanuel Ondo-Methogo

The Gambia

Governor A.A.B. Njie

Alternate Governor Mamour Malick lagne

Advisers Momodou C. Bajo Mousa Gibril Bala Gaye Abdou lanha H.M.M. Njai

Federal Republic of Germany

Governor Juergen Warnke

Alternate Governors Gerhard Boehmer* + Hans-Juergen Brueckner* Peter Jabcke* Eberhard Kurth* Hans Tietmeyer

Advisers Knut Baese Emil Boenke Karl Borchard Klaus Buenger Ulrich Dorf Johannes Esswein lochen FeiIcke Horst Gobrecht Hansjoerg Haefele Gert Haller Alois Jelonek Ms. Ingrid Matthaeus-Maier Stephen B. Modly

* Temporary < > Not a member of IFC

# Not a member of IDA + Executive Director

+ + Alternate Ex.ecutive Director

Alexander M. Muser Manfred H. Oblaender Heinz Rapp Hans Reekers Gotthard Reimann Guenther Rexrodt Wolfgang Rieke Peter Roesgen Klaus Rose Adolf Roth H. Peter Tempel Dietmar Thorand Guenther Van Well Ludger Volmer Karl H. von den Driesch Michael Von Harpe + + Dietrich Von Kyaw Ludolf-Georg Von Wartenberg Peter Wende

Ghana

Governor G.K. Agama

Alternate Governor A.B. Ahmad

Advisers George Sakyi Aburam Kay Amoah C.D. Anyomi loao Goncalves Baeta John Bentum-Williams Yaw Osafo Maafo Eric K. Otoo Osei-Tutu Poku

Greece

Governor Constantine Simitis

Alternate Governor Theodore Karatzas *

Advisers

313

Mrs. Julia Panourgia Clones Constantine D. Georgoutsakos Vassilis Kafiris Nikos Kyriazidis Nikos Melissaropoulos Loucas D. Papademos Spyros P. Papanicolaou Nikolaos Skoulas Constantinos Sophoulis

Grenada

Governor Herbert Augustus Blaize

Alternate Governor Lauriston F. Wilson, Jr.

Advisers Samuel Orgias Albert O. Xavier

Guatemala

Governor Rodolfo Paiz Andrade

Advisers Jorge Alexei de Synegub Gustavo Leiva Jose Orive Jorge Papadopolo Edgar Pape Jose Guillermo Salazar Santizo

Guinea

Governor Edouard Benjamin

Alternate Governor Kerfalla Yansane

Advisers Abdoul Bah Tolo Beavogui Alphe Abdoul Diallo Doukoure Mahamadou Ousmane Kaba Michel Kamano

Guinea-Bissau

Governor Pedro A. Godinho Gomes

Alternate Governor Aguinaldo Embalo

Guyana

Governor Carl Greenidge

Alternate Governor J.D. Simmons*

Temporary < > Not a member of IFC # Not a member of IDA + ExecutJ\ie Director

+ + Alternate Executive Director

Advisers Cedric Hilburn Grant 1. Murray

Haiti

Governor Leslie Delatour

Alternate Governors Mario Celestin* Fritz Viala*

Advisers Patrick Charles Joachim Noel

Honduras

Governor Efrain Bu Giron

Alternate Governors Jaime R. Rosenthal Oliva* Rigoberto Pineda Santos

Advisers Jorge A. Alvarado L. Mrs. Marta Julia Cox Carlos Falck Contreras Daniel Figueroa Ramiro Figueroa Mario Galeano Roberto Galvez Barnes Gilberto Goldstein Felix Martinez Dacosta Arecio Ochoa Mario Rietti Matheu Jeronimo Sandoval

Hungary

Governor Miklos Pulai

Alternate Governor Tibor Melega

Advisers Ede Bako Janos Bartha Istvan Ipper

Iceland

Governor Thorsteinn Palsson

314

Alternate Governors Thorhallur Asgeirsson* Sigurgeir Jonsson*

Adviser Bjorn Lindal

India

Governor S. Venkitaramanan

Alternate Governors G.K. Arora* J.L. Bajaj* C.R.Krishnaswamy Rao Sahib* +

Advisers K.L. Deshpande V. Govindarajan Chander Vasudev A. Vasudevan

Indonesia

Governor Arifin M. Siregar

Alternate Governor Soegito Sastromidjojo

Advisers Sofjan Djajawinata Soedradjat Djiwandono Cyrillus Harinowo Achyar IIjas Hassan S. Kartad joemena Djamalius Luddin Adrianus Mooy Mohammad Seng Paselleri Karnaen A. Perwataatmadja Mrs. Retno Rahadjeng S. Mukhlis Rasyid Sunajaka Budi Rochadi Soesilo Soedarman

Islamic Republic of Iran

Governor Mohammad Reza Ghasimi

Alternate Governor Mohammad Mehdi Tizhoosh Tabar

Advisers Muhammad Arab Ali Ziraknejad

* Temporary < > Not a member of IFC # Not a member of IDA + EXI!('utlve Director

+ + Alternate E,ecullve Director

Iraq

Governor Hisham Hassan Tawfik

Alternate Governor Subhi Frankool

Advisers Muddhir M. AI-Hillawi Sami F. Atto Faik Abdul Rasool Mahmoud Ahmed Uthman Abdul Hassan Zalzalah

Ireland

Governor John Bruton

Alternate Governor Maurice F. Doyle

Advisers Patrick T. Downes Timothy O'Grady Walshe Michael G. Tutty

Israel

Governor Michael Bruno

Alternate Governor Arieh Sheer

Advisers Valery Amiel Pinchas Dror Ehud Polonsky Gideon Schurr Mrs. Channa Weinberg

Italy

315

Governor Carlo Azeglio Ciampi

Alternate Governor Mario Sarcinelli

Advisers Francesco Cerulli Italo di Muccio Mario Draghi + Giannandrea Falchi Ms. Fernanda Forcignano

Paolo Janni Luigi Marini Pietro Masci Rainer Stefano Masera Mauro Masi Stefano Micossi Giuseppe Pasqua Vincenzo Prati Paolo Ranuzzi Felice Scordino Sergio Vento

Jamaica #

Governor E.P.G. Seaga

Alternate Governor Headley Brown

Advisers Asgar Ally Horace G. Barber + + Miss Sharon R. Brown Miss Cecile Clayton Clement Jackson Keith Johnson Derrick Latibeaudiere Mrs. Jennifer Lester Ms. Deborah Lindo Harold Milner Miss Masie Plummer Ms. Lorraine Wilkin

Japan

Governor Kiichi Miyazawa

Alternate Governors Hirotake Fujino * Toyoo Gyohten * Fumiya Iwasaki * Toshio Ohsu * Takeshi Ohta * Makoto Utsumi * Kiichi Watanabe * Kenji Yamaguchi * + Satoshi Sumita

Advisers Tetsuma Fujikawa Yuzo Harada Tsuneo Hattori Masakazu Hayashi

* Temporary < > Not a member of IFC II Not a member of IDA + Executive Director

+ + Alternate E)(ecutlVe Director

Sohei Hidaka Naoki Kajiyama Akira Kanno Isao Kubota Masatoshi Kuratani Motoo Kusakabe Iwane Maru Hachiro Mesaki Zenbei Mizoguchi + + Itsumi Mizumori Shoji Mori Kazuya Murakami Akira Nambara Atsuo Nishihara Masaki Ohmura Masahiro Sugita Hiroo Taguchi Koichi Takahashi Koji Yamazaki

Jordan

Governor Taher H. Kanaan

Alternate Governor Mohammad H. Al-Saqqaf

Advisers Mrs. Nural Abdulhadi Ziyad Annab Ismail El-Zabri Mrs. Tamam A. Elghoul

Kenya

316

Governor George Saitoti

Alternate Governor J.M. Magari

Advisers Francis s.o. Awuor W.E. Hiribae Ben Kipkorir S.O. Mageto J.W. Mumelo Nahashon N. Nyagah G.H.Okello Mrs. Risper Okonji Frederick N. Ondieki M.M. Wandera

Kiribati < > #

Governor Boanereke Boanereke

Alternate Governor Peter Timeon *

Korea

Governor In Y ong Chung

Alternate Governors Soo-Byung Choi * Hong Woo Nam * Hyung-Sup Shim * Sung Sang Park

Advisers Young-Wook Chin Kun-Ho Cho Joon-Gie Chung Dong-II Kim Young Bin Kim Yung-Jin Kwon Chang Soo Lee Jong-Nam Lee You Kwang Park + + Un-Sun Ryo

Kuwait

Governor Jassim Mohamed AI-Kharafi

Alternate Governor Bader Meshari AI-Humaidhi

Advisers Abdulrahman AI-Hashim Fawzi Yousif AI-Hunaif Fahed Rashid AI-Ibrahim Fahad Abdulla AI-Ouda Abdulal S. AI-Qenaei Fahed Mohamed AI-Rashed Khalid Nasser AI-Sabah Sheikh Salem Abdullah AI-Ahmed Al Mohammed AI-Saneh Mustafa AI-Shamali Mohammed Haider-Ghuloum Abdul Karim Sadik

Lao People's Democratic Republic < >

Governor Kikham Vongsay

* Temporary < > Not a member of IFC 1/ Not a member of IDA + Executive Director

+ + Alternate Executive Director

Alternate Governor Holady Volarath *

Adviser Chanthara Sayamoungkhoun

Lebanon

Alternate Governors Raja Himadeh Nassim Saliba *

Advisers Raouf Abou Zaki Rafie Chahine

Lesotho

Governor E.R. Sekhonyana

Alternate Governor Kevin M. Manyeli

Advisers Stanley E. Khoali Mabotse Lerotholi William Thabo Van Tonder

Liberia

Governor Paul R. Jeffy

Alternate Governor G. Pewu Subah *

Advisers Ms. Mary B. Dennis Ms. Antoinette Monsio Sayeh Ms. Christiana Tah Penti Tarpeh, Jr.

Libyan Arab Jamahiriya

317

Governor Kassem M. Sherlala

Alternate Governor Eshtewi Kalifi Ettir

Advisers Abdulgader Ali Muttardy Mahmud M. Shenghir Muftah Ali Sherif

Luxembourg

Governor Jacques Santer

Alternate Governor Raymond Kirsch

Advisers Ernst-Guenther Broeder Prince Guillaume of Luxembourg Yves Mersch Alain Prate Richard Ross Guy Seyler Jacques Silvain

Madagascar

Governor Pascal Rakotomavo

Alternate Governors Leon M. Rajaobelina * Jean Robiarivony

Advisers Tant.ely Andrianarivo Henri Jean-Marie Victor Rabary Jocelyn Rafidinarivo Raphael Ramanana Rahary Mamy Ramanjatoson Jean e. Ramasinaivo Robert Ramelina Henri Ranaivosolofo

Malawi

Governor D.S. Katopola

Alternate Governor J.e. Malewezi

Advisers Joseph F. Khonyongwa A.A. Upindi

Malaysia

Governor Daim Zainuddin

Alternate Governors Tun Ismail bin Mohamed Ali * Mohd. Ramli Wajib * Tan Sri Zain Azraai

* Temporary < > Not a member of IFC # Not a member of IDA + Executive Director

+ + Alternate Executive DIrector

Advisers Khalil Akasah Abu Bakar bin Karim Mustapha Dzulkefty Ahmad Rasidi Hazizi Dennis J. Ignatius Zakaria Bin Ismail Abdul Kadir Khong Kim Nyoon Mustapa bin Mohamed

Maldives

Governor Fathulla Jameel

Mali

Governor Qusmane M. Diallo

Alternate Governor lbrahima Bocar Ba

Advisers Lassana Keita Abdoulaye Koita Amidou Qumar Sy Adama Seydou Traore Lassana Traore

Malta <>#

Governor Wistin Abela

Alternate Governor Joseph Cassar *

Advisers Charles Cassar Alfred Falzon Albert Mizzi

Mauritania

318

Governor Mohamed Salem Quid Lekhal

Alternate Governor Mohamedou Quid Michel

Advisers Djime Diagana Abdellah Quid Daddah

........... _._--_._ •. _----

Mauritius

Governor Dwarkanath Gungah

Alternate Governor Madhukarlall Baguant

Advisers Rundheersing Bheenick Marc Bourdet Srikant Madan Chitnis Premduth Kumar Fulena Rameswurlall Basant Roi Rama Sithanen

Mexico

Alternate Governors Salvador Arriola * Ariel Buira Seira * Jose Luis Flores * Jose Angel Gurria Trevino * Juan Paramo Diaz * Alfredo Phillips Olmedo * Carlos Sales * Emesto Marcos Giacoman

Advisers Roberto C onteras Alejandro De-Pedro-C. Luis Foncerrada Mauricio Gonzalez Timoteo Harris Ms. Hildegard Rohen Emesto Zedillo Carlos Zorrilla de la Garza

Morocco

Governor Mohamed Berrada

Alternate Governors M'Hamed Tazi Mezalek * Mustapha Faris

Advisers Mohamed Aboulfadl H. Alaoui-Abdallaoui Hassan Belkoura Fouad Benzakour Abdellatif Jouahri Omar Kabbaj Abdellatif Loudiyi Taieb Rauuf M'Hamed Sagou

Temporary < > Nol a member of IFC

# Nol a member of IDA + Executive Director

+ + Alternate Executive Director

Mozambique

Governor Eneas da Conceicao Comiche

Alternate Governor Ms. Yasmin Patel

Adviser Valeriano Ferrao

Nepal

Governor Bharat Bahadur Pradhan

Alternate Governors Viswa Pradhan * Lok Bahadur Shrestha

Advisers Singha B. Basnyat Satyendra P. Shrestha

Netherlands

Governor H.O. Ruding

Alternate Governors J.B. Hoekman * Pieter Stek * P. Bukman C. Maas *

Advisers Paul Arlman Tom de Vries Vimy A. Servage R.J. Treffers Ferdinand van Dam + Syne van der Goot Leo van Maare Jaap Weed a Juhan A. Weijers A. J. T. Williams

New Zealand

319

Governor B.V. Galvin

Alternate Governor Ms. Anna C. Aitken *

Advisers Raymond E. Alexander Murray A. Sherwin Ross Tanner

Nicaragua

Governor Pedro Antonio Blandon Lanzas

Alternate Governors Silvio Conrado * Jose Evenor Taboada

Advisers Jose Paiz Marcos Wheelock

Niger

Governor Almoustapha Soumaila

Alternate Governor Mamadou Madou *

Advisers Malam Annou Mamane Lawai Chafany Boubaker Idi Gado Assoumane Guiaouri Mohammed Moudi Adamou Souna

Nigeria

Governor Chu S.P. Okongwu

Alternate Governor Alhaji U.K. Bello

Advisers Y. Seyyid Abdulai Alhaji Abubaker Abdulkadir S.A. Adekanye R.N. Ezeife Ayodele Fadare B.N. I10abachie Kalu 1. Kalu R.O. Mowoe L.c. Nebeolisa O.O.Ogba N.E.Ogbe Ignatius C. OIisemeka J.O. Sanusi Paul Uhebagwi B.N. Unachukwu

'" Temporary < > Not a member of IFC # Not a member of IDA + Executive DIrector

+ + Alternate Execullve DIrector

Norway

Governor Knut Frydenlund

Alternate Govenors Bjorn Skogstad Aamo * Bernt H. Lund *

Advisers Svein Aass Jorg W. Bronebakk Kjell Eliassen Oddmund Graham K jell Halvorsen Terje Johannessen Jannik Lindbaek Ms. Jornnn Maehlum Ms. Berit Helene Pettersen Petter T. Skouen Trygve Spildrejorde Arve Thorvik

Oman

Governor Qais Abdul-Munim AI-Zawawi

Alternate Governor Sherif Lotfy

Advisers Mohamed Nasser AI-Khasibi Ahmed bin Nassir EI-Rikaishy Mokhtar M. Zouari

Pakistan

Governor Ghulam Ishaq Khan

Alternate Governor M.A.G.M. Akhtar

Advisers Moinuddin Baqai H.U. Beg Ihsan ul Haq A.G.N. Kazi Jamsheed K.A. Marker

Panama

Governor Ricaurte Vasquez M.

320

Alternate Governors Hernando A. Arias * Jose Baiz * Dominador Kaiser Bazan * Jose B. Cardenas * Mario de Diego, Jr. * Mateo Milwood * Pedro Mora * Francisco Rodriguez * Hector Alexander

Adviser Reinaldo Decerega

Papua New Guinea

Governor Sir Julius Chan

Alternate Governor Jim Lamont

Advisers Kiatro Abisinito Ms. Lorna Brown Augustine Mak Bernard Paliau Serege Saiade Longas C. Solomon Eliakim Tobolton

Paraguay

Governor Cesar Romeo Acosta

Alternate Governor Carlos Alberto Knapps

Advisers Marciano Brun Juan J. Diaz Perez Oscar Estigarribia Julio Gutierez Carlos A. Heisecke Amado Martinez Pedro O. Montorfano Manuel Nogues Jesus Manuel Pallares Epifanio Salcedo Crispiniano Sandoval Julio Cesar Schupp Ms. Elodia B. Vargas

Temporary < > Not a member of IFC # Not a member of IDA + Executive Director

+ + Alremate Executive Director

Peru

Governor Luis Alva Castro

Alternate Governor Gustavo Saberbein Chevalier

Advisers Javier Abugattas Gaston Acurio Augusto David T. Arzubiago Scheuc Marco Balarezo Patricio Barclay Cesar Humberto Cabrera Juan Candela Guillermo Castaneda Julio Cruzado Raul Delgado Hernan Garrido Lecca Alfredo Granda Milton Guerrero Luis Heysen Zegarra Mrs. Patricia Jenkins Miss Adela Lerner Carlos Malpica Jose Mejia Regalado Raymundo A. Morales Jose Ortiz Felipe Osterling Javier Paulinich Ramon Ponce de Leon Juan Francisco Raffo Carlos Rivas Fernando Sanchez Javier Silva Ruete Celso Sotomarino Julio Vega Ricardo Vega Cesar Villacorta Ricardo Watson Richard Webb Duarte Aureo Zegarra

Philippines

321

Governor Jaime V. Ongpin

Alternate Governor Solita C. Monsod

Advisers F. Alfiler Tirso D. Antiporda, Jr. Tristan E. Beplal Romeo Bernardo Ms. Evelyn M. Escudero Edgardo B. Espiritu Jesus P. Estanislao Carlos G. Garrido Edward S. Go Benito Legarda Enrique Manalo Raul Ch. Rabe Antonio V. Romualdez Reginald S. Velasco

Poland<>#

Alternate Governors Zdzislaw Pakula* Grzegorz Wojtowicz

Advisers Jan M. Boniuk Andrzej Ilczuk Zdzislaw Ludwiczak Stanislaw Raczkowski

Portugal #

Governor Miguel Cadilhe

Alternate Governors Rodrigo M. Guimaraes * + + Alberto de Oliveira Pinto * Joao Mauricio Fernandes Salgueiro * M.1. Guedes-Vieira

Advisers Paulo Ernesto Carvalho Amorim Carlos Tavares da Silva Jose Antonio Girao Jose Inacio Toscano

Qatar <>#

Governor Nasser Mohd. AI-Hajri

Romania <>#

Governor Alecsandru Babe

Alternate Governor Ion Dobrescu *

* Temporary <. > Not a member of lFe

# Not a member of IDA + Executive DlreL'tor

+ + Alternate Executive Dlfel'lor

Advisers Sergiu Contineanu loan Petre Mada Traian Munteanu Vladimir Soare

Rwanda

Governor Jean Damascene Hategekimana

Alternate Governor Emmanuel Ndahimana

Advisers Cyprien Habimana Simon Insonere Emmanuel Mangona Theodore Mpatswenumugabo

St. Christopher and Nevis < > #

Governor Kennedy A. Simmonds

Alternate Governor William V. Herbert

Advisers Erstein M. Edwards Hugh Guishard

St. Lucia

GOI'ernor

John Bristol

Alternate Governor Ausbert D'Auvergne

Advisers V. Adrian Augier McDonald Dixon Joseph Edmunds Daniel Girard

St. Vincent and the Grenadines < >

322

Governor James F. Mitchell

Alternate Governor Karl E.V. John

Adviser Kingsley Layne

Sao Tome and Principe < >

Governor Agostinho Silveira Rita

Alternate Governor Jorge Pereira dos Santos

Adviser Ms. Maria Fatima Fortes

Saudi Arabia

Governor Sheikh Hamad AI-Sayari

Alternate Governors Usamah J. Faquih Yusuf A. Nimatallah *

Advisers Ahmed Abdulatif Mohammed S. Abduljawad Abdulaziz AI-Dukheil Ibrahim I. AI-Eissa Mohammed AI-Hakami Yusuf Hamadan AI-Hamdan Saleh AI-Humaidan Abdulatif Hamad AI-Jabr Ayeidh AI-Jeaid Abdulaziz AI-Kulaibi Khalid A. AI-Masoud Mohammed AI-Nafie Abdullah AI-Omran Abdallah AI-Romaizan Mohammad Abdullah AI-Shawi + + Abdulrahman EI-Naiem Adnan Khodary Suliman S. Olayan Abdulrahman Sehaibani Omar A. Sejeny Ibrahim Shams Sheikh Abdul Aziz Zaidan

Senegal

Governor Cheikh Hamidou Kane

Alternate Governor Y oussou Diop

Advisers Aristide Alcantara Cheikh Cisse Eric de Lavandeyr

* Temporary < > Not a ffit!mber of IFC # Not a member of IDA + Executive Director

+ + Alternate ExecutIve Dlfector

A. Diagne D. Diagne Mamadou Diatta Samcidine Dieng Abdoul Aziz Diop Demba Diop Silcarneyni Gueye Falilou Kane Mamadou Ndiaye Babacar Ndoye Amadou Maleine Niang Youssoupha Niang Rakoto-Ramambason Ramambazafy Adama Sail H. Sail Abdoulaye Seye Alwyn B. Taylor

Seychelles #

Governor Mrs. Danielle de St.Jorre

Alternate Governor E. Faure

Adviser R. W.J. Grandcourt

Sierra Leone

Governor Sheka H. Kanu

Alternate Governor P.J. Kuyembeh

Advisers F. Jones Asgil J.S.A. Funna J. Sanpha Koroma Christian J. Smith William B. Wright

Singapore #

Governor Richard Hu Tsu Tau

Alternate Governor Jaspal Singh

Solomon Islands

323

Governor George Kejoa

Alternate Governor Silverio Waleka *

Adviser Francis J. Saemala

Somalia

Governor Sheikh Mohamed Osman

Alternate Governor Mohamud Mohamed Nur

Advisers Hussein Elabeh Fahie Abdullahi Mohamed Jama Abdulkadir Aden Mohamed Hussein Mohamud Siad

South Africa

Governor G.P.e. de Kock

Alternate Governor J.A. Lombard

Advisers T.M. Barrett Johannes L. Birkenstock Miss A. Heydenrych A.A. Julies Emile Matthee A.H. Peacey Y. Samie P.A. Swanepoel Ernie J. van der Merwe C. van der Walt

Spain

Governor Carlos Solchaga

Alternate Governor Guillermo de la Dehesa Romero *

Advisers Jose Casas Manuel Con the Jose Luis Feito Ms. Carmen Fuente Salvador Gabriel Manueco Pedro Perez Alberto Pico Maeso

• Temporary < > Not a member of (Fe II Not a member of IDA + Executive Director

+ + AlEemate Executive Directbr

Juan Prat Coli Mrs. Mercedes Rubio Jesus Ruiz-Ayucar Fernando Sanchez-Rau Luis Sempere Alfonso Tena

Sri Lanka

Governor Ronnie de Mel

Alternate Governors Susantha de Alwis * W.M. Tilakaratna

Advisers Gamini Abeysekera I. Coomaraswamy Mrs. Tara de Fonseka T. Sivagnanam

Sudan

Governor Bashir Orner Fadlalla

Alternate Governor Ed Sayid Ali Zaki

Advisers A.M. Afifi Salah Ahmed Hussain Y. AI-Ani Mohamed el Fatih Zein Alabidin Salah M. Ali EI Tayeb EI Kogali Agil M. Elmanan Mamoon I. Hassan Abdel Moneim Khalifa Khogali K. Marzoug Osman Ahmed Mekki Fath EI Rahman Hassan Taha Sid Ahmed Tayfour

Suriname < > #

Governor Henk Goedschalk

Alternate Governor Stanley von Weissenbruch

Adviser Kenneth Schoon

324

Swaziland

Governor Kenneth Mbuli

Alternate Governor V.E. Sikhondze

Advisers Carlton M. Dlamini G.T. Magagula Stanley Matsebula Peter H. Mtetwa M. Samketi

Sweden

Governor Kjell-Olof Feldt

Alternate Governors Gunnar Lund * Bengt Saeve-Soederbergh *

Advisers Bengt Ake Berg Carl-Johan Groth Gerd Johnsson Lars Kalderen Berti! Lund Per Norstrom Ragnar Sohlman Mrs. Birgitta Von Otter

Syrian Arab Republic

Governor Kahtan Al-Siufi

Alternate Governor Abdel Ghani Berakdar *

Advisers Souheil Al-Jafari Hamid Merei

Tanzania

Governor C.D. Msuya

Alternate Governor G. Rutihinda

Advisers Aslerius M. Hyera E. Kamba

* Temporary < > Not a member of IFe II Not a member of IDA + Executive Director

+ + Alternate ExecutIve Director

M.T. Kibwana J.P. Kipokola Tuvako N. Manongi Richard E. Mariki Gray Shwaibu Mgonja John M. Mugasha J. Mwandumbya M.B. Ngatunga S.Odunga A.A. Suleiman

Thailand

Governor Panas Simasathien

Alternate Governors Nibhat Bhukkanasut * Snoh Unakul *

Advisers Bhasu Bhanich Supapol Chakrabhand Chandanasiri Chansak Fuangfu Sukri Kaocharem Mrs. Bunnam Ourairal Suwan Pasugswad Sommai Phasee Kovil Rojanasomsit Mrs. Pannee Sathavarodom Thienchai Srivichit Sompong Thanasophon Amnuay Viravan

Togo

325

Governor Yaovi Adodo

Alternate Governors Boubakar Amadou Hama * Comlanvi Tamata Addra

Advisers Emmanuel Adedze Yao Mensah Aho Johnson Assiba Aboubakar Baba-Moussa Johnson Couadjo Miss Laurence Egue Cheikh Ibrahim Fall F.J. Geiser Koffi Johnson Kigbafori Silue Michel Komlanvi Klousseh

K wassi Klutse Antoine N'Diaye Kossi R. Paass Ellom-Kodjo Schuppius R.W. Temple

Tonga

Governor James Cecil Cocker

Alternate Governor Siosiua T.T. Utoikamanu

Trinidad and Tobago

Governor Anthony Jacelon

Alternate Governor T. Ainsworth Harewood

Advisers Lennox Archer Lingston Cumberbatch Terrence Farrell Jerry Hospedales

Tunisia

Governor Ismail Khelil

Alternate Governors M. Ghanouchi * Zein Mestiri

Advisers Habib Ben Yahia Abdeslem Ben Younes Habib Bourguiba, Jr. Chekib Nouira Mustapha Zardi

Turkey

Governor Yusuf Bozkurt Ozal

Alternate Governor Yener Dincmen

Advisers Oral Akman + + Bozkurt Aran Cengiz Aysun Osman Birsen Kutsan Celebican

* Temporary < > Not a member of IFe # Not a member of IDA + Execullve Director

+ + Alternate Executive Direc:tor

Hidir Colpan Mrs. Gulden Dagci Selcuk Demiralp Gazi Ercel Kadir Gunay Sungur Alev Kaymak Ali Teoman Kerman Sefa Ocak 'Gurhan Ozdogan M. Bulent Ozgun Ms. Bahar Sahin Rustu Saracoglu Hikmet Ulugbay Eftal Yurday

Uganda

Governor Ponsiano Serumaga Mulema

Alternate Governors J.W. Okune * J. Kahoza

Advisers Per Aasmundrud Elizabeth Bagaya Miss F. Kalema Mrs. S.E.N. Mukasa A.S. Njala G.S.Odong E. Tumusiime-Mutebile

United Arab Emirates

Governor Ahmed Humaid Al-Tayer

Advisers Anis Al Jallaf Yousuf Abdul Latif Al Sirkal Sheikh Suroor bin Sultan Al-Dhahe Sultan Rashid Al-Dhahiri Abdul Ghaffar Al-Hashimi Sultan Nasser Al-Suwaidi Ahmed Lutfi Ali Salim Ibrahim Darwish Ibrahim Fayez Saeed Ghobash Mohammed Khalfan Khirbash Abdulla Mohamed Saleh

United Kingdom

Governor R. Leigh-Pemberton

326

Alternate Governors 1. A. L. Faint *+ + T. P. Lankester * + Sir Geoffrey Littler * Sir Crispin Tickell *

Advisers A. Allan Sir Terence Bums W.P. Cooke R.P. Culpin Piers 1 acobs Geoffrey Leader T. L. Richardson R. Gregory Toulmin P. 1. Warland

United States

GOI'ernor lames A. Baker, III

Alternate Governors Charles H. Dallara * Robert B. Keating * + M. Peter McPherson * David C. Mulford * Henry C. Wallich * W. Allen Wallis

Advisers Harvey E. Bale, lr. loseph W. Barr Thomas 1. Berger Richard Bissell lohn A. Bohn, lr. Ms. Mary K. Bush Robert L. Clarke lames W. Conrow Robert A. Cornell E. Gerald Corrigan Sam Y. Cross Michael R. Darby Hugh W. Foster + + Manuel H. lohnson, lr. David M. Kennedy Oscar M. Mackour William B. Milam G. William Miller Michael L. Mussa Charles H. Powers Ernest H. Preeg William Ryan Charles Schotta L. William Seidman

Temporary <. > NUl a member of IFe # Not a member of IDA + ExcculLve Director

+ + Alternate Executive Director

Charles O. Seth ness S. Bruce Smart Beryl W. Sprinkel Edwin M. Truman

Uruguay #

Governor Ricardo Zerbino Cavajani

Alternate Governors Cesar Rodriguez Batlle * Diego Cardoso Cuenca

Ad"isers Tomas Brause luan Ignacio Garcia Pelufo Hector Luisi Fernando L. Scelza Carlos Steneri luan Felipe Yriart

Vanuatu

Alternate Governor Edward E. Fillingham *

Venezuela #

Governor Leopoldo Carnevali

Alternate Governors Carlos Rafael Silva * Enrique Urdaneta * lorge Marcano

Advisers Carlos A. Bernardez 1. David Brillembourg Remigio Elias Perez Mrs. Leonor Filardo de Gonzalez + Mariano Gurfinckel lesus Alberto Lauria Felix Miralles C. Miss Sonia Perez Guillermo Pimentel Hector Santaella

Viet Nam

327

Alternate Governors Le Van Chau * Nguyen Chu *

Western Samoa

Governor Asi Eikeni

Alternate Governor Kolone Va'ai

Advisers Afamasaga Dan Betham S.V. Mackenzie Barry Muntz Tommy Scanlan Sir Peter Tapsell Michael Young

Yemen Arab Republic

Governor Mohammed Saeed AI-Attar

Alternate Governor Anwar Rizq AI-Harazi *

Advisers Khalid AJ. Afif Abdulaziz AI-Zariqah Ahmed Ahmed Ghaleb

People's Oem. Republic of Yemen < >

Governor Farag bin Ghanem

Alternate Governor Hassan Mahmood Hubaishi *

Yugoslavia

Governor Svetozar Rikanovic

Alternate Governors Mico Rakic * Vuk Ognjanovic

Advisers Mrs. Milica Borlja Cvitan Dujmovic Mrs. Gordana Hofmann Mrs. Vojkica Jancic Nemanja Jovic Planinko Kapetanovic Budimir Kostic Josip Kulisic Miss Bojana Mladic Miss Branka Mrkic Bozo Novoselac

,. Temporary < > Not a member of IFe /I Not a member of IDA + Executive Director

+ + Alternate Executive Director

Branko Radivojevic Riza Sapunxhiu + + Miroslav Sarenac Branislav Vasic Gregor Zore

Zaire

Governor Djamboleka Lorna Okitongono

Alternate Governor Bazundama Luzumbulu

Advisers Luono Kimbanga Tshiunza Mbiye Lendo Muanda Unen Ukati

Zambia

Governor James Mtonga

Alternate Governors F.M. Saime * Martin G. Sakala

Advisers V. Lavu J.M. Mapoma G.B. Mbulo H.E. Nalumino Mundia Leo Mweemba J.N. Ndhlovu L. Nyambe Adam Zulu

Zimbabwe

328

Governor E.N. Mushayakarara

Alternate Governor R.V. Wilde

Advisers Arthur T.M. Charamba D.C. Danha Edward Mashiringwani Ms. Rosemary Mazula V. McNicol Joseph Mubika Ms. Dinah Zuademoyo Mutungwazi D.S. Wood Nhamo E. Zengeni

OBSERVER AT 1986 ANNUAL MEETINGS

Switzerland

Pascal Bridel David de Pury Klaus 1 acobi Rolf leker Daniel Kaeser Thomas Kupfer Pierre Languetin Alexis Lautenberg Eric Martin Dante Martinelli Rudolf Ramsauer Cornelio Sommaruga Markus Zimmerli

REPRESENTATIVES OF INTERNATIONAL ORGANIZATIONS

United Nations

Yves Berthelot Isaac Cohen Ighal Haji R. Lawrence Pedro Malan Shuaib Uthman Yolah

International Fund for Agricultural Development

Donald S. Brown Mrs. Vera P. Gathright

329

EXECUTIVE DIRECTORS, ALTERNATES AND ADVISORS

Executive Directors

Fawzi Hamad AI-Sultan (Kuwait)

Vibul Aunsnunta (Thailand)

~ourad Benachenhou (Algeria)

Gerhard Boehmer (Germany)

Kenneth Coates (Uruguay)

Jacques De Groote

Ronald H. Dean (Australia)

~ario Draghi (Italy)

Astere Girukwigomba (Burundi)

~rs. Leonor Filardo de Gonzalez (Venezuela)

Edgar Gutierrez-Castro (Colombia)

C. Ulrik Haxthausen (Denmark)

Robert B. Keating (United States)

T.P. Lankester (United Kingdom)

~rs. Helene Ploix (France)

Frank Potter (Canada)

C.R. Krishnaswamy Rao Sahib (India)

Nicephore Soglo (Benin)

Ferdinand Van Dam (Netherlands)

Xu Naijiong (China)

Kenji Yamaguchi (Japan)

October 3, 1986

Alternate Executive Directors

~ohammad Abdullah AI-Shawi (Saudi Arabia)

Sashi N. Shah (Nepal)

Salem ~ohamed Orne ish (Libya)

~ichael Von Harpe (Germany)

Felix Alberto Camarasa (Argentina)

Oral Akman (Turkey)

You K wang Park (Korea)

Rodrigo ~. Guimaraes (Portugal)

~itiku Jembere <Ethiopia)

~s. ~aria Antonieta Dominguez (Honduras)

Patricio Rubianes (Ecuador)

Veikko Kantola (Finland)

Hugh W. Foster (United States)

J.A.L. Faint (United Kingdom)

Olivier Debains (France)

Horace G. Barber (Jamaica)

Gholam Kibria (Bangladesh)

Andre ~ilongo (Congo)

Riza Sapunxhiu (Yugoslavia)

Yang Guanghui (China)

Zenbei ~izoguchi (Japan)

330

Advisors To Executive Directors

Ezzedin ~. Shamsedin (Lebanon)

Arshad Farooq (Pakistan)

Navitalai Naisoro (Fiji)

Ernest Ako-Adjei (Ghana)

Alexander ~. ~user (Germany)

Pedro O. ~ontorfano (Paraguay)

Heiner Luschin (Austria)

Raymond L. Alexander (New Zealand)

James Nxumalo (Swaziland)

~amadou Alpha Barry (Guinea)

Alejandro De-Pedro-C. (~exico)

Svein Aass (Norway)

Ronald E. ~yers (United States)

Bernard ~orizet (france)

Soe Lin (Canada)

Patrick T. Downes (Ireland)

Chander Vasudev (India)

Ali ~ohamoud Kalfan (Somalia)

Yves-~arie T. Koissy (Cote d'Ivoire)

Idy Adama Diaw (Senegal)

Naoki Kajiyama (Japan)

Chairman

OFFICERS OF THE BOARD OF GOVERNORS

AND JOINT PROCEDURES COMMITTEE FOR 1986-87

OFFICERS Bahrain

Vice Chairmen ... . . . . . . . . . . . . . .. Argentina New Zealand

JOINT PROCEDURES COMMITTEE Chairman .......... . . . . . . . . . . .. Bahrain Vice Chairmen .................. Argentina

New Zealand Reporting Member . . . . . . . . . . . . . .. United States

Members ...................... Argentina Bahrain Belgium Burundi France The Gambia Germany Greece Guatemala Jamaica Japan Korea Malta Mauritania Mauritius New Zealand Saudi Arabia Singapore Tunisia United Kingdom United States Venezuela

331

REFERENCE LIST OF PRINCIPAL TOPICS DISCUSSEDI

Bank/Fund Collaboration ................ .

Bank Efficiency ....................... . Bank Shareholding ..................... . Borrowing Program .................... . Conditionality ......................... .

Debt/Baker Plan ....................... .

Environmental Concerns General Capital Increase

International Development Association ..... .

International Finance Corporation ......... .

Lending Instruments .................... .

Lending Level ........................ . Lending Patterns ....................... . Multilateral Investment Guarantee Agency .. .

Net Income ........................... . Net Transfers ......................... . Non-Financial Assistance ................ . Other Regional/Country Concerns ......... .

Population ............................ . Poverty Alleviation .................... . Private Investment ..................... . Privatization and Free Market ............ . Public/Private Ownership ................ . Sub-Saharan Africa .................... . Women .............................. .

32,46, 65, 71, 89, 135, 182, 185, 195,220 82, 85, 119 46,93 119 32,71,93,96, 170, 195,214,217, 220 32,35,39,50,54,62,65,69,71,76, 82, 85, 89, 93, 96, 101, 106, 112, 119, 129, 135, 143, 146, 150, 158, 170,176,182,185,190,195,199, 203,207,214,217,220 135, 143, 207 32,35,46,50,54,65,69,76,82,85, 89,93,96, 106, 112, 119, 124, 129, 133,135,143,146,150,170,176, 182,185,195,199,203,216,217, 220 32,46,50,54,65,76,82,85,89,93, 96, 106, 112, 119, 124, 133, 135, 143, 146, 150, 179, 182, 185, 199, 203,216,217,220 32, 50, 54, 65, 106, 124, 199, 203, 220 46, 54, 69, 82, 85, 124, 129, 133, 143, 182, 207, 220 32, 93, 124, 143, 146, 182 46,50, 143 32,54,106,119,124,135,185,199, 203 135 60, 150 46, 150,220 30, 39, 46, 60, 96, 101, 124, 135, 150, 158, 174, 216 135, 143 35, 93, 143 150 85 143 32,69,82,93, 179, 195 143

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

332

WORLD BANK/IFC/IDA

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