(Report) International Monetary Fund (1976) - Summary Proceedings of The Thirty-First Annual Meeting of The Board of Governor, October 4-8, 1976.

SUMMARY PROCEEDINGS
1976
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INTERNATIONAL
MONETARY FUND
SUMMARY PROCEEDINGS
OF THE THIRTY-FIRST ANNUAL MEETING
OF THE BOARD OF GOVERNORS
OCTOBER 4-8, 1976
WASHINGTON, D.C.


CONTENTS
PAGE
Introductory Note xi
Address by the President of the Philippines, Ferdinand E. Marcos 1
Opening Address by the Co-Chairman of the Boards of Governors,
the Governor of the Fund for the Syrian Arab Republic,
Mohammed Imady 4
Presentation of the Thirty-First Annual Report by the Chairman of
the Executive Board and Managing Director of the Inter-
national Monetary Fund, H. Johannes Witteveen 12
Discussion of Fund Policy at Second Joint Session
Report by the Chairman of the Interim Committee of the Board
of Governors on the International Monetary System, Willy
De Clercq 22
Statements by the Governors for
Netherlands—W. F. Duisenberg 25
Norway—Per Kleppe 30
Canada—Donald S. Macdonald 33
Japan—Teiichiro Morinaga 37
Ireland—Richie Ryan 44
Korea—Yong Hwan Kim 47
New Zealand—R. D. Muldoon 49
Thailand—Amnuay Viravan 52
Greece—Xenophon Zolotas 53
Malta—Daniel M. Cremona 57
Discussion of Fund Policy at Third Joint Session
India—C. Subramaniam 61
Italy—Gaetano Stammati 66
France—Bernard Clappier 71
United Kingdom—Sir Douglas Wass 79
Indonesia—AH Wardhana 82
Philippines—Cesar E. A. Virata 85
United States—William E. Simon 87
v

vi CONTENTS
PAGE
Austria—Hannes Androsch 103
Germany, Federal Republic of—Karl Otto Poehl 106
Algeria—Abdelmalek Temam 109
Discussion of Fund Policy at Fourth Joint Session
Report by the Chairman of the Joint Ministerial Committee of
the Boards of Governors on the Transfer of Real Resources to
Developing Countries (Development Committee), Henri
Konan Bedie 116
Central African Republic—Marie-Christiane Gbokou 119
Belgium—Willy De Clercq 127
Malaysia—Tengku Razaleigh Hamzah 132
Spain—Jose Maria Lopez de Letona 138
Mauritius—Sir Veerasamy Ringadoo 140
Guinea—N'Faly Sangare 143
Tanzania—A. H. Jamal 146
Luxembourg—Jacques-Frangois Poos 152
Singapore—Hon Sui Sen 158
Discussion of Fund Policy at Fifth Joint Session
Nepal—Bhekh B. Thapa 161
Pakistan—Rana Mohammad Hanif Khan 164
Iceland—Matthias A. Mathiesen 170
Costa Rica—Bernal Jimenez M 170
Australia—Phillip Lynch 177
Jamaica—David H. Coore 184
Israel—Moshe Sanbar 187
Yugoslavia—Momcilo Cemovic 189
Mexico—Ernesto Fernandez Hurtado 191
Bangladesh—M. N. Huda 197
Sri Lanka—Felix R. Dias Bandaranaike 200
Paraguay—Carlos Chaves Bareiro 205
Discussion of Fund Policy at Sixth Joint Session
Fiji—C. A. Stinson 210
Viet Nam—Tran Duong 213
Western Samoa—Vaovasamanaia R. P. Phillips 215
Papua New Guinea—Julius Chan 218
Egypt—Mohamed Zaki Shafei 222
Grenada—George F. Hosten 229
Afghanistan—Abdullah Malikyar 233

CONTENTS vii
PAGE
Lao People's Democratic Republic—Bousbong Souvannavong 236
China, Republic of—Kuo-Hwa Yu 238
Concluding Remarks
Statements by
The Governor of the Fund and Bank for Ireland, Richie Ryan 241
The Governor of the Fund for the Philippines, Gregorio S.
Licaros 241
The Chairman of the Executive Board and Managing Director
of the International Monetary Fund, H. Johannes Witteveen 243
The Co-Chairman of the Boards of Governors, the Governor
of the Fund for the Syrian Arab Republic, Mohammed
Imady 246
Schedule of Meetings 251
Provisions Relating to the Conduct of the Meetings 252
Agenda 253
Reports of the Joint Procedures Committee
Report 1 254
Annex I Review of Performance of the Development Com-
mittee—Recommendation of the Development Committee
and Report by the Executive Directors of the Bank and the
Fund 255
Annex II Transmittal of Proposed Resolution on Review of
Performance of the Development Committee 260
Report II 261
Annex I Report of the Development Committee 263
Annex II Rules for the Conduct of the 1976 Regular Election
of Executive Directors of the Fund 279
Statement of Results of Elections, October 5, 1976 285
Annex III Amendments of Rules and Regulations 289
Annex IV Membership for Guinea-Bissau 291
Annex V Membership for Surinam 292
Report IV 293
Resolutions
31-1 Remuneration of Executive Directors and Their Alter-
nates 294
31-2 Increases in Quotas of Members—Sixth General Review 295
31-3 Fifth General Review of Quotas—Nepal 299
31-4 Proposed Second Amendment to the Articles of Agree-
ment 300

viii CONTENTS
PAGE
31-5 Benefits of Executive Directors and Their Alternates 301
31-6 Membership for the Comoros 302
31-7 Membership for Seychelles 305
31-8 1976 Regular Election of Executive Directors 307
31-9 Review of Performance of the Development Committee. 308
31-10 Financial Statements, Report on Audit, and Administra-
tive Budget 308
31-11 Amendments of the Rules and Regulations 309
31-12 Membership for Guinea-Bissau 309
31-13 Membership for Surinam 311
31-14 1976 Regular Election—Ballots of Governors for Bahrain
and Oman 313
31-15 Appreciation. 314
Interim Committee of the Board of Governors on the International
Monetary System
Press Communique, October 2, 1976 315
Composition (as of October 2, 1976) 318
Announcement, October 6, 1976 319
Joint Ministerial Committee of the Boards of Governors of the Bank
and the Fund on the Transfer of Real Resources to Developing
Countries (Development Committee)
Press Communique, October 3, 1976 320
Announcement, October 6, 1976 324
Attendance
Members of Fund Delegations 325
Observers 341
Executive Directors, Alternates, and Advisors 344
Reference List of Principal Topics Discussed 345

STATEMENTS BY GOVERNORS
Listed in Alphabetical Order by Country
PAGE
Afghanistan—Abdullah Malikyar 233
Algeria—Abdelmalek Temam 109
Australia—Phillip Lynch 177
Austria—Hannes Androsch 103
Bangladesh—M. N. Huda 197
Belgium—Willy De Clercq 127
Canada—Donald S. Macdonald 33
Central African Republic—Marie-Christiane Gbokou 119
China, Republic of—Kuo-Hwa Yu 238
Costa Rica—Bernal Jimenez M 170
Egypt—Mohamed Zaki Shafei 222
Fiji—C. A. Stinson 210
France—Bernard Clappier 71
Germany, Federal Republic of—Karl Otto Poehl 106
Greece—Xenophon Zolotas 53
Grenada—George F. Hosten 229
Guinea—N'Faly Sangare 143
Iceland—Matthias A. Mathiesen 170
India—C. Subramaniam 61
Indonesia—Ali Wardhana 82
Ireland—Richie Ryan 44
Israel—Moshe Sanbar 187
Italy—Gaetano Stammati 66
Jamaica—David H. Coore 184
Japan—Teiichiro Morinaga 37
Korea—Yong Hwan Kim 47
Lao People's Democratic Republic—Bousbong Souvannavong. . . 236
Luxembourg—Jacques-Frangois Poos 152
Malaysia—Tengku Razaleigh Hamzah 132
Malta—Daniel M. Cremona 57
Mauritius—Sir Veerasamy Ringadoo 140
Mexico—Ernesto Fernandez Hurtado 191
Nepal—Bhekh B. Thapa 161
Netherlands—W. F. Duisenberg 25
ix

x STATEMENTS BY GOVERNORS
PAGE
New Zealand—R. D. Muldoon 49
Norway—Per Kleppe 30
Pakistan—Rana Mohammad Hanif Khan 164
Papua New Guinea—Julius Chan 218
Paraguay—Carlos Chaves Bareiro 205
Philippines—Gregorio S. Licaros 241
Cesar E. A. Virata 85
Singapore—Hon Sui Sen 158
Spain—Jose Maria Lopez de Letona 138
Sri Lanka—Felix R. Dias Bandaranaike 200
Tanzania—A. H. Jamal 146
Thailand—Amnuay Viravan 52
United Kingdom—Sir Douglas Wass 79
United States—William E. Simon 87
Viet Nam—Tran Duong 213
Western Samoa—Vaovasamanaia R. P. Phillips 215
Yugoslavia—Momcilo Cemovic 189

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INTRODUCTORY NOTE
The Thirty-First Annual Meeting of the Board of Governors of the

International Monetary Fund was held in Manila, Philippines, from
October 4 through October 8, 1976, jointly with the Annual Meetings
of the Boards of Governors of the International Bank for Reconstruc-
tion and Development, the International Finance Corporation, and the
International Development Association. The Hon. Mohammed Imady,
Governor of the Fund for the Syrian Arab Republic, and the Hon. Sadek
Ayoubi, Governor of the Bank and its affiliates for the Syrian Arab
Republic, served as Chairmen.
These Summary Proceedings include statements (or portions of state-

ments) relating to the work of the Fund presented by Governors during
the Meetings, resolutions adopted by the Board of Governors of the
Fund over the past year, reports and recommendations of the Joint
Procedures Committee, material pertinent to the 1976 regular election
of Executive Directors, and other documents relating to the Meetings.
The statements are arranged in chronological order; the insertion of
dots ( . . . ) within statements indicates where passages have been omitted.
Many of the statements at the Meetings referred to international
monetary reform and the proposed amendment to the Fund Agreement.
A separate Supplement to these Summary Proceedings reproduces the
text of the Proposed Second Amendment to the Articles of Agreement
of the International Monetary Fund: A Report by the Executive Direc-
tors to the Board of Governors, initially issued by the Fund in March
1976. The Supplement contains the Report by the Executive Directors,
including the text of the proposed amendment to the Articles of Agree-
ment, and an index to the proposed Articles. The Appendix to Part II
of the Report containing a comparison of the present and the proposed
Articles of Agreement has not been included in the Supplement.
A reference list of principal topics discussed in the statements will
be found on pages 347-49.
XI

xii SUMMARY PROCEEDINGS, 1976
Statements relating to the work of the Bank are reproduced in the

Summary Proceedings of the Annual Meetings of the Bank and its
affiliates, issued by the Bank.
W. LAWRENCE HEBBARD
Secretary
International Monetary Fund
Washington, D. C.
November 16, 1976

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ADDRESS BY THE PRESIDENT OF THE

PHILIPPINES1
Ferdinand E. Marcos
It is a pleasure for me to welcome, on behalf of the Government and

people of the Philippines, the distinguished officials, delegates, and
guests at these joint Annual Meetings of the Governors of the Inter-
national Monetary Fund and the International Bank for Reconstruction
and Development.
We are singularly honored that on their first conference in Southeast
Asia, the Bank and the Fund have chosen to meet here in the
Philippines. We have looked forward to this event, and we are confident
that it will have far-reaching effects on the welfare of nations and
millions of peoples around the world.
In the last few years, a world in crisis has made of these Annual
Meetings of the Bank and the Fund a forum for searching deliberations
on the overriding economic and social problems of this decade. The
severity of the crisis has ebbed but we have not entirely overcome its
effects. As the Governors so clearly appreciated in previous meetings,
urgent, specific problems have merely underlined the larger issues.
To the simultaneous incidence of inflation and recession, both
developed and less developed countries have addressed substantial
parts of their energies over the last few years. A combination of
national and transnational strategies has succeeded in restoring growth
to many economies. The developing countries, upon whom the burdens
of inflation and material shortages weighed the heaviest, by a remark-
able exercise of national will have shown themselves stronger than the
grimmest prognosis.
Yet recovery is shadowed by fears and actual perils of a relapse into
crisis. The full results of policies and actions taken in earlier years still
have to materialize in forms that truly enhance the well-being of all
our countries. We stand on the threshold of great expectations, antici-
pating the best from all those policies and actions, but it is doubtful
that what we have done is enough to meet all the residual, recurrent,
and altogether new problems.
1
Delivered at the Opening Joint Session, October 4, 1976.

2 SUMMARY PROCEEDINGS, 1976
Already, published studies of the world economic outlook, and in

particular of the prospects of the developing countries, project unprece-
dented payments deficits at the end of the year and grave problems for
the rest of the decade. While official development assistance has de-
clined from 0.52 per cent in 1960 to 0.32 per cent in 1975, substantial
amounts now need to be channeled to the developing countries if
reasonable growth targets are to be achieved.
We have learned that behind the many problems of specific urgency
and effect is the implacable face of human poverty. This is the real
beast we have to subdue. In the case of the Philippines, ours is a free en-
terprise society with an egalitarian base. We are restructuring that society,
on the basis of the rebellion of the poor, without necessarily converting
the neediest of these into mendicants. Commensurate with every effort we
have taken to combat inflation and recession, we have taken cognizance of
the need to restructure the economic relationships among nations. But
sentiment alone, though it may travel at an unusually high velocity, will
not suffice; proposals must now pass into programs that work. We
must step into authentic expansion and growth.
Needless to say, substantive differences remain as to how each nation
or a group of nations looks at the new order that we must evolve.
Whatever these differences between nations or groups of nations, they
do not postpone the need to rectify global conditions. The global rebel-
lion of the poor has begun. It must succeed. Unless we conquer poverty
in our time, we shall forever continue to move from problems caused
by poverty to problems that cause more poverty.
For this reason, we look to the International Monetary Fund and
the World Bank for relief. Both institutions have an impressive record
of service to the world community. In recent years, the Bank has
adopted a new approach to world development that stresses above all
the need to confront poverty. It has insisted that the pressures of crisis,
though they require urgent treatment of specific problems such as infla-
tion and payments deficits, must at no time obscure, let alone com-
promise, meaningful programs of social change.
In the Fund, some beginning has been made toward international
monetary reform. Governors of the Fund have approved a far-reaching
series of amendments to the IMF Articles of Agreement concerning
exchange rate arrangements, special drawing rights, and the role of gold
in the emerging system. I hereby announce today the acceptance by the
Philippine Government of the second amendment of the Articles of
Agreement of the IMF, and call upon other member countries to accept
this amendment, which may yet rectify the regrettably small role of the
developing countries in the Fund's decision-making process and which
conforms to the Manila Declaration and Program of Action.

ADDRESS BY PRESIDENT OF PHILIPPINES 3
But these developments, although commendable and significant, form

only part of a necessarily larger transformation process. Policies must
now be matched with sufficient will and resources. Commitment to the
development of Third World countries must now support the develop-
ment not only of the poor but of the poorest.
Specifically, there is need to generate capital that would be available
for those in need, to reform the terms and conditions of capital trans-
fers or lending programs and policies. The replenishment of IDA funds
and the selective increase of capital of the Bank directly support these
objectives. It accords to the ideal of a reformed international order to
sustain the flow of capital from the developed to the developing coun-
tries as well as to have the latter find greater access to more stable
markets and receive the consideration that they deserve in the servicing
of payment of their foreign debts.
Today, the IMF and the IBRD have the historic opportunity of
bringing to a denouement the infinite and patient efforts akin to those
being waged in the United Nations General Assembly, the Economic
and Social Council of the United Nations, the United Nations Con-
ference on Trade and Development, the North-South dialogue, and
many other organizations and forums to bring about a reformed global
environment. By their definitive act, they can alter the social equation
for those who have until now borne the weight of human poverty and
want.
The limit of the possible has not been reached. This meeting in
Manila affords these two great world institutions the historic occasion
to go now beyond it. In all realism, it invites you to undertake the
effort that would extend for millions the dimensions of life on this planet.
I wish you all success in this endeavor.

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OPENING ADDRESS BY THE CO-CHAIRMAN OF THE

BOARDS OF GOVERNORS, THE GOVERNOR OF THE
FUND FOR THE SYRIAN ARAB REPUBLIC1
Mohammed Imady
It is a great privilege to follow the distinguished President of the

Republic of the Philippines in addressing this thirty-first joint meeting
of the Boards of Governors of the International Monetary Fund and
the World Bank. The welcoming speech of President Marcos reflects
the gracious friendship and hospitality with which the Philippines has
received us. Indeed, the cordial welcome extended to us by the delightful
city of Manila will long remain in our memories. May I voice at this
time the appreciation of all participants at this joint meeting for the
personal efforts of the President and the First Lady to provide us with
this magnificent new convention center designed by the talented Filipino
architect, Leandro Locsin, whose building combines innovative effi-
ciency with artistic design.
As Chairmen of the Boards of Governors, Chairman Ayoubi and I
wish to add our greetings to those of President Marcos. We welcome
the Governors, their alternates, our observers, and special guests. A
special welcome is extended to the Governor for Papua New Guinea,
which is participating for the first time as a member of our institutions,
and to the Fund's newest member, the state of the Comoros. Special
greetings are also offered the observers from Cape Verde, Maldives,
and Sao Tome and Principe, which have applied for membership, and
from Seychelles, whose membership Governors have already approved,
and to Guinea-Bissau and Surinam, whose memberships are on our
agenda here.
To these expressions of good will, I am pleased to add the greetings
and best wishes of my own country, the Syrian Arab Republic, which
I am honored to represent as Governor of the Fund. Throughout the
ages many phrases have been coined to describe Syria—land of
prophecies, birthplace of the world's earliest alphabet, cradle of civili-
1
Delivered at the Opening Joint Session, October 4, 1976. Mr. Mohammed
Imady, Governor of the Fund for the Syrian Arab Republic, and Mr. Sadek
Ayoubi, Governor of the Bank, IFC and IDA for the Syrian Arab Republic,
acted as Chairmen of the Annual Meetings.

ADDRESS BY CO-CHAIRMAN OF BOARDS OF GOVERNORS 5
zation, and crossroads of three continents. Ancient in its proud Arab

heritage, and modern in its aspirations, Syria is all these things. It is
also a developing country, involved in a struggle to help restore pros-
perity and a just peace to the troubled Middle East.
Our Annual Meetings provide the occasion once again for reviewing
the state of the world economy and the important developments in the
work of the Fund and the World Bank.
This year, 1976, is expected to be a favorable one for the industrial
countries in particular and consequently—although to a lesser degree—
for the world economy as a whole. Recovery is now well under way
and firmly established in the industrial countries. These countries,
which suffered from a negative rate of growth in 1975, are now
expected to achieve a rate of around 6 per cent in real gross national
product. Moreover, they have also achieved during this year a some-
what limited success in combating inflation, though its expected rate
remains high when compared with the average during 1962-72.
There is no doubt that these favorable developments in the industrial
countries will have a positive impact on the economy of the non-oil
developing countries. The export volume of these countries, which
stagnated in 1975, is expected to grow by more than 8 per cent in
1976. Partly as a result of these developments, it is expected that their
current deficits will decline from $37 billion in 1975 to $32 billion
in 1976.
Despite these favorable developments, the undeniable fact remains
that the current balance of payments situation of the non-oil developing
countries remains a source of serious concern. This becomes very clear
when one realizes that their cumulative current deficits during the
three-year period 1974-76 are expected to reach around $98 billion—
far higher than during any previous three-year period. Indeed, the ratio
of current deficits to exports of a major group of non-oil debtor coun-
tries increased from 10.8 per cent in 1973 to around 30 per cent in
1976. As a result, the external debt of developing countries reached a
very high level which is estimated to be more than $130 billion. The
seriousness of the problem is intensified by the fact that most of the net
capital inflow to non-oil developing countries during the last three years
was contracted on terms harder than before.
While concern is warranted, exaggerated fears are not justified.
These countries cannot continue incurring such large current deficits
and financing them on hardened terms without facing serious external
debt problems in the near future. Action is required to avoid the emer-
gence of such problems. This action must be taken by the developing
countries, the industrial countries, and the international financial
institutions.

The developing countries have asserted in many international forums

that the task of their development devolves primarily upon themselves.
Indeed, many of them have taken measures to improve the mobilization
of their domestic resources and to diversify their exports. The savings
of poor people in poor countries have provided a far larger proportion
of development investment than have external resources. But the effec-
tiveness of national development efforts is adversely affected by unfa-
vorable international developments and a lack of positive action in the
fields of trade, commodity stabilization, and concessionary aid.
There is no doubt in my mind that the growing current deficits of
the non-oil developing countries during the last three years and the
subsequent sharp increase in their indebtedness are mainly attributable
to the external forces of inflation and recession in the industrial world.
The limited recovery of the past year has had some favorable impact
on the developing nations. Regrettably, no discernible progress has yet
been made in the cooperative struggle needed to achieve a new, and
more equitable, international economic order. Such a new order re-
quires the development of institutions and practices to redress the
imbalances of present international market forces. Market forces can
be an equitable and efficient means of allocation when wealth and
economic power are fairly balanced. When large disparities exist, as
they do in today's world, the market works only in favor of the rich
and the powerful.
In the industrial countries themselves, the social progress of the past
century has centered on the efforts of progressive people, governments,
and labor unions to humanize the market's blind forces. The developing
countries now urge a similar effort at the international level.
The means necessary to this end have been discussed at length at
international meetings in Lima, Nairobi, Colombo, and'the continuing
dialogue in Paris. The essentials are a common fund for buffer stock
financing and real progress in winning developing countries freer access
to developed countries' markets to help improve their terms of trade
and export performance.
The industrial countries must intensify their efforts to reach the sec-
ond development decade's target of devoting 0.7 per cent of their gross
national product to development assistance; their present rate is less
than half that target. The need for such increased aid flows has been
dramatically underlined by a World Bank study showing that additional
capital transfers of $30 billion to $40 billion a year will be needed to
meet the United Nations' goal of 6 per cent annual growth in the 1970s.
The aid performance of the Organization of Petroleum Exporting
Countries during the last three years, and particularly of the Middle

East oil producers, has been remarkable. This performance is even

more commendable when it is remembered that it is based on the
exportation of depletable wealth, rather than renewable income sur-
pluses, and that it is not tied to donor country procurement or used as
a mechanism for utilizing idle capacity or for alleviating unemployment.
Against this background, the International Monetary Fund has
recently taken an important step in the process of international mone-
tary reform toward which it has been moving since the collapse of the
Bretton Woods system in late 1971. As Chairman of the Board of
Governors of the International Monetary Fund, I had the privilege
earlier this year of bringing before the Board the proposals of the
Executive Directors for modifications of the Articles of Agreement that
will provide a more realistic international monetary system.
These proposals—embodied in a draft amendment—were approved
by a resolution of the Board of Governors on April 30, 1976 and now
await acceptance by member governments. They bear witness both to
the ability of the Fund, through its members, to reach compromises on
difficult issues and to the Fund's concern for the interests of all mem-
bers. I urge all members to speedily ratify these amendments.
This second amendment of the Articles of Agreement leaves the
time-honored purposes of the Fund unchanged. It also does not alter
substantially members' entitlement to access to the general resources of
the Fund or the conditionality of their use, features which are intended,
as before, to safeguard both the Fund and its members. The amend-
ment does, however, bring substantial changes in regard to exchange
arrangements, gold, and the SDR.
The new Article IV on exchange arrangements will legalize the float-
ing of exchange rates that has been widely practiced since 1973 by
permitting member countries to have exchange arrangements of their
choice. The amendment reflects a sense of realism and creates possi-
bilities for a more effective adjustment process.
But floating is not and cannot be totally free—for the simple reason
that no country can realistically abstain from trying to influence such
an important economic variable as its exchange rate. It is, thus, all the
more necessary that international rules be agreed upon to ensure that
situations of serious conflicts do not emerge and that the burden of
adjustment is equitably shared.
Some rules may already exist in the form of implicit or explicit
understandings among major central banks. The issue of adjustment is,
however, the concern of the international community as a whole: its
failure affects all countries, and often the developing countries the

most. The rules for such adjustments should be agreed upon within the
Fund and administered by that institution.
The second amendment also brought important changes in reducing
the role of gold in the international monetary system with the objectives
of making the SDR the principal reserve asset. The SDR has begun to
establish itself in a variety of ways: as a currency peg, as a unit of
account in international transport, for bond issues, and as a definition
of obligation in many international agreements. The sale of IMF gold
goes a long way toward reducing the monetary role of gold. Never-
theless, if national gold reserves are valued at market-related prices—
in view of the expected legalization of the use of gold between central
banks—the share of SDRs in total international reserves would be
reduced to less than half the 7 per cent it constituted when the new
reserve unit was first distributed. Thus, further action is still needed to
enhance the SDR's role as a reserve asset. The growth of international
reserves must be internationally and cooperatively controlled if stability
is to be restored to the world monetary system.
The developing countries must also be given a fair share in non-
earned reserve increases. The share of the non-oil developing countries
in future SDR allocations should be greater than called for under the
present criteria, perhaps 50 per cent of the total reserves to be created.
The allocation of a larger share of new SDRs to the developing
countries is justified by the greater reserve needs of these countries:
their exports are more vulnerable, their flexibility in adjusting imports
more limited, and they lack the access to alternative sources of liquidity
and balance of payments support enjoyed by the industrial countries.
I would urge the Interim Committee to give due consideration to the
needs of the non-oil developing countries in recommending new alloca-
tions of SDRs.
In the past year, the Fund, under the competent leadership of
Mr. Witteveen, has made commendable progress in enlarging its role
in a number of fields. There has been a substantial expansion in mem-
bers' use of the Fund's resources, with drawings reaching an unprece-
dented SDR 6.6 billion. Both developed and developing countries have
benefited. The Sixth General Review of Quotas, the establishment of
the Trust Fund, the temporary enlargement of members' credit tranches
by 45 per cent, and the liberalization of the compensatory financing
facility will add greatly to the ability of the Fund to fulfill its objectives.
The World Bank Group—the Bank, the International Development
Association (IDA), and the International Finance Corporation (IFC)—
has made an increasingly valuable contribution to economic development
in the Third World in recent years. We are delighted to witness the

progress it has achieved under the dynamic leadership of Mr. McNamara

in a number of development fields, most notably in assisting the urban
and rural poor through projects aimed directly at increasing their
productivity.
We are concerned, however, that the Bank and IDA are making
decreasing use of one of their most effective aid mechanisms: program
lending. In its early years, when some developed countries still needed
Bank assistance, program loans constituted about 38 per cent of Bank
operations. For the immediate future, a level of only 4 to 7 per cent is
planned; we feel this should be raised to some 15 per cent. Many of
the balance of payments problems facing developing countries are
structural in nature, and cannot be adequately remedied by Fund
financing or short-term stabilization programs. The required solution to
such problems is quickly disbursing long-term financing which will
allow longer-term structural remedies to be devised. This can only be
provided through Bank program lending.
Increases in the level of assistance the World Bank can offer the
developing world are also urgently needed.
After prolonged and arduous negotiations, the Bank's Executive
Directors have approved a recommendation to the Board of Governors
to selectively increase its capital by $8.2 billion, the minimum amount
needed to avoid an actual slowdown in lending because of the statutory
limits imposed by the Bank's Articles of Agreement. Under the pro-
posed selective capital increase, the Board has been able to approve a
Bank lending program of $5.8 billion for the present fiscal year.
We fully support this proposed capital increase. We recommend its
speedy approval by the Board of Governors, and urge all our member
countries to fully subscribe to the shares offered to them.
It must be noted, however, that the agreement to recommend the
selective capital increase was won only at a high price. This price will
be paid by the developing countries—those very countries that the
Bank was created to assist. The price included an understanding that
future yearly lending programs would be based on an assumption that
no general increase in the Bank's capital would be forthcoming. Thus,
the Bank's annual lending will be frozen at $5.8 billion current dollars,
with shortened grace and maturity periods. In real terms, this agree-
ment means a decline in future lending.
Such a decline was probably inevitable, in the absence of a general
increase in the Bank's capital. But to insist—as did certain member
countries—on such a freeze in lending as an explicit condition for the
selective capital increase was constrictive and contrary to the spirit of
international cooperation for development.

A further price was paid in the adoption of an automatic formula

under which the Bank's lending rate will be set automatically each
quarter at a level Vi of 1 per cent higher than its borrowing costs in
the previous quarter. This formula was initiated in July and forced an
increase in the lending rate to 8.9 per cent.
We firmly believe that this formula is not necessary to ensure the
Bank's financial soundness. The World Bank is very sound already;
the new lending rates will have a nearly negligible impact on the finan-
cial ratios which demonstrate this soundness. Worst of all, the price
will be paid directly by the developing countries—at a time when they
are already faced with serious payments and external debt problems.
Continuation of this formula could transform the World Bank from the
world's leading development institution into a commercial institution.
We urge the Executive Directors to reconsider this decision. It should
be abolished as soon as practicably possible.
The World Bank is clearly the most important of the world's multi-
lateral development institutions. A continued expansion of its oper-
ations is of paramount importance to the developing countries. We
urge that planning for a vitally necessary general increase in its capital
be undertaken as quickly as possible.
Negotiations toward a Fifth Replenishment of the IDA have been
under way for more than a year. The urgency of this replenishment
has increased with the realization that quick action is necessary if
IDA's commitment power is to be extended beyond July 1977, a very
short nine months from now.
I cannot overly stress the importance of IDA. It is the strongest
financial link—now amounting to more than $10 billion—between the
international community and its poorest members. The developing
countries attach the greatest importance to replenishing its resources,
at the very least, to the real level of IDA IV.
Most unfortunately, the very slow progress of negotiations so far has
given rise to fears that the whole future of IDA may be at stake. We
urge those industrial countries which have fallen behind in their efforts
to reach the United Nations' target of devoting 0.7 per cent of their
gross national product to official development assistance to show their
determination to reach this goal by agreeing to a generous Fifth
Replenishment of IDA.
The Executive Directors have also acted to strengthen the World
Bank's potential involvement in the private sector of developing country
economies by authorizing a major increase—from $107 million to $480
million—in the capital of the IFC. In its 20 years, IFC—the only inter-

national financial institution focusing on the private sector—has com-

mitted $1.5 billion to 271 enterprises in 61 countries. Last year, the
Corporation and its associated investors accounted for some 7 per cent
of net nonpetroleum investment in the developing countries.
Increasing IFC's resources more than fourfold would allow the Cor-
poration a much greater impact. It would enable it to expand its role
as promoter and honest broker to undertake more and larger projects
and to join more fully with private capital sources in such fields as
natural resource development. Increased capital would also allow IFC
a deeper involvement in both projects and financial institutions in
smaller and less developed countries—in Africa and elsewhere—in
which market structures do not yet allow small entrepreneurs to fulfill
their potential.
The activities of the International Monetary Fund and the World
Bank—under the imaginative leadership of Mr. Witteveen and Mr.
McNamara—have contributed significantly to improving the well-being
of the world community. The need for further monetary reform and
expanded development assistance is still great. The disparity between
the wealth of nations continues to widen; stability in their financial
relationships has not yet been achieved.
Greater economic security and prosperity in the developing countries
will allow for the increase in international production and trade which
is the only real answer to the need for growth without inflation: ulti-
mately, it will benefit the industrialized countries as much as their de-
veloping neighbors. A stable, equitable, and internationally controlled
monetary framework must be created as the basis for this relationship.
Until these twin goals are achieved, world progress—and, indeed,
world peace—will continually be threatened.
Two hundred years ago, Adam Smith wrote of the wealth of nations.
Since then that wealth has multiplied to a level unimaginable in 1776.
The question before our international community is not one of sharing
the wealth a few nations possess today. Our goal instead must be the
creation of a new order that will put today's wealth to its most produc-
tive uses, to join in a cooperative effort to invest in a more prosperous
future for all nations.

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PRESENTATION OF THE THIRTY-FIRST

ANNUAL REPORT1
BY THE CHAIRMAN OF THE EXECUTIVE BOARD AND

MANAGING DIRECTOR OF THE INTERNATIONAL MONETARY FUND
H. Johannes Witteveen
Mr. Chairman, I join you in thanking President Marcos for his

cordial welcome, and in expressing our gratitude to the Government
and people of the Philippines for the friendship with which we have
been received. We are tremendously impressed by this beautiful inter-
national convention center, which provides facilities that are perhaps
unequaled anywhere else in the world. In greeting assembled delegates
and guests, may I extend a special welcome to the Comoros, our newest
member, and also to the representatives of the several prospective mem-
bers who are attending our deliberations for the first time.
In my remarks today, I will deal first with the current economic
recovery, and what I see as the principal dangers in the way of a
successful transition to sustainable growth. Next, I want to discuss the
international adjustment process. I will also report on the work of the
Fund and comment on the Fund's role under the amended Articles.
The Annual Report of the Executive Directors, which I have the
privilege of presenting to you, traces a number of encouraging develop-
ments since we met last year in Washington. The world economy is
completing its first year of recovery from the most severe recession in
four decades. Production in the industrial countries has, in general,
expanded at a satisfactory pace, and rates of inflation have been
brought down from the very high levels of 1974 and 1975. The impact
of these improvements in the industrial countries is being felt in
primary producing countries throughout the world.
One disturbing aspect of the present recovery, however, is that rates
of price increase are still very high. Among industrial countries, infla-
tion is running at an annual rate of 7 per cent this year. The continuing
high rate of unemployment is equally a cause for serious concern.
Although this rate may be expected to move down as recovery pro-
October 4, 1976.
12

ADDRESS BY MANAGING DIRECTOR 13
ceeds, unemployment in the industrial countries seems likely to remain

for some time at a high level by postwar standards.
National authorities are now confronted with the disturbing prospect
that policies to expand production and reduce unemployment may at the
same time aggravate the problem of inflation. Assessment of this risk is
clouded by uncertainties as to both the degree of existing spare capacity
and the response of inflation to the speed with which capacity is
absorbed. Although the 1974-75 international recession was severe, the
actual extent of available economic slack may be considerably less
than would be indicated by unemployment statistics and other conven-
tional measures of the utilization of resources. There is a danger, there-
fore, that the sense of repugnance we all feel for the social injustice of
unemployment might engender political pressures that will work for a
more rapid absorption of spare capacity than can be achieved without
producing a renewed acceleration of price increases.
I must stress that the social and economic costs of inflation, though
less immediate and less obvious than those of unemployment, can prove
to be even more corrosive. In present circumstances, continuation of
the recovery would be threatened by policies that resulted in higher
inflation. In a longer-term perspective, inflation redistributes wealth
and income arbitrarily, undermines confidence, reduces investment
incentives, and misallocates resources.
One of the elements in this chain of consequences may be a reduc-
tion in real profit margins. The recent international recession, which
was itself a consequence of various inflationary developments analyzed
in the Fund's Annual Report for 1975, had a particularly unfavorable
impact on business profits.
Even before this, the authorities in several of the industrial countries
were concerned over an apparent tendency in the past decade or so for
profit margins to become eroded. Such a tendency runs counter to the
textbook theory that profits benefit in an inflationary environment. But
this theory has perhaps not made sufficient allowance for certain phe-
nomena, such as the adverse effects on economic growth of "stop-and-
go" demand policies, directed alternately to checking inflation and
sustaining expansion, and the strength of cost-push forces in a climate
where political pressures often lead to price controls—with a result that
the share of profits may not be maintained. Pressures on the profit posi-
tion, in turn, have tended to undermine the incentive to invest and to
retard the growth of economic capacity, thus creating concern over the
possible emergence of supply bottlenecks as the current economic
recovery becomes further advanced. In some countries, such difficulties
may be compounded by the size of the government's claim on the

national product, and a reduction in the growth of the public sector

over the medium term may in these cases be a major policy require-
ment for the achievement of higher levels of saving and investment. For
reasons such as these, the growth of output is retarded in an infla-
tionary environment, and the objective of sustained full employment
becomes harder and harder to achieve.
As testified by the Annual Report, there is now a wide measure of
agreement that it would be a mistake to base policies on the assumption
of any long-run "trade-off" between inflation and unemployment. As
the Report points out, recent experience clearly indicates that the
effects of policies aimed at stimulating growth and employment are
likely to be short lived unless the currently high rate of price inflation
is brought down and inflationary expectations are greatly reduced.
Abatement of inflation will not come about unless fiscal and monetary
policies are able to achieve and maintain restraint over the rate of
growth in aggregate demand. These policies must be adhered to firmly,
and policy risks must not be shaded—as they often were in the later
1960s and early 1970s—so as to extract additional output in the
short term.
Restraint over the expansion of demand will be more effective, and
is likely to command wider support, if it is accompanied by various
supplementary policy measures. Depending on the particular circum-
stances of countries, such measures might include antitrust measures,
action on supply bottlenecks, specific measures of relief and retraining
to cushion the hardships of unemployment and help reduce its level,
and incomes policies to reconcile the claims of competing groups on the
national product. These measures, however, must not be allowed to
distract attention from the central need to retain control over the
national budget and over the rate of monetary expansion.
If faithfully adhered to, this type of policy should enable the indus-
trial countries to lay the basis for sustained economic growth and a
reduction of unemployment. These countries have a responsibility not
only to their own populations but also to the primary producing coun-
tries, whose prospects depend so much on developments in the indus-
trial world. A policy of cautious demand expansion in the industrial
countries, although creating the best possible prospects under the cir-
cumstances, may nevertheless mean a slower growth of their imports
than would have been visualized a few years ago. This change may
have particular impact on the non-oil developing countries.
Cautious demand policies in the industrial countries therefore need
to be supplemented by measures to improve market access for the
exports of non-oil developing countries and to increase the flow of

official development assistance. In this regard, it is gratifying that the

industrial countries increased the real volume of official development
assistance during the recent international recession, thereby reversing
the downward trend in previous years, and that the oil exporting coun-
tries have sharply expanded their flows of aid. Nevertheless, the general
level of assistance being provided remains very inadequate in face of
the huge disparities in wealth and income among countries.
The approach to economic policy in the industrial countries that I
have outlined focuses attention on the medium-term objectives of
policy. It is not an easy strategy to follow, and will undoubtedly be
subject to short-term pressures for change. Adherence to this policy
will require skill, patience, and courage over an extended period.
I turn now to the international environment more generally. In
recent years, trade and capital flows have been affected to an extra-
ordinary degree by abnormal events and cyclical influences: a com-
modity boom, sharply higher energy prices, accelerated inflation, reces-
sion, and now resumption of economic expansion. These developments
have taken place in the context of an international monetary system
in flux.
The traditional pattern of current account balances that prevailed
until 1973 has changed substantially. Particularly striking are the huge
increase in the surplus of the major oil exporting countries and the
roughly similar increase in the deficit of other primary producing
countries.
In 1974, when the surplus of the oil exporting countries rose steeply
to some $65 billion, the three largest industrial countries—the United
States, the Federal Republic of Germany, and Japan—were embarking
on resolute anti-inflation measures. The impact of these measures on
their current account positions was dramatic. Oil-related deficits in the
three countries were rapidly offset by positive changes elsewhere in the
current account; indeed, the non-oil components of their current
account balances showed improvements from 1973 to 1974 that totaled
more than $30 billion. Inevitably, these big shifts—though not in
themselves an objective of policy—put strong downward pressure on
the current account positions of other oil importing countries. In par-
ticular, the combined deficit of primary producing countries rose from
$8 billion in 1973 to $43 billion in 1974.
The deepening and spreading of the international recession during
1975 had further pronounced effects on current account balances. The
balances of industrial countries improved as their demand for oil
declined and their exports to oil surplus countries grew rapidly. In part
because of the recession, but mainly because of rapid import expansion,

the combined current account surplus of the oil exporting countries fell
substantially in 1975. The non-oil primary producing countries suffered
from a weakening of demand in their principal markets and a sharp
deterioration in their terms of trade, and their combined deficit rose
further in 1975, to more than $50 billion.
Now, however, the resumption of economic expansion and import
growth in the industrial world is providing a new and different setting
for international payments adjustment. A number of the industrial
countries are running current account deficits, and in Italy and the
United Kingdom recurrent weakness in the current account was com-
pounded earlier this year by pressures in the capital account. In the
United States, the very large current account surplus that was realized
in 1975 seems likely to disappear this year—a predominantly cyclical
development tending to improve the positions of many other countries.
However, according to Fund staff estimates, the traditionally large
current account surplus of the Federal Republic of Germany will be
maintained in 1976, while the Japanese balance will move from a small
deficit in 1975 to a sizable surplus.
With the volume of world trade expected to grow by more than
10 per cent in 1976, prospects for current account improvement are
generally more favorable for the non-oil deficit countries than at any
time since 1973. It will be very important to seize this opportunity to
put the pattern of world payments on a more sustainable basis—a
development which will require internationally cooperative policies on
the part of surplus countries, as well as effective actions by deficit
countries.
Balance of payments deficits present problems of financing and of
adjustment. The emphasis that should be given to these two aspects of
the problem naturally differs according to the situation. At the time of
the oil price increase at the beginning of 1974, the immediate danger
was that countries would adopt measures of adjustment that would have
been deflationary and self-defeating, inasmuch as it was not possible for
the oil exporting countries to absorb, in the short run, sufficient imports
to eliminate their surpluses. Therefore, the Fund supported arrange-
ments designed to finance oil deficits for a time and established its own
011 facility for this purpose. Undoubtedly, these policies were successful
in preventing external restrictions and aggravation of the international
recession. But the world economy is now recovering, and is moving into
a situation where the main danger is no longer a deepening of recession
but a resurgence of inflation.
For this reason, the time has come to lay more stress on the adjust-
ment of external positions and less emphasis on the mere financing of

deficits. Additional urgency is lent to this need by the buildup of

short-term and medium-term debt resulting from the financing of recent
years. This is beginning to affect the creditworthiness of some bor-
rowers and to create the possibility of economic and financial diffi-
culties. I may recall that the central principle of the Fund is the revolv-
ing character of its financial resources. It was never intended that these
resources should be used to help perpetuate balance of payments
disequilibria. They are intended to cushion the costs of adjustment to
a more sustainable equilibrium.
The increased flexibility of exchange rates in recent years should
help the process of adjustment. Until now, exchange rate movements
have compensated fairly well for differences in inflation among coun-
tries. But beyond this, they have not contributed as much to adjustment
as might have been hoped. There are several reasons for this.
The oil exporting countries want to diversify their economies. Under-
standably, they have not been prepared to accept an adjustment of their
exchange rates that would render their non-oil sectors uncompetitive,
and have preferred to accumulate financial assets. Other surplus coun-
tries, although not under the same compulsion to protect their competi-
tive position, have channeled their surpluses easily and almost auto-
matically into international capital markets. In this way, real adjustment
that might involve a loss of competitiveness for domestic industry has
also been avoided by those countries. At the same time, financing has
been readily available to deficit countries. And while capital markets
have given deficit countries the means to borrow, domestic objectives
have given them the incentive. The goal of stemming inflation has
prompted some deficit countries to borrow rather than allow their
exchange rates to change, because they fear that exchange rate depre-
ciation would give a further twist to the spiral of domestic inflation.
This fear is heightened by the knowledge that social and institutional
factors, such as wage indexation, can magnify a small price stimulus
into an inflationary surge. Thus, there is a temptation to leave adjust-
ment to the future in the hope that conditions may then be more
propitious.
In this process, however, the real costs of the inevitable adjustment
may, in the end, be increased. Effective adjustment involves a change
in the pattern of domestic and foreign demands on national output.
Exchange rate depreciation can help to bring about such a change, but
cannot make its full contribution if it is used as a substitute for action
on domestic demand. In order to make the required adjustment of
current account deficits, domestic policies must be arranged so as to
restrain domestic demand and to permit a shift of resources to the

external sector. At the same time, the adverse consequences for domestic
inflation of adjustment of the exchange rate to a level consistent with
balance of payments equilibrium need to be minimized by specific
measures outside the exchange rate field.
For industrial countries in strong payments positions, adjustment
requires in the first place that they ensure an adequate recovery in
domestic demand. But, as I mentioned earlier, the growth of demand
must be kept within prudent limits in order to avoid a rekindling of
inflationary forces. Beyond this, adjustment will have to be brought
about by increased flows of long-term capital exports and development
aid and, to the extent necessary, by an appreciation of exchange rates.
These various aspects of adjustment will have to be kept clearly in
mind in the Fund's consultations and in establishing conditions for the
use of the Fund credit tranches. They also have important implications
for the new task of the Fund under its amended Articles: the surveil-
lance of exchange rate policies. Among their obligations under the
proposed Article IV, members are to avoid manipulating exchange
rates or the international monetary system in order to prevent effective
balance of payments adjustment or to gain an unfair competitive
advantage over ether members.
In performing its duty under Article IV to ensure the effective oper-
ation of the international monetary system, to exercise firm surveillance
over the exchange rate policies of members, and to adopt specific prin-
ciples to guide members in connection with those policies, the Fund
will rely heavily on an intensification of its consultation procedures with
members. I can see a close interconnection between the regular consul-
tations that now take place under Article VIII and Article XIV and
the role of consultations to be held under Article IV. Furthermore, it
will become more important for the Fund to take the initiative to hold
special, ad hoc consultations with members whenever, in its judgment,
developments related to the exchange rate field warrant this.
To encourage adoption of the adjustment policies I have outlined, it
may be desirable for unconditional balance of payments financing to be
somewhat less readily available than it has been for some countries in
the recent past. The largest amounts of this kind of financing have been
provided by commercial banks. Through the financing they provided to
member countries in 1974 and 1975, these banks performed a valuable
service that helped to sustain world economic activity. However, in the
different situation that has now emerged, there is perhaps the risk that
too ready availability of commercial bank lending may in some cases
retard the needed adjustment. I therefore welcome the increasing
tendency for commercial banks to gear their lending to Fund stand-by
arrangements.

I know that there is concern in developing countries that balance of

payments adjustment might be harmful to development efforts, but
there is no reason to expect this to be the case. On the contrary, where
domestic prices have moved out of line, exchange rate adjustment is
an essential precondition for rapid expansion of exports. Moreover,
insofar as adjustment requires a reduction in domestic expenditure,
well-designed policies should make it possible to direct this reduction to
less essential elements of expenditure, rather than to investment. We
have recently seen that a number of developing countries have improved
their economic growth after putting into effect a successful program of
exchange rate adjustment and domestic policy measures.
The Fund's role in providing financial support to its member coun-
tries must continually adjust to changing conditions. In fact, the evolv-
ing pattern of world payments has been reflected clearly in the Fund's
financial transactions. I have already mentioned the oil facility and the
role it played in helping overcome the dangers of an overhasty response
to the sharp rise in the price of oil. This facility was established in 1974
and terminated, according to plan, in early 1976. During its two-year
life, an amount equivalent to nearly SDR 7 billion was channeled
through the facility.
In response to the 1974-75 recession, the Fund modified and lib-
eralized its compensatory financing facility in December 1975. During
the nine months since then, 40 members have drawn a total of SDR 1.9
billion on the facility, an amount one and a half times as large as the
total use of the facility over the 12 preceding years. I would expect
that, with the progress of the recovery in world trade, requests for
drawings under the facility will subside by the end of this year. The
review of the facility set for early in 1977 comes, therefore, at an
appropriate time.
The compensatory financing facility has been of considerable assist-
ance in counteracting the effects of export shortfalls after the event.
But the recession has also rekindled interest in measures that might
help to avoid excessive price fluctuations of primary products, partic-
ularly through buffer stock schemes. We have followed with great
interest the discussions that have taken place on this subject in various
forums. I might recall in this connection that the Fund itself took a
decision in 1969 to assist members with the financing of their contribu-
tions to internationally approved buffer stocks; this was followed by
decisions making the Fund's resources available to members in connec-
tion with buffer stocks for tin and cocoa and, more recently, by a
liberalization of the buffer stock facility. Without prejudice to more
general arrangements that may be negotiated, the Fund would be able
to assist members in connection with contributions to buffer stocks for

other commodities that might be established by agreement between

producers and consumers.
The oil facility, the compensatory financing facility, and the buffer
stock facility were all primarily designed to assist members in dealing
with payments difficulties mostly attributable to factors beyond their
immediate control. This fact is reflected in the slight degree of policy
conditionality that characterizes these facilities. But payments difficulties
do not arise from extraneous causes only. They are frequently due,
wholly or in part, to inappropriate policies in the deficit country. Even
when they are not, adjustment cannot be postponed indefinitely. As I
said earlier, there is now a need for all countries in external disequi-
librium to intensify their adjustment effort, and to give the correction of
disequilibrium a higher priority than it presently enjoys. The Fund has
the essential task of assisting members in the formulation of adjustment
programs and of providing financial assistance to deal with payments
problems while the program is taking hold.
Experience shows that, for the Fund to be effective in promoting
adequate adjustment, the amounts it can make available in support of
a satisfactory program should be substantial. This applies particularly
when payments disequilibria are large, as at present. It is therefore
gratifying to note that the Sixth General Review of Quotas will increase
the access of members to the Fund's resources by about one third on
average. Pending the entry into effect of the new quotas, access to the
Fund's resources in the credit tranches has been temporarily enlarged
by 45 per cent. Looking beyond these two steps and bearing in mind
the crucial importance of having a Fund that is adequate in size to
perform its adjustment role effectively, I attach particular importance
to the fact that the Seventh General Review of Quotas will be accel-
erated and is to be concluded by February 1978, two years ahead of
the usual schedule.
An important milestone for the Fund will be the second amendment
of the Fund's Articles of Agreement. This comprehensive amendment,
when accepted by the necessary majorities of members, will go a long
way toward adapting the Fund and its operations to present-day condi-
tions. It is therefore important that it should go into effect as soon as
possible; this will also permit the enlarged quotas under the Sixth
General Review of Quotas to become effective.
The new Articles will give members both new rights and new obliga-
tions. Since Governors are familiar with the many and important
changes to be introduced into the Articles, I do not propose to go into
detail on these matters here. I wish simply to stress that the Fund is
meant to play an increasingly important role through consultations with

members and surveillance over the international adjustment process

and international liquidity.
Mr. Chairman, I have indicated a number of fields in which the Fund
and its members will face crucial tests. A transition must be made to
sustainable rates of economic growth and to lower rates of inflation.
At the same time, the industrial countries should take specific measures
to support the economic growth of developing countries. Balance of
payments adjustment must be pursued vigorously. And we have the
new task of establishing surveillance over exchange rate policies and
international liquidity. These are all vitally important tasks, and I trust
that we will be able to measure up to them.

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DISCUSSION OF FUND POLICY AT

SECOND JOINT SESSION1
REPORT TO THE BOARD OF GOVERNORS OF THE

INTERNATIONAL MONETARY FUND
BY THE CHAIRMAN OF THE INTERIM COMMITTEE OF THE
BOARD OF GOVERNORS ON THE INTERNATIONAL MONETARY SYSTEM
Willy De Clercq
I want to report to Governors on the two meetings held by the Interim

Committee since last year's Annual Meeting, the first in Kingston,
Jamaica, on January 7-8, 1976 and the second last Saturday, October 2.
These two meetings, which I had the honor to chair, were the fifth and
sixth meetings of the Committee since its establishment by the Board of
Governors on October 2, 1974.
The topics on which the Committee focused its attention at its
Jamaica meeting were the world economic situation and outlook, the
policies of the Fund on the use of its resources, a number of issues
relating to the Sixth General Review of Quotas and to the disposition of
a part of the Fund's gold holdings, and, last but not least, the proposals
for amendment of the Fund's Articles of Agreement.
The Jamaica meeting took place at a time when recovery from the
severe international recession of the 1974-75 period was already under
way in much of the industrial world. In the circumstances, the Com-
mittee agreed to call on the industrial countries, especially those in
relatively strong payments positions, to conduct their policies so as to
ensure a satisfactory and sustained rate of economic expansion in the
period ahead while continuing to combat inflation. At the same time,
special concern was expressed by the Committee about the deteriora-
tion in the external position of the primary producing countries, espe-
cially the developing ones, and the difficulties of many of them to
maintain an adequate flow of imports in 1976 and to follow appropriate
adjustment policies.
In the light of its assessment of the world economic outlook, the
projected pattern of international payments, and the availability of
October 4, 1976.
22

CHAIRMAN OF INTERIM COMMITTEE 23
financing from other sources, the Committee was able to agree, after
considerable discussion, that the Fund should take the following actions
regarding the use of its resources and the granting of balance of
payments assistance to developing countries:
First, it was agreed that, until the effective date of the second amend-
ment of the Fund's Articles, the size of each credit tranche should be
increased by 45 per cent, which meant that the total access under the
credit tranches should be increased from 100 per cent to 145 per cent
of quota, with the possibility of further assistance in exceptional cir-
cumstances. The agreement reached in the Committee was put into effect
by a decision taken by the Executive Directors on January 19, 1976.
Second, it was agreed that the necessary steps should be taken to
establish the Trust Fund to provide balance of payments assistance on
concessionary terms to members with low per capita incomes. In May
1976 the Executive Directors adopted a Decision and an Instrument
establishing the Trust Fund, and have since then taken decisions to
enable loans to be granted.
With respect to the disposition of part of the Fund's holdings of
gold, agreement was reached on the simultaneous implementation of
(1) the restitution of one sixth of the Fund's gold to members on the
basis of quotas, and (2) the disposition of another sixth for the benefit
of developing members, with the sales of gold by the Fund as Trustee
to be made in public auctions over a four-year period. It was under-
stood that the Bank for International Settlements would be able to bid
in these auctions. These understandings provided the framework for the
decisions of the Executive Directors under which the Fund has already
held three auctions.
The Sixth General Review of Quotas had been the subject of con-
sideration at previous meetings of the Interim Committee. In Jamaica,
the Executive Directors presented to the Interim Committee a report
on the review including proposed increases in the quotas of individual
members. The Committee considered and endorsed the recommenda-
tions contained in the report and the proposed resolution to be sub-
mitted to the Board of Governors. It also agreed that, within six
months after the date of the adoption of the proposed resolution on
increases in quotas, each member that had not already done so should
make arrangements satisfactory to the Fund for the use of the member's
currency in operations and transactions of the Fund in accordance with
its policies. The proposed resolution was submitted to the Board of
Governors on February 20, 1976 and was approved by it, effective
March 22, 1976.2
1
See pages 295-99.

Finally, with regard to the amendment of the Fund's Articles, the

Committee was able to find solutions to the few remaining issues on
which the Executive Directors had sought its guidance. Most of the
issues had already been solved through the arduous efforts of the
Executive Directors, who were able to take into account the under-
standings that had been reached by members in negotiations among
themselves or in the Committee. The Committee in particular welcomed
and endorsed the new provisions of the Articles of Agreement on
exchange arrangements that had resulted from the breakthrough
achieved in bilateral discussions.
In accordance with the understandings and the expectations of the
Committee, in March this year the Executive Directors submitted to the
Board of Governors for their approval a proposed amendment of the
Articles of Agreement together with a report containing an extensive
commentary on the proposed modifications of the Articles. The pro-
posed amendment was approved by the Board of Governors under a
resolution adopted on April 30, 1976. The proposed amendment is now
before the members of the Fund for their acceptance.
In the Jamaica meeting as in all previous meetings of the Interim
Committee, a major part of the attention of the Committee had to be
devoted to what is its second task under its terms of reference, namely,
to consider proposals by the Executive Directors to amend the Articles
of Agreement. Now that full agreement has been reached on the second
amendment, the Committee will be able to turn increasingly to its first
task, which is "to supervise the management and adaptation of the
international monetary system, including the continuing operation of
the adjustment process, and in this connection to review developments
in global liquidity and transfer of real resources to developing coun-
tries." (Let me say, by way of an aside, that I hope the Committee will
never have to turn to its third task, which is "dealing with sudden dis-
turbances that might threaten the system.") The meeting held here last
Saturday was, therefore, the first in which the Committee could give its
full attention to the world economic situation and the adjustment process.
The discussion on these subjects was penetrating and frank, indeed
to an extent that could not be fully reflected in the communique. There
was a gratifying measure of agreement on a number of important
points. Let me recall some of these.
(1) Industrial countries should give priority at the present time to
the reduction of inflation; this is essential as a condition to establish a
basis for sustained economic growth and reduction of unemployment.
(2) In view of the necessary constraint on demand management
policies in the industrial countries, special efforts are indicated to
support the development effort of the developing countries, such as the

GOVERNOR FOR NETHERLANDS 25
reduction in trade barriers to the exports of these countries and an

increased flow of aid.
(3) The recovery in the world economy has created conditions
favorable for the adjustment of external imbalances, and adjustment
action by both deficit and surplus countries is, therefore, now urgent
and opportune. The Committee set out some guidelines for such adjust-
ment by both deficit and surplus countries and indicated that such
adjustment could be promoted, in the context of the use of the Fund's
resources, by larger use of the credit tranches and the extended Fund
facility.
(4) The Committee also emphasized the tasks of the Fund in the
areas of surveillance over the exchange rate policies of members and
all aspects of international liquidity and asked the Executive Directors
to report back to it on both of these subjects.
There is, of course, a close connection between the work of the
Committee on the situation of the world economy and its concern with
the financial activities of the Fund. On this latter subject the Committee
noted the very large expansion in use of the Fund's resources as a con-
sequence of large payments disequilibria and the likelihood that there
might still be a need for large use in the near future. In this context the
Committee discussed a number of measures to enhance the liquidity of
the Fund.
I would like to say in conclusion that in my opinion the activities
carried out by the Committee over the past year show that it is a very
useful addition to the structure of the Fund. I would think that this
view is shared by all members of the Committee. Many of the solutions
reached or recommended by the Committee have already been trans-
lated into action in the course of the current year. The understandings
reached with respect to the working of the international monetary
system may not provide such clearly visible results, but I would rate
them of equal, and perhaps in the long run of even greater, importance.
The tasks of the Committee are continuing, and I hope and expect
that the experience of collaboration that has already been established
will continue to bear fruit in future years.
STATEMENT BY THE GOVERNOR OF THE BANK FOR THE NETHERLANDS
W. F. Duisenberg
Although all Annual Meetings of the Bretton Woods family are

important events in the financial world, it is no secret that we always

look forward with special pleasure to the meetings away from Wash-
ington, and I want to thank our hosts, the President, the Minister of
Finance, the Central Bank Governor, and the people of the Philippines,
who have made it possible that we continue our habit of meeting else-
where every three years and who have given us such a wonderful
welcome in Manila.
Before speaking on behalf of the Netherlands Government, I take the
privilege of addressing this meeting on behalf of the European Eco-
nomic Community. This privilege falls to me since the chairmanship of
the Council of Ministers is at present held by the Netherlands. We
would like to extend our sincere thanks to the Government of the
Philippines for their gracious hospitality in this beautiful and friendly
city of Manila. Already this meeting has served to dedicate a special
place in our hearts to this hospitable country.
A recovery of the business cycle is clearly under way in the countries
of the Community. We expect this recovery to continue in 1977. The
level of unemployment, however, is still considerable and in some mem-
ber countries even growing. In order to reduce unemployment and to
ensure that the recovery will be sustained, the Community will direct
its policies toward stimulating productive investment and reducing infla-
tion. Special attention will be given to reducing national budget deficits
and liquidity creation. These medium-term aims of the Community have
the support of the social partners. In order to promote the achievement
of a parallel economic development in all member countries, several
ideas are being discussed at this moment to strengthen the internal
economic and monetary cooperation in the Community. An important
objective of these proposals is a Community contribution to a suc-
cessful recovery of world economic activities.
With regard to international monetary questions, the Community is
of the opinion that the January meeting of the Interim Committee in
Jamaica has contributed to an improvement of international monetary
relations. We believe that it has made a substantial contribution to
solving the financing problems of developing countries, and that,
together with the upturn in the business cycle, this will help these
countries to maintain economic progress. More generally, the Com-
munity will continue to seek further improvements in its economic
relations with developing countries, both in the framework of the Con-
ference on International Economic Cooperation which is now taking
place, and elsewhere.
We agree with the view of the Managing Director of the Fund that a
better control of international liquidity is necessary. The member coun-
tries of the Community will continue to cooperate with the IMF to

foster internal stability, to improve the international adjustment pro-

cess, and to reach a system of more stable exchange rate relations. In
particular, we believe that the IMF should be given wider and more
effective power of surveillance on the operations of the international
monetary system in accordance with the provisions of Section 3 of the
new Article IV of its Articles of Agreement and its stated aim of
assuring orderly exchange arrangements and promoting a stable system
of exchange rates.
In this connection the Fund should become instrumental in promot-
ing the adoption by member countries of economic policies that would
improve domestic economic stability and, in consequence, contribute to
the desired orderly development of exchange markets. Concerning the
question of Fund liquidity and Fund resources for use by member
countries, we are of the opinion that the decision about quota increases
reached in Jamaica, and currently in the process of being ratified by
member countries, should provide all that is needed in the near future
to cope with the normal demands of the Fund, certainly if all member
countries and in particular those with balance of payments surpluses
make their quota subscriptions in national currencies freely usable.
However, if large drawings are to take place in the near future the
Fund should be able to increase its liquidity rapidly and adequately by
activating the procedures and mechanisms provided for such cases that
have already been successfully used in the past.
1 am now speaking as Governor for the Netherlands. Last year was
an important one for the International Monetary Fund. The agreement
reached on the amendment of the Articles of Agreement is in my opin-
ion an important milestone on the road to a more far-reaching reform
of the international monetary system. I want to thank the Managing
Director and the Executive Board for the way in which they completed
this immense task. The staff has done an outstanding job.
Unlike last year, when the Annual Report gave a gloomy picture of
the world economy, the worst of the world-wide recession seems over
now. The substantial upswing in world trade this year is most welcome.
In spite of this positive development, a number of problems demand
our attention. We have to remember that the upswing has not yet
developed with the same speed in all countries. Besides, with economic
recovery on its way, we are still confronted with historically very high
rates of inflation. The problems connected with the high level of
structural unemployment should not be underestimated either.
During the economic recovery our primary task has to be prevention
of new inflationary pressures and reduction of inflation rates to a more
reasonable level. In this respect we agree completely with the Annual

Report, where it says (on page 18): "... recent experience indicates
that, unless the currently high rate of price inflation is brought down
and inflationary expectations are greatly reduced, the effects of policies
aimed at stimulating growth and employment are likely to be short
lived. Pursuit of policies that seriously aggravated the problem of
inflation could lead to a disorderly situation requiring sharp reversals
of course."
In this context, the Dutch Government has reduced the rise of the
public sector expenditure in its medium-term planning, while govern-
ment deficit financing will also be diminished considerably. Monetary
policy will be aimed at preventing pressures arising from the monetary
sector. Experience of the last few years has shown that budgetary and
monetary policies are often insufficient and that strong price and
incomes policies are unavoidable.
Looking at the prospects of continued economic recovery next year,
we find consumers' expenditures and renewed stockbuilding at present
the greatest stimuli for this process of recovery. However, these factors
alone are insufficient to maintain recovery in the period ahead. We
must pay special attention to the conditions that guarantee a perma-
nently high level of investment. The rise in investment expenditures is
of vital importance for reducing the level of unemployment. For that
purpose we recently announced an extensive package of measures to
stimulate investment, notably via relieving the fiscal burden on
enterprises.
Now that the first stage of the international monetary reform has
been completed, we must ask ourselves what the task of the Fund will
have to be in relation to the international monetary system in the
coming years. I want to mention three issues in particular.
In the first place, the exchange rate system. Our experience with a
system of floating rates has not been unfavorable. Development of
prices and effective exchange rates show that the deteriorating eco-
nomic situation of many countries did not on the whole lead to com-
petitive depreciations, while exchange rates adjusted rather smoothly to
diverging economic developments in the various countries.
However, recent years were sometimes characterized by excessive
exchange rate fluctuations, within a very short period of time, which
were not justified by more fundamental movements. Management of
exchange rates has proved to be indispensable to prevent these short-
term fluctuations. Moreover, the threat which depreciating exchange
rates may mean for open economies in an inflationary world became
very obvious last year in a number of cases.
Depreciation of a currency is sometimes inevitable when a country
with a relatively high rate of inflation must adjust its level of costs to

that of its competitors. But depreciation also causes an inflationary

impulse which, especially in open economies, will tend to make the
initial adjustment largely ineffective and require new adjustment of the
exchange rate.
My Government attaches great importance to the European snake
arrangement. We realize, however, that the international community is
not ready for such strict commitments and that, therefore, floating will
be with us for some considerable time in the future. Experience has
shown the necessity for active national management of floating rates
and for international surveillance over these national policies. We con-
sider it very important to implement our commitment to charge the
Fund with the surveillance of exchange rate policies of member states,
as laid down in Article IV of the new Articles of Agreement. This
could be done by making the already accepted Guidelines for the Man-
agement of Floating Exchange Rates operational. In this context I
attach great importance to the well-known fact, supported again by
our recent experience, that exchange rate management cannot be pur-
sued through intervention in the exchange market only or even pri-
marily. Monetary policy plays an important and, in my view, a more
important role. In the short run, monetary authorities can break a
speculative attack on their currency by accepting the monetary implica-
tions in the money market of a loss of reserves. Examples of this can
be found in recent experience of the countries in the snake arrange-
ment. But also in the longer run, development of exchange rates is
influenced to an important extent by monetary policy. This experience
leads to the conclusion that in the process of further study of the appli-
cation of guidelines for floating, explicit attention should be paid to
monetary policy as an instrument for exchange rate management. I am
happy to note that the IMF staff has already devoted some studies to
this subject. I hope that this important policy issue will be discussed
more intensively now that the Board has solved most of the legal and
institutional problems in drafting the Articles.
Closely connected with the elaboration of guidelines for floating, I
see as an urgent matter the question of development and control of
international liquidity. We all have an interest in preventing the infla-
tionary pressures that arise from excessive international liquidity. Even
if such excessive liquidity will affect in the first instance only the sur-
plus countries, other countries will eventually be faced by the infla-
tionary consequences as well. For, surplus countries will at a certain
point prefer an appreciation of their exchange rate to a further accumu-
lation of international reserves and a further increase in their domestic
liquidity. Such appreciation of the surplus countries implies an infla-
tionary pressure to the rest of the world. Therefore, in the end the

whole world takes an interest in controlling the creation of reserves. In

this connection the suggestions made by the Managing Director some
time ago about agreements on the composition of reserves deserve
careful attention and further study. If we wish to control international
liquidity, we must consider ways to limit the foreign exchange compo-
nent of monetary reserves. This raises anew the question of asset
settlement, which has not been resolved in the amendments.
As a third subject requiring our attention in the next few years, I
mention the function of the IMF as a credit-granting institution. It is
gratifying to note that the figures in the Annual Report indicate that
the role of the Fund was reinforced last year. For the period ahead,
greater emphasis has to be placed on promoting effective adjustments in
the balance of payments of member countries. Adjustment, rather than
financing, should be the focus of the Fund in the coming years. In my
opinion the Fund should play a very important role in this process.
I am happy to see that the revisions of the compensatory financing
facility at the end of last year have led to a better functioning of this
facility and that the facility appears to be a substantial source of
financing balance of payments deficits to the benefit of the primary
producing developing countries. In this context, it is necessary to keep
the development of the liquidity position of the Fund under constant
control to guarantee that the Fund remains a healthy and reliable
monetary institution. . . .
Let me end, Mr. Chairman, by recalling an old economic law which
says that total welfare is maximized when international trade follows
comparative advantage. This holds for international institutions as well:
let the World Bank continue its efforts in the field of development
financing, with the IMF concentrating exclusively on its specific func-
tions in the monetary area.
STATEMENT BY THE GOVERNOR OF THE BANK FOR NORWAY
Per Kleppe
Speaking on behalf of the five Nordic countries, it gives me great

pleasure to join previous speakers in thanking the people and the Gov-
ernment of the Philippines for the excellent arrangements for this meet-
ing and the gracious hospitality extended to us all.
Since we met last year we have witnessed an encouraging progress in
the world economy. There is, however, still a long way to go before
reasonably acceptable employment levels have been reached. More than

GOVERNOR FOR NORWAY 31
a year after the upswing has started, about 5 per cent of the labor force
in developed countries is still unemployed, and trends in employment
are particularly disquieting for its less industrialized parts. Continued
high rates of inflation are one of the obstacles we have to fight in order
to improve this position. In the opinion of the Nordic countries, the
social strain and economic waste implied in the figure I mentioned is
such that it should be a first priority goal of all our endeavors to main-
tain a sustained recovery until unemployment has been reduced to a
more tolerable level. This fundamental purpose of our efforts should be
kept in mind also when we discuss the activities of the Fund, to which
I now will turn.
There is an obvious lack of balance between countries in our present
recovery, which could be expected to lead to considerable demands
upon the Fund's resources in the coming year. It is natural that the
position of non-oil developing countries is of particular concern to us
in this connection, as they continue to run high deficits at the same time
as those among them, which up to now have financed their deficits from
private capital markets, may find it increasingly difficult to continue to
do so. But it should not be forgotten that some industrialized countries
and more developed primary producers are also likely to draw upon
the Fund.
Until the increase in quotas will become effective and add to the
Fund's resources, the liquidity position of the Fund may become very
strained. Members ought therefore without delay to comply with the
agreement reached in Jamaica to make their currencies usable by the
Fund under the provisions of that agreement.
I think we may expect a continued need for the use of Fund
resources also beyond 1977, and that the question of their adequacy
therefore will remain on the agenda. It should be recalled that the
compromise reached in the recent quota discussions implied an increase
which was far below the amount suggested by many members, includ-
ing the Nordic countries. When the size of the quotas is discussed again
soon, it should not be forgotten that the influence of the Fund upon
the economic policies of members is closely connected with its ability
to give assistance of significant magnitude.
The amendments certainly contain important elements of a reformed
monetary system, not least the replacement of gold by the SDR as the
basis for the system. This process can only take place, however, to the
extent that we succeed in the demonetization of gold and in controlling
the reserve creation through reserve currencies. Only then can room be
made for new issues of SDRs. We note with satisfaction that the Fund's
gold sales have taken place without any attempts at pegging the gold

price, and we trust that the sales will continue according to the agreed
principles.
Our ambitions for reform at the time when the Committee of Twenty
was established went, however, considerably beyond what has been
achieved up to now. Conditions in the world economy may not yet be
such that a more comprehensive reform can be carried through, but we
know from experience that it is a time-consuming process to reach any
major agreement in this field. We should therefore not wait very long
before we take the Outline of Reform down from our shelves and see
what we can do next. There are two fields in particular where an early
progress ought to be made.
One is to find ways and means to control the creation and flow of
international liquidity. As long as a solution to this problem is not
found, any achievement with respect to global monetary stabilization
will be under the threat of global uncertainty.
It is of no less importance to improve the adjustment process and
the symmetry in the obligations of deficit and surplus countries. This
becomes even more important if and when we succeed in gaining better
control of global liquidity. Even if the problem does not present itself
in the same manner today as it did under the par value system, experi-
ence has shown that we still need a policy for exchange rates with a
corresponding need for sharing of policy obligations. This goes beyond
our present guidelines for floating, the importance of which has been
rather uncertain up to now. The improved surveillance procedure under
the amended Article IV covers a wider scope and should prove useful
for greater symmetry.
Under the present system, countries which find themselves in balance
of payments difficulties have tended to rely too much on downward
drifting exchange rates, often with contagious results. Although condi-
tions and possibilities vary from country to country, it is undeniable
that currency depreciation aggravates inflation and hence increases
social and political tension.
A country which is in the process of reducing its rate of inflation
through internal adjustment measures often cannot expect very quick
results. Generous international credit may, therefore, be necessary and
acceptable.
These considerations should be taken into account in the Fund's sur-
veillance of exchange rate policies. But surveillance cannot be restricted
to these aspects. It will have to include all elements of importance to a
country's external position. However much the Fund's lending capacity
is increased, deficit countries can never be relieved of their obligation
to take the necessary corrective steps in their own economies. And it

GOVERNOR FOR CANADA 33
is of equal importance that the effect upon the international community

of persistent surpluses of some countries be borne in mind, both by the
countries themselves and by the Fund. To represent the international
conscience in such matters is about the only means of influence the
Fund has on surplus countries.
The Nordic countries believe that the Fund has an indispensable role
to play in the international coordination of economic policies and in
lending activity. The latter has been expanding in recent years, both in
volume and in forms. If we are now entering a less turbulent period in
the international economy, we think it may become worthwhile to
review the different forms of lending which are practiced to see if some
simplification may be possible, anyhow in a somewhat longer run.
In such a reconsideration it should be borne in mind that among the
four organizations which hold their annual meetings here, the Fund has
a specific role to play as a monetary agency. It should in this capacity
pay particular attention to some of the special needs of developing
countries. But their needs are of a character and size which make
monetary arrangements inadequate. And such arrangements can in no
way relieve the industrialized countries of their obligation to contribute
to the necessary narrowing of differences in living standards throughout
the world. . . .
STATEMENT BY THE GOVERNOR OF THE FUND AND BANK FOR CANADA
Donald S. Macdonald
Permit me to join those who have expressed their appreciation to the

Government of the Philippines for the gracious hospitality which has
been extended to us all. I would also like to welcome Papua New
Guinea, the Comoros, and Seychelles to these meetings and to mem-
bership in the Fund and the Bank.
Past progress toward alleviating poverty leaves us little reason for
pride or satisfaction. However, in spite of differing views on most
issues, there exists a widespread desire to ensure that economic systems
be made to function for the betterment of all.
This desire led to an agreement on the proposed amendment of the
Articles of the Fund and larger Fund quotas. I therefore, in that
respect, look back on the year as one of significant achievement. In
the session of the Canadian Parliament which will commence as I
return to Ottawa, I intend to introduce the necessary legislation to
adopt the amended Articles.

The desire to improve the system also led during the past year to a
very general re-examination of the present international economic sys-
tem and to the development of a number of new approaches. Serious
economic difficulties in developing countries added urgency to the
search in a number of institutions for new ways to relieve their financial
burdens. Canada has been privileged to participate actively in that
endeavor. We will continue to do so. For example, important discus-
sions concerning the Integrated Program for Commodities will result
from UNCTAD IV. They will be of particular interest to Canada as
both a major importer and exporter of commodities. We intend to play
our part in seeking solutions to individual commodity trade problems.
In sharing the chair of the Conference on International Economic
Cooperation (CIEC), Canada has had a special opportunity to become
fully aware of the major tasks that lie ahead and of their complexity.
The next phase of CIEC's work, which is to develop recommendations
for action, will not be an easy one. However, with the present work
program I am confident that CIEC can make positive progress on the
problems before it.
These initiatives, and others which have originated within the United
Nations framework, such as the Conference on Human Settlements,
have all focused international attention and engaged political support.
But the question must be asked: have we in place the necessary institu-
tions to carry those political resolutions into action and realization?
The poor will not be helped by conferences and rhetoric alone.
I am not urging a proliferation of new institutions for the implemen-
tation of programs. Exactly the opposite. This is an appropriate moment
to examine with a critical eye whether existing institutions are capable
of being the most effective instruments for carrying out policy. In allo-
cating responsibilities, we should be prepared to bypass quite ruthlessly
institutions which have not shown a capability of effective action. We
must also make certain that institutional responsibilities are not blurred
by duplication. The millions who are looking with hope to an improve-
ment in their lives from these meetings will not tolerate administrative
incapacity or bureaucratic feuding. What is more, additional duplica-
tion, whether of institutions or effort, will not be tolerated by the
public on whom we depend for moral and financial support. The funds
available for development assistance must survive strong demands for
restraint in public spending.
In terms of appropriate institutional response, it would, for example,
be relevant to begin thinking of how best to build on and carry forward
the important work of CIEC. Plans should soon be made to transfer
some of CIEC's deliberations to other existing forums. The Develop-
ment Committee and the Interim Committee, supported by the accumu-

GOVERNOR FOR CANADA 35
lated expertise of the Bank and Fund staffs, could continue some
aspects of the work of CIEC on the basis of a sound presentation of
issues. The Report of the Executive Directors of the Bank and the Fund
on the Development Committee has mentioned this as a possible appro-
priate role for the Committee. I endorse this view and see it as a
possible means for extending some of the results of CIEC to all the
members of the Fund and Bank.
Instead of calls for new institutions, let us focus on the improvement
of existing institutions and build on their experience to make them
adaptable to new situations. The Bank and the Fund have in the past,
and must in the future, play an integral and leading part in managing
the international economic system. . . .
Mr. Chairman, as you are aware, the Commonwealth Finance Min-
isters have just concluded their deliberations in Hong Kong. I have
been entrusted by my colleagues at that meeting to be their spokesman
in expressing to you—and to all of the delegations here—the view of
Ministers of Finance of the Commonwealth that there should be a
further general increase in the capital of the World Bank and an early
and successful conclusion of the negotiation for the Fifth Replenishment
of the International Development Association. . . .
I have been, and will be, expressing Canadian views on certain other
matters discussed at the Commonwealth Meeting. I should like at this
time to speak of Commonwealth views on certain other topics.
The Ministers had before them a further report by the Common-
wealth Group of Experts on the New International Economic Order.
While there was obviously not unanimous agreement on all the experts'
recommendations, Ministers agreed that the report could make a val-
uable contribution to international discussions on such issues as com-
modities, debt, and industrial cooperation and that many of its recom-
mendations were practical and amenable to early implementation.
Members of the Commonwealth also discussed the balance of pay-
ments deficits of non-oil developing countries and many Ministers felt
that further steps should be taken to review the terms of access to, and
the adequacy of, existing IMF facilities, including the question of con-
ditionally.
I have noted the concerns expressed by Governors at last year's
meeting over the high rates of inflation. The progress we have made
since then is encouraging even though we have yet to win the fight.
Relatively high rates of inflation interfere with the process of recovery
of employment and output in both developed and developing countries.
Further reduction of inflation rates therefore remains a high priority
for us all. Indeed, because of the international aspects of inflation,
including the possible relationship between inflation and changes in

international liquidity, the international community will undoubtedly

expect the Fund to provide ongoing analysis of the problem.
The initiatives and achievements of the Fund over the recent period
of economic disturbance have, fortunately, reaffirmed the central posi-
tion it occupies in the international economy. This comes out very clearly
from the 1976 Annual Report of its Executive Directors. On a policy
level, the IMF guided and focused the discussions on amendment of
the Articles and the quota increase. I wish to emphasize that I am
impressed by the way the Fund led the discussion on this issue. The
results obtained should encourage us to address other problems that
still remain. In particular, Canada is anxious that the operation of
exchange systems and the necessary adjustments of payments imbal-
ances develop in an orderly way with the IMF playing its essential role
of monitoring and surveillance.
The reform exercise, through the medium of the Interim Committee,
brought Ministers together and directed discussions at a particular
goal—the amendment of the Articles. The value of the Interim Com-
mittee was clearly demonstrated and we must use it to improve the
management of world economic and monetary affairs. More specifically
I believe that the Committee is uniquely suited to address itself to
surveillance of the system in general at the political level. Reform
itself is never complete. I would hope that the Committee will continue
to give political leadership in the further evolution of the international
monetary system.
At present, the monetary system is, in my view, functioning reason-
ably well. Floating rates have been very helpful in this connection and
probably saved us from much worse developments. Without them I
fear we would have seen widespread adoption of trade and exchange
restrictions in futile efforts to protect rates that were inappropriate in a
swiftly changing environment. There have been instances in which one
might have questioned whether exchange rate movements have been
excessive. There have also been doubts expressed as to whether some
rates have been adequately responsive to market forces. There may
well be need to discuss specific situations from time to time and this is
why Canada supports strongly the surveillance responsibilities vested in
the Interim Committee of the Fund. But if the Committee is to perform
this function, there needs to be a comprehensive analysis of the prin-
ciples by which the Committee should be guided in this work. Indeed,
the development of these principles is, in my view, one of the challenges
facing the Directors in the coming year, and I would urge the Managing
Director and his Board to give this matter their close attention.
The activities of the Fund on a practical level have been timely. As
the recession pushed more and more countries into balance of payments

ALTERNATE GOVERNOR FOR JAPAN 37
difficulties, the Fund's expanded lending under the compensatory financ-

ing facility and the enlarged credit tranches have continued to provide
a financial cushion to help countries to avoid restrictive trade measures.
As a result, the liquidity of the Fund has dropped to a low level. I must
say frankly that I am concerned about the financing of the Fund pro-
grams. There may well be difficulties for the Fund in meeting its com-
mitments if more countries do not, as a matter of urgency, make their
currencies freely usable for Fund transactions. The entry into force of
new quotas, the economic recovery, and the provisions of the amended
Articles will all have a beneficial impact on the liquidity of the Fund.
But this will take time and will not solve the problem we are facing
right now. I would consequently hope that member countries would
make appropriate arrangements with the Fund for the free use of their
currencies as soon as possible.
The Fund has also made progress in selling some of its gold for the
benefit of developing countries. However, the benefits to those countries
have declined with the drop in the price of gold. I am anxious that the
Fund's program of gold sales should have as little effect on the gold
market as possible. Our Executive Director has asked that the Fund
examine, as a matter of urgency, whether the present inflexible pattern
of the gold auctions makes the maximum contribution to this objective.
I would, on this occasion, urge the Executive Directors to carry out this
examination and to make any warranted changes in the auction program.
The international economic system cannot function well unless its
members act responsibly. In terms of the transfer of resources from
developed to less developed countries, this means that such resources
must be allocated and utilized in an effective and efficient fashion and
that the total volume of resources so transferred must continue to grow.
In terms of the international monetary system, it means action in
accordance with procedures as they have been agreed and as they may
be evolved in the Fund. All of us have a high stake in the establishment
of a stable and growing international economy. All of us must help
ensure that the developing countries, and particularly those whose
people have the greatest need, will experience visible benefits from such
prosperity. This is a continuing challenge.
STATEMENT BY THE ALTERNATE GOVERNOR OF THE FUND

AND BANK FOR JAPAN
Teiichiro Morinaga
When we met last year, we had a number of difficult tasks before us.
The principal among these were seeking a way out of the world-wide

recession and trying to establish a new international monetary system to

replace the Bretton Woods system.
Today, I am highly gratified in being able to share with all of you the
satisfaction of the notable progress we have made over the past year
toward the solution of these problems.
International Monetary System
In the first place, our efforts over the last several years to reconstruct
the international monetary system finally bore fruit in the Jamaica
agreement of January this year. Thus, the second amendment of the
Articles of Agreement of the International Monetary Fund is now
before us. During the long course of those discussions, the existence of
considerable differences of views among us became apparent. However,
the genuine efforts of all of us to pursue the common positions rather
than the differences allowed us to finally emerge victorious. We can
certainly take pride in having successfully challenged this test on the
human potential for harmony and inventiveness.
In the present environment where the world economy continues to
harbor many uncertainties, the new international monetary system
which we have agreed on will enable us to deal flexibly with the reali-
ties. The new agreement is indispensable for the stable and enhanced
growth of the world economy. Bearing this in mind, we completed the
necessary domestic procedural requirements with our best efforts and
notified the Fund of our acceptance of the second amendment last
June. We earnestly hope that the second amendment will come into
effect as quickly as possible through early legislative ratification by all
member countries concerned. This is furthermore vitally important in
the sense that it will pave the way for the early implementation of the
Sixth General Review of Quotas, which will provide the Fund with the
needed resources for responding adequately to the needs of many
countries still suffering from acute deficits in the balance of payments.
The second amendment of the Articles of Agreement is certainly a
significant achievement in our cooperative endeavors toward the reform
of the international monetary system. Yet it marks only a first step. It
is, so to speak, the skeleton of the new system and, in a way, is a
framework shaped to meet the current needs. Many problems remain
to be resolved, such as measures to stabilize the exchange markets, the
nature of primary reserve assets, convertibility, the management of
international liquidity, and the effective control of speculative capital
flows. Furthermore, each country will choose, when the new agreement
becomes effective, the exchange rate arrangement appropriate to its
specific environment. It behooves us to carry out a comprehensive study
of these numerous problems in the future to attain our common objec-

tive of establishing an international monetary system capable of pre-

venting disorder caused by arbitrary acts of individual countries. And
in this connection, we should of course take into account the work done
and left unfinished with us by the Committee of Twenty.
As we stand on the starting line of the new international monetary
system, I wish to stress particularly the international and domestic
responsibilities that we member governments have.
First of all, a member country must obviously not seek to enhance its
interest at the expense of other member countries. This responsibility is
particularly great for those countries which have a large influence on
the world economy. They must share among them the responsibility of
supporting the new system in accordance with their economic strength.
Second, we have yet to attain an international monetary system
based on a solid and stable framework. Until that objective is realized,
each member government must protect its citizens from the destabilizing
effects of world economic developments or international monetary dis-
turbances. In particular, exchange market stability is of obvious and
central importance for the maintenance of stability in a nation's eco-
nomic activities and external transactions. In the event of speculative
movements of funds or leads and lags creating abnormal aberrations or
distortions in the demand and supply conditions in the foreign exchange
market, the monetary authorities should clearly be expected to step in
and take appropriate action.
Recently there has been increasing demand for the holding and use
of yen from abroad. It is from these considerations I mentioned above
that we have gradually accommodated these demands.
The World Economy
I now wish to turn to the present state of the world economy.
At the last Annual Meeting, our main concern was how to find our
way out of the world-wide recession which was of such depth, width,
and duration as we had never experienced in the postwar period. Ever-
declining industrial production, a high rate of unemployment, inflation
that continued to surpass the permissible limit, persistent balance of
payments imbalances, the especially acute difficulties of the developing
countries—all of these complex and interrelated problems have made
the planning and implementation of countercyclical measures of mem-
ber countries extremely difficult.
Since the beginning of this year, however, world economic conditions
have steadily improved, and it looks quite clear that the world economy
is finally in the process of steady recovery. Although a significant
decline in the unemployment rate has yet to be observed, industrial

production has been rising and price increases have moderated. This
recovery has been reflected in the increased demand for primary prod-
ucts, which, in turn, has been contributing to the improvement in the
balance of payments of the non-oil producing developing countries.
There are, nonetheless, still some overshadowing clouds on the world
economic horizon. To begin with, some industrial countries, as well as
many of the non-oil producing developing countries, are yet some dis-
tance away from recovering equilibrium in their balance of payments.
Second, even as the economic recovery got under way, a warning
signal was already up on price movements. Third, the governments,
both central and local, have been running large deficits. Finally,
although we are confident that the world-wide recession is almost
behind us, sectors such as private plant and equipment investments that
will have an important economic impact over the longer term have yet
to recover from their depressed situation.
Management of the Japanese Economy
With these points in mind, I wish now to touch upon the manage-
ment of the Japanese economy.
Having bottomed out in the spring of last year, our economy has
since been on a gradual and moderate recovery path. Especially, since
the beginning of this year, both production and shipment have recorded
a substantial gain, supported by the expansion of domestic demand
coming from private consumption and private housing construction,
and the increase in export demand. Although the pace of recovery has
somewhat moderated recently, the economy continues to be in the
process of recovery.
As regards prices, while consumer prices have stabilized, wholesale
price increases have been slightly accelerating. We are hence carefully
watching price movements. In dealing with the dual hardships of global
inflation and recession, we have learned an invaluable lesson. That
lesson is that our highest policy priority should be to avoid the recur-
rence of inflation.
With respect to fiscal policy, it is quite clear that our most urgent
task is to eliminate the budget deficit within the shortest possible time
period. Unless sound fiscal management is re-established, we cannot
expect the full restoration of confidence, either internal or external,
that is necessary for the stability and development of our economy.
Balance of Payments Problems
Now I would like to take up the problem of the balance of payments.
Following the unprecedented large increases in oil prices in late 1973,
substantial imbalances in the world's balance of payments structure

were created. It has certainly been reassuring to find that these imbal-
ances have not been beyond our reach for solution, owing on the one
hand to the adjustment efforts of the countries affected, and on the
other to the discreet pricing policy followed by the oil producing coun-
tries. Nonetheless, despite recent signs of some improvement, the bal-
ance of payments of developing nations remains in difficulty. Further-
more, there are also some developed industrial countries that have not
yet fully restored equilibrium in their balance of payments.
In speaking of the restoration of balance of payments equilibrium,
I am not envisaging the form of equilibrium where each and every of
the 129 members of the Fund shows neither surplus nor deficit. A
specific country will inevitably produce a surplus or deficit depending
upon the prevailing economic circumstances. For the purpose of adjust-
ing such imbalances, timely and disciplined management of domestic
economic policies is, in my view, of utmost importance. Exchange rates
will fluctuate reflecting the economic strength of a country, and its role
in balance of payments adjustment is also important.
In this connection it is essential for us to recognize that considerable
time and effort are required for the adjustment effects of economic
policy measures, whether internal or external, to work themselves
through. For this reason, an understanding attitude is especially called
for on the part of member countries regarding the measures undertaken
by a specific country to restore its balance of payments equilibrium.
The history of our economy in the postwar period has been one of
recurrent cycles of an expansion phase, a deterioration in the balance
of payments, the adoption of a policy of economic restraint, the recov-
ery of balance of payments equilibrium, and then on to the next expan-
sion phase. More recently, the sharp rise in oil prices in late 1973 dealt
a particularly severe blow to our economy, since it is dependent on
imports for a predominant part of its energy needs. The effect of the
oil price increase on our balance of payments was very substantial, our
current account deficit for 1974 and 1975 combined amounting to as
much as $5.4 billion.
After entering this year our current account balance turned into
surplus. This was due on the one hand to favorable export growth, and
on the other to moderate recovery in imports. Import growth was
moderate because imports did not respond promptly to the rise in
industrial production due to the high level of inventories of imported
raw materials. However, this is a temporary phase and will not last
for long. Imports will accelerate as the economic recovery proceeds,
and we expect the current account to steadily move into equilibrium.
I wish to add in this connection that our imports from the develop-
ing nations have been steadily increasing, and we expect that we shall

be able thereby to contribute substantially to the restoration of equi-

librium in their economies.
Furthermore, our country is prepared, as far as the improvement in
our balance of payments permits, to cooperate through the IMF in
assisting deficit countries in their efforts to rectify their balance of pay-
ments position. We intend also, from this point of view, to actively
participate in the study to assist the IMF in meeting its financial needs.
We shall furthermore be seeking ways to smooth the flow of funds to
countries in balance of payments deficit through, for instance, active
use of our capital markets. . . .
Direction of the Development Strategy

In making an assessment of the development strategy, I recognize
there exists a view that takes the ratio of official development assistance
to gross national product as the only indicator to evaluate a country's
aid performance. I consider this approach rather formalistic and not
necessarily well refined. The volume of Japan's official development
assistance has grown ten times in the last eleven years. Accordingly,
our share in the aggregate official development assistance of member
countries of the Development Assistance Committee has increased from
2.0 per cent to 8.4 per cent during the same period. In this context I
would like to reaffirm our determination to continue to make our best
efforts for the enlargement of our official development assistance to
the extent our economic circumstances will permit.
I would like to touch next upon some important aspects of the
development problem in general.
The first aspect I wish to cover is the increased access of developing
countries to the world capital markets. I consider it particularly impor-
tant to explore measures to complement the credit standing of those
countries which are about to graduate from international development
finance institutions, so that they can raise necessary funds for develop-
ment from the world capital markets. In this connection, we are pre-
pared to support the proposal made by the Development Committee
that the World Bank and the regional development finance institutions
assist the fund-raising efforts of developing countries through the active
utilization of their guarantee functions prescribed in their respective
Articles of Agreement.
The second aspect is the importance of the role of agricultural
development in the development strategy. Almost two thirds of the
population of the developing nations is living in the rural area, while
in some developing countries the concentration of population in urban
centers is creating serious problems. In light of this situation, I believe
that rural development projects of the employment-generating type

should be given much more emphasis than in the past within the overall
development strategy.
Moreover, the food crisis that has overtaken the world in the past
several years has made even more clear the vital importance of the
problems of agriculture and food. In these circumstances, it is quite
appropriate that the World Bank and other international development
finance institutions have been increasing their commitments substan-
tially to agriculture and related sectors. I strongly hope that they will
continue their efforts in assisting agricultural development, based on the
realities of the developing countries and paying due regard to their
diverse social and cultural heritage. For our part, we intend to place
even more stress than in the past on agricultural development in our
bilateral economic cooperation activities. Furthermore, we believe that
the International Fund for Agricultural Development will play a major
role in dealing with the world's food problems, and as a result of this
belief, we have expressed our intention earlier to make a significant
contribution to this Fund. We hope the necessary requirements for the
Fund will be met soon and its activities started in the near future.
As the third aspect of the development strategy, I wish to take up
the population problem in the developing countries. Little needs to be
said regarding the fact that the rapid population increase in the devel-
oping countries has been nullifying the fruits of development and has
been the source of many difficulties. In view of the importance of the
population problem and the present serious conditions, I believe that,
in addition to the self-help efforts in this field by the developing coun-
tries, it is particularly important to emphasize that more active coop-
eration of the World Bank and other international financial organiza-
tions, together with developed countries, is urgently needed in dealing
with this problem.
As the fourth and final aspect of the development strategy, I partic-
ularly welcome the spirit of "dialogue" that has gradually emerged over
the last year as an underlying tone between the North and the South.
When we consider the profound significance of the word "interde-
pendence," it is clear that no country can press its views one-sidedly
without paying due attention to the others. It is the spirit of mutual
concession through mutual understanding that the world community is
now seeking from its members. I firmly believe that we can find a
harmonious solution to the mutual advantage of both the North and
the South regarding the current problems of commodities and debt
provided that we take on these problems in the spirit of "dialogue."
Concluding Remarks
During the past year, we have overcome through mutual cooperation
high hurdles which at first seemed insurmountable. Yet, when we turn

our eyes to the future, greater and more difficult problems are awaiting
us. Although we are reasonably confident that we have emerged from
the world-wide recession, a firm consensus is yet to be established on
the future direction of the world economy.
As for the international monetary system, we have reached agree-
ment on the new Articles of Agreement of the IMF which will serve as
a framework. It will be our next task to study what contents to put
into that framework. On a broader horizon, I believe our task in the
coming years will be to establish common objectives, in respect to both
global economic management and the international monetary system,
that would conform to new global values and shared aspirations, and
would set the future course for the world economy. Only through such
efforts can we expect to establish firm and long-lasting mutual confi-
dence among the nations of the world.
The interdependence among countries has and continues to be deep-
ened. We are now living in a world where mutual cooperation is more
essential than ever before in world history. We must not bring the "law
of the jungle" into the world community. In this world, cooperation is
the law of life; anarchy the law of death. We intend to give our best
efforts as a member of the world community to share in this responsibility.
Finally, I wish to extend my heartiest welcome to the delegates and
the peoples of the Comoros, Seychelles, Guinea-Bissau, and Surinam who
have newly joined or are expected to join shortly our activities. And
let me express our sincere gratitude to the Government and the people
of the Philippines for having invited us to this scenic city of Manila
and for having welcomed us so cordially.
STATEMENT BY THE GOVERNOR OF THE FUND AND BANK FOR IRELAND
Richie Ryan
I join with others in expressing to the President and the people of the
Philippines our sincere thanks for their generous hospitality and for the
opportunity to meet in their beautiful land the great Filipino people.
We reciprocate their greeting to us by wishing them "Mabuhay."
The Managing Director and several speakers have rightly welcomed
the improvement in the world's economy since last we met but have
nevertheless identified several weaknesses. The distressing aspects of the
recovery from the recent global recession are the unevenness of the rate
of recovery and the unique combination of high inflation and high
unemployment. Too many countries, Ireland included, are still finding

GOVERNOR FOR IRELAND 45
it difficult to achieve sustained recovery with lower inflation and in-

creased employment. The huge policy dilemma is that unless the cur-
rent high rate of inflation is reduced, the effects of policies aimed at
stimulating growth and employment are likely to be short lived. At the
same time, unless we apply measures consistent with demand manage-
ment constraints to reduce unemployment, the economic recovery will
be an empty experience for many, and especially for young people who
bear such a large proportion of the burden of unemployment. But if
political institutions are to survive the economic and social pressures of
these times, lower unemployment cannot be purchased by public spend-
ing requiring unacceptably higher taxation that would in turn fuel infla-
tion, thereby aggravating rather than relieving the problem.
Just as the severity of economic recession was unevenly apportioned
among different countries, so also are the fruits of economic recovery.
While most surplus countries continue on the road to sustained recovery,
many of the deficit countries are having great difficulty in generating
resources to finance necessary development and in managing their bal-
ance of payments problems. These problems are made worse by a very
significant increase in the cost of servicing external debt following
extensive but necessary foreign borrowing in recent years. The alter-
native to foreign borrowing, namely, severe restrictions on current pay-
ments and transactions, could have resulted in a deepening of the
recession and in even greater unemployment.
The absence of resort to widespread restrictive policies indicates a
growing acceptance of the interdependent nature of our problems.
Surplus countries can strengthen this acceptance by improving access to
their markets for deficit countries. While there is a lot more that surplus
countries should be doing at this stage to assist the recovery of the defi-
cit countries, the peoples of deficit countries will themselves have to
practice restraint to improve their own competitiveness and therefore
their ability to expand exports.
The problems of recession obliged many countries, including Ireland,
to depart temporarily from the normal basis of prudent borrowing,
namely, to use borrowed funds for productive investment purposes.
While borrowing to maintain consumer demand during the recession
was justifiable and necessary, it cannot be entertained for any pro-
longed period without building up serious trouble, if not disaster, ahead
for the debtor countries. Governments everywhere are facing political
difficulties as they endeavor to adjust economic, financial, and fiscal
policies in keeping with the longer-term interest of their citizens. It is
therefore imperative that responsible international organizations spell
out clearly and courageously the prescription for economic recovery,
even if unpleasant medicine is required.

Since our meeting in Washington last year we have reached agree-

ment on an increase in IMF quotas. Until this increase becomes oper-
ative, access to the Fund's normal credit has been expanded. We have
also been able to agree on a generally acceptable amendment to the
IMF Articles, in particular those relating to exchange arrangements and
gold. It is to be hoped that this second amendment now going through
members' legislatures will be ratified as soon as possible.
I do not wish to imply that I see the completion of the second
amendment as a panacea for our past and future problems. There is a
lesson to be learned from the early 1970s. Then the economic boom
was accompanied by an unprecedented rise in international reserves
which, by way of their impact on the world money supply, accommo-
dated massive inflation. The role of the Fund to date has been seriously
restricted by its lack of control over global international liquidity. If
we fail to tackle this problem, I fear that it will be impossible to
achieve sustained noninflationary growth in the medium term.
We have seen a substantial expansion in the use of the Fund's
resources in the past two years. This has inevitably put pressure on the
Fund's liquidity position which will be intensified by the current British
and other large applications. Special arrangements may be necessary if
the Fund is to meet these applications without cutting back on its
assistance to other countries which need it. In any event I consider it
essential that those countries with relatively strong balance of payments
and reserve positions which have not yet made their currencies usable
by the Fund should do so as soon as possible.
Conditions in foreign exchange markets have been far from satis-
factory in recent years. Severe fluctuations in exchange rates have posed
serious problems for many countries, especially for those smaller coun-
tries like Ireland for whom, because of their large external trade,
stability in exchange rates means so much. It is regrettable that the
guidelines for floating, suggested in the IMF and agreed upon more
than two years ago, were not more strictly observed. There remains,
therefore, the formidable challenge to the international financial com-
munity to establish greater stability in exchange markets. Stable domes-
tic systems are, of course, a prerequisite for orderly exchange arrange-
ments. In all of this it must be appreciated that there is an even greater
obligation on large industrial countries to pursue policies conducive to
more stable exchange conditions. While a stable international financial
system requires strong roots that are properly nourished in member
countries, such a system needs a proper international environment, to
be provided by the Fund, in which to grow. Much will depend on the
International Monetary Fund in its role of overseer. . . .

GOVERNOR FOR KOREA 47
The foundation stone for building a new international financial order

has now been laid. It is up to us to work this system so as to facilitate
the further development of a stable responsible order and avoid the
recurrence of those problems which have bedeviled the international
financial community in the past.
STATEMENT BY THE GOVERNOR OF THE FUND AND BANK FOR KOREA
Yong Hwan Kim
It is a great pleasure for me to participate again in this joint Annual

Meeting of the Fund and Bank, particularly because this year our venue
is in Asia, and in this lively cosmopolitan city of Manila. I wish to join
my fellow Governors in expressing my sincere gratitude to the people
and the Government of the Philippines for their warm welcome and to
His Excellency President Marcos for his inspiring opening address.
I also would like to join with others in extending a hearty welcome to
Papua New Guinea as a new member of the Fund and Bank.
May I also take this opportunity to extend my deep thanks to
Mr. Witteveen and Mr. McNamara for their dynamic and untiring efforts
toward structuring a new international monetary system, relieving the
pressure on the external payments of member countries, and expanding
the transfer of resources to developing nations.
The Fund and Bank Annual Reports point out that the economy of
the industrial countries as a whole is well on the way to recovery from
its most severe recession in four decades, while the developing countries
are still, to varying degrees, in the midst of readjustments to the eco-
nomic shocks which engulfed them in the past two years. With reduced
real income and mounting external debt service payments, the economic
outlook of many non-oil developing nations is indeed bleak. Neverthe-
less, the prospect, both in the short and longer term, will and can be
improved if more fundamental and comprehensive cooperative efforts
are made between the industrial and developing nations, and additional
resources are transferred in time from the industrial to the developing
economies.
In this connection I wish to stress that the major industrial countries
should recognize their responsibilities for maintaining the stable and
orderly expansion of the world economy, which will, in turn, enable
individual nations to strive for a more outward-looking external policy
to expand global trade in general and to reduce the payments gap
between the industrial and developing nations in particular. It is desir-

able, in this regard, that the restrictive import measures often adopted
by the industrial countries in the recent past on imports from the
developing countries be relaxed and liberalized.
In consonance with these national and international cooperative
efforts, the desire of develophfg nations for self-reliance will be fulfilled
if these nations pursue appropriate economic policies to increase
domestic savings, promote export earnings through diversification,
accelerate the industrialization process, and expand agricultural pro-
duction. The longer this development process is delayed in developing
countries, the lesser will be the chance for the international economic
system to operate in harmony.
I wish to compliment the Interim Committee on the fruitful work
done by its members. Because of its wise and patient work, the Pro-
posed Second Amendment of the Fund Articles of Agreement is in the
hands of the member countries for ratification. This amendment will
provide better working arrangements for instituting a durable new inter-
national monetary system under a markedly different international cli-
mate from that prevailing at the time of Bretton Woods. I believe that
all of our member countries wish to put this amendment into effect as
soon as practicable.
With respect to the Development Committee, it has also rendered
valuable services in the past two years. In the light of urgent needs for
transferring additional resources to developing nations, I feel that this
Committee's work should be extended for another two years.
Now, 1 would like to offer my few observations on the second
amendment of the Articles of Agreement and its operational guidelines.
First, inasmuch as the developing countries will continue to face diffi-
culties in payments adjustments, international reserve management, and
transformation of their economic structures, it is highly desirable for the
Fund's operations that the unique economic circumstances that may
face developing countries be specially taken into account in applying
the provisions of the new Articles to the Fund's surveillance over
exchange rate policies and the use of currencies of all member coun-
tries. Also, in the light of a relative decline in Fund liquidity, a new
pattern of distribution of international liquidity, and an increasing need
for access to the Fund's resources by member countries, particularly
for the less developed countries, I think that the prospective share of
developing countries in the Fund quota is inadequate. In this regard, an
additional creation of special drawing rights should be considered in
the near future, according special regard to the needs of developing
member countries.
Second, I welcome the recent liberalization of the compensatory
financing facility and the provisional extension of the credit tranches,

GOVERNOR FOR NEW ZEALAND 49
which have contributed materially to the payments adjustments of

member countries. However, in order to meet more adequately the
temporary resource needs of primary producing countries at such times
as world economic conditions deteriorate abruptly, I think there is a
genuine need for further improving the compensatory and the buffer
stock financing facilities.
Third, I wish to note particularly that despite the pronounced inten-
tion of liberalizing the restrictive regime under the Fund's Articles and
of adhering to the spirit of the Rome communique, there has been an
increasing tendency to introduce nontariff restrictions on the import of
manufactured goods from developing countries. Although this may not
be its domain, I urge the Fund to find ways and means to ease such
practices. . . .
In conclusion, we are and will be living in a world in which nations
are becoming more interdependent. The lessons we have learned from
the past economic turmoil suggest that we can build a better world
community for the benefit of all nations, whether big or small, if we
better comprehend the global issues in their entirety and act upon them
collectively with due responsibility by all concerned.
STATEMENT BY THE GOVERNOR OF THE FUND FOR NEW ZEALAND
R. D. Muldoon
I join the other speakers in thanking, on behalf of my delegation, the

Government and the people of the Philippines for their warm welcome
and hospitality. I acknowledge and thank the Managing Director of the
IMF and the President of the World Bank and their staffs for their
considerable effort and success in providing financial assistance for the
many countries still experiencing severe financial shortfalls. Outstanding
drawings and disbursements from the Fund and Bank are at an all-time
high and reflect the essential role of the two institutions in the field of
international financing.
New Zealand and the International Economic Scene
Economic expansion has once more resumed in the industrial world,
and the industrial countries are absorbing more imports from the pri-
mary producing countries. For the first time in three years the massive
current account deficit of the primary producing countries has not
increased, although it is still expected to be $42 billion compared with
$51 billion last year.
While this improvement is welcome, it still leaves most primary
exporters with untenable balance of payments positions. This is the

result not only of continuing unsatisfactory prices and access for many
primary exports, but also of the impact of world inflation on their
import prices. New Zealand again finds itself seeing these issues through
the eyes of a primary producer as do so many of the developing coun-
tries. We have this special problem in common with them.
The effects of the international recession of 1974 and 1975 were
severe for the New Zealand economy. Stringent measures were essential
to hold government expenditure and to adjust economic activity to a
more viable level. Recently we have experienced a small improvement
in our balance of payments as the strengthening economy in the indus-
trial world results in an increase in the prices of our export products.
During 1976 the rise in our export prices edged ahead of rising import
prices, whereas in 1975 import price rises eroded away any improve-
ment in the export sector. Our recovery will still lag behind that of the
industrial countries.
That New Zealand has not resorted to restrictive measures of any
consequence in the import field is an indication of our belief in the
principle of international trade cooperation, despite the continuing re-
strictions confronting our primary exports in industrial countries. These
unjustified restrictions create considerable difficulties for New Zealand's
economic progress.
The message is very clear for New Zealand and the rest of the pri-
mary producing world. The way out of our economic difficulties is by
trading. To do this we must have markets and prices for our products
that are considerably more stable than in the past.
Official Development Assistance

As I have mentioned, New Zealand is still confronted with serious
economic difficulties, and as New Zealand's capacity to expand devel-
opment finance is inevitably governed by its own economic strength,
there has been a temporary slowdown in the expansion of our official
development assistance. This slowdown was not adopted lightly, and
New Zealand will resume progress toward the target of 0.7 per cent of
gross national product as soon as economic circumstances allow. That
depends on the willingness of our trading partners to lift restrictions to
enable us to sell more to them.
In allocating its official development assistance New Zealand has
attached priority to sustaining significant growth in absolute terms in
bilateral aid to our near neighbors in the South Pacific. Almost 60 per
cent of our total bilateral aid will be directed to the South Pacific in
this financial year. This reflects not only New Zealand's geographical
proximity to the countries of the South Pacific but more importantly,

GOVERNOR FOR NEW ZEALAND 51
our close ties with those countries as more of them move to inde-
pendence.
Deficit Financing
The massive external deficits of primary producing countries placed
a considerable strain on all sources of international loan finance. The
international banking system responded well to the challenge and can
be congratulated on the extent to which the deficits were financed. The
Fund and Bank stretched their resources to the limit to make up the
shortfall. Balance of payments finance requirements are likely to be high
for a further year or two, and I would hope that the Fund in particular
will continue to make its drawing facilities readily available. Accord-
ingly, New Zealand welcomes the measures designed to increase the
Fund's liquidity and has agreed to the New Zealand dollar being freely
usable in Fund transactions. We were also pleased to see the compensa-
tory financing facility liberalized and the Trust Fund established.
The Fund and the International Monetary System
New Zealand accepts the introduction of the amended Articles of
Agreement and has legislated accordingly. It is our hope that the revised
Articles will help to restore the IMF to a stronger position in the inter-
national monetary system and will enable it to adopt a more positive
role in supervising international financial arrangements. New Zealand
believes that an increase in international financial and economic coop-
eration will be essential during the next few years if the continuing
economic expansion is to occur in a balanced and controlled manner
and if world trade is to continue to expand.
The Fund is in the best position to provide the necessary lead to the
international monetary system in the expansion process. We particularly
welcome the new Article IV and are pleased to hear of the continuing
discussions that are occurring between major countries on the evolution
of the exchange rate system and on balance of payments adjustment. I
hope that full agreement on these matters can be reached soon.
In particular, we are anxious to see greater stability in the exchange
system and an increased degree of discipline in economic policy mat-
ters. It must be recognized that the amended Articles simply facilitate
less discipline by those not willing to take politically difficult decisions.
There is no substitute for sound national economic management, and
to the extent that political expediency diminishes this, so will a move to
a more just international economic order be delayed. There must be
greater coordination of monetary policy and increased responsiveness
in controlling inflation. New Zealand supports these objectives and will
continue to cooperate with the Fund in seeking to move toward these
goals.

STATEMENT BY THE GOVERNOR OF THE BANK FOR THAILAND
Amnuay Viravan
At the outset, I wish to express our gratitude to the Government and

the people of the Philippines for bringing us all together in the lovely
city of Manila for the present Annual Meetings of the IMF and the
World Bank. I am sure that our deliberations will be enhanced in this
ASEAN setting and ensure the continued economic and financial coop-
eration between developed and developing countries to bring about the
betterment of the masses of the developing world. I would also wish to
express our warm welcome to the new member countries, Grenada,
Papua New Guinea and the Comoros and, similarly, the Socialist
Republic of Viet Nam to the IMF and IBRD family. . . .
Since 1973, developing countries have been burdened by a series of
events largely beyond their control. World trade and investment cut-
backs have severely hampered developing countries having no primary
energy sources, especially in the reduction of export incomes. Increased
costs of imported capital goods severely delayed urgent development
projects and many countries had no recourse but to seek additional
financing at market rates or to postpone them. The level of capital and
concessional assistance from the developed countries still remained far
below the increasing requirements of the developing countries. The
recourse to international financial markets at commercial rates, on the
other hand, has added substantially to the already heavy debt servicing
problems of developing countries. . . .
Thailand has truly benefited from the assistance of the IMF and the
World Bank
I wish to express our full support for the second amendment of the
Articles of Agreement under ratification by the members of IMF, which
sets forth new steps in the areas of international monetary cooperation.
We welcome in particular the agreement giving the buffer stock financ-
ing facility the same status as the compensatory financing facility. Fur-
thermore, we would like to urge that the requests by members for draw-
ings should be considered with greater flexibility to ensure its full
effectiveness when the buffer stock facility becomes operational.
Similarly, it is our hope that further steps will be taken to liberalize
the compensatory financing facility. For example, the real value of the
export shortfall should be used in the Fund's formula for calculating
the amount of drawings on concessional terms for balance of payments
financing. Thailand has made use of this facility in the past year to
cover a substantial current account deficit. Liberalization of the terms

GOVERNOR FOR GREECE 53
would enable the Fund to respond more positively to meet the liquidity
and resource needs of many developing countries.
The outlook for all of us at this meeting looks far brighter than in
the past, but many problems still lie ahead. The needs of the teeming
millions in the developing world must be met, but this can be achieved
only by true cooperation among us all. Let us hope that it can be done.
STATEMENT BY THE GOVERNOR OF THE FUND FOR GREECE
Xenophon Zolotas
I join the previous speakers in expressing my gratitude to the authori-

ties and the people of the Philippines for their cordial welcome and their
feelings of friendship and warm hospitality.
I would also like to express my deep appreciation to Messrs. Witteveen
and McNamara for the sound appraisal of the latest developments on the
world monetary and economic fields this morning. Since we last met in
Washington and after the Jamaica agreements, the international environ-
ment improved, and the recovery now under way in the industrial coun-
tries augurs well for the promotion of adjustment by deficit as well as sur-
plus countries. In addition, the second amendment of the Fund's Articles
of Agreement, which the Board of Governors approved a few months ago
and is now before our Governments for acceptance, will definitely help
the functioning of the international adjustment process. In particular,
the obligations regarding exchange arrangements contained in the new
Article IV represent a major step forward for the establishment of an
international "code of operation"—a prerequisite for closer economic
cooperation and solidarity which is so urgently needed.
The experience of the last few years has demonstrated that high infla-
tion rates entail large price and cost differentials and that the correction
of their effects requires appropriate adjustment of the exchange rates.
The resulting unrealistic rates have often brought about unwieldy changes
in the domestic economic variables. Thus, in a free floating system, an
internal disequilibrium is created, which tends to produce a perverse
adjustment to the speculatively induced external disequilibrium. No
doubt neither free floating nor an inadequately managed float can pre-
vent those speculative capital movements from causing prolonged ex-
change rate distortions and internal dislocations.
Floating has not completely prevented recurrent monetary crises
caused by speculative explosions, although it has mitigated their effects;
monetary anarchy continues as the international financial markets are

still dominated by "speculocracy." Under present conditions, only a

system of rational floating, coupled with a sufficient degree of coordina-
tion of monetary policies mainly by the major industrial countries, could
safeguard international monetary order. Guidelines should be set up that
would discourage intervention aimed at manipulating exchange rates to
gain competitive advantage. To this end, monetary authorities should allow
market rates to move gradually and smoothly to reflect the impact of
inflation rate differentials and structural imbalances, but resist destabiliz-
ing speculative outbursts by means of collective offsetting action. Appro-
priately managed floating could resiliency weather sporadic speculative
attacks and achieve de facto relative stability in exchange rates, without
a de jure inflexibility of fixed rates, which present a constant invitation
to riskless speculation and a source of recurrent financial and monetary
upheavals.
At this point it should be emphasized that orderly exchange conditions
could be ensured if high inflation rates and the resulting wide inflation
differentials were suppressed. So long as the subversive inflationary
tremors continue, no international monetary superstructure can hold, and
the present international monetary nonsystem will continue indefinitely.
Recent monetary agreements have failed to deal with some of the
major causes of disequilibrium in the international monetary system. We
still lack arrangements for controlling the expansion of international
liquidity and a mechanism for ensuring a symmetrical adjustment pro-
cess, both so strongly recommended by the Committee of Twenty. These
deficiencies are interlinked for two reasons: on the one hand, a lack of
symmetrical pressure on reserve currency countries to correct persistent
balance of payments disequilibria leads to inordinate expansion of world
liquidity, and, on the other hand, the existence of excessive liquidity
delays the adjustment process.
Moreover, the uncontrolled expansion of the Eurocurrency market
allows nonreserve currency countries with payments deficits to increase
unilaterally global reserves by borrowing in those markets, and thus to
defer in many instances the required corrections in their domestic
economic policies. As a result, countries with access to the Euromarkets
avoid using the conditional facilities of the IMF, thus depriving the
Fund of the means to ensure the discipline of its members. It is impera-
tive that control of international liquidity, supplied on a conditional and
nondiscriminatory basis, be restored to the Fund.
In these circumstances, any sensible discussion of the control of
international liquidity is associated with the central role played by the
dollar since the last war. It is possible that this role would diminish if a
common European currency were created. It is also possible that an

GOVERNOR FOR GREECE 55
improved SDR might, in part, play this role. Nevertheless, such possibili-
ties will take years to materialize; meanwhile the dollar will continue
its role as the leading reserve, intervention, and transaction currency of
the world's monetary system. Indeed, the present system might be called
a "de facto dollar standard" which, however, is inherently unstable.
These considerations indicate the need to reform the existing inter-
national monetary infrastructure in such a way that responsibilities will
be shared more equitably among the major industrial countries. In this
context, a careful examination should be undertaken of many intercon-
nected lines of action, such as a more symmetrical asset settlement, a
better system of controlling international liquidity, the promotion of the
SDR as the primary reserve asset, the ensuring of an adequate flow of
development capital, and the establishment of a more effective system
of multilateral surveillance.
At this time it would be premature to present an all-encompassing
scheme, since neither political acceptability nor technical agreement on
its contents appears likely. This should not preclude, however, the
possibility of exploring the requirements toward further strengthening
the efforts for stability and growth. At this time, the deceleration of
inflation in most industrial countries and the moderate but sustainable
recovery of the U.S. economy favor such efforts.
The international community should face the challenge originating in
a world moving toward a multicurrency structure as is evidenced by the
increasing international use of some currencies other than the traditional
reserve ones. The emerging reserve role of several strong currencies, as
delineated in the Annual Report of the Fund, should be favored so that
the stability of the international financial markets will be promoted.
Among the many ideas that could be considered in order to institu-
tionalize those trends, I would like to mention a multicurrency scheme
that I had proposed under different circumstances in 1961 and which
might be helpful.2 Modified to suit present conditions, it would call for
multicurrency reserves and intervention, guided but not forced by an
organization such as the Fund. Multicurrency intervention is not meant
as a means of defending a band of stable but adjustable par values, as
the Committee of Twenty has considered it, but as the indispensable
armory of a rational float, in accordance with guidelines to be adopted
2
X. Zolotas, "Towards a Reinforced Gold Exchange Standard,'* Bank of
Greece, Athens, 1961; "The Multicurrency Standard and the International
Monetary Fund," Bank of Greece, Athens, 1963; "Remodelling the International
Monetary System," Bank of Greece, Athens, 1965; and "Alternative Systems for
International Monetary Reform: A Comparative Appraisal," Bank of Greece,
Athens, 1965.

under the amended Articles. It would relieve the dollar from the exclu-
sive burden of being involuntarily implicated in any financial trouble
of every other currency. Multicurrency reserves will introduce for the
first time a symmetrical adjustment process for all reserve currency
countries. This in turn might hopefully induce them to implement mone-
tary policies aiming at achieving both domestic and external equilibrium.
A multicurrency scheme would call for all major industrial countries
to allow their currencies to become reserve assets. They should be pre-
pared to build up gradually sufficient balances in major convertible
currencies which would be used as a masse de manoeuvre in the exchange
markets. Incidentally, this would also eliminate the present disparity in
foreign exchange policy weapons between the United States and other
industrial countries.
The whole system could center around the Fund, whose organization
and experience would provide a solid foundation. Day-to-day decisions
might possibly be delegated to a standing committee which could be
reporting to the Council foreseen in the amended Articles of the Fund.
Weekly committee sessions would continuously review monetary and
economic developments and exchange rate policies of the participating
countries.
The Fund should be authorized to accept deposits from member
countries in convertible currencies other than their own. Furthermore,
a fixed percentage—or even one graduated with size—of the reserves of
each country might be agreed in advance to be kept in the form of Fund
deposits. These, although freely usable in case of need by the owner
country, will be redeposited by the Fund in a way designed to counter-
act temporary unsettling conditions or deficits not requiring corrective
balance of payments adjustments. In parallel, the possibility of a ban on
placements of official reserves in the Euromarkets should be considered.
The multicurrency design renders possible for the alternating deficits
of several reserve centers—rather than the persistent deficit of a single
country—to become sources of world liquidity. This characteristic
minimizes the conflict between quantitative expansion and qualitative
deterioration of reserve assets. Moreover, the ample availability of inter-
nationally managed reserves will enhance confidence in the stability of
financial markets, as the Fund will gradually be universally perceived as
a kind of "lender of last resort" in case of a major threat against the
international financial community.
The multicurrency scheme is not incompatible with the important role
that the SDR has to play as it provides for the substitution of any
excessively available reserve currency or any other unwanted reserve
asset into SDRs. In this regard, although member countries will be freely

GOVERNOR FOR MALTA 57
allowed to substitute foreign exchange holdings for SDKs, if a particular

reserve currency is substituted at an excessive rate, the Fund will exam-
ine the situation with the affected country of issue and should be able
to impose conditions similar to those which are presently envisaged for
stand-by lending.
It should be repeated that it is not the purpose of the multicurrency
scheme to supplant the SDR but to facilitate in bringing about orderly
monetary conditions until the time is mature for it to become the center
of the international monetary system.
A variation of the proposed scheme would call for a matching of
surpluses and deficits of the participating reserve centers and thus implies
the necessity of a strong internal adjustment process. In parallel, any
increase in world liquidity would be exclusively effected through SDR
allocations. I do not plan, however, to examine this modification, because
I do not consider it as politically feasible in the foreseeable future.
Finally, any international monetary system which does not provide
for a satisfactory solution to the adequacy of the supply of development
capital to the less advanced regions of the world is neither just nor
viable in the long run. Therefore, an agreed percentage of the realloca-
tion activities of the Fund, implied by the multicurrency scheme, should
be connected with subsidized loans to developing countries. Furthermore,
I would like to mention that the restoration of a reasonable degree of
price stability, which is a prerequisite for sustained economic growth
and employment, could not be attained without the cooperation and
solidarity among the major industrial countries and those countries of the
developing world, all within the framework of a firm surveillance of
their respective policies by a Fund with enlarged responsibilities and
scope.
In concluding, I would like to express my appreciation for the quality
of the work performed by the staffs of the Fund and the Bank, which
proved to be an indispensable prerequisite for the successful conclusion
of the negotiations that led to the revision of the Articles of Agreement.
STATEMENT BY THE GOVERNOR OF THE FUND FOR MALTA

Daniel M. Cremona
On behalf of the Government and the people of the Republic of Malta,
I salute the President, the Government, and the people of this enchant-
ing country and thank them for their kind hospitality. I would also like
to congratulate the organization of this congress for the excellent facilities
they have put at our disposal.

An analysis of the world economic situation during the period since

last year's Washington meeting reveals an unchanged scenario of com-
plex problems to which an effective solution has yet to be found, albeit
against the background of a somewhat improved economic climate. As
has been well brought out in the Fund's Annual Report, 1976 is proving
for the world economy the first year of recovery from its most severe
recession in four decades. The process of recovery in the industrial coun-
tries is now well established, with production expanding and inflation
tending to ease, though admittedly from very high levels. A by-product
of the incipient recovery has been the increased buoyancy of primary
commodity prices and the improved prospects for the export earnings of
primary producing developing countries resulting therefrom.
While we welcome these developments, we cannot but emphasize,
both as a consumer developing country and as a member of the Group
of 77, the great dangers inherent in the current economic upswing.
Relief at the cyclical recovery in world output and trade, and at the con-
sequent improvement in the terms of trade of the developing countries,
should not be allowed to divert our attention from the structural imbal-
ances of the existing system and from the imperative need to pursue the
objectives of the New International Economic Order. Indeed, we have
only recently, at UNCTAD IV, had yet another example of the great
divide which separates the expression of noble ideals and their active
pursuit. The uneasy compromise reached at Nairobi revealed once more
that the political will to bring about a truly equitable world economic
order exists in only a few of the countries in whose power it is to secure
and put into practice the necessary structural changes, both at national
and international levels. The problem was correctly diagnosed at the
Group of 77's recent Colombo meeting, when it was agreed that the
breaking-up of the resistance to the struggle for the new order represents
the primary task of the nonaligned and other developing countries.
Apart from the increased tempo of world economic activity, the past
year has also witnessed some important developments in the area of
international monetary reform, and particularly in the Fund's capacity
to meet members' requirements. In this sense, the approval by the Board
of Governors of the Proposed Second Amendment of the Articles of
Agreement was a major step forward in adopting the Fund and its opera-
tions to present-day conditions. We welcome in particular the provisions
relating to the reduction in the role of gold, changes in the SDR designed
to enhance its role as a major reserve asset, and the simplification and
expansion of the types of financial transactions which can be conducted
in the Fund's general operations. The rules concerning exchange rates,
however, open the way for the institutionalization of floating, albeit con-
trolled, and this, as we have reiterated several times and as recent

GOVERNOR FOR MALTA 59
experience has clearly demonstrated, is inimical to the interests of

developing countries. The recent fresh turmoil on the foreign exchange
markets has demonstrated this further.
Also worthy of note during the past year was the completion of the
Sixth General Review of Quotas, which acknowledged the new distribu-
tion of world economic power, and which will substantially increase the
access of member countries to the Fund's resources. Other positive
developments were the temporary enlargement by 45 per cent of the
size of each credit tranche and the liberalization of the compensatory
financing facility. Here again, however, our approval is subject to reser-
vations. For while the Fund has taken some steps to increase the flow of
liquidity to countries facing payments difficulties, the cost of the finance
thus made available remains relatively high and only serves to accentuate
the borrower's debt servicing problems. The large capital inflows to the
non-oil developing countries during the past few years, often borrowed
on terms harder than those for official development assistance, have left
behind them a legacy of enormous debts which seriously threaten the
development prospects of these countries. It is therefore necessary that
this problem be tackled by an appropriate conference, so that a coordi-
nated effort can be made at finding a compromise final solution, rather
than the present piecemeal approach which tends to perpetuate the
problem. In this context, it is obvious that any arrangement on debt
relief can only be considered satisfactory to the extent that it is accom-
panied by measures designed to protect the export earnings of developing
countries from the kind of exogenous factors which in the past have
forced countries to become heavily indebted. As far as the Fund is con-
cerned, it is unfortunately true to say that the "transfer of resources"
objective embodied in the project of international monetary reform has
not been actively pursued.
Allow me to bring to your attention the problems imposed by the
existing world economic order on developing countries which, like Malta,
lack an industrial base as well as raw materials, and whose economies
are particularly open to outside influences. This category of countries
has been severely affected by inflation and recession, but is nevertheless
considered ineligible for concessionary assistance by international orga-
nizations, such as the Trust Fund and the IBRD. This leads us to reaffirm
our belief that the prevailing emphasis on such criteria of need as gross
national product per capita, balance of payments performance, and
the level of external reserves is wrong and is working to the great disad-
vantage of middle-income developing countries which, though they have
moved forward a little, have much further to go. To ensure a more
objective and just assessment of need, more emphasis should be placed
on such factors as the size and openness of an economy, the import

content of its exports, the depletability of its resources, and the lack of
raw materials and energy resources. Furthermore, access to special funds
created to stabilize raw material and commodity prices for developing
countries which are consumers of commodities should be made more
broad and automatic. Such countries, of which my own is a prime exam-
ple, should be given automatic compensation when raw material prices
are raised through action under commodity arrangements. Otherwise
such countries, through reform in this area, would be getting the worst
of both worlds. At the same time we call upon the Fund to include in
the program of monetary reform, in the context of the new role of the
SDR, measures designed to protect the purchasing power of the reserves
of developing countries, including those which fall in the category
described above.
In an imperfect world, many developing countries are making stren-
uous efforts to improve their situation through self-help. Improvement
in this context does not mean simply achieving economic growth, an
increase in the total wealth of a country. Economic growth, unless it is
socially oriented, is not merely meaningless, it is positively harmful. This
is why over the past five years my Government, while striving to increase
total wealth, has striven even harder to reduce disparities of income and
wealth in order to make our society progressively less unequal and more
humane. While driving home the need for self-help by all, especially the
least advantaged, we have sought to ensure that government measures
gave impetus to the objective of achieving a fairer society. We shall con-
tinue to pursue this policy in the years ahead.
I must submit that the international community, too, should apply
itself more seriously to such an approach. Each and every country among
us must, in the first instance, help itself. The engine of progress must
first be fired internally. But persisting deep-rooted economic imbalances
in the international community, coupled with a turbulent environment
within which the rich have an inbuilt head start can make even the most
earnest and strenuous of attempts at self-help seem futile.
This is why bodies such as the International Monetary Fund, and the
World Bank as well, must not merely reflect the existing state of balance
in the world economy. Such bodies must supply the thrust for a funda-
mental restructuring and reordering of international economic and social
relations to bring about an ever fairer and less unequal world. Though
much is said, all too little has as yet been done. It is the duty of all of
us, and particularly of the stronger among us, to make fresh efforts in
this direction and to do so not merely out of a regard for others but also
out of the conviction that this objective is the best basis for a better and
more peaceful world in which the interests of all our countries, all our
peoples, are best served.

Copyright
Center

THIRD JOINT SESSION1
STATEMENT BY THE GOVERNOR OF THE FUND AND BANK FOR INDIA
C. Subramaniam
At the outset I would like to thank the Government and the people of
the Philippines for their warm welcome and generous hospitality so
kindly extended to all of us, and the excellent arrangements made for
this meeting. I have great pleasure in extending a special welcome to the
Comoros, our newest member, and the observers from Cape Verde,
Maldives, Sao Tome and Principe, Seychelles, Guinea-Bissau, and
Surinam.
It is a matter of satisfaction that the recent trends and the prospects
for the growth of world output and trade show considerable improve-
ment over the performance of the world economy in 1975. According
to available indicators, economic recovery in industrial countries seems
now to be firmly established and, unlike 1975, the volume of world trade
is expected to show a sizable increase in 1976. However welcome these
developments may be, they must not distract our attention from the
many sources of uncertainty and the deep-rooted structural imbalances
which characterize the functioning of the international economic system.
Unemployment and inflation rates in industrial countries still remain
high by past standards. There is also the danger that the synchronization
of recovery and economic expansion in major industrial countries may
lead to a repetition of the boom-bust experience of 1972-74. And
though there has been a moderate improvement recently in the external
accounts of many non-oil developing countries, we cannot afford to lose
sight of the fact that they are still faced with a most difficult and
vulnerable external position.
I do not have to remind my fellow Governors how seriously the events
of 1974-75 disrupted the orderly implementation of development pro-
grams in non-oil developing countries. The sharp increase in the balance
of payments deficits of these countries and shortage in the flow of con-
cessional funds left them with no alternative but to borrow abroad on
October 5,1976.
61

commercial terms on an unusual scale. This has gravely aggravated

their debt service problem, and their economies have become even more
vulnerable than they were to sudden declines in capital inflows or
export receipts.
In these difficult circumstances, and faced with these challenges, we
in India have had to adopt harsh and politically difficult measures to
stabilize our economy and our balance of payments. Through drastic
cuts in domestic consumption we managed to increase our exports last
year by 8 per cent in volume at a time when world trade declined by
4 to 5 per cent. Drastic measures to curb consumption of petroleum
products have been taken. Through tough fiscal and monetary policies
we have succeeded in bringing inflation under control and have also been
able to impart a new element of dynamism to our agriculture and
industry. As a result, our growth prospects have now improved. How-
ever, I must state that the effects of the domestic measures adopted by
us can be easily neutralized by a deterioration in the international
environment, such as an increase in import prices or uncertainty of
aid flows.
The international community cannot but be seriously concerned that
the current account deficit of the non-oil developing countries as a group
is expected to remain as high as $32—33 billion in the next one year.
Unless ways are found to finance this deficit in a manner which does
not aggravate their already serious debt service problem, their growth
prospects are bound to remain highly uncertain. This august body must
take a serious view of a recent World Bank finding that low-income
developing countries are unlikely to be able to attain a per capita growth
rate of more than 2 per cent per annum during the next decade, even
with a substantial expansion in their export earnings and improved
policies to mobilize their internal resources. If this trend is allowed to
persist, the gap between rich and poor countries will become a vast
unbridgeable gulf.
Developing countries welcome the recovery in developed countries.
But there is now irrefutable evidence that the gap between rich and poor
countries cannot be narrowed without a basic structural reform of
international economic relations. It is this recogntion which finds expres-
sion in the demand for a new economic order. As the Prime Minister,
Mrs. Indira Gandhi, pointed out at the recent Conference of Heads of
States and Governments of Nonaligned Countries:
Patchwork remedies are no substitutes for genuine reforms. We need a
global perspective plan which will relate resources to human needs, and pro-
vide a system of early warnings of imbalances and disasters. Improved terms
of trade and credit, easier access to markets, and better value for raw materials

GOVERNOR FOR INDIA 63
and industrial goods, are all essential to secure greater equity in the distribu-
tion of benefits.
In this context, we are disappointed at the results of the recent session
of the United Nations Conference on Trade and Development and at the
slow progress being made at the Conference on International Economic
Cooperation in Paris.
The confrontation of earlier decades between the privileged and the
poor within developed countries themselves appears now to be extending
to the relations between developed and developing countries. Several
developed countries which were wise enough to solve this internal prob-
lem amicably have profited as a result.
If the bitter and destabilizing consequences of such confrontation in
the international field are to be avoided or minimized, it will be neces-
sary for the developed countries to apply the lessons of their own
experience to the international field. The most important action called
for is adoption of effective measures which will help improve substanti-
ally the projected growth rate of low-income developing countries, and
the poorer sections of their population, by increased aid and greater
access to markets. The efforts of each developing country are, no doubt,
of crucial importance, but need to be supplemented by international
action. Developing countries have too long been buffeted between inade-
quate flows of aid and trade, neither of which has been forthcoming in
the desired measure because of the real or supposed domestic difficulties
of developed countries. This deplorable situation cannot continue for
long.
The demand for a New International Economic Order can no longer
be dismissed as Utopian. It is my hope that our deliberations this week
at the meetings of the Interim Committee and the Development Com-
mittee and at this Annual Meeting may help to rekindle hope and revive
our faith in international economic cooperation as an effective instrument
for reducing inequalities in income and wealth among the countries of
the world. As was stressed by our Prime Minister at the Colombo
meeting of nonaligned countries, India stands for promoting greater
economic cooperation between developed and developing countries and
not for economic confrontation. It is in our view crucial that the com-
munity of nations should jointly and peacefully achieve that elusive
equation between global production and consumption that yields the
right share for each nation.
As I see it, the most important task before us this week is to ensure
that both the World Bank and the IMF are properly equipped to play
their legitimate role in assisting the process of economic and social
transformation of the developing world. . . .

. . . Events of the last two years have greatly added to the urgency
of debt rescheduling being considered as an essential element of a policy
of global economic cooperation. Debt rescheduling operations should be
viewed in a long-term perspective as providing a much needed increase
in the transfer of real resources for development. Short-term considera-
tions, such as movements in reserves, or so-called ability to meet pay-
ments obligations, ought not to color unduly this long-term perspective.
This issue needs to be considered in depth, and I would hope that the
Development Committee will focus attention on it in the coming
months. . . .
Coming to Fund matters, I am happy that, due to the initiative of
Mr. Witteveen, the IMF took significant steps, particularly through the
introduction of the oil facility and the liberalization of the compensatory
financing facility, to meet the large deficits of member countries in the
last two and a half years, following the sharp increase in oil and other
prices. The oil facility was unfortunately short lived, but of great use
while it lasted. The Managing Director, the Executive Board, and the
staff deserve to be complimented for their unremitting efforts.
As we look ahead, an urgent task on which we must continue to focus
attention is current account deficits of non-oil developing countries,
which on the latest IMF estimates will still be running at the annual rate
of $33 billion in the first half of 1977. This forecast is based on the
assumption of a relatively large increase in the volume and value of the
exports of these countries and a much smaller rise in the value of their
imports. Even if these optimistic assumptions turn out to be correct, the
persistence of an annual deficit in excess of $30 billion is a major cause
for concern, particularly as the Fund's oil facility is no longer available.
The resources expected to flow to the most seriously affected countries
from the Trust Fund will be less than envisaged earlier, will take four
years to disburse, and in any case will be far from adequate. The
liquidity of the Fund has by historical standards reached a very low
level at a time when many of the developing countries will find it increas-
ingly difficult to raise borrowings in the commercial market, because of
their level of indebtedness, and the serious debt-servicing problems they
are facing.
In this situation, the Fund should be able to replenish its liquid
resources, and members with large surpluses should not remain averse
to any reasonable measures considered necessary for this purpose. The
second amendment of the Articles of Agreement and the new quotas
should be made effective soon. It is also necessary to expedite the
preparatory work for the Seventh General Review of Quotas, so that it
will be possible to complete the work before the scheduled date of

GOVERNOR FOR INDIA 65
February 9, 1978. The quota increases in the past were inadequate in

relation to the increase in world trade, and also failed to give appro-
priate representation to the greatly increased membership of developing
countries in the decision-making processes of the Fund. Whereas in
1948, the Fund quotas amounted to 15 per cent of world trade, these
will be only around 4 per cent of world trade, even after the forthcoming
Sixth Review becomes effective. The number of developing countries in
the Fund membership has gone up from the original 35 to over 110;
their collective voting power unfortunately has not changed significantly.
If these 110 developing countries with a population of about 2 billion
continue to be relegated to the position of an unimportant minority, the
Fund may be seriously handicapping itself in its task of achieving the
kind and degree of international cooperation that is required to ensure
equitable management of the monetary system.
I would like briefly to refer also to recent developments in interna-
tional monetary reform. On the basis of the Jamaica agreement in the
Interim Committee, which was basically in the nature of a prescription
prepared and handed out by a group of rich countries, the prolonged
process of drafting the second amendment of the IMF Articles has been
completed. The draft amendment provides for greater flexibility to
individual countries in their exchange rate policies, along with wider
powers of surveillance to the Fund in this field, a framework to eliminate
the central position of gold in the operations of the world monetary
system, and a declaration of intent to give the SDR a central role. One
cannot but be disappointed, however, that little or nothing has been done
to strengthen the SDR. The various other steps will prove to be of great
advantage to the developed countries, without significantly improving
the situation of developing countries which face grave difficulties in a
world of floating exchange rates. The developed and financially powerful
countries can use the flexibility in exchange rates to their own advantage,
and I cannot help feeling that it will be extremely difficult to work out
a method and procedure for surveillance that is truly objective and
could be administered evenhandedly. There is a risk that the developing
countries will be placed under great pressure to adjust their exchange
rates to correct their balance of payments imbalance, even at the cost of
their impoverishment. The process of adjustment, about which so much
has been said, will, I fear, bear more heavily on them than on the
developed countries.
I would like to refer to my statement made at the last Annual Meeting
that the measures taken concerning gold will vastly raise total inter-
national liquidity and particularly benefit the small group of industrial
countries that hold over four fifths of the gold stocks. Already the

distribution of international reserves is grossly unfavorable for the

overwhelming number of developing countries, having regard to their
needs and the inadequate facilities available to them for alternate sources
of financing. It may be relevant to note here that the proportion of
international reserves accounted for by gold, and held mainly by devel-
oped countries, will go up from 18 per cent in 1975 to nearly 40 per cent
as a result of revaluation. It is, therefore, most important that the above
arrangements should not be made the excuse for postponing the creation
and distribution of liquidity through the allocation of SDKs in a manner
appropriately advantageous to developing countries.
We have chosen these two unique international institutions to play a
vital role in ushering in a new economic order in the world. On their
successful functioning depends the future of the one billion poor to whom
a moving reference was made by Mr. McNamara in his speech yesterday.
The real question is: will those who are in a position to do so provide
these institutions with the necessary means to fulfill objectives to which
we stand pledged, namely, eradication of poverty and human degradation?
STATEMENT BY THE GOVERNOR OF THE FUND FOR ITALY
Gaetano Stammati
I wish to thank most warmly the Government of the Philippines for

the splendid organization of our thirty-first Annual Meeting. I should
also like to express my appreciation for the addresses by the Managing
Director of the IMF and the President of the World Bank which outlined
very well recent achievements and the main problem areas of the world
economic and monetary order. Let me also welcome our new member,
the Comoros.
World Economic Situation
Since our last Annual Meeting, the state of the world economy has
materially improved. The worst wave of inflation-recession in the post-
war period has given way to reasonable growth, and the pace of world
inflation has substantially decelerated. These positive developments,
however, do not mean that conditions have been restored for a sustainable
and balanced growth of incomes without inflation. In fact, investment
continues to be sluggish, inflation rate differentials are still quite large
from country to country, the shocks caused by the energy crisis have not
yet been reabsorbed by many countries, and disequilibrating factors of a
structural nature are still present and might impair over the medium and
long run the stability of international economic relations. Moreover,

GOVERNOR FOR ITALY 67
there is a risk of renewed tensions on resources as business cycles in

individual countries appear to be moving in approximate synchrony.
While, overall, the economic situation is better than last year's, the
world payments situation remains a cause for serious concern as there
are important imbalances among industrial countries and huge current
account deficits by developing nations as a group, which could hamper
continued economic expansion. The economic recovery of the industrial
world should help alleviate the balance of payments constraint in the
emerging world. Nevertheless, these countries are likely to register again
next year a $30 billion deficit in their combined current account. With
their foreign indebtedness now totaling some $150 billion, their payments
gap makes for an untenable situation which urgently requires new efforts
by industrial nations and oil exporters.
In the three years since the abrupt increase in oil prices which caused
a major structural change in the balance of payments of most countries,
there still seems to be little agreement on how to share out the oil deficit,
however defined, among oil importers. Thrusting the weight of the
burden on the shoulders of the weaker members of the international
community, many of which are in the developing world, does not seem
to be an acceptable solution. Indeed, it not only makes for an unstable
economic order, but it contains the seeds of international discord, and
we all know that without a large degree of good will and cooperation
among nations our collective problems cannot be alleviated, much less
solved.
I have just mentioned that there are serious payments imbalances in
industrial countries. Italy is a case in point. The difficulties in economic
policy actions derive mainly from a change in the overall economic
situation. Still, in the month of July we expected an expansion of gross
national product (GNP) of 1.5 per cent and a balance of payments
deficit of $2 billion. On the basis of the most recent estimates we forecast
now a rate of growth of GNP in 1976 of approximately 4.5 per cent,
a rate of inflation not exceeding 17 per cent, and a balance of payments
deficit not lower than $2.5 billion. The high rate of inflation is due in no
small part to the sharp depreciation of the lira in the first months of the
year. The high degree of indexation of the Italian economy has blunted
the usefulness of exchange rate depreciation since it leads rapidly to
higher domestic prices.
The dimension of the balance of payments deficit, which exceeds the
one previously expected, is not acceptable: it is the consequence of a
rather sustained recovery of the Italian economy. In this context, the
Italian Government has presented to Parliament an economic program
which emphasizes the presence of two very stringent constraints: the

need to restore equilibrium in our external accounts and to reduce the

structural deficit of the public sector. The Government has proposed
necessary measures of adjustment, with the reduction of consumption of
goods that more directly affect the balance of payments (oil products,
foodstuff, paper), the increase of tariffs and publicly administered
prices, and the increase of public revenues, especially by reducing tax
evasion.
The events of the last 10 days of September, which have disrupted
the exchange markets, have had negative effects on our currency: the
value of the lira has declined from Lit 840 per dollar on September 13,
to Lit 859 on September 30. On October 1 it dropped to Lit 872, a
decline of 3.8 per cent relative to September 13.
In these circumstances actions to stabilize our economy have been
accelerated, after an appeal to the country by the Prime Minister. The
Interministerial Price Committee has decided to increase, effective imme-
diately, the price of natural gas and certain oil products. Moreover, it
has been decided, with the agreement of the social partners, to increase
in the next 15 days rates of public utilities, and certain administered
prices and taxes, by a very substantial amount.
This measure will, on the one hand, reduce consumers' purchasing
power and, on the other hand, improve the financial position of public
corporations, thus reducing the pressure that such entities exert on the
Treasury. Current public expenditures for the year 1977 have been
reduced by Lit 100 billion. Taxes on tobacco products have been raised,
and will lead to increased revenues of an amount of Lit 150 billion.
The Italian Government has agreed with the European Economic
Community to phase out gradually the 50 per cent deposit requirement
on foreign exchange purchases, starting from October 15, so as to ter-
minate it by April 15, 1977. This has partly influenced the behavior of
economic agents, who expected termination of the deposit by next
November.
As a consequence of this measure, and of the decline of the lira, the
authorities have adopted restrictive monetary policy measures, which
are needed until the fiscal and price actions mentioned above will fully
exert their effects. On September 30, bank reserve requirements were
increased by 0.5 per cent for an amount of Lit 550 billion. The discount
rate of the Bank of Italy has been increased, effective Monday,
October 4, from 12 per cent to 15 per cent, which will raise the rate on
central bank advances to approximately 18 per cent. Compulsory financ-
ing in foreign exchange of exports with delayed payment has been raised
from 30 per cent to 50 per cent of the value of exports. The Council of

GOVERNOR FOR ITALY 69
Ministers, in its meeting of October 1, has decided to introduce a tax

of 10 per cent, effective for 15 days, on foreign exchange purchases.
Ten months ago in Jamaica we put the final touches to the lengthy
and difficult process of reforming the international monetary system.
My Government believes that the Jamaica accord represents the best
compromise solution obtainable under the circumstances that have pre-
vailed in the monetary and financial scene over the last year.
The new charter of the Fund, for which Italy has initiated ratification
procedures, contains two essential features, admirably combined. First
it restates with the necessary emphasis the basic principles of an inter-
national code of conduct which often in the past have not been adhered
to. It is gratifying to note that in the midst of dramatic changes affecting
the political, social, and economic fabric of our countries, the interna-
tional community could agree once again on a broad range of policy
objectives covering the adjustment process, the management of exchange
rates, and international liquidity. At the same time, however, the Articles
of Agreement now embody an element of flexibility and discretion that
should enable the Fund to deal effectively with developments that might
hamper the smooth functioning of the international monetary system.
This should prevent the cumulation of imbalance that led to the demise
of the Bretton Woods system.
It would be indeed sad to realize that, after having completed a
major reform, our policy actions are still affected to a great extent by
the rigidities and the asymmetries of the old regime. The problems that
we are going to be confronted with in the near future are serious and
difficult ones and they are not amenable to simple univocal solutions.
We should therefore rely more than in the past on international coopera-
tion and consultation to improve our mutual understanding of individual
country problems and to design appropriate policy measures.
Implementation of the Jamaica Agreement

One major aspect of the Jamaica agreement which calls for further
work is how to make the adjustment process more symmetrical. Without
uniform treatment of all members the adjustment process places undue
pressure on deficit countries, especially on those that need recourse to the
Fund's resources. I believe the Fund could play a decisive role in deal-
ing with the adjustment process, provided it is capable of designing an
effective strategy to be applied to surplus and deficit countries alike.
Such a strategy should be developed within the firm surveillance over
exchange rate policies and practices of all members that under the new
statutes the Fund is required to exercise.

A more symmetrical adjustment process is closely linked to the state

of, and prospects for, international liquidity. While fully recognizing
that deficit countries have to adopt domestic stabilization policies to
return to equilibrium, one cannot ignore the fact that the world is still
confronted with oil-related structural surpluses and deficits which cannot
be corrected in the short term. By their very nature, they will have to
be financed. Opinions may differ as to the adequacy of international
liquidity. The Annual Report of the IMF points out that it has become
increasingly difficult to assess such an adequacy in the present situation
of large imbalances and generalized floating, also because experience has
shown that floating does not reduce the need to use reserves for interven-
tion purposes. Yet, this is a problem that cannot be ignored, given its
implications for the adjustment process. We should be able to look ahead
and evaluate whether existing mechanisms of liquidity creation are likely
to result in adequate liquidity, and whether it would be appropriately
distributed by countries and by reserve assets. On this score the lesson
of the recent past is disquieting. Liquidity creation has been left largely
to the capacity and willingness of private banks to finance payments
deficits of both industrial and developing countries. The maldistribution
of reserves has increased because of the structural disequilibria con-
nected with the energy crisis.
Moreover, in looking at international liquidity, we should not forget
one of the main objectives of the reform, namely, making the SDR the
central reserve asset of the system. In this context we have noted with
satisfaction that the Interim Committee intends to review all aspects of
international liquidity and to discuss this topic at a later meeting. It
would seem appropriate to us that the issue be discussed at the Com-
mittee meeting scheduled for next April and we believe that on that
occasion the Committee should evaluate the role of the main reserve
assets in the reformed monetary system, and discuss ways for the inter-
national community to resume control over the creation and distribution
of international liquidity on a multilateral basis. Regarding the Fund's
program of gold sales, I wish to associate myself with the remarks made
by the Chairman of the Interim Committee, Minister De Clercq, and the
Canadian Minister of Finance, Mr. Macdonald.
Problems of Developing Countries
Let me now turn more specifically to the problems of the developing
nations. These problems are of such magnitude that they might hamper
the proper working of the international economic and monetary system.
In 1973-75 the developing nations managed to achieve an average real
growth rate of over 5 per cent per annum. But we know that averages
are misleading. In fact, while the annual rate of growth in certain coun-

GOVERNOR FOR FRANCE 71
tries was 6-7 per cent, in others, all too often the poorest of all, was only
2-3 per cent, virtual stagnation on a per capita basis. For the third year
in a row, less developed countries will also have to meet, among other
problems, current account imbalances of a size unimaginable only a few
years ago. Alleviating the difficulties confronting particularly the poorest
nations of the group becomes every day a more urgent and pressing
necessity. The solution of their problems is not an easy one as it requires
not only the firm commitment of all countries but also a much closer
coordination of the efforts of various international organizations operat-
ing in the aid field. The task before us is immense, and yet it cannot be
postponed any longer if we want to avoid major disruptions both in the
economic and social structures of the poor countries and their negative
repercussions on world trade and financial flows.
Last year the flow of public and private capital from the member
countries of the Development Assistance Committee to less developed
countries surpassed 1 per cent of their total gross national product; this
ambitious target has been met for the first time. The members of the
Organization of Petroleum Exporting Countries, too, have greatly in-
creased their aid to the developing world and we hope that they will
continue to do so also in the future. The World Bank and regional
development institutions have also expanded their loans to less developed
countries. Yet a policy of trying to finance through loans the huge current
account deficits of the developing nations cannot be relied upon indefi-
nitely. Industrial nations and oil exporters will have to make a conscious
effort to improve access to their markets for less developed countries'
exports. Much has been achieved in this field in recent years, especially
by the European Economic Community, but more has to be done to
favor less developed countries' industries.
The development efforts of individual countries as well as the assis-
tance of multilateral development institutions and of industrial countries
should be increasingly geared to encourage exports and to expand agri-
cultural production, and to avoid the flight from the land into the squalor
of urban ghettos. In this connection, the redirection of the World Bank's
loans have to be applauded as they tackle directly the root of the
problem in many developing countries. . . .
STATEMENT BY THE GOVERNOR OF THE BANK FOR FRANCE
Bernard Clappier
The sumptuous surroundings of our meetings and the traditionally

extremely warm welcome of our Philippine hosts are a good omen for the

success of our assembly. This is most gratifying, indeed, and we very

much hope that the reality will confirm our expectations. It is a great
pleasure for me to welcome here the new members of our group, and
more particularly, the Comoros, with whom we have been united for
so long.
Last year, the world's economy was in a crisis that had seen no
precedent in the previous 30 years. While the magnitude of the crisis was
worrisome enough, the nature of the crisis gave even greater cause for
concern, for what was taking place was a combination of a decline in
production and trade with a high rate of inflation.
Today, most economies are on the upswing. The improvement in
economic activity that began in the second half of 1975 intensified in
the first six months of 1976. But if inflation has lost some of its strength,
it has not yet been stifled, and is showing signs of a resurgence in some
countries. This inflation is the major problem facing us today. For, as we
know, a lasting expansion is not possible in our countries as long as
monetary imbalance persists. It would be in vain to expect the improve-
ment in the international monetary system, as essential as it is, to yield
its full benefit before there is greater price and currency stability.
It is therefore necessary to recall the disturbances which inflation
provokes in international settlements before examining the policies that
are needed.
I. Inflation is a major cause of the disturbances in the international

payments system
The international payments system continues to be unsettled. This is
evident chiefly in the magnitude of balance of payments imbalances, in
the deep and frequent disturbances besetting the exchange markets, and
in the worsening of the particular situation of the developing countries.
1. The magnitude of balance of payments imbalances

Balance of payments imbalances remain at high levels.
The slowing of economic activity in most industrial countries led to a
sharp reduction in their current account deficits in 1975. There was a
parallel reduction in the surpluses recorded by the oil exporting countries.
The implementation of recovery plans as early as the fall of 1975
brought about a sharp increase in the imports of the industrialized
countries in 1976. Though their exports also recovered strongly, the
result was a considerable growth in their deficit on current account,
which for the member countries of the Organization for Economic
Cooperation and Development alone could reach some $20 billion this

year, as compared with a little more than $5 billion in 1975. At the

same time, the current account surplus of the oil exporting countries is
likely to rise to $50 billion from last year's $40 billion. Finally, despite
a $7 billion reduction, the deficit of other countries will probably total
$35 billion this year, including $20 billion for the developing countries.
Hence, the imbalances in international payments are very far from
being overcome. There remain considerable problems of adjustment,
hardly any smaller in size than in 1974 after the quadrupling of oil prices.
The seriousness of the situation is worsened by the fact that the
imbalances are being financed under conditions which may not be con-
ducive to the return of world economic stability. For instance, in financ-
ing balance of payments deficits, there has, paradoxically, been very
little recourse to official exchange reserves. In this connection, can it be
deemed normal that official gold holdings cannot be mobilized between
central banks on acceptable terms?
As regards conditional credits from the IMF, their use remains highly
limited. A portion of the deficits has been financed by the development
of unconditional IMF credit facilities, while the lion's share of the pay-
ments deficits in the last two years has been covered by international
loans extended by commercial banks. It is true that this means of
financing has made it possible, in the short term, to solve the problems
that had arisen without an intolerable contraction in the level of
economic activity. But financing of this type involves serious dangers.
In the first place, it contributes to an uncontrolled growth of inter-
national liquidity. Moreover, because of the relative ease of obtaining
international bank loans, some countries may have failed to take the
early internal adjustment measures required to right their external
accounts. Thus, the growth of this type of lending leads, in some cases,
to a relaxation of the monetary and budgetary discipline which is needed
more than ever.
2. Disturbances in the exchange markets

While inflation is a major cause of international payments imbalances,
it is also an underlying factor in the disturbances that beset the exchange
markets.
Thus, the exchange market's behavior seems to be based nowadays on
an alleged "law" according to which, in a system of floating exchange
rates, the differences in inflation rates between countries should gradually
be erased by contrary movements of exchange rates. It follows that
economic agents constantly bet for or against a currency, anticipating its
inflation rate. The fact is that monthly trends in consumer price indices

are very dubious indicators of trends in a country's external competitive-

ness. Nevertheless, this belief plays a decisive role today. Moreover,
speculative anticipation by economic agents amplifies the size of exchange
rate movements, so that, as a result, the market reinforces internal trends
which ought, instead, to be corrected.
These erratic exchange rate fluctuations have adverse effects. A fall
in the exchange rate on the market is reflected, even before the slightest
impact is felt on export volume, in an immediate rise in the cost of
imports. Thus, in the first phase, the external depreciation of the cur-
rency aggravates the internal inflation rate. These two phenomena follow
and reinforce each other, setting in motion a cumulative process at the
end of which the currency's exchange value continues to fall. As experi-
ence has shown, such excessive, disorderly movements distort the condi-
tions of trade and could, if we do not watch out, jeopardize the growth
of world trade. It is therefore justified for the Fund's new Articles of
Agreement to require the member countries to "promote a stable system
of exchange rates."
3. Effects of world inflation on developing countries
International inflation has a particularly severe impact on the situation
of the developing countries. Many of these countries are highly vulner-
able. Dependent on imports, especially of capital goods, they see the
price of their imports rise but are generally unable to bring their trade
back into balance by expanding their exports adequately. Since their
exchange reserves are small, they can maintain the level of their real
income only if they are willing to finance their expanded payments deficit
by borrowing, that is, by going more deeply into external debt.
Of course, the effects of inflation are attenuated by the world's
economic recovery, which is accompanied in particular by an expansion
of the developed countries' imports and by a recovery of raw material
prices. But the fact remains that the consequences of inflation are not
symmetrical; they are worst for the poorest countries.
II. The policies that are needed
In view of these consequences of inflation and of the resulting imbal-
ances in the monetary system at large, various steps must be taken.
Their purpose should be to re-establish the economic balances, improve
the financing of payments deficits, and strengthen the surveillance mis-
sion of the Fund. They must be accompanied by measures of solidarity
with the developing countries.
1. The pursuit of economic balances
The unsettled condition of international payments can be lastingly
improved only if our economies function in a sound manner. It is detri-

mental to the equilibrium of the international monetary system for

certain countries to settle down into inflation. The pursuit of policies of
monetary stability must therefore be a priority task for our countries.
It must be recognized, however, that the industrialized countries have
not yet succeeded in reconciling the pursuit of a sustained, regular
expansion of economic activity with adequate stability in general price
levels and in the value of their currencies. The reason may stem from
the fact that inflation is largely structural in origin.
How is it possible, for example, to achieve the necessary moderation in
growth of income if the distribution of national income is excessively
unequal? In an economy in which there is too wide a disparity in income
levels, each social category tends to align its demands with those of the
more advantaged sectors; this contagion effect is an unbalancing factor.
A reduction in inequality is not just an objective of social equity; it is
also a necessary endeavor if the sound functioning of the economy is
to be reconciled with the maintenance of reasonable freedom in collec-
tive bargaining. By the measures it has just adopted, France has shown
its determination to attack resolutely the immediate and deeper causes
of inflation.
2. A return to normal financing of payments imbalances
At the international level, the objectives of fighting against inflation
and strengthening the stability of the payments system call for a rapid
return to more normal conditions of financing balance of payments
deficits. The last years have witnessed a significant growth of uncondi-
tional credit facilities. For the period 1975-76, the share of uncon-
ditional drawings on the IMF increased sharply again, reaching 93 per
cent of total drawings. This situation is cause for concern.
In order to cope with the sudden profound payments imbalances that
arose in early 1974, it was of course essential for the Fund to acquire
appropriate means for mitigating those imbalances—means that met the
urgent temporary needs created by the new situation. In our view, these
means must remain temporary and exceptional. For the future, the
credit facilities which the IMF places at the disposal of countries
experiencing payments difficulties should go hand in hand with the condi-
tions required for a return to equilibrium in those countries' external
accounts.
3. Exercise by the IMF of its surveillance mission over the interna-
tional monetary system
Under the Bretton Woods Articles of Agreement, the Fund was vested
with the mission of overseeing the compliance by member countries with
the monetary system's rules of good conduct and, if necessary, of
penalizing violations thereof.

The amended Articles provide a new framework of action for the

IMF. A task of a pragmatic nature is assigned to the Fund by the new
Article IV—that of ensuring "the effective operation" of the monetary
system while overseeing the way each member country fulfills its obliga-
tions. It is important for the Fund to carry out fully its new mission of
"firm surveillance" from as positive a standpoint as possible. This means,
in our view, that the firm surveillance should pertain not only to exchange
policy in the strict sense, but also to the general economic policy condi-
tions underlying it.
In short, since the purpose of the mission assigned to the Fund is to
improve the functioning of the process by which international payments
are adjusted, that is, to prevent the overvaluation or undervaluation of
currencies and competitive devaluations, the Fund should exercise its
firm surveillance equally over surplus countries and over deficit countries.
This orientation is dictated by the Articles themselves; in addition,
it would contribute to the realization of the Fund's basic objectives. Each
IMF member has committed itself, among other general obligations, to
endeavor "to direct its economic and financial policies toward the
objective of fostering orderly economic growth with reasonable price
stability." Respect for this basic commitment seems more than ever a
prerequisite for reducing payments imbalances and further stabilizing
exchange markets.
Finally, during the interim period in which the member countries are
free to choose the exchange arrangements they wish to apply, the Fund
must take care, in order to assure equal treatment of all member coun-
tries, to exercise its surveillance in comparable conditions, regardless
of the exchange regime adopted.
4. Strengthening solidarity with the developing countries
I now come to the policies which must be pursued or undertaken in
order to help the developing countries solve the grave problems facing
them. This is an area to which France attaches particular importance.
These problems cannot be solved without an effective strengthening of
international solidarity. Solidarity must be pursued in two complemen-
tary directions. The transfer of real resources to the developing countries
must be expanded, and the methods of transfer must be adjusted so as
to increase their efficiency. In addition, the organization of world trade
must be improved.
(a) An expanded transfer of real resources is needed to meet the
need of the developing countries for external financing, since that need
has grown considerably in the last two years.

Of course, a major effort is under way to strengthen the role and

means of the Fund and the World Bank so as to meet this need. In this
connection, it is worth recalling the measures that have been taken or
have begun to be applied since the start of this year:
—The increased flexibility of compensatory financing, which France
had firmly supported, and the enlargement of the ordinary credit tranches
in anticipation of the quota increases mean a significant expansion
of the opportunities for drawing upon the Fund.
—The World Bank's Third Window, which is supported by national
contributions, came into being about a year ago. France intends to
contribute to it in the near future.
—Finally, the Trust Fund, intended to provide special balance of
payments assistance to the developing countries with the lowest per
capita income, was created last May. However, the decline in the price
of gold since the IMF gold sales got under way is cause for concern,
especially insofar as it reduces the resources of the Trust Fund. It is
therefore important to make very sure that the IMF gold sales take place
in the best possible technical conditions, so as to maximize the profits
derived from the sale of the metal.
Additional measures should also be taken in the near future. . . .
—The activities of the regional development banks make a further
complementary contribution to the cooperation effort. Our country,
which is greatly interested in these institutions, will shortly adhere to
the Inter-American Development Bank and the Special Fund of the
African Bank. We should like to take this opportunity to pay tribute to
the fruitful work these institutions have accomplished.
—Finally, I should like to stress the importance that France attaches
to the international goal, reaffirmed on a number of occasions, of allo-
cating 0.70 per cent of gross national product to official development
assistance.
It is highly desirable and wholly justified, that a larger number of
member countries of the Development Assistance Committee make the
necessary effort to approach that goal.
Alongside the expansion of official development assistance, we must
seek ways of channeling a greater volume of private capital to the
developing countries. The Development Committee is dealing with this
problem and has set up a special working group to examine the question
of access by the developing countries to capital markets. The studies
conducted on this subject should be pursued, particularly those concern-

ing schemes of multilateral guarantee of borrowings by developing

countries.
(b) The financial effort in favor of development should be accom-
panied by measures to improve the organization of international trade.
These measures should, in our view, be directed first of all to the
fundamental problem of organization of the raw materials markets.
France has many times stressed the value of actions to stabilize the
prices of basic commodities, for the development of both the producing
and the consuming countries. At the last United Nations Conference on
Trade and Development in Nairobi, we put forward precise proposals for
the conclusion of agreements covering a wide range of products. We
hope that these proposals can lead to extension of the mechanisms which
exist at present for certain products. They contain safeguards to ensure
that the action of the buffer stock agencies does not distort the long-term
evolution of commodity prices and/or lead to the accumulation of exces-
sively large stocks. The conclusion of agreements of this kind would be
usefully supplemented by the setting up of a central fund with the twin
purposes of facilitating transfers and equalizations between the specific
funds and of managing possible supplementary resources in the form of
contributions by international agencies or capital market loans.
The question of raw materials, as well as many other matters concern-
ing relations between the industrialized and the developing countries,
are currently being discussed and studied by the Conference on Inter-
national Economic Cooperation, taking place in Paris. We hope that a
sufficient number of points of agreement will emerge during the work of
this conference to enable it to arrive at positive conclusions within the
time limits proposed.
Among the topics under discussion, that of indebtedness is rightly
giving concern to a number of countries. It is true that the level of
indebtedness is becoming too high in a growing number of countries and
that such a situation is unhealthy. But it is important that this problem
be dealt with in such a way as not to impair the credit standing of the
developing countries on the world markets. For its part, the French
Government considers that in dealing with these problems we should
maintain the case-by-case approach that has proved effective on numer-
ous occasions. It wishes to affirm here and now that it is ready to
examine the situations that arise in a spirit of good will and active
cooperation and with all the flexibility required by the circumstances.
This pragmatic approach naturally does not exclude the application of
general principles, which France is willing to help to define. The fact
remains that the real solution to the problem of the excessively high debt

ALTERNATE GOVERNOR FOR UNITED KINGDOM 79
levels of the developing countries lies in increasing and improving

transfers of real resources.
In concluding, I should like to stress that inflation is not only a
problem faced by each of our economies individually; it is also a collec-
tive problem, which calls for common attitudes and common solutions.
Naturally, it is up to each government to take whatever measures are
effective at the national level. These demand determination and courage
but also continuity, for habits and behavior patterns have become
adapted to inflation and they cannot be corrected overnight. But there
is a danger that the efforts of some countries may be jeopardized by the
inaction or passivity of the others. Failing to act would increase exchange
rate instability and international payments disequilibria; and in the long
run it would risk compromising the development of foreign trade and, in
the last analysis, the common good.
STATEMENT BY THE ALTERNATE GOVERNOR OF THE BANK

FOR THE UNITED KINGDOM
Sir Douglas Wass

I begin on a note of thanks and a note of apology. Like others, I
thank President Marcos and the Government and the people of the
Philippines for the warm and generous welcome we have received in
Manila, and for the excellent and carefully prepared arrangements
which have been made for these meetings.
My apology is for the absence from this meeting of the U.K. Gover-
nor for the Fund, Mr. Denis Healey, who was, until last week, fully
expecting to attend and was greatly looking forward to this occasion.
He has asked me, Mr. Chairman, to express to you, to all the Gov-
ernors, and to the heads of the institutions whose Annual Meeting this
is, his personal apologies and sincere regrets.
The World Economy
On the world economy, I have little to add to the lucid and pene-
trating exposition given yesterday by Dr. Witteveen, but I should like
to emphasize four points.
First, it is of paramount importance that the recovery be sustained.
Growth has faltered a little in the main industrial economies in
midyear. But provided it is temporary, this may mean that in the
longer term the pace will be steadier, and the advance accordingly more
stable and more sustained. On balance that still seems to be the most
reasonable view. But if the pause in the recovery continues, corrective

action will need to be taken by those countries whose balance of pay-

ments enables them to do so.
Second, recent events have taught us, if indeed we did not already
realize it, that inflation is one of the most virulent threats to economic
growth and economic health. A decade ago it might have been possible
to hold the view that the choice of policymakers lay between growth
with inflation on the one hand and stagnation with price stability on
the other. Today that view lies in ruins. Inflation, at any rate on the
scale we have suffered in the past four years, has proved to be the
canker of our economies, destroying confidence in consumers and
producers alike, depriving business of cash, and creating fearful social
tensions.
But third, in our concern to combat inflation, do not let us forget
that the present high levels of unemployment are a source of great
anxiety for all our governments. No one could be complacent about
the extent and scale of the problem if it were to persist. And by com-
mon consent it seems that in most countries there is little prospect of
an early return to the levels which prevailed in the 1960s. This is a
challenge to economic management, to the will and discipline of our
peoples, and to cooperation between governments.
My fourth point—and I was particularly pleased to hear the emphasis
given by Dr. Witteveen to it—is the need for all the industrial countries
to contribute to the adjustment process. Those still in deficit must cer-
tainly continue their efforts to return to balance. But the counterpart is
that the industrial countries enjoying a strong balance of payments
position must be prepared to see their surpluses run down and to avoid
any action which retards the adjustment process. There is no practical
alternative to this; the only other major surplus countries are oil pro-
ducers, whose aggregate surpluses seem likely to continue for some
time; and there should be no question of the industrial world as a
whole improving its balance of payments at the cost of further detri-
ment to the non-oil developing countries.
The U.K. Economy

I turn now to the British economic situation, all the more relevant in
view of the recent decision of the U.K. Government to seek the Fund's
assistance. We have given priority to curbing inflation. There is no
unique way of defeating inflation because inflation does not have a
unique cause and none of us can claim to understand fully the causal
mechanism. But in Britain, by last year it was clear that the main
engine of inflation was the excessive growth of employment incomes,
and policy to deal with inflation was therefore concentrated directly on
this factor. The policy of pay restraint which was adopted in the middle

ALTERNATE GOVERNOR FOR UNITED KINGDOM 81
of 1975, and which has now moved into a second and tougher phase,
was not something devised and imposed upon the country by the Gov-
ernment. It arose from a reaction within the trade union movement and
within the country generally against the excessive increase in wages and
out of recognition of the damage which inflation inflicts on the body
economic. And that was its strength. That organized labor in a free
society has been able to exercise such a large degree of self-discipline
provides remarkable evidence of the growing understanding of the
truth of what I said earlier.
But just as inflation does not have a unique cause, so a policy of
incomes restraint alone is not enough. It must be accompanied by strict
monetary and fiscal policies. We have indeed in Britain this year, de-
spite a continued rise in unemployment, taken steps to tighten both
monetary and fiscal policies.
Over the past two financial years the money supply on the broad
definition grew at only about 10 per cent, well below the rate of growth
of nominal incomes; and for this financial year the Government has
indicated that the rate of growth should be no more than 12 per cent.
Of course, as other countries have found, there are bound to be month-
to-month fluctuations; but recently, after a very moderate growth ear-
lier, there has been some acceleration which gave cause for concern.
So new measures were taken last month: interest rates, both short and
long, were moved upward, and further special deposits were called to
restrict bank liquidity. This set the stage for successful open market
operations and the very large sales of government bonds .made in late
September will have an important moderating effect on monetary
expansion.
We have also substantially tightened fiscal policy. Although the
U.K. public sector deficit is, as in other major countries, swollen by
the effects of the recession—lower tax revenues and higher unemploy-
ment benefits—these factors do not fully account for its excessive size.
It cannot be allowed to continue at present levels and it is of paramount
importance that it should be sharply reduced as recovery gets under
way. To this end, measures were introduced in July to reduce the pros-
pective borrowing requirement from its present level by £,2l/2 billion,
or from 9 per cent of gross national product in this financial year to
6 per cent in the next.
This was a very substantial move at a time of high and rising
unemployment, with economic recovery still in its early stages. But it
was necessary to enable the shift of resources into the balance of pay-
ments and investment to take place. This is the heart of our strategy.
We are still running a large balance of payments deficit on current
account—a problem which has been exacerbated by capital outflows

and by the weakness and instability of sterling, particularly in the last

few weeks. We also suffer, as we have long suffered, from too low a
rate of industrial investment. We are determined to secure the necessary
improvement in our external accounts and ensure that our expansion
will be led by exports and investment. For this purpose, the cuts we
have made in our public sector deficit will provide the room, while our
strong competitiveness and our industrial strategy should be the motive
force. To help us to finance our current deficit while the process of
adjustment is being completed, we are applying for a drawing of our
remaining credit tranches in the Fund.
I now turn to the Fund itself and to the international monetary sys-
tem. Much has happened in the past year and we have learnt more
about how floating exchange rates work in the contemporary world.
We have come to understand the limits to the ability of governments to
manage rates, if they wish to do so, in the face of market pressures.
But we have yet to define more precisely the role of the Fund in this
matter and, in particular, how it is to exercise the task of "firm surveil-
lance," which will be imposed upon it by the amended Articles. Here
too I believe we must proceed pragmatically. The United Kingdom
wishes to see the IMF play a central and constructive role in the
question of exchange rates. But it would be better to begin modestly
and build up the role of the Fund gradually than to attempt too much
at the start.
As for the Fund's resources and the question of international liquidity,
this is a subject which will require much thought in the coming months.
The financial position of the Fund in the short term is not unsatisfac-
tory, although we must be ready to consider new measures if demands
for the Fund's resources develop more strongly than we now foresee.
It is a matter for concern that relatively little use has been made
recently of the drawing rights upon the General Account in the Fund,
and I think the reasons for this need to be examined further. This is
something we should look at in connection with the discussions about
the next quota review, which I believe should begin before long. . . .
STATEMENT BY THE GOVERNOR OF THE FUND FOR INDONESIA
All Wardhana
While it is gratifying to learn from the Annual Reports of the Fund

and the Bank that the world economic outlook is improving, it seems
neither prudent nor wise to be complacent. The general situation may

GOVERNOR FOR INDONESIA 83
give reason for satisfaction but only to a certain extent. We have

recently been informed that a kind of pause has set in which requires
policies to resume the momentum of recovery. At the same time, even
in the strongest economies unemployment and inflation remain at too
high a level. If such is the situation in the developed world, it is easy
to understand that developing countries, highly dependent as they still
are on cyclical and structural conditions in the industrialized countries,
are necessarily in less good shape. They managed in the years 1973
until 1975 to survive price increases of capital goods and of primary
products including oil, shortages of food and fertilizers, and the recession-
cum-inflation originating from the industrialized countries; but many of
them only achieved a level of growth of 2.8 per cent, which is hardly
sufficient to absorb their increase of population. Moreover, the cost
paid was high. Reserves were run down and heavy borrowing had to
be resorted to, thus burdening their future. It is understandable that the
voices for improvement, for progress—in fact, for rapid emancipation—
became louder, more persistent, and more strident also.
The Fund and the Bank as international agencies having at their
disposal technical know-how, financial resources, and, over the years,
experience should and could in my opinion do much more to alleviate
the plight of the poverty-stricken part of the world.
Let me make it clear that in desiring to improve their situation,
developing countries should adopt responsible policies conducive to
generating and absorbing their own savings and resources expected to
flow from abroad. The Bank's Report examining the period from 1973
to 1975 mentions a number of sensible measures introduced by it in
the field of demand policy, of price and exchange rate adjustment, of
incentives to the agricultural sector, and of population control. Such
policies have to be continued.
The Fund is mainly concerned with the working of the monetary
system which implies two sets of operations logically interrelated with
each other. The monetary system is supposed to provide for an ade-
quate framework to promote payments to flow without interruption and
thus ensure an increase in trade and consequently employment, incomes,
and the development of resources. Its second function is to assist coun-
tries encountering temporary payments imbalances to restore equi-
librium by providing them with resources to facilitate adjustment.
After four agonizing years of deliberations the Fund succeeded in
reaching agreement in January 1976 to revise and replace the Bretton
Woods system. Article IV of the Fund's proposed Articles of Agree-
ment agreed to in Jamaica, which is the heart of the reformed system,
leaves countries free to choose their own exchange regime. However,

Article IV also states that in order to allow the system to serve its
purpose, namely, to promote financial and economic stability, two
conditions have to be fulfilled. Countries will have to continuously
develop orderly underlying conditions and to ensure orderly exchange
arrangements, including the promotion of a stable system of exchange
rates. They are under obligation to collaborate with the Fund, which
has the duty to exercise surveillance over the international monetary
system.
The time has come for the Fund to develop an adequate framework
for the collaboration mentioned in Article IV. In my opinion that
collaboration should not only relate to the policies of individual mem-
bers but also some form of harmonization of domestic and exchange
policies of countries, especially those whose decisions have a major
impact on the financial and economic situation of the world and on
developments in exchange markets. Last but not least, the Fund must
make a serious beginning in facing the problem of global liquidity, the
creation of which is at present beyond international control.
As I said, the Fund has a second duty related to the surveillance of
the monetary system. It provides liquidity for the purpose of adjusting
temporary imbalances. The Fund's 1976 Annual Report mentions
imbalances in a few industrialized countries and in a great number of
developing countries. An amount of $32 billion has been mentioned
for 1976 as far as the non-oil less developed countries are concerned,
which is not much less than in 1975. Meanwhile, the Fund also indi-
cates that the ratio between global reserves and imports as well as
between the Fund's quotas and imports has decreased.
There is a need to increase the Fund's liquidity in order to enable it
to assist imbalances to be overcome. One major source of liquidity is
the amount of quotas. The Fund is expected to examine quotas in 1977
in order to meet the requirement to complete the next review beginning
in 1978. I believe that the Fund is well advised to substantially increase
the amount of quotas in order to make it more commensurate with the
development of imports. The Fund's quotas represent the so-called
conditional liquidity. It seems advisable also to look into the matter of
unconditional liquidity. I would like to repeat my plea of last year,
namely, to consider seriously a modest second allocation of SDRs which
would definitely not contribute to inflation but would demonstrate our
seriousness in promoting SDRs as the main reserve asset. I would also
strongly plead for the abolition of the reconstitution requirement.
Allow me, before making specific observations related to the World
Bank, to draw attention to a financial need which could be taken care
of by both the Fund and the Bank. So far, the Fund has not been able
to play a significant role in financing buffer stocks. For years primary

GOVERNOR FOR PHILIPPINES 85
producing countries of the less developed world have been pressing

for buffer stock schemes which they rightly feel will enhance their
self-reliance. To stabilize prices within certain ranges to be agreed upon
is similar to the desire to have orderly exchange developments. The
short-run fluctuations of export prices affect both the balance of pay-
ments and development plans of less developed countries. I would like
to urge the Fund to seriously review, and as soon as possible, its buffer
stock financing facility and to encourage the Bank to participate in the
financing of buffer stock schemes once they are established and inter-
nationally recognized. I am glad to note that the Managing Director in
his address to our meeting made reference to the matter. . . .
I express the hope and confidence that the advanced countries will
be willing to recognize the enormous problems faced by the developing
world in its search for more employment, for increasing incomes, and
for a better life for its people, the majority of whom are deprived of so
much. At the same time I should also mention that a number of them
are already giving valuable assistance to some developing countries.
However, the number of both donor and recipient countries should
and, in my opinion, could be further enlarged. Only yesterday His
Excellency President Marcos in his eloquent address reminded us of
the needs of the poor which for the sake of human dignity should be
met as speedily as possible.
Before concluding, permit me to express our deep appreciation to
both Mr. Witteveen and Mr. McNamara, including their dedicated
staffs, who have tried so hard in the difficult period now hopefully
about to be over to enable their institutions to be of assistance to so
many of us. If my proposals are heeded, their hands will be strength-
ened to meet the still large needs of the world.
I also would like to welcome our new members, Papua New Guinea
and the Comoros, whose presence broadens the circle of our inter-
national family. May I finally give expression to our feelings of warm
gratitude to the Government and the people of the Philippines for their
exemplary hospitality and for the splendid arrangements provided by
them for the comfort and benefit of all of us.
STATEMENT BY THE GOVERNOR OF THE BANK AND ALTERNATE

GOVERNOR OF THE FUND FOR THE PHILIPPINES
Cesar E. A. Virata
Before anything else, I would like to add my humble welcome to

that extended to you by His Excellency, the President of the Republic

of the Philippines, and our First Lady. It is our sincerest hope that your
visit to our country will not only be fruitful from the standpoint of the
business of the Annual Meetings but also personally memorable and
rewarding.
It is now my privilege to speak for the following countries: Argentina,
Bolivia, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic,
Ecuador, El Salvador, Guatemala, Haiti, Honduras, Mexico, Nicaragua,
Panama, Paraguay, Peru, Uruguay, Venezuela, and my country, the
Philippines.
The countries of Latin America and the Philippines, with the rest of
the developing world, have been adversely affected by the economic
events of the last few years. By the adoption of courageous and timely
policy measures, however, they were able to reduce the adverse effects
of such economic pressures and to maintain not unreasonable rates of
growth given these circumstances. . . .
For the countries for whom I speak, as well as most other developing
countries, the achievements of the Bank Group occurred at about the
time that forces extraneous to these countries operated to erode what-
ever gains they had achieved in previous years.
The events to which I refer are familiar to all of you. These were the
twin specters of world inflation and recession, resulting in sharp deteri-
oration in the terms of trade of most of the developing countries. These
were invariably translated into large deficits in the current accounts of
their balance of payments. To finance these deficits, many developing
countries had to tap short-term and medium-term borrowings from
private markets in order to supplement whatever official assistance was
made available. If the momentum for growth that our countries had
previously achieved is to be maintained, they will have to continue to
rely on the support of private capital and on official bilateral and
multilateral financing.
At this time, the world economy has begun to show signs of recovery.
We look forward to recovering the momentum that we have lost. But
we now begin from a position of relative disadvantage. Mr. McNamara
in his speech yesterday pointed out that the external debt service ratios
of middle-income developing countries have registered some deteriora-
tion. And while we have resolved to institute even stronger internal
measures to effectively manage our external debt and expand our
exports, there is no way by which we can regain lost ground without
infusion of fresh long-term capital into our economies. . . .
Resolution of the issues we have raised will help improve the process
of resource transfer to developing countries. We therefore urge early
positive action on them. In this connection, we strongly support the
continuation of the Development Committee as a forum in which these

GOVERNOR FOR UNITED STATES 87
issues and other urgent matters on resource transfer can be dealt with
at the decision-making level. . . .
In closing, I would like to take this opportunity to thank the Boards
of Governors of the Fund and the Bank for entrusting us with the
responsibility of providing the facilities for this Annual Meeting. My
Government is honored by this trust and has exerted every effort to
fulfill this commitment in the same manner that we have tried our best
to keep our commitments to the international organizations. We hope
our efforts have measured up to your expectations. If the Governors
should wish to consider Manila again for future meetings of various
committees, we will most welcome it and I can assure you that with
the experience gained in this meeting we will further improve upon
what we are doing for this meeting.
STATEMENT BY THE GOVERNOR OF THE FUND AND BANK

FOR THE UNITED STATES
William E. Simon
Once again, it is a distinct honor for me to address this distinguished

body. We are fortunate to meet in this beautiful land, a nation known
for its traditions of warm hospitality and a nation with which the
United States has long maintained the strongest of ties and the warmest
of friendships.
There is an old Chinese saying, eloquent in its simplicity, which
merely says: "May you live in interesting times." Without a doubt, we
who are gathered here today have lived through some very interesting
times together. The period since I joined the U.S. Treasury nearly four
years ago has been one of extreme tension, even danger, in international
economic affairs. Repeated shocks threatened the traditions of cooper-
ation that are the foundation of world trade and investment, as well as
general stability. Differences among nations over principles and objec-
tives brought into question our ability to preserve a free and open inter-
national trade and investment system.
We have witnessed the development of an inflationary virus stub-
bornly resistant to our attempted remedies; we have experienced an oil
embargo and price increases that disrupted the world economy; and
we have lived through the deepest international recession of the
postwar era.
We have done much to meet these challenges—but even more
remains to be done. Today I would like to discuss both the progress
we have made and the challenges we still face.

One of the characteristics that marked this troubled period was a

growing recognition of our mutual interdependence. More than ever
before, people around the world began to understand that the economy
is at the heart of the body politic and that every shock it receives will
ultimately be felt in terms of social and political—as well as eco-
nomic—instability. The result of this new understanding has been that,
despite all of the divisive economic pressures unleashed on the inter-
national scene in the last four years, international cooperation has not
broken down and indeed, in one important area, major reform has been
achieved—the first comprehensive reform of the international monetary
system since Bretton Woods.
The international economic system is now truly universal, involving
all countries, large and small. Between 1950 and 1975, the level of
trade among market economies increased from $50 billion to $800
billion. This dramatic expansion of the world economy has coincided
with the creation of scores of new nations and new centers of economic
power. The price and supply of energy, the conditions of trade and
investment, the expansion of world food production, the technological
base for economic development are today the shared concern of every
nation. And it is clear to me that we will either move forward with
trust and cooperation or we face the dangers of retreating into economic
instability and nationalistic conflict.
So far, we have followed the correct course of cooperation. And
much of our progress is the result of the efforts of the men and women
gathered here today. Speaking for myself, I am grateful for the chance
that has been mine to serve with you—on behalf of my Government
but also on behalf of the ideals we all share—during this period of
re-examination and searching. I am also grateful for the education
afforded me over the past four years—for both the many lessons
learned willingly and the few learned not so willingly. But, above all, I
am thankful for the high rewards of personal contact and friendship
with you, my colleagues, and for the sense of genuine accomplishment
that has grown out of our work together.
This brings me to the work that remains to be done, the task before
us is a fourfold one:
—we must restore and maintain economic stability in our domestic
economies;
—we must make the reformed international monetary system work;
—we must tackle with increased courage and understanding the diffi-
cult problems of development; and
—we must continue to work for a free and open world trade and
investment order that is essential to a shared prosperity for all.

As we work together to achieve international economic progress,

each nation must follow responsible domestic policies to avoid disrupt-
ing both its own economy and inevitably those of other countries.
Because of its size, this is particularly true of the U.S. economy. Fol-
lowing the most severe economic recession of the postwar era, the
United States is now one and a half years into a healthy and balanced
economic expansion. If erratic shifts and excesses of government actions
are avoided, this expansion will continue well beyond 1976, although
the rate of growth will naturally tend to moderate.
The strength of the current expansion that began in the spring of
1975 is indicated by the increase in real output of goods and services,
which has averaged 7 per cent during the last four quarters. The rate
of inflation, as measured by the gross national product (GNP) price
deflator, has dropped from a peak of over 12 per cent in 1974 to the
5 to 6 per cent zone throughout 1976. Employment is at a record level
of 88 million workers, and 4 million new jobs have been created since
the upturn in the economy, although the unemployment rate remains
far too high, reflecting the lagged effect of the recession and the extra-
ordinary surge of new workers into the labor force. Despite the wide
fluctuations in quarterly statistics, it is clear that a healthy expansion
can be continued if policies focus on the longer-term goals of reducing
both inflation and unemployment.
As expected, personal consumption has provided the basic trust for
the growth throughout the current recovery. Business spending did not
accelerate as quickly as originally anticipated, but outlays for plant and
equipment now appear to be improving and inventory buying is up to
expectations. Government spending at all levels seems to be better con-
trolled, and the strength of export sales has continued, although imports
are now rising more rapidly. This has resulted in a swing in our balance
of trade from a massive surplus in 1975 to a substantial deficit in 1976.
The United States views this shift with equanimity because we recognize
that it reflects the sharp increase in imports that has occurred as our
economy has moved from recession to expansion. This adjustment is a
proper reaction to changing economic conditions that the international
monetary system can handle well if we do not seek to offset the effect
of natural market forces.
The recovery to date has remained well balanced. It was never antic-
ipated that specific sectors of the economy—such as automobiles or
housing—would dominate the recovery, although sales of domestic cars
have been somewhat stronger than expected, which partly explains the
accelerated pace of spending early in the year. Nor have widespread
capacity constraints or severe raw material shortages appeared at this
stage of the recovery.

Best of all, fiscal and monetary policies have been carefully moni-
tored to prevent the excesses that led to renewed overheating of the
economy following the temporary benefits of faster growth.
While many called for more government spending and significantly
faster expansion of the money supply in 1975 and even this year, the
President strongly resisted. As a result, the recovery has proceeded to
this point without building up excessive demand pressures for increased
output or fiscal and monetary policies which would lead inevitably to a
repetition of the familiar boom-and-recession sequence. This unfortu-
nate pattern could be repeated, of course, if unwise policy adjustments
are made to turn the economy toward excessive near-term growth. But
this negative result can be avoided if responsible policies are followed.
We fully intend to guard against a return to the stop-and-go policies
that have disrupted the U.S. economy in the past.
Looking to the future, we expect the economic expansion in the
United States will continue in 1977, but at a somewhat reduced pace.
This is a proper pattern because continuation of the rate of output gains
in the 6 to 7 per cent zone over an extended period of time would
inevitably overheat the U.S. economy, once again leading to a new
round of inflation, followed soon afterward by recession and unemploy-
ment. Output gains in 1977 should be in the 5 to 6 per cent zone as
output of the economy gradually returns to its long-term rate of growth.
Personal consumption will continue to be the basic strength of the
U.S. economy, since it comprises two thirds of the total GNP, but the
rate of increase in this sector will undoubtedly slow down. Business
investment and continued modest gains in housing construction will
provide most of next year's thrust for additional growth.
We expect inflation to remain in the 5 per cent to 6 per cent zone.
This is a most unsatisfactory level of price increase and our nation
must not and will not accept it. Employment growth should continue,
although not as rapidly as during the last eighteen months, and the
unemployment rate will continue to decline, particularly as the extra-
ordinary growth in the labor force slows down.
In summary, while there are several worrisome problems to contend
with, the likely overall course for the U.S. economy is favorable,
assuming fiscal and monetary policies remain responsible. The key to
achieving this relatively optimistic goal will be how well inflation is
controlled. A resurgence of inflation would quickly erode both con-
sumer confidence and actual purchasing power, which would restrict
the personal spending that creates the driving force for the entire
economy. In turn, business firms would curtail their spending plans,
which would erode current economic growth and delay the capital

investment necessary for achieving our national goals, particularly the

creation of new jobs.
In short, we must guard against a resurgence of inflation if we are
to avoid a premature disruption of the economic expansion. This fun-
damental approach is not based on any obsession with a particular goal
but is a realistic recognition that inflation destroys economic stability
and leads to recession and unemployment. There never was and is not
now a choice between inflation and unemployment. That concept is a
fallacy. The real choice is between making steady progress on both
inflation and unemployment or of returning to the stop-and-go eco-
nomic policies that have failed to provide the needed stability in the
past. Every nation faces this same problem and we must all strive for
more responsible solutions.
The New International Monetary System
I have said in the past that the most important single price in the
United States is the price of our dollar. The same is true of every
national currency. The foreign exchange value of a country's currency
plays a significant role in determining what is produced—exports and
imports, the location of production facilities, and capital flows. All of
these vital economic factors are, to varying degrees, a function of the
exchange rate—the price of a nation's money. This is why it is impor-
tant, especially during a period marked by pressures for income redis-
tribution, and a period dominated by industrial, corporate, and national
drives for more, that we develop a well-functioning monetary system
rather than a series of makeshift ad hoc arrangements.
A system means an agreed charter—a basic understanding among
nations on the principles of behavior—that provides the framework
within which we operate. But such a charter is only the beginning.
Over time, the development of a system also involves the development
of a code of behavior based on generally agreed-upon principles. Such
a code must adapt to changing circumstances, but in any case must
always adhere to the agreed broad principles.
What are the alternatives to this type of system? One alternative
involves specific rules but no agreement on underlying principles. In
the absence of any anchor of principles, this would mean a process of
continuous negotiations and new rules. Another alternative would be
to have no agreement on either principles or codes. In the United States
this is referred to as the "law of the jungle."
It is not naive to believe in the need for an operating monetary sys-
tem. It is not even idealistic. To me, it is the essence of pragmatism.
Some of you can recall the disastrous process of competitive devalua-
tion so prevalent in the 1930s that became enshrined in the phrase

"beggar-thy-neighbor." We have learned and relearned that the law of

the jungle means that we all lose, regardless of size, power, or efforts
at isolation.
We all recognized this at Jamaica. That was why we agreed on a
system. Before describing the results of our efforts and discussing
implementation of the system, I think it would be useful to review what
we want from a monetary system—what should it provide? There are
three overall objectives.
First, the system has to be designed so that it facilitates the inter-
national flow of goods, services, and capital. It should be an open,
liberal system that enables us to capture the benefits of international
trade, the paramount benefit being the higher living standards for all
that result. It should facilitate the transfer of capital and ensure its most
efficient use, the end result again being higher living standards for all.
Most importantly, the system has to operate continuously. Its success
must not depend on just the right combination of favorable circum-
stances. It must be more than a fair-weather system. It must be able to
function in the economic and financial equivalent of hurricane weather.
Second, the system in both its design and its operation must have a
built-in equilibrium. It should engage forces that reduce tendencies
toward permanent disequilibrium, in the form of structural surpluses or
structural deficits in current accounts. The symmetry of which I speak
cannot simply be designed—it must be operational, a system that looks
perfect on the drawing board but fails in actual performance is no
answer.
Third, the system must help rather than hinder individual efforts
toward economic stabilization—it must encourage stability rather than
foment instability.
The efforts of this group have, for almost four years, been concen-
trated on designing an international monetary system that will meet
these objectives. We have now completed that work. The framework is
built. The architecture is complete.
Together we have constructed an international monetary system that
is sound in structure, right in approach, and complete in a constitu-
tional sense. That system remains firmly centered on the IMF, and
firmly based on the liberal trade and payments philosophy of Bretton
Woods. It remains a global system, in which all members subscribe to
the same standards of responsible international behavior, and in which
all members are treated uniformly. We have a system which has flexi-
bility and resilience and which can function well in the years ahead
without further structural amendments.

We have changed, and changed profoundly, both monetary doctrine

and the structure of the monetary system, in a way which better con-
forms to present objectives. Three fundamental alterations can be high-
lighted—the approaches toward adjustment, exchange stability, and
gold.
Influenced heavily by the imperatives of experience, we have come to
realize that exchange stability cannot be imposed or forced on nations
by the establishment of fixed exchange rates. We have embraced the
concept that stability will result only from responsible management of
underlying economic and financial policies in our countries. We see
more clearly that market forces must not be treated as enemies to be
resisted at all costs, but as the necessary and helpful reflections of
changing conditions in a highly integrated world economy with wide
freedom for international trade and capital flows. We recognize—as
proved by events in many countries in recent years—that without stable
underlying economic and financial conditions, no amount of exchange
market intervention will assure stability, but that with stable conditions,
little or no such market intervention would be needed.
The new system thus calls for each of our nations, large and small,
developed and developing, to concentrate on achieving sound, noninfla-
tionary economic growth. There is no other answer to our desire for
stability. Also, we must each permit our performance in domestic policy
to show through—to assure that governmental efforts to resist or
moderate the operations of market forces do not distort our relative
economic positions and become a source of instability once again. This
applies of course to avoidance of the use of controls over international
trade and payments, long a basic objective of the Bretton Woods sys-
tem. But it also applies as much or more to governmental action to
restrict the operations of market forces through the exchange rate
mechanism.
In short, a country with an unsustainable deficit should resort to
internal stabilization acompanied by exchange rate change in response
to market forces; a country with a tendency toward surplus should not
simply accumulate reserves but should allow its exchange rate to move
in order to accommodate these fundamental adjustments of others.
Only then can we have effective international adjustment and the
built-in equilibrium and stabilization which an international monetary
system requires. The inexorable fact is that the implementation of our
new system—or any system—will succeed or fail as a consequence of
the soundness and prudence of the policies our individual governments
pursue. There is no other source of stability, no external entity to
which nations can turn as they address the challenges they face today.

Our historic decision to phase out the monetary role of gold and to
provide for a greater role for the SDR also is a source of strength in
the reformed system. By doing so, we eliminate a major element of
instability in the monetary system. Removing gold from the center of
the system, eliminating the requirement that gold be used in IMF
transactions and agreeing to initiate the process of disposing of IMF
gold, the Group of Ten agreement to avoid pegging the price of gold
or increasing total holdings are all steps toward realism and a more
rational as well as stable monetary system.
While we have made fundamental changes, the Jamaica agreements
constitute a reform and not a revolution. Our changes are less of a
grand design than Bretton Woods, and appropriately so. We have not
discarded all the concepts or replaced the institutions of the Bretton
Woods order.
Most importantly, the IMF retains a unique and indispensable role
in the provision of conditional credit. It is a different role from that of
30 years ago, reflecting the different world of today, and the growth
and development of private international capital markets which now do
and should provide the bulk of international lending. The Fund's financ-
ing is today more clearly a supplement to other sources. But the condi-
tionality of IMF lending places on that institution a special role and
special responsibilities which are critical to international adjustment and
a smoothly operating international monetary system.
It is to the operation of our monetary system that we must now shift
our attention. The construction of the system, the architecture, has
been an essential step. It has been an intellectually stimulating exercise.
But we must move ahead to the operational stage. We must, on the basis
of the principles of our new constitution, develop workable operating
practices. No aspect of the IMF's work is more important.
A central feature in the operation of our new monetary system is the
IMF's surveillance of members' exchange rate policies. The new
Article IV places heavy emphasis on IMF surveillance to assure that
members comply with Fund obligations and that they avoid manipu-
lative exchange rate practices. It is essential to the successful function-
ing of the system that this surveillance be performed in a sensible and
effective manner. Working out the techniques of surveillance is the
Fund's next major task.
Some have said that precise guidelines for IMF surveillance of mem-
bers' exchange rate policies should have been delineated in the Article.
I disagree. The Articles, after all, are meant to serve as an international
constitution, not a commercial contract. Even if we were agreed on
precise guidelines, it would be wrong to incorporate them in the

Articles—we learned from Bretton Woods the difficulties of a charter

containing detailed rules.
But more importantly, it is neither appropriate nor possible to under-
take this important job of Fund surveillance through the application of
detailed rules and formulas. Such formulas cannot be equitably applied
to economies that differ as profoundly as in the IMF membership.
Where the largest member has a gross national product some 60,000
times larger than the smallest; when some have no capital markets
while others have highly developed and sophisticated markets; where
price elasticities and income elasticities can vary widely, rigid formulas
simply will not work.
Similarly, I do not agree with those who would call on the Fund to
delineate hard and detailed rules by which each member country's per-
formance with respect to exchange rate policies would be judged. We
do not have the capability, the experience, or the knowledge to
develop such a set of rules to be applied across a broad spectrum of
individual national situations.
Nor would I agree with those who would call on the Fund to attempt
to determine a set of "target" exchange rates toward which each
nation's policies should be directed. There are those who believe that
a comparison of statistical data on prices or costs in individual coun-
tries can reveal appropriate exchange rates. That approach is subject to
insurmountable difficulties, both theoretical and practical. While it may
indicate that some rates are inappropriate, it cannot be depended on to
indicate what rates are proper. It is tantamount to continuous renego-
tiation of a par value system, based on statistics which are of necessity
both partial in coverage and backward-looking in approach. In prac-
tice, it may prove to be nothing more than a veiled approach to a
return to fixed rates.
There are those who are nostalgic for the good old days and may
translate this nostalgia into a desire to return to the par value system,
thinking that fixed rates would bring stability. I would suggest that
such beliefs are an illusion. Think again of the chaos and disorder of
the closing years of the Bretton Woods system. Think back to those
days of market closures which disrupted trade and commerce. Remem-
ber, too, the hurried attempts to patch together some solution so that
markets might open again. Think back to the duration and difficulty of
the Smithsonian negotiations and the tensions associated with those
negotiations. Then think back over the last four years of unparalleled
flows of money, massive increases in oil prices, inflation, recession,
balance of payments problems. Just imagine the old par value system
trying to accommodate those strains.

The Fund should, in its surveillance of members' exchange rate

policies, proceed by a careful and evolutionary approach. It should
cultivate more fully its consultative processes and refine its procedures
for monitoring countries' behavior. Rather than adopting a sweeping,
preconceived, rigid economic code, we need to construct, through a
case-by-case approach, a common law based on case history. If we
proceed in this manner, we will be able to delineate broad principles of
behavior that can be elaborated on the basis of experience. The devel-
opment—and the acceptance—of these principles cannot be forced. But
over time workable codes can be expected to emerge, through consulta-
tion with members and through the monitoring of their activities.
I urge the Fund to proceed cautiously in this work. The world faces
a new situation, in some ways a dramatically different situation from
the past. In this case the lamp of history may not provide the best light
to guide us in the future. Our experience is drawn from a past that
may not be fully relevant, and our attempts to distill this experience
into detailed blueprints for the future may be more harmful than helpful.
The adjustment process is another area in which action is imperative.
The international financial system has performed the task of recycling
funds from surplus countries to deficit countries with efficiency. The
elasticity of our financial system has provided us with the time to
correct structural maladjustments. This time must not be wasted. Re-
cycling of funds from surplus countries to deficit countries can con-
tinue only to the degree that countries borrowing to finance external
deficits can obtain credit. This in turn can only persist so long as
lenders remain confident that borrowing countries can repay specific
obligations on schedule and service their overall debts.
Frankly, we have not made sufficient progress toward adjustment.
Although there have been cases of countries adjusting to higher oil
prices and global recession, a substantial number of countries have
preferred to delay adjustment and borrow abroad to finance consump-
tion, and have thus continued to run the large external deficits which
first appeared three years ago.
Unless there is some dramatic change in the outlook, the world pay-
ments pattern next year will strikingly resemble that of 1974—the first
year of abnormally high oil prices. Indeed, if the oil producing nations
take, as is now rumored, the dangerous step of again raising the price
of oil, it would seriously aggravate an already troublesome economic
and financial situation. Even without an increase in oil prices, the
aggregate surplus of the members of the Organization of Petroleum
Exporting Countries (OPEC) in 1977 will again be $50 billion or
more, while deficits in the industrial member countries of the Organiza-
tion for Economic Cooperation and Development would be on the

order of $35 billion, and the oil importing developing countries in the
range of $12 billion to $15 billion.
The 1974 deficits were successfully financed—to the surprise of
many doomsday forecasters—as the international financial system dis-
played unprecedented flexibility and resourcefulness. However, we are
approaching 1977's look-alike payments numbers under substantially
different circumstances. Aggregate OPEC surpluses of nearly $150 bil-
lion from the beginning of 1974 to the present have been reflected in
increased external debt by oil importers. The bulk of the heavy inter-
national borrowing has been of short-term to medium-term maturity,
and will in many cases need to be rolled over or refinanced. And as
debt grows to finance the continuing deficits, an increasing number of
countries which have delayed adjustment will approach limits beyond
which they cannot afford to borrow and beyond which prudent cred-
itors will not lend to them. This is a serious matter and it cannot be
ignored by lenders or borrowers.
There is still time to act, but we must be cognizant of the choices.
One unrealistic possibility that has been mentioned involves widespread
debt forgiveness or rescheduling. In reality, this is no choice at all.
From time to time circumstances may require a debt rescheduling on
the part of an individual country. But a wide-scale approach of this
type involving a number of countries or even several in a group can
only result in substantial damage to practically all international bor-
rowers. Lenders would regard—I think appropriately—such an approach
as ipso facto increasing the risk attached to new lending operations.
The result would inevitably be a reduction in the availability of private
credit to broad categories of countries, a reduction that would inevi-
tably have a widespread contractionary effect on economic activity.
Another dangerous alternative that has been mentioned by some
would be to create large amounts of new official liquidity—a kind of
international monetary printing press. Ironically, this would have the
same effect—it would ultimately be contractionary, although in the
first instance it might have an expansive effect. Eventually, and prob-
ably with more speed than many suspect, the creation of excessive
international liquidity would destroy the stabilization efforts which
many of us have under way. For, in the United States, and I believe in
many other countries, we have found that a high rate of inflation and
prosperity are mutually exclusive.
The third course—and the only one which I believe holds the prom-
ise of success—involves a combination of adjustment by individual
countries, some slowing in the rate of private international lending and
moderate provision of official financing on a multilateral and condi-
tional basis. Fortunately, a floating exchange rate system can respond

to changes in underlying economic and financial conditions in a climate

devoid of crisis. The resultant flexibility provides a useful tool for adjust-
ment. But it is only effective when linked with meaningful programs of
domestic economic and financial stabilization. There is no substitute for
such adjustment, and countries that do adjust can look forward to
durable, noninflationary growth. The IMF can contribute to this process
of adjustment. The Fund has both the expertise and the financial
resources to assist in the development of overall stabilization programs
and provide conditional credit to bridge the time from the start of an
individual country's stabilization effort to its favorable end results.
It seems to me the only way that we can proceed without damaging
ourselves and our friends and neighbors is to hold to this third course
and immediately introduce where needed appropriate policies for
adjustment.
Development
Our approach to the international monetary system has placed
responsibility for the achievement of international monetary stability
on the domestic policies pursued in each country. Our approach to
economic development also places primary emphasis on the policies
and efforts of each individual developing country.
At the heart of our policy is the concept of shared prosperity. This
concept involves a mutually beneficial approach to development in
today's interdependent world. In application, this approach means not
only direct aid but, most importantly, a liberal trading and investment
system.
We do not regard indirect resource transfer schemes—such as gen-
eralized debt rescheduling, price indexing, and commodity funds—as
the best means to provide resources to the developing world. To the
contrary, such proposals are likely to lead to inefficiencies and distor-
tions which will make most, if not all, worse off.
I have already commented on the likely adverse impact of broad
debt rescheduling schemes. With respect to commodity policy, we have
stated on many occasions that we favor a case-by-case approach to the
problems of individual commodities, and in particular a careful exam-
ination of the applicability of the buffer stock approach. Specifically,
we must ascertain whether the operation of a buffer stock is likely to
lead to improved market operations or to a structurally higher level of
prices for the commodity involved.
If it leads to structurally higher prices it helps a few countries,
including those developed countries that are producers, but it hurts the
larger numbers of consuming countries, both developed and developing.

Even in the case of developing countries that produce the commodity,

the "help" provided has a high cost. Funds used to finance the build-up
in inventories could have been used for development purposes. To the
degree that an artificial price level results, incentives to develop and use
substitutes increase. Perhaps most important, the producing country
allocates labor and capital to production on the basis of an artificially
high and unsustainable price.
In the area of direct resource transfers, the United States has long
been in the forefront of those assisting in the economic and social
progress of the developing world. Much of what we have done has
been governmental—through our bilateral as well as multilateral aid
programs such as IDA.
I can assure you that the United States will continue its leadership
in this area. Not only will we continue, but we will strengthen our
bilateral aid programs, and we will continue our strong support for the
international development banks. Our commitment to IDA and to a
financially strong IBRD cannot be questioned. With respect to the
regional banks, I am pleased that we have just received funds from the
Congress to join the African Development Fund. We are now partici-
pating in a major new replenishment in the Inter-American Develop-
ment Bank. Here in Manila—the home of the Asian Development
Bank—it is particularly gratifying to reiterate U.S. support for that
institution. I was pleased to note, in a recent Development Committee
report, that loan commitments in all these banks will increase from
$8.3 billion to about $12.6 billion from 1975 to 1980, or 50 per cent,
with the concessional share of the total increasing.
The American partnership with developing countries and develop-
ment prospects of all countries depends even more importantly on our
trade and investment links. The world-wide demands for capital in the
period ahead will be massive and the competition fierce. Countries
which wish to attract investment capital will find that establishing the
proper domestic climate is essential. Countries which raise impediments
to capital flows will simply not be able to meet the competition. The
experience of many countries illustrates how this can properly be done.
Countries and peoples as varied as the Taiwanese, the Brazilians, and
the South Koreans have dramatically raised their living standards and
expanded their economic base. They have done so not only because
of the amount of help they received, but because of the care and
self-discipline they used in putting that help to work. Others can do
the same, but only with the realization that developmental help involves
a partnership and—like all partnerships—requires the best intentions
and the best efforts of both partners in order to succeed.

We must all recognize that individual national economies can best

achieve the goal of sustained noninflationary growth in a free and open
international trading system. We need an open world market to allocate
raw material and capital resources efficiently in order to supply abun-
dant goods and services to all of our people at noninflationary prices.
All the aid we can give will not help if it does not foster a prosperity
shared by all. Achieving such a prosperity will require the close cooper-
ation of both industrial and developing nations. We must, therefore,
join together aggressively in the multilateral trade negotiations to take
concrete and significant steps to eliminate tariff and nontariff barriers
to trade.
As these areas for cooperation between developed and developing
countries evolve toward greater mutual advantage, we must preserve
the fundamental principles—such as reliance on market forces and the
private sector—on which our common prosperity depends. Solutions
must be dynamic and have widespread benefits. Thus, we must seek
increased production and improved efficiency, not just transfer of
wealth. Development assistance should be thought of, not as an inter-
national welfare program to redistribute the world's wealth, but as an
important element of an international investment program to increase
the rate of economic growth in developing nations and to provide
higher living standards for the people of every nation.
In a sense this can be thought of as a process by which developed
countries devote a portion of their savings to developing countries. The
impact of this type of direct transfer depends on the amounts involved,
the uses to which these funds are put, and the effectiveness with which
the recipient countries implement development efforts. If these funds
are devoted to financing a higher level of consumption than a given
country can earn, it means only a short-lived improvement in living
standards; if these funds are devoted to investment, the result will be a
permanent gain in well-being. This is especially the case in a system
which allocates financial resources to areas of maximum benefit.
More specifically, in considering how the present system might be
improved to the mutual benefit of all nations, we should be guided by
the following principles:
—Development by definition is a long-term process; increased pro-
ductivity, stemming from capital formation and technological advance,
is the basis of development, not transfers of wealth which can only be
one time in nature. Foreign aid can help, but such aid can only com-
plement and supplement those policies developing countries adopt,
which in the end will be decisive.
—The role of the private sector is critical. There is no substitute for

a vigorous private sector mobilizing the resources and energies of the

people of the developing countries.
—A market-oriented system is not perfect, but it is better than any
alternative system. In general the effort should be to improve conditions
for the developing countries—both internally and externally—by remov-
ing unnecessary and burdensome government controls, not by impos-
ing additional barriers and impediments to market forces.
—A basic focus must be on increasing savings and making the
institutional and policy improvements which will enable the financial
markets to channel those savings into activities that enhance the
opportunities for people to live better lives. . . .
Conclusion
In meetings such as these we naturally and inevitably concentrate our
attention on international issues of great significance—providing for a
reformed international monetary system, or determining future policies
of important institutions such as the IMF and the World Bank. In the
final analysis, however, what really counts for each of our countries and
for the world economy is how efficiently we all manage our own
domestic affairs. International cooperation provides a framework of
opportunity; individual countries in various ways and to varying de-
grees seize that opportunity. In all countries—developed and develop-
ing, industrial and agricultural, oil-rich and resource-poor—economic
policymakers are confronted with many similar kinds of issues and
dilemmas. A country's performance is not predetermined by its level of
income or stage of development alone. Just as pertinent is how the
tough issues of economic policy that we all face are resolved.
Unfortunately, good economics is not always perceived to be good
politics. My experience has been that politics is an art with a high rate
of discount. And while the payoff to good economics is real, it takes
time. This lag, as the economists call it, is a politician's nightmare.
Fortunately, I think that more and more people now understand that
this is the case—and I sense growing suspicion of the proposed instant
solution, the quick fix. In a world of unlimited demands and limited
resources, finance ministers not only are inevitably unpopular, but
indeed cannot afford to be popular. We are frequently required to be
the bearers of bad tidings to our political masters—to reiterate the
unpleasant but inescapable fact that resources are scarce while wants
are limitless. It is our lot, whatever our country's economic system and
whatever its circumstances, to speak out for financial responsibility—to
call for prudence in an age of fiscal adventure.

Announcement of dramatic new programs is greeted with great fan-

fare; the management of sustained stable growth is a bit like watching
the grass grow. Yet, in the end, it is sustained stable growth that does
the most good.
To be sure, for a time an increased inflow of real resources from
abroad may enable a country to postpone the hard choices among
competing domestic claims, in the process running down assests and/or
accumulating debts abroad. But sooner or later, the bills come due—
the adjustment I have spoken of earlier has to be made. There simply
is no substitute for the hard decisions and the careful husbanding of
resources that finance ministries traditionally espouse.
As we meet today we can point to tangible evidence that we have
been more than nay-sayers over this past year and more. In the
monetary area, through our collective efforts, we have put into place a
new structure for the international monetary system, one with the
flexibility to accommodate rather than impede the efficient working of
the international economy so that trade and capital can serve their full
role as engines of economic growth and progress. In trade we have
made progress in the multilateral trade negotiations to reduce barriers
and ensure fair and orderly rules for the international trading system.
In energy, the industrial countries have joined together to coordinate
efforts to reduce our dependence on imported oil. We have also estab-
lished a framework of cooperation with the oil producing countries. In
the relations between developed and developing countries, we are
fashioning positive cooperation that will further strengthen the world
economy. Finally, we have all avoided restrictions on the free flow of
capital at a time when pressures existed to create impediments.
In my stay at Treasury, I have seen the world economy pass through
some extremely rough weather. Our management, though imperfect,
has enabled us to survive—and a bit more.
We survived in the sense that our economies did not collapse,
markets continued to function, and we avoided a wave of restrictions
on flows of goods and capital among nations. This achievement in itself
was considerable. But beyond that, the foundation we have laid can
lead to a great deal more—if we do the right things from here on.
We all know that the present situation has both risk and opportunity.
We should not fear the risk and we must not fail to grasp the oppor-
tunity. Much has been accomplished—much remains to be accom-
plished. With determination, we can now strengthen the foundation of
individual economic stability. With courage, we can eliminate restric-
tions on trade and investment, in recognition of our interdependence.
With patience, we can work together and find the proper balance of

GOVERNOR FOR AUSTRIA 103
opportunity and responsibility for rich and poor alike that is essential
in today's world.
Let us commit ourselves here in Manila to this effort. As we do, I
believe we can all look to the future—a future of shared prosperity for
all—with confidence.
STATEMENT BY THE GOVERNOR OF THE BANK FOR AUSTRIA
Hannes Androsch
It is my great pleasure to join the previous speakers in expressing

my gratitude to the people and the Government of the Republic of the
Philippines for the hospitality and courtesies extended to us in Manila.
I would like to congratulate this country for having built this impressive
Philippine International Convention Center. I feel entitled to this state-
ment, because we have got similar facilities under construction in our
capital, Vienna, for the purpose of the United Nations. I would also
like to extend a special welcome to our new member, the Comoros.
When comparing the economic situation at the time of the 1975
Annual Meetings with the one prevailing now, it can be readily said
that a change for the better has been brought about. Most of the indus-
trialized countries have succeeded in overcoming the most severe eco-
nomic recession since the 1930s, and it seems that economic recovery
is well on its way. Whereas a year ago our main objective still was to
continue efforts designed to combat recession in the absence of the
long-hoped-for economic upturn, we must now concentrate all our
activities on placing economic recovery on a broader and more
sustainable basis.
At this point I would, however, be reluctant to accept a position of
any rash and unfounded overconfidence in the present economic recov-
ery. The reasons for my somewhat cautious evaluation of the economic
developments are the following: (1) Unemployment still continues to be
intolerably high; (2) economic recovery starts from an unprecedentedly
high level of inflation averaging over 7 per cent in the industrialized
world; and (3) the danger of a sudden price increase of a single com-
modity is threatening the economic upswing.
This year's Annual Report of the IMF contains a recommendation
that expansionary measures designed to reduce unemployment should
be taken only after careful consideration for the need of checking infla-

tion. However important this warning against the danger of an again

accelerating inflation might be, the overriding objective of our efforts
must be the concern to combat unemployment or—to put it in different
terms—to maintain a high level of employment, not only for economic
but also for humanitarian and therefore political reasons. I may stress
this point, although Austria, in 1975, did not experience an unemploy-
ment rate of more than 2 per cent and the overall employment figures
have been improving continuously ever since. At the same time, we
were able to range at the bottom of the international inflation statistics
with a gross national product deflator of 8.5 per cent in 1975 and 6 per
cent this year.
To bring down the rate of inflation is absolutely necessary as a pre-
requisite to reach the goal of full employment. In addition to a coun-
try's internal measures, cooperation at the international level should be
intensified in order to fight inflation successfully and to bring about
and safeguard sustained economic growth on a global basis.
The last two years have thrown light on the problems individual
economies have been confronted with. Developments of these two years
have clearly shown that the concepts, ideas, and instruments of the last
century are inadequate for solving the problems lying ahead of us in
the decades to come. What we have been accustomed to describe as
"national or political economy" has become a global endeavor. Partic-
ularly the relations between the industrialized countries and the nations
of the Third and Fourth World bear testimony to the importance of
and the need for an international approach.
It was a painful experience in the past to see how measures taken by
one country or a group of countries could almost dislocate the entire
structure of the world economy. Hence, it was clearly demonstrated
how interdependent national economies have become.
Initiatives have already been taken in the past, but constructive
decisions will have to be found in the immediate future.
One of the fundamental problems stems from the tremendous bal-
ance of payments imbalances, a situation which in the long run can
neither be solved by merely creating additional international liquidity
nor through the indexation of commodity prices. I am convinced that a
fair solution to this pending problem can only be found via income
stabilization for the primary commodities producing countries and
through increasing aid for the nations lacking resources. A just solu-
tion to the problem is indispensable so that all parties concerned would
benefit from it. Cooperation in this field would be another example
illustrating the extent to which international agreements complement
national measures.

GOVERNOR FOR AUSTRIA 105
Austria is prepared to contribute to the common efforts in assisting

the developing countries. We support the Fifth IDA Replenishment
and capital increases of both the World Bank and IFC. We have
already joined the Special Fund of the Asian Development Bank and
are about to join the Inter-American Development Bank. We have con-
tributed substantially to the oil facility and are ready to contribute our
share to its Interest Subsidy Account. With legislative measures soon to
come, our central bank will be put into a position to participate in this
additional activity of the Fund with the amount of SDR 2.3 million.
To underline Austria's efforts in and cooperation with the inter-
national community I am happy to inform you that, as of April 1976,
our net creditor position has improved considerably—in relative terms,
we rank fourth in the super gold tranche.
Thanks to their unique position and structure, the Bank and the
Fund have always been a platform for international cooperation based
on the exchange of a broad spectrum of views. After the collapse of
the Bretton Woods system, the IMF has shown a remarkable ability to
adapt its policies to rapidly changing circumstances. This applies to
both its financial activities, such as the oil facility or the compensatory
financing of export fluctuations as well as to its approach to the reform
of the international monetary system.
The amendment of the Articles of Agreement takes us an important
step forward. Especially Article IV should provide the means to guar-
antee the smooth functioning of the mechanisms required for inter-
national cooperation, provided that the member states are prepared to
renounce some of their sovereign rights. The firm surveillance by the
Fund should become practicable, especially in view of the fact that in
times of difficulty the case of every country would be given due regard
and consideration.
In conclusion, I would like to make a final remark: since the early
1970s the world has undergone profound changes. High food prices,
sharp rises in raw materials and energy costs, especially skyrocketing
oil prices—in short, soaring inflation—have been the major factors
adding to the most severe economic recession since the end of World
War II. Neither the gloomy picture drawn by one side nor the overall
optimistic expectations of the other side have proved true. In reality
we have succeeded in managing many problems and more or less over-
coming the recession. Future prospects look brighter now. With more
important tasks before them than ever, the four organizations repre-
sented here today have greatly contributed through their efforts to this
achievement.

STATEMENT BY THE ALTERNATE GOVERNOR OF THE FUND AND

TEMPORARY ALTERNATE GOVERNOR OF THE BANK FOR THE
FEDERAL REPUBLIC OF GERMANY
Karl Otto Poehl
I have to apologize for the absence of Mr. Apel. Mr. Apel regrets
very much that the federal elections in the Federal Republic of Ger-
many have prevented his coming to this Annual Meeting. He has asked
me to convey his greetings to you, Mr. Chairman, and to all the
distinguished delegates. It is with the greatest pleasure that I am in this
country in which cultures have met and mingled for centuries. I thank
the President, the Government, and the people of the Philippines for all
the hospitality they offer us.
Last year's Annual Meeting was still clouded by world-wide reces-
sion. Today, recovery, which a year ago was just beginning to find
form, has now taken on vigor and depth in many countries, including
my own, where we expect this year 6 per cent real growth of gross
national product (GNP), 4 per cent inflation, and a further reduction
of unemployment. While the economy of the Federal Republic of
Germany was brought back on a growth track, it provided the necessary
support for our trading partners. Even during the recession in 1975,
the Federal Republic of Germany's imports, measured in real terms,
registered an increase of 2.6 per cent. This trend escalated during the
first eight months of the current year; imports were even soaring by
17 per cent. Developing countries drew more than proportionate bene-
fits from that, as imports from this group (excluding oil producers) rose
by 5 per cent in 1975 and by 22 per cent in the first eight months of
1976. Thus, the Federal Republic of Germany has contributed to over-
coming the recession in other countries. Our current account surplus
(including official transfers) has continued to decline this year; at
present it is equivalent to 0.5 per cent of our GNP. I do not think this
can be called a large current account surplus and it has been over-
compensated by private capital exports.
The securing of a sustainable growth rate calls for economic disci-
pline: governments will have to reduce the budget deficits which they
purposely incurred during the recession. Money supply has to be kept
under careful control. Decisions on incomes must take due account of
productivity.
As Mr. Witteveen rightly emphasized in his introductory statement
yesterday, inflation is not the appropriate inducement for economic
growth, nor does it bring about lasting relief from unemployment,

ALTERNATE GOVERNOR FOR GERMANY 107
which is still a severe problem in many countries. Experience has

shown that the contrary is true. People in most countries have recog-
nized that inflation is a dismal game with never any winners. In fact,
governments embarking on economic stabilization programs have in-
creasingly gained public support.
Economic growth and stability also are by far the best forms of
assistance the industrial countries can extend to the developing world.
It is gratifying to see that quite a number of the "more advanced
developing countries" have managed to steer their economies effectively
through the recession. In fact, taken as a group, they were even more
successful than most of the industrial countries (if one takes their
remarkably high real GNP growth of 6.4 per cent per annum during
1973 to 1975 as a basis for comparison). The external accounts of
many developing nations even recorded a noticeable improvement
this year.
I fully agree with the several speakers who emphasized the need for
an expansion of public aid. But we also need a climate of confidence
conducive to increasing the flow of private investment into the develop-
ing countries.
The borrowing activity of the World Bank on the German capital
market can demonstrate what credit standing and confidence in a bor-
rower can do: during the past 15 months, the Bank has borrowed
deutsche mark equivalent to well over $1 billion, not counting substan-
tial borrowings from the Deutsche Bundesbank, thus reaching the
impressive figure of $3.4 billion debt by the Bank due in deutsche
mark. . . .
I am pleased to note that the question of a selective capital increase
[of the World Bank] is about to be settled according to the well-estab-
lished practice of parallelism with IMF quota increases. As far as the
new proposals that have been made for a further strengthening of the
Bank's capital, I agree that this question has to be kept under review
and that member countries should not hesitate to take the next step as
soon as possible. . . .
Free trade and capital flows prosper best in an environment of con-
fidence in the stability of monetary relationships. In Jamaica we recog-
nized that this kind of confidence would best be created if trading
partners followed converging lines of domestic economic policies. The
Fund's Annual Report clearly and convincingly supports this philosophy.
Floating rates are not the cause but the result of the instability. I am
convinced that floating has shielded the international community from
falling back into a nightmare of trade restrictions and from a resurgence
of capital controls.

Recent exchange rate movements seem to have taken the right direc-
tion, even if some of these movements appear to be exaggerated. But
after all, we ought to acknowledge as a fact of life that opinions formed
in the exchange markets are not necessarily identical to government
opinion, and that government opinion has often proved to be less than
convincing.
At any rate, the German Government is basically satisfied with the
floating system, not merely because it is the only one we can presently
afford, but because it greatly assists the economic adaptation which we
need so urgently.
We are, no less than others, desirous of exchange stability and we
definitely believe that this must be achieved on the basis of domestic
stability everywhere. We fully support the work undertaken by the
Fund to implement Article IV with the objective of more effective
surveillance of exchange rate policy. We would, however, expect the
Fund to focus its attention also on the surveillance of "underlying
economic conditions," and not just on intervention policies.
My country does not shirk the responsibility it has in a strong bal-
ance of payments position. The Federal Republic of Germany provided
substantial amounts of balance of payments assistance on a bilateral
basis; it also took part in multilateral arrangements for deficit countries
within the framework of the European Economic Community and the
IMF. Despite some serious reservations, the Federal Republic of Ger-
many also ratified the safety net of the Organization for Economic
Cooperation and Development and supported the Jamaica decision to
extend IMF credit tranches. The access to our capital market is com-
pletely open and many foreign countries make use of it. Last but not
least, the Federal Republic of Germany did not resist the appreciation
of the deutsche mark—measured as effective appreciation against trad-
ing partners—by more than 50 per cent since 1969, by about 27 per
cent since 1972, and more than 10 per cent since the beginning of this
year. And I subscribe to the communique of the Interim Committee,
that "exchange rates should be allowed to play their proper role in the
adjustment process."
We would very much welcome the IMF assuming a larger role in
future financing of balance of payments deficits. So far, its regular
facilities have been used amazingly little. Only six members have drawn
on the second credit tranche where conditionality really begins. To me,
conditionality is not an irksome intrusion into the spheres of national
autonomy, but a helpful guide to better stability performance and a
useful instrument of improving the adjustment process, and it gives new
strength to the credit standing of the debtor country. Like Mr. Witteveen,

GOVERNOR FOR ALGERIA 109
I would consider it a healthy development if balance of payments

credits extended by commercial banks and even by monetary authorities
could be geared to IMF drawings and to their conditionality.
Summing up, the Federal Republic of Germany is fully prepared to
participate in the adjustment process. We do this by keeping our
markets open, by fostering imports and capital exports, by allowing our
exchange rate to adjust, by reducing unemployment, and by pursuing
economic growth. But I wish to make it quite clear: we will not accept
adjustment by inflation.
STATEMENT BY THE GOVERNOR OF THE BANK FOR ALGERIA
Abdelmalek Temam
It is with great pleasure that I address this honorable assembly

which comes together each year to discuss the problems confronting the
international financial community and the solutions and approaches
developed to deal with the economic, monetary, and financial disturb-
ances that have characterized our world in the last few years.
I feel that at this time—more than five years after what has been
called the "legalized destabilization" of the international monetary
system—we can attempt to draw up a balance sheet of the monetary
and financial actions undertaken at an international level within the
framework of efforts to reorganize the world economy. Drawing up
such a balance sheet is not easy, as the structure of international eco-
nomic and financial relations is marked by vast disparities among the
principal groups of countries participating in international trade.
Nevertheless, I feel that such a balance sheet is useful and necessary
because it could illustrate "a contrario" the benefits which the inter-
national community as a whole will certainly derive from the imple-
mentation of a genuine political will to bring about change—a will born
not from the search for partial solutions to problems of national interest,
which are often contradictory and of a short-term nature, but from the
search for global solutions, taking into account the long-term interests
of the international community as a whole.
It was in this spirit that Algeria requested at the end of 1973 that an
extraordinary general assembly of the United Nations be called to
examine all aspects of the raw materials problem within the framework
of a global reform of the international economic order. The purpose of
this proposal was by no means to secure short-term advantages for
certain groups of countries to the detriment of other groups, but to

correct the functioning of a set of factors impairing world-wide eco-

nomic equilibrium and, thus, the development of nations. As is fre-
quently emphasized, if the economic and social gap which divides man-
kind into two unequal blocs—one affluent and the other poor—con-
tinues to widen, the world will be faced with increasingly serious threats
in the future. Numerous scholars and researchers who are concerned
about this situation share, in this respect, the concern of Third World
advocates of a reform of the international economic order.
The extraordinary assembly of the United Nations on raw materials
and development in April 1974 did, in fact, initiate a process of con-
tinuous world-wide negotiations among the major trading nations. Since
then these negotiations have been carried on at different levels within
previously existing frameworks or new ones, such as the Conference on
International Economic Cooperation.
This process of continuous negotiation, which was initiated by the
countries of the Third World on the occasion of the oil price adjust-
ment, is fully consistent with the spirit of the Havana Charter drawn up
in 1948 in the wake of the economic havoc wrought by World War II.
In the areas of trade and employment, this Charter had called upon the
United Nations to contribute to "equilibrium and growth of the world
economy" by safeguarding access to markets, sources of supply, and
means of production for all countries "under equal conditions" so as to
stimulate industrial development in each country without discrimination.
Until a few years ago, however, international economic negotiations
had been largely limited to negotiations among industrial countries, as
a consequence of the rapid recovery of the industrial countries' econ-
omies in the 1960s, the tensions of the Cold War, and the structural
weakness and dependency of the economies of the newly independent
nations. The increase in the number of independent nations, the grow-
ing awareness of the problems of underdevelopment, and then the eco-
nomic depression in the industrial countries and the energy crisis, con-
tributed to resuscitating the true spirit of the Havana Conference.
The debate on the reform of the international monetary system was
first opened in the mid-1960s by certain theoreticians, and with lively
controversies on the role of the dollar as a reserve currency. The deci-
sions taken by the U.S. authorities in August 1971 clearly caused the
collapse of the Bretton Woods system and ushered in a period of far-
reaching monetary instability calling for an urgent reform of the system
as a whole.
It was in response to this need for reform that the Committee of
Twenty was established by the IMF Board of Governors Resolution of

July 26, 1972. In this advisory Committee the Third World countries
were represented in proportion to their electoral representation in the
Fund. Despite this, however, effective negotations on international
monetary problems tended to take place within the framework of an
increasingly restricted group of industrial countries, originally the
Group of Ten and more recently the Group of Five. The way in which
the Fund Articles of Agreement were amended in the last few months
shows, once again, that the effective decisions on international mone-
tary matters continue to be made by a small number of countries on
which the various consultation procedures established within the Fund
or elsewhere have but a very limited impact.
The reforms embodied this year in the Fund Articles, as well as the
various measures adopted, constitute a first step toward recognition of
the changes that have occurred in the world economy and in this sense
reflect very well the current interim period of the monetary system.
It seems to us, however, that, rather than preparing the changes
which the international community as a whole would like to see in the
future, these reforms are placing two major obstacles in the way of a
sound and equitably distributed growth of world trade. First, the indus-
trial countries themselves have been unable to find basic solutions to
questions of vital importance for the functioning of an international
monetary system, such as the composition and allocation of reserves,
the elasticity and control of international liquidity, exchange rate mar-
gins, etc. This, of course, leaves us with some major uncertainties for
the future.
The second obstacle is not unrelated to the first: the reforms intro-
duced in favor of the less developed countries (Trust Fund, Subsidy
Account, conditional expansion of the compensatory financing facility,
increase in quotas and their partial redistribution in favor of the oil
exporting countries) do not, in the eyes of the less developed countries,
constitute a qualitative change that could enable them, eventually, to
enjoy conditions of true equality in international trade and in the
distribution of world industrial growth.
This concern on the part of the developing countries is aggravated
by the restrictions certain leading industrial countries are attempting
to place on the activities of the World Bank and by the uncertainty that
surrounds the replenishment of the resources of the International
Development Association. The problems currently besetting the Bank
and its affiliates seem to confirm what is at best a wait-and-see attitude
on the part of certain industrial countries that play a key role in the
functioning of the Group with regard to the problems raised by the

persistence of underdevelopment, even though these problems are basic

to the future of the world economy.
This same wait-and-see attitude is also evident in international eco-
nomic negotiations at other levels. It is sometimes attributed, in con-
crete terms, to the desire on the part of the industrial countries to see
the members of the Organization of Petroleum Exporting Countries
(OPEC) provide an even greater share of the Third World's financing
needs, as in the case of the International Fund for Agricultural Devel-
opment. We feel it necessary to point out here that this attitude is fully
consistent with the desire of certain countries to divide the nations of
the Third World and set them one against the other. All that they are
succeeding in doing, however, is to delay the solution of problems that
are becoming more acute in the meantime. How can one also fail to
mention the inequity of trying to make a group of countries, themselves
among the ranks of the developing nations and with an aggregate gross
national product (GNP) equivalent to not more than 5 per cent of the
GNP of the industrial nations, bear the same financial burden as all of
the industrial nations combined.
It is common knowledge that the OPEC countries have never, at any
time, shirked their international economic responsibilities. The manner
in which they have managed their temporary financial surpluses has
provided the industrial nations with the liquidity required for the
proper operation of their economies during the period of energy price
revision. What is more, they are currently devoting at least 3 per cent
of their GNP to development assistance, as compared with only 0.36
per cent for the industrial countries. It should also be pointed out that
assistance from the OPEC countries is granted without any countervail-
ing flow of funds, unlike aid from the developed countries, most of
which flows back in the form of purchases of goods and services.
At the same time, the financial reserves of the OPEC surplus countries
are being steadily eroded by the loss of purchasing power resulting from
the constant rise in the prices of industrial products and capital goods.
The improvement in international trade that has occurred in recent
months, attributable to the revival of economic activity in the industrial
nations, must not become a reason for the major industrial countries
to sit back and be satisfied with interim solutions that are intended
more to treat the effects of the maladies affecting the world economy
than to deal with their underlying causes. The studies carried out and
the ideas advanced during the consultations and negotiations that have
been under way at various levels without interruption over the past few
years can, nevertheless, open the way to far-reaching reforms in the
world economy. However, debates on procedural points, arguments

about what is to be included on the agenda, and uncompromising atti-

tudes on the part of certain major world trading powers cannot be
allowed to continue to hold up the implementation of these reforms.
The areas these reforms are to cover and the various aspects of their
implementation have now been clearly defined, both in the United
Nations Conference on Trade and Development (UNCTAD) and by
the Conference on International Economic Cooperation. They relate to
the means of removing obstacles to development: improved operation
of the market for commodities; maintenance and improvement of the
terms of trade and hence of export earnings; transfers of technology
and reduced cost of access to technology; diversification of agricultural
production and improved yields. Implementation of these reforms will
obviously require a return to international monetary stability and
development of the international financial system along lines such as
will assure the developing countries of proper access in terms of their
economic potential, their natural resource base, and their needs. Only
under such conditions can the countries of the Third World achieve
substantial and sustained progress in their development efforts.
In this context, the Bank and the Fund—as the two agencies in the
international community with the widest experience and the greatest
resources in financial, monetary, and development matters—ought to
assume a more dynamic, more autonomous role. Without relaxing their
strict standards, which have been the secret of their success, it is none-
theless their responsibility to translate into reality the aspirations for
change and adjustment expressed in other international forums.
To this end, the executives and specialists who manage our two
organizations should not hesitate to involve the Fund and the Bank
gradually in the process of implementing the New International Eco-
nomic Order, the object of which is linked to that of the organizers of
the Havana Conference, namely, to assure all states of a fair share in
the expansion of international trade and of the fruits of industrializa-
tion. The manner in which the developing countries—and also most of
the industrial countries—have behaved proves that the severest of
crises can be solved through responsible cooperation. For this reason,
the inequalities in representation that still persist within the Fund and
the Bank must not be allowed to continue to hold up their normal
development, as desired by the international community, toward grow-
ing participation in the development of the Third World.
The Outline of Reform of the Fund prepared by the Committee of
Twenty, together with the work of its various technical groups, brought
to the fore the various problems relating to the evolution of the Fund's
role, both with regard to the nature of the link and as regards the

mechanisms for substitution or adjustment. What we should now like to

see would be for all the member states to encourage the committees
established for the studies on reform of the monetary system to con-
tinue their work further, because to our mind they represent an appro-
priate level of discussion, intermediate between such global forums as
UNCTAD or the Conference on International Economic Cooperation
and the two institutions with the largest resources and the greatest
experience, namely, the Fund and the Bank.
Development financing should no longer be regarded as separate
from the international monetary and financial system. With the present
arrangement, the advantages of the system are in practice reserved for
the already industrialized nations. In reality this runs counter to the
needs felt within the international community and thus to its interests.
Industrialization of the Third World, which is vital in the long run for
the continued expansion of international trade, cannot succeed unless
the developing nations are assured of appropriate conditions for devel-
opment finance and balance of payments adjustment.
The development process is a world-wide process. The fragmentation
of efforts in this field helps to maintain the duality of structures, both
national and international, responsible for the continued existence of
inequalities. Over the past 30 years, under highly unfavorable condi-
tions, the developing countries have shown that they can accept the
strictures under which the financial markets operate, strictures that
must apply to any form of economic development. Accidents in the
debt service performance of these countries have in actual fact been
few and far between, having regard to the rapid increase in the number
of borrowers and the expanding volume of this debt. However, the
terms on which financing is provided (both duration and interest rates)
still have to be rendered appropriate to the conditions of development
and industrialization; action is likewise needed to stabilize export pro-
ceeds and to provide adjustment mechanisms in the event of external
deficits. Such action is entirely consistent with a sound international
monetary and financial system that will assure all countries of equal
access to the resources available.
Here I cannot but express the concern of most members of the inter-
national community at the obstacles of various natures which still block
the path to reform of the world economy. It is to be feared that some
of the more pessimistic economic forecasts may come true in the near
future if we do not succeed quickly in laying the bases for under-
standing and harmony in international economic relations.
For this reason, I shall conclude my remarks by appealing to this
assembly to ensure that the reforms brought about in 1975 and 1976

in the international monetary sphere do not simply perpetuate the past

with a few minor changes, but rather open the way to the future. We
must redouble our efforts and undertake additional studies in an en-
deavor to translate into practice the wishes of the international com-
munity. The eyes of the world are on us again this year and I express
the hope that our work will help to widen the paths of international
cooperation, to harmonize the negotiations going on at various levels,
and to arrive at basic solutions to the world's economic problems.

Copyright
Center

FOURTH JOINT SESSION1
REPORT TO THE BOARDS OF GOVERNORS OF THE BANK AND THE FUND BY

THE CHAIRMAN OF THE JOINT MINISTERIAL COMMITTEE OF THE
BOARDS OF GOVERNORS ON THE TRANSFER OF REAL
RESOURCES TO DEVELOPING COUNTRIES
(DEVELOPMENT COMMITTEE)
Henri Konan Bedie
The Joint Ministerial Committee of the Boards of Governors of the

Bank and the Fund on the Transfer of Real Resources to Developing
Countries was set up by a resolution that you adopted in Washington
in October 1974. I should like now briefly to summarize the work done
by the Development Committee during the 12 months since the Annual
Meetings in Washington in 1975.
The Development Committee owes its origin to the convergence of
two major factors. First, the developing countries had brought home
the point, throughout the work of the Committee of Twenty, that trade
and development problems formed an integral part of the overall prob-
lem of reform of the international monetary system. Second, the evolu-
tion of the international economic situation had made it necessary to
create such a forum.
Since the Annual Meetings in September 1975 the Development
Committee has met twice, simultaneously with the meetings of the
Interim Committee, on January 9 in Jamaica, and last Sunday in this
splendid conference center.
During its first year the Committee devoted a large part of its atten-
tion to the more pressing problems of the developing countries, in
view of the new difficulties of an exceptional size and acuteness that
they faced. The Development Committee speedily lent its support to
the proposal for establishing the Trust Fund since set up by the Interim
Committee and the Executive Directors of the IMF. But it was recog-
nized also that the Committee's essential role would be to give attention
to longer-range problems, i.e., the capital needs of the developing coun-
1
October 5, 1976.
116

CHAIRMAN OF DEVELOPMENT COMMITTEE 117
tries and the necessary machinery for satisfying them. Thus, the Com-
mittee unanimously supported the establishment of a new development
financing facility, the World Bank's Third Window. But even with this
unanimous support, the Third Window target of $1 billion has not yet
been attained, because the contributions to its subsidy fund have
remained inadequate in spite of the Committee's repeated appeals to
the donor countries.
At the Jamaica meeting the Development Committee examined the
various aspects of the use of Trust Fund resources and considered the
initial findings of its Working Group on access of developing countries
to private capital markets. It also endorsed the need for a substantial
increase in the resources of the international and regional development
financing institutions, particularly the International Development
Association (IDA).
At its October 3 meeting the Committee reviewed constructively two
important questions: capital market access by the developing countries,
and adoption of its work program for the coming months.
I should like now to summarize briefly the main points of the dis-
cussions concerning transfers of real resources, before drawing one or
two conclusions.
First of all, at each of these meetings the Development Committee
made an analysis of the economic situation of the developing countries.
The persistence of exceptionally high current account balance of pay-
ments deficits in the developing countries continues to be cause for real
anxiety, particularly since the prospects for the next few years are
hardly encouraging. The countries have financed these deficits by draw-
ing down reserves and, in particular, by massive recourse to high-cost
commercial loans which have increased their external indebtedness and
their debt service burden. The poorest developing countries have ex-
perienced practically no growth in per capita income since the end of
the 1960s, while the creditable performances of the middle-income
countries have been substantially slowed by the economic crisis the
world has just passed through.
The Committee also devoted special attention to ways of improving
the terms of resource transfers, particularly as regards the goals for
volume of official development aid and the measures taken to achieve
them. The Committee decided to set up a second working group, which
will submit specific recommendations in this field and on the role of
adjustment in the development process. This second working group will
also study the proposal to set up an International Resources Bank under
the aegis of the World Bank and will present its conclusions at a future
Committee meeting.

The Committee further recognized that official aid to the developing

countries is insufficient in aggregate terms and stated its firm conviction
that the Fifth Replenishment of the resources of IDA should take place
in good time to allow IDA to maintain continuity of its operations
beyond June 30, 1977. Moreover, many members of the Committee
took the view that IDA V should be sufficient to ensure an increase in
real terms in relation to IDA IV, although there had been no evidence
of any appreciable progress since the Jamaica meeting last January.
The Committee also accomplished particularly constructive work on
the question of access by the developing countries to private capital
markets. Last Sunday it adopted a number of recommendations pre-
pared by the Working Group set up by the Committee at its Paris
meeting in July 1975. These measures relate first of all to liberalization
of access to the markets of the capital exporting countries, to the extent
that the balance of payments situations of the latter permit. The capital
exporting countries will also afford favorable treatment to developing
country borrowers on those markets with regard to the floating of issues
and placement in the issues calendar; they will also, up to certain
amounts, endeavor to keep developing country borrowers outside their
quota limits. Other recommendations were also adopted concerning the
removal of legal and administrative barriers.
The Committee also urged the development financing institutions to
expand their co-financing operations as a means of augmenting private
capital flows to the developing countries. The Committee recognized
the need to strengthen technical assistance activities to developing
countries that wish to enter the private capital markets, and recom-
mended that the International Finance Corporation (IFC) consider
expanding these activities.
Finally, the Committee decided that the Working Group should
pursue its work and present new recommendations on the question of
multilateral guarantees, the proposal to establish an International
Investment Fund, and improvement of the existing reporting systems on
private capital flows.
I can state with conviction that the establishment of the Develop-
ment Committee was a valuable step. The bringing together around the
same table of 20 finance ministers, representing the industrialized, the
oil exporting, and the developing countries was a constructive innova-
tion. I have accordingly been asked to present to you, as Chairman of
the Committee, a draft resolution,2 approved by the Committee, extend-
ing its life for a further two years.
1
See page 308.

GOVERNOR FOR CENTRAL AFRICAN REPUBLIC 119
In conclusion, I should like to reiterate that, while the analysis,

review, and study together of the economic problems of the developing
countries is a necessary and indeed a useful stage, it is no more than
a stage.
Whatever the efforts undertaken by the developing countries in the
internal management of their economies—and these efforts are many
and real—they stand in urgent need of substantially increased external
assistance. It matters little in the final analysis, as Mr. McNamara said
yesterday, what form this external assistance has to take. The volume
of this external assistance, combined with the sincere efforts of the
developing countries themselves, must be sufficient to meet the funda-
mental challenges of underdevelopment. It is not ideas that are lacking,
but the commitment and the political determination of all the donor
countries, both traditional and new.
The Development Committee was set up to impart thrust to and
serve as a catalyst in the mobilization of the necessary efforts to attain
this position. There are some who have voiced frustration about the
results achieved by the Committee during the last two difficult years.
Personally, I believe these opinions reflect not only a certain lack of
understanding of the role and powers of the Committee vis-a-vis the
two institutions but also, and more particularly, the very unequal per-
formances of the donor countries and the lack of any real political
commitment.
Without the essential global political will to increase transfers of real
resources rapidly and substantially, the frustrations of the developing
countries will persist. I venture to hope that the entire international
community is conscious of its responsibilities in the eyes of history.
That, at all events, is my hope, and one that I express loudly and
clearly as I come to the end of my term of office as the first Chairman
of the Development Committee.
STATEMENT BY THE GOVERNOR OF THE FUND FOR THE

CENTRAL AFRICAN REPUBLIC
Marie-Christiane Gbokou
I am greatly honored by the confidence which the African Governors

have shown in me this year by appointing me their spokesman, and in
that capacity I have to express before this honorable assembly the con-
cerns and anxieties of our vast and rich continent whose development
is hampered by obstacles inherent in the tensions which have charac-
terized international economic relations in the last few years.

Before fulfilling my formidable mission I should like, on behalf of

the African Governors, to convey to His Excellency, Ferdinand Marcos,
President of the Republic of the Philippines, and to the First Lady of
the Philippines, as well as to the Government and the gallant people of
the Philippines, our most fraternal greetings and our sincere apprecia-
tion of the warmth and efficiency with which they have welcomed us
here. The enormous efforts which they have made to provide us with
ultramodern facilities and the perfect technical organization of this
meeting cannot but ensure the success of our work. I should also like
to take this opportunity to congratulate and welcome the delegations of
Guinea-Bissau, Surinam, Papua New Guinea, and the Comoros, who
are attending our meetings for the first time.
At our last Annual Meetings in Washington the African Governors
emphasized the economic difficulties which were hampering the devel-
opment efforts of their continent. The world-wide inflation was con-
tinuing to drive up the cost of our imports; the deterioration in our
terms of trade was accelerating from one year to the next, while the
flow of real resource transfers from the industrial to the developing
countries was steadily declining. Moreover, our capacity to finance the
imports so sorely needed for our economic development was limited by
trade restrictions.
Since then, our problems have only become worse. After having
deteriorated by 13 per cent in 1972, our terms of trade declined by a
further 17 per cent in 1975. The burden of our external debt is now
reaching intolerable proportions and is severely jeopardizing all our
investment programs. The excessive cost of imports has forced us to
introduce rigorous tax reforms, which have had an adverse impact on
the growth rates of our economies. The cumulative effect of these
developments has confronted most of our countries with serious balance
of payments disequilibria.
This recessionary situation, which our young developing nations
have been facing for so many years, is the consequence of a deliberately
indifferent attitude toward their welfare that the more affluent members
of our international community have always displayed.
Although all countries have been affected to a greater or lesser
degree by the present economic situation, there is no doubt that the
industrialized countries could expand their development aid programs
beyond the present level. At a time when official development assist-
ance should increase, it remained stationary in real terms at 0.32 per
cent of the gross national product of the Development Assistance Com-
mittee countries until the end of 1974. An insignificant rise in official
development aid was registered in 1975.

The adjustment of our current payments was accomplished to some

extent by reducing our small foreign exchange reserves, but especially
through massive recourse to external borrowing, often available only on
onerous terms in private financial markets. Hence, Africa's external
public debt spurted from $9.2 billion in 1967 to $28.5 billion in 1974.
This has meant a considerable aggravation of the debt service burden
for a number of African countries, a burden now equal to 20 per cent
of export receipts for some of them.
Other estimates place the balance of payments deficit of the non-oil
exporting developing countries in the neighborhood of $40 billion for
1975. According to a recent estimate by the United Nations Conference
on Trade and Development (UNCTAD), the net flow of capital to
these countries will have to rise to about $85 billion annually, at current
prices, if they are to achieve an annual growth rate of 6.6 per cent for
the period 1976-80, and thus to reach the 6 per cent objective set for
the second development decade. The needs of the most seriously
affected countries are estimated at $30 billion, or three times the
volume of capital made available to those countries in 1975.
It is therefore undeniable that, if we wish to reach the objective set
for the second development decade and the New International Economic
Order, suitable measures should be taken at both the national and the
international levels to enlarge the transfer of real resources to the
developing countries. Unfortunately, the principal industrial countries
seem little disposed to play a major role in this direction.
The indifference of the industrialized countries to the basic problems
of the Third World was clearly demonstrated at the fourth meeting of
UNCTAD in Nairobi last May. The establishment of a new inter-
national order, including all facets, such as commodities, technology,
finance, and monetary relations, was dealt with in an exhaustive precise
document entitled the Declaration of Manila, and presented to the con-
ference at Nairobi by His Excellency, President Marcos, Chief of State
of the Philippines. In addition, the UNCTAD Secretariat distributed
explanatory notes in support of the Declaration. Neither these notes nor
the various addresses made at the lengthy negotiating sessions had the
slightest success in eliciting a positive reaction from the large indus-
trialized countries. Hence, the Fourth Conference on Trade and Devel-
opment was definitely a missed opportunity.
The situation is even more discouraging as regards the results of the
Conference on International Economic Cooperation being held in Paris.
The committees created to deal with raw materials, development,
energy, and finance have been stymied by the negative attitude of the
rich industrialized nations toward all proposals made by the developing

countries. The gap separating the two parties remains very wide, and
the prospects for achieving concrete results are not encouraging.
In addition, the Development Committee was established two years
ago. We hoped that it would facilitate an expanded transfer of real
resources to the developing countries. Although this Committee stim-
ulated the establishment of the Third Window at the World Bank, a
number of industrial countries have not contributed to this facility and
oppose its being given a permanent status. The African Governors insist
on the need to strengthen the operations of this facility, which is of
considerable importance to their countries. They therefore urge that its
program be set up on an annual basis, as is the case with the Bank's
general program, and that the amount of money intended for the
facility be larger than it is now.
Despite the difficulties which this institution is facing, we in Africa
remain convinced that the Development Committee is the most suitable
forum for discussion at a high political level of matters relating to the
transfer of real resources. . . .
It is undeniable that the World Bank alone cannot meet all the needs
of the poor countries. The problems we must face can be solved only
with the help of all countries. In this connection we wish to congratu-
late the members of the Organization of Petroleum Exporting Countries
(OPEC), whose financial assistance to the poor countries totals 2.5 per
cent of their gross national product. We appeal to them to continue
demonstrating this generosity in the future. We invite the industrialized
countries to follow the example of the OPEC countries, as well as the
no less praiseworthy example of Sweden and the Netherlands, whose
development aid programs surpass the target of 0.7 per cent set by the
United Nations.
The experience of the present economic situation shows the need to
help poor countries diversify their economies. The African countries
which today account for only 0.6 per cent of world industrial produc-
tion greatly need increased assistance to expand their share to at least
2 per cent before the decade comes to an end. It is apparent that the
industrialization of the poor countries calls for technology adapted to
their resources. It is equally clear that we, for our part, must con-
tribute effectively to the conception and adaptation of a technology that
meets our needs. We invite the World Bank and bilateral aid agencies
to give priority to the problem of transfer of technology in their
operations in our countries.
I should like to turn now to the monetary problems which, along
with the economic problems we have been discussing, our countries
have been facing in the last year. The Declaration of Rambouillet,

published last November by the Heads of State and of the Governments

of the United States, the United Kingdom, the Federal Republic of
Germany, France, Japan, and Italy, led us to believe that a new era in
exchange rates was about to dawn and that the system of floating
exchange rates would soon give way to a system of relatively stable
exchange rates.
Despite the Jamaica agreements, the international monetary system
has since then experienced a series of violent, erratic fluctuations in the
rates of exchange of certain major currencies, engendering considerable
uncertainty and imposing privations on the African countries whose
currencies are linked to those major currencies. Most of our countries
therefore find themselves in a situation in which they can no longer
maintain either the purchasing power of their currencies or the value
of their exchange reserves and export proceeds.
We therefore feel that we ought to draw the necessary conclusions
from this experience. First, we can no longer have confidence in, or
rely upon, decisions relative to the international monetary system—
decisions taken in restricted forums where our interests are not pro-
tected. Further, we have always contended that such decisions can be
sensible and effective only if they enjoy consensus in the world com-
munity, for which the International Monetary Fund is the forum.
Second, the experience of recent years once again illustrates the
dangers inherent in the system of floating exchange rates. The risks as
well as the uncertainties associated with it are very costly to the concept
of an orderly, stable international monetary system. In addition, while
the developed countries are better prepared to absorb without risk the
effects of erratic exchange rate fluctuations, the same is not true of the
developing countries, whose room for maneuver in this area is limited.
Our fears regarding the floating exchange rate regime have very recently
been substantiated, and now we are more convinced than ever that the
survival of the international monetary system depends on a prompt
return to a system of stable but adjustable exchange rates. Without such
a system and effective surveillance by the Fund, applied to deficit mem-
ber countries as well as surplus member countries, we can expect
only chaos.
Third and last, our recent experience reinforces our conviction that
the creation of a Substitution Account in the Fund is an urgent neces-
sity. Through such an account, we could keep most of our exchange
reserves in SDRs, which constitute a relatively stable reserve asset, and
thus escape the risks and uncertainties associated with the maintenance
of our exchange reserves in the major national reserve currencies.
Turning now to the intervention of the international community in
the critical situation in which the developing countries (which are

innocent victims) find themselves, the International Monetary Fund has

reacted by providing for greater use of its resources, thus facilitating
the adjustment process. Our medium-term and long-term objective is to
promote a new economic order which will contribute, among other
things, to the growth of world trade, the setting of remunerative prices
for our exports and stable prices for our imports, the elimination of
discriminatory restrictions on trade, the equitable and appropriate dis-
tribution of international liquidity, and the development of an inter-
national monetary system based on stable but adjustable exchange
rates. All these objectives, in the framework of international cooper-
ation and trust and of a sincere political will, could promote the growth
and development of the African economies and the return to healthy,
balanced balances of payments.
While striving to achieve this objective, however, we would ask
international financial organizations and friendly governments to pro-
vide us with appropriate financial and technical assistance to facilitate
the adjustment process. That is why we regret that the Fund terminated
the oil facility in 1975. Despite its rigorous conditionality, this aid has
proved a significant means of financing much of the oil deficit of certain
non-oil producing member countries of the Fund. We must, however,
deplore the fact that the developing countries were able to obtain only
a third of the money available through this facility because some de-
veloped countries, though they could have found other sources to
finance their deficits, used this facility instead, and because of the
criteria and methods used to determine access to it.
We note with satisfaction that the Subsidy Account, which was estab-
lished last year to handle the voluntary contributions of Fund member
countries with strong balances of payments and which is designed to
reduce the cost of 1975 oil facility drawings for Fund members cate-
gorized among the most seriously affected developing countries, has
already begun to make disbursements. We also note with satisfaction
the commitments to the Subsidy Account already made by several
member countries and the contributions made by some of them. We
believe, however, that total commitments to date are modest; if the
goal of the Subsidy Account is to reduce appreciably the real interest
rate charged on drawings under the 1975 oil facility by the most seri-
ously affected countries, contributions will have to be more substantial
both in their size and in the number of contributors. We therefore
invite all member countries with a strong balance of payments or in a
position to contribute, especially those which have not yet made a
commitment, to give their active support to the Subsidy Account
through substantial commitments and contributions.

We appreciate the decision taken last December by the Executive

Directors of the Fund to liberalize access to the compensatory financ-
ing facility. Nevertheless, we sincerely hope that, when the compensa-
tory financing facility is next reviewed, invisibles will be included in the
base for calculating export shortfalls. We should also like to stress the
fact that access to the compensatory facility should never be denied to
members with a proven export shortfall merely because their total
authorized drawings under this facility during a given period, or their
total actual drawings, have reached an arbitrarily fixed sum.
The enlargement of the Fund's credit tranches, giving its members
greater access to utilization of these resources, modest as it is, is a
step in the right direction. This enlargement (which has benefited all
countries) has been effected because of the deterioration in countries'
balance of payments situations as a consequence of the protracted
world inflation and recession. Considering that the recent economic
recovery has been slower than expected and less far-reaching than had
been hoped, that it will take some time for the economic recovery in
the industrial countries to be reflected in a growth in demand for pri-
mary products, and that in particular that the expected increase in the
IMF quotas of the African countries is quite negligible, we ask that
present tranche policies be maintained even after the increased quotas
have entered into effect. We also suggest that the stricter conditions
imposed on access to the higher credit tranches, which have tended to
discourage their use by the African members, should be progressively
liberalized in light of the particular economic circumstances of each
member country. Until this is done the countries will have no choice
but to resort to restrictions on imports and other current payments,
thereby running counter to the Fund's basic objectives.
The fact that in three years only two applications under the extended
Fund facility have been approved shows that either access to this facility
is strictly limited by the Fund or the conditions attached to it are
extremely harsh and unnecessarily prohibitive. We request that the
Fund review the provisions of this facility as soon as possible with a
view to making some of these conditions more flexible.
While we applaud the setting up of the special Trust Fund, we wish
to stress that unless the countries with strong balance of payments posi-
tions contribute generously to it, the profits on the sale of gold which
are to be allocated to this Fund for the benefit of the underdeveloped
countries will be completely inadequate in the face of their enormous
balance of payments needs. Moreover, it is regrettable that the condi-
tions laid down for utilization of the resources of this Fund are those of
the first credit tranche. The fact that an eligible member that wishes to

draw on the resources of the special Trust Fund has to prove that it
has balance of payments problems and that it is making the necessary
effort to resolve them, limits access to the Trust Fund resources. What
we are asking is that, in assessing the balance of payments needs of the
underdeveloped countries and the efforts they are making, the Fund
give them the benefit of the doubt.
In addition, we regret that there is no provision for the granting of
nonreimbursable assistance by the Trust Fund. We hope that at the
appropriate time the Trustee of the Trust Fund will study the question
of making nonreimbursable grants to certain developing countries,
particularly those classified as most severely affected.
We continue to support the buffer stock facility and request that its
machinery be simplified and made less restrictive. Furthermore, we
think that this facility should embrace all similar institutions already
set up by Fund members.
We are also concerned about the excessive importance attached by
the Fund to the provisions of the Rome communique of the Committee
of Twenty asking all countries to refrain from imposing new or tighten-
ing existing trade and payments restrictions. We accepted this condition
of access to the oil facility because of the special circumstances that
led up to its creation. However, since the oil facility no longer exists,
we see no justification for extending this condition to use of other Fund
facilities set up to meet totally different situations. We believe that
the General Agreement on Tariffs and Trade is the institution best
placed to deal with this problem.
Our experience with the Sixth General Review of Quotas has been
rather disappointing. We found the review procedure too long, arbi-
trary, and very complicated. Since the Seventh Review has to be com-
pleted within three years following the entry into effect of the Sixth
General Review of Quotas, we suggest that the Seventh Review begin
without delay. We seriously believe that the Seventh Review should aim
at a number of objectives, among which the most important, in our
view, is improvement of the criteria and methodology used in determin-
ing members' quotas.
Finally, the African Governors wish to express their complete sup-
port for the latest recommendations of the Ministers of the intergov-
ernmental Group of 24. They request that the Interm Committee and
the Development Committee, as well as the administrative authorities
of the Fund and the World Bank, take maximum possible account of
these recommendations in their future work.
It is beyond question that some progress will be made in 1976 in
reforming and strengthening the international monetary system. We

GOVERNOR FOR BELGIUM 127
note with satisfaction the changes initiated in the characteristics of the

SDR and in the expansion of the role assigned to it, together with sim-
plification and expansion of the various types of financial operations
and transactions of the Fund, making possible a greater utilization of
its resources in 1976 by a number of developing countries.
We have already stressed the additional improvements that should be
made in the monetary system, and we are convinced that our Managing
Director, whose unflagging efforts have made this progress possible,
will be able to conclude successfully the delicate and essential task that
remains to be accomplished. We take this opportunity to pay solemn
tribute to him and to congratulate the Executive Directors and staff at
the Fund for their important contribution to the study of these difficult
problems. . . .
With these thoughts I shall close my remarks, in the hope that, by
having chosen a woman to speak for it, Africa will at last be heard by
this meeting and by the entire international community.
STATEMENT BY THE GOVERNOR OF THE BANK FOR BELGIUM
Willy De Clercq
Economic Situation
Our discussions at least year's meeting in Washington took place in
an atmosphere of profound anxiety. This time we have some grounds
for optimism. The world economy is now climbing out of the worst
recession since the 1930s. While we can feel relief at the economic
recovery now under way, we must also recognize, however, that this
recovery still poses some very difficult problems. The major challenge
facing most of the industrial economies is how to counter inflation more
effectively while at the same time taking active measures to reduce
structural unemployment. This combination of two evils—inflation and
unemployment—is a relatively new phenomenon in the annals of
economic history.
It is essential, and the IMF's Annual Report stresses this point, that
the industrial countries maintain firm control over the economic recov-
ery so as to ensure that it does not degenerate into a short-lived boom.
In other words, we must establish the foundations for sustained bal-
anced growth, and we must pursue a cautious economic policy in order
not to reawaken inflationary pressures that would make the recovery
no more than temporary.

What instruments do we have available to achieve our objectives?

Monetary policy should be called upon to play a moderating role in
the recovery. The countries expecting the largest balance of payments
deficits and where inflationary pressures are strongest should be the
first to employ this instrument. To be fully effective, monetary policy
must be backed up by an appropriate budgetary policy designed to
bring about a gradual reduction in their sizable deficits. While these
deficits were justified in the depths of a recession, they are no longer
acceptable in a recovery period. This restrictive policy should stress
reduction in government expenditure rather than increased taxation,
which would only add to inflationary pressures.
Prices and incomes policy can, we feel, also play a significant role in
most of the developed countries in helping to achieve noninflationary
growth. This necessity has, in any event, been clearly perceived by the
governments of the member countries of the European Economic Com-
munity, which arrived at constructive agreements with their social
partners in the Community in Luxembourg last June.
Furthermore, we are also convinced that the fight against inflation
requires more systematic management of the system of floating exchange
rates. Such management should not exclude a voluntary policy aimed at
lessening the excessively violent and disturbing fluctuations to which
certain currencies have been exposed. In this aspect in particular, an
active monetary policy can play a valuable role.
Recent events have, we feel, indicated certain limits to the system of
floating exchange rates. It is illusory to think that floating rates can, by
and of themselves, re-establish economic equilibrium in the short term.
There is a risk that the current disparity in rates of inflation will be
automatically perpetuated when the currencies of the so-called weak
open-economy countries depreciate, as the resultant higher import
prices will, in turn, raise costs.
However, I want to be properly understood here. While I regret the
fact, I do recognize that, under present conditions, a return to fixed
par values seems out of the question. We would be deceiving ourselves
to think otherwise. We also agree that, if any exchange rate policy is to
be successful, it must be accompanied by an economic policy designed
to stabilize the underlying conditions of the economy.
The point that we wish to emphasize, however, is that countries
should make increased efforts to regain equilibrium through internal
adjustments and that it is in their interest, if basic economic conditions
allow, for them to pursue an active policy of exchange rate stability.
This is, in fact, the policy we are pursuing in Belgium. We have
taken a number of measures in the budgetary, income, and monetary

fields to defend the participation of the Belgian franc in the European

monetary snake. We know very well that if we let the Belgian franc
depreciate, we would only increase the rate of inflation. Hence, floating
would not solve any of our problems: on the contrary, it would remove
a useful constraint in our struggle against inflation. We are all the more
determined to pursue this course as our balance of payments position
is sound and fully justifies our maintaining the stability of our currency
vis-a-vis those of major trading partners. That is why I wish to restate
here, in unequivocal terms, our fundamental support for the European
monetary snake. Despite the troubles that sometimes beset it and despite
the skepticism of certain observers, the snake remains an invaluable aid
to stability for those participating in it, and we hope that its role can
be strengthened in the future.
The other aspect of the challenge facing many of the industrial coun-
tries today is the rise in structural unemployment. One of the main
causes of the extension of this type of unemployment in countries such
as Belgium is—as we see it—the fact that, because of the sharp rise in
unit labor costs in particular, the pace of investment has slowed and the
emphasis has been on rationalization rather than on expanding produc-
tion capacity. Thus we need a policy that will encourage investments.
A policy of moderation for all incomes and success in the fight against
inflation should help to enhance the profitability of investments.
This policy should help us to reduce unemployment, which imposes
a heavy burden on our people and represents an enormous waste of
resources. It should also ensure sustained growth for our economies
and enable us to make the necessary transfers of real resources to the
non-oil developing countries.
This brings me to the two topics which I wish to discuss with you in
greater detail, namely, the activities of the World Bank and inter-
national monetary matters. . . .
. . . Our participation in this facility [the Third Window of the
World Bank] has been submitted to Parliament for approval, as has our
contribution to the IMF Subsidy Account. We hope that other member
countries will follow our example, so that the targets set by the Bank
and the Fund can be reached within the near future. . . .
In concluding this part of my speech, let me emphasize that, despite
the impact of the crisis, Belgium has insisted on increasing the total
volume of its official aid. For 1975, this amounted to 0.60 per cent of
its gross national product (GNP)—0.10 per cent more than in 1974.
Our budget estimates for 1977 are based on a contribution equivalent
to 0.62 per cent of GNP.

As regards the total flow of public and private resources, the World
Bank's Annual Report rightly points out that Belgium was among the
seven countries whose total resource transfer represented over 1 per
cent of GNP.
International Monetary Matters

The past year was marked by important achievements from the point
of view of both the development of the International Monetary Fund
and the evolution of the international monetary system. To mention
only a few: completion of the negotiations on the amendment of the
Articles of Agreement, the decision on the quota increase, establish-
ment of the Trust Fund, extension and enlargement of the oil facility
until February of this year, creation of the Subsidy Account, liberaliza-
tion of the compensatory financing facility, and the temporary expan-
sion of access to the IMF's resources.
Nevertheless, I am convinced that it would be a mistake to sit back
and feel satisfied with these achievements, and to conclude that nothing
else remains to be done.
In my view, we should initiate a new process of reflection which
should lead to decisions in two areas: international liquidity and the
management of floating rates.
International Liquidity
With respect to the first of these two areas, the recent amendment
of the Fund Articles indicates the two objectives that we have to pur-
sue: first, to improve the surveillance of international liquidity, and
second, to make the special drawing right the principal reserve asset of
the international monetary system. As these objectives seem very re-
mote at present, all of us will need to reflect and then decide jointly on
concrete measures that would bring us closer to their achievement.
(1) The role of the special drawing right
In order to make the SDR the principal reserve asset, it will be
necessary to reverse the relative importance of the roles played by the
dollar and the SDR in the creation and circulation of international
liquidity. This reversal cannot be achieved overnight.
The recent amendment of the Fund Articles, which makes the con-
ditions for using SDRs more flexible, constitutes a step in the right
direction. However, the current provisions concerning the effective yield
of SDRs tend to penalize SDR holders by making their capital value
and yield lower than those of dollars invested in the money market. An
increase in the effective yield of the SDR is thus an essential condition
for making it a true reserve asset.

(2) Better surveillance of international liquidity

One of the major objectives in creating the SDR was to provide the
international monetary system with the means necessary to ensure a
conscious, deliberate, and responsible growth of the volume of liquidity.
Rather than bringing us closer to this objective, the last few years have
clearly moved us further from it.
We shall have to reflect anew on this vital subject, and this process
of reflection should raise some questions as to the desirable volume of
reserves, their distribution among countries, the different assets held as
reserves, the share of the conditional element in the total volume of
liquidity, the role of the other public or private financing sources, and
finally, the control of liquidity.
On this last subject, the Managing Director, Mr. Witteveen, devel-
oped some very interesting ideas, during a speech in Frankfurt last
October, which should be pursued further and expanded. In examining
possible forms of control, he stated:
. . . I am thinking, for example, about the idea of harmonizing the composi-
tion of international reserves and the concept of an appropriate degree of asset
settlement. . . . Such an approach might aim for the regulation of international
liquidity by countries agreeing to hold a certain minimum proportion of their
international reserves in the form of SDRs. Adjustments in the aggregate vol-
ume of SDRs and/or in the reserve ratio would then also bring about inter-
national management of the global amount of international reserves.
In my view, this is the direction in which the Fund's work should

proceed. In this connection we must also endeavor to reinstate the
Fund in the central role which it ought to play in the supply and
distribution of international liquidity.
Management of Floating Rates

The general objective for exchange rates, as stated in the amended
Fund Articles, is to "promote a stable system of exchange rates."
Clearly, the foremost means of assuring this stability, as emphasized in
the new Article IV, is for each member to "endeavor to direct its eco-
nomic and financial policies toward the objective of fostering orderly
economic growth with reasonable price stability." Thus, the return to
exchange rate stability can best be assured by promoting the return to
stability of all our economies.
It seems to us, however, that it would also be useful to work
toward a better international harmonization of policies directly affecting
exchange rates. Floating does not relieve the authorities from the need
to take measures to counteract exchange fluctuations which are not
warranted by the underlying economic conditions. It is not necessarily

a question of intervening more extensively in the foreign exchange

markets, but rather of making more active use of the other instruments
that can enhance stability, especially interest rate policies and controls
on capital movements.
We already have the Guidelines for the Management of Floating
Rates, adopted in June 1974. These should be worked out in greater
detail and strengthened, especially as regards the role of capital move-
ments. The present rules for the management of floating rates hardly
take into account the special impact which these movements can have
on exchange rates. It is imperative, therefore, that the Executive Direc-
tors of the Fund endeavor to develop a new approach to this question
as soon as possible.
In concluding my remarks I should like to remind this assembly of
the dual challenge which we, as Finance Ministers, are facing on the
international level:
—On the one hand, we must contribute to improving the economic
situation of the poor countries. In this context, I firmly hope that
the North-South dialogue will yield concrete results in the near
future.
—On the other hand, we must promote the return to greater inter-
national monetary stability through appropriate domestic and
exchange policies.
It is on the basis of our response to this dual challenge that we will
be judged by the international community. Let us hope that the judg-
ment will be a positive one.
STATEMENT BY THE GOVERNOR OF THE BANK FOR MALAYSIA
Tengku Razaleigh Hamzah
It is my great pleasure and honor to participate in the thirty-first An-

nual Meetings of the International Monetary Fund and the World Bank,
and to address you today for the first time in my capacity as Governor
of the World Bank for Malaysia. I wish to thank the President of the
Republic of the Philippines for his kind words of welcome and to ex-
press my gratitude to the Government and the people of the Philippines
for the warm and generous hospitality they have extended to us. A
special word of thanks should go to the Philippine Government and to
all the people who, I have been told, practically worked round the
clock, to ensure that this magnificent convention center was ready for
these Annual Meetings. To the staff of the Fund and the Bank I would

GOVERNOR FOR MALAYSIA 133
like to offer my congratulations for their efficiency in organizing this

meeting. My reading of the traditionally well-written and compre-
hensive Annual Reports of the Fund and the Bank has impressed on
me the vigorous activities they have undertaken over the years in pre-
paring the Reports, which in no small measure are due to the efforts of
our Executive Directors and the staff of the IMF and the World Bank.
May I also take this opportunity to express a very warm welcome to
our new member, the Comoros.
We have during the first half of this decade gone through a most
turbulent and difficult period, during which the world economy was
plagued with unsettling foreign exchange crises, enormous balance of
payments disequilibria, sharp fluctuations in the prices of primary com-
modities, world-wide inflation, and the most serious and prolonged
recession in the last 40 years, with unprecedented levels of unemploy-
ment in many countries. Through these difficult times, we have seen a
number of significant changes in the world economic order. The
Bretton Woods system was subject to close scrutiny, culminating in the
fifth meeting of the Interim Committee in Jamaica this year when a
wide-ranging number of issues crucial for the future evolution of the
international monetary system were agreed upon and are embodied in
the second amendment to the Articles of Agreement of the Inter-
national Monetary Fund, which is now in the process of being ratified
by our respective governments. These developments have imparted to
us some useful lessons. It seems to us in Malaysia, and I am sure to
many others, that the most striking lesson is that the continued healthy
growth of the world economy, especially in the developing countries,
can only be nurtured within a stable international monetary environment.
While developing countries should rely on their own resources as far
as possible to attain economic growth, domestic resources are hardly
adequate given the pressing problems of unemployment, poverty, mal-
nutrition, and squalor faced by them. Hence assistance is essential. This
is the crux of the matter, for without outside assistance many develop-
ment projects might not even get off the ground. The joint IMF-IBRD
Committee on the Transfer of Real Resources to Developing Coun-
tries, or the Development Committee, was formed in 1974 to examine
the issue of such transfers to the developing countries. While we do
recognize that a lot of effort has been put in, the progress of the
Development Committee has been most disappointing. As a developing
country, Malaysia would recommend that the overall approach and
entire mechanism for the transfer of real resources to the developing
countries must merit a fresh look and new mechanisms created to attain
the resource needs of the developing countries. . . .

. . . I would strongly urge the international community to consider

seriously once again the question of stable commodity prices. The
stabilization of commodity prices has always been a subject of concern
to Malaysia and I am sure to many other developing countries. Indeed,
if we believe that in the New International Economic Order there should
be a deliberately organized and systematic transfer of real resources from
the developed to the developing countries, and if we believe in the
private enterprise system, stability in the prices of commodities which the
developing countries produce and market in the developed countries,
may provide a generally acceptable solution to the problem of transfer
of real resources from the developed to the developing countries.
We should recognize that the erosion of the resources of the raw
material producing countries has been brought about by serious and
continual deterioration in the terms of trade of these developing coun-
tries. Larger and larger volumes of raw materials, on the production of
which our survival depends, are needed to purchase less and less of the
goods and services without which our economic development will cease.
The real problem, it seems to me, therefore, is how to replace these
resources with transfers of new real resources to the raw material pro-
ducing countries to enable them to continue to produce the raw mate-
rials which the world needs, and at the same time enable them to earn
a fair margin with which to promote a level of economic and social
development that would ensure a rising standard of living for their
peoples. And it seems to me that the private enterprise system and the
operation of market forces could well be harnessed toward these
objectives.
Buffer stock arrangements operating in the private sector with readily
available funds to finance them could be useful mechanisms to achieve
these objectives. The successful operation of the International Tin
Agreement, which establishes a tin buffer stock, is a classic example of
what can be done through cooperation between the producers and con-
sumers of a vital raw material and which has achieved some transfer of
resources to the producers of tin, certainly to Malaysia, the world's
biggest producer. It has been able to maintain its tin industry all these
years to meet the world's needs and at the same time to contribute its
share of revenue for the economic development of the country.
I warmly thank the President of the World Bank for his continued
support for buffer stocks and welcome the initiative of the United
Nations Conference on Trade and Development in proposing an inte-
grated program for commodities, including a Common Fund for the
financing of international commodity stockpiles. We know only too well
that finance can be a stumbling block for the establishment of inter-

national buffer stocks. It has been estimated that we need a sum of

$3 billion to launch the Common Fund, $1 billion from capital sub-
scriptions and $2 billion from loans. This sum may appear large by
itself. But if we recall that at least two thirds of the world's population
lives in developing countries where poverty, unemployment, disease,
and squalor are rampant, I suggest to you that the price is not too high.
It is also most disheartening to us that a more positive attitude has
not been forthcoming from the International Monetary Fund on the
provisions governing drawing on its buffer stock financing facility. I am
referring to the restriction placed by the Fund on direct financing of
international buffer stocks. I fail to understand the need for a narrow
interpretation of the role of the Fund in this regard when flexibility has
characterized the operations of the Fund in many other respects. . . .
Turning now to the subject of reform of the international monetary
system, there are aspects of the reform package about which I have
serious misgivings, particularly the question of exchange rate flexibility,
which is the key feature in the new system. I recognize that under the
present circumstances a certain measure of flexibility is imperative and
am glad to note that, according to the Fund's Annual Report, there has
already been a tendency over the past year toward smaller week-to-week
and even day-to-day exchange rate fluctuations than in the previous two
years. Developing countries, especially those dependent on trade, can-
not overemphasize the importance of stable exchange rates to promote
the expansion of world trade. While the current provisions in the Fund
permit floating, I would call upon the large industrial countries, whose
influence on world exchange markets is maximal, to help to ensure
orderly exchange rates during this transition period. I certainly welcome
the provision under Article IV of the proposed Articles of Agreement
that, when conditions are suitable, there should be a return to a par
value system based on stable but adjustable rates.
It has been argued that a floating exchange rate system should elimi-
nate the need for reserves for balance of payments financing. But in
practice, we know that very often the exchange rate of a currency
cannot be left entirely to market forces. Intervention by central banks
to smooth out excessive fluctuations in exchange markets is a common
feature known to us all. Apart from serving to stabilize exchange rates,
international reserves perform a much wider role in developing coun-
tries. In a broad sense, these reserves constitute resources much needed
for financing their economic development. It is the inadequate con-
sideration of this wider role of reserves that adds to the negative side
of the reform package. What we have now, in practice, is a virtual
abdication of the reserve-creating function of the Fund and an increas-

ing reliance on private commercial banks to meet the liquidity needs of

countries. To meet the oil situation, which resulted in serious disequi-
librium in the world's balance of payments, the Fund created the oil
facility as an emergency measure. This facility, which has been termi-
nated this year, only met the needs which form the tip of the iceberg,
so to speak. The Fund, in its Annual Report, confirms that "in the
financing of any given external deficit, many countries have come to
rely to a greater extent on international borrowing." It is small consola-
tion for the majority of developing countries that the international capi-
tal markets have managed to restore world balance of payments equi-
librium when the end result has been that they have been landed with
a mounting debt servicing problem for those of them who are sup-
posedly creditworthy to borrow from private capital markets, or have
slowed down their development programs for those who have been
unable to borrow. It is no exaggeration that developing countries
generally emerge worse off in a situation where world liquidity creation
is left to private markets.
As fellow Governors will recall, one of our main objectives in inter-
national monetary reform is to enshrine the special drawing right as the
principal reserve asset. In the Proposed Second Amendment to the
Articles of the Fund, we have given it additional qualities to make it
the centerpiece among international reserve assets. Yet, it is plain to
me that by allowing private capital markets to meet the bulk of the
financial needs of countries, we are, in fact, denying the opportunity for
a speedy development of the SDR. The Fund's Annual Report has
pointed out that, since 1972, the reserves of the vast majority of coun-
tries have shown little increase. For the non-oil countries, reserves grew
by only 2 per cent annually in 1973-75. The reserves-imports ratio of
the developing countries has been falling for the last three years. It is
true that we have just completed our Sixth General Review of Quotas
in the Fund, and increased them by nearly SDR 10 billion to SDR 39
billion. Until the quota increases take effect, we have provided for a
45 per cent increase in the access of members to their credit tranches in
the Fund. We have also liberalized the compensatory financing facility
and established the new Trust Fund. However, we must not forget that,
on the one hand, all these are conditional facilities, the use of which
developing countries will have to justify strongly in order to obtain what
must be a meager amount when compared with the drawings on the
Fund by the developed countries. On the other hand, the provision in
the amended Articles to allow central banks to deal in gold at
market-related prices would accentuate the imbalance in the distribu-
tion of reserves between the developed and developing countries and

create an irreparable gap. For many developing countries, this shortage

of resources has been a major setback to faster growth and develop-
ment. With the adoption of a more rational approach to the growth
and distribution of international liquidity, I am sure the additional
output of goods and services, which should be generated for raising the
standard of living of the poor and not for promoting further con-
spicuous consumption, will be more than adequate to match the growth
in world liquidity and need not necessarily lead to world inflation.
I feel that the international community must take a hard look at the
implications of the package of reform. This package must not add to
the overwhelming odds which the developing countries are already fac-
ing and which must be overcome to achieve a faster rate of economic
development. Being an open economy, Malaysia, like many other
developing countries, is extremely vulnerable to the vicissitudes of the
international environment. In July this year, we embarked on the third
of our five-year development plans, in which we aim to muster our
resources to reduce the incidence of poverty in the rural as well as in
urban areas, encourage and support private domestic and foreign invest-
ment in order to assist the full utilization of our country's abundant
natural resources, and restructure the ownership of wealth and income
patterns in our country. But to achieve these objectives, we must be
assured of a stable international environment where there is steady
demand for our exports. It makes our planning and implementation of
projects all the more difficult if we are uncertain of how our export
earnings are going to be affected by drastic movements in the exchange
rates of our trading partners, over which we have no control. More
important, an uncertain environment will certainly inhibit business
expansion and foreign investment, which is greatly needed to comple-
ment the domestic efforts of developing countries.
As in the case of the proposals for reform of the international mone-

tary system, I suspect that it is the lack of determination which is
responsible for the failure to find satisfactory solutions to the problems
of developing countries. It was political will at the Interim Committee
meeting in Jamaica early this year that cut the Gordian knot of the
many outstanding issues of reform. In the final analysis, therefore, it is
political will which will be the crucial factor in international relations,
and it is my fervent hope that this would be forthcoming so that we can
move closer to, though we may not yet be able to achieve, the ideal of
accelerating world economic growth and a better distribution of its
benefits in a stable international environment.

STATEMENT BY THE ALTERNATE GOVERNOR OF THE FUND

FOR SPAIN
Jose Maria Lopez de Letona
Let me, as Alternate Governor of the International Monetary Fund

and the World Bank for Spain, begin by saluting the beautiful and
noble country that is the venue for our meetings this year. In joining in
the general appreciation of the courteous and generous welcome ex-
tended to us by the people and the Government of the Philippines, may
I stress the special pleasure it gives me, as a Spaniard, to find myself
in a land, and among a people, to which we in Spain feel so close, in
spite of the distance that separates us, bound as we are to them by
such strong ties of history and of friendship.
We wish to congratulate the Managing Director of the International
Monetary Fund and the President of the World Bank on the quality of
the Annual Reports they have presented in their respective areas of
competence. In reading these Reports, however, we cannot help feeling
anxious about the serious problems that confront the world economy.
It is true that the picture has improved in some ways since the last
meeting. A good number of industrial countries have succeeded in
emerging from the deep recession, which reached its low point in the
early part of 1975. And the revitalization of their economies has
exerted, through the recovery of world trade, a favorable impact on
the difficult situation of the developing countries. Nevertheless, the
seriousness of the disruptions that the world economy has suffered in
the last few years, and the magnitude of the adjustments that remain
to be made, highlight the inadequacy of what has been achieved and
the poverty of the expectations before us.
Most of the industrial countries have succeeded in reactivating their
economies. But as soon as their processes of reactivation have begun to
consolidate, they have tended to adopt less expansive or frankly
moderating monetary and fiscal policies in order to hold their ground
in the fight against inflationary pressures. I do not propose to defend
the practice of strongly expansive policies which, if inflation should
recur, would only generate fleeting stimuli and in the long run would
hamper achievement of the goal of continued expansion of the world
economy. Nevertheless, if in present world economic conditions the
large industrial countries adopt excessively prudent policies in spite of
the fact that they have high unemployment, ample idle production
capacity, and large balance of payments current account surpluses,
what kind of effort and sacrifice are being asked of the less fortunate

ALTERNATE GOVERNOR FOR SPAIN 139
countries which are still struggling to complete their processes of

adjustment?
Both the Annual Report of the Bank and that of the Fund present
what I think can be described without exaggeration as a dramatic pic-
ture of the problems with which the non-oil exporting developing coun-
tries are wrestling. The growth through which they are to escape from
poverty is being impeded by external deficits that impose on them levels
of indebtedness that they cannot support for very long. An excessively
slow rate of expansion in the large industrial countries which have best
overcome the crisis that still bears so painfully on other economies can
further darken a horizon already shadowed by the threat of financial
crises and trade restrictions and, in the last analysis, by a widening of
the gulf that separates the rich from the poor countries.
I recognize the dangers posed by the inflationary climate that still
characterizes the world economy, and I agree that its progressive elimi-
nation is a basic prerequisite for normalization of that economy. But I
believe that the better situated industrial countries possess margins for
expansion which they ought to exploit carefully, in their own interest
and that of the rest of the world. Likewise, I believe that those indus-
trial countries that are still wrestling with serious difficulties should
make every endeavor to overcome them without resorting to trade
restrictions which could set off chain reactions. And I believe also that
while the relative prices of basic primary commodities should reflect
prospective scarcities, in the interest of the very development of the
world economy, the producing countries that control their prices
should, in present circumstances, use this power with extreme caution.
For it is in the interest of all that the present inflationary tensions
gradually disappear, without being reactivated from time to time by
sharp fluctuations in basic commodity prices.
In any event, the magnitude of the adjustments that remain to be
made, and the risks involved in the excessive growth of recourse by the
deficit countries to the private financial markets, point to the desir-
ability of maintaining financial flows based on international cooper-
ation. The conditional nature of this financing is all very well, pro-
vided that its conditionality is interpreted flexibly, bearing in mind that
in many cases the present external disequilibria go beyond the criteria
that have traditionally guided this conditionality.
Finally, I should like to say that the assessment given in the Annual
Report of the Fund of how the system of floating exchange rates has
worked recently seems to me to be unduly generous. It is true that the
relative exchange fluctuations have tended to adapt themselves to infla-
tion rate differentials. But the latter have in turn been affected by

exchange rate fluctuations accentuated by speculative operations, so

that exchange rate variations have tended to become cumulative, thus
contradicting the basic argument cited in favor of floating rates—
namely, that they tend to promote equilibrium. We must not hark back
to fixed exchange rates in the present circumstances; but let us avoid
showing complacency in the face of the serious defects we are observing
in the floating rates system.
STATEMENT BY THE GOVERNOR OF THE FUND FOR MAURITIUS
Sir Veerasamy Ringadoo
It gives me great pleasure to note that our family of nations repre-

sented at this meeting has increased with the membership of the
Comoros and several other prospective members. I hope that next year
we will have the privilege of welcoming to this august body the
legitimate representatives of other countries.
For most of the countries represented here, the last 12 months were
a trying period because of inflation, recession, and exchange rate fluc-
tuations. While the situation in industrialized countries is showing signs
of improvement, the prospects are indeed very gloomy for the develop-
ing world. The huge current account deficits which the non-oil develop-
ing countries have experienced in recent years are expected to continue
in the foreseeable future, thereby aggravating an already difficult prob-
lem. While the Jamaica reforms and their aftermath were expected to
provide some relief to the developing countries, these expectations have
been belied. The agreement on gold accentuates the already regressive
distribution of international liquidity, inasmuch as it favors those who
already have adequate liquidity. In the upshot, non-oil developing coun-
tries, by and large, continue to be faced with severe shortages of
international reserves.
Proposal for SDR Denominated Deposits

Developing countries have found it difficult, in a period of inter-
national monetary disorder, to identify appropriate exchange rate sys-
tems. Time and again, their exchange rate policies had to be improvised
to meet the volatile situation. A few of them—including my own
country—have pegged their currencies to the SDR, so as to moderate
the exchange fluctuations.
While the SDR is meant to become the principal reserve asset, the
weak international surveillance over creation of fresh liquidity and the
absence of a substitution account have prevented the SDR from assum-

GOVERNOR FOR MAURITIUS 141
ing its intended role. Although there are difficulties in immediately

expanding the role of the SDR, I feel that a beginning may be apposite
at this juncture. Developing countries could be encouraged by appro-
priate incentives to peg their currencies to the SDR. These countries
could be provided special facilities akin to some of the benefits pro-
vided to countries pegged to reserve currencies. Although the Fund
cannot provide all the facilities that central banks of reserve currencies
provide to their constituents, it should be possible, for instance, to offer
higher rates of interest to countries pegged to the SDR. Such countries
could place a part of their foreign exchange reserves with the Fund as
SDR-denominated deposits as distinct from SDRs per se, and the rate
of interest on these deposits could be equal to the full weighted average
of short-term money market rates in major countries. The SDR is
increasingly being accepted in international transactions. Furthermore,
some loans are denominated in SDRs and a few banks are already
accepting deposits denominated in SDRs. Thus, it would be most appro-
priate if the IMF, which issues SDRs, were to accept SDR-denominated
deposits from its constituents.
Currency Budget
The amended Articles of Agreement establish an obligation for all
members to enable the Fund to use their currencies. As a member of
the Fund which has already completed the legislative procedures to put
the amended Articles into force, we accept these obligations. However,
the case of small export-oriented economies, with transient balance of
payments surpluses, requires considerable caution in the use of their
currencies for the Fund's currency budget. While a small developing
country ought to be proud to be considered creditworthy for inclusion
in the currency budget, this should not carry with it a penalty in terms
of a zero or low rate of interest on the foreign exchange reserves
"impounded" by the Fund. There is a strong case for concessional
treatment for such developing members included in the currency
budget. Thus, they could be granted the same rate of interest as would
accrue on the SDR-denominated deposits suggested earlier.
Special Facilities of the Fund

In recent years, we have opened up many special windows for the
developing countries—the compensatory financing facility, the buffer
stock facility, the extended Fund facility, the temporary oil facility, and
the newly created Trust Fund. But, apart from the compensatory
financing facility, the conditionality incorporated in these facilities
renders them virtually unusable for most developing countries.

The compensatory financing facility has been of considerable help to

developing countries. While I see no objection to the use of this facility
by such developed countries as suffer from export fluctuations, I cannot
help but note that almost 40 per cent of drawings during 1976 have
been by developed countries, as compared with an average of around
10 per cent during the period 1963-75. Moreover, a country with a
history of high export growth rates has a better chance of qualifying
for the compensatory financing facility than a country which has a his-
tory of low growth rates. In estimating the need for assistance under
the compensatory financing facility, the Fund does not consider export
fluctuations, with respect to commodities, on the grounds that the Fund
is concerned with the overall balance of payments of a country. It is
therefore strange that the facility should also avoid any evaluation of
the export earnings in real terms. If the fluctuations in real export earn-
ings are to be taken into account, then logically the problem of export
fluctuations should be disaggregated with respect to commodities, and
price and volume fluctuations considered separately. Let me illustrate
the point with reference to my own country. Mauritius was devastated
by a cyclone in 1975 and one third of our sugar crop was wiped out.
Yet, under the compensatory financing facility, we did not have an
export shortfall, as the loss in export volume was neutralized by the
totally unrelated special price offered by the United Kingdom to all
their Commonwealth sugar suppliers. In 1976, we have suffered a
precipitous decline in prices, but as our export volume has risen, we are
again to be deprived of help from the compensatory financing facility.
I would urge that the compensatory financing facility should be revised
to enable countries to draw on the Fund either for export volume short-
falls or for export price declines, while of course establishing that the
export shortfalls are generated by factors reasonably beyond their own
control. Further, the facility should cover not only visible exports but
also items like tourism, in respect of countries heavily dependent on
such invisibles.
The debt servicing problem of non-oil developing countries is becom-
ing increasingly acute. As in the case of the temporary oil facility, it
would be useful if the Fund were to consider introducing a special debt
servicing facility to assist countries in smoothing the humps in debt
servicing.
Gold Sales and Trust Fund

We welcome the establishment of the Trust Fund. When it was
approved, it was broadly envisaged that the profits of gold sales would
be around $80 per ounce. A sharp decline in the price of gold would
substantially reduce the resources available to the Trust Fund. I there-

GOVERNOR FOR GUINEA 143
fore suggest that, to the extent the gold sales fail to realize the resources
initially envisaged, there should be some mechanism for increasing
other resources for the Trust Fund, such as voluntary contributions or
direct transfers from the General Account. Furthermore, the Fund
should explore means of maximizing the profits from gold sales. Auc-
tions may be one way of selling the Fund stock of gold. However, other
methods, such as direct sales in the markets and variation of the
amounts and periodicity of auctions, should be envisaged. The Fund
should build up the necessary expertise to operate efficiently in a
highly speculative market.
Some of my suggestions could encounter difficulties because of estab-
lished rules and regulations and legal ramifications. However, under
the able leadership of Mr. Witteveen, the Fund has shown great inge-
nuity in finding unusual solutions to unusual problems. I feel confident
that the management of the Fund will be able to initiate action expedi-
tiously on these proposals. . . .
Conclusion
This is a crucial year in many respects. The world is undergoing
tremendous changes in every sphere—changes which I am glad to say
are for the good of mankind at large. I have no doubt that the fresh
wind which is blowing all over the world will also benefit our own
institutions. My colleagues from both the developed and developing
countries have shown their appreciation of our mutual problems and
have displayed their will in tackling these problems. This attitude will
go a long way in creating a better environment for the future genera-
tion. Our meeting in Manila will be long remembered both for the
gracious hospitality received and the momentous decisions taken.
STATEMENT BY THE GOVERNOR OF THE FUND FOR GUINEA
N'Faly Sangare
In spite of the beginning of a recovery in the economies of the devel-

oped countries, this meeting is taking place in a climate of world-wide
uncertainty, which makes the monetary problems even more pressing
than in the past, as also is the question of financing development in the
countries of the Third World. The future of international cooperation is
at stake.
It is true that the efforts made in the last few years by the Inter-
national Monetary Fund and the World Bank under the dynamic and
wise leadership of the Fund's Managing Director, Mr. Witteveen, and

the World Bank President, Mr. McNamara, have enabled our countries
to find solutions to their balance of payments and development finance
problems that are less constraining, but still are not sufficient. In fact,
these institutions themselves have felt the effects of the international
economic situation, which have prevented them from achieving the
anticipated results.
First of all, as regards the international monetary situation, it must
be recognized that despite the real progress made—thanks to the work
of the Interim Committee for monetary reform—no satisfactory solu-
tion has been found so far to the crisis which erupted in August 1971.
Inflation still persists in the industrial countries, severely eroding the
value of the currencies of most of these countries themselves and at the
same time jeopardizing the young economies of the developing coun-
tries. This situation has led the industrial countries to resort to wide-
spread floating of their currencies, frequently in an uncoordinated
fashion, to overcome their monetary difficulties—a practice which is
highly prejudicial to the economies of the developing countries. In addi-
tion to destabilizing our import and export prices, floating affects the
level of our foreign exchange reserves and adds to the already crushing
burden of foreign debt service on our weak economies.
Unfortunately, however, the Interim Committee decided at its
Kingston meeting to legalize floating, which has such adverse effects on
the world economy in general and on the developing countries' econ-
omies in particular.
The delegation which I have the honor to lead believes that this
deplorable compromise of Kingston can be accepted only as an interim
remedy, pending a satisfactory final solution which would restore
greater monetary stability. In our view, the regime adopted at Kingston
is inconsistent with the purposes of the Fund, which are, among others,
"to promote exchange stability, to maintain orderly exchange arrange-
ments among members, and to avoid competitive exchange depreciation."
Therefore, during the transitional period, pending a successful out-
come of the efforts to be undertaken and sustained in pursuit of the
Fund's objectives, it would be desirable for the Fund to seek ways of
expanding its assistance to member countries whose external payments
deficits will undoubtedly increase as a result of the floating of the
principal currencies. I feel this needs to be emphasized once more, as
this concern lies at the heart of the responsibilities of our institution.
I should like to mention, in this connection, that the oil facility
established in 1974 had enabled the Fund to mobilize substantial addi-
tional resources which should normally have benefited those members
having the greatest need for assistance. Unfortunately, however, after

GOVERNOR FOR GUINEA 145
the first drawings had been effected under simple and acceptable condi-
tions, the provisions governing access to this new facility were made so
stringent that many countries were denied drawings, even though they
had an urgent need.
The developing countries with chronic balance of payments diffi-
culties have had access to only one third of the resources available
through this facility, with two thirds being absorbed—unjustly, in our
view—by industrial countries which could have found other resources
to finance their external deficits.
It should also be pointed out that the Fund has recently established
a number of facilities which had initially raised our hopes, but the
conditions governing access to them were subsequently made so diffi-
cult and so stringent that most of the countries for which they were
originally intended were obliged to do without them, even though they
were facing serious problems, more often than not due to inflation
outside their own region.
The same applies to the oil facility, as we have just seen, as well as
to the extended Fund facility for medium-term assistance to countries
whose balance of payments deficits are caused by underlying structural
disequilibria, and also to the buffer stock facility. Similarly, the condi-
tions governing access to the newly created Trust Fund should be made
as flexible as possible in order to give all developing countries easier
access to its resources.
Furthermore, the conditions for drawing under the compensatory
financing facility, which were liberalized in Kingston, and the condi-
tions for making drawings in the credit tranches, which have also been
enlarged, should likewise be made more flexible so as to enable each
of our countries to make drawings as soon as a balance of payments
need arises.
As regards cooperation between Guinea and the Fund, my delegation
welcomes the fact that this is being continually strengthened.
The strict monetary policy measures adopted by the Guinean Gov-
ernment, especially since its monetary reform of October 2, 1972, have
enabled my country to improve its domestic economic and monetary
situation. The most recent Fund consultation mission to Guinea was
able to note the significant progress achieved by the Guinean authorities
in this field. The Government of the Republic of Guinea is having the
mission's recommendations carried out carefully, but obviously only
insofar as they are compatible with the norms of social justice accepted
by our people. The encouraging results of the economic, financial, and
monetary policy pursued by Guinea under the guidance of our President
Ahmed Sekou Toure justify our faith in the future. . . .

May I express the hope that this meeting will take appropriate deci-
sions on the various points that I have raised, as the questions cur-
rently before the international community are in need of urgent, bold,
and equitable answers.
Our peoples are legitimately aspiring toward development, and as we
all know, the needs of people are ever expanding and infinite. We must
therefore display imagination, resolve, and good will in laying the true
bases for the more rapid development of our nations in order to meet
the legitimate aspirations of those whom we represent.
Before concluding, I would like to congratulate the representatives of
Seychelles and Guinea-Bissau who are with us for the first time today.
My delegation is also pleased to see that the Comoros and Papua New
Guinea have become members of the Fund and of the Bank.
I would not like to leave this platform without expressing my delega-
tion's sincere thanks to the people and the Government of the Philippines
for the warm and friendly hospitality they have extended to us in this
beautiful and charming city of Manila.
STATEMENT BY THE GOVERNOR OF THE FUND AND BANK FOR TANZANIA

A. H. Jamal
On behalf of my delegation may I please ask you to convey our very

warm appreciation to the Government and the people of the Philippines
for their wonderful hospitality and deep courtesy which they have
accorded us ever since we arrived in this country. We have been over-
whelmed with kindness and generosity everywhere.
At the outset please permit me to say that we are most gratified that
the authentic voice of the courageous Vietnamese people is at last to
be heard in the deliberations of these meetings. We are also particularly
happy that we are to be joined by our brothers from Papua New
Guinea, Guinea-Bissau, Seychelles, the Comoros, and Surinam. We
most keenly look forward to listening soon in these meetings to the
authentic voice of the People's Republic of China.
In taking the floor to address Governors of the Fund and the Bank,
I do not in any way wish to detract from the very substantial and press-
ing points already made by the spokesman on behalf of the African
Governors of the Fund and the Bank, the distinguished and gracious
Governor from the Central African Republic. Indeed, it must remain
the hope of all those who are concerned with the issues of international
stability and justice for the least developed, that the pleas made by
African Governors, year after year, do not fall on deaf ears.

GOVERNOR FOR TANZANIA 147
In choosing to speak at this juncture, I wish to address myself to

certain aspects of the contemporary international economic situation
and to express a very deep anxiety that major industrialized countries
appear to be bent upon taking a course which must inevitably lead to
frustration and despair for the developing countries without conferring
any lasting advantages on the rich.
In the first place, there does not seem to be any serious realization
on the part of the rich countries that the continued dependence of the
recently decolonized countries on the industrialized economies has
become an inexorable process. This is in the wake of the pre-emptive
strike delivered to the body politic of the poor by the formidable com-
bination of technology and capital, and the mobility of financial re-
sources propelled by major financial institutions, including the Inter-
national Monetary Fund itself.
The fundamental characteristic of this process is that, whether there
is a recession or prosperity in the developed world, the developing
countries' dependence on it becomes ever more entrenched. The fright-
ening thought is that the industrialized countries may believe this
dependence on them to be in their interest, at least in the short run.
Since, however, the long term is so many short runs put together, do
we realize what we are heading for?
The 1976 IMF Annual Report, necessarily dealing with the short
term, is a masterpiece of understatement as far as the developing
countries' circumstances are concerned. Referring to the onslaught of
inflation and recession in the industrialized countries—and it might have
added the license to allow the exchange rates to float—the Fund Report
contains these soothing words: "The adjustments of the primary pro-
ducing countries to these developments have been difficult and, in
many cases, less than fully successful."
Although I cannot say that the IMF must be joking, I must confess
that in my view the developing countries must accept their share of
responsibility for allowing things to come to pass in this way.
The Proposed Second Amendment to the Articles of the IMF amply
illustrates the extremely difficult point the international community has
reached. When, in the wake of the surrender of developing countries at
Kingston, the IMF technicians put together the text of the second
amendment with great dispatch for the Governors to vote on by
April 30, as Governor of the Fund representing Tanzania, I voted for
the amendment.
I must admit we did so with extremely mixed feelings, indeed most
reluctantly. In any event, we could not have affected the issue at that
late hour.

To begin with, it appeared to us, perhaps on hindsight, that the

developing countries made a major error of judgment in accepting the
dichotomy of their fundamental interests through the establishment of
the Interim Committee on the one hand and the Development Com-
mittee on the other hand. We, who should be protesting the loudest at
the continuing pretense that monetary matters, trade matters, and the
issues of development are even conceivable in isolation of one another,
allowed ourselves to be dissipated at a critical point in time. Why did
this happen? How did it happen?
So many things, happenings, deliberations, and decisions are kept out
of sight or hearing of developing countries. There are possibly many
missing gaps in my assessment. Nevertheless, the bare bones of the
matter seem to be something like this.
Those who were at one time foremost in championing the Inter-
national Monetary Fund with its requirement of disciplines regarding
exchange rates and monetary stability, at some point in time, perhaps
in the 1960s, found it in their own interest to pursue policies in con-
travention of these implied and explicit requirements.
Initially, it was the domestic policy of expansion for whatever pur-
poses, including Viet Nam, which led to inflationary pressures. Subse-
quently, the logical consequence of exchange rate movements could not
be avoided. Those who possessed the power to ignore the IMF did so.
When the rest of the world community began to protest at being
sidestepped, and at the sidestepping of the IMF itself, which owes its
own creation to the genius of the free market economies, something had
to be done to regain respectability. When the clamor of UNCTAD III
approached close, the world saw feverish diversionary activity. The
Interim Committee became the mechanism for contriving what could be
described as the great historical consensus, while the Development
Committee, poor thing, limped along looking for some crumbs that
might come its way.
Of course, over the period much technical work was carried on to
deal with the demonetization of gold, the further elevation of the SDR,
the increase of quotas, the elaboration of compensatory financing, and
so on.
So. at some point the political values underlying the work of the
Interim Committee and the shadowboxing work of the technicians had
to converge, as it happened, in the form of the proposals for the
second amendment.
The second amendment represents a tragedy. Not because it confers
respectability on the license already exercised in full measure by the

all-powerful with respect to exchange rates. This is tragic enough. The

fundamental point of objection is that, having endorsed this freedom
for the major economies, it makes no countervailing provision for those
who are totally helpless as they remain exposed to the blizzards
unleashed by the floating exchange rate economies.
Even without the second amendment, even when the industrialized
countries reasonably conformed to the rules of their own game which
they themselves established at Bretton Woods, there has been an
increasingly mounting case for specific provision to be incorporated in
the Articles to take care of the needs of those countries which achieved
independence in the last 20 years or so, and particularly the poorest.
The case has existed, though it has gone by default, for making very
special provisions in the Articles of the IMF beyond Articles VIII
and XIV, to ensure that young, newly born, struggling economies are
not only not placed in a straightjacket tailored to discipline the more
rugged developed economies, but also that these young economies are
given continuing compensating replenishment as they contend with a
totally unequal overpowering environment not of their creation.
Surely, when a deliberate step is contemplated to institutionalize the
freedom of the already free rich, there should be given some clear
demonstration to repair this historical default, late as the hour of the
day is. How do we dare claim that we are even paying lip service to
the emergence of a new economic order, when all we do is to give our
formal blessing to the status quo ante?
Incidentally, it is a grotesque demonstration of lack of concern for
the developing countries that to the extent that the World Bank may be
disposed to fill in this hiatus by giving program loans, it should be
constrained from doing so precisely when the IMF itself is denied the
countervailing capability to deal with the needs of the tender economies.
Neither the ordinary credit facilities, nor the so-called special facilities
have more than a fleeting chance of ending up in the service of these
tender economies. Indeed, performance has proved this indisputedly.
The proposals of the second amendment regarding the SDK's role in
international monetary relations are not objectionable. But as the pro-
posals stand, the developed countries could choose to deal in gold, in
SDKs, or in each other's currencies, depending on their own needs.
This is yet another provision for flexibility for the rich, which leaves
the poor with no recourse at all. And reconstitution of the SDR, which
is a real problem for the poor developing countries, still remains an
obligation. Even in this marginal respect, there is no relief. Much more
disastrous for the developing countries is the absence of any link
between SDKs and development. Indeed, once the second amendment

becomes a fait accompli, the industrialized countries could be able to

put forward further amendments which could have the effect of jettison-
ing the link with development for all time to come.
I must confess that if I have understood this implication correctly,
the international community is allowing a historical opportunity to slip
from its hands.
By refusing in such a determined and obdurate manner to seize upon
a device for the automatic transfer of reserves through deliberate diver-
sion of world liquidity toward the areas of greatest need, the rich of the
world are in my view becoming altogether shortsighted. The world has
had ample experience of economic crises which at their worst have
caused violent conflict. Why are we hesitating to seize an opportunity
to build a stabilizing process into a new system?
The second amendment further contemplates the possibility of a
decision-making 20-member Council to take the place of the Interim
Committee at some future date. If this Council had been in existence
today, presumably the second amendment would have been endorsed
without reference to the Governors today in 1976. On the one hand,
we seek a New International Economic Order and, on the other hand,
we contemplate three, four, or ten years hence a possibility of a
20-member Council dominated by the rich, having powers of making
crucial decisions on behalf of the 129 members of the IMF.
I venture to express the view that we are bound to lack credibility
in our insistence for the need of a new economic order, if at the same
time, we applaud the second amendment. The IMF has an efficient
apparatus at its disposal. The statesmen of the industrialized countries
have the power of endowing it with a capability to take care of the
whole complex spectrum of economies now performing in the world.
The already prosperous wish to maintain their prosperity through free-
dom. The still poor wish to develop, by breathing freely, as all newly
born need to do. If this is not made possible, the future is not difficult
to forecast. It is not in the interest of anyone to drive the poor to the
wall. And it is a wholly self-deceiving exercise to spend energy on
wooing a few of the developing countries at a time. The permutations
and combinations of the interplay of relationships will create more
problems than the rich believe they have the power to solve. Simpler
rational remedies are available. But not in the spirit of the second
amendment.
Indeed, it is precisely because it is necessary to reform existing
institutions without any further delay that we have to ensure they do
not now, at this critical juncture, move in the opposite direction. It is
easy to take the cynical view that nothing can prevent our international

institutions from going the way history's dinosaurs have gone. Why
worry? "Apres moi . . . ," and so on.
On the part of my country, we would not wish to take such a
self-defeating view. Time, critically short as it is, is still available, and
we would hope that there will be yet serious re-thinking on the part of
the international community, even as the second amendment receives
the necessary endorsement of member states.
The critically short time has to be seized while it is there. It imme-
diately means two things. First, genuine and meaningful compensatory
financing which not only takes into account the export price shortfalls
in relative terms but also the optimum need to acquire the critical range
and quantum of imports of what may be described as a developing
country's critical import development basket. It is totally misleading to
measure the escalation of the prices of such a group of imports by
referring to the index for manufacturing goods. The actual movement
of prices of plant, machinery, spares, technology, technical services,
and shipping, compounded by the specialized intervention of financing
houses, tell an extremely grim story.
No international mechanism could ever have been intended to ensure
that surpluses be earned by all members at one and the same time.
Indeed, if the advice and the admonition given by the IMF were to be
complied with by all members in accordance with their respective opti-
mum capability, we would still be left with vast disparities of economic
gains and losses in actual performance. Such a result would lack both
equity and justice for the simple reason that historical accumulation of
capital and technology and control over markets, combined with mili-
tary supremacy in the hands of the few must necessarily yield grossly
uneven results.
So, if we must speak meaningfully of an adjustment process, it is
absolutely essential to supplement the admittedly essential efforts of
the individual societies with a very deliberate sustained international
mechanism for compensatory financing to bring about the necessary
balance. If the world community cannot control, create, and direct
world liquidity purposefully to deal with this fundamental historical
disequilibrium then we have failed to move toward a new economic
order.
If there is to be conditionality it has to be subjected to those in
whose hands liquidity continues to accumulate through gravitation. . . .
The whole global process of decision-making, affecting so many
millions without any effective voice, has contributed now to the creation
of the Fourth World. This group of world citizens is without any hope
of being effectively heard.

Tanzania belongs to this Fourth World. We, at home, are not run-
ning away from taking hard decisions. Indeed, what we are deliberately
endeavoring to do could make many governments lose office. We will
continue to take hard decisions—cutting expenses, depriving ourselves
of bare necessities even, so that we can maintain the momentum of
development. In this effort we continue to be helped by progressive
forces all over the world. Many enlightened governments have accepted
the bona fides of our people in attempting to make ourselves self-reliant.
This group of cooperators has been recently joined by progressive oil
producing countries who are giving us their sympathetic attention. We
deeply appreciate this help.
But in the final event, we must stand or fall by our own efforts. That
is not the issue, however. The issue is whether the environment encir-
cling us will allow us to make the magnitude of adjustment called for.
Stability will not be achieved on rhetoric. These Annual Meetings
must not be allowed to be rituals. Rituals are attractive and even more
romantic when they have stood the test of time. That test is now
upon us.
STATEMENT BY THE GOVERNOR OF THE FUND

AND BANK FOR LUXEMBOURG
Jacques-Francois Poos
The Annual Meetings of the Fund and the Bank provide an oppor-
tunity for the monetary and financial authorities of more than 120 coun-
tries regularly to review the world economic situation and to discuss the
great problems that arise in the field of international economic and
financial relations. Our meeting this year is taking place in a slightly
more optimistic climate than that of the previous two years, for the
economic situation is on the road to recovery following the most serious
recession the world has known since the 1930s.
The Annual Report of the Executive Directors of the Fund estimates
that the volume of world trade expanded in the first half of 1976 by
about 10 per cent, compared with a contraction of some 4-5 per cent
during the year 1975. Generally speaking, this recovery in world trade
is benefiting both the raw materials and energy exporting countries and
the exporters of manufactures. It should appreciably improve the
export earnings of a number of developing countries and thereby reduce
their balance of payments financing needs. It must, however, be borne
in mind that this general trend masks numerous sectoral or regional

GOVERNOR FOR LUXEMBOURG 153
problems as a result of which the economic situation has not yet

improved to the same degree in all countries.
Luxembourg's economy, heavily dependent on the iron and steel
industry, is still suffering from the adverse effects of large surplus pro-
duction capacities at the world level. The recent economic crisis has
demonstrated once again the basic importance of international consul-
tation in this highly capital-intensive industry. My Government there-
fore supports the initiatives of the Commission of the European Com-
munities in this field—initiatives which should be supplemented by
consultation among the leading steel producing regions of the world.
In the present economic situation, we observe with concern the
development of protectionist practices and exchange restrictions, meas-
ures which strike hardest at the countries oriented toward the export of
industrial products, which as a result are no more than marginal sup-
pliers in relation to local producers, who frequently receive preferential
treatment. The Fund's Annual Report confirms that most countries
have avoided adopting general import control measures. But this does
not mean that new protectionist measures are not present in many
countries. Moreover, as the Fund's Annual Report brings out, many
countries have also, in order to sustain their exports, adopted certain
measures, such as subsidies, tax relief, preferential financing facilities,
and export and exchange-risk guarantees, which obviously distort com-
petition and which usually operate to the disadvantage of the small
countries. My Government therefore fully supports the efforts of the
Fund directed at avoiding the introduction of protectionist measures
and at maintaining healthy competition in international trade.
The short-range economic prospects of most countries are dominated
by the simultaneous persistence of very high unemployment and very
high inflation.
Recent experience has unfortunately shown that the classical instru-
ments of regulation of demand, of monetary policy, even of price con-
trol, are inadequate to win the battle against employment and inflation.
Analyses by eminent economists have, moreover, demonstrated the
growing importance of the structural causes of inflation.
Thus, the report of a panel of experts under the chairmanship of
Mr. Maldague, Belgium's Planning Commissioner, prepared at the
request of the European Commission, calls on governments to attack
the real causes of inflation, such as social inequities, misdirected public
expenditures, lack of planning of multinational corporations and failure
to dovetail them into national systems, and so on. The great merit of
this study is that it repudiates the superficial explanations of the

phenomenon of inflation, such as the famous "wage-price spiral," and

goes to the very roots of this evil.
Henceforth, combating inflation will mean reviewing and adapting
our development model, our way of life, our intersectoral relations. In
order to create a pattern of less futile and less ostentatious consump-
tion, and to foster the satisfaction of collective, cultural, and qualitative
needs at the expense of purely quantitative consumption and demands,
we shall have to shorten the income pyramid, improve the quality of
life, protect and better inform consumers, combat waste, and so on.
The fight against inflation will, moreover, call for strict organization
of competition: it will be necessary to avoid prices being fixed by the
most powerful producer by reference to the costs of the least efficient
enterprises. To this end, price control at the world level should focus
on the multinational corporations. Following the example of what is
done in my country, should not the announcements of increases in the
prices of certain key products be generalized? This presupposes the
setting up of an international supervisory and decision-taking authority,
and we are a long way away from achieving that, even within groups
of countries with common objectives, such as the European Economic
Community.
Yet galloping inflation, combined with a high rate of unemployment,
threatens to undermine the bases of our economies to such a degree
that we must delay no further in undertaking the necessary effort of
rethinking and in embarking on the required structural reforms.
Pending elimination of the structural causes of inflation, the countries
of the European Community have adopted a medium-range strategy
consisting in setting precise goals for economic growth, employment,
and price stability, and in enlisting the social partners in the implemen-
tation of this policy. In Luxembourg, the Government has patterned its
policy on this same strategy, and thanks to very close cooperation
between the public authorities and the social partners, the rate of total
and partial unemployment did not rise above 1.5 per cent in 1975,
whereas industrial production fell by 22 per cent from the previous year.
The rate of increase of prices has slackened somewhat, to below
10 per cent at the end of the first half of 1976.
But the results of national efforts to bring order into the economy
are obviously greatly influenced by international factors. In that con-
text, international monetary and financial relations, and the develop-
ment problems of the majority of the countries of the world, play a
special role.
In the last few years most countries have incurred balance of pay-
ments deficits of an unprecedented magnitude as a result of the accel-

crated inflation and economic recession, aggravated by a simultaneous

marked increase in the prices of oil products. The industrial countries,
on the whole, were able to improve their balance of payments position
in 1975; however, the same is unfortunately not true of the non-oil
developing countries, which incurred a deficit on the order of $51 billion,
of which $37 billion was accounted for by the least developed nations.
The most perverse effect of the severe economic crisis of 1975 has thus
been to further lower the standard of living of the poor nations. The
situation of these countries can nevertheless be expected to improve in
1976, especially as a result of the increase in their export proceeds.
The main characteristics of the new exchange regulations adopted at
the Jamaica meeting are the freedom of choice that countries are given
with regard to their exchange rate regimes, the flexibility of the mech-
anisms for adapting to changing conditions, and the surveillance of
exchange rate policies by the Fund. In general, these characteristics
have made it possible to shield the international monetary system from
excessively violent disturbances or aggressive devaluations. Despite firm
intervention by the monetary authorities, however, erratic exchange rate
fluctuations have occurred in some cases, especially with certain
Common Market currencies. While this situation was successfully
coped with, thanks partly to the solidarity among Common Market
members, reflected in particular in the floating of Community loans for
the benefit of Italy and Ireland, efforts to stabilize exchange relations
among the nine countries have so far unfortunately not been crowned
with success. Past experience has shown that the achievement of this
goal is strongly dependent on restoration of internal economic equi-
librium in the countries concerned; it is thus a medium-term goal.
Nevertheless, my Government continues to believe that the return to
greater stability of exchange relations in the world must remain a
high-priority goal of the Fund's member countries and that the estab-
lishment of regional zones with exchange rate stability contributes to
achievement of this goal. From this point of view, the European snake
certainly plays a positive role, both on account of the beneficial effects
it has on trade flows among participating countries and the constraints
the system imposes with regard to budgetary and domestic monetary
discipline.
In the same context, the mechanism of the dual exchange market of
the Belgian-Luxembourg Economic Union has made it possible to
absorb effectively the repeated internal pressures inevitably generated
within the system by speculations on an increase in the exchange rate
of the deutsche mark.
On the whole, the experience of the last few years has amply demon-
strated the soundness of this provision of the new Article IV of the

Fund's Articles of Agreement on exchange rate obligations, which

prescribes that members shall endeavor to direct their economic and
financial policies toward the objective of fostering orderly economic
growth with reasonable price stability. In short, exchange rate stability
can be attained, not by intervening in the exchange markets or impos-
ing exchange controls, but by correcting and stabilizing domestic
economic conditions.
The understandings reached in Jamaica with regard to exchange
arrangements can thus be regarded as the most appropriate under
present economic and political conditions, and the same applies to the
agreements reached on provisions for expanding the Fund's credit
facilities.
Since 1974 the oil facility has played an extremely important role in
financing the balance of payments deficits arising from the oil price
increase. Luxembourg has, moreover, considered it important to par-
ticipate in the Interest Subsidy Account which was established to reduce
the real cost of the oil facility to those less developed members regarded
by the United Nations as most seriously affected.
Given an increased demand for the Fund's resources, partly due to
the fact that some countries have attained their private debt ceiling,
it is obviously of particular importance that the currencies of all sur-
plus countries should be usable in Fund operations. My Government
therefore approved a first drawing in Luxembourg francs, which was
effected last August, and we shall likewise be prepared to honor any
similar obligations that may arise in the future.
During the coming months the problem of how to finance their
external deficits is likely to remain a major cause for concern in many
countries.
The mechanisms of the international financial markets, especially of
the Euromarkets, have proved to be useful and effective channels for
such deficit financing. This should continue to be the case in the future,
provided that both the financial establishments and the competent
authorities continue to safeguard the stability and security of these
markets. In this respect, Luxembourg favors the creation of a system
of international risk centralization and greater cooperation among the
competent authorities, with a view to safeguarding the dynamism and
flexibility of operation of these markets.
Furthermore, the question of international liquidity must be con-
sidered from every aspect, including the impact of increasing the
volume of reserve currencies, as well as the role of the SDR and gold.
In this respect there have been doctrinal controversies over the
importance of the multiplier effect of Eurocredits. Only a more precise

study would in all likelihood permit a more accurate understanding of

this phenomenon by placing it in a world-wide political setting.
The last section of my remarks will deal with the special position of
the developing countries and the activities of the World Bank.
The figures I quoted earlier with regard to balance of payments
disequilibria show that the countries facing the most difficult problems
at the moment are the group of developing countries, and in particular
the least developed countries.
The Fund's expanded credit facilities have certainly served largely to
assist these countries. The Trust Fund receiving the profits from the
sale of part of the Fund's gold holdings should also provide additional
assistance. However, this will require a procedure for selling this gold
that is sufficiently flexible to take account of developments on this
specific market, as otherwise there is a risk that the additional resources
of the Trust Fund will be rapidly depleted.
Valuable though such short-term aid can be, the developing coun-
tries require more lasting transfers of resources from the rich countries.
This whole subject is currently being discussed in the North-South
dialogue, and we are very pleased that this dialogue has recently been
resumed. My country, as a member of the European Community,
played an active role in the conference during the first half of this
year, and had the honor of supplying one of the two joint chairmen of
the Commission for Financial Affairs of the Conference on Inter-
national Economic Cooperation. Thus, Luxembourg was able to give
proof of its awareness of the problems facing the developing nations,
particularly those most seriously affected.
In seeking to establish a New International Economic Order, there
is a need to modulate the different formulas for development aid to
take account of the situations of the various groups of countries and
their needs and potentials. Efforts should be made in this spirit to
resolve the issue of external debt, which was the subject of a resolution
at UNCTAD IV in Nairobi. In the same spirit, we must endeavor also
to increase the volume of official development assistance and at the
same time to channel a larger share of this increase to the countries
facing the greatest difficulties. In the same spirit again, steps should be
taken to facilitate access to capital markets for countries that are suffi-
ciently creditworthy and to promote direct investments under terms that
respect national sovereignties, while at the same time providing reason-
able assurances as to the safety and protection of the capital invested. . . .
While Luxembourg's official development assistance has not yet
reached 0.7 per cent of GNP, as is the case with such countries as
Sweden and the Netherlands, my Government is endeavoring to step

up its effort substantially. Thus, above and beyond the efforts I have
already referred to, and various initiatives of a bilateral nature, it is
prepared to consider participating in the various regional development
banks. In this context, I should like to indicate to these banks that it
would be to the benefit of all concerned if their minimum quotas
could be adapted to take account of the true capacities of small coun-
tries to contribute funds.
In concluding these remarks, it only remains for me to express the
hope that this meeting will strengthen international monetary and finan-
cial cooperation and that we shall be able in 1977 to approach the
targets of stability and development that we have set for ourselves.
STATEMENT BY THE GOVERNOR OF THE BANK FOR SINGAPORE
Hon Sui Sen
May I first join my fellow Governors in expressing our gratitude to

the Government and the people of the Philippines for the warm hospi-
tality extended to us and to congratulate the Government for their
magnificent convention hall and the excellent arrangements and facilities
they have provided for this meeting. I would also like to join in the
welcome extended to Papua New Guinea and the Comoros.
We are meeting this year in a relatively improved world economic
situation and outlook. Economic recovery is well under way in the
industrialized world and inflation has been reduced below double-digit
levels. However, we remain concerned that inflation, though moderated,
is still at a high level. The non-oil developing countries continue to
experience grave balance of payments difficulties which seriously aggra-
vate their debt problems. Concern over this situation has spread from
official circles to the private multinational banking community with
disquieting undertones in international capital markets.
The Bank and the Fund both are confronted with the more immediate
and urgent problems of the very poor countries in the developing world.
They have increasingly concentrated their attention and resources on
the financial and development problems of this large group of developing
countries. This approach is not unnatural, and we are all in sympathy
with this order of priority, which has the objective of bridging the gap
between the rich and the poor countries. However, in the process of
assisting the very poor developing countries, we fear a tendency by both

GOVERNOR FOR SINGAPORE 159
the Bank and the Fund to lose perspective altogether on the special
problems facing the middle-income developing countries. It would be
unfortunate if the encouraging growth and development of these coun-
tries in the recent past were to be undone.
Last week I was privileged to share in the deliberations of the Com-
monwealth Finance Ministers in Hong Kong. Our spokesman, the
Minister of Finance of Canada, Mr. Macdonald, has already spoken
of the anxiety of the Ministers over the plight of the poorest developing
countries. Concern was expressed that many developing countries have
had no improvement in living standards in the 1970s, with some even
experiencing a decline.
There was also recognition given to the middle-income developing
countries, with Ministers calling on international financial institutions
to "pay due regard in their policies and programs to the special problems
of the middle-income developing countries particularly the small and
resource-poor island economies, and not to rely exclusively on a calcu-
lated per capita income criterion in determining their resource needs
and eligibilities."
It was reassuring, therefore, to hear President McNamara in his
opening address devoting attention also to the problems and solutions
facing the group of middle-income developing countries to which
Singapore belongs. In its realism and depth, his analysis of the problems
and issues facing the middle-income developing countries has broad
relevance for Singapore. I note, for example, the finding of a World Bank
study that the manufactured exports of the middle-income developing
countries are likely to grow at a much lower rate of 10 to 11 per cent
over the next ten years, compared to the 18 per cent in the decade
ending 1974. I would like to draw particular attention to, and strongly
support, his recommendation that developed countries should liberalize
developing countries' access to their markets with a definite program
over the next ten years. That developing countries may expect an in-
crease in export earnings of $30 billion annually from the elimination
by developed countries of tariff and nontariff barriers lends strength to
his recommendation. I hope progress in this direction will be seen in the
multilateral trade negotiations.
In contrast with this enlightened economic evaluation, I am dis-
appointed to note, in some areas of operations of both the Bank and
the Fund, the increasing use of convenient but misleading criteria, such
as per capita income and foreign reserves instead of a technical evalua-
tion of individual developing countries' special problems and circum-
stances. I view with concern, for instance, certain suggestions made in
the Fund and the Bank that Singapore is more developed than develop-

ing, based on the mechanistic use of the per capita income criterion.
This is too simplistic an approach, reflecting a lack of appreciation of our
special circumstances when determining our eligibilities and obligations.
Insufficient consideration has been given to the small physical size and
the poverty of resources of Singapore's island economy, its very open
economic structure and its great dependence on external markets and
imports of food, energy, raw materials and capital goods, and foreign
investment and technology. The Fund and the Bank should recognize
that in these circumstances there is little margin for error and no
agricultural and natural resource buffers to cushion the economy against
economic shocks such as have occurred during the last few years.
Although we have done well enough in the past, there is unfortunately
no guarantee of continued growth in the future unless we remain always
adaptable and competitive in an increasingly restrictive world environ-
ment. I would like, in this respect, to urge the Fund and the Bank to
use more effectively the technical resources of their area economics
departments to provide a proper technical evaluation of their member
countries instead of uniformly and rigidly applying misleading, though
convenient, rules of thumb in their assessments.
Turning to matters related to the reform of the international monetary
system, while we must accept what progress is possible, we cannot help
but view with some skepticism the practicality of a number of features
embodied in the second amendment of the IMF Articles of Agreement.
In particular, the future role of gold and other reserve assets and the
establishment of a code of conduct with effective Fund surveillance
remain uncertain and are left to evolve over time. Gold in official hold-
ings valued at market prices remains a large proportion of international
liquidity. The monetary role of gold in Fund operations has been
eliminated without providing assurances that SDRs will in practice be an
appropriate and acceptable substitute for gold in terms of improved
reserve asset characteristics and availability. In practice, reserve cur-
rencies continue to dominate the use of international liquidity. The
stability of the international monetary system remains closely tied, as in
the past, to the fluctuations of the economies of reserve currency centers.
Floating exchange rates have introduced some flexibility, but it remains
to be seen whether the Fund can exercise effective surveillance over
countries whose actions have wide international repercussions.
In conclusion, I would like to commend the Bank and Fund for the
lucid and thorough manner in which their Annual Reports were prepared
for the meeting.

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FIFTH JOINT SESSION1
STATEMENT BY THE GOVERNOR OF THE BANK FOR NEPAL
Bhekh B. Thapa
It is my pleasure to address the joint Annual Meetings of the Inter-

national Monetary Fund and the World Bank in this beautiful capital
city of the Philippines. On behalf of my delegation, I extend heartfelt
thanks to the Government and the people of the Philippines for the
hospitality and courtesy with which we have been received and for the
excellent arrangements made for the meeting. We are grateful to His
Excellency, the President of the Philippines, for his inspiring and
thought-provoking address.
It appears as though we are meeting for the first time in recent years
amidst signs of improving economic health in many parts of the world.
The world economy has shown slow but sure signs of recovery. The
inflation, though still continuing at an unacceptable rate in many coun-
tries, is by and large more manageable today than two years ago, and
the recession in industrialized countries with its adverse consequences to
world trade and economy is turning toward recovery. Even the develop-
ing countries taken as a group appear to have been able to achieve a rate
of growth in their gross domestic product which is respectable. These
conclusions can, however, be misleading. If, on the one hand, the
economy of the industrialized world has yet to gain vitality in order to
measure up to the growth rate of a decade ago, on the other hand, the
cost of even the modest growth to the developing world has been
abnormal: mounting indebtedness, huge deficits in current accounts, and
financial stringency. Much worse is the situation when we consider the
case of the least developed among the developing countries. Here, in
many cases, the economy has failed to register even nominal growth
in per capita terms. As a result, over the last ten years, the disparity in
per capita incomes has continued to get wider, not only between the
developed countries and the developing world, but among the develop-
ing countries themselves as well. As is clear from Mr. McNamara's
1
October 6, 1976.
161

statement, while the average income in the middle-income developing

countries was 4.8 times higher than in the poorest countries in 1965,
it is 6.3 times higher in 1975. Therefore, as my sovereign, His Majesty,
King Birendra, pointed out in Colombo six weeks ago, "The problem of
economic imbalance between the developed and the developing countries
is an acute world problem. But no less acute seems the problem of the
imbalances which prevail in the ranks of developing countries them-
selves."
It has been reported that during 1975 there has been an improvement
in the transfer of resources to developing countries; net disbursement—
on account of official development assistance—increased from 0.34
per cent to 0.36 per cent of the gross national product (GNP) of the
member countries of the Development Assistance Committee and the
total flows of resources amounted to a little over 1 per cent of their
combined GNP. This may be a welcome development in overall resource
flow. But the flow with concessionary element having increased only
nominally, the least developed and poorest countries have little to
cheer about. That the commitment of International Development
Association (IDA) credit in real terms this year fell short of the com-
mitment of the previous year warrants some sober thinking on the part
of all of us who are assembled here in the fulfillment of a common cause.
I need not elaborate that, should this trend continue, the economic
imbalance may get unmanageable, forever subjecting the people in the
least developed and poorest countries to an inhuman living standard.
Replenishment of the soft-term funds of the multilateral institutions is
therefore a matter of special concern to us. I take this opportunity to
urge the member countries of the industrialized world to fulfill their
pledges for the Fourth Replenishment of IDA funds as soon as possible.
Even more important, however, are the negotiations on the Fifth
Replenishment of these funds. I hope that these negotiations can, indeed,
be completed by March next year, so that IDA operations can continue
without any disruption when the current committing authority comes to
an end a few months from now. After many years of cooperative efforts
in this forum and others, such as the United Nations General Assembly
and the United Nations Conference on Trade and Development, we
cannot tolerate a prospect of drying-up of concessionary financing when
the need is one of expanding it considerably. It is unfortunate that the
achievements of our own Development Committee in exploring potential
sources of finance and establishing ways and means for the increased
flow of resources have met with little success so far. Nevertheless, given
the basic understanding and good will that exist amongst us all, there
is no reason why we cannot hope for better results in days ahead.

GOVERNOR FOR NEPAL 163
Turning now to an important development concerning international

assistance to my own country, I am gratified to inform you that a meet-
ing on coordination of development assistance to Nepal, convened by
the World Bank, is to be held in Tokyo toward the end of this year.
I am looking forward to the opportunity of sharing with the representa-
tives of many donor countries and agencies ideas and information on
Nepal's development strategy and resource needs in the course of that
meeting. Nepal not only seeks increased external assistance but, more
importantly, it wants to use such assistance in an effective manner in the
attainment of its development goals. We therefore expect that a per-
manent forum will emerge where we can better coordinate the efforts
of my own Government with that of others associated with Nepal's
development programs. Nepal, which has a rather short history of
economic development efforts, has now come of age in respect of its
ability to manage programs of economic development. It is therefore
at an opportune moment that this forum is coming into being.
Turning now to the monetary issues, reform exercises have still to
go a long way toward establishing a new world economic order. Contrary
to hopes, the long protracted negotiations in the Interim Committee and
the deliberations made and agreements reached in Jamaica, though help-
ful, have not yet been able to bring about a turning point in the monetary
history of the world. However, the decision to enlarge the credit tranches
and to establish the Trust Fund should be regarded as a positive step.
The various facilities of the Fund, including the extended Fund facility,
are designed to accommodate the needs of the member countries. But
the stringent conditions attached to these do not give a sense of com-
fort. The constraints which the member countries now face and will
continue to face in the future make it necessary to determine a better
way of helping them, including the liberalization of the conditionality of
purchases in successive credit tranches and under the extended Fund
facility. Here too, special attention to the needs of the least developed
among developing nations is called for.
We consider the making of an explicit provision for greater flexibility
in members' choice of exchange rate arrangements a positive outcome
of the Jamaica meeting. We believe that the management of exchange
rates should be carried out under the direct surveillance of the Fund
and the conditions should be laid down. Both the developed and devel-
oping countries should cooperate fully to avoid the "beggar-thy-neighbor"
attitude, with an aim of achieving a stable domestic system. However, as
the developing countries are in the "price stability versus growth"
dilemma, they should be provided with some leeway in their choice.

The Trust Fund, another outcome of the Jamaica meeting, would,

it was hoped by the members, lessen the existing balance of payments
problems of the developing countries with the profits from the sale of the
Fund's gold. But obviously, the accepted arrangements will favor the
big quota countries more. It is estimated that, even taking into account
the restitution of the Fund's gold to member countries and the benefit
accruing from the Trust Fund, the gold arrangements would raise the
reserves of the Group of Ten by more than $60 billion, while only
about $7 billion would accrue to the developing countries taken as a
group. The new resources may make the developed countries feel that
there will be no need for creating additional liquidity. Such a situation
will greatly diminish the jurisdiction of the Fund over the management
of international liquidity. In particular, this will adversely affect the
decision on the creation and allocation of special drawing rights. This
might retard the growth of global liquidity. The agreed objective of
promoting the special drawing right as the central reserve asset of the
reformed system will also be deterred. Therefore, for an equitable
distribution of additional liquidity among the members of the Fund,
more effective arrangements should be introduced into the international
monetary system to meet the liquidity and resource needs of the devel-
oped and developing countries adequately.
Before I conclude, I have great pleasure in joining other fellow
Governors in welcoming the Comoros and other new and prospective
members. Every year, we have been pleased to welcome new members
to this community. At the same time, it is the considered opinion of my
delegation that the distortion that has persisted in the representation of
China in the Fund and the Bank must be corrected as soon as possible.
My country fully supports the rightful claim made by the People's
Republic of China and urges that these august institutions should follow
the example set by the United Nations and other specialized agencies.
STATEMENT BY THE GOVERNOR OF THE BANK FOR PAKISTAN
Rana Mohammad Hani] Khan
Let me first associate myself with the distinguished Governors who

have preceded me to express my delegation's sincere appreciation to
the Government of the Philippines for making such excellent arrange-
ments for our meeting in this magnificent building as well as for their
warm welcome and generous hospitality. We will carry away with us
happy memories of our sojourn in this beautiful city. We have been
deeply impressed by the inspiring address by the President of the

GOVERNOR FOR PAKISTAN 165
Republic of the Philippines, His Excellency, Ferdinand E. Marcos, and

are most grateful to the First Lady of the Philippines for gracing the in-
auguration of this conference with her presence. I would also like to
join my fellow Governors in congratulating Mr. Witteveen on the
statement made by him which ably focused on the most pressing prob-
lems facing the world economy today. Mr. McNamara has given a
graphic picture of the bleak future facing the teeming millions living
in the poorest countries. We deeply appreciate his sincere and forthright
appeal to world conscience for saving a quarter of mankind from
degrading poverty.
The Annual Reports of the International Monetary Fund and the
World Bank offer a remarkably frank and objective assessment of the
main trends during fiscal year 1976, in economic, monetary and develop-
ment fields. Viewed in the context of the constraints in which they had to
operate, the initiatives taken and the contributions made by the two
organizations constitute solid achievements. However, these commend-
able efforts could only marginally alleviate the progressively deteriorat-
ing economic conditions of the developing countries.
The current account deficit of the non-oil developing countries which
amounted to $9.9 billion in 1973, escalated sharply to $28.4 billion
in 1974, and increased further to $37 billion in 1975. According to the
Annual Report of the Fund, the year 1976 is going to be another year of
large current account deficits for these countries of the order of about
$32 billion. The emergence of these huge deficits has given rise to a
grave problem of adjustment for this group of countries. Heavy borrow-
ing from abroad has raised their outstanding external debt and debt
servicing liability to an inordinately high level in relation to their gross
domestic product and current export earnings. The sharp rise in their
international indebtedness has the potentiality of seriously aggravating
their debt servicing problem. Notwithstanding large borrowings from
abroad, a number of developing countries had to run down their already
meager foreign exchange reserves in 1975 in an effort to sustain the
volume of imports needed for development and essential consumption.
Besides, the real value of their external reserves has been substantially
eroded by the continuing inflation in industrially advanced countries
which are their main sources of supply for imported goods. The severe
deterioration in the terms of trade suffered by the non-oil developing
countries and their balance of payments difficulties have exercised a
dampening effect on their growth rates.
It is now evident that, the crisis of the recent past has had its worst
manifestation in the poorest and the least developed countries, where a
large part of the world's population lives. In the last three years the

economic growth in these countries has not kept pace with increasing
population, resulting in total stagnation. It is now widely recognized
that the problems of underdevelopment, poverty, and inequality are
inherent in the international economic structure and mechanisms and
that, without drastic modification in the present world economic order,
the less developed countries cannot attain even a modest rate of growth.
The secular deterioration in their condition is mainly due to structural
inequities of the existing international economic order. The recent crisis
has demonstrated quite conclusively that the massive economic power
of the affluent countries and the inherent bias of the existing trade and
financial system in their favor enable these countries to easily shift the
burden of adjustment to the poorer nations. According to the Fund's
estimates, despite a number of internal and external adverse develop-
ments, the industrial countries have managed to bring about a marked
swing of some $29 billion in their current account balance of payments,
from a sizable deficit of $9.6 billion in 1974 to a big surplus of $19.4
billion in 1975, while, as I have already indicated, the current account
deficit of the non-oil developing countries continued to increase at a
rapid rate. The recovery of the industrialized countries from recession,
which is currently under way, is expected to bring a certain amount of
relief to the developing countries in 1976, but it cannot solve their
basic problems. The fact is that our countries are suffering, not on
account of certain ephemeral factors, but on account of the existing
international economic order operating relentlessly against them. While
the present system has brought unprecedented prosperity to the indus-
trial countries in the postwar period, the developing countries, as
eloquently pointed out by Mr. McNamara, have remained condemned
to an absolutely low standard of living. The global income inequalities
have continued to widen. In consequence, the developed market-economy
countries appropriate about two thirds of total world income, while
they have only about 20 per cent of the world population. On the other
hand, the poorest developing countries, with some 30 per cent of world
population, have only 3 per cent of world income.
The inequities of the present international order have been clearly
brought out during the course of discussions in the UN General Assem-
bly Special Sessions and the recently held UNCTAD IV. They have also
been forcefully delineated in the North-South dialogue in Paris. The
developing countries have put forward a number of suggestions to
reorient the world economic order in the fields of trade, finance, and
transfer of technology. Unfortunately, progress has been stalled by lack
of sympathetic response on the part of developed countries, and the
status quo with all its inequities continues to prevail. In the field of trade,

developed countries have continued to maintain trade barriers on goods

originating from developing countries in the form of tariffs, quotas, and
other measures. The tariff structures which discourage processing of
raw materials in developing countries have not been altered.
In the context of resource flows to developing countries, we are
pleased to note that the members of the Organization of Petroleum
Exporting Countries have continued to play a vital role. Commitments
from this group increased sharply from $1.5 billion in 1973 to $8.6
billion in 1974. During 1975, notwithstanding a substantial decline in
their current account surplus, their aid commitments rose further to
$9 billion. Disbursements also rose from $1 billion in 1973 to
$4.6 billion in 1974 and $5.6 billion in 1975, representing a substantially
larger proportion of their gross national product (GNP) as compared
with the traditional donors. The net flow of official development assist-
ance from the latter has shown very little rise in real terms since 1967,
and declined as a ratio of GNP of the member countries of the Develop-
ment Assistance Committee over almost a decade and a half from 0.53
per cent in 1961 to 0.30 per cent in 1973. It is gratifying to note that
some improvement has been registered in the last two years and that
official development assistance has now reached 0.36 per cent of the
GNP of the donor countries. However, this was considerably short of
the agreed target of 0.7 per cent and essential requirements of the
developing countries. The problem will not be solved through increased
reliance on market sources and private initiative, as this would lead to
mounting reverse flows and render the task of external debt management
even more difficult. For overcoming the present resource constraints of
the non-oil producing countries that are most severely affected, principal
reliance has to be placed on a massive increase in the transfer of public
resources on soft terms, and a significant proportion will have to be in
quick-disbursing form.
It is clear that, unless there is a fundamental reorientation of the
international economic order, the developing countries will continue
to face bleak economic prospects. The present system, with its built-in
tendencies to accentuate international inequalities and with its denial
to the less developed countries of adequate participation in international
economic decision making, could, in the absence of radical restructuring,
lead to recurrent crises. Indeed, not only the developing, but the devel-
oped countries also need a new order to ensure the continued growth
of their prosperity, which would increasingly depend on expanding
markets in the Third World. The long-term interests of the developed
and the developing countries are not incompatible, and it is not beyond
the capability of enlightened statesmanship to build a new dynamic and

equitable structure of creative partnership. Unfortunately, despite the

widespread recognition of the vital need to refashion the international
economic order, not much has been done to bring it about.
It is in this context that the Prime Minister of Pakistan has proposed
the convening of a conference of all the countries of the Third World
at the highest level to take stock of the situation with a view to devising
an appropriate strategy for resolving the stalemate that exists in inter-
national economic relations. It is most essential that no time should be
lost in averting a potentially disastrous confrontation between the
"haves" and the "have nots" and evolving a system of global economic
partnership to the mutual benefit of all nations.
While the basic problems of the developing countries await a proper
and durable solution, the World Bank and the International Monetary
Fund have tried to alleviate these problems through certain ad hoc
measures. The IMF oil facility, for example, provided valuable balance
of payments support for two years. It is unfortunate that agreement
could not be reached on its extension for a further period, though there
is a real need for its continuation for a longer period. However, a tem-
porary enlargement of access to Fund facilities has taken place through
the widening of credit tranches and a certain liberalization of the com-
pensatory financing scheme. The Trust Fund is also in the process of
being put into operation, though the magnitude of assistance from this
source is not very sizable. While we appreciate these measures, there is
need for more substantive action. In view of the fact that balance of
payments deficits of non-oil developing countries will remain sizable for
quite some time, there is a case for longer-term widening of IMF credit
tranches. The compensatory financing scheme needs to be improved
further. To make it of greater value, it is necessary that export shortfalls
be calculated in real terms. Very little use has been made so far of the
extended Fund facility, which is due to its rather stiff conditionality. It is
necessary that conditions governing its use be reviewed and made
more flexible.
A related problem to which the Fund should give greater attention
is the management of international liquidity. The growth in international
liquidity has been very unevenly distributed in recent years. After 1972,
the reserves of the vast majority of countries have shown little further
increase. In fact, as the figures given in the Fund's Annual Report show,
the reserves of non-oil developing countries did not show any net in-
crease between the end of 1973 and April 1976, though global reserves
increased by about 33 per cent in that period. The reserves of non-oil
primary producing countries actually decreased by SDR 0.4 billion in

1975 and the ratio of these countries' reserves to total reserves came
down from 16 per cent in 1973 to 13 per cent in 1975. In this context it
is necessary to give serious consideration to a fresh issue of special
drawing rights. The whole purpose of the SDR scheme is to help improve
the management of international liquidity and to avoid situations in
which reserve stringency leads to intensification of import controls and
other trade-destructive practices. Viewed in the global context also, a
situation seems to have arisen which calls for creation of SDRs to
supplement existing international liquidity. The ratio of world reserves
to world imports is considered to be a major indicator of reserve ade-
quacy or reserve stringency. Figures show that the ratio of world reserves
to world imports, which was 34 per cent in 1973, stood at 28 per cent
in 1975. In the case of non-oil developing countries, the ratio had gone
down from 34 per cent in 1973 to 23 per cent in 1975. A fresh issue of
SDRs appears to be warranted in such a situation and will help avoid
proliferation of restrictive trade practices which are beginning to mani-
fest themselves.
At the same time, in view of the highly skewed distribution of inter-
national liquidity and the desperate need of the developing countries
for additional resources, the possibility of establishing a link between
the allocations of SDRs and development finance should be reviewed. . . .
Now, I would like to draw the attention of my fellow Governors to a
matter that requires our serious consideration. We find that, in the
documentation of the conference, the delegation from Taiwan has been
shown as the representative of China. Please permit me to put the record
straight by referring to Resolution No. 2758 passed by the United
Nations General Assembly in its twenty-sixth session, which clearly
stipulated that only the People's Republic of China represents the great
Chinese people. The Resolution further decided, and I quote, "to restore
all its rights to the People's Republic of China and to recognize the
representatives of its Government as the only legitimate representatives
of China to the United Nations and to expel forthwith the representatives
of Chiang Kai Shek from the places they unlawfully occupy in the
United Nations and in all the organizations related to it." We would
strongly urge that action should be taken accordingly, and the lawful
rights of the People's Republic of China should be restored in the
International Monetary Fund and the World Bank.
In the preoccupation of the international community with the worst
postwar recession from which, fortunately, we are now recovering, the
fate of the developing countries has tended to be pushed into the back-
ground. Recovery, however, does not necessarily mean a lightening of

their burdens. If anything, their problems, some of which I have referred

to, have been further aggravated. We earnestly hope and expect that the
International Monetary Fund and the World Bank will take the lead in
helping to resolve their difficulties and making this interdependent world
a better place for all of us to live in.
STATEMENT BY THE GOVERNOR OF THE BANK FOR ICELAND
Matthias A. Mathiesen
It gives me great pleasure to join previous speakers in thanking the

people and the Government of the Philippines for the excellent arrange-
ments for this meeting and the gracious hospitality extended to us all.
Speaking on behalf of Denmark, Finland, Iceland, Norway, and
Sweden, I would like to make a few remarks related to the activities of
the Bank and its affiliates. At the time of our meeting last year there
seemed to be reason to believe that the international community had
recognized the pressing need for additional development assistance and
other measures to bring about more equitable relations between rich
and poor. The Seventh Special Session of the General Assembly, con-
vened at the same time as our Annual Meeting, recognized the need for
further action. Then we had the meeting of the United Nations Con-
ference on Trade and Development in Nairobi and we have the ongoing
North-South dialogue in Paris and the activities of the Development
Committee of the Bank and Fund, to name a few of the most important
international forums. And yet after more than a year of intense debate
we find to our disappointment—and more importantly at the cost of
lost opportunities for the developing nations—that there is no agree-
ment on concrete general measures to increase the flow of assistance.
At the same time there are even signs that official development assist-
ance is declining, expressed as a percentage of gross national product of
the developed world. . . .
STATEMENT BY THE GOVERNOR OF THE FUND FOR COSTA RICA
Bernal Jimenez M.
I am greatly honored to address the Annual Meeting of the Gov-

ernors of the International Monetary Fund as the representative of
Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, the Dominican
Republic, Ecuador, El Salvador, Guatemala, Guyana, Haiti, Honduras,
Mexico, Nicaragua, Panama, Paraguay, Peru, Trinidad and Tobago,
Uruguay, and Venezuela. On behalf of the Governors of those countries

GOVERNOR FOR COSTA RICA 171
and of the peoples of Latin America and the Caribbean, I extend

cordial greetings to the Chairman of this meeting, the Managing Direc-
tor of the Fund, and the delegations participating in this great meeting.
I join the distinguished speakers who have preceded me in thanking
the Philippine Government and the people, in particular His Excellency,
President Marcos, and the First Lady of the Republic, for the extraor-
dinary kindness they have been showing us. The common ancestry
which this beautiful country shares in so many ways with our region
makes us feel here as if we are in the great Latin American family.
Our main concerns at our meeting last year were the world-wide
recession and inflation. We are pleased to note today that the indus-
trialized countries made important progress on both fronts in 1976. As
a result of its own economic experience, Latin America understands
perfectly the dilemma posed by growth and inflation, and hopes that
efforts to resolve it will be characterized by a gradual approach so that,
while the struggle against inflation is not neglected, measures are taken
to assure that the economic recovery is solid and steady. In this con-
nection, although world trade has revived with the recovery, most
developing countries are only now beginning to feel the favorable
effects. In Latin America the growth rate was extremely low in 1975,
and will continue to be so in 1976. This means that the economic
recovery will not get under way until early 1977.
The slowing of the world's inflation rate has had a positive effect on
Latin America's economies. But it is even more important to note that
we have adopted decisive policies of adjustment, including internal
fiscal and monetary policies, with the result that the rise in price levels
has begun to slow down. In addition, a strong movement is under way
in the region toward application of more realistic policies in the areas
of prices, interest rates, and exchange rates; this should help to redirect
resources toward the external sector and to bring back historic rates
of growth.
On the other hand, the annual deficit on current account in the last
three years has been triple that of 1973. It is expected to reach about
$14 billion in 1976. To finance a deficit this large, it has of course been
necessary for the countries of Latin America to borrow on international
capital markets. It is indispensable that the developing countries have
adequate access to those markets if they are to alleviate their balance
of payments deficits. We therefore urge the industrialized countries to
improve the terms and conditions of access to their financial markets
and to eliminate the obstacles that still exist in some of them.
In his opening address, the Managing Director of the Fund recog-
nized that commercial banks have provided a valuable service to the
world's economy by facilitating the transfer of financial resources to the

deficit countries. With respect to the countries of Latin America, inter-

national banks have shown their confidence in our economic future by
extending loans that strengthen our ability to export. The banks grant
these loans after carefully studying the borrowing countries' economic
conditions and prospects. Their long experience and their pragmatic
view of our circumstances fully qualify them to make such studies.
Hence, we do not share the idea that commercial bank loans should be
linked to the Fund's contingent credit arrangements. We believe that
the Fund has specific functions in the balance of payments area; they
cannot and should not be confused with the complementary role of
development financing, which the modern international banking system
is fulfilling more and more effectively.
We believe that the International Monetary Fund in its financial
activities in recent years has met the major credit requirements of its
members by establishing the oil facility, slightly liberalizing compen-
satory financing, and temporarily expanding the credit tranches. The
greatest success of the Fund's financial policies has definitely been the
oil facility, thanks primarily to its flexibility and second to the fact that
it is not directly subject to the quota limit.
The recent liberalization of the Fund's compensatory financing was
another important step in alleviating the financial problems of the non-
oil commodity producing countries, just when the effects of the world
recession were beginning to erode their export receipts. Still, the vol-
ume of lending has not kept pace with the magnitude of the export
shortfalls. We therefore urge that this facility be further liberalized by
significantly improving the calculation process, expanding quota limits,
and making other temporary shortfalls directly eligible for financing—
among them shortfalls in income from tourism, which is a major item
of export of services for many of our countries.
In comparison with the expansion of the two facilities I have just
mentioned, the enlargement of the Fund's credit tranches has not pro-
duced the effects hoped for by the international economic community.
In our view the limited use of these resources is due to the excessive
conditions that were set, especially for the higher credit tranches.
Nor has the extended Fund facility been an effective mechanism for
channeling resources, in part because of its lack of flexibility and in
part because of the difficulty many countries are having in drawing up
medium-term financial programs in an uncertain world economic envi-
ronment. We think that this credit line could be a very useful tool for
attacking the financing and stabilization problems of the developing
economies; but, if this objective is to be achieved, the facility will have
to be made more attractive through a reduction in its conditionality.
In the meantime, we believe that the amount to which members can

have access must be increased in a manner similar to the temporary

expansion of the credit tranches.
While we recognize that the Fund has played an important role in
financing substantial balance of payments deficits in the last three years,
we fear that it may not have the ability to carry out financial policies
of similar scope in 1977. It is expected that the financial problems of
the developing countries will continue to be critical in the second half
of 1976 and in 1977. The balance of payments deficit on current
account of those countries is estimated at $29 billion for 1976 and at
$30 billion for 1977. This indicates that the strong demand in recent
years for Fund resources will continue through 1977. But there is less
possibility that the Fund will be able to meet these needs adequately,
in the absence of a parallel growth of its ordinary resources and in
view of the termination or substantial reduction of suitably large and
flexible special credit lines, such as the oil facility and compensatory
financing.
In this context, we understand that there should be a degree of con-
ditionality governing access to Fund resources in the present stage.
Latin America feels, however, that the conditions should apply equally
to industrialized and developing countries and, in any case, should be
adapted to world economic circumstances, taking account of the fact
that the demand for the developing countries' exports remains inade-
quate, that the adjustment undertaken by the surplus countries is still
incomplete, and that international liquidity is heavily concentrated in
a small number of oil exporting countries whose capacity for absorption
is limited.
Unfortunately, the status of the Fund's liquidity could prevent it
from meeting fully the foreseeable financial needs of the member coun-
tries. The relevant reports indicate that, with the usable currencies now
available to it, the Fund would barely be able to meet the foreseen
requirements of the raw material producing countries, yet an indus-
trialized country has recently applied for a large credit, and it is pos-
sible that others will also see themselves in need of turning to the Fund
to finance their balance of payments deficits. We therefore deem it
necessary that the Fund's ordinary liquidity be augmented, activating
the General Arrangements to Borrow in such a way that the needs of
the industrialized countries taking part in those arrangements can be
met. At the same time, we urge member countries that have not yet
made the necessary arrangements with the Fund to hasten the process
by which their currencies will be made usable, in accordance with the
commitments entered into when the decision on the Sixth General
Review of Quotas was adopted. The possibility of obtaining funds on
capital markets and from surplus countries could also be explored, and

the possibility of universalizing multilateral swap arrangements could

be examined.
Another area in which the Fund should expand its operations is the
financing of capital movements. It is well known that the industrialized
countries and some developing countries have large networks of swap
facilities. However, erratic speculative capital movements, divorced
from economic realities, do not occur only in industrialized countries,
for middle-income countries are becoming more and more susceptible
to disequilibria of this type. We think that the Fund should consider
granting short-term loans to offset these speculative capital movements.
The legal obstacles that exist in this matter could be overcome either
through interpretation or through the creation of special facilities
compatible with the Fund's Articles of Agreement.
Another matter of serious concern to Latin American countries is
the overall situation, the distribution of official reserves, and the inade-
quacy of those reserves in relation to present world economic condi-
tions. Total reserves rose during the last three years at an average
annual rate of about 10 per cent—far below the growth rate of inter-
national trade transactions which, in the same period, was close to
25 per cent. Total reserves increased by almost SDR 58 billion from
the end of 1973 to June 1976. It is interesting to note that only 4 per
cent of the increase was accounted for by the non-oil primary produc-
ing countries. This shows how little they have benefited from the
unusual expansion of world reserves.
As important as the relative inadequacy of global liquidity is the fact
that the growth of liquidity is accounted for primarily by increased
official holdings of reserve currencies. This is not consistent with the
principles adopted by the Committee of Twenty on this matter, which
called both for a strengthened role for special drawing rights and for
a gradual reduction in the role of gold and of reserve currencies in the
international monetary system. Thus, instead of gradually becoming the
principal reserve asset, the SDR has been losing ground in relative
terms; at present it constitutes only 4 per cent of total international
reserves.
From these considerations we conclude that corrective measures are
urgently required both to adjust total liquidity to the needs of the mone-
tary system and to assure implementation of the reforms to which I have
referred. If the role of the SDR is to grow in the future, a portion of the
new international liquidity that is created must be in the form of SDRs.
With respect to conditional liquidity, its inadequacy can be shown
by simply looking at the ratio of Fund quotas to world imports in
recent years. While the ratio averaged 10 per cent in the period

1950-60, it is barely 5 per cent today, despite the planned increase

under the Sixth General Review of Quotas. A comparison of these fig-
ures shows how inadequate the previous adjustments of Fund quotas
were, and how necessary it will be to correct the trend by substantially
increasing the quotas under the Seventh Review, on which discussion is
to be concluded by February 1978. We maintain also that the Seventh
Review must enlarge the role of the developing countries in relative
terms as well, so as to reflect their importance in the world economy; to
this end, the formulas used to determine the quotas of individual mem-
ber countries must be altered to take account of the weighting of the
different facets of their economies.
Turning to the reform of the international monetary system, while
we are pleased that the negotiations on the second amendment of the
Fund's Articles of Agreement have been concluded, we must acknowl-
edge that for Latin America the reform is incomplete. Since it lacks
provisions on convertibility or settlement in assets, contains no arrange-
ments for the creation or composition of international reserves, and
assures neither equity in the adjustment process nor the transfer or
institutionalization of real resources, the amendment fails to satisfy our
aspirations for a total reform of the monetary system.
The most important change introduced by the second amendment is
that relating to exchange systems, because it is the one that will most
affect the member countries' decisions in the area of economic policy
in the future and because it confers on the Fund new powers of surveil-
lance over the international exchange system. We are confident that these
new powers will be exercised evenly, for otherwise the Fund will run the
risk of producing untoward influences, contrary to the principle of
equality that must guide the adjustment process between industrialized
and developing countries and between surplus and deficit countries.
It is vital in our view that the policies governing supervision and
control of the exchange system now under study in the Fund be applied
to all members whether they have floating or linked exchange regimes
and with due regard to their individual circumstances. This means that
in its application of principles and in its surveillance over compliance
with obligations, the Fund will have to pay attention to the specific
conditions in the developing countries, since those conditions do not
significantly influence developments in exchange markets, and will have
to scrutinize and evaluate more thoroughly the exchange policies of
the industrialized countries that have a decisive impact on the world
economy.
It is encouraging to note that steps are being taken in the transitional
period to mobilize the Fund's gold immediately, with three auctions

having been held already, and that the first direct restitution will take
place next December. We further hope that the Trust Fund will make
its first loans to the beneficiary countries in 1977 and that in the same
year the Latin American countries will receive the direct transfers due
to them from the profits obtained by the Fund through sales of the metal.
We recognize, however, that the holders and producers of gold in
the area, as well as the beneficiaries of the Trust Fund, have been hurt
by the fall in the price of gold to which the auctions may have con-
tributed. Therefore, although the IMF, pursuant to the mandate of the
Interim Committee, must sell the gold over a four-year period, we think
it prudent to recommend that, in carrying out the mandate, the Fund
weigh the damage that an accelerated decline in market prices could do
to those countries' economies. The sales program should seek, on the
one hand, to maximize profits and, on the other, to refrain from damag-
ing the economic and financial situations of the countries concerned.
With respect to special drawing rights, the second amendment con-
tains a number of changes that could facilitate their use. Since the
policies governing their allocation have not been changed, however, the
creation of SDRs remains subject to the requirement of medium-term
inadequacy of global reserves. This is a criterion lacking in vision and
realism, for it ignores the needs for reserves of the developing coun-
tries. Moreover, since the limits on designation and reconstitution
remain in effect, so, basically, do the restrictive clauses governing the
use of SDRs. Thus, the changes made are much less important than
those not made.
In summary, of all the proposals with which we are concerned at this
meeting, the one which seems most important to Latin America is that
of a substantial increase in Fund resources. Our Fund will not succeed
in becoming the center of the monetary system or be able to carry out
its new functions effectively and fairly unless its resources are appre-
ciably enlarged by the Seventh General Review of Quotas. The worst
result would be a Fund diminished in its resources and stricter in its
surveillance and conditionality.
Latin America believes that, under the reformed system, the Fund
should exercise equitable surveillance of exchange regimes, taking
account of the particular circumstances of the developing countries, as
expressly recognized in the negotiations on monetary reform. We there-
fore reiterate our view that the Fund must establish practical mech-
anisms for promoting an adjustment process that is equal for all member
countries, regardless of their level of development or their balance of
payments situation.

GOVERNOR FOR AUSTRALIA 177
It is Latin America's view that the conditionality of the Fund must be

applied equitably to all countries, a basic guiding principle being that the
imposition of an excessively rapid adjustment on the developing countries
could prove detrimental to their minimum growth requirements.
The facts demonstrate that the countries of Latin America and the
Caribbean have made tremendous efforts to overcome the difficult
obstacles created by the world economic crisis of recent years. We have
courageously fought inflation and succeeded in maintaining growth
rates, preventing a retrogression that would have been a terrible pros-
pect for our peoples. We look toward the future with optimism, con-
fident in our ability to cope. But our success will depend to a crucial
extent on the cooperation and understanding that the international
community shows in the coming years.
STATEMENT BY THE GOVERNOR OF THE FUND AND BANK FOR AUSTRALIA
Phillip Lynch
We meet today in the capital of one of the developing country mem-

bers of the Fund and the Bank. It is an indication of how fast some of
those developing members are developing that the arrangements made
for this Annual Meeting by the Government of the Philippines have
been so efficient and so effective.
I welcome those members of the Fund and the Bank attending this
Annual Meeting for the first time. In that respect I think particularly
of our friend and neighbor, Papua New Guinea.
I also note with pleasure the presence here today of an observer
from the Republic of Seychelles, which will very soon become a full-
fledged member of the Fund.
Since the last Annual Meeting the course of the world economy has
not been without its difficulties. Member countries have experienced
lower rates of economic growth, higher levels of unemployment, and
higher rates of inflation than at any time since World War II. Balances
of payments have in many instances been out of equilibrium. A few oil
exporting countries have enjoyed notable surpluses. A few industrial
countries have achieved a sufficient adjustment so as to build up strong
balance of payments positions again. For most countries, however,
basic balances of payments have continued in excessively large deficit.
But despite—or perhaps because of—these difficulties, a great deal
of progress has been made during the past twelve months. There has

been progress toward reducing world inflation. There has been progress
toward restoring sustainable growth of the world economy, on the pros-
pects for which so much else depends. But above all there has been
progress toward a better understanding of our common problems and
toward the emergence of a remarkable degree of consensus about the
basic approach which has to be taken toward those problems.
Behind all these problems there has been a common thread—infla-
tion. It is inflation which has produced the fall-off in growth in the
developed countries. It is that falling off in growth which has produced
the unacceptably high levels of unemployment in those countries. It is
that falling off in growth which has also reduced the demand for, and
the prices of, the exports of the developing countries and has thereby
put their development programs at risk. It is inflation which has pro-
duced the continuing uncertainty and, at times, even turmoil in the
exchange markets. It is inflation, above all, that has now reduced the
policy options open to us. With the growing recognition of this central
role of inflation, policies have gradually begun to rebuild our earlier
shattered hopes. Although there is still a long way to go, rates of
inflation are now declining.
In association with that, and despite some slowing of the pace in
recent months, the industrialized economies are now growing again at a
moderate pace. So far from deploring that degree of moderation, or
voicing appeals for speeding up further the pace of recovery, we should
be expressing our satisfaction that the recovery is presently proceeding
at a pace which seems likely to be sustainable and that it now seems
likely to bring with it further benefits in terms of the slowdown of
inflation.
It is true that, although employment is rising, unemployment remains
deplorably high and seems likely to do so for some time, until the
continuing lift in our economies can begin to make inroads into it.
The economic problems of inflation, recession, and unemployment,
which most of us have been experiencing, have at least had one positive
benefit. They have concentrated all our minds upon the underlying
nature of those problems and the remedies which can appropriately be
applied to them. I say this against the background of the meeting of
the Interim Committee, the statements on the economic situation by the
Managing Director of the Fund and, to the Interim Committee, by the
Secretary-General of the Organization for Economic Cooperation and
Development (OECD), and the comments already offered by many
Governors.
What the Managing Director has said is—and I quote:
An important lesson of recent experience is that nothing could be gained by
combating unemployment through expansionary policies that would intensify

inflationary expectations. . . . restoration of a reasonable degree of price

stability will be necessary to establish a durable basis for better economic
performance.
In very much the same vein, the Secretary-General of the OECD has
said:
Except in the very short run, lower unemployment cannot be bought at the
cost of ever higher rates of inflation . . . what is required is relatively cau-
tious demand management policy aimed at achieving a moderate but sustained
expansion.
The communique of the Interim Committee, reflecting as it does a

general consensus of views of 20 members, in turn representing all
of the member countries of the Fund, came to this conclusion—and
again I quote:
. . . The Committee believes that in present circumstances the restoration of
a reasonable degree of price stability will be necessary to establish the basis
for sustained economic growth and the reduction of unemployment. Accord-
ingly, the Committee is of the view that policies in the industrial countries at
the present time should give priority to the reduction of price and cost infla-
tion. This would require fiscal and monetary policies in these countries that
would provide effective control over the expansion of aggregate demand. . .
Speaking earlier this year at a meeting of the OECD Ministerial

Council, Secretary Simon of the United States put it this way:
The policy errors of the past and our hopes for the future force us to recog-
nize a basic reality: inflation is the greatest threat to sustained economic
development and the ultimate survival of all our basic institutions. . . . If we
are to sustain the output of goods and services and reduce unemployment, we
must first control inflation.
I take heart from the fact that Finance Ministers from so many dif-
ferent countries, having such very different circumstances, have spoken
with virtually one voice in recognizing the basic reality of which Secre-
tary Simon spoke. This remarkable consensus on the appropriate poli-
cies to be pursued is in fact directly reflected in the domestic policies
of my Government. The present Australian Government came into
office at a time of unparalleled difficulties in both the domestic and
international economies. The futility of past efforts to lift the level of
economic activity by using the traditional methods of budgetary deficit
and monetary expansion had been clearly demonstrated. As budget
deficits increased and money supply expanded, what happened? Rates
of inflation increased, business investment slumped, consumption fell
away, balance of payments deficits grew larger, and unemployment rose
sharply and persistently.
Many things have not been properly understood about the workings
of the economic system in recent years. Among them is the way in

which continued high rates of inflation destroy confidence—the confi-

dence of the entrepreneur, the wage earner, and the consumer.
The Australian Government is convinced that, first and foremost, we
must pursue economic policies which will remove the destructive
assumption that inflation will continue or even progressively increase.
To destroy the inflation-recession syndrome we must reverse the poli-
cies of unbridled growth in government expenditures, unrestrained
budgetary deficits, and permissive monetary expansion. We must pur-
sue firm fiscal and monetary policies and, in the course of doing so,
recognize the vital role of the private sector. Capital must be allowed
to earn a return, and risk-taking and enterprise must be rewarded. At
first sight, policies of fiscal and monetary restraint which set our faces
against inflation, even though unemployment remains unacceptably
high, are not immediately attractive to the community. At such a time,
continuing emphasis upon policies designed to bear down upon inflation
has an appearance of harshness.
People are concerned—and rightly so—at the social effects of high
continuing levels of unemployment, including their possible longer-run
effects upon work attitudes. My Government shares those concerns.
But what we have all learned—and learned so painfully—over these
past few years is that in these inflationary times governments cannot
spend their way out of the unemployment problem. No longer can gov-
ernments buy less unemployment at the expense of higher inflation.
It is inflation which is producing the unemployment. Until we solve the
one, we will not solve the other. Governments can print money, and
over the years they have become only too used to doing so. But govern-
ments cannot print jobs. It is in part the continual yielding by govern-
ments to the incessant clamour for more expenditures by governments
in this area or that which has enfeebled our private sectors and reduced
their capacity to produce the jobs which are needed.
We are therefore embarked upon our present course of reducing
inflation because—whether we like it or not—it is the only way we
can set our respective economies back on the track of a sustained
improvement in their rates of growth and a sustained reduction in the
level of unemployment.
In the context of our debates in this and other forums, we have
heard a lot of late about the need for "political will" on the part of
governments. If there is one area in which political will on the part of
governments is important, it is in this area—of sticking to the only
policies which will, in the longer run, produce acceptable results.
Obviously, we cannot stop our inflations overnight, but a further—
and continuing—reduction in the rate of inflation is essential to sus-
tained growth and prosperity.

We must not be timid in our application of the fiscal and monetary

policies required to achieve this objective. For example, as the Fund
Annual Report has said:
. . . current rates of monetary expansion are still in double digits in most of
the industrial countries, and will need to be reduced considerably if a return
to reasonable price stability is to be achieved in the next few years.
In this and other respects we have to resist demands for a return to
the fiscal and monetary policy attitudes which are what, fundamentally,
have produced our present troubles. From the viewpoint of the inter-
national monetary system, also, this is all of the greatest importance.
We have spent a great deal of time over the past few years consider-
ing ways and means of reforming the international monetary system.
Some have been disappointed with what has been achieved. Initially,
some of us were looking for an outcome much more novel, much more
drastic, and no doubt very different from the Articles of Agreement of
the Fund we have known for so long.
In the end, a greater realism has prevailed and the revisions to the
Articles that members of the Fund are currently putting before their
legislatures are relatively modest in scope. So far from finding that dis-
appointing, I think that it is a credit to the process of international
consultation that, in the end, a kind of pragmatic common sense pre-
vailed. The monetary system of the future will not be the result of
legal or authoritarian dictates. It will evolve in accordance with the
needs of changing circumstances. I believe that the revised Articles
provide all the scope that is necessary at this time for such gradual
evolution of the system in the period ahead. I say this in part because,
basically, what has been wrong with the international financial scene in
recent times has had little to do with the system. What has been wrong
has been that, individually, in many many cases, we have let our
national financial situations get out of hand. We have sowed the seed
of domestic inflation and we have reaped the international whirlwind of
chaotic exchange markets and instability of exchange arrangements.
The fundamental importance of the internal economic balance to the
achievement of external financial balance has perhaps been recognized
most clearly in the revised Articles dealing with exchange rates. I make
particular reference to the introductory section, for which I believe we
have largely to thank our French and American colleagues. In that
section, the fundamental importance of internal stability to the achieve-
ment of external exchange rate stability is stressed. That, I believe, is
a basic truth. It needs to be more widely recognized, but it also needs
to be more widely acted upon.
The Fund is an institution which is intended to provide temporary
financial support to members in the event of balance of payments diffi-

culties which, by their nature, are not expected to be of long duration.

That is a vital role, but it is necessarily an essentially limited one. It is
necessarily limited because of the revolving nature of the Fund's re-
sources. There has, however, been a tendency in recent times for the
Fund to be asked to take on responsibilities which go beyond that role,
and to take on some of the character of an aid institution. That is a
trend which I believe should be resisted.
There are of course temporary and pragmatic exceptions. A case in
point was the oil facility. This was established at the time of the sharp
increase in oil prices which was imposed early in 1974. That action had
violent effects on the balances of payments of many—indeed most—
countries. A rechanneling of finance, through the Fund, from the oil
exporters to the oil importers, on rather longer terms than the Fund
would normally accommodate, helped to tide members over a difficult
transitional period. But we now have to accept that temporary financial
expedients of that kind must come to an end—and have indeed done
so. Higher energy costs are here to stay. What is needed is not finance,
but adjustment by the oil importing countries to higher oil prices.
In the same way, the Fund has been helping to finance balance of
payments deficits on a large scale over a period when inflation has been
rampant and balance of payments deficits for that and other reasons
have been severe. The time has now come, however, when the Fund
may have to apply rather stricter conditionality to borrowings by mem-
bers in the ordinary credit tranches. It may have to do that in any case
for internal reasons—and here I have in mind the problems of the
Fund's own liquidity.
Beyond that, however, the time has come for an approach to condi-
tionality that more closely matches our analysis of the fundamental
problem. The Fund, having recognized the fundamental importance at
this time of resisting inflation, has to have policies which effectively
encourage member countries to pursue policies directed to that end. We
now need more emphasis on adjustment of internal economic policies
and less on financing of external deficits. To the extent that countries
are successful in countering the internal forces of inflation, so are their
external financing needs likely to be reduced.
Until recently there would perhaps have been a tendency to suggest
that what I have been saying relates only to that one fifth or so of the
Fund membership which is commonly classified as developed—and not
to the four fifths or so other members who are classified as developing.
I believe such a view would be incorrect—and I also think that an
increasing number of the developing countries have come to the same
conclusion. Adjustment is in some ways even more relevant to the
economies of the developing countries than it is to the developed coun-

tries. This is so whether we consider long-term adjustment issues, such

as the reallocation of resources called for in response to higher energy
costs, or shorter-term issues, such as demand management policies. If
international aid is absorbed in financing, directly or indirectly, balance
of payments deficits in developing countries instead of building up a
resource base for their longer-term development, then the aid will be
seen to have been largely frittered away. In the long term, the financial
institutions and the donor countries will lose their enthusiasm for
providing aid on such a basis.
I say this in the spirit of concern and sensitivity that Australia has
always shown for the needs of the developing countries. My Govern-
ment is deeply concerned about the extent of absolute poverty that
exists within the developing nations and by the huge differences between
the incomes of those countries and those of the developed world. The
record shows Australia's aid performance as a particularly good one in
relation to that of other donors. Australia is also one of the few donor
countries which gives virtually all of its aid in grant form. This year,
despite the very difficult budgetary circumstances in Australia, we have
provided in our recent budget for real growth in our aid expenditure.
Our official development assistance this year will be in the order of
$0.5 billion—virtually all, as I say, in grant form.
We have supported appropriate improvements to the various finan-
cial facilities in the IMF, including the compensatory financing facility,
the extended Fund facility, the buffer stock financing facility, the oil
facility, the Interest Subsidy Account, and the IMF Trust Fund financed
by sales of gold held by the IMF. We have also contributed to the
Third Window facility of the Bank and to the recent replenishment of
the resources of the Asian Development Fund. We have indicated our
support for the International Fund for Agricultural Development. We
have supported these and other initiatives because they seem to us to
be practical and workable proposals which would result in a sensible
advance in the resource transfer effort and which were compatible with
basically maintaining the present international economic system.
In this, as in other respects, we believe that the preservation of the
essential elements of the present economic system continues to hold
the greatest hope for economic progress for us all. There must be a
sensitivity and responsiveness to the legitimate interests of the develop-
ing nations. There must be commitment to supporting those proposals
that will realistically assist the developing nations in the international
economic community. But the fostering of the illusion that redistribu-
tion of the world's existing wealth will resolve all problems serves no
one's interest. What is fundamental is soundly based international eco-
nomic growth. Equally important is the pursuit by developing countries

of domestic policies which foster enterprise and initiative. For example,

I do not find it easy to reconcile expressions of dissatisfaction with
growth performance, export prospects, and the outlook for the balance
of payments with the simultaneous pursuit of discouraging policies
toward private capital—whether from domestic or overseas sources—
which could help to resolve all these problems.
I state these propositions because, as my Prime Minister has recently
said, unless we do frankly say these things, then all of us run the risk
of raising unrealistic expectations which would inevitably be shattered.
Countries such as Australia, despite their own domestic economic diffi-
culties, can seek to maintain and expand the level of their development
assistance—and we have done this. But, in the end, it is undeniable
that the capacity of the industrial countries to aid the development
process—whether through the international lending institutions or in
other ways—has been weakened by the circumstances about which I
was speaking earlier.
Our first task is to deal with the inflation which has been undermining
our own economic performances and, in the process, undermining our
ability to perform in the aid fields also. The continuing pursuit of soft
policy options has led us to the point where we no longer have any
options. . . .
In these and other respects the tasks before us, both in the inter-
national monetary and international development fields are enormous.
The first essential for dealing with those—or any other—problems is
to get our analysis of them straight. I believe that, as a result of the
intensive and continuing dialogue we have been pursuing with each
other in the forums of the Fund and the Bank, and elsewhere, we are
now closer to achieving that than we have seen for many years. I hope—
and believe—that we can build further upon that in the year ahead.
STATEMENT BY THE GOVERNOR OF THE FUND AND BANK FOR JAMAICA
David H. Coore
I join with my colleagues in expressing deep pleasure and apprecia-

tion for the welcome we have received from the Government and the
people of the Philippines and the splendor of the setting that they have
provided for our meeting.
My remarks today will be confined to matters relating to the Bank
and I will be speaking not only on behalf of my own country, Jamaica,
but on behalf of my Caribbean colleagues in the Bahamas, Barbados,
Grenada, Guyana, and Trinidad and Tobago.

GOVERNOR FOR JAMAICA 185
Insofar as the non-oil developing countries are concerned, it is

indisputable that by and large their present situation is critical and
their immediate prospects dismal. World Bank studies indicate that
there has been a stagnation in the growth rates of the poorest develop-
ing countries and a small and inadequate growth rate in the middle-
income developing countries that are not oil producing. There is no
present indication that any significant improvement can be expected in
the near future. From International Monetary Fund studies we learn of
continued high balance of payments deficits on current account faced
by the non-oil developing countries at a level of $32 billion estimated
for 1976. There is no indication that these enormous balance of pay-
ments deficits will be declining in any significant way in the years ahead.
Due to the necessity for accelerated borrowings over the last three
years, particularly on short term, the debt service burden has increased
and will be approaching unmanageable levels in the next few years. As
President McNamara has pointed out, in the case of the middle-income
developing countries, interest payments on debt services will be increas-
ing from $5.2 billion in 1975 to some $12.5 billion in 1980. What is
even more serious is that debt amortization is projected to escalate from
a figure of $6.1 billion in 1975 to some $22 billion in 1980—three and
a half times the 1975 level. As a percentage of exports, debt service
will be increasing from 17 per cent in 1975 to 25 per cent in 1980. It
should be noted that this increase in debt service burden of non-oil
developing countries is a direct consequence of the adjustment process
they have had to make in the light of the increase in oil prices and the
increase in the cost of manufactured commodities and represents the
effect on the developing countries of the much-applauded recycling
process through private commercial lending.
At the meeting of the Committee of Twenty in Rome in 1974, I
pointed out that, in the absence of any mechanism specifically tailored
to the particular circumstances of the non-oil developing countries, the
impact of increased oil prices and the general rise in the prices of
manufactured goods would destroy their prospects for economic growth
and indeed jeopardize the maintenance of such development as had
already taken place. In the period since that time the oil facility and
the availability of commercial credit have ameliorated the situation but
it has not been cured. It has to be appreciated that, given the basic
weakness and the structural rigidities of the economies of most develop-
ing countries, the so-called adjustment process is more difficult and
takes a longer time than is the case with the industrial countries. . . .
We do also feel that the Bank can play a significant role in dealing
with external debt problems of developing countries. No development
finance institution can ignore the critical nature of the debt service

problem. The Bank does now play a useful role in its leadership of
debt consortium groups who provide assistance in debt management
policies of developing countries. The debt question has been the subject
of an UNCTAD IV Resolution and is being carefully examined in the
Paris forum of the North-South dialogue. We do feel, however, that
both the Bank and the Fund, which are involved in a practical and
operational way with debt matters relating to the developing countries,
should join in the search for appropriate solutions to alleviate the debt
service problem. My colleague, Governor Macdonald from Canada, has
spoken collectively for the Commonwealth countries on the consensus
reached at the recent Commonwealth Finance Ministers meeting in
Hong Kong on the subject of the International Development Associa-
tion, the need for a World Bank capital increase, and other matters
dealt with in the report of a Commonwealth experts group. We wish to
emphasize the Commonwealth Finance Ministers' view that inter-
national organizations should take the lead in bringing about a mean-
ingful consideration of appropriate debt relief to developing coun-
tries. We fully accept the distinction between official debts owed by
governments to governments on which political action could be taken
and private debts where private lenders are involved and there is need
to maintain confidence. The report of the Commonwealth group of
experts adumbrates a practical approach to both these categories and
we support its recommendations.
In addition, positive steps need to be taken to encourage an expand-
ing flow of longer-term private capital to those developing countries
that are not eligible for concessional funds. The suggestion has been
made in the Development Committee that the Bank might activate its
existing power to guarantee bond issues by developing countries. We
are also convinced that a separately funded multilateral guarantee
facility with voluntary contributions largely of callable capital admin-
istered by the World Bank could play an important role in stimulating
the flow of private capital to the threshold countries, namely, those
countries that are creditworthy, but are not well established on the
capital market. We hope that the Working Group on access to capital
markets will continue its search for a solution along these lines.
So far, I have been dealing with steps which we feel ought to be
taken right away and it is fair to say that there appears to be a reason-
able measure of agreement on these proposals among both the develop-
ing and the developed countries, although there may be individual
differences of emphasis and degrees of urgency. I would like, however,
to take this opportunity to look at the matter from a longer-term per-
spective. It is imperative that the Bank should begin to consider now a
strategy that goes beyond the exigencies of the immediate future. In

GOVERNOR FOR ISRAEL 187
this connection, I would wish to mention three areas which deserve

study at the present time.
The first area is the future role of the Development Committee. It
has been agreed that the Development Committee should continue for
the next two years as a joint committee of the Bank and Fund and a
program of work has been laid out for it. I think it is necessary, how-
ever, to begin now to consider how the Development Committee ought
to operate on a permanent basis so that when the time comes for
review in 1978, the preliminary work would have been done. It is our
view that the Development Committee ought to occupy the same posi-
tion in relation to the World Bank that the Interim Committee occupies
in relation to the Fund. We would therefore like to put up for consider-
ation the view that the Development Committee should become a
forum for discussions and decision at the political level of issues that
relate to the activities of the Bank, and that it should more and more
be used as a means whereby decisions can be taken at the political
level in between general meetings of the Board of Governors of the
Bank on matters related to Bank activities. We see this as an extension
of the concept that attained general acceptance at the last meeting of
the Development Committee held on Sunday, namely, that the Develop-
ment Committee's effectiveness is enhanced to the extent that it con-
centrates on limited and specific areas of activity. We would therefore
urge that this approach to the future of the Development Committee
be given careful consideration so that the ground can be well prepared
for a decision to be taken when the time for formal review of its
activities comes around in 1978. . . .
STATEMENT BY THE GOVERNOR OF THE BANK FOR ISRAEL
Moshe Sanbar
At the outset, I would like to express to our host, the President and
the Government of the Philippines, our admiration of the highly suc-
cessful arrangements made for this conference in this beautiful city of
Manila. I also extend a warm welcome to the new members, Papua
New Guinea and the Comoros.
The global repercussions of the economic events of the past few
years clearly point to a growing interdependence in the world economy.
This is amply evident from the whirlpool effect of the recent "recession-
cum-inflation." However, there have been major differences in the
severity of its impact on individual economies and considerable dis-
parity in their ability to recover from its effects.

Many of the non-oil developing countries—and my own country is

among them—are still attempting, with only limited success, to adjust
their economies to the changed situation. They are, for the most part,
still plagued by serious balance of payments difficulties, and their
debt-servicing problems have been aggravated. Most of them have been
hit not only by rising import prices, but also by the sharp decline in
their export earnings and by the need to borrow heavily in international
capital markets on hard terms.
The magnitude of these problems is forcefully reflected in the Bank
and the Fund Annual Reports, which we have before us. I wish to
express my sincere appreciation to Mr. McNamara, Mr. Witteveen, and
their staffs for these excellent Reports. They have presented us with both
a lucid analysis of the facts and a well-balanced discussion of the various
methods adopted by the Bank and the Fund to deal with the com-
plexities of the current situation.
To help its members cope with the grave economic problems con-
fronting them, the Fund has moved forward in a positive innovative
manner. In order to enable them to absorb the initial shock of sharply
increased oil and oil product prices, the Fund created the oil facility.
To this have been added the compensatory financing facility, the Sub-
sidy Account, the extended Fund facility, and the Trust Fund. In creat-
ing this array of instruments, the IMF has tried to meet the needs of
countries with different levels of development and of gross national
product per capita. For the initiative and flexibility it has shown in this
period of global economic disequilibrium, the IMF is to be highly
commended. . . .
The promotion of exports is the central target of Israel's economic
policy. We are trying to achieve it by a suitable foreign exchange policy
and a periodical devaluation of the Israel pound, reflecting the rate of
inflation in Israel relative to the rate in major countries we trade with.
In order to enable the transfer of resources to export industries, we
restrict local demand—especially private and public consumption—by
implementing strict fiscal and monetary measures. We also encourage
savings and capital formation from domestic sources. Nevertheless, the
Israel economy suffers from a high rate of inflation and serious diffi-
culties in the balance of payments. In the absence of sufficient develop-
ment loans from abroad, the rate of economic growth has considerably
declined in the last three years.
Despite the slowdown in economic activities, we have managed to
limit unemployment, and our income distribution may be considered
among the most egalitarian in the world.

GOVERNOR FOR YUGOSLAVIA 189
Last but not least, may I share the sentiments expressed by the
Chairman in his opening address for a just peace in the Middle East,
which will be a cornerstone for the economic and social prosperity of
the region as a whole.
STATEMENT BY THE GOVERNOR OF THE BANK FOR YUGOSLAVIA
Momcilo Cemovic
It is indeed a great satisfaction to hold our Annual Meetings this year

in such a hospitable and wonderful country. I wish to extend my grati-
tude to President Marcos, the Government, and the people of the
Philippines for the exceptionally favorable conditions surrounding our
stay and work in this city. Allow me, also, to take this opportunity to
welcome the new member countries of our institutions.
During our last Annual Meeting in Washington, the important
Seventh Special Session of the General Assembly was taking place at
the United Nations, promising to open a new phase in our joint efforts
toward solutions of world economic problems. That meeting opened a
new dialogue between industrial and developing countries, strength-
ening the belief that by joining efforts we could reach concrete solu-
tions along the lines of the proposals stated in the important documents
adopted.
However, in spite of efforts made during the UNCTAD IV, the
Conference on International Economic Cooperation in Paris, and other
gatherings, and despite positive effects of the process of recovery in the
industrialized world, expected concrete solutions were not reached for
the urgent problems of world economic relations, and particularly for
the increasingly grave problems of the developing countries.
The widening of the gap between the industrialized and developing
countries represents the most serious cause of economic, social, and
political confrontation in the world today. This was re-emphasized
recently at the Fifth Summit of the nonaligned countries in Colombo.
That meeting came to the conclusion that there is no true dialogue
between the developed and developing countries on monetary and
financial issues, which are the most important part of global economic
relations.
In resolving their problems, the developing countries are increas-
ingly relying on their own resources and efforts and on mutual eco-
nomic cooperation. In addition, they are ready and willing to continue

the dialogue and the economic cooperation on equal terms with indus-
trial developed countries. Under the circumstances of growing global
interdependence, the accelerated development of developing countries is
a substantial and inseparable part of the further evolution of the world
economy. That evolution can be implemented by changing the existing
economic relations within the New International Economic Order.
Grave concern arises from the fact that there is no consistent inter-
national monetary system adequately reflecting present political and
economic needs and realities. This certainly contributes to the further
aggravation of world economic problems. Latest developments in inter-
national monetary relations prove clearly that work on the reform
should continue without delay or hesitation.
The equity of the system should first of all reflect the participation
of the whole international community in the decision-making process in
the IMF and other financial institutions.
In Jamaica, an increase in quotas of only 32.5 per cent came after a
five-year period of unchanged quotas. When the rise in quotas is com-
pared to the increase in world trade, it is clear to what extent the
possibilities of the Fund's helping member countries in balance of
payments difficulties have decreased in relative proportions.
Therefore, in order to increase the resources of the Fund, there is
need for a further increase in Fund quotas, whereby the developing
countries would be accorded a substantial increase in their share in the
total volume of quotas.
Decisions reached in Jamaica and the second amendment of the
Articles of Agreement of the International Monetary Fund do not pro-
vide solutions to the key issue of international liquidity. It continues to
be created outside the IMF and in an uncontrolled fashion. The devel-
oping countries seek the creation of international liquidity through the
SDR. Therefore, a new allocation of SDRs is indispensable, and further
steps should be taken toward making it a central reserve asset of the
international community.
In this connection, the Group of 24 expressed its belief "that the
reform of the international monetary system will be resumed and that
special consideration should be given to the interest of the developing
countries, particularly as regards the need to introduce a link between
the allocation of SDRs and the flow of financial resources to developing
countries."
A matter of particular concern is the fact that during the last few
years, a considerable worsening has occurred in the structure of financ-
ing of the developing countries through an increase in short-term com-

ALTERNATE GOVERNOR FOR MEXICO 191
mercial borrowing under unfavorable conditions with a simultaneous

decrease in long-term financing. This aggravated further the already
acute problem of the indebtedness of many developing countries.
Therefore, the need for long-term financing of the developing countries
and solution of the problem of indebtedness of those countries expe-
riencing difficulties has become more important than ever. If ways and
means are not found to meet these problems, the forthcoming period
will be one of serious development crises in those countries, with grave
consequences for world trade and the current process of recovery. . . .
We should take this opportunity to give credit and express our
appreciation to the management and the staff of the World Bank and
its affiliates and the International Monetary Fund for all their endeavors
and vigorous efforts. Acknowledging this, we realize that their task was
certainly rendered more difficult by the general economic instability
and uncertainty in the world, as well as by insufficient support from
some member countries.
At the same time, we are witnessing trends to move important deci-
sions concerning international monetary and financial problems away
from the IMF. My country is wholeheartedly in favor of a further
strengthening of the role of international financial institutions.
The attainment of the internationally accepted goal of economic
growth of the developing countries obviously requires a significant
increase in the volume of transfer of real resources. This clearly indi-
cates the crucial importance of the role that the Joint Bank-Fund
Development Committee has to play in this field. To be more effective
and successful in its future activity, the Committee should give priority
to the proposals formulated in the last communique of the Group of 24.
We consider also that the Committee should be given the necessary
support by the developing countries.
I trust that with awareness of our responsibilities and by exerting
joint efforts in a spirit of cooperation, we shall succeed in finding
adequate solutions.
STATEMENT BY THE ALTERNATE GOVERNOR OF THE FUND FOR MEXICO
Ernesto Fernandez Hurtado
Mexico joins with special warmth in the cordial greetings extended

to the hospitable and progressive-minded Philippine people, with whom
it has enjoyed close relations that date back more than three centuries
to the Manila galleon and have grown ever stronger with the passage
of time.

We concur in the statement made by the Governors for Costa Rica

and the Philippines, on behalf of our group of countries, with respect to
vital questions affecting the International Monetary Fund and the World
Bank. I do not, therefore, propose to go into the matters amply dealt
with in their statements. Instead, I shall take this opportunity to com-
ment on the underlying purposes of a number of far-reaching measures
adopted recently by the Government of Mexico, aimed at fundamental
readjustment of Mexico's economy.
The Annual Reports by the Executive Directors of the International
Monetary Fund and the World Bank, and the brilliant speeches by
Mr. Witteveen and Mr. McNamara, have provided extremely useful
guidance for our discussions with respect to the most suitable policies
for the near future.
In reviewing recent experiences of inflation and recession by our
countries we note that, just as the origin of world inflation was initially
associated with the expansionist policies of a few large reserve currency
countries, in which the increased world liquidity was more of an effect
than a cause, so also we find that the recent prudent and moderate
management of monetary policies and of public receipts and expenditures
by those same countries has helped substantially to lower inflation and
reactivate world economic activity.
Because of the concern to reduce rapidly the high levels of unemploy-
ment once world economic recovery was established, excessive efforts
were made to accelerate economic activity which have already shown
that they are more likely to generate new inflationary pressures and
growing balance of payments deficits and thereby to impede rather than
promote solution of the unemployment problem. In these circumstances,
wage policies pushed too fast, in view of the impossibility of raising
productivity in the short term, have simply helped to aggravate prob-
lems without producing any increase in wages in real terms. This gives
particular relevance to the observation by the Managing Director of the
Fund that it is more important, henceforth, to follow economic adjust-
ment and balance of payments policies. For some large and a number
of middle-sized countries, where the phenomenon of inflation itself has
more or less already reduced the demand, in real terms, of wide seg-
ments of the population, such policies are even more necessary.
The combating of inflation does more to raise employment levels and
correct balance of payments deficits than does an expansionist policy.
The latter is frequently counterproductive. Nothing exerts such a depres-
sive effect on real economic activity than sustained inflation.
The international financial institutions can and must play an important
role in the economic adjustment programs of their member countries,

when the latter so request. The combating of inflation, and the impact
of this on the balance of payments, are frequently complex, as are the
causes of inflation itself. Nevertheless, it is hard to understand why
countries that do not need to adopt economic adjustment programs have
to be subject, in the normal process of obtaining external financing for
their economic development, to the prior conclusion of agreements with
the Fund—agreements which relate to cyclical economic problems and
not to long-range development problems. Membership in the Fund
would in truth operate as a constraint for a developing country that
needs a constant flow of external financing.
In a world in which both international savings and financial resources
and the conditional and unconditional liquidity needs themselves of the
countries are growing and must continue to grow, it is difficult to imagine
the Fund's future work being dependent on inhibition or a better level
of appraisal by the commercial banking system in international financing
operations.
From this standpoint, a more constructive idea would appear to be
that the International Monetary Fund should have a closer and more
direct relationship with national authorities, enabling it to consider, and
at the appropriate time express opinions on, more suitable economic and
financial policies in the light of the prevailing national and international
economic situation.
The timely opinion of the Fund concerning national economic and
financial plans would make it possible to examine the consistency be-
tween monetary and financial policies as short-term instruments and
development and job-creation policies. Failure to understand this rela-
tionship often leads to the belief that heavy expansion of public current
expenditure, or of public investment, permanently financed by domestic
and external credit resources, can generate a continuous process of
economic advancement and rising employment. The concepts underlying
these policies have repeatedly been refuted by practical experience in all
countries, which does not prevent them from continuing to be advocated.
The resulting inflation and increased balance of payments deficits,
financed by external borrowing, demonstrates—sometimes too late—that
these high levels of public expenditure ought to be financed basically
by means of higher volumes of domestic savings and fiscal revenues that
do not discourage private investment.
Like other countries, Mexico has gone through these experiences. It
has reaped substantial benefits from a process of continuous expansion
of domestic savings and investment. It has also been able to observe the
adverse effects of public and private expenditure inadequately supported
by domestic resources and savings.

On the basis of a savings rate that rose from 7 per cent of gross
product at the beginning of the 1940s to an average of 18 per cent in the
early 1970s, Mexico raised its productive investment rate from 7 per cent
of gross product in the first period to 20 per cent in the second, with
only moderate assistance from external resources and without suffering
inflation. In this way an average annual rate of economic growth of over
6 per cent in real terms was attained. Per capita income and productivity
rose steadily over the period, in spite of a population growth of over
3 per cent a year. This continuous increase in the percentage of capital
expenditure and its application to highly productive investment, have
been and continue to be, real permanent factors of progress in Mexico's
economy; indeed, they have even improved in recent years.
Unfortunately, in spite of the very favorable behavior and trends in
public savings, public investment, and balance of payments that Mexico
has enjoyed over this very long period, the orientation of public invest-
ment during the 1960s neglected certain important fields such as petro-
leum, electric energy, and agriculture. With the rapid growth in the
population and expansion of the domestic economy, this meant that
major bottlenecks appeared in these fields, together with insufficient
absorption of urban and rural manpower.
The result was to limit the economic prospects for sustained economic
growth and balance of payments equilibrium. These bottlenecks had to
be eliminated. To this end, the present administration carried out a
broad program of public investment and expansion of current public
expenditure.
However, with the onset of the world-wide recession of 1973-74, it
was felt that it would be desirable to step up the public sector efforts to
mitigate its effects on the national economy and to avoid the consequent
unemployment by means of an intensive current and capital expenditure
program, financed in large part by expansionist credit resources, both
domestic and external. At the same time, strong wage increase pressures
arose, together with domestic price increases that rose faster than the
general world rate.
When world inflation moderated in 1975, the effort to offset the effects
of the recession on the domestic economy, although it has obviated the
situations of recession that had arisen in other countries and ended with
bottlenecks in the basic productive sectors, has produced a situation of
maladjustment in the domestic economy. Thus, prices and wages had
risen too sharply relative to those of other countries, the public sector
deficit already represented a high percentage of national product, and a
significant decline had taken place in net public sector savings, thereby
necessitating excessive recourse to domestic and external public financ-

ing and a reduction in real terms of financing to the private sector,

thereby limiting the dynamism of the latter.
The resulting inflationary situation was inconsistent with the national
policy of improving income redistribution. Accordingly, following a
thorough investigation of the causes of the disequilibrium and the
observation that exports had not responded in the expected degree in
spite of the recovery that had occurred in the world economy, the
present administration decided to adopt a radical economic adjustment
program of sufficient scale, firmness, and duration to ensure its success.
The program, which was launched on September 1, does not consist
merely of adjusting the exchange rate; it is designed to correct all the
causes of economic disequilibrium and to restore healthy economic
growth accompanied by long-range improvement in the real incomes of
the population. It accordingly covers the more vital areas of the econ-
omy: external competitiveness, prices and wages, and, in particular, the
necessary re-establishment of a level of public sector savings adequate
for reducing fiscal disequilibrium to manageable proportions without
reducing the levels of the public investment needed by the national
economy.
Neither the timing nor the magnitude of the exchange rate adjustment
was allowed to be determined by speculation. The adjustment was
effected at the right time and by a system of carefully regulated flotation.
The present magnitude of the exchange adjustment—60 per cent in pesos
and 40 per cent in foreign exchange—is more than sufficient to restore
the external competitiveness of the economy. The free transferability
and convertibility of the peso were confirmed by the Government, to-
gether with unrestricted support of the liquidity and soundness of the
public and private banking systems, as has traditionally been done for
more than 40 years.
Specific measures of taxation of imports and exports were introduced
in order to reduce the exchange rate impact on domestic prices and
thereby mitigating the pressures for excessive adjustment of wages and
profits.
Interest rates will be kept above the world levels in order to hold
national savings within the absolute convertibility of the Mexican peso
in relation to other currencies. In the financial field, a policy is already
in operation for controlled growth of bank credit in order to coordinate
the growth of private demand with the moderation of the public sector,
within the financial parameters of the program.
Firm action was taken concerning prices. Following the exchange
adjustment, domestic prices have undergone a relatively moderate

increase; the prices of raw materials and essential consumer goods con-
tinue to be regulated by strict reference to the increases in their costs.
This has made it possible to limit the wage increase to only one third
of the exchange adjustment; this was essential to sustain the efficacy of
the effective devaluation and to restore external competitiveness to
domestic productive activities.
A fundamentally important aspect of the program is the decision to
reduce the public sector deficit to levels that can be financed without
difficulty from domestic resources and that do not call for excessive
external financing.
In line with the basic objective of adjusting the public sector deficit,
it is planned to limit current expenditure and the necessary measures for
that purpose have already been adopted. There will be no increase in
the number of posts not connected with highly productive investment,
various agencies operating in the same field will be consolidated, and
excessive increases in nominal salaries in the public sector will be
restrained.
Finally, in order to conserve the domestic and external credit of the
entrepreneurial sector at all times, it has been decided, following imple-
mentation of the exchange rate adjustment, to apply specific fiscal and
monetary measures to protect the resource flow and payment capacity
of all public and private enterprises with large foreign exchange debts.
In addition, the assets position of public enterprises with large foreign
exchange debt positions will be protected.
Mexico is proud of the credit it has received both from the interna-
tional agencies and from the world financial banking system. Its care-
fully thought out procedures of contracting and access to markets, its
productive utilization of credit, and its scrupulous compliance with its
amortization and interest obligations justify the financial support Mexico
has received during the last decades. The decision to carry out with
firmness a program that attacks the various causes of inflation when
it is considered economically and politically necessary is to be expected
of a country which is committed to sustained progress and the preserva-
tion of its capacity to pay and its sound international credit.
In these circumstances, the support accorded by the Managing Direc-
tor of the Fund at the request of the Mexican Government, on the basis
of the economic adjustment program, for various kinds of assistance,
including the extended Fund facility, for a total of approximately
$1,200 million, is particularly significant.
This program, whose structure and three-year quantitative goals have
been appraised and approved, must be regarded by both the Mexican

GOVERNOR FOR BANGLADESH 197
and the international community as further proof of the Mexican

Government's accurate assessment of the origin of the economic prob-
lems the country has faced and of the proper strategy for dealing with
them, and of the resolve of the Government itself to promote, by the
most suitable means, the progress and continuous improvement of the
standard of living of the Mexican people.
STATEMENT BY THE GOVERNOR OF THE BANK FOR BANGLADESH
M. N. Huda
Since becoming a member of this august institution in 1972, we have

in all the Annual Meetings reiterated the demand of the less developed
countries for greater equity and justice in a New International Economic
Order. Indeed, what better forum can there be than this gathering of
pragmatic policymakers who have the capability not only to influence
but also to decide on the size and quality and the direction and dimension
of both bilateral and multilateral aid, the flow of international invest-
ment, the control of inflation, the financing and adjustment of payment
deficits, and the problem of debt relief issues which are fundamental in
any conception of an equitable order.
We are grateful to you, Mr. Chairman, for your very thoughtful state-
ment and to Mr. McNamara and Mr. Witteveen for putting the world
economic outlook and the monetary and developmental problems in
proper perspective, highlighting the special needs and requirements of
the poor and the middle-income developing countries. We very much
welcome these candid and forthright statements and would like to record
our appreciation of the leadership qualities displayed by them.
The alarming reality of absolute poverty made so conspicuous in the
statement of Mr. McNamara is a matter of great concern to us. For
750 million people in the category of absolute poor, the second develop-
ment decade holds out no hope of any progress or salvation from
deprivation. The overall growth rate in the developing countries as a
group, and in the least developed and most severely affected countries
in particular, has been dismally poor, and this has aggravated the
miseries of the people below the poverty line. Even extraordinary efforts
will be of no avail now to accomplish much during the remaining years
of the decade. But the least that is warranted by this situation that
President Marcos calls the "global rebellion of the poor" is an increase
in capital flow with immediate effect. In the case of official development
assistance this increase has to be very substantial indeed. A minimum
increase of 100 per cent will barely achieve the target figure of 0.7 per

cent of the gross national product of the rich countries for the rest
of the decade. Mr. McNamara has rightly pointed out that this capital
flow, even on an accelerated scale, will reflect only a very nominal
participation in the investment efforts of the developing countries and
a very insignificant sacrifice on the part of the rich world. The challenge
before us is whether there is the political will to achieve such a kind of
partnership.
Aid is indeed an important instrument, but not the only instrument
for achieving accelerated growth in the developing countries. We in
Bangladesh have been trying our best to improve our lot by introducing
a package of economic, fiscal, and monetary reforms. A series of
stringent and forthright measures have yielded salutary effects on the
rate of inflation, domestic production, and savings and exports. Yet we
are awfully short of resources necessary for pulling us out of the degra-
dations of poverty. National efforts in such cases have to be com-
plemented by resource transfer. . . .
The problem of mounting debt burden has been with us for a long
time. During the recent years of payment crisis, particularly in 1974 and
1975, the position of the non-oil developing countries has become very
critical. Though there has been a moderate improvement in the current
account deficit of these countries in 1976, this does not in any way alter
the fact that most of these countries continue to be in a difficult financial
position. The developing countries are in need of an increased net flow
of resources. Such an increase cannot neglect the issue of debt relief or
debt rescheduling. The effort of the developing countries to obtain an
agreement in principle from the creditor countries that debt relief and
debt rescheduling are significant steps in increasing the net flow of aid
has so far not met with any success. I would like to reiterate the urgent
need for such an agreement. This is an appropriate subject for delibera-
tion in the Development Committee, and we urge that the Committee,
through its Working Group, establish close liaison with the United
Nations Conference on Trade and Development (UNCTAD) in this
respect. . . .
The reforms proposed under the second amendment of the IMF
Articles of Agreement, even though they fall far short of our expecta-
tions, hopefully will bring about greater resource transfer and some
semblance of monetary stability. Of particular interest to us are the
establishment of the Trust Fund and the Subsidy Account, the review
of the quotas which accords a marginally higher share to the developing
countries in the decision-making process of the Fund, the modification
of the compensatory financing facility, the proposal for the increase in
Fund resources, which is not adequate, and the interim liberalization of

GOVERNOR FOR BANGLADESH 199
the credit tranche facility. We welcome and appreciate these measures

brought about by the joint efforts of the members of the Interim Com-
mittee and the Executive Directors of the IMF. We would like to record
our appreciation of the services of Mr. Turner, the former Chairman of
the Interim Committee and Mr. De Clercq, the present Chairman, under
whose leadership the reforms have been approved and new facilities
created.
The fate of the Trust Fund is causing us considerable anxiety. We are
doubtful about the adequacy of the resources that can be generated for
the Trust Fund. We hope that ways and means can be found to make up
the deficit which is almost certain to appear. We also note that the con-
ditionality for access to the newly created Fund facilities are severe and
need to be urgently reviewed by the Interim Committee and the Fund
Executive Directors. This is a demand that was widely endorsed at the
meeting of the Commonwealth Finance Ministers in Hong Kong last
week. Further, we are of the view that a rigorous adjustment process
will be unfavorable to the developing countries whose deficits must be
financed through resource transfer. In the context of inequitable distribu-
tion of international liquidity we feel that selective allocations of SDKs
should receive high priority. This will, on the one hand, strengthen the
role of SDKs as the principal reserve asset and, on the other hand,
provide for resource transfer to the less developed countries. The link
proposal has been cold-shouldered far too long. We urge that this be
examined on a priority basis by the Development Committee and the
Interim Committee.
We feel that our efforts to ensure adequate transfer of resources from
the rich to the poor developing countries should be broken down into
specifics. While deliberating and negotiating broad agreements on
resource transfer, transfer of technology, commodity price stabilization,
and debt relief in various international forums such as the UNCTAD
and the Conference on International Economic Cooperation, we should
not lose sight of these specific issues referred to earlier. It is our belief
that satisfactory resolution of these issues will have a positive impact on
resource transfer through the channels of the World Bank.
We have been touched by Mr. McNamara's reference to the need for
each of us to ask ourselves what we have done for the one billion people
"trapped in absolute poverty." The question could not be raised at a
better time. From the effort of the individual comes the political will of
nations. We in the least developed among the developing countries come
to these meetings to discover that political will among rich nations in
what we have been told is an interdependent world. In the absence of
such a political will uncertainty about the future of the "absolute poor"

will continue not only in the long and the medium run, but also in the
rest of the second development decade. We are racing against time in our
effort to break the vicious circle of poverty and we can only hope that
we shall not opt to lose the battle. Let history record for posterity that
we lost no opportunity.
Before I conclude, I would be failing in my duty if I did not place on
record our deep appreciation for the most excellent arrangements that
the Government of the Republic of the Philippines made in connection
with this meeting, for the personal interest taken by President Marcos
and the First Lady, Mrs. Imelda Marcos, and for the most elaborate
hospitality accorded to us in this friendly country. We are also grateful
to the Joint Bank-Fund Secretariat for their efficient handling of the
details of this meeting so far away from their headquarters. I would
further take this opportunity to welcome all the new members of the
Fund and the World Bank, and would very much like to see that the
People's Republic of China get its rightful place in these august in-
stitutions.
STATEMENT BY THE GOVERNOR OF THE FUND AND BANK FOR SRI LANKA
Felix R. Dias Bandaranaike

First of all, I should like to take this opportunity to thank the Presi-
dent, the Governor, and the people of the Republic of the Philippines
for the warm and generous hospitality extended to all of us and for the
excellent arrangements made for the success of this Annual Meeting of
the Fund and the Bank. As spokesman for the Group of 77, His
Excellency, President Marcos, in presenting the Manila Declaration to
UNCTAD IV in Nairobi this year, proposed the adoption of a new
economic order embodying universal principles of justice, fair sharing,
mutual understanding and cooperation, the protection of the weak, and
freedom from the domination of the strong. It is therefore particularly
appropriate, I feel, that we should be meeting here, in Manila, to take
important positions concerning the Fund and the Bank. I should also
like to welcome to our midst our newest members, the Comoros and
Viet Nam. It is also a matter of singular pleasure for us that we shall be
able to welcome very shortly Seychelles, who are present here as observ-
ers, and we also look forward in the near future perhaps to the People's
Republic of China taking its rightful place as a member of this family of
nations in the Fund and the Bank.
The context for our discussion has been set by the addresses we have
listened to from Dr. Witteveen and Mr. McNamara, whose reports have

GOVERNOR FOR SRI LANKA 201
been objective and sensitive to the problems and the harsh realities of the
poorer developing countries like my own.
Dr. Witteveen made the point that, in the immediate aftermath of the
oil crisis, it was imperative that payments imbalances should be financed
for developing and developed countries alike, in order to prevent the
downturn in world economic activity that might have otherwise occurred.
Developed countries have, in his view, by and large succeeded in adjust-
ing to a higher import price level in a purely arithmetical sense, with the
result that the counterpart of the surplus of jil exporting countries
has now turned out to be the deficit of nor oil developing countries.
Dr. Witteveen has contended further that the time has come for non-oil
developing countries to attempt a process of more rapid adjustment
because the continued financing of their deficits could hamper the process
of demand management and the control of inflation by developed coun-
tries, which is rightly seen as an imperative necessity, if the conditions
necessary for steady investment and growth in the world economy are to
be established. Dr. Witteveen added that policies aimed at stimulating
growth and employment cannot succeed in the long term unless inflation
is controlled. In the hard choice between controlling inflation and
stimulating growth, the former must take priority. He has recognized
at the same time that the process of inflation control in developed coun-
tries proceeding simultaneously with more rapid adjustment by develop-
ing country economies can cause a slowing down of world economic
growth and has prescribed rightly that developed countries should, as an
offset to this, undertake a reduction in their barriers to the exports of
the developing countries. I, myself, would add, indeed, that exchange
rate adjustment by developing countries would be stultified unless such
export access is available.
No one—least of all the developing countries, committed as they are
to a process of collective self-reliance—can be said to be owed a living
over the longer haul. Development must always be the responsibility
of individual countries themselves and they must accept the necessary
adjustment disciplines. However, developing countries, for more than a
decade, have called for the dismantling of the trade barriers that affect
their exports. It would be politically naive to think that such dismantling
would be accepted, let alone implemented, in a reasonably short space
of time. Moreover, the type of barriers that face the developing coun-
tries' exports nowadays are mainly quantitative in character and are
more difficult to dismantle. They continue to block the effectiveness of
exchange rate changes as a mechanism for balance of payments adjust-
ment through export promotion. If developed countries pursue demand
management policies as suggested, in the interest of controlling domestic

inflation, at the same time denying export access to developing coun-

tries, while the latter are compelled to adjust by means of exchange rate
changes, it is virtually certain that world economic activity will slow
down, and present pace of recovery from the recession will be halted.
If Dr. Witteveen's argument calling upon developing countries to adjust
to their oil deficits, rather than to seek financing for them, were to be
accepted, then it is imperative that there should be a prior commitment
on the part of developed countries to implement immediately and in
short order, measures of import liberalization. It is only after this
becomes an accomplished fact that orderly adjustment measures taken
by developing countries can hope to succeed.
There is a second reason for my cautious attitude toward asking
developing countries to adjust in the manner demanded by traditional
Fund disciplines. In the case of a developed country, where production
capacities are sufficiently diversified to allow a change in relative prices
to switch production from domestic consumer needs to exports, exchange
rate changes would have a ready impact in correcting payment imbal-
ances. On the other hand, in the case of developing countries, whose
economies are relatively more rigid, exchange rate changes take con-
siderably more time to promote investment in new production capacities
of the right kind—a case of the lag which the U.S. Secretary of the
Treasury, Mr. Simon, described as a politician's nightmare.
It was in recogntion of these structural differences between developed
and developing economies that the IMF instituted the extended Fund
facility which sought to provide greater support than is normal from the
Fund—and for a longer period—on condition that the recipient country
undertakes to implement a sequence of appropriate policies. The fact
that only two countries have so far felt able to draw on this facility
testifies to its present emptiness, and the Group of 24 has already gone
on record as saying that the facility is likely to remain so, unless condi-
tionalities are considerably diminished. The facility has to take account
not only of the time lag between investment in export-oriented industry
and the resulting output, but also the complex political realities of
developing countries in relation to the timing of corrective actions. The
Jamaica communique makes it clear that the "domestic, social and
political policies" of developed countries are to be taken account of by
the Fund when it comes to surveillance of exchange rate systems; and
this happens also when it comes to the mobilization of bilateral facilities
and safety nets outside the Fund to support key countries in balance of
payments difficulty. No such realism is built into the international insti-
tutional framework for dealing with the deficits of developing countries.
It is therefore not surprising that developing countries seek to escape

GOVERNOR FOR SRI LANKA 203
the rigors of Fund conditionality by seeking to borrow from commercial

and Eurocurrency markets. This would further aggravate the problem
of controlling the expansion of international liquidity. The number of
countries, however, that have the capacity to borrow in this manner are
indeed few.
It is imperative for the Fund to take a more realistic view of the
working of the adjustment process of the developing countries by pro-
viding developing countries with reasonable access to Fund resources if
it is to bring the expansion of global liquidity under IMF control. I am
saying this because the practical way for developing countries to accom-
plish their transition from adjustment to development would be through
intelligent recourse to the extended Fund facility. Otherwise, the gains
of absolute—and therefore premature—adjustment through the IMF
may be bought at the cost of the absolute impoverishment of the poor in
developing countries, against which the Bank has very correctly set its
face. The bridging finance for the transition from adjustment to develop-
ment through whatever channels it is provided, be it through the IMF
Trust Fund and other facilities or the Fifth IDA Replenishment or in-
creases in the capital stock of the Bank, there must necessarily be better
official aid performance from rich countries which have hitherto failed to
measure up to expectations.
Developing countries thus have no guarantee of assured access to
export markets so as to make exchange rate adjustments worthwhile or
feasible. In addition, they are denied, in effect, reasonable access to
Fund resources, through the kind of conditionalities now insisted upon,
as in the case of the extended Fund facility.
Views are divided today on whether or not world liquidity is adequate.
Those who argue that it is excessive—and this argument finds clear
support in the prevalence of inflation in developed countries—would be
inclined to resist the creation of SDKs. On the other hand, there are
those who would argue that there is evidence in today's world economy
of reserve stringency, particularly affecting developing countries, to
which attention was drawn in Chairman Imady's speech.
Moreover, there is no sense whatever in talking of a system based on
SDKs as a principal reserve asset without keeping the SDR alive by
continuity in its creation.
A practical way of reconciling these divergent points of view would
be to seek an allocation of SDRs where the amounts are not substantial
in relation to global liquidity, but are not insubstantial in relation to
existing Fund facilities, on a basis where their distribution is weighted
much more heavily in favor of developing countries. I would, therefore,

endorse the 50 per cent share of additional SDR creation suggested

by Mr. Imady for developing countries, so that, given the adverse effect
of any tightening of Fund conditionality and in the absence of unre-
stricted access to developed country markets of developing country
products, the momentum of world economic activity can be maintained.
It is not that one is seeking to undermine the acceptance of adjustment
disciplines under Fund auspices. It is simply that, in the absence of a
fresh issue of SDRs in the face of the other political realities of the
present situation, developing countries will be compelled to adjust in a
manner which would result in world economic activity and their own
development settling down at a lower level.
The opportunity of making a fresh issue of SDRs, which the situation
I have outlined presents, could, in my view, be availed of to breathe
life into a concept that surfaced and was indeed endorsed by the non-
aligned summit in Colombo. The nonaligned countries being determined
to establish a New International Economic Order within the framework
of the United Nations, the IMF, and the Bank, thought in terms of the
imperative need to bring reserve currencies under control with a view
toward eventually establishing a countervailing currency not controlled
by any one country but by the international community of nations. The
SDR, if it were shorn of the limitations presently affecting its use as a
genuine international currency, could serve as such a countervailing
currency.
The opportunity of fresh allocations of SDRs at this time could be
availed of to give the SDR more of the character of a currency by aban-
doning the reconstitution provisions, which the Committee of Twenty had
already agreed. It seems to me that the ideas put forward by the
Governor for Greece, Mr. Zolotas, for a multicurrency reserve system
could constitute a valuable interim step toward the concept of a counter-
vailing currency or a fully improved SDR.
The recent Colombo summit conference of the nonaligned nations
reaffirmed the Manila Declaration and the heads of states of 86 non-
aligned nations formulated their decisions as follows:
The reform of the international monetary system should incorporate a

built-in mechanism to promote the flow of real resources from developed to
developing countries and necessary measures to maintain the real value of
currency reserves of the developing countries. These objectives involve con-
certed action by the developing countries within the IMF, the Bank and the
United Nations system and elsewhere to restructure the present system of
monetary and financial arrangements which will inter alia provide for a process
of balance of payments adjustment and financing that will remove the in-
equities involved in the present system, reallocate and create international
liquidity in ways which will mobilize resources for development, stabilize

GOVERNOR FOR PARAGUAY 205
exchange rates, remove the dominant role of national currencies in interna-

tional reserves, ensure parity in decision-making as between developed and
developing countries and prevent the domination of any single country over
decision-making, so that the system becomes more responsive to the needs of
developing countries.
I am taking this opportunity to make available to the Governments,

the Economic Declaration and Program of Action decided upon at the
Colombo summit.
STATEMENT BY THE GOVERNOR OF THE FUND FOR PARAGUAY
Carlos Chaves Bareiro
We have just heard the well-chosen remarks by Mr. Bernal Jimenez M.,
Governor for Costa Rica, who was appointed representative of the
Latin American countries at the San Francisco meeting.
Our spokesman has performed his task magnificently, demonstrating
that a dialogue among countries makes it possible, even in the most
difficult of times, to improve the systems that provide the basis for
international cooperation and unity. These systems are becoming increas-
ingly important for the Latin American countries which, like the other
regions of the Third World, are concerned about the continual widening
of the gap between the advanced and the less developed nations, and
which are aware of the accelerating growth of the industrial countries
with which the countries of the less developed periphery are unable to
keep pace.
May I use this distinguished forum of the thirty-first Annual Meeting
of Governors to make a few comments on Paraguay's behalf concerning
the monetary system that we are in the process of reforming. I should
also like to highlight some particular aspects of our country, whose
systematic economic efforts based on internal peace, monetary stability,
and anti-inflationary policies, constitute the moving force in our people's
social and cultural development. The Government of Paraguay has been
endeavoring for 20 years to set a good example by pursuing policies
consistent with the objectives of the International Monetary Fund, while
drawing on its own experience in the sphere of economic, financial, and
exchange policy. Thus, Paraguay has always been a faithful member of
this august world-wide financial organization and has made the maximum
use of the assistance received at the beginning. As on previous occasions,
therefore, the delegation of Paraguay to this meeting of the International
Monetary Fund wishes to express its full confidence in the continuous

process of adaptation of the Fund and its conviction that our common
interests will be safeguarded.
No one can doubt that the numerous difficulties besetting the world
economy require a coordinated effort of cooperation among all countries,
in which each and every one must participate. Given the present inter-
dependence in the world, it would be illusory to think that one nation,
or even one group of nations, could escape the adverse effects of our
repeated crises through a deliberate policy of isolation. Nor can these
crises be overcome for good unless the major powers adopt a fair and
impartial approach.
While there can be no doubt that the poor nations are always the
first to be affected by such crises, and are those who are affected most
severely, sooner or later the whole world has to suffer their adverse
consequences, to a greater or lesser extent.
Therefore, as members of the group of developing nations, and fully
aware that our economic, industrial, and financial prospects are depend-
ent on the international monetary system, we reiterate our plea that the
industrial countries maintain and improve the mechanisms for providing
assistance to the less privileged countries. We must truly believe in the
solidarity of mankind and act accordingly; we must do away with the
division of mankind into First, Second and Third World, by pursuing
positive, honest, and constructive goals.
At this meeting in Manila, redolent of the memory of the Philippine
national hero, Jose Rizal, to whom we pay due homage in the name of
Paraguay, we must find a concrete answer to the desire—which is more
or less a demand on the part of the Third World—to achieve a more
just and equitable New International Economic Order which would
ensure an adequate flow of resources to our countries and enable them
to face new threats—a new order which would not, however, imply a
sharp decline in global economic conditions, nor benefit some countries
at the expense of others. We must adopt measures that will effectively
bring about the transfer of additional real resources to all of the develop-
ing countries—and here some governments have already set a good
example. Such cooperative efforts must be adopted on a global scale if
we are truly to achieve lasting economic solidarity.
The establishment of the Trust Fund, which must not be delayed any
further, will provide a means whereby the gold being sold by the IMF
can make a real contribution to the progress of our countries. If this
could be supplemented by contributions from the developed countries,
the assistance would reach almost adequate levels.
We must point out, however, that we do not support the idea of
making assistance, including assistance through the Trust Fund, depend-

ent upon the per capita income of the recipient countries. We do not
consider this the sole economic indicator nor the one which most
adequately reflects the level of development reached by our countries.
Other parameters could give a clearer picture of a country's economy,
e.g., industrial production indices, the balance of payments, or the level
of technological advancement, and the absorptive capacity of the popula-
tion, by country, region, or subregion.
Expansion of access to the IMF's facilities is another important
requirement that brooks no delay.
With regard to the amendment of the Articles of Agreement, we fully
endorse the changes in the General Account eliminating the obligation
on members to use gold in making payments to the IMF in respect of
quotas and repurchases and the provisions designed to ensure that all
currencies held by the Fund are used in its operations. We believe that
the special drawing right will succeed in becoming the principal reserve
asset, and we also believe that the provisions regarding stable but
adjustable par values will prove effective.
We wish to express our appreciation for the work carried out to date
by the Interim Committee, and we feel that there would be great merit
in converting it into a permanent Council.
It will depend on our powers of imagination and decision whether
this meeting in the Philippines will prove as historic as that held at
Bretton Woods.
Turning to the situation in Paraguay, we wish to inform you that our
economy is now experiencing a gradual recovery, after having had to
deal with the negative consequences of the fall-off in external demand
for its primary products and the loss of export proceeds as a result of
the economic recession caused by the increase in fuel prices.
To give you an idea of the economic situation at the end of the first
half of 1976, the statistics show that new monetary issues rose by 8 per
cent, representing net purchases of foreign exchange by the Central
Bank of Paraguay, while currency in circulation rose by 6 per cent,
a drop of 3 per cent compared with the preceding period. This reflects
the strong preference on the part of the public and the business com-
munity for channeling liquid funds into savings deposits. These deposits
rose by 10 per cent, continuing the marked upward trend of the past;
as a result, savings deposits stand at approximately the same level as
currency in circulation.
The Government continued with the essential policy of containing
inflation, since—as everyone knows—inflation can erode wages and
salaries and wipe out profits and savings.

Total savings deposits in local currency amounted to 0 17,398 million

on June 30, 1976 (equivalent to $138 million), while savings deposits
in foreign currencies totaled (ft 2,655 million (equivalent to $21 million).
Thus total savings deposits amounted to (fr 20,053 million, just a little
less than the total of currency in circulation, which stood at $ 21,105
million on the same date. Exports were up slightly (by 4 per cent) com-
pared with the first half of 1975, while imports rose by the same amount.
With regard to the balance of payments, the first half of 1976 pro-
duced a surplus of $25.1 million, continuing the tradition of growing
surpluses started in 1970. These surpluses have added constantly to the
strength of Paraguay's external payments position. Net international
reserves rose 19 per cent in the first half of 1976, bringing the total
as of June 30, 1976 to $133.8 million. On December 31, 1975 these
reserves had stood at $112.4 million.
In short, the economy has begun to recover gradually and the out-
look is improving.
These developments have placed our country in a favorable position,
and we feel justified in saying that we should have been assigned a con-
siderably larger quota in the Sixth General Review of Quotas. In
March 1976 the Board of Governors authorized an increase to SDR 23
million, which we consider inadequate. Paraguay would like to have
its quota raised to SDR 38 million, which would give us increased access
to the resources of the IMF.
The quota assigned to us is obviously below what corresponds to our
situation, when one compares the importance of our country in the world
economy with that of other countries. The Fund's resources that we
would obtain in this way would promote even further the rapid growth
of our economy as a whole and of the external sector in particular.
When we add to this the great prospects opening up from the exploitation
of our hydroelectric resources, with the new power stations presently
under construction jointly with our sister republics of Brazil and
Argentina due to come into operation in a few years' time, it is under-
standable that we are proceeding with our plans for the near future with
faith, optimism, and confidence in the self-sustaining growth of our
economy.
In light of the above, Decree No. 21,412 was issued on March 15,
1976 authorizing an increase of 100 per cent in Paraguay's participation
in the Fund, from SDR 19 million to SDR 38 million. We take the
opportunity presented by this meeting to again ask the Board of Gover-
nors to approve a quota increase of that amount.

Within the concert of nations, Paraguay has always respected—and

will continue to respect—international agreements and the principle of
nonintervention in the domestic affairs of other nations. Under the
dynamic and patriotic leadership of President Alfredo Stroessner,
Paraguay is pressing forward, through a process of evolution, toward
the goal of balanced social and economic development, with emphasis
on specific priority fields and taking full account of the new situation
that will arise with completion of the Itaipu Yacyreta hydroelectric
power projects, the first of which will be the largest in the world.
Paraguay will welcome with open arms foreign investors wishing to
cooperate with local investors in playing an active role in the rapid
advancement of a small country currently experiencing the most im-
portant epoch in its history, whose goal has always been the well-being
of all its inhabitants.
We wish to thank the Government and the people of the Philippines
for their warm and friendly welcome and all those who have in any way
contributed in making this meeting a success and the start of a new and
more equitable economic order.

Copyright
Center

SIXTH JOINT SESSION1
STATEMENT BY THE GOVERNOR OF THE FUND AND BANK FOR FIJI
C. A. Stinson
I would like to join colleagues who preceded me in this forum in

thanking the Government of the Philippines for the very excellent
arrangements under which we meet this year. The logistic problems
associated with hosting a major international meeting such as this one, as
we all know, are complex. But our host has coped with apparent ease
and obvious efficiency. I also thank the Government and the people of
this country for their warm hospitality making this week so comfortable
and enjoyable for us all.
I warmly welcome Papua New Guinea and the Comoros who have
recently joined us. I also welcome prospective member countries who are
here with us as observers.
The world is beginning to emerge from an extremely difficult period.
Over the last three years we have collectively been subjected to rampant
inflation in the midst of a deep recession. In the same period, we also
experienced a major redistribution of resources and liquidity unprece-
dented in history. As expected, the burden of adjustment of the astro-
nomical deficits that resulted fell heavily on the non-oil producing
countries—particularly the developing ones. The economically stronger
industrialized countries were able, with relative ease, to offset their oil
deficits and thus shifted the burden on to those least able to bear the
economic shock.
But the economic history of these past three years has been very
competently analyzed in great detail in the latest Annual Reports of
both the IMF and the World Bank. The Managing Director of the Fund
and the President of the Bank, together with colleagues who have
spoken, have also elaborated on it. And so, mindful of your plea, Mr.
Chairman, I shall not cover the same ground. I shall confine myself to
October 7, 1976.
210

GOVERNOR FOR FIJI 211
the proposals, most of which have been aired in the numerous interna-
tional forums, such as the Group of 77, the United Nations Conference
on Trade and Development, the Conference on International Economic
Cooperation, the Commonwealth Finance Ministers' meeting, the Group
of 24, the Development Committee of the World Bank and IMF, and
others.
To put things in their proper perspective, it is worth reminding this
august gathering that, in this day of sophisticated technology, we live
in a rapidly shrinking world. No country, in the words of John Donne,
"can any longer claim to be an island." The economic or social problem
of any one country, whether we like it or not, quickly becomes our
common problem. The transmittal of inflation and recession with unbe-
lievable rapidity from country to country during the last three years,
if it has not done anything else, has taught us this important lesson.
Again, whether we like it or not, we must accept that, in the sphere of
economic and financial policies, we must function as a family of nations.
And as in a family, policies and programs must be designed to avoid
damage to others. Better still, they should be such as to involve some
degree of individual sacrifice, especially by the stronger, to the common
good of all.
The mounting debt burden of the non-oil Third World has been amply
documented. The private banking system has undertaken a very com-
mendable role in financing the bulk of these deficits in the face of
limited resources of multilateral institutions such as the IMF. But, while
their short-term financing has been assisted in the short term, the harden-
ing terms of these commercial funds will add substantially to the medium-
term burden of these non-oil developing countries. For them, the answer
must be in the form of increased export receipts, increased inflow of
resources—particularly aid and investments—and more access to en-
hanced resources of the IMF, the World Bank, the International
Development Association, and the International Finance Corporation.
We are well aware of the barriers to trade that unfortunately still
face the exports of the Third World in the industrialized markets. I have
no doubt that the developed countries should accept a policy of shifting
their industrial base to the sophisticated and relatively capital-intensive
industries, allowing the Third World room for increased production and
trade, if long-term balance of payments difficulties and unemployment
problems of the economically weakest are to be alleviated. It is also to
be hoped that the industrialized countries will resist the temptation to
embark on the production of commodity substitutes, whether they be
artificial or natural.

The IMF exists to assist the short-term liquidity problems of the

member countries. The lending of this great institution is always condi-
tional on the ability of the borrowing country to return quickly to a
situation of external balance. But, as we all know, in a lot of cases,
this situation is not readily achieved without fundamental readjustment
in the structure of the borrowing economy. A prerequisite to this, of
course, is the availability of long-term funds for the implementation of
projects and programs aimed at generating or conserving foreign
exchange. . . .
My country welcomes the Proposed Second Amendment to the IMF
Articles of Agreement. The necessary legislation has now gone through
our legislature and the new provisions have been enshrined in the laws
of our country. We particularly welcome the increased flexibility allowed
within the new system, which we believe more able to withstand the
stresses and strains in the rapidly changing world of today. The move
toward easier access to the resources of the Fund, as well as more
regular review of quotas, is overdue. Listening to Secretary Simon, it is
apparent that there is a difference in opinion on the optimum velocity
with which we should move in this direction. Although caution is always
wise counsel, I believe that the present and increasing deficits of the
non-oil developing and some developed countries suggests that more
could be done without detriment to the international monetary system.
We all know that the increases in oil prices over the last three years
have contributed to the deficits of the non-oil producing countries. We
know, too, that the stronger of the industrialized countries quickly
succeeded in offsetting their oil-generated deficits. In fact, it has always
been a matter of great surprise to me that important international forums
such as this one never seem to devote time to this important subject.
As a representative of a primary producing country, I certainly believe
in the equity of receiving value for one's product. But the fact remains
that the situation of the economically weakest, already saddled with
heavy debts, will be exacerbated to desperation, if further increases are
introduced. And so I make a plea for moderation on this important front.
It is true that the various schemes involving resource flows from the
industrialized to the developing countries, while necessary for the en-
hancement of living standards in the Third World, are by no means
sufficient. The introduction of enlightened policies—which in all prob-
ability are likely to be politically unpalatable in these countries—is an
essential component of this exercise. And so, self-help, supplemented by
increased assistance from the economically stronger, must for us in the
Third World be the modus operandi.

GOVERNOR FOR VIET NAM 213
Let me conclude on a more general note. The technical solutions to

our collective economic problems were never the difficulty. In fact, this
is a relatively easy part of the job ahead of us. We in this room all know
what needs to be done.
When we examine all the measures that we have been discussing this
week—whether it be the amendment to the IMF Articles, increased Bank
capitalization, increased resource flow to the Third World, Fifth IDA
Replenishment, commodity price indexation, oil prices, increased IMF
liquidity—we note that they all involve a certain degree of sacrifice by
some individual members toward the common good. As politicians, we
are all aware that individual national sacrifice toward common better-
ment and progress is not an easy thing to sell to the electorate. But the
success of our efforts must depend on the cultivation of political will
within and among nations. We in this room are well aware of this. Let
us set forth with resolve and sell it, back home in our various countries.
STATEMENT BY THE GOVERNOR OF THE FUND FOR VIET NAM
Tran Duong
This is the first time that unified Viet Nam has participated in the
Annual Meetings of the Boards of Governors of the International
Monetary Fund and the World Bank. On this occasion, on behalf of the
Government of the Socialist Republic of Viet Nam, our delegation
extends its most cordial greetings to the delegates of the member coun-
tries, to the Government of the Philippines, to the Minister of Finance
and the Governor of the Central Bank of the Philippines, and to all the
participants in these meetings. We thank the staff of the International
Monetary Fund and the World Bank for their assistance in setting up
these meetings.
We deeply appreciate the objectivity and good will manifested by
virtually all the Executive Directors in the recent decision of the Inter-
national Monetary Fund and the World Bank recognizing the member-
ship of the Socialist Republic of Viet Nam.
The Annual Reports have provided us with a summary of the efforts
of the Fund and the Bank to stabilize international monetary relations
and to expand sources of financing for the benefit of the developing
countries. On the subject of Fund and Bank resources, we are pleased
to note the rise in the quotas of a number of developing countries, which
could help to strengthen opportunities for stimulating the positive activ-

ities of the Fund and the Bank. It is the hope of our delegation that these
activities, especially those aimed at creating new facilities such as the
Trust Fund and the Third Window, will be given effect more vigorously
and speedily so as to provide more effective assistance to the develop-
ing countries.
The unification of our country was achieved on July 2, 1976; the
Vietnamese people now enter the most glorious period of their history,
which already spans several thousand years. As is well known, a war of
aggression and destruction was imposed upon us over the last decades,
causing much devastation in our country from north to south, the con-
sequences of which remain visible both in the cities and in the country-
side. Our Government and people are firmly determined to overcome all
difficulties in order to heal the wounds of war and to restore and
develop our economy. The results achieved in the last year and a half
in the north and south of the country have been particularly encouraging.
May we use this platform to draw your attention to the special situa-
tion of our country. As a developing country with a relatively low
national income, and one severely devastated by war, Viet Nam deserves,
on these dual grounds, the special concern of the International Monetary
Fund and the World Bank as they pursue their objectives. We wish here
to thank those delegates who have shown their understanding of our
position.
Such concern on the part of the Fund and the Bank is all the more
meaningful at this time in that the power which caused so much devasta-
tion in our country continues to evade its responsibility to contribute
to the healing of those wounds. Furthermore, we demand an end to all
discriminatory practices against Viet Nam, especially the freezing of
accounts and assets of the Vietnamese Government and people which
are deposited in American banks. In the same spirit of respect for the
legitimate rights of peoples, we support the recent demand put forward
by the President of the Central Bank of the People's Republic of China.
Unified Viet Nam possesses great potential in human and physical
resources, backed by the strength that springs from the unanimous resolve
of its people. With 50 million inhabitants, including an active working
population of 20 million and rich natural resources, Viet Nam has the
prerequisites for assured success in its task of building a prosperous
economy, combined with a sound basis and broad scope for effective
economic cooperation with other countries.
As our Prime Minister, Pham Van Dong, stressed in his speech of
September 2, 1976, while in the economic construction of the Socialist
Republic of Viet Nam we are counting mainly on our own efforts, we are

GOVERNOR FOR WESTERN SAMOA 215
at the same time giving full attention to the need to develop economic
relations with other countries. This is a policy "of major and lasting
importance, with far-reaching scope and effects; and one that is essential
and indispensable in the present international economic situation to the
interests of all the countries concerned and to the cause of peace and
friendship among the peoples of the world."
In this spirit, the Socialist Republic of Viet Nam is working to diversify
and develop its economic relations with all countries, on the basis of
respect for independence, sovereignty and territorial integrity, and of
equality and mutual interest. In this spirit also we shall strengthen
our cooperation with the other member countries of the International
Monetary Fund and the World Bank for the furtherance of peace,
prosperity, and social progress.

FOR WESTERN SAMOA
Vaovasamanaia R. P. Phillips
I first wish to say how deeply impressed and appreciative I and the
members of my delegation have been with the excellence of organization
and generosity of hospitality which has been accorded by the Republic
of the Philippines. We wish to sincerely thank the Government and the
people of the Philippines for all they have done to ensure the success
of this meeting.
I wish to extend a welcome to the new members of the International
Monetary Fund and World Bank and especially to our neighbor in the
South Pacific, Papua New Guinea.
Over the past several years, international monetary instability and
inflation have combined to tragically reduce the real impact of the
development efforts of many developing countries. The seriousness of the
situation is known to all present and has contributed to a situation of
negative growth for some of the world's poorest nations. Because of the
reality of the mutual interdependence of all countries of this world and
for the compelling reasons of humanity, justice, and equity, it is both
vital and necessary for a dramatic increase to take place in the transfer
of resources from developed to developing countries.
It is encouraging that the International Monetary Fund has already
responded to this problem, although implementation of the new initia-
tives taken has to date only partially occurred. Western Samoa considers
that, while the International Monetary Fund has undoubtedly partially

responded to the dramatic changes that have occurred over the past
several years, future initiatives taken must be bolder than has been the
case in the past, and it is necessary for implementation of initiatives to
be more flexible, responsive, and rapid than has previously been the case.
It is necessary for the International Monetary Fund to expand on
initiatives already taken in order to assist more responsively developing
countries with balance of payments problems and thus ensure that the
momentum of their development efforts is not unduly affected by tem-
porary balance of payments problems.
Western Samoa considers that the role of special drawing rights should
be expanded and that SDRs should be considered as a means of provid-
ing development finance. We consider that, given the necessary political
will, some formula could be worked out which would allow the issue of
special drawing rights to the least developed and other developing coun-
tries to assist with balance of payments problems and to ensure that the
momentum of development programs of these countries is not disrupted
through temporary foreign exchange difficulties. I must stress how
demoralizing it is for a developing country to have its development
efforts frustrated by foreign exchange difficulties which usually arise from
factors largely outside the control of the country concerned. Once the
momentum of the development process has been started—and this is the
hardest part of all—it is essential that the minimum of disruptions occur,
so as not to inhibit or destroy this momentum. Members of the Inter-
national Monetary Fund must not be satisfied or complacent with the
progress already made, and must be prepared to consider initiatives to
assist developing countries on a scale, and with a degree of responsive-
ness, that would really have the necessary relevancy and impact. . . .
Western Samoa trusts that developed countries will strive to achieve
their agreed official development assistance targets before the end of
this decade.
The inroads of international inflation have been particularly disruptive
and harsh for the smaller developing countries and we see it as vital for
the developed countries to work toward restoration of international price
stability. We trust that every effort will be made by the industrialized
countries to dismantle trade barriers, which in many cases are causing
developing countries to place a limit on their exports and thus place a
limit on their potential foreign exchange earnings.
It seems essential for some method to be worked out whereby pro-
ducers of commodities can be assured a fair and stable return for their
efforts. The substantial fluctuations in commodity prices in recent years
have been a most disruptive influence on the economies of many develop-

GOVERNOR FOR WESTERN SAMOA 217
ing countries and the smallest developing countries have been among
those most seriously affected. In their disruption of development pro-
grams, fluctuations of commodity prices over the past several years have
caused great problems. Western Samoa commends the start made in the
direction of commodity stabilization by the European Economic Com-
munity and trusts that a comprehensive international commodity stabili-
zation scheme will be seen as an essential prerequisite for the sustained
development process in many countries.
Western Samoa is a small country, but we certainly do not escape the
severe problems which have been caused by international monetary
instability and inflation in recent years. Certain actions must be taken
by the developed world in order to allow the developing countries to
help themselves and we trust that the good will of the developed coun-
tries will be demonstrated in the implementation of a number of desper-
ately needed actions that the Third World countries can only talk about.
We have deeply appreciated the demonstrated sincerity and dedication
of the Managing Director of the International Monetary Fund and the
President of the World Bank in their efforts toward improved interna-
tional monetary stability and an increased transfer of resources from the
developed to the developing countries. While we consider that certain
further institutional reforms are necessary in the International Monetary
Fund and the World Bank, we fully acknowledge the contribution that
both organizations have already made to alleviating the situation of those
living in the Third World.
As a small nation which is classified as a least developed country,
Western Samoa notes with grave concern the gap that is widening be-
tween the rich and poor nations of our one world. The poor countries
must and should do what they can to help themselves, but the rich must
not and cannot be apathetic about the situation of the poor. As the
President of the World Bank so dramatically described this situation in
his opening address, we must look behind the greyness of statistics in
order to see the human degradation caused by poverty.
To condemn a human being to poverty is to give a fellow man only a
twilight life. Thus the matters we are dealing with in words relate to the
most pressing and vital human situations of our time. Two thousand
years ago, a carpenter put this golden rule in human relations in the
simple phrase, "Thou shalt love thy neighbor as thyself."


FOR PAPUA NEW GUINEA
Julius Chan
I welcome this opportunity to respond to the warm expressions of

welcome and good will extended to Papua New Guinea, a new member
of both these world bodies, particularly those from our close neighbors,
Australia and Indonesia.
Only last month we celebrated our first birthday as an independent
country, and it is an honor for me to be here in Manila representing
Papua New Guinea as Governor of the Fund and the World Bank. In
other capacities I have visited this great and rapidly changing city
before, and once again I join other Governors in sharing the warmth and
hospitality of the Philippine people.
We are very happy that our smooth transition to political independ-
ence has been matched by the rapid but orderly establishment of a range
of national financial institutions and a smooth transition to membership
of the Bank and the Fund, and indeed other international organizations.
We had a very fruitful relationship with the Bank long before inde-
pendence but have come to know the Fund only recently.
Our association with the Bank and our new relationship with the Fund
involve much more than simply borrowing and repaying loans. We have
benefited greatly from and value highly the constructive advice and
assistance from the Bank and the Fund which we have received in
conjunction with project and survey missions and direct technical
assistance. . . .
In the short time since we joined the Fund, we have hosted an
acquaintance mission and have received direct technical assistance, as
well as support from the oil facility and the compensatory financing
facility. We decided to accept Article VIII status because we believe that
our own interests are best served by the policies and discipline which
this Article requires. Altogether, our relationship with the Fund has been
a happy one and has contributed substantially to what we believe is
successful management of our monetary system so far.
Although we are a new country, the themes raised in the speeches
of Mr. Witteveen and Mr. McNamara are already very familiar to us.
The first national government in Papua New Guinea, with almost un-
canny timing, has had to manage the commodity boom, the international
inflation and the recession of the mid-1970s. In many ways these prob-
lems are more severe in Papua New Guinea than in other countries, as

GOVERNOR FOR PAPUA NEW GUINEA 219
our small domestic market and the nature of our resource base make it
sensible for us to engage in a high level of foreign trade, and the struc-
ture of our economy is such that a very high inflow of financial resources
is required for development.
From our experience of the past few years, we are happy to accept
completely the challenges laid down by the Managing Director of the
Fund and the President of the World Bank in their opening addresses.
We agree that the prime responsibility for good economic management
lies with each country itself. We ourselves recognize the central im-
portance of maintaining control over the national budget and the rate
of monetary expansion to avoid problems in the balance of payments
and inflation. We have implemented very firm domestic measures our-
selves in recognition of these relationships. We have assessed the finan-
cial resources likely to be available to us in the medium term, and have
asked the people of Papua New Guinea to accept adjustments in private
and public consumption to levels that are consistent with this assessment.
The nation has accepted this challenge, and as a result we are emerging
from the recession in reasonable shape, well placed to take advantage of
the international recovery which we hope is in progress.
In seeking to manage our affairs through the international trade cycle,
we have placed considerable emphasis on explicit mechanisms to sta-
bilize budget expenditures and rural incomes. Various funds are operated
under rules established by law, and are designed to accumulate high
cash balances in boom times to cushion the budget and rural incomes
through times of low prices. These mechanisms have already been very
useful in preventing the harsh adjustments to personal and public ex-
penditure which would otherwise have been forced on us by the wild
gyrations in the prices of our agricultural and mineral export com-
modities.
I am also able to draw from our own short experience in accepting
President McNamara's special challenge on income distribution. The
fragmented and difficult geography of Papua New Guinea and the priori-
ties of previous administrations, caused us to inherit enormous inequali-
ties in access to social services and opportunities to earn reasonable
incomes. The redress of this historical imbalance has been the major
concern of Papua New Guinea's first national government. We have en-
deavored to allocate the growth in our limited financial resources to
rural improvement and to the least developed regions. Like the interna-
tional community as a whole, we have learnt that there are many
political and administrative obstacles to the implementation of such
policies. And like the international community as a whole, we must be
prepared to redouble our efforts in response to the biggest challenge

of our times. Decentralization and redistribution toward those areas are

real and urgent needs.
Papua New Guinea recognizes the challenges thrown down by
Mr. Witteveen and Mr. McNamara. But they were challenges to the
whole world. The best efforts of a developing country to put its house
in order will end in disillusionment and bitterness unless they are
accompanied by consistent policies in the developed countries. As
Mr. Witteveen pointed out on Monday, cautious demand policies in the
industrial countries, which we accept as being appropriate at this time,
must be supplemented by measures to improve market access for the
exports of developing countries and to increase the flow of official
development assistance. As Mr. McNamara demonstrated, the minimum
ambitions for development in the poor countries require the urgent
recapitalization of the Bank and the urgent replenishment of the Inter-
national Development Association at levels that allow an expansion in
the real programs of these agencies. Any short-term dislocation in the
activities of the World Bank due to a shortage of funds would fly in the
face of the Fund's call for all countries to adopt policies of cautious
but steady expansion in activity.
In this context, I am pleased to say that our own efforts to stabilize
our economy and to establish a basis for long-term progress toward our
national goals have been complemented by a farsighted approach by
our former administering power, Australia, to our bilateral relationship.
In recognition of the needs of good economic management in Papua
New Guinea, the Australian Government has committed itself to a
five-year program of assistance in a form that can be integrated efficiently
into our overall programs. Since independence, our financial relationship
with Australia has matured and overall our friendship has strengthened.
Firm assurances from the rich countries on the amount of development
assistance to be made available over a number of years is necessary if
the developing countries are to be able to plan effectively. Such com-
mitments also reduce the risk of excessive reactions to short-term de-
velopments in the donor countries. This is a very important matter, for
while the negative and inward-looking responses of some rich countries
to trade and aid opportunities for developing countries in the recent
recession are very understandable, they are also disastrous for the efforts
of developing countries to plot a steady course through the storms of the
international economy.
Papua New Guinea accepts the view that the avoidance of balance of
payments difficulties and inflation is primarily a responsibility of each
individual government. It makes sense in terms of national objectives for
each country to live within its means, counting as part of its means a

GOVERNOR FOR PAPUA NEW GUINEA 221
reasonable assessment of the external financial resources that are likely

to be available. We regard the various facilities of the Fund as an im-
portant part of the resources available to us in managing the balance of
payments through the trade cycle. We have sought to live within our
means, and expect to avoid the building up of excessive levels of debt
and to avoid unmanageable balance of payments difficulties.
As a new country committed to fiscal and monetary policies designed
to achieve stability through the trade cycle, we are concerned about any
developments which might create an incentive for the accumulation of
excessive domestic or foreign debt as a way out of short-term difficulties.
If aid is provided more readily to countries with external debt or balance
of payments problems, it is possible that the efforts of other poor coun-
tries to implement sensible policies will be undermined.
It is now widely believed that some other countries who have bor-
rowed more heavily will be hard pressed or even unable to meet debt-
servicing payments over the next few years. On the basis of past experi-
ence, we can expect the international lenders to mount rescue refinanc-
ing operations where necessary. If this does happen, the money used will
be money which would otherwise have been spread throughout borrow-
ing countries and the more responsible borrowers who are not in a crisis
situation but nevertheless need foreign capital will suffer.
Before leaving this general topic, as I see it, all countries, both lenders
and borrowers, must avoid shortsightedness in seeking solutions to our
immediate problems. As well as getting through the next year, we must
try to ensure that the same problems do not come back to haunt us
in years to come. It is particularly important for the developing countries
to do all they can to preserve and improve their credit ratings, and I
hope that lenders will appreciate that being poor does not mean the
same thing as being a bad credit risk. A poor country, living within its
means and spending its money wisely should have a higher credit rating
than a rich country living extravagantly and wastefully.
I believe a general moratorium on debt servicing, as has been sug-
gested in some quarters, would be shortsighted and, in the long run,
harmful to the standing of the developing countries. I would expect all
lenders to be sympathetic to the case of the borrower who needs more
time to pay his debts, provided it is due to circumstances beyond his
control.
However, a general moratorium on repayments could divert attention
from the adjustments which must be made in some countries and would
only amount to a postponement rather than a solution to the problem.

Papua New Guinea is still a poor country with an immense task of

national development ahead. Despite this, we are determined to avoid
the shortsighted responses to our development problems that would give
rise to major debt service, balance of payments, and inflation problems.
If we are successful in avoiding short-term problems of these kinds, and
if we succeed in maintaining the internal value of our new currency and
in raising its external value in times of international inflation, it will
be a sign only that we have succeeded in living within our limited means.
If such success in our fiscal and monetary policies was interpreted by
the rest of the world as a sign that we needed less aid, it would undermine
the whole basis of sensible economic management in Papua New
Guinea. . . .
Finally, Papua New Guinea sees both benefits and obligations in our
new membership. We recognize that there will be many obstacles along
the path of progress. We realize that every step we take is a new one,
every turn is a challenge. We know that the successful implementation
of our policies will require prompt and appropriate responses to external
changes, and many fine judgments. To this end we are prepared to
devote all our efforts and energies to do all we can toward building
the better world to which we all aspire.
STATEMENT BY THE GOVERNOR OF THE BANK FOR EGYPT

Mohamed Zaki Shafei
At the outset I wish to associate myself with the distinguished
Governors in conveying our sincere thanks and gratitude to the Presi-
dent of the Republic, the Government, and the people of the Philippines
for their cordial reception and gracious hospitality extended to all dele-
gates, and our appreciation of the excellent facilities for making our
joint Annual Meetings in this beautiful city, Manila, successful. Indeed
our meeting here today is particularly significant, not only because it is
symbolic of the struggle of developing countries in pursuit of their
economic development and progress, but because of the fact that the
name of this capital has been associated with the issue of an important
document, namely the Manila Declaration and Program of Action to
which they subscribed last February.
Next I wish to congratulate you, Mr. Chairman, the Managing
Director of the Fund, and the President of the World Bank, for the
penetrating opening addresses which dealt with recent economic and
monetary development, throwing ample light on the issues of immediate
concern to our meetings and tracing the possible lines of action. Our
appreciation is also extended to the Executive Directors for the excel-

GOVERNOR FOR EGYPT 223
lent Annual Reports of the Fund and the World Bank submitted to the
Boards of Governors.
Turning to our business today, the year since we last met in Washing-
ton has witnessed many important developments of which mention may
be made first of the recovery of the world economy from its most severe
recession in four decades, with production expanding in the industrial
countries at a satisfactory pace and with relatively lower rates of in-
flation, although—as the Fund's Annual Report points out—both unem-
ployment and inflation remain exceptionally high for the early phase of
a cyclical upswing. In the meantime, international payments underwent
important shifts in 1975, the surplus of oil exporting countries being
greatly reduced concomitant with a sharp swing in the current account
balance of the industrial countries from a deficit to a surplus, whilst
the large current account deficit of the developing countries has persisted,
despite a small reduction.
On the monetary front, the year was an eventful one both for the
Fund and for the evolution of the international monetary system, with
the approval of the Proposed Second Amendment to the Articles of
Agreement as well as the increase of quotas under the Sixth General
Review by the Board of Governors. In addition to the enhanced activity
of the Fund with a substantial expansion in the use of its resources, the
year saw the application of a number of important measures, including
the establishment of the Trust Fund, the liberalization of the compen-
satory financing facility, the temporary enlargement of credit tranches
to increase members' access to the Fund's resources, the enlargement
and extension of the oil facility through February 1976, and, last but
not least, the agreement to dispose of one third of the Fund's gold
holdings. Some of the major issues here involved, together with the
problems of developing countries, deserve a few comments to which
I now turn.
As far as the world economic situation is concerned, it is gratifying
that recovery in the industrial countries is now under way, to the benefit
of the world economy at large. But as the Fund's Annual Report warns
us, there is need for cautious management of aggregate demand to
bring down the rate of inflation and eliminate inflationary expectations
in industrial countries. Moreover, as the medium-term outlook for
world growth and trade is less buoyant than it would have been a few
years ago, the Report remarks that this may have particular impact on
the prospects for many of the non-oil developing countries and rightly
stresses the need for the industrial countries to improve access to their
markets and to increase the real levels of their official development
assistance. I shall deal with the problems of developing countries later.

As regards international monetary reform, the accord reached by the

Interim Committee in Jamaica last January had finally paved the way for
the Executive Directors, after years of laborious work and negotiations,
to accomplish the drafting of the Proposed Second Amendment.
When the amended Articles become effective—after the necessary
constitutional measures have been taken by member countries—they will
go a long way toward adapting the Fund to present-day conditions, and
should prove to be an important stage in the evolution of a reformed
international system. We in Egypt support the second amendment.
A few remarks, however, may be pertinent here. In the first place,
the comprehensive changes in the provisions of the Articles of Agreement
do not usher in a new full-fledged international monetary order, but they
herald the first stage in the evolution of that order. Moreover, the
amendment does not include several important features of the detailed
blueprint for reform drawn up by the Committee of Twenty, such as
convertibility or asset settlement, arrangements for the control of reserve
creation and composition, or rules for ensuring symmetry in the adjust-
ment process. On the other hand, objection may be raised regarding the
uniformity of application of the amended Articles to all members on the
grounds that they are not recognized as a special case, that is, without
enjoying the benefit of exemption from certain obligations, from the
strict conditionality applying to drawings in the upper credit tranches,
or from the usability of currencies of all members. In the latter case,
it is our understanding that their balance of payments position or
development of their reserves would be duly taken into consideration.
Moreover, no reference to the link between future allocations of special
drawing rights and the provision of additional development finance by
the developed countries is made in the amended Articles of Agreement,
to the disappointment of the developing countries.
Coming back to more specific issues in the proposed amendment, the
exchange arrangements provided for in the new Article IV are of pro-
found importance. By giving member countries the freedom to choose
their own exchange regimes—even if a widespread system based on
stable but adjustable par values is finally resorted to—greater flexibility
is imparted to the exchange rate system. It is to be observed, however,
that whilst floating of currencies will predominate for some time to
come, a return to more settled conditions in the foreign exchange mar-
kets through a system of stable but adjustable par values is, in our
view, a most desirable objective for the world economy at large. In fact,
the Fund's Annual Report gives an interesting survey of the develop-
ments in exchange rates during the past year, but makes the point that
frequent exchange rate variations for floating currencies have been a

major form of balance of payments adjustment, a view which may not

be entirely shared by some circles. Moreover, the greater diversity in
exchange rate practices among members and the frequent variations in
exchange rates, as well as the difficulties encountered by countries whose
currencies were pegged to some major currency or currencies, are all
indications of flexibility with instability in foreign exchange markets.
Further progress is thus needed to achieve a stable monetary system.
The other salient feature of the amended Articles relates to the
numerous changes introduced in the provisions concerning the special
drawing right to strengthen it by improving its characteristics and sub-
stantially enlarging its possible uses in order for it to become the prin-
cipal reserve asset of the international monetary system. However, a few
points need to be raised in this connection. The first is whether the
outstanding amount of special drawing rights is adequate to allow the
SDR to assume its future role or whether a second allocation is actually
overdue. This leads us to another and closely related point, namely, the
adequacy of reserves in general and their composition. While total
official reserves continued to grow from SDR 146.5 billion at the end
of 1972 (after the completion of the first allocation of SDRs) to some
SDR 203 billion at the end of April last, recording an increase of
38 per cent, the ratio of SDRs to global reserves has actually declined
from about 6 per cent to only 4.4 per cent. In a recent statement, the
Managing Director, declared that it would be advantageous if the propor-
tion of reserves held in the form of special drawing rights were increased,
but added that holdings of SDRs could well play a pivotal role in a
system of international liquidity control, even if they were not the main
reserve asset in terms of quantity. We believe, however, that this low
ratio can hardly give adequate support to the position of the SDR as
the future reserve asset, and serious thought should be given to the
question of a second allocation of SDRs.
As far as the non-oil primary producing countries are concerned, the
ratios of their reserves to imports are substantially lower than those of
the early 1970s. This may represent a greater degree of reserve strin-
gency, since this group includes for the most part countries with pegged
exchange rates—thus subject to the consequences of abrupt fluctuations
in the major currencies serving as a peg—and countries with limited
access to international capital markets. Increasing resort of these coun-
tries to short-term borrowing in the past few years is another indication
of the emerging reserve stringency.
Closely related to the question of reserve adequacy is the supply of
conditional liquidity by the Fund. It will be seen from the Fund's report
that the ratio of aggregate Fund quotas to imports has declined

to 4Vi per cent in the past two years—perhaps with even a lower
figure for the developing countries—as against a ratio of between
8 per cent and 12 per cent throughout the 1950s and 1960s; the forth-
coming increase in quotas may halt the declining trend in this ratio, but
only for the year that it becomes effective. While the increase in mem-
bers' quotas by 33.6 per cent—under the Sixth General Review Resolu-
tion—will raise aggregate quotas from SDR 29.2 billion to SDR 39
billion, thus raising simultaneously the supply of conditional liquidity
available to members, the share of non-oil developing countries remains
virtually unchanged at 20.92 per cent. This situation should be reviewed
to meet the demands of developing countries for additional liquidity
commensurate with their increasing weight and their need for reserves.
Looking at the Fund's activity during the past fiscal year, the sub-
stantial expansion in the financial assistance to members bears witness
to the role played by the Fund in financing international imbalances.
The liberalization of the compensatory financing facility, the establish-
ment of the Trust Fund, and the temporary enlargement of the size of
the Fund's credit tranches pending the increase in quotas are all indica-
tions of a reorientation of the Fund's policies in response to the demands
of its members.
The liberalization of the compensatory financing facility should go a
long way toward meeting members' demands for advance compensation
of shortfalls in export earnings, but there is still scope to extend its
coverage to fluctuations in some other balance of payments items on
current account, as well as to increase the amount of compensation in
real terms. The extension of balance of payments assistance to members
on concessional terms through the newly established Trust Fund is
another welcome development. Since the Trust Fund will be fed mainly
through profits from agreed gold sales, it is feared that eventual resources
will fall short of expectations due to the recent fall in gold market prices,
to say nothing of the depressing effect of that fall on the value of mem-
bers' reserves. Disposal of gold holdings in the future—after the planned
disposal of the first 50 million ounces has been completed—should also
take the interests of developing countries into consideration with a view
to allowing them a much larger share in the profits arising therefrom.
Reverting to the problems of developing countries, the difficulties
encountered were amply demonstrated in the Fund and Bank Annual
Reports, as well as in the various remarks made in the course of this
meeting. Suffice it to mention here that the combined current account
deficit of the non-oil primary producing countries has deteriorated from
$9 billion in 1973 to $43 billion in 1974 and further to $51 billion in
1975, with the bulk of the deterioration affecting the less developed
among them. And while some improvement is expected this year as a

result of world economic recovery, the projected current deficit is no

less than $42 billion of which $32 billion is accounted for by the less
developed. The financing required on such a scale is cause for serious
concern, the more so because many countries among them are in a
difficult and vulnerable external financial position.
As far as the transfer of resources to developing countries is con-
cerned, the net flow of financial resources from the member countries
of the Development Assistance Committee (DAC) showed a welcome
expansion in 1975 to reach 1.02 per cent of the combined gross national
product (GNP) of DAC members, while the members of the Or-
ganization of Petroleum Exporting Countries continued to lend their
support to the Third World. However, concessional official development
assistance, to which the less developed countries attach importance, did
not exceed 0.36 per cent of the GNP of DAC members, which is far
short of the target of 0.70 per cent. Moreover, net capital inflow of the
non-oil producing developing countries in recent years has also involved
borrowing on terms much harder than those of official development
assistance. As a result, the burden of servicing their external debt is
growing heavier, with service payments absorbing an ever-increasing
slice of their export earnings.
Developing countries have persistently called for an increased flow
of real resources, the stabilization of commodity markets, increased
access to the markets of the developed countries, and the attenuation
of the mounting burden of their external debt. These demands were
often repeated by the Group of 24 and the Development Committee, as
well as by the Manila Declaration and Program of Action. At UNCTAD
IV emphasis was placed on an integrated commodity program and on
the solution of their external debt problem. The discussion of the in-
tegrated program at the conference undoubtedly revealed major differ-
ences of view between the developed and developing countries over a
number of controversial issues, but a compromise resolution was
adopted. It is to be hoped that the preparatory measures to be taken for
the implementation of the resolution would bear fruit in the near future,
thus bringing about an equitable solution to the commodities problem,
to the mutual advantage of both the producers and the consumers. In
the field of money and finance, the resolution adopted unfortunately did
not embrace all the proposals made by developing countries in the
Manila Declaration in respect of debt-relief measures or the transfer
of resources, and some draft resolutions have been referred to the Trade
and Development Board for consideration.
If a major step on the road to international monetary reform has
already been taken by the amendment of the Articles of Agreement,
further action is still required in the fields of trade, development finance,

and aid for which international cooperation, and not confrontation

between rich and poor countries, will be needed if the contemplated
objective of restructuring world economic order is to be achieved. . . .
Turning now to my own country, I wish to reiterate our firm determin-
ation to pursue appropriate policies to bring our economy back to
equilibrium. We believe that economic reform should begin at home.
However, under present international circumstances this is not an easy
task. As the Bank's Annual Report rightly points out, the task of moving
from an economy in which distortions exist, to one in which there is
flexibility and room for maneuver is rarely simple.
In this connection, it should be emphasized that it is the declared
policy of the Government that this reform should be undertaken in the
framework of an open-door economic policy. The essentials of this
policy may be summarized in the encouragement of foreign investment
through the extension of numerous immunities, privileges, and exemp-
tions to foreign investments undertaken under the terms of Law 43 of
1974, which is administered by the General Authority for Arab and
Foreign Investment. This policy aims further at the revival of the
activities of the private sector and the dismantling of a multitude of
regulations and restrictions that used to guide economic activity in the
various sectors of the economy. In fact, many steps have already been
taken in the monetary, banking, exchange, and trade fields with a view
to achieving further liberalization, and further measures are still to be
taken, but substantial external financial assistance from various sources—
particularly from international financial institutions and oil exporting
countries—will be needed to overcome the difficulties in the external
sector.
To conclude my statement, I would like to place on record the grow-
ing close relations of the Arab Republic of Egypt with both the Fund
and the World Bank and the substantial assistance so far received from
these institutions. Finally, I wish to refer to the reopening of the Suez
Canal in June 1975 alluded to in last year's statement; the record for
the first year of operation was an outstanding success in the service of
world navigation and trade.

GOVERNOR FOR GRENADA 229
STATEMENT BY THE GOVERNOR OF THE FUND AND BANK FOR GRENADA
George F. Hasten
It is my privilege today to speak on behalf of my Commonwealth

Caribbean colleagues from the Bahamas, Barbados, Guyana, Jamaica,
and Trinidad and Tobago, as well as my own country, Grenada. Yester-
day, Mr. Coore of Jamaica spoke about the Bank on our behalf. We are
especially delighted to attend this Annual Meeting of the International
Monetary Fund and the World Bank here in Manila. The lush tropical
vegetation and the proximity of the ocean remind us of our island homes
on the other side of the globe. We are full of admiration for the splendid
arrangements provided by our hosts for this conference, and we are
deeply touched by the sincere expressions of friendship and hospitality
extended to us everywhere. We welcome Papua New Guinea and the
Comoros to the family of international financial institutions.
While my remarks will be restricted to the activities of the Fund,
I wish to take this opportunity to congratulate Mr. McNamara, the
President of the Bank, on his most stimulating address. Equally, I con-
gratulate Mr. Witteveen for his penetrating analysis of the world
economic situation. There is no doubt that under his leadership the Fund
has responded in an innovative manner to the recent crises in the inter-
national financial system. The institution of the oil facility, the modifica-
tions of the compensatory financing facility, and the liberalization of the
buffer stock facility are evidence of the Fund's flexible response to the
problems which confronted the international economy over the last
two years.
However, we feel that we must use this occasion to bring forcibly to
the attention of the Fund's management that the small, developing,
island economies, such as those I represent, are still suffering from the
effects of the recent world recession. Indeed, the Managing Director
indicated as much in his most eloquent address. He observed that,
whereas the balance of payments position of the industrial countries had
improved considerably through 1974 and 1975, the non-oil primary pro-
ducing countries had suffered from a weakening of demand in their
principal markets, a sharp deterioration in their terms of trade, and a
consequent rise in their combined deficits to more than $50 billion.
This applied, however, to all but one Commonwealth Caribbean country.
I should like to comment briefly on some of the difficulties which
still remain for the developing countries, the Commonwealth Caribbean
in particular, and to focus on those areas where modification of the
Fund's policy might be of greatest assistance.

We have noted that previous speakers have emphasized the impor-

tance of the adjustment process through the use of appropriate domestic
economic policies. But an important lesson of recent years is that
developing countries cannot adjust to major disruptions in the world
economy with the same ease as the industrial nations. This is because
they lack the sophisticated financial and real markets which have pro-
vided the advanced countries with ready access to private international
capital and money markets, and have enabled them to shift their
resources rapidly to the external sector. In consequence, they have bene-
fited from the increased demand for industrial goods by the surplus
oil exporting countries. As we have heard, the industrial nations have
been able, in a remarkably short time, to resume industrial expansion
after their most severe recession in 40 years and to reduce inflation.
However, the economic recovery in the developed world has not
alleviated the repercussions of their recent recession upon the primary
producing non-oil exporting countries of the developing world. The
developing countries of the Commonwealth Caribbean are still faced
with severe balance of payments difficulties, widening fiscal deficits,
and widespread unemployment.
A predominant characteristic of the Commonwealth Caribbean is the
dependence of its members on foreign trade. Although commodity prices
have risen as a consequence of economic recovery in the industrial
countries, the prices of our main visible exports, bauxite, alumina, and
sugar, have not followed the general pattern. In the case of sugar, prices
have plummeted from the levels of 1974 and early 1975. Indeed the
sugar price negotiated under the Lome Convention hardly covers the
costs of our production, while it appears that with the depressed levels
of world sugar prices, our sales on the world market will be made at a
substantial loss. Our tourist sector, which is of crucial importance in
the Caribbean, has stagnated, as employment levels in our North
American markets lag behind industrial recovery.
The fiscal performance of the Commonwealth Caribbean is intimately
tied up with the levels of foreign trade, a situation which poses most
difficult problems for me and my fellow Finance Ministers in the
Caribbean. Our levels of corporate and personal incomes depend on the
volume of exports, visible and invisible; a fall in foreign exchange earn-
ings therefore leads to a reduction in tax revenues. At the same time,
reduced incomes lead eventually to a reduced demand for imports, and
to a corresponding decline in custom receipts. It is not surprising then
that, in spite of strenuous efforts to restrain expenditure, the Com-
monwealth Caribbean is generally plagued by severe balance of pay-
ments or budgetary problems. The close relationship between export

GOVERNOR FOR GRENADA 231
earnings and the level of national income also makes it extremely

difficult to pursue classical demand management strategies. In some
Commonwealth Caribbean countries the foreign sector accounts for as
much as three quarters of the gross domestic product. For this reason,
our governments do not have the same scope as advanced countries for
the transfer of resources from the domestic to the foreign sector.
We in the Commonwealth Caribbean have recognized the need to
help ourselves. A facility for mutual balance of payments support has
been established by member countries and assistance extended so far
to our most seriously affected member country. In addition, Trinidad
and Tobago, our single oil exporter, has extended balance of payments
support to other member countries in the region, as well as aid on
concessional terms to the least developed islands in the region. But our
resources are insufficient to meet our needs, and we must continue to
look toward the Fund for assistance in the solution of our pressing
economic problems.
We are therefore most concerned that the liquidity of the Fund should
not be strained by its need to meet the demands of both the developed
and the developing countries, especially since there is a severe constraint
on the availability of funds from sources such as the World Bank and
the International Development Association. We therefore hope that
developed countries will pursue such policies as would reduce their
calls on the Fund, thus releasing its resources for use by the developing
nations, whose heavy debt burdens limit their access to the private
international capital markets and inhibit their development. Unless this
is done, the objectives of the transfer of real resources from developed
to developing countries in the context of the New International Economic
Order will not be attained.
Furthermore, we heartily support Mr. Witteveen's call for member
countries of the Fund to ratify, as soon as possible, the amendments
necessary for the implementation of the Sixth General Review of Quotas,
and we welcome the announcement of his intention to take immediate
steps to get the Seventh General Review of Quotas under way. We regret
that the Sixth Review did not give adequate consideration to the liquidity
needs of the developing countries, and we hope that serious consideration
will be given to a more equitable distribution of special drawing rights
during the Seventh Review.
Once again we must repeat our annual reminder that the Fund staff
needs to show greater sensitivity to the particular problems of developing
countries and, in particular, of small, developing, poor and middle-
income island economies. For example, in such countries, where capital
and money markets are imperfectly developed, the classical monetary

tools cannot be expected to produce the desired results. A change in

interest rates in a developing country will not generate ripple effects
throughout the economy as does similar action in an advanced in-
dustrial economy. Nor will a currency depreciation necessarily lead to
swift adjustment in the balance of payments in countries such as ours,
since the supply of domestic foodstuffs, and even of manufactured
goods, in most developing countries is notoriously inelastic. The Fund
staff should therefore adopt a more tolerant attitude to nonconventional
techniques for the restraint of nonessential imports to which some
developing countries may have to resort in order to achieve equilibrium
in their balance of payments.
The Fund is urged to review the criteria used for determining a short-
fall in exports under the compensatory financing facility. The main
purpose of such a review should be to include the decline in earnings
on invisibles—tourism in particular—in the calculation of an export
shortfall. It is our opinion that when the foreign exchange earnings of
our economy are threatened, it is not valid, when considering a com-
pensatory scheme, to maintain the distinction between exports of goods
and exports of services. After all, the effect on income and unemploy-
ment from a reduction in tourist earnings is the same as for a reduction
in the export of goods.
We are concerned that only two countries have so far obtained
approval for drawings from the extended Fund facility. So far, only
SDR 7.7 million of the total allocation of SDR 2 billion have been
drawn. We are therefore very disturbed about the Executive Board's
recent decision to delay review of the facility until after arrangements
have been concluded to the extent of the total allocation of SDR 2
billion. In the meantime, the developing countries would continue to
suffer balance of payments problems, as well as problems arising from
their structural underdevelopment, while resources remain idle in a
Fund facility.
Although the conditionality now attached to drawings under the
extended Fund facility is stringent, this is not the only problem for
developing countries. Countries seem to find access to the extended Fund
facility difficult because of the vast amount of data required by the
Fund staff in the preparation of supporting programs. Such data are
generally not readily available in small developing nations. We strongly
suggest that, in the case of small developing countries, reasonable pro-
grams can be prepared without some of the data available in advanced
countries. The development of the kind of data now required by the
Fund staff would consume a large proportion of the technical and
administrative resources of small islands and diminish their prospects of
economic growth.

GOVERNOR FOR AFGHANISTAN 233
I should now like to deal with a matter of specific interest to

Grenada, and that is our exclusion from the list of eligible countries for
assistance from the Subsidy Account. The fact that we have been able to
draw approximately 60 per cent of our maximum entitlement under the
oil facility clearly demonstrates the degree of difficulty which confronted
us on account of the oil crisis. It appears that the force of mere logic
would have argued in favor of Grenada's inclusion in the list of countries
deserving of subsidized assistance in servicing their obligations under
the loan. Again, on the grounds of economic logic, we were persuaded
that our eligibility for Trust Fund assistance gave us sympathetic, if not
automatic, consideration for access to the Subsidy Account in servicing
our oil facility indebtedness. But, it appears that the Board was not
concerned with such consideration in its selection of eligible countries.
Thus, its decision has gone against my people. We therefore ask that this
matter be reviewed.
Finally, we of the Commonwealth Caribbean would like to urge that
serious consideration be given by the Fund management to the observa-
tions and recommendations contained in this address. We are confident
that, if put into effect, they will contribute significantly to the advance-
ment of the New International Economic Order which we, both devel-
oped and developing countries, are earnestly striving to achieve.
STATEMENT BY THE GOVERNOR OF THE BANK FOR AFGHANISTAN
Abdullah Malikyar
I have the honor to represent the Government of the Republic of

Afghanistan at the 1976 Annual Meetings of the Boards of Governors
of the World Bank and the Fund. I wish to record the profound appre-
ciation and gratitude of our delegation to the Government of the
Republic of the Philippines for the hospitality and excellent arrange-
ments made for the meeting. I also wish to thank the Managing Director
of the Fund, the President of the Bank, and the Executive Directors,
and staff of both institutions for their dedicated efforts on our behalf
during the past year. Afghanistan joins with the other members in
welcoming the new members and prospective members.
We meet this year with a world economic situation rather brighter
than that which prevailed at the time of our last Annual Meeting. The
severe world recession is giving way to recovery in the industrialized
countries. Confidence has been revived and demand has picked up.
However, the recovery now under way in the industrial world is still
accompanied by high rates of inflation and unemployment. In these

circumstances there is need for particular caution in managing the course

of the recovery.
The recession was severe and its aftereffects are still with us. Although
the recovery has started, we feel that our sense of security has not yet
been restored. We are not yet sure how to prepare for the future. In the
industrialized societies there are social demands for a rapid return to
full employment. In the developing world, there are continuing and
growing needs and demands for higher standards of living as well as for
a more equitable economic order. In both groups of countries the
governments are under pressure to find solutions to these problems.
Besides our internal actions, we pledge our wholehearted cooperation
with any international effort to fulfill the legitimate aspirations of our
people. . . .
As a result of both the inflation and the recession generated by forces
outside the control of the developing countries, they have been con-
fronted with serious payments imbalances. As stated in the Fund's
Annual Report, the combined deficit on the current account of the bal-
ance of payments of the non-oil developing countries rose from about
$10 billion in 1973 to $37 billion in 1975, and indications are that
1976 will be another year of large current account deficits for these
countries as a group. This has necessitated heavy external borrowing
and a drawdown of reserves to critical levels in many of these countries,
thus exacerbating their vulnerable external financial positions. Con-
sequently, the minimum 6 per cent growth target of the second develop-
ment decade has become merely a dream for these countries; indeed,
substantial amounts of additional external capital are still required even
if this modest growth target is further lowered.
The world community has been engaged in an intensive dialogue to
create a new and more just world economic order for nearly three
decades. We hope that this dialogue will soon be followed by some con-
crete and fruitful actions which will alleviate the hardship being experi-
enced by many developing countries.
Afghanistan has perhaps a special position in speaking of these matters
as it is landlocked and one of the most seriously affected countries, and
has many problems in its international trade and transit. Following the
inception of the Republic of Afghanistan in 1973, the efforts of the
country under the leadership of President Daoud have been directed
toward raising the standard of living of a poor and neglected people.
The Republic was established in circumstances of a stagnant economy.
During the following three years great strides have been made in vitaliz-
ing the society and stimulating the economy. A series of fundamental
reforms have been introduced.

GOVERNOR FOR AFGHANISTAN 235
The banking system, which had failed to fulfill its appropriate role in
the economic development of the country, has been reorganized by
enacting a new Money and Banking Law in June 1975, providing for
more effective mobilization and utilization of financial resources. In July
1975 the Land Reform Law was enacted to redress the social inequity
of wealth maldistribution. Moreover, a new graduated land tax system
has been instituted, and agricultural cooperatives are being established.
All these measures are directed to benefit small farmers who constitute
the absolute majority of our population and to raise the productivity of
the agricultural sector. The Government's efforts toward administrative
reforms have resulted in increased absorptive capacity of development
assistance. This is cleary reflected in the recently increased level of
World Bank assistance to Afghanistan.
In 1975 our first Seven-Year Socioeconomic Plan, which envisages
an investment of Af 174.4 billion (equivalent to $3.8 billion) was
formulated. The plan will absorb available and potential development
assistance and will make possible increased utilization of all factors
of production. It is anticipated that our national income will grow
by an average of 7 to 8 per cent per annum during the plan period,
compared with about 2 per cent achieved during the past seven years.
The plan commences in circumstances of temporary financial stability.
We hope that with our own efforts and with a continued inflow of
assistance from friendly nations and international organizations, relative
stability will be maintained during the implementation of our develop-
ment plan. Our present favorable balance of payments position and
relatively comfortable reserve situation will help us in this direction.
But as we mentioned, we consider this situation to be temporary and
our need for capital inflows on generous terms will remain unchanged.
One of the major factors that has brought about this favorable condition
has been the postponement of substantial amounts of debt repayments,
which has temporarily reduced our debt service burden. Moreover,
although our reserve position seems stronger than three years ago, our
need to maintain higher reserves to cope with our increased import
requirements justifies this policy. Our present reserves are about six
months' import needs, which can hardly be more than adequate for a
country which is subjected to a variety of natural calamities. What we
want to emphasize is that we have tried to utilize our own resources to
the maximum extent possible, but our needs cannot be met merely from
our own resources.
We hope that international institutions and donor countries will look
at our problems from a broad perspective and continue their generous
cooperation. The Seven-Year Plan is more realistic than the previous

development programs, taking into account the improved administration

and increased absorptive capacity of the economy. However, increasing
external assistance on the most generous terms will be needed in the form
of both financial and technical assistance. . . .
Finally, I wish to note our appreciation for continuous efforts aimed
at improving the international financial system. The past year has been
one of considerable work and effort by our Fund Executive Board. The
work on the amendment of the Articles of Agreement has been com-
pleted, the compensatory financing facility has been liberalized, the pro-
gram of Fund gold sales has been instituted, and the increase in Fund
quotas has been agreed upon. We hope that a greater degree of consensus
on the world exchange rate regime will emerge in the near future to re-
place the present rather varied exchange rate arrangements. In this con-
text, we look forward to the establishment by the Fund of effective
procedures and rules relating to surveillance over exchange rate policies.

LAO PEOPLE'S DEMOCRATIC REPUBLIC
Bousbong Souvannavong
It is a great honor for me to represent the Lao People's Democratic

Republic for the first time at this joint Annual Meeting of the Interna-
tional Monetary Fund and the World Bank and its affiliates.
I should first of all like to discuss some aspects of my country's eco-
nomic and financial relations with other countries and with international
financial institutions. As you are probably aware, after more than 30
years of determined struggle for their national liberation the Lao people
were able to regain their independence and sovereignty, and through
a democratic process established a new regime by founding the Lao
People's Democratic Republic on December 2, 1975. Since its inception,
our Republic has been confronted with numerous economic and financial
problems, some of them arising from the war that was waged against
my country and others inherited from the previous regime. In healing
the wounds inflicted by the war and laying the foundations for economic
development, my country intends to rely primarily on its own resources
—both human and natural—with which we are fortunately well endowed,
but which have been barely tapped so far. In addition, my country
would also seek assistance from and cooperation with friendly nations
throughout the world as well as the international organizations, provided
that such assistance and cooperation are not subject to political condi-

GOVERNOR FOR LAO PEOPLE'S DEMOCRATIC REPUBLIC 237
tions. My country thus intends to establish and maintain good relations

in all spheres with its neighbors and with all other countries, regardless
of their political or social regime, based on the mutual respect of
national sovereignty and the interests of all parties concerned.
My country maintains permanent relations with international financial
institutions such as the IMF, the World Bank, the International Develop-
ment Association, and others of which it is a member. We should like to
further strengthen these relations and hope that these institutions will
continue to give special attention to our particular circumstances.
I should now like to comment briefly on the activities of the Fund
and the Bank.
I wish to join previous speakers in praising the Managing Director
of the Fund and the President of the Bank and the staffs of these
organizations for their efficient and fruitful work over the past year.
I also wish to congratulate our new member, the Comoros. We cannot
but express our pleasure at the presence in our midst of the delegation
of the Socialist Republic of Viet Nam. The admission of that country as
a de jure member of the Fund and of the Bank is entirely legitimate.
We also consider perfectly legitimate the demand of the People's Repub-
lic of China with respect to representation of that country in our
institutions.
Since our last Annual Meetings, protracted discussions within the
Fund have resulted in agreement being reached on several issues, notably
exchange arrangements, the role of gold, the role of SDRs, liberalization
of the compensatory financing facility, and changes in the organization
of the Fund.
The decisions taken in Kingston, Jamaica, have resulted in the estab-
lishment of the Trust Fund, in which the developing countries, and
particularly countries like mine that are in the ranks of the most seriously
affected, place great hopes. We hope that the discussions among the
Executive Directors to settle outstanding issues relating to the opera-
tions of the Trust Fund will result in conditions that are as favorable
as possible for the countries using this new facility. This is very neces-
sary, as the countries that are most in need of assistance are already
bearing a heavy external debt-service burden.
Another subject of concern is the volume of capital and technology
to be transferred to the developing countries. The countries that have
the greatest need are often unable to obtain such assistance because of
overly strict rules for the allocation of these resources. In this area, too,
we should like to see a simplification and liberalization of procedures.

This concludes the few comments my delegation wished to make. But

before I leave this platform, I should like to join previous speakers in
thanking our hosts for the outstanding hospitality they have extended to
us, which has certainly contributed to the success of this Annual
Meeting.

REPUBLIC OF CHINA
Kuo-Hwa Yu
On behalf of the delegation of the Republic of China, I wish to join

my fellow Governors in expressing our sincerest appreciation to our host
country for its hospitality and cooperation. It is indeed our privilege
and pleasure to hold our annual discussion in this lovely and dynamic
city of Manila, which testifies eloquently to the economic achievement
of the Philippine people in recent years.
I wish also to express our thanks to Mr. H. Johannes Witteveen,
Managing Director of the International Monetary Fund, Mr. Robert S.
McNamara, President of the International Bank for Reconstruction and
Development, and the Executive Directors and the staffs of the Fund
and Bank for their dedicated efforts which have made the year since we
met last time a year of success. Our sense of accomplishment is enhanced
when we take into consideration the difficulties we have experienced in
seeking solutions to seemingly insurmountable problems in connection
with establishing an orderly monetary system and at the same time
satisfying the universal desire for further development, in an environment
of continuous world-wide crises.
May I also point out, in this regard, that we should express our
appreciation for the valuable guidance given to Fund and Bank opera-
tions by the Interim Committee on the International Monetary System
as well as by the Joint Ministerial Committee on the Transfer of Real
Resources to Developing Countries.
The approval of the second amendment of the Articles of Agreement
is an important milestone in the history of the Fund. It is the crystaliza-
tion of many years of conscientious effort and study, and, upon entering
into force, will enable the Fund and its operations to be better adjusted
to present-day requirements. We genuinely believe that the flexibility
accorded to members' choice of exchange rate arrangements and the
official recognition of a generalized system of floating rates are inevitable
and desirable. However, as representatives from a developing country,

GOVERNOR FOR REPUBLIC OF CHINA 239
we still hope for the day when international economic and financial
conditions will permit the reinstallation of a system based on stable but
adjustable par values. Our experience has shown that such a system best
served our unsophisticated purposes, provided a climate of financial
stability, promoted trade, and sustained economic development and
prosperity.
The process of demonetization of gold has been accelerated and its
role in the international monetary system has been smoothly reduced
during the past year. Ever since the special drawing rights mechanism
was first set up to meet the need of creating additional reserves in an
internationally controlled manner, it has been the goal of the Fund's
efforts to make the SDR the principal reserve unit for the system. As a
result of the second amendment, the characteristics of the SDR are sub-
stantially changed, and its possible uses are increased and expanded.
My delegation notes with satisfaction that the Fund's resources have
been made increasingly available to member countries in meeting their
financing requirements associated with the widening of current account
deficits. Members' borrowings from the Fund amounted to a record
SDR 4.7 billion during the calendar year 1975, and came to more than
SDR 4.9 billion in the first half of 1976 alone. Indications are that most
non-oil producing less developed countries would rely relatively more
on the Fund than on private banks to bridge over their balance of
payments gaps this year. . . .
. . . Until 1974, our country had enjoyed one of the highest and most
consistent growth rates in the world. From 1952 to 1973, the average
annual increase in real gross national product (GNP) was 8.3 per cent
and, during that period, it never fell below 5.3 per cent. In 1974, under
the impact of the world-wide recession, the growth rate fell to only 0.6
per cent, but recovered to 2.8 per cent in 1975. Those rates were very
low; but, considering the tempo of the world economic situation during
those critical years, the result could be deemed satisfactory.
As to economic development in 1976, although the target rate of
growth has been set at 6.4 per cent in terms of real GNP, the economic
growth rate rose at an annual rate of 13 per cent for the first half of this
year. Two-way trade will reach $14.65 billion. Exports of goods and
services will reach $7 billion, up by 11.3 per cent, and imports $7.65
billion, up by 11.7 per cent.
In the light of the drastically changing economic situation, the
Government is finalizing a new Six-Year Plan for the years 1976-81.
The plan would be devoted to completing ongoing projects, especially
the ten major projects, and to implementing several new programs. The

target growth rate is 7.5 per cent per annum and the per capita income
is scheduled to grow by 5.8 per cent per annum to $1,344 in 1981.
On behalf of my delegation, I would like to conclude by saying that
my country will, as it has always done, endeavor to cooperate fully
with the Fund and the Bank.

Copyright
Center
CONCLUDING REMARKS1
STATEMENT BY THE GOVERNOR OF THE FUND AND BANK FOR IRELAND
Richie Ryan
I wish to express my Government's appreciation of the honor which

you have bestowed on our country in selecting Ireland to chair the
Annual Meetings of the International Monetary Fund and the World
Bank in the coming year. Ireland is one of the smaller European nations.
However, our people have spread far and wide throughout the world
and, I trust, have made a contribution to the development of many of
the countries represented here. I hope that, in our position as Chairman,
we will be able to add to this contribution.
The coming year will be an important one for the IMF and the
World Bank. In particular, in the IMF, it should see the coming into
force of the second amendment of the Articles of Agreement and the
new quotas already agreed upon. It should also see the approval of the
capital increases in the World Bank and the International Finance
Corporation and completion of negotiations on the Fifth IDA Replenish-
ment. I will cooperate with Mr. Witteveen and Mr. McNamara and the
Vice Chairmen to ensure that as much progress as possible is made on
these and other important issues.
May I congratulate and thank you, Mr. Chairman, on the excellent
manner in which you have performed the duties of Chairman in the past
year and particularly the manner in which you conducted these Annual
Meetings.
STATEMENT BY THE GOVERNOR OF THE FUND FOR THE PHILIPPINES
Gregorio S. Licaros
Hosting the thirty-first joint Annual Meetings of the Governors of

the International Monetary Fund and the International Bank for Recon-
struction and Development has been both an honor and a pleasure for us.
Delivered at the Closing Joint Session, October 8, 1976.
241

We, the Philippine people and the Government, are happy to have been
given the opportunity to provide the facilities and accommodations for
the officials, delegates, and guests of this important and prestigious
gathering. It is, indeed, a singular privilege for us to have had our
country chosen as the venue of the first IMF-IBRD conference in South-
east Asia and, I would like to add, a distinct honor for my country to
have our Secretary of Finance, the Hon. Cesar Virata, entrusted with
the task of chairing the Development Committee.
It is heartening to note that the level of concern for the developing
countries, in particular for the poor among us, has risen during the con-
ference. Discussions during the week brought into sharper focus the
harsh meaning of poverty for hundreds of millions of people in the
developing countries—the high rates of illiteracy, severe malnutrition,
unspeakable squalor, rampant disease, and almost total lack of economic
opportunity.
While the governments of the developing countries accept the major
responsibility for accelerating economic growth and satisfying the basic
human needs of all of their peoples, there is a growing recognition of the
paramount need for additional and sustained support from the developed
world, if the problem of development of the Third World is to be
effectively resolved.
Thus, in Manila, we have moved closer to achieving a "global com-
pact," if we may borrow the words of President Robert McNamara of
the World Bank. The "global compact," he says, would make clear in
overall terms both the additional trade and aid support to be provided
by the developed nations and the policy reforms and structural changes
to be undertaken by the developing nations. The conjunction of national
and international cooperation and the necessity for complementary
planning on both planes have been recognized during the conference.
In the context of this new enlightenment, the recent indications of
strong resolve to expand the role of both the Fund and the Bank take on
greater meaning. Among these are the proposed selective increase in
IBRD capital amounting to $8.3 billion in May 1976, the Proposed
Second Amendment of the Fund's Articles of Agreement, the Sixth Gen-
eral Review of Quotas already concluded, and the Seventh General Review
of Quotas which will be accelerated two years ahead of schedule. We are
also heartened by the expressions of support during the conference for the
replenishment of International Development Association funds, for addi-
tional contributions to the Third Window, for a general increase in
capitalization of the World Bank and the International Finance Corpora-
tion, and for more liberalized access to markets of industrialized coun-
tries for the exports of the developing countries.

CONCLUDING REMARKS 243
Now, more than ever before, the reduction and eventual eradication
of absolute poverty—the central task of our development efforts—
appear realizable.
We hope that your visit to our country has been made as pleasant and
gratifying as our preparations had intended it to be, and also was made
significant and memorable by the accomplishments of these meetings.
Please take with you our sincere wishes for a safe and happy journey
and many successful days ahead.
STATEMENT BY THE CHAIRMAN OF THE EXECUTIVE BOARD AND

MANAGING DIRECTOR OF THE INTERNATIONAL MONETARY FUND
H. Johannes Witteveen
Our Annual Meetings in both 1974 and 1975 were held under ex-
tremely adverse conditions in the world economy, with accompanying
tensions and anxieties. Now, with the improvements that have occurred,
a calmer and more confident atmosphere has prevailed in our discussions.
There is no doubt that we have made good use of this change in atmos-
phere to give careful consideration to the difficult problems that remain
and to the new challenges that confront us. Our deliberations have been
greatly facilitated by the exceptional hospitality and cooperation pro-
vided by the Philippine Government; we are truly grateful.
This has indeed been a week of very useful discussions. The speeches
by Governors have ranged widely over the problems facing the Fund and
its members, and they have been frank, penetrating, and constructive.
From our discussions a number of very important conclusions have
emerged, and I should like to mention some of them briefly.
Of primary significance is the general consensus that has been reached
with respect to economic policy in the industrial countries. Notwith-
standing all the difficulties in this area, there is a clear and general view
that the path to sustainable economic growth and to the reduction of
unemployment lies in the elimination of inflationary psychology and the
restoration of a reasonable degree of price stability.
Among the primary producing countries, there is understandable
concern that import expansion in the industrial world may proceed at
lower rates than in past recoveries because of the need for cautious
policies in the fight against inflation. Yet, I sense that the developing
countries concur that it would be in their own best interest for the
industrial countries to conquer inflation.

In my opening statement last Monday, I pointed to the need for the

industrial countries to supplement their cautious demand policies by
measures to improve market access for the exports of developing coun-
tries and to increase the flow of official development assistance. Let me
again emphasize the importance of this aspect of economic policy and
strategy in the industrial countries. It is gratifying that the speeches by
Governors from those countries have given much attention to the eco-
nomic plight of developing countries, and to the urgency of increasing
development assistance. And I fervently hope that the numerous state-
ments of intention in this regard will be translated into effective action.
This meeting has also given attention to issues of balance of payments
adjustment and financing. Of particular significance, in my opinion, is
the apparent extent of prevailing agreement among Governors that these
issues should now be seen in a different light as a result of changes in
the world economy over the past few years. It is encouraging that many
Governors have agreed that there is need for greater emphasis on the
adjustment of imbalances, as distinct from financing alone. Also, I wel-
come the view, generally shared by Governors, that the adjustment
process should be symmetrical as between surplus and deficit countries,
and that exchange rates should be allowed to play their proper role in
this process.
The comments that Governors have made on these and other aspects
of the world economy will be helpful in furnishing guidance for our
consultations with members and ideas for our continuing research on the
functioning of the international adjustment process. In addition, Gov-
ernors have contributed many comments that bear more directly on
various programs and activities of the Fund. We shall study these com-
ments very carefully upon returning to Washington, and we expect to
derive considerable benefit from them. Meanwhile, let me make a few
remarks in this general area.
One of the most challenging tasks that the Fund will have under the
amended Articles of Agreement is the surveillance of exchange rate
policies. In the period ahead, the Fund will have to develop a code of
conduct that helps members to recognize and observe their obligations
in this field. From the statements that have been made by Governors, we
can expect this important work to have the widespread support of
members that is so indispensable to its success.
I was also very interested in the many remarks that Governors have
made on the subject of international liquidity, both conditional and
unconditional, and on the role that the Fund should play in this area.
As a result of developments this week in Manila, we will need to
intensify our work on international liquidity. In addition to the com-

ments and suggestions by Governors, the Interim Committee—as noted

in its communique of October 2—has requested the Executive Directors
"to keep all aspects of international liquidity under review and to report
to it at a later meeting." High priority will be given to initiation of the
Seventh General Review of Quotas.
However successful countries may be in their efforts to adjust their
external positions, one must expect that there will continue to be, for
some time to come, a large demand by members for use of the Fund's
resources in the financing of payments deficits. In these circumstances,
the many observations that have been made on the various forms of such
use take on particular interest. I have noted suggestions with respect to
use of the ordinary credit tranches and the extended Fund facility, and
also of the compensatory financing facility and the buffer stock facility.
The latter facilities will be the subject of reviews in the coming months.
But, beyond this, we will keep a close watch on the effectiveness of the
Fund's operations in all their aspects.
I am happy to note the announcement yesterday by the Finance
Ministers of the members of the Organization of Petroleum Exporting
Countries of their willingness to facilitate our further work by recom-
mending that their Governments make contributions to the Trust Fund.
I should now like to repeat a point I made in my opening statement—
namely, that it is very important for the amended Articles of Agreement
to go into effect as soon as possible. In this regard, let me express our
gratitude to the Philippine Government for the example it has set in
being among the first of the Fund's members to accept the amendment to
the Articles, and I trust that heed will be paid to the call of President
Marcos for other members to follow suit.
Perhaps I may take this opportunity to congratulate Mr. De Clercq
on his re-selection as Chairman of the Interim Committee and Mr. Virata
on his selection as Chairman of the Development Committee.
In conclusion let me simply observe that the Executive Directors and
staff of the Fund will have a very heavy schedule of work in the coming
year—the more so because of this meeting. The effectiveness of their
work will depend greatly on the cooperation received from member
countries. I know that we can count on this.
I look forward to seeing all of you next year in Washington.

STATEMENT BY THE CO-CHAIRMAN OF THE BOARDS OF GOVERNORS,

THE GOVERNOR OF THE FUND FOR THE SYRIAN ARAB REPUBLIC
Mohammed Imady
The past five days have enabled us to hear the different points of
view on the problems we face and the action required to solve these
problems.
Undoubtedly the friendly Philippine atmosphere encouraged our coop-
eration. Surely the economic developments in progress here demonstrate
clearly the vital importance of the human element and wise leadership
in economic growth. No unanimity has emerged: none was expected.
I feel that we have, however, reached a broader and deeper under-
standing of the problems we must face together in working toward
international monetary stability and the economic development on
which it must be based. Many Governors have repeated our call for a
revision of the international economic order toward greater equity.
Most importantly, they have joined us in seeking the necessary changes
through cooperation rather than confrontation.
There has been a recognition at these meetings that world market
structures should reflect each nation's control of its natural wealth,
a recognition of the need for a basic equality of economic power between
the producers of raw materials and the manufacturers of finished goods.
Another common point has been the strengthening of the institutions
we represent here—the International Monetary Fund and the World
Bank. A consensus has emerged on the need for a central guiding hand
in the creation and distribution of adequate international liquidity.
Many Governors have expressed their hopes that the Fund can increas-
ingly assume this role—acting as a cooperative multilateral institution
favoring no nation or group of nations.
Almost all Governors have joined in supporting Mr. Witteveen on
the need for speedy ratification of the Proposed Second Amendment of
the Fund's Articles of Agreement in an imperfect—but necessary—first
step toward making the international monetary system more realistic.
There has been further agreement to continue diminishing the im-
portance of the role of gold and its replacement in national reserves by
the SDR. A number of Governors have asserted our belief that the devel-
oping countries should be given a greater proportion of any newly created
reserves. We have been in agreement, too, on the need for the Fund to
develop and put into use surveillance and stabilization techniques, and
that the process of adjustment and stabilization should be symmetrical.

As Mr. McNamara and so many Governors have stressed, the World

Bank's greatest need at this point is the resources it must have to con-
tinue its work as the catalyst of economic development.
All other questions regarding the Bank's future—though many are
quite important in themselves—are ancillary to this one basic issue:
will the Bank, the International Development Association (IDA), and
the International Finance Corporation (IFC) be given the means needed
to achieve the ends we all desire? This question will be answered in the
very near future. I cannot overemphasize the importance for all our
futures of an overwhelmingly positive response.
Many Governors pointed out the need for a full IDA replenishment,
for a speedy and substantial increase in the capital of the Bank and the
IFC, showing that the urgency of this agenda has been recognized. The
call from the heart of Mr. McNamara for some kind of bridging mecha-
nism to prevent a gap in IDA's commitment powers, and for an intensive
and careful study of the Bank's proper future role, has been echoed by
many of us.
The membership of our institutions consists of both rich and poor
nations, joined in idealistic goals. Behind these goals lie the stark reali-
ties of poverty, of economic inequity, and even of starvation. In all our
discussions of principles and theories we must never forget these realities.
Let the suffering of mankind be our driving force for greater cooperation
among us in order to achieve economic security and prosperity for all.
I would like now once again to express my appreciation—and, I am
sure, the appreciation of all of us—to President and Mrs. Marcos for
the warm hospitality we have enjoyed in Manila. On behalf of all the
developing countries, I congratulate Secretary Virata on his selection to
chair the Development Committee. I also wish to voice our continued
support for the wise and courageous leadership shown by Mr. Witteveen
and Mr. McNamara in directing the work of the International Monetary
Fund and the World Bank.
The staffs of our institutions are deserving of special praise.
Through the years they have worked with great efficiency and dedica-
tion—at headquarters and around the world—to realize the policy
decisions and guidelines set out by the Governors and Executive Direc-
tors. Our friend, Mr. Hebbard, will retire from his position as Secretary
of the Fund before the next Annual Meeting. The Governors will miss
his wise counsel. I am sure that he will leave this meeting in Manila
content in a job well done.
We shall meet again next year in Washington. Chairman Ayoubi and
I hope that Mr. Ryan, next year's Chairman, will be able to report to

you that real progress has been made on the initiatives put forward here
in Manila. Although these meetings are now drawing to a close, our
work is not completed; the frank, open, and valuable discussions we
have had here have served only to create an agenda for actions that must
be carried out in the years to come.
I declare the thirty-first joint Annual Meetings of the International
Monetary Fund and the International Bank for Reconstruction and
Development to be adjourned.

DOCUMENTS
and
RESOLUTIONS OF THE BOARD OF GOVERNORS


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SCHEDULE OF MEETINGS1
Saturday 10:30 a.m.—Interim Committee

October 2
3:00 p.m.—Interim Committee
Sunday 10:00 a.m.—Joint Development Committee

October 3
3:00 p.m.—Joint Development Committee
Monday 10:00 a.m.—Opening Ceremonies

October 4 Address from the Chair
Annual Address by Managing Director,
IMF
Annual Address by President, IBRD,
IFC and IDA
2:30 p.m.—Annual Discussion
5:30 p.m.—Joint Procedures Committee
Tuesday 9:00 a.m.—Annual Discussion

October 5
2:30 p.m.—Annual Discussion
IMF Election of Executive Directors
IBRD Election of Executive Directors
Wednesday 9:00 a.m.—Annual Discussion

October 6
4:15 p.m.—Interim Committee
4:30 p.m.—Joint Development Committee
Thursday 9:00 a.m.—Annual Discussion

October 7
5:00 p.m.—Joint Procedures Committee
Friday 9:00 a.m.—Joint Procedures Committee Reports

October 8 Comments by Heads of Organizations
Closing Remarks from the Chair
Adjournment
1
The sessions were held jointly with the Boards of Governors of the Bank, IFC
and IDA, except for the meetings of the Interim Committee of the Fund Board
of Governors on the International Monetary System.
251

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PROVISIONS RELATING TO THE CONDUCT

OF THE MEETINGS
Admission
1. Sessions of the Boards of Governors of the Fund, the Bank, IFC
and IDA will be joint and shall be open to accredited observers,
the press, guests, and staff.
2. Meetings of the Joint Procedures Committee shall be open only to
Governors who are members of the Committee and their advisers,
Executive Directors, and to such staff as may be necessary.
Procedure and Records

3. The Chairmen 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 asked to speak.
4. With the consent of the Chairmen, a Governor may extend his state-
ment in the record following advance submission of the text to the
Secretaries.
5. The Secretaries will have verbatim transcripts prepared of the pro-
ceedings 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 Chairmen,
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 Chairmen and the Reporting Member.
Public Information
7. The Chairmen of the Boards of Governors, the Managing Director
of the Fund, and the President of the Bank and its Affiliates will
communicate to the press such information concerning the proceed-
ings of the Annual Meetings as they may deem suitable.
252

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AGENDA
1. 1976 Annual Report

2. Report of the Chairman of the Interim Committee
3. Joint Development Committee
(a) Annual Report
(Fund Document No. 5)
(b) Review under Paragraph 7 of Resolution No. 29-9
(Fund Documents Nos. 6 and 14)
4. 1976 Regular Election of Executive Directors
5. Financial Statements and Audit Report
(Appendix VIII of 1976 Annual Report and
Fund Documents Nos. 8 and 9)
6. Administrative Budget for Fiscal Year Ending April 30, 1977
(Appendix VI of 1976 Annual Report and
Fund Documents Nos. 9 and 10)
7. Amendments of Rules and Regulations
8. Applications for Membership
(a) Guinea-Bissau
(b) Surinam
9. Place and Date of 1978 Annual Meeting
10. Selection of Officers and Joint Procedures Committee
for 1976-77
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REPORTS OF THE JOINT PROCEDURES

COMMITTEE
Chairmen Syrian Arab Republic
Vice Chairmen India
Upper Volta
Reporting Members Netherlands
Other Members: Denmark, Dominican Republic, France,
The Gambia, Federal Republic of Germany,
Jamaica, Japan, Liberia, Mexico, Paraguay,
Singapore, Spain, Sudan, Thailand, Tunisia,
United Kingdom, United States
REPORT 1 1
October 4, 1976
Mr. Chairman:
The Joint Procedures Committee met on October 4, 1976 and sub-
mits the following report:
Review of Development Committee
The Committee considered the report of the Chairman of the
Development Committee on the review by the Executive Directors
of the Fund and of the Bank of the Development Committee's per-
formance (Fund Document No. 14 and Bank Document No. 8)
[Annex I] and the resolutions recommended for adoption by the
Boards of Governors of the Fund and the Bank (Fund Document
No. 6/Bank Document No. 6) [Annex II].
The Committee recommends that the Boards of Governors adopt
the draft resolutions set forth in Fund Document No. 6 2 and Bank
Document No. 6.
Approved:
/s/ MOHAMMED IMADY /s/ A. SZASZ
/s/ SADEK AYOUBI /s/ W. F. DUISENBERG
Syrian Arab Republic—Chairmen Netherlands-—Reporting Members
1
Report I and the Resolution recommended therein were adopted by the
Boards of Governors of the Fund and of the Bank, IFC and IDA, in Joint Ses-
sion, on October 5, 1976.
2
Resolution No. 31-9, see page 308. The Bank parallel Resolution No. 305 is
published in the Bank, IFC and IDA Summary Proceedings, 1976.
254

COMMITTEE REPORTS 255
Annex I to Report I
October 3, 1976
Gentlemen:
Countries (Development Committee) has authorized me, as Chairman,
to present herewith to the Boards of Governors the Committee's rec-
ommendation concerning the review of the Committee's performance
which is called for in Section 7 of Bank Board of Governors' Resolu-
tion No. 294 and Fund Board of Governors' Resolution No. 29-9,
adopted on October 2, 1974.
The Committee recommends that, because the period of operations
of the Committee has been brief and affected by special events, the
Boards of Governors should further review the performance of the
Committee at the end of four years from the effective date of the
parallel resolutions, i.e., October 2, 1978.
A draft resolution to implement this recommendation, which was
previously agreed by the Boards of Executive Directors of the Bank
and the Fund, is attached.3 Also attached is a joint report by both
Boards of Executive Directors which provided a basis for the Com-
mittee's consideration of the matter and whose conclusions have been
accepted by the Committee.
Sincerely yours,
/s/
HENRI KONAN BEDI£
Attachments Chairman
Development Committee
The Honorable
Mohammed Imady
Chairman of the Board of Governors
The Honorable
Sadek Ayoubi
International Bank for Reconstruction and Development
1
Resolution No. 31-9, see page 308.

Attachment
Report of the Executive Directors of the Bank and the

Fund Concerning the Review of Performance of the
July 23, 1976

1. Summary and recommendations
The parallel Resolutions of the Boards of Governors of the Fund
and the Bank establishing the Joint Ministerial Committee of the two
Boards on the Transfer of Real Resources to Developing Countries
(Development Committee), which were adopted on October 2, 1974,
provide no terminal date for the Committee but that "At the end of
two years from the effective date of this Resolution, the Boards of
Governors of the Fund and the Bank shall review the performance of
the Committee, and shall take such action as they deem appropriate." 4
In accordance with the discussion during the January 1976 meeting of
the Development Committee, the Executive Directors of the Fund and
the Bank are submitting this report. The preparation of this report has
been undertaken in collaboration with the Acting Executive Secretary
of the Committee, who agrees with this report and its recommendations.
The Executive Directors of the Bank and the Fund have discussed
the work program and the procedures of the Development Committee.
While noting a number of problems during the first two years, the
Executive Directors reaffirm the view that the Committee should be a
useful forum for the discussion of issues relating to the transfer of real
resources. The Executive Directors recommend that the Committee
continue to be a Joint Committee of the Boards of Governors of the
Bank and the Fund with no change in its mandate. Because the period
of operations has been brief and affected by special events, the Execu-
tive Directors recommend that the Boards of Governors should further
review the performance of the Committee at the end of four years from
the effective date of the parallel Resolutions, i.e., October 2, 1978. A
draft Resolution to implement this recommendation is proposed.5 In
addition, several operational improvements are suggested.
2. Background
The Committee of Twenty, on the culmination of its work in June
1974, recommended in the Outline of Reform that two committees be
Resolutions No. 29-9 (IMF) and No. 294 (IBRD).
Resolutions No. 31-9 (IMF) and No. 305 (IBRD).

set up: an Interim Committee in the Fund to deal with monetary re-
form and a Joint Ministerial Committee of the Bank and the Fund
(Development Committee) to continue the study of the broad question
of the transfer of real resources to developing countries and to make
suggestions to implement its conclusions. The Development Committee
was established by parallel resolutions adopted by the Boards of Gov-
ernors of the Bank and the Fund on October 2, 1974. The Committee
was asked to maintain an overview of the development process, to ad-
vise the Boards of Governors of the Bank and the Fund on all aspects
of the transfer of real resources, to make suggestions to those concerned
regarding implementation of its conclusions and to review the imple-
mentation of its suggestions. The Committee was requested to establish
a detailed program of work. As a matter of urgency, the Committee
was asked to consider the specific problems of the least developed
countries and those developing countries most seriously affected by the
current balance of payments difficulties.
The Development Committee was conceived as a forum for discus-

sion of issues relating to the transfer of real resources at a high political
level between all members of the Bank and the Fund. The intention
was that the Committee should not duplicate or supplant existing orga-
nizations, but would complement them, and where feasible would sug-
gest courses of action to the relevant agencies. The objective, as noted
in the preamble of the Resolution, was to help provide
. . . a focal point in the structure of international economic cooperation for

formation of a comprehensive overview of diverse international activities in
the development area, for efficient and prompt consideration of development
issues, and for coordination of international efforts to deal with problems of
financing development . . .
A small Secretariat was established to support the Committee, espe-

cially in its work falling outside the operational and administrative
framework of the Bank and the Fund, and drawing on the technical
staff of the Bank and the Fund to the maximum extent feasible. Appro-
priate arrangements were to be made for the coordination of the Com-
mittee's work and the work of the Executive Directors of the Bank and
the Fund.
The Committee's work began with its first substantive meeting in

January 1975 and, including its inaugural meeting, it has met five times.
The Committee's work program, which was agreed to in January 1975,
was divided into two broad areas, the short-term issues which arose in
connection with the dramatic changes in the world economy during 1973
and 1974, and the more fundamental long-term issues of development.

3. The work of the Development Committee

The Committee's concern with the immediate economic problems
facing the developing countries led it to support strongly the proposal
to establish for one year a new intermediate lending facility of the Bank
(Third Window) which was under active consideration in the Executive
Board of the Bank. The Committee supported the establishment of an
IMF Trust Fund to provide additional resources, on a concessional
basis, to meet the balance of payments needs of low income developing
countries for the next few years which was under active consideration
in the Executive Board of the Fund. Some of the issues, e.g., the liber-
alization of the compensatory financing facility, under discussion in the
Interim Committee, also received indirect support from the concurrent
discussions in the Development Committee.
A perspective for discussions of the longer-term issues was provided
by the World Bank studies of the capital requirements and prospects of
the developing countries to 1980, and the IMF's periodic review of the
current situation and outlook. These were supplemented by Committee
documents providing an overview of the availability of resources from
international lending institutions, official bilateral development assist-
ance and private capital markets. A special working group consisting of
representatives of member governments was established to consider
specific solutions to improve the access of developing countries to pri-
vate capital markets and the group is now actively engaged in that task.
In the meeting in January 1976, several members expressed a par-
ticular interest in pursuing the review of development aid flows from
bilateral and multilateral sources, including the questions of resource
mobilization for international lending institutions. A substantive dis-
cussion of the issues involved in these areas has not yet been possible
in the Committee and further staff work is under way on this subject
as well as in the area of improving access by developing countries to
private capital markets.
As requested in the parallel Resolutions, the focus of the Com-
mittee's work at the outset was on measures which might assist the
developing countries to deal with the impact of the international eco-
nomic events of 1974 and 1975. It was not until June 1975 that pro-
posals for a longer-term work program were discussed and since then
the Committee has only had one meeting, aside from the session during
the 1975 Annual Meeting. Thus, while work is proceeding on a num-
ber of issues in the Working Group on Capital Market Access, and
papers are in preparation on such topics as the lending programs of the
international and regional financial institutions, this work had not

reached the stage where it was ready to be put before the Committee
for discussion. Because the time has been too short for the Committee
to deal with the longer-term issues relating to the transfer of real re-
sources, it would be premature to assess the work of the Committee in
terms of the full range of its objectives.
The discussions of the work of the Committee to date make it clear
that the basic objective of the Committee as a high-level political forum
for the discussion of issues relating to the transfer of real resources to
the developing countries remains of great importance and that the man-
date of the Committee requires no adjustment at this time. While the
work program for the next year has not yet been fully worked out,
there is broad agreement that the work on access to capital markets and
on the flow of aid from bilateral and multilateral sources should be
continued and there is the expectation that this work program might be
augmented by consideration of some of the issues arising from discus-
sion in the United Nations Conference on Trade and Development and
the Conference on International Economic Cooperation.
The Executive Directors have discussed various ways in which the
effectiveness of operations could be improved. There was a consensus
that the agenda should be more sharply focused and that meetings
should be held only when issues are ready for active consideration at a
high political level.
The preparation of issues for Ministerial discussion could be im-
proved by relying more on the Executive Directors of the Bank and the
Fund for a preliminary exploration of issues. The Executive Directors
favor the improvement of procedures by which they will have an ade-
quate opportunity to review and make suggestions on papers, including
the draft agenda. These objectives will be achieved by means of im-
proved arrangements for cooperation which are being worked out with
the Secretariat. At all stages there will continue to be close liaison be-
tween the staffs of the Bank and the Fund, but each working separately
in relation to its Board.
The Chairman, assisted by the Secretariat, might help in the future to
channel discussions more sharply to priority issues. When issues for
political resolution have been identified, the Chairman could undertake
high-level consultations in advance of meetings in order to define the
issues for discussion and to assist in reaching agreement or in narrow-
ing differences. To enable the Secretariat members to devote more time
to duties of this kind, it would be possible for them to draw more
extensively on Bank/Fund staff assistance for the preparation of the
necessary papers.

Annex II to Report I
July 23, 1976
Dear Mr. Chairman:
The parallel Resolutions of the Boards of Governors of the Fund
and the Bank establishing 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), which
were adopted on October 2, 1974, provided that "At the end of two
years from the effective date of this Resolution, the Boards of Gov-
ernors of the Fund and the Bank shall review the performance of the
Committee, and shall take such action as they deem appropriate." Pur-
suant to the request made by the Development Committee at its meet-
ing in January 1976, the Executive Directors of the Bank and the Fund
have prepared a report concerning the review of the Committee's per-
formance and this report was sent to the Development Committee on
July 23, 1976.
The report recommends that the Board of Governors should review
the performance of the Committee at the end of four years from the
effective date of the parallel Resolutions, i.e., October 2, 1978. In
accordance with this recommendation, I am transmitting herewith a pro-
posed Resolution 6 that has been prepared by the Executive Directors.
Very truly yours,

/s/
H. JOHANNES WITTEVEEN
Managing Director
and
Chairman of the Executive Board

1976 Annual Meeting
6

REPORT II 1
October 7, 1976
Mr. Chairman:
At the meeting of the Joint Procedures Committee held on October 7,
1976, the items of business on the agenda of the Board of Governors
of the International Monetary Fund were considered.
The Committee submits the following report and recommendations:

1. 1976 A nnual Report
The Committee noted that provision had been made for the annual
discussion of the business of the Fund.
2. Report of the Chairman of the Interim Committee

The Committee noted the presentation made by the Chairman of the
Interim Committee.2
The Committee recommends that the Board of Governors of the
Fund thank the Interim Committee for its work.
3. Report of the Joint Development Committee

The Committee noted that the report of the Joint Ministerial Com-
mittee of the Boards of Governors of the Bank and the Fund on the
Transfer of Real Resources to Developing Countries (the Development
Committee) has been presented to the Boards of Governors of the
Bank and Fund pursuant to Resolutions Nos. 294 and 29-9 of the
Bank and Fund, respectively (Fund Document No. 5) [Annex I],
The Committee recommends that the Board of Governors of the Fund
note the report and thank the Development Committee for its work.
4. 7976 Regular Election of Executive Directors

The Committee noted that the 1976 Regular Election of the Execu-
tive Directors of the Fund [Annex II] had taken place and that the
next Regular Election of the Executive Directors will take place at the
Annual Meeting of the Board of Governors in 1978.
1
Report II and the Resolutions recommended therein were adopted by the
Board of Governors of the Fund, in Joint Session with the Boards of Governors
of the Bank, IFC and IDA, on October 8, 1976.
2
See pages 22-25.

5. Financial Statements, Report on Audit, and Administrative

Budget
The Committee considered the Report on Audit for the fiscal year
ended April 30, 1976, the Financial Statements contained therein (Fund
Document No. 8 and Appendix VIII of the 1976 Annual Report), and
the Administrative Budget for the fiscal year ending April 30, 1977 (Fund
Document No. 10 and Appendix VI of the 1976 Annual Report).
Fund adopt the draft resolution set forth in Fund Document No. 9.3
6. Amendments of Rules and Regulations

The Committee has reviewed and noted the letter of the Managing
Director and Chairman of the Executive Board to the Chairman of the
Board of Governors, dated October 4, 1976, regarding amendment of
the Rules and Regulations, reproduced as Fund Document No. 11
[Annex III].
Fund adopt the draft resolution set forth in Attachment 2 of Fund
Document No. I I . 4
7. Application for Membership

(a) Guinea-Bissau. The Committee has considered the recommen-
dation of the Executive Directors regarding the admission of Guinea-
Bissau to membership in the Fund, set forth in Fund Document No. 12
[Annex IV].
(b) Surinam. The Committee has considered the recommendation
of the Executive Directors regarding the admission of Surinam to mem-
bership in the Fund set forth in Fund Document No. 13 [Annex V].
8. 7976 Regular Election—Ballots of Governors for Bahrain and

Oman
The Committee noted that the Governors for Bahrain and Oman had
been unable to cast ballots in the 1976 Regular Election of Executive
Directors for reasons beyond their control.
3
4
5
Resolution No. 31-12, see pages 309-11.
6

The Committee recommends the adoption of the following draft

Resolution:
RESOLVED: That the Governors for Bahrain and Oman be
permitted to cast their ballots in the 1976 Regular Election of
Executive Directors and have their votes counted toward the elec-
tion of an Executive Director by depositing their ballots with the
Secretary of the Fund before the end of the 1976 Annual Meeting.7
Approved:
Syrian Arab Republic—Chairman Netherlands—Reporting Member
Annex I to Report II
October 3, 1976
Gentlemen:
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 Com-
mittee on the progress of its work during the period July 1975-June
1976. The report is presented in compliance with Section 5(i) of the
Bank Board of Governors Resolution No. 294 and the Fund Board of
Governors Resolution No. 29-9, adopted on October 2, 1974.
Sincerely yours,
/s/
HENRI KONAN BioiE
Attachment Chairman
The Honorable
Mohammed Imady
The Honorable
Sadek Ayoubi
International Bank for Reconstruction
and Development
7

Attachment
Report of the Joint Ministerial Committee of the

Boards of Governors of the Bank and the Fund on the
Transfer of Real Resources to Developing Countries
(July 1975-June 1976)
I. Introduction

Countries (Development Committee) was established in October 1974.
Its 1975 Annual Report to the Boards of Governors of the Bank and
the Fund covered the period from October 1974 through June 1975.
This second report covers activities from July 1975 through June 1976.
During the year under review, the Committee continued to serve as a
forum for discussion of financial aspects of the broad questions of
development and transfer of resources. While not constituted as a
decision-making body, the Committee sought to promote a high-level
international consensus as a means of facilitating decisions on develop-
ment issues in appropriate bodies. A number of proposals given support
by the Committee were translated into action by the relevant bodies
during the year, and consideration of other possibilities was under way.
As a contribution toward improved coordination of international pro-
grams of development, the Committee disseminated to its members
analytic documentation regarding such programs, and continued to
maintain close relationships with a number of international institutions
and entities concerned with development, many of which participate as
observers in the Committee's meetings.
The Development Committee met twice during the year: first in
Washington in September 1975, at the time of the Annual Meetings of
the Boards of Governors of the Bank and the Fund, and second in
Kingston, Jamaica, in January 1976. The Washington meeting was the
occasion for extensive discussion of the work program for the year
ahead, and for an expression of Committee support for establishment
of an IMF Trust Fund. The Committee also urged that sufficient fund-
ing be made available to the newly established Third Window of the
Bank. At its Jamaica meeting, the Committee examined aspects of the
use of Trust Fund resources and of work being done on the access of
developing countries to international capital markets. The Committee
also strongly endorsed the need for adequate increases in the capitaliza-

tion of major international and regional lending institutions, including

particularly IDA. In addition to these activities at Committee level, a
Working Group on Access to Capital Markets began work in August
1975 and met four times during this year.
The Committee focused in the initial period on the immediate prob-
lems confronting the poorest and the most seriously affected developing
countries. At the same time, a basis was laid for giving attention to the
longer-term and more fundamental problems of developing countries at
all stages of development. The transition to principal concern with the
latter problems was well under way by the end of the period under re-
view. It is expected that the bulk of the Committee's attention in the
period ahead will be directed toward structural problems extending to
the end of the decade and beyond, e.g., official and private financing in
development, the long-term role of international financial institutions,
long-term balance of payments stabilization of developing countries,
efforts to assist the developing countries in the area of world trade, and
the impact of an evolving international monetary system on the develop-
ment process.
II. Committee Consideration During the Year of Major Questions

Affecting Resource Transfer
The subjects considered by the Committee during 1975-76 fall into

the following major areas: the general situation and external resource
requirements of developing countries, official development assistance,
private capital flows, the operations of multilateral lending agencies,
and balance of payments assistance.
1. Situation and prospects of developing countries and their external

resource requirements
Analysis prepared by the Fund in December 1975 and presented to
the Committee at its Jamaica meeting showed that less developed non-
oil primary producing countries were expected to incur current account
deficits aggregating about $35 billion in the year 1975, compared with
about $27 billion in the preceding year, and would have a deficit of
about $31 billion in 1976. The Committee noted with concern that
1976 would be the third successive year in which the non-oil developing
countries were likely to incur such extraordinarily large current account
deficits, which had had to be financed by an unprecedented recourse to
borrowings, often at relatively hard terms, and substantial use of reserves.
Taking into account these developments, the World Bank analyzed
for the Committee the likely growth performance of the non-oil de-

veloping countries to the end of the decade and the associated require-
ments for external capital. Their assessment suggested that the UN
target of annual growth of 6 per cent would probably not be attainable,
and that average growth to the end of the decade by lower-income
developing countries was not likely to exceed 5.0 per cent, while that
of the middle income countries was not likely to exceed 5.5 per cent. It
was estimated that an additional $12.3 billion of official capital (above
the projected average annual availability from public and private
sources of $49.4 billion) would be required annually to 1980 to realize
even these projections, including a substantial and critically important
proportion on concessional terms.
The Committee expressed grave concern that the 6 per cent growth
target for the Second Development Decade was unlikely to be achieved
by the non-oil developing countries, and concluded that substantial
amounts of additional external capital would be required if the shortfall
from that target is to be held to modest proportions.
2. Official Development Assistance

At its meeting in September 1975, the Development Committee de-
cided to include among those issues requiring its special attention "means
of improving the current situation affecting resource transfers . . . in-
cluding quantitative aid targets and their implementation." To this end,
the Committee received for the Jamaica meeting in January 1976 Sec-
retariat documentation dealing with recent trends in the flow of official
development assistance, with aid targets and a possible phased move-
ment toward their realization, and with the relationship between exist-
ing underutilization of productive resources in aid-giving countries and
the aid efforts of such countries.
Aggregate net disbursement of concessional resources in 1974
amounted to $14.9 billion, of which $11.3 billion came from DAC
countries, $2.4 billion from OPEC countries, and the balance of $1.2
billion from the centrally planned economies. Slightly over a quarter
of the 1974 flow was made available through multilateral channels.
DAC assistance remained virtually unchanged in constant dollar terms
over the ten years ending in 1974; as a percentage of GNP, it declined
from 0.53 per cent in 1961 to 0.33 per cent in 1974. (Preliminary
figures recently available indicate that this percentage rose to 0.35 per
cent in 1975.) DAC aid on the average had a grant element above
84 per cent in 1974. For OPEC countries, 1974 flows represented 1.4
per cent of GNP, and were estimated to involve a grant element of
about 65 per cent.
Currently, the most widely accepted—although by no means uni-
versally endorsed—goal for aid-giving by donor countries is the UN

target of 0.7 per cent of GNP in the form of ODA by the end of the
decade. Considerable emphasis was given to the importance of reaching
the 0.7 per cent target at the Seventh Special Session of the UN in
September 1975 and more recently at the UNCTAD session in Nairobi,
although a number of countries continue to maintain their reservations
as to acceptance of the target itself and others as to the date by which
they might reach the target.
Against this background, the Committee initiated discussion at the
Jamaica meeting of ways to improve the performance of the aid-giving
community with respect to the flow of official development assistance,
including the possibility that, in the anticipated circumstances of re-
covery in industrial countries, aid givers might agree to set aside a
small fraction of the increment in their GNP as additional development
assistance. There was also discussion of the concept that idle produc-
tive capacity in industrial countries, reflecting recessionary conditions,
might be put to work producing developmental goods for export to
developing countries under special financing arrangement. Although
there was no agreement on the feasibility of the concept, the discussion
gave useful emphasis to the broad underlying idea that production of
aid goods for export has a stimulating effect on levels of overall pro-
duction and employment in industrial countries.
3. Access to capital markets
The subject of improving access of developing countries to inter-

national capital markets continued to be of special interest to the Com-
mittee, and was pursued very actively during the year by a Working
Group set up in August 1975. The Working Group consists of repre-
sentatives of 12 members of the Committee, 7 representing capital
market countries and 5 representing developing countries. It met four
times during the year, including one meeting substantially devoted to a
seminar with representatives of banks and other institutions active
internationally in private capital markets.
An Interim Report of the Working Group to the January 1976 meet-
ing of the Committee noted as primary areas of interest (a) restrictions
and other obstacles to access to markets, (b) direct measures to support
the creditworthiness of developing country borrowers in capital markets,
including possible multilateral guarantees or active use of guarantee
authority of international lending institutions, (c) the problem of sec-
ondary markets for developing country securities, (d) co-financing in-
volving international lending institutions and private lenders, (e) a
possible international investment trust, and (f) technical assistance to
developing countries seeking market access and the correlative problem

of educating potential investors regarding the situation and prospects of

developing countries.
(a) Restrictions and other obstacles to access to markets

In regard to restrictions and practices constituting obstacles to cap-
ital market access, the Executive Secretariat, pursuant to guidance from
the Working Group, and with the assistance of staff of the International
Monetary Fund, was actively engaged at the end of the period of this
report in consultations with authorities in selected countries aimed ulti-
mately at either formulation of a general program of liberalization
which could be adopted by common agreement of market countries, or
agreements wtih specific market countries on liberalization actions
appropriate to that country, or both approaches simultaneously. A
selected group of developing countries that have had access to inter-
national capital markets was asked to identify specific obstacles to
market access. On the basis of the information gathered from these
countries, as well as a generalized questionnaire, capital market coun-
tries were being consulted regarding regulatory or other restrictions
and, where such existed, the scope for liberalizing actions.
(b) Measures to support creditworthiness of developing country

borrowers
In its consideration of direct actions to support the creditworthiness
of developing countries, the Working Group examined a Secretariat
outline of a possible new multilateral guarantee facility based on new
contingent liability undertakings by participants among industrial and
OPEC countries and a modest reserve fund. The facility was seen as
providing, on a fee basis, partial or full guarantees for bonds floated in
national or international markets primarily by those developing coun-
tries that were potentially creditworthy but had not yet developed sub-
stantial access to the bond market. Factors of concern to the Working
Group in its examination included the problem of ensuring that the
facility would elicit additional resources from capital markets rather
than divert resources from established developing country borrowers;
the question of costs in comparison with loans intermediated by the
international lending institutions; means of confining guarantees to a
transitional stage en route to fully independent market access by bor-
rowers; and the possibility of avoiding the creation of new international
organizations. Particularly in the light of the last consideration, there
was support in the Working Group for pursuing the multilateral guar-
antees idea through activation of authority to make guarantees already
vested in the international and regional development lending institu-
tions. It was recognized that in such institutions direct loans and guar-

antees are supported by the same capital base so that special additions
to capital resources for guarantees would have to be contemplated if
direct lending capabilities are not to be reduced.
(c) Secondary markets for developing country securities

The Working Group's exchanges with private market experts re-
vealed that the absence of secondary markets of any depth for issues by
developing countries was regarded as a significant obstacle to the suc-
cessful primary marketing of such issues. The Executive Secretariat
prepared an analysis of various courses of action that had been sug-
gested, including the possible use of liquid funds of international lend-
ing institutions for secondary market purchases and sales of developing
country securities; use of such funds for short to medium-term invest-
ments in such securities in order to strengthen both primary and sec-
ondary markets; and creation of a semi-public institution to function as
a market-maker in the obligations of developing countries. These ideas
were pending with the Working Group at the end of the reporting period.
(d) Co-financing
At its January 1976 meeting, the Committee took note of the prog-
ress being made in regard to co-financing arrangements involving inter-
national lending institutions on the one hand and private lenders on the
other. The Committee urged that such arrangements be expanded. An
examination covering experience to date and appraising the scope for
further expansion is in progress.
(e) International investment trust

An international investment trust, whose function would be to offer
an attractive investment opportunity to private investors and possibly to
certain governments in a diversified portfolio of developing country
debt and equity obligations, was suggested at the Seventh Special Ses-
sion of the UN General Assembly, and analytical work on the idea was
undertaken by the International Finance Corporation. It is anticipated
that the IFC analysis will be considered by the Working Group later in
calendar year 1976.
(f) Technical assistance

A Secretariat review of existing bilateral and multilateral technical
assistance activities related to access to capital markets, together with
preliminary suggestions for possible actions in this area, was being
prepared for early consideration by the Working Group.

4. Operations of international lending institutions

From the outset, the Committee has attached great importance to the
role played by the international lending institutions—the World Bank
and the regional development banks—within the overall picture of
official development assistance.
In response to the view expressed in the Committee that a survey of
the international lending institutions and of initiatives in other bodies
might help avoid duplication of functions and promote a coordinated
approach to the problem of transfer of resources, the Executive Secre-
tariat prepared and submitted to the Committee for its Jamaica meet-
ing an initial paper covering major existing international lending insti-
tutions. A further paper, possibly covering some additional institutions
and recent initiatives will be prepared for a subsequent meeting. The
Secretariat paper emphasized the quantitative importance of multi-
lateral lending. The core group of international lending institutions
during 1974 lent $6.7 billion, compared to total bilateral loans and
grants by DAC countries of $11.6 billion in that year, and total multi-
lateral loan commitments during the period 1972-74 averaged $5.2
billion per annum. For the future, it appeared that loan commitments
expressed in current dollars might rise from $8.4 billion in 1975 to
$14.2 billion in 1980, in nominal terms, or in terms of constant 1974
dollars, from $5.9 billion in 1975 to $7.7 billion in 1980. A matter of
concern was that concessional lending as a proportion of total loan
commitments, which showed an irregular downward trend during
1972-74 and averaged 34 per cent for that period, would on the basis
of the projections decline further to about 28 per cent of the total
in 1980.
The Secretariat paper was not concerned with the criteria for the
allocation of multilateral lending. Its analysis of the sectoral and geo-
graphic composition of such lending in 1975 showed that agriculture
was being accorded first priority by the institutions as a group; that
Latin America was the largest regional recipient; and that in terms of
relative population of borrowing areas, South Asia's share of multi-
lateral lending was substantially lower than other regions. Finally, the
Secretariat paper described the pending or anticipated capital resource
replenishment proposals by the various institutions. In the light of the
analysis presented, the Committee expressed its full support for an
adequate increase in capital for the international lending institutions,
and members of the Committee suggested areas to which the analysis
should be broadened.
Regarding particular institutional developments, the Committee noted
at its Jamaica meeting that the Third Window of the World Bank for
loans on intermediate terms, establishment of which the Committee had

called for at an earlier meeting, had become operational in December

1975 with resources permitting $600 million of loans, mainly for coun-
tries with per capita income below $375. The Committee urged those
countries that had not already contributed to help increase the Third
Window's resources. The Committee also requested the Executive
Directors of the World Bank to place a proposal for an increase in the
Bank's capital before the Governors at an early date. Committee sup-
port was given for an early increase in the capital of the International
Finance Corporation as well. Taking note of the particularly urgent
need for assistance to low-income countries, the Committee called for
a substantially enlarged Fifth Replenishment of the International De-
velopment Association. Many members felt that the enlargement should
result in an increase in real terms over the previous replenishment. As
far as the resources of the regional banks were concerned, the Com-
mittee urged that timely replenishment action be taken, including action
to provide for their concessionary funds.
5. Balance of payments assistance

The acute balance of payments problems of developing countries
arising from recent unprecedented world economic events and partic-
ularly the balance of payments problems of the most seriously affected
developing countries, necessarily commanded close attention of the
Committee from the outset. The two areas of Development Committee
interest as far as short-term balance of payments assistance was con-
cerned were an IMF-administered Trust Fund and expansion of the
IMF compensatory financing facility, although it was recognized that
the main responsibility for carrying forward both of these topics lay
with the Interim Committee and the Executive Directors of the IMF.
By the time of the Committee's meeting in September 1975, the
Interim Committee had reached agreement that one-sixth of the Fund's
gold should be disposed of and the net proceeds applied for the benefit
of developing countries, but it had not yet reached agreement that the
Trust Fund should be established and receive the gold disposal proceeds.
At that juncture, the Development Committee, after being informed of
the status of the Fund Executive Directors' consideration of the ques-
tions associated with the Trust Fund, supported the principle that such
a Fund should be established for balance of payments help primarily to
lower income countries, using profits from Fund gold sales but without
neglecting consideration of other possible sources of financing. In the
final phase of consideration at Jamaica, the Interim Committee, after
agreeing that the Trust Fund should be established without delay, asked
the Development Committee to consider further certain aspects of use
of Trust Fund resources. The Development Committee accordingly

discussed the matter and indicated various considerations to be taken

into account by the Executive Directors of the Fund in completing their
work on establishment of the Trust Fund. Formal announcement that
the Executive Directors of the Fund had established the Trust Fund
and had fixed the date for the first auction of gold to generate profits
for the Trust Fund's financing was made by the Managing Director of
the Fund in early May.
Discussion in the Committee of the need for liberalization of com-
pensatory financing facilities was largely held in the context of con-
sideration of commodity problems in general. Following the announce-
ment by the Fund's Executive Directors at the end of 1975 of liberalized
Fund compensatory financing rules, a number of Committee members
called for an early review of the adequacy in practice of the new
measures. Accordingly, the Committee agreed to keep the subject of
stabilization of export earnings among those topics to which, it would
give priority attention, along with several other trade and commodity
matters.
III. Review of the Committee
In order to facilitate the review of the performance of the Committee

by the Boards of Governors of the Bank and Fund called for at the
end of two years by the Resolutions by which the Committee was
established, the Committee decided in January 1976 to review its ini-
tial period of operations at its meeting scheduled immediately prior to
the Bank and Fund Annual Meetings at Manila in October 1976, and
to present its conclusions to the Boards of Governors. At its Jamaica
Meeting, the Committee asked that, as a basis for its review, a report
be prepared by the Boards of Executive Directors of the Bank and
Fund, together with the Executive Secretary. At the close of the period
of this Annual Report, there was under preparation a report and draft
resolution recommending that the Boards of Governors should review
the performance of the Committee at the end of four years from the
effective date of the parallel Resolutions, i.e., October 2, 1978.
The past year has been one of intense consideration in various

forums of the problems of development and the transfer of real re-
sources to the developing countries. Apart from the work already in
hand, the Development Committee will, at its Manila meeting, consider
further areas of activity, taking into account the emergent trends in the

world economy and the results of recent interchanges among the indus-
trial countries, the oil economies, and the developing world, notably the
Fourth UNCTAD and the North-South dialogue.
Annexes
A. Members of the Committee
B. Organizational and Administrative Aspects
C. Text of Parallel IBRD and IMF Resolutions
Establishing the Development Committee
(see Summary Proceedings, 1975, pages 278-82).
D. Agendas and Press Communiques of Meetings
held during 1975-76.
Annex A
Members of the Committee

As of June 30, 1976, the membership of the Committee was as
follows, according to notifications received by the Executive Secretariat:
Member Countries
1. Mr. Abdlatif Y. Al-Hamad Bahrain, Egypt (Arab Republic of), Iraq,
Director General Jordan, Kuwait, Lebanon, Pakistan,
Kuwait Fund for Arab Economic Qatar, Saudi Arabia, Syrian Arab
Development Republic, United Arab Emirates, Yemen
Kuwait Arab Republic
2. His Excellency Germany
Dr. Hans Apel
Federal Minister of Finance
Germany
3. His Excellency Argentina, Bolivia, Chile, Paraguay,
Jorge Cauas Uruguay
Minister of Finance
Chile
4. The Honorable Italy, Portugal, Spain
Emilio Colombo
Minister of the Treasury
Italy
5. His Excellency Austria, Belgium, Luxembourg, Turkey
Willy De Clercq
Minister of Finance
Belgium

Member Countries
6. His Excellency Cyprus, Israel, Netherlands, Romania,
Dr. W. F. Duisenberg Yugoslavia
Minister of Finance
The Netherlands
7. His Excellency Denmark, Finland, Iceland, Norway,
Kjell-Olof Feldt Sweden
Minister for International
Economic Affairs
Sweden
8. His Excellency France
Jean-Pierre Fourcade
Ministry of Economy and
Finance
France
9. Rt. Hon. Denis W. Healey, M.B.E., United Kingdom
M.P.
Chancellor of the Exchequer
United Kingdom
10. The Honorable Burma, Cambodia, Fiji, Indonesia,
Yong Hwan Kim Korea, Lao People's Democratic
Minister of Finance Republic, Malaysia, Nepal, Singapore,
Korea Thailand, South Viet-Nam
11. His Excellency Benin (People's Republic of),
Henri Konan Bedie 8 Cameroon, Central African Republic,
Minister of Economy and Chad, Congo (People's Republic of),
Finance Gabon, Ivory Coast, Madagascar, Mali,
Ivory Coast Mauritania, Mauritius, Niger, Rwanda,
Senegal, Somalia, Togo, Upper Volta,
Zaire
12. The Honorable Australia, New Zealand, Western Samoa
P. R. Lynch, M.P.
Treasurer
Australia
13. The Honorable Bahamas, Barbados, Canada, Guyana,
Donald S. Macdonald Ireland, Jamaica
Minister of Finance
Canada
14. His Excellency Japan
Masayoshi Ohira
Minister of Finance
Japan
8
His Excellency Sidi Ould Cheikh Abdallahi, Minister of Planning and Indus-
trial Development of Mauritania, and His Excellency Ibrahima A. Ba, Minister of
Planning of Mauritania, served as alternate members at the September and Jan-
uary meetings, respectively, to permit Minister Konan Bedie to serve as Chairman.

Member Countries
15. His Excellency Costa Rica, El Salvador, Guatemala,

Manuel Perez Guerrero Haiti, Honduras, Mexico, Nicaragua,
Minister for International Panama, Peru, Venezuela
Financial Affairs
Venezuela
16. The Honorable Botswana, Burundi, Equatorial Guinea,

F. C. Prevatt Ethiopia, The Gambia, Guinea, Kenya,
Minister of Finance Lesotho, Liberia, Malawi, Nigeria,
Trinidad and Tobago Sierra Leone, Sudan, Swaziland,
Tanzania, Trinidad and Tobago,
Uganda, Zambia
17. The Honorable United States

William E. Simon
Secretary of the Treasury
United States
18. The Honorable Bangladesh, India, Sri Lanka

C. Subramaniam
Minister of Finance
India
19. The Honorable Brazil, Colombia, Dominican Republic,

Cesar E. A. Virata Ecuador, Philippines
Secretary of Finance
Philippines
20. His Excellency Afghanistan, Algeria, Ghana, Greece,

Mustapha Zaanouni Iran, Libyan Arab Republic, Morocco,
Minister of Planning Oman, Tunisia, Yemen (People's
Tunisia Democratic Republic of)
Annex B
Organizational and Administrative Aspects
Establishment: The Development Committee was formally estab-

lished pursuant to Bank Governors' Resolution 294, October 2, 1974
and Fund Governors' Resolution 29-9, October 2, 1974. At the in-
augural meeting of the Committee, held October 2-3, 1974, Mr. Henri
Konan Bedie, Minister of Economy and Finance of the Ivory Coast,
was selected as Chairman, and Mr. Henry J. Costanzo, Executive Vice
President of the Inter-American Development Bank, was appointed
Executive Secretary. Mr. Costanzo resigned effective April 15, 1976,
and on that date Mr. M. M. Ahmad, Deputy Executive Secretary,
assumed duties as Acting Executive Secretary.

Secretariat: As of June 30, 1976, the Executive Secretariat consisted

of two Deputy Executive Secretaries (one of whom was serving as
Acting Executive Secretary) and two Assistant Executive Secretaries.
Working Group on Access to Capital Markets: In order to help facil-
itate and expand the access of developing countries to capital markets,
a Working Group on Access to Capital Markets was organized in
August 1975. The twelve-member Working Group consists of repre-
sentatives of the constituencies headed by Canada, France, Germany,
Japan, Korea, Kuwait, Netherlands, Philippines, Trinidad and Tobago,
United Kingdom, United States and Venezuela. Representatives of vari-
ous international bodies concerned with private capital flows to devel-
oping countries participate as observers. The Working Group met four
times during the year, providing a vehicle for ongoing technical exami-
nation of a major area of interest to the Committee.
Relations with other organizations: The organizations listed below
were represented by observers at meetings of the Committee during
1975-76. In addition, the Government of Switzerland was represented
by an observer.
African Development Bank

Arab Bank for Economic Development in Africa
Arab Fund for Economic and Social Development
Asian Development Bank
Commission of the European Communities
Development Assistance Committee
European Investment Bank
General Agreement on Tariffs and Trade
Inter-American Development Bank
Organization for Economic Cooperation and Development
United Nations
United Nations Conference on Trade and Development
During the year, members of the Executive Secretariat participated

as observers in meetings of the African, Asian and Inter-American De-
velopment Banks and the United Nations Conference on Trade and
Development, as well as in the Development and Financial Affairs
Commissions of the Conference on International Economic Cooperation.
Annex C
The text of the parallel IBRD and IMF Resolutions establishing the
Development Committee is reproduced in Summary Proceedings, 1975,
pages 278-82.

Annex D
Agendas and Press Communiques of

Meetings Held During 1975-76
Meeting of September 3-4, 1975
A. Agenda (administrative items omitted)

1. Special Trust Fund
2. Third Window: Status Report
3. Working Group on Access to Capital Markets:
Status Report
4. Future Work Program
B. Press Communique (text published in Summary Proceedings,

1975, pages 305-307).
Meeting of January 9, 7976
A. Agenda (administrative items omitted)

1. Current Situation and Prospects of
Developing Countries
2. Status Reports:
a. Trust Fund
b. Third Window
3. Current Commodity Issues
4. Interim Report of Working Group on Access to
Capital Markets
5. Means of Improving the Current Situation Affecting
Resource Transfers: Aid Targets and Their
Implementation
6. Survey of Programs and Capital Resource Situations
of International Development Lending Institutions
7. Current Under-Utilization of Productive Capacity in
Industrial Countries in Relation to Their Aid
Effort.

B. Press Communique
1. The Joint Ministerial Committee of the Boards of Governors of
the Bank and the Fund on the Transfer of Real Resources to Develop-
ing Countries (the Development Committee) held its fifth meeting in
Kingston, Jamaica, on January 9, 1976, under the chairmanship of
Mr. Henri Konan Bedie, Minister of Economy and Finance for the
Ivory Coast. Mr. Robert S. McNamara, President of the World Bank,
Mr. H. Johannes Witteveen, Managing Director of the International
Monetary Fund, and Mr. Henry J. Costanzo, Executive Secretary, took
part in the meeting, which was also attended by representatives from a
number of international and regional organizations and Switzerland as
observers.
2. The Committee reviewed the current situation and prospects of
the developing countries and noted with concern that the non-oil de-
veloping countries in 1976 are likely to incur extraordinarily large
current account deficits for the third successive year. The Committee
also noted with grave concern that the minimum 6 per cent growth
target of the Second Development Decade appears not likely to be met
for the non-oil developing countries and that substantial amounts of
additional external capital are still required if the shortfall from this
target is to be held to modest proportions. The Committee also dis-
cussed the means of improving the current situation affecting resource
transfers, aid targets and their implementation, current under-utilization
of productive capacity in industrial countries in relation to their aid
effort, and the status of current commodity issues. It was against this
background that the Committee considered various measures to increase
the flow of resources to the developing countries.
3. The Committee noted the decision of the Interim Committee to
establish the Trust Fund to provide balance of payments assistance to
low-income countries as well as understandings reached regarding in-
creased access to IMF resources. The Committee discussed the use of
Trust Fund resources and indicated various considerations to be taken
into account by the Executive Directors of the IMF in completing their
work on establishment of the Trust Fund. The Committee noted that
the Third Window for loans on intermediate terms by the World Bank
had become operational, that contributions received and expected
would permit Third Window loans of $600 million and urged those
countries which have not already contributed to help to increase its
resources.
4. The Committee received an interim progress report from its
Working Group on Access to Capital Markets, discussed the proposed
work program on the review of regulatory and other constraints on
access to capital markets by developing countries, and recommended

the completion of studies on other appropriate mechanisms which

might improve access to capital markets, including the possible use of
multilateral guarantees, the strengthening of secondary markets, and
the possible creation of an international investment fund.
5. The Committee noted the progress being made in regard to co-
financing arrangements by international and regional development banks
and urged that these arrangements be expanded.
6. The Committee was presented with an initial survey of programs
and capital resource situations of major international and regional lend-
ing institutions. The Committee expressed its full support for an ade-
quate increase in capital financing of these institutions. In this context,
the Committee requested the World Bank's Executive Directors to place
before the Board of Governors at an early date a proposal for an in-
crease in the Bank's capital. The Committee also supported an early
increase in the capital of the International Finance Corporation. The
Committee noted the particularly urgent need for assistance to low-
income countries, and in this connection expressed its strong support of
a substantially enlarged Fifth Replenishment of the International De-
velopment Association, which, in the opinion of many members, should
be in real terms. The Committee noted that negotiations were under
way to secure agreement in time to permit continuity of operations. The
Committee urged timely action to replenish the resources of regional
banks, including their soft-loan windows.
7. The Committee gave special attention to the question of com-
modity price fluctuations and to their consequences on the export earn-
ings of developing countries. The Committee agreed to give priority
attention to these questions, including especially possible measures for
the financing of buffer stocks, for the stabilization of export earnings,
and other efforts to assist the developing countries in the area of trade.
8. The Committee expressed its unanimous appreciation of the
excellent arrangements made for the meeting and the hospitality ex-
tended by the Government of Jamaica.
Annex II to Report II
Rules for the Conduct of the 1976 Regular Election

of Executive Directors of the Fund
1. Definitions: In these Rules, unless the context shall otherwise
require:
(a) "Articles" means the Articles of Agreement of the Fund.
(b) "Board" means the Board of Governors of the Fund.

(c) "Chairman" means the Chairman of the Board or a Vice

Chairman acting as Chairman.
(d) "Governor" includes the Alternate Governor or any tempo-
rary Alternate Governor when acting for the Governor.
(e) "Secretary" means the Secretary or any acting Secretary of
the Fund.
(f) "Election" means the 1976 Regular Election of Executive
Directors.
2. Date of Election: The election shall be held during the 1976
Annual Meeting at a time to be fixed by the Board.
3. Basic Rules—Schedule C: Subject to the adjustments set forth

herein, the provisions of Schedule C of the Articles shall apply to
the conduct of the election.
4. Executive Directors to Be Elected Under Article XII, Sec-
tion 3(b)(iii):
(a) Twelve Executive Directors shall be elected under Article XII,
Section 3(6)(iii).
(b) In view of the number of Executive Directors to be elected
under Article XII, Section 3(6)(iii):
(i) 5l/2 per cent shall be substituted for "nineteen per cent"
in paragraphs 2 and 5 of Schedule C.
(ii) 13 per cent shall be substituted for "twenty per cent" in
paragraph 3, 4, and 5 of Schedule C.
(iii) "Twelve directors" shall be substituted for "five direc-
tors" and "twelve persons" shall be substituted for "five
persons" in paragraph 2 of Schedule C.
5. Executive Directors to Be Elected Under Article XII, Sec-

tion 3(b)(iv):
Three Executive Directors shall be elected under Article XII,
Section 3(6)(iv), and
(a) The minimum percentage of the eligible votes required for
election under this subparagraph shall be 28 per cent.
(b) The maximum percentage of eligible votes for any one nomi-
nee for the purposes of paragraph 13 below shall be 38 per
cent.

6. 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 fur-
nished by the Secretary, signed by the Governor or Governors
making the nomination and deposited with the Secretary.
(c) A Governor may nominate only one person.
(d) Nominations may be made until 12 o'clock noon on the day
before the day on which the election is scheduled to be held.
The Secretary shall post and distribute a list of the persons
nominated.
7. 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.
8. 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.
9. Balloting—Order: The first ballot shall be simultaneous balloting

of all the Governors entitled to participate in the election of
Executive Directors under Article XII, Section 3(fc)(iii), and all
of the American Republics entitled to participate in the election
of Executive Directors under Article XII, Section 3(ft)(iv). The
balloting for the Executive Directors elected under Article XII,
Section 3(£)(iii), shall then be concluded before any further
ballots are taken for the Executive Directors to be elected by the
American Republics.
10. Balloting—General: 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 before the end of the session at which
the election is held. 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 entitled to
vote.

(c) If the tellers shall be of the opinion that any particular ballot
form is not properly executed, they shall, if possible, afford
the Governor concerned an opportunity to correct it before
tallying the results; and such ballot form, if so corrected,
shall be deemed valid.
11. Balloting and Election of Executive Directors Under Article XII,
Section 3(b)(iii):
(a) When on any ballot the number of nominees shall not exceed
the number of Executive Directors to be elected, each nomi-
nee 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 C to have raised the votes cast for
any nominee above 13 per cent of the eligible votes, no nomi-
nee shall be deemed to have been elected who shall not have
received on such ballot a minimum of 5l/2 per cent of the
eligible votes and a succeeding ballot shall be taken for which
any nominee not elected shall be eligible.
(b) 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 (i) those Governors
who voted on the preceding ballot for any nominee not
elected, and (ii) those Governors whose votes for a nominee
elected on the preceding ballot are deemed under paragraph 4
of Schedule C to have raised the votes cast for such nominee
above 13 per cent of the eligible votes.
(c) The votes of a Governor shall not be deemed under
paragraph 4 of Schedule C to have raised the total votes for
a nominee above 13 per cent of the eligible votes if without
the votes of such Governors such total would be more than
5V2 per cent but not more than 13 per cent of the eligible
votes.
(d) 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 C to have
raised the total votes received by such nominee above 13 per
cent 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.

(e) If a Governor shall abstain from voting on any ballot taken

under Article XII, Section 3(fe)(iii), he shall not be entitled
to vote on any subsequent ballot and his votes shall not be
counted within the meaning of Article XII, Section 3(0,
toward 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.
12. Votes Cast for Nominee Not Elected Under Article XII,
Section 3(b)(iii):
Any member whose Governor has voted on the last ballot for a
nominee not elected under Article XII, Section 3(fe)(iii) may,
before the effective date of the election, designate an Executive
Director, who was elected under that provision, and he shall be
deemed after the effective date of the election to have received
that member's votes in the election.
13. Election of Executive Directors Under Article XII, Section 3(b)(iv):
These Rules supplement paragraph 7 of Schedule C.
(a) Each Governor eligible to participate in the election shall cast
for one person all the votes to which he is entitled.
(b) The three nominees receiving the greatest number of votes
shall be elected, provided that no nominee shall be elected
who receives less than 28 per cent of the eligible votes. The
person elected with the least number of votes cast for the
three elected nominees shall be deemed to have been elected
by all the votes cast for him, all the votes not cast in the
ballot through abstention from voting and all those cast for
such nominee or nominees as were not elected.
(c) When on any ballot two or more Executive Directors remain
to be elected and there are the same number of nominees,
each nominee shall be elected by the number of votes received
by him; provided, that if the votes of any Governor shall be
deemed to have raised the votes cast for any nominee above
38 per cent of the eligible votes, no nominee shall be elected
on that ballot who shall not have received 28 per cent of the
eligible votes and a succeeding ballot shall be taken for
which any nominee not elected on the preceding ballot shall
be eligible.
14. Succeeding Ballots for Election of Executive Directors Under
Article XII, Section 3(b)(iv):
(a) If, as a result of the first ballot, the number of Executive
Directors to be elected in accordance with paragraph 5 above

shall not have been elected, a second and, if necessary, fur-

ther ballots shall be taken. The Governors entitled to vote on
such succeeding ballots shall be only (i) those Governors
who voted on the preceding ballot for any nominee not
elected or who abstained from voting on the preceding ballot
and (ii) those Governors whose votes for a nominee elected
on the preceding ballot are deemed to have raised the votes
cast for such nominee above 38 per cent of the eligible votes.
In determining whether the votes cast by a Governor are to
be deemed to have raised the total of any nominee above
38 per cent of the eligible votes, the 38 per cent shall be
deemed to include, first, the votes of the Governor casting
the largest number of votes for such nominee, then the votes
of the Governor casting the next largest number of votes and
so on until 38 per cent is reached.
(b) The votes of a Governor under subparagraph (a) above shall
not be deemed to have raised the total votes for a nominee
above 38 per cent of the eligible votes if without the votes of
such Governor such total would be more than 28 per cent
but not more than 38 per cent of the eligible votes.
(c) 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 subparagraph (a) above to have
raised the total votes received by such nominee above 38 per
cent 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.
15. 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 elimi-
nate by lot one of the nominees from the following ballot.
16. Announcement of Result: After the last ballot the Chairman shall
cause to be distributed a statement setting forth the result of the
election.
17. Effective Date of Election of Executive Directors: The effective
date of election shall be November 1, 1976. Incumbent elected
Executive Directors shall serve through the day preceding such date.
18. General: Any questions arising in connection with the conduct of
the election shall be resolved by the tellers, subject to appeal, at

the request of any Governor, to the Chairman and from him to

the Board. Whenever possible, any such question shall be put
without identifying the members or Governors concerned.
As approved by Board of Governors

Resolution No. 31-8, September 7, 1976
STATEMENT OF RESULTS OF ELECTIONS, OCTOBER 5, 1976 9
1. Candidates Elected Under Article XII, Section 3(6) (iii)
Members Whose Votes

Candidate Elected Counted Toward Election 10 Number of Votes
9
Muhammad Al-Atrash Bahrain 350
Egypt 2,130
Iraq 1,340
Jordan 480
Kuwait 900
Lebanon 340
Libyan Arab Republic 490
Pakistan 2,600
Qatar 450
Saudi Arabia 1,590
Somalia 440
Syrian Arab Republic 750
United Arab Emirates 400
Yemen Arab Republic 350
12,610
Jahangir Amuzegar Afghanistan 620

Algeria 1,550
Ghana 1,120
Greece 1,630
Iran 2,170
Morocco 1,380
Oman 9 320
Tunisia 730
Yemen, People's Dem. Rep. of 540
10,060
9
Results include ballots cast by the Governors for Bahrain and Oman pur-
suant to Resolution No. 31-14, adopted October 8, 1976.
10
Cambodia, the Republic of China, the Comoros, and South Africa did not
participate in this election.

1. Candidates Elected Under Article XII, Section 3 (6) (iii)—cont.

Members Whose Votes
Candidate Elected Counted Toward Election Number of Votes
Jacques de Groote Austria 2,950
Belgium 6,750
Luxembourg 450
Turkey 1,760
11,910
Lamberto Dini Italy 10,250

Malta 410
Portugal 1,420
Spain 4,200
16,280
Bernard J. Drabble Bahamas 450

Barbados 380
Canada 11,250
Grenada 270
Ireland 1,460
Jamaica 780
14,590
Frede Hollensen Denmark 2,850

Finland 2,150
Iceland 480
Norway 2,650
Sweden 3,500
11,630
M. G. Kaul Bangladesh 1,500

India 9,650
Sri Lanka 1,230
12,380
Byanti Kharmawan Burma 850

Fiji 380
Indonesia 2,850
Korea 1,050
Lao People's Dem. Rep. 380
Malaysia 2,110
Nepal 374
Singapore 620
Thailand 1,590
Viet Nam 870
11,074

1. Candidates Elected Under Article XII, Section 3(6) (iii)—cont.

Members Whose Votes
Pieter Lieftinck Cyprus 510
Israel 1,550
Netherlands 7,250
Romania 2,150
Yugoslavia 2,320
13,780
Wila D'Israeli Mung'omba Botswana 300

Burundi 440
Ethiopia 520
The Gambia 320
Guinea 490
Kenya 730
Lesotho 300
Liberia 540
Malawi 400
Nigeria 1,600
Sierra Leone 500
Sudan 970
Swaziland 330
Tanzania 670
Uganda 650
Zambia 1,010
9,770
Samuel Nana-Sinkam Benin 380

Cameroon 600
Central African Republic 380
Chad 380
Congo, People's Rep. of the 380
Equatorial Guinea 330
Gabon 400
Ivory Coast 770
Madagascar 510
Mali 470
Mauritania 380
Mauritius 470
Niger 380
Rwanda 440
Senegal 590
Togo 400
Upper Volta 380
Zaire 1,380
9,020

1. Candidates Elected Under Article XII, Section 3(&) (iii)—cont.

Members Whose Votes
Robert J. Whitelaw Australia 6,900
New Zealand 2,270
Papua New Guinea 450
Philippines 1,800
Western Samoa 270
11,690
2. Candidates Elected Under Article XII, Section 3(b) (iv)
Roberto Guarnieri Costa Rica 570
El Salvador 600
Guatemala 610
Honduras 500
Mexico 3,950
Nicaragua 520
Venezuela 3,550
10,300
Alexandre Kafka Brazil 4,650

Colombia 1,820
Dominican Republic 680
Guyana 450
Haiti 440
Panama 610
Peru 1,480
Trinidad and Tobago 880
11,010
Dante Simone Argentina 4,650

Bolivia 620
Chile 1,830
Ecuador 580
Paraguay 440
Uruguay 940
9,060
/s/ AMBROISE BATIENON /&/ MANMOHAN SINGH

(Upper Volta) (India)
Teller Teller

Annex HI to Report II
October 4, 1976
Dear Mr. Chairman:
In accordance with Section 16 of the By-Laws, the attached amend-

ments of the Rules and Regulations are submitted for review by the
Board of Governors.
The decisions of the Executive Board taken on June 13, 1974 with
respect to the valuation of the SDR and the determination of the rate
of remuneration and the rate of interest on the SDR provided for a
review of those decisions two years from their adoption. Accordingly,
the Executive Board completed on June 30, 1976 a review of those
decisions, which are incorporated in Rules O-3, 1-10, and Q-l of the
Rules and Regulations, as adopted on June 13, 1974 and amended on
July 1, 1975. It was decided that no change would be made in the
valuation method as set out in Rule O-3 but that the rate of remunera-
tion on members' creditor positions as set out in Rule I-10 should be
increased. It was agreed that, unless the Executive Board decided
otherwise, the rate of remuneration shall be three fifths of the combined
market interest rates in the United States, Germany, the United Kingdom,
France, and Japan, rounded to the nearest 1A per cent. Rule Q-l(b),
which provides that the interest rate on holdings of SDRs shall be equal
to the rate of remuneration, was adjusted to reflect the changes in
Rule MO.
On August 2, 1976, the Executive Board further amended its

Decision No. 3457-(71/121) G/S, as amended, to provide a redefini-
tion of the maximum amount of SDRs that a participant may acquire to
promote reconstitution if the participant is obliged to pay charges to
the General Account or discharge repurchase obligations in SDRs dur-
ing the month in which the acquisition is made. The raising of the limit
for acquisition by a participant under this amendment of the Decision
necessitated a change in Rule P-6 in order to make it possible for the
Fund to provide a total amount of SDRs to a participant equal to the
amount it would need to obtain in accordance with the calculation
under Rule P-2, increased by the amount of any charges to be paid or
any repurchase obligation in SDRs to be discharged during the month
following the calculation.

The Executive Board has made no other changes in the Rules and
Regulations since the last Annual Meeting.
Very truly yours,
/s/
Managing Director
and
1976 Annual Meeting
Attachment 1. Rules and Regulations Amended Since the

1975 Annual Meeting
1. Rule 1-10. Text as amended June 30, 1976.

(a) Unless the Executive Board decides otherwise, the rate
of remuneration for each calendar quarter shall be three
fifths of the combined market interest rate as determined
in (b) below. The rates of remuneration calculated under
this (a) shall be rounded to the nearest V* per cent.
(b) The combined market interest rate shall be the average
of the daily interest rates for the obligations, combined
in accordance with the weights listed below, for the
six-week period ending on the fifteenth day of the last
month before the calendar quarter for which the rate of
remuneration is determined:
Per cent
Market yields for three-month
U.S. Treasury bills 47
Three-month interbank deposits rate
in Germany 18
Market yields for three-month U.K.
Treasury bills 13
Three-month interbank money rate
against private paper in France 11
Call money market rate (unconditional)
in Japan 11
100

(c) The Fund will review the rate of remuneration before the
beginning of each calendar quarter.
2. Rule Q-l(b). Text as amended June 30, 1976.
The interest rate on holdings of special drawing rights
shall be equal to the rate of remuneration in effect
pursuant to Rule I-10(a).
3. Rule P-6. Text as amended August 2, 1976.
A participant may receive special drawing rights in a
transaction prescribed by the Fund to promote reconsti-
tution by the participant in a total amount equal to the
amount it would need to obtain in accordance with the
calculations under Rule P-2, increased by the amount of
any charges to be paid, or repurchase obligations in
special drawing rights to be discharged, by the partici-
pant to the General Account during the month following
the calculation under Rule P-2. To the extent that a
participant may receive special drawing rights in a trans-
action under any prescription, in accordance with this
Rule, the Fund shall provide special drawing rights held
in the General Account to the participant at its request
for gold or currency acceptable to the Fund. A partici-
pant shall consult the Managing Director before making
a request under this Rule.
Annex IV to Report II
October 4, 1976
Dear Mr. Chairman:
I am transmitting herewith on behalf of the Executive Board a pro-
posed Resolution, n which is recommended for adoption by the Board
of Governors, on the admission of Guinea-Bissau to membership in the
Fund.
Very truly yours,
/s/
Managing Director
and
1976 Annual Meeting
11

Annex V to Report II
October 4, 1976
Dear Mr. Chairman:

I am transmitting herewith on behalf of the Executive Board a pro-
posed Resolution,12 which is recommended for adoption by the Board
of Governors, on the admission of Surinam to membership in the Fund.
Very truly yours,

/s/
Managing Director
and

1976 Annual Meeting
12

Report IV 1
October 7, 1976
Mr. Chairman:
The Joint Procedures Committee met on October 7, 1976 and sub-
mits the following report:
1. Place and Date of 1978 Annual Meetings

The Committee recommends that the 1978 Annual Meetings be
convened in Washington, D. C. in late September.
2. Officers and Joint Procedures Committee for 1976/1977

The Committee recommends that the Governors for Ireland be
Chairmen, and the Governors for Bolivia and Togo be Vice Chairmen,
of the Boards of Governors of the Fund and of the Bank and its
affiliates, to hold office until the close of the next Annual Meetings.
It is further recommended that a Joint Procedures Committee be
established to be available, after the termination of these Meetings and
until the close of the next Annual Meetings, for consultation at the
discretion of the Chairmen normally by correspondence and, if the
occasion required, by convening; and that this Committee shall consist
of the Governors for the following members: Austria, Bangladesh,
Barbados, Bolivia, Brazil, Costa Rica, Egypt, Fiji, France, Germany,
Indonesia, Ireland, Japan, Mauritania, Pakistan, Romania, Sierra Leone,
Togo, United Arab Emirates, United Kingdom and United States.
It is recommended that the Chairmen of the Joint Procedures Com-
mittee shall be the Governors for Ireland and the Vice Chairmen shall
be the Governors for Bolivia and Togo and that the Governors for
Egypt shall serve as Reporting Members.
Approved:

/s/ SADEK AYOUBI /s/ W. F. DUISENBERG
Syrian Arab Republic—Chairmen Netherlands—Reporting Members
1
Report III dealt with the business of the Boards of Governors of the Bank,
IFC and IDA. Report IV and the recommendations therein were adopted by the
Boards of Governors of the Fund and of the Bank, IFC and IDA, in Joint
Session, on October 8, 1976.

Copyright
Center
RESOLUTIONS
Resolution No. 31-1

Remuneration of Executive Directors and Their Alternates
Pursuant to Section 14(e) of the By-Laws, the 1975 Joint Committee

on the Remuneration of Executive Directors and their Alternates
directed the Secretary of the Fund to transmit its second report and
recommendations to the Board of Governors of the Fund, following the
Governors' defeat of the draft resolution recommended for adoption in
the Joint Committee's first report, which was submitted to the Gover-
nors on June 23, 1975. The Joint Committee's second report contained
the following proposed Resolution for adoption by the Board of
Governors.
In accordance with Section 13 of the By-Laws, the Executive Direc-
tors requested the Governors to vote without meeting on the above-
mentioned Resolution submitted to them on September 75, 1975:
RESOLVED:
1. That, effective July 1, 1975, the annual rates of remuneration of
Executive Directors of the Fund and their Alternates pursuant to
Section 14(e) of the By-Laws shall be as follows:
(i) As salary, $38,500 per year for Executive Directors and
$30,200 per year for their Alternates;
(ii) As supplemental allowance for expenses (including housing
and entertainment), except those specified in Section 14(f)
of the By-Laws, $5,000 per year for Executive Directors
and $4,000 per year for their Alternates.
2. That, effective March 1, 1975, the changes in the Spouse and
Dependency Allowances made applicable to the staff of the Fund as of
that date shall apply also to Executive Directors and their Alternates.
3. That, effective with the next regular academic year beginning
after May 1, 1975, or effective from September 1, 1975 for the remain-
ing part of a current academic year, as the case may be, the change in
the Education Allowance made applicable to staff of the Fund shall
also apply to Executive Directors of the Fund and their Alternates.
294

RESOLUTIONS 295
4. That, effective July 1, 1975, an Executive Director of the Fund

or his Alternate, who has elected not to participate in the Staff Retire-
ment Plan of the Fund and continues to participate in the retirement
scheme of his previous employer, shall be entitled to have the Fund
pay the employer's regular contribution to the retirement scheme of his
previous employer on account of his continued participation in that
scheme after July 1, 1975, in an amount not in excess of the amount
the Fund would have paid as the employer's regular contribution on
account of his participation in the Staff Retirement Plan of the Fund
after July 1, 1975.
5. That, the Executive Directors of the Fund and their Alternates
shall continue to participate in the Staff Retirement Plan, and health
and insurance programs, established by the Fund for its staff on the
same basis as the staff.
The Board of Governors adopted the foregoing Resolution, effective
October 16, 1975.
Resolution No. 31-2

Increases in Quotas of Members—Sixth General Review
In accordance with Article III, Section 2 of the Articles of Agree-

ment and pursuant to Board of Governors Resolution No. 30-3,
adopted at the 1975 Annual Meeting, the Executive Directors decided
on February 19, 1976 to submit a report entitled "Increases in Quotas
of Fund Members—Sixth General Review" to the Governors, containing
recommendations for increases in the quotas of individual members of
the Fund, which had been endorsed by the Interim Committee of the
Board of Governors. The Executive Directors resolved at the same time
that action on the report should not be postponed until the next regular
meeting of the Board of Governors.
In accordance with Section 13 of the By-Laws, the following Resolu-
tion was submitted to the Governors on February 20, 1976 for a vote
without meeting:
WHEREAS the Executive Directors have considered the adjustment of
the quotas of members in accordance with the Resolution of the Board
of Governors of the International Monetary Fund at its 1975 Annual
Meeting:
That the Board of Governors, having noted the report of the
Executive Directors entitled "Increases in Quotas of Members—Sixth
General Review," dated August 22, 1975, and having endorsed the
understandings reached so far by the Interim Committee on this

subject, continues its review under Article III, Section 2 and requests
the Executive Directors to complete as promptly as possible their
work on this matter, on increases in individual quotas, and on the
mode of payment of subscriptions in respect of them, and to submit
appropriate proposals to the Board of Governors, after consideration
of them by the Interim Committee;
WHEREAS the Executive Directors have submitted to the Board of
Governors a report entitled "Increases in Quotas of Fund Members—
Sixth General Review" containing recommendations on increases in the
quotas of individual members of the Fund; and
WHEREAS the Interim Committee of the Board of Governors on the
International Monetary System has endorsed the recommendations con-
tained in the report of the Executive Directors; and
WHEREAS the Executive Directors have been requested to prepare
and submit to the Board of Governors as soon as possible proposals to
amend the Articles of Agreement of the Fund, including a proposal for
the modification of the provisions relating to the payment of increases
in quotas; and
WHEREAS the Executive Directors have recommended the adoption
of the following Resolution of the Board of Governors, which Resolu-
tion proposes increases in the quotas of members of the Fund as a
result of the sixth general review of quotas and deals with certain
related matters, by vote without meeting pursuant to Section 13 of the
By-Laws of the Fund;
Now, THEREFORE, the Board of Governors hereby RESOLVES that:

1. The International Monetary Fund proposes that, subject to the
provisions of this Resolution, the quotas of members of the Fund
shall be increased to the amounts shown against their names in
the Annex to this Resolution, provided that any member may
consent to an increase in its quota that is smaller than the one
shown in the Annex, and may consent thereafter to further in-
creases up to the amount shown against its name in the Annex
not later than the date prescribed by or under paragraph 5 below.
Each increase shall be a whole number in millions of special
drawing rights.
2. A member's increase in quota as proposed by this Resolution
shall not become effective unless the member has notified the
Fund of its consent to the increase not later than the date pre-
scribed by or under paragraph 5 below and has paid the increase
in quota in full, provided that no increase in quota shall become
effective before (i) the effective date of the second amendment

RESOLUTIONS 297
of the Articles or (ii) the date of the Fund's determination that

members having not less than three fourths of the total of quotas
on February 19, 1976 have consented to increases in their
quotas, whichever is the later of these dates.
3. A member shall pay twenty-five per cent of the increase in special
drawing rights, the currencies of other members specified, with
their concurrence, by the Fund, or in the member's own currency,
and shall pay the balance of the increase in its own currency.
4. A member shall, within six months after the date of the adoption
of this Resolution, make arrangements satisfactory to the Fund
for the use of the member's currency in the operations and trans-
actions of the Fund in accordance with its policies, provided that
the Executive Directors may extend the period within which such
arrangements shall be made.
5. Notices in accordance with paragraph 2 above shall be executed
by a duly authorized official of the member and must be received
in the Fund not later than one month after the effective date of
the second amendment of the Articles, provided that the Execu-
tive Directors may extend this period as they may determine.
6. Each member shall pay to the Fund the increase in its quota
within sixty days after (a) the date on which it notifies the Fund
of its consent or (b) the effective date of the second amendment
of the Articles or (c) the date of the Fund's determination under
paragraph 2(ii) above, whichever is latest.
7. The seventh general review of quotas shall be completed by
February 9, 1978.
Annex to Resolution No. 31-2

Proposed Proposed
Maximum Quota Maximum Quota
(In millions of SDKs (In millions of SDRs
1. Afghanistan 45 11- Benin 16

2. Algeria 285 12. Bolivia 45
3. Argentina 535 13. Botswana 9
4. Australia 790 14. Brazil 665
5. Austria 330 15. Burma 73
6. Bahamas 33 16. Burundi 23

7. Bahrain 20 17. Cambodia 31
8. Bangladesh 152 18. Cameroon 45
9. Barbados 17 19. Canada 1,357
10. Belgium 890 20. Central African Republic.. . 16

Proposed Proposed
(In millions of SDKs (In millions of SDKs)
21. Chad 16 61. Kenya 69
22. Chile 217 62. Korea 160
23. China 550 63. Kuwait 235
24. Colombia 193 64. Laos 16
25. Congo, People's Republic 65. Lebanon 12
of the 17
66. Lesotho 7
26. Costa Rica 41 67. Liberia 37
27. Cyprus 34 68. Libyan Arab Republic 185
28. Denmark 310 69. Luxembourg 31
29. Dominican Republic 55 70. Malagasy Republic 34
30. Ecuador 70
71. Malawi 19
31. Egypt 228 72. Malaysia 253
32. El Salvador 43 73. Mali 27
33. Equatorial Guinea 10 74. Malta 20
34. Ethiopia 36 75. Mauritania 17
35. Fiji 18
76. Mauritius 27
36. Finland 262 77. Mexico 535
37. France 1,919 78. Morocco 150
38. Gabon 30 79. Nepal 19
39. Gambia, The 9 80. Netherlands 948
40. Germany, Federal
Republic of 2,156
81. New Zealand 232
41. Ghana 106 82. Nicaragua 34
42. Greece 185 83. Niger 16
43. Grenada 3 84. Nigeria 360
44. Guatemala 51 85. Norway 295
45. Guinea 30
86. Oman 20
46. Guyana 25 87. Pakistan 285
47. Haiti 23 88. Panama 45
48. Honduras 34 89. Papua New Guinea 30
49. Iceland 29 90. Paraguay 23
50. India 1,145
51. Indonesia 480 91. Peru 164

52. Iran 660 92. Philippines 210
53. Iraq 141 93. Portugal 172
54. Ireland 155 94. Qatar 40
55. Israel 205 95. Romania 245
56. Italy 1,240 96. Rwanda 23

57. Ivory Coast 76 97. Saudi Arabia 600
58. Jamaica 74 98. Senegal 42
59. Japan 1,659 99. Sierra Leone 31
60. Jordan 30 100. Singapore 110

RESOLUTIONS 299
Proposed Proposed
(In millions of SDKs) (In millions of SDKs)
101. Somalia 23 116. Uganda 50

102. South Africa 424 117. United Arab Emirates 120
103. South Viet-Nam 90 118. United Kingdom 2,925
104. Spain 557 119. United States 8,405
105. Sri Lanka 119 120. Upper Volta 16
106. Sudan 88 121. Uruguay 84

107. Swaziland 12 122. Venezuela 660
108. Sweden 450 123. Western Samoa 3
109. Syrian Arab Republic 63 124. Yemen Arab Republic 13
110. Tanzania 55 125. Yemen, People's Democratic
Republic of 41
111. Thailand 181
112. Togo 19 126. Yugoslavia 277
113. Trinidad and Tobago 82 127. Zaire 152
114. Tunisia 63 128. Zambia 141
115. Turkey 200
March 22, 1976.
Resolution No. 31-3

Fifth General Review of Quotas—Nepal
The Government of Nepal requested on March 26, 1976 that pay-
ments equivalent to SDR 800,000 each totaling the equivalent of
SDR 1,600,000, relating to the fourth and fifth installments of the
increase in quota to which it consented under Board of Governors
Resolution No. 25-3 and which were due not later than April 30, 1976
in accordance with Resolution No. 29-3, be postponed until after the
second amendment of the Articles of Agreement. This would enable
Nepal to pay these installments in accordance with the mode of pay-
ment provided under the amended Articles instead of gold. The Gov-
ernment of Nepal also stated that these payments would be made before
those required for any increase in quota to which it may consent under
Resolution No. 31-2. The Executive Directors resolved on April 6,
1976 that action to amend paragraph 6(b) of Board of Governors
Resolution No. 25-3, as amended by Resolution No. 29-3, should not
be postponed until the next regular meeting of the Board of Governors.
tion was submitted to the Governors on April 7, 1976 for a vote
without meeting:

RESOLVED:
That Board of Governors Resolution No. 25-3, "Increases in Quotas
of Members—Fifth General Review," as amended by Board of Gover-
nors Resolution No. 29-3, is further amended by replacing the words
"not later than April 30, 1976" at the end of the first sentence of
paragraph 6(b) with the words "not later than thirty days after the
date of the second amendment of the Articles of Agreement."
April 28, 1976.
Resolution No. 31-4

Proposed Second Amendment to the Articles of Agreement
WHEREAS the Board of Governors, in Resolution No. 29-10 adopted

at its 1974 Annual Meeting, has requested the Executive Directors to
consider and prepare for the approval of the Board possible modifica-
tions in the Articles of Agreement of the International Monetary Fund
on the basis of the recommendations in Part II of the Outline of
Reform attached to the Report to the Board by its ad hoc Committee
on Reform of the International Monetary System and Related Issues
(Committee of Twenty), dated June 14, 1974; and
WHEREAS the Interim Committee of the Board of Governors on the
Reform of the International Monetary System has requested the Execu-
tive Directors to complete their work on amendment in the light of the
guidance given by the Committee; and
WHEREAS the Executive Directors have completed their work relating
to possible modifications in the Articles of Agreement of the Inter-
national Monetary Fund pursuant to Resolution No. 29-10 and the
guidance given by the Interim Committee; and
WHEREAS the Executive Directors have prepared a Report on the
Second Amendment setting forth proposals for modifications in the
Articles of Agreement of the International Monetary Fund; and
WHEREAS the Chairman of the Board of Governors has requested
the Secretary of the Fund to bring the proposals of the Executive
Directors before the Board of Governors; and
WHEREAS the Report of the Executive Directors setting forth their
proposals has been submitted to the Board of Governors by the
Secretary of the Fund; and

RESOLUTIONS 301
WHEREAS the Executive Directors have requested the Board of Gov-

ernors to vote on the following Resolution without meeting, pursuant
to Section 13 of the By-Laws of the Fund;
Now, THEREFORE, the Board of Governors, noting the said Report
of the Executive Directors, hereby RESOLVES that:
1. The proposals for modifications (Proposed Second Amendment)
that are included in the attachment to this Resolution and are to
be incorporated in the Articles of Agreement of the International
Monetary Fund are approved.
2. The Secretary of the Fund is directed to ask, by letter or tele-
gram, all members of the Fund whether they accept, in accord-
ance with the provisions of Article XVII of the present Articles,
the Proposed Second Amendment.
3. The circular letter or telegram to be sent to all members in
accordance with 2 above shall specify that the Proposed Second
Amendment shall enter into force for all members as of the date
on which the Fund certifies, by formal communication addressed
to all members, that three-fifths of the members, having four-
fifths of the total voting power, have accepted the modifications.
April 30, 1976. The attachment to this Resolution, comprising the
Proposed Second Amendment to the Articles of Agreement, is repro-
duced in the Supplement to this volume.
Resolution No. 31-5

Benefits of Executive Directors and Their Alternates
Pursuant to Section 14(e) of the By-Laws, the 1976 Joint Committee

on the Remuneration of Executive Directors and their Alternates
directed the Secretary of the Fund to transmit its report and recom-
mendations to the Board of Governors of the Fund. The Committee's
report contained the following proposed Resolution for adoption by
the Board of Governors.
In accordance with Section 13 of the By-Laws, the Executive Direc-
tors requested the Governors to vote without meeting on the above-
mentioned Resolution submitted to them on July 2, 7976:
RESOLVED:
1. That, effective March 1, 1976, the changes in the Spouse and
Dependency Allowances made applicable to the staff of the Fund as of
that date, shall apply also to Executive Directors and their Alternates.

2. That, effective May 1, 1976, the provisions for an ex gratia lump

sum payment by the Fund to help meet the cost of funeral and other
immediate expenses of a staff member that dies in active service equiv-
alent to three months' net salary subject to a maximum of $5,000, if
the deceased staff member had one or more dependents residing in his
household, or equal to one and one-half months' net salary subject to
a maximum of $2,500 in all other cases, shall apply also to Executive
Directors and their Alternates.
3. That, effective May 1, 1976, the changes in the Education
Allowance and the provisions for a Tuition Equalization Subsidy, made
applicable to the staff of the Fund as of that date, shall apply also to
Executive Directors and their Alternates.
4. That, effective January 1, 1977, the revision of the combined
income ceiling used to determine eligibility for home leave, education,
and resettlement benefits made applicable to the staff of the Fund as of
that date, shall apply also to Executive Directors and their Alternates.
August 2, 1976.
Resolution No. 31-6

Membership for the Comoros
On February 26, 1976, the Government of the Comoros applied for

admission to membership in the International Monetary Fund. The
Executive Board resolved on August 6, 1976 that action on the appli-
cation should not be postponed until the next regular meeting of the
Board of Governors.
tion was submitted to the Governors on August 9, 1976 for a vote
without meeting:
WHEREAS, the Government of the Comoros on February 26, 1976
applied for admission to membership in the International Monetary
Fund in accordance with Section 2 of Article II of the Articles of
Agreement of the Fund; and
WHEREAS, pursuant to Section 21 of the By-Laws of the Fund, the
Executive Directors have consulted with the representative of that
Government and have agreed upon the terms and conditions which, in
the opinion of the Executive Directors, the Board of Governors may
wish to prescribe for admitting the Comoros to membership in the Fund;

RESOLUTIONS 303
Now, THEREFORE, the Board of Governors, having considered the

recommendations of the Executive Directors, hereby resolves that the
terms and conditions upon which the Comoros shall be admitted to
membership in the Fund shall be as follows:
1. Definitions: As used in this Resolution:
(a) The term "Fund" means the International Monetary Fund.
(b) The term "Articles" means the Articles of Agreement of
the International Monetary Fund.
(c) The term "SDR" means the special drawing right.
2. Quota: The initial quota of the Comoros shall be the equivalent
of SDR 1.9 million, which shall be increased to the equivalent
of SDR 2.3 million on the date on which quota increases become
effective under the Sixth General Review of Quotas, provided
that, if the Comoros becomes a member after that date, the initial
quota of the Comoros shall be the equivalent of SDR 2.3 million.
3. Subscription: The subscription of the Comoros shall be equal to
its quota.
4. Payment of Subscription: The Comoros shall pay its initial sub-
scription, equal to the initial quota, in the currency of the
Comoros within three months after becoming a member, and if
the initial quota of the Comoros is increased to SDR 2.3 million,
the Comoros shall pay the increased subscription on the terms
prescribed in Board of Governors Resolution No. 31-2, adopted
March 22, 1976 for increases in quotas under the Sixth General
Review of Quotas. For the purpose of these payments, the
Comoros shall agree with the Fund on a rate of exchange for
the currency of the Comoros. Within three months after the pay-
ment of the initial subscription, the Comoros shall repurchase an
amount of its currency equivalent to not less than SDR 190,000.
A further repurchase equivalent to the difference between
SDR 475,000 and the amount of the first repurchase shall be
made not later than two years after the date of membership, in
one or more installments. The repurchases by the Comoros under
this paragraph shall be made with assets acceptable to the Fund,
in accordance with the Fund's policies and practices at the time
of repurchase.
5. Exchange Arrangements: In the period between accepting mem-
bership and the date of the second amendment of the Articles,
the Comoros shall notify the Fund of any changes in its exchange
rates prevailing at the time of accepting membership and shall
consult with the Fund with respect to its exchange rates whenever
the Fund so requests. After the date of the second amendment

the exchange arrangements of the Comoros shall be in accord-

ance with the Articles as amended.
6. Exchange Transactions with the Fund: The Comoros may not
engage in exchange transactions with the Fund until its subscrip-
tion has been paid in full and the initial repurchase mentioned in
paragraph 4 has been made.
7. Representation and Information: Before accepting membership in
the Fund, the Comoros shall represent to the Fund that it has
taken all action necessary to sign and deposit the Instrument of
Acceptance and sign the Articles, as contemplated by para-
graph 8(a) and (b) of this Resolution, and the Comoros shall
furnish to the Fund such information in respect of such action
as the Fund may request.
8. Acceptance of Membership: After the Fund shall have informed
the Government of the United States of America that the Comoros
has complied with the conditions set forth in paragraph 7 of this
Resolution, the Comoros shall become a member of the Fund
on the date when the Comoros shall have complied with the
following requirements:
(a) The Comoros shall deposit with the Government of the
United States of America an instrument stating that it
accepts in accordance with its law the Articles and all the
terms and conditions prescribed in this Resolution, and that
it has taken all steps necessary to enable it to carry out all
its obligations under the Articles and this Resolution; and
(b) The Comoros shall sign the original copy of the Articles
held in the Archives of the Government of the United States
of America.
9. Period for Acceptance of Membership: The Comoros may accept
membership in the Fund pursuant to this Resolution not later
than six months after the effective date of this Resolution, which
date shall be the date of its adoption by the Board of Governors;
provided, however, that, if extraordinary circumstances are
deemed by the Executive Directors to warrant an extension of
the period during which the applicant may accept membership
pursuant to this Resolution, the Executive Directors may extend
such period until such later date as they may determine.
September 7, 1976. The Articles of Agreement were signed by
Mr. Mohamed Finaish, Alternate Executive Director of the Inter-
national Monetary Fund, on behalf of the Government of the Comoros,
on September 21, 1976.

RESOLUTIONS 305
Resolution No. 31-7

Membership for Seychelles
On May 7, 1976, the Government of Seychelles applied for admis-
sion to membership in the International Monetary Fund. The Executive
Board resolved on August 6, 1976 that action on the application should
not be postponed until the next regular meeting of the Board of
Governors.
without meeting:
WHEREAS, the Government of Seychelles on May 7, 1976 applied for
admission to membership in the International Monetary Fund in
accordance with Section 2 of Article II of the Articles of Agreement
of the Fund; and
wish to prescribe for admitting Seychelles to membership in the Fund;
terms and conditions upon which Seychelles shall be admitted to
(b) The term "Articles" means the Articles of Agreement of the
International Monetary Fund.
2. Quota: The initial quota of Seychelles shall be the equivalent of
SDR 1.0 million, which shall be increased to the equivalent of
SDR 1.3 million on the date on which quota increases become
effective under the Sixth General Review of Quotas, provided
that, if Seychelles becomes a member after that date, the initial
quota of Seychelles shall be the equivalent of SDR 1.3 million.
3. Subscription: The subscription of Seychelles shall be equal to its
quota.
4. Payment of Subscription: Seychelles shall pay its initial subscrip-
tion, equal to the initial quota, in the currency of Seychelles
within three months after becoming a member, and if the initial

quota of Seychelles is increased to SDR 1.3 million, Seychelles

shall pay the increased subscription on the terms prescribed in
Board of Governors Resolution No. 31-2, adopted March 22,
1976 for increases in quotas under the Sixth General Review of
Quotas. For the purpose of these payments, Seychelles shall
agree with the Fund on a rate of exchange for the currency of
Seychelles. Within three months after the payment of the initial
subscription, Seychelles shall repurchase an amount of its cur-
rency equivalent to not less than SDR 100,000. A further
repurchase equivalent to the difference between SDR 250,000
and the amount of the first repurchase shall be made not later
than two years after the date of membership, in one or more
installments. The repurchases by Seychelles under this paragraph
shall be made with assets acceptable to the Fund, in accordance
with the Fund's policies and practices at the time of repurchase.
Seychelles shall notify the Fund of any changes in its exchange
consult with the Fund with respect to its exchange rates when-
ever the Fund so requests. After the date of the second amend-
ment the exchange arrangements of Seychelles shall be in
accordance with the Articles as amended.
6. Exchange Transactions with the Fund: Seychelles may not engage
in exchange transactions with the Fund until its subscription has
been paid in full and the initial repurchase mentioned in
7. Representation and Information: Before accepting membership
in the Fund, Seychelles shall represent to the Fund that it has
taken all action necessary to sign and deposit the Instrument of
Acceptance and sign the Articles, as contemplated by paragraph
8(a) and (b) of this Resolution, and Seychelles shall furnish to
the Fund such information in respect of such action as the Fund
may request.
the Government of the United States of America that Seychelles
Resolution, Seychelles shall become a member of the Fund on
the date when Seychelles shall have complied with the following
requirements:
(a) Seychelles shall deposit with the Government of the

RESOLUTIONS 307
(b) Seychelles shall sign the original copy of the Articles held
in the Archives of the Government of the United States
of America.
9. Period for Acceptance of Membership: Seychelles may accept
September 7, 7976.
Resolution No. 31-8
1976 Regular Election of Executive Directors
The Executive Board resolved on August 3, 1976 that action in

connection with the rules for conduct of the 1976 regular election of
Executive Directors should not be postponed until the time of the
next regular meeting of the Board of Governors, at which the election
would take place.
without meeting:
RESOLVED:
(a) That the proposed Rules for the Conduct of the 1976 Regular
Election of Executive Directors are hereby adopted; and
(b) That a Regular Election of Executive Directors shall take place
at the Annual Meeting of the Board of Governors in 1978.
September 7, 1976.

Resolution No. 31-91

Review of Performance of the Development Committee
WHEREAS the Board of Governors at its 1974 Annual Meeting

adopted Resolution No. 29-9 entitled "Establishment of Joint Minis-
terial Committee of the Boards of Governors of the Bank and the
Fund on the Transfer of Real Resources to Developing Countries"; and
WHEREAS paragraph 7 of that Resolution provides that at the end of
two years from its effective date the Boards of Governors of the Fund
and the Bank shall review the performance of the Committee, and shall
take such action as they deem appropriate; and
WHEREAS the period of operations of the Committee has been brief,
and affected by special events,
Now, THEREFORE, the Board of Governors hereby RESOLVES:
That "four years" shall be substituted for "two years" in para-
graph 7 of Resolution No. 29-9 of the Board of Governors adopted
on October 2, 1974.
Resolution No. 31-10 2
Financial Statements, Report on Audit,

and Administrative Budget
RESOLVED:
That the Board of Governors of the Fund considers the Report on
Audit for the Fiscal Year ended April 30, 1976, the Financial State-
ments contained therein, and the Administrative Budget for the Fiscal
Year ending April 30, 1977 as fulfilling the requirements of
Article XII, Section 7 of the Articles of Agreement and Section 20
of the By-Laws.
1
Adopted by the Board of Governors of the Fund, in Joint Session with the
Boards of Governors of the Bank, IFC and IDA, on October 5, 1976.
2

RESOLUTIONS 309
Resolution No. 31-111
Amendments of the Rules and Regulations
RESOLVED:
That the Board of Governors of the Fund hereby notifies the Execu-
tive Directors that it has reviewed the amendments of Rules I-10,
Q-l(b), and P-6 since the 1975 Annual Meeting and has no changes
to suggest.
Resolution No. 31-12l
Membership for Guinea-Bissau
WHEREAS, the Government of the Republic of Guinea-Bissau on

April 9, 1976 applied for admission to membership in the International
Monetary Fund in accordance with Section 2 of Article II of the
Articles of Agreement of the Fund; and
wish to prescribe for admitting Guinea-Bissau to membership in the
Fund;
terms and conditions upon which Guinea-Bissau shall be admitted to
2. Quota: The initial quota of Guinea-Bissau shall be the equivalent
of SDR 3.2 million, which shall be increased to the equivalent
of SDR 3.9 million on the terms prescribed in Board of Gover-
nors Resolution No. 31-2, adopted March 22, 1976, for increases

in quotas under the Sixth General Review of Quotas, provided

that, if Guinea-Bissau becomes a member after the effective date
of the second amendment of the Articles, the initial quota of
Guinea-Bissau shall be the equivalent of SDR 3.9 million.
3. Subscription: The subscription of Guinea-Bissau shall be equal
to its quota.
4. Payment of Subscription: Guinea-Bissau shall pay its initial sub-
scription, equal to the initial quota, in the currency of Guinea-
Bissau within three months after becoming a member, and if the
initial quota of Guinea-Bissau is increased to SDR 3.9 million,
Guinea-Bissau shall pay the increased subscription on the terms
prescribed in Board of Governors Resolution No. 31-2, adopted
March 22, 1976, for increases in quotas under the Sixth General
Review of Quotas. For the purpose of these payments, Guinea-
Bissau shall agree with the Fund on a rate of exchange for the
currency of Guinea-Bissau. Within three months after the pay-
ment of the initial subscription, Guinea-Bissau shall repurchase
an amount of its currency equivalent to 25 per cent of SDR 3.2
million with assets acceptable to the Fund, in accordance with
the Fund's policies and practices at the time of repurchase.
Guinea-Bissau shall notify the Fund of any changes in its
exchange rates prevailing at the time of accepting membership
and shall consult with the Fund with respect to its exchange rates
whenever the Fund so requests. After the date of the second
amendment the exchange arrangements of Guinea-Bissau shall
be in accordance with the Articles as amended.
6. Exchange Transactions with the Fund: Guinea-Bissau may not
engage in exchange transactions with the Fund until its subscrip-
tion has been paid in full and the repurchase mentioned in
7. Representation and Information: Before accepting membership
in the Fund, Guinea-Bissau shall represent to the Fund that it
has taken all action necessary to sign and deposit the Instrument
of Acceptance and sign the Articles, as contemplated by
paragraph 8(a) and (b) of this Resolution, and Guinea-Bissau
shall furnish to the Fund such information in respect of such
action as the Fund may request.
the Government of the United States of America that Guinea-
Bissau has complied with the conditions set forth in paragraph 7

RESOLUTIONS 311
of this Resolution, Guinea-Bissau shall become a member of the

Fund on the date when Guinea-Bissau shall have complied with
the following requirements:
(a) Guinea-Bissau shall deposit with the Government of the
(b) Guinea-Bissau shall sign the original copy of the Articles
held in the Archives of the Government of the United States
of America.
9. Period for Acceptance of Membership: Guinea-Bissau may
accept membership in the Fund pursuant to this Resolution not
later than six months after the effective date of this Resolution,
which date shall be the date of its adoption by the Board of
Governors; provided, however, that, if extraordinary circum-
stances are deemed by the Executive Directors to warrant an
extension of the period during which the applicant may accept
membership pursuant to this Resolution, the Executive Directors
may extend such period until such later date as they may
determine.

Membership for Surinam
WHEREAS, the Government of Surinam on June 11, 1976 applied for
admission to membership in the International Monetary Fund in
accordance with Section 2 of Article II of the Articles of Agreement of
the Fund; and
wish to prescribe for admitting Surinam to membership in the Fund;
terms and conditions upon which Surinam shall be admitted to mem-
bership in the Fund shall be as follows:


2. Quota: The initial quota of Surinam shall be the equivalent of
SDR 19 million, which shall be increased to the equivalent of
SDR 25 million on the terms prescribed in Board of Governors
Resolution No. 31-2, adopted March 22, 1976, for increases in
quotas under the Sixth General Review of Quotas, provided thatr
if Surinam becomes a member after the effective date of the
second amendment of the Articles, the initial quota of Surinam
shall be the equivalent of SDR 25 million.
3. Subscription: The subscription of Surinam shall be equal to its
quota.
4. Payment of Subscription: Surinam shall pay its initial subscrip-
tion, equal to the initial quota, in the currency of Surinam within
three months after becoming a member, and if the initial quota
of Surinam is increased to SDR 25 million, Surinam shall pay the
increased subscription on the terms prescribed in Board of
Governors Resolution No. 31-2, adopted March 22, 1976, for
increases in quotas under the Sixth General Review of Quotas.
For the purpose of these payments, Surinam shall agree with the
Fund on a rate of exchange for the currency of Surinam. Within
three months after the payment of the initial subscription,
Surinam shall repurchase an amount of its currency equivalent
to 25 per cent of SDR 19 million with assets acceptable to the
Fund, in accordance with the Fund's policies and practices at
the time of repurchase.
Surinam shall notify the Fund of any changes in its exchange
consult with the Fund with respect to its exchange rates whenever
the Fund so requests. After the date of the second amendment
the exchange arrangements of Surinam shall be in accordance
with the Articles as amended.
6. Exchange Transactions with the Fund: Surinam may not engage
in exchange transactions with the Fund until its subscription has
been paid in full and the repurchase mentioned in paragraph 4
has been made.

RESOLUTIONS 313
7. Representation and Information: Before accepting membership in

the Fund, Surinam shall represent to the Fund that it has taken
all action necessary to sign and deposit the Instrument of
Acceptance and sign the Articles, as contemplated by para-
graph 8(a) and (b) of this Resolution, and Surinam shall fur-
nish to the Fund such information in respect of such action as
the Fund may request.
the Government of the United States of America that Surinam
Resolution, Surinam shall become a member of the Fund on the
date when Surinam shall have complied with the following
requirements:
(a) Surinam shall deposit with the Government of the
(b) Surinam shall sign the original copy of the Articles held in
the Archives of the Government of the United States of
America.
9. Period for Acceptance of Membership: Surinam may accept

1976 Regular Election—Ballots of
Governors for Bahrain and Oman
RESOLVED:
That the Governors for Bahrain and Oman be permitted to cast their
ballots in the 1976 Regular Election of Executive Directors and have
1

their votes counted toward the election of an Executive Director by

depositing their ballots with the Secretary of the Fund before the end
of the 1976 Annual Meeting.
Resolution No. 31-15 *
Appreciation
RESOLVED:
That the Governors of the International Monetary Fund, the Inter-
national Bank for Reconstruction and Development, and the Bank's
affiliates, express their deep appreciation to the President of the
Republic of the Philippines, His Excellency Ferdinand E. Marcos, to
the Government of the Philippines and to the people of the Philippines
and of Manila for their hospitable and gracious reception;
That they express their warm appreciation and congratulations to
the Philippines for the exceptional facilities of the Philippine Inter-
national Convention Center; and
That they express particular appreciation to the Governors and
Alternate Governors for the Philippines and to their associates for their
imaginative and creative contribution to the success of the 1976 Annual
Meetings.
1
Adopted by the Boards of Governors of the Fund and of the Bank, IFC and
IDA, on October 8, 1976.

Copyright
Center
Interim Committee of the Board of Governors

on the International Monetary System
PRESS COMMUNIQUE
October 2, 1976
1. The Interim Committee of the Board of Governors of the Inter-

national Monetary Fund held its sixth meeting in Manila, Philippines,
on October 2, 1976 under the chairmanship of Mr. Willy De Clercq,
Minister of Finance of Belgium. Mr. H. Johannes Witteveen, Managing
Director of the Fund, participated in the meeting. The following
observers attended during the Committee's discussions: G. D. Arsenis,
Director, New York Office, UNCTAD; Henri Konan Bedie, Chairman,
Development Committee; Wilhelm Haferkamp, Vice-President in Charge
of Economic and Financial Affairs, CEC; Rene Larre, General Manager,
BIS; E. van Lennep, Secretary General, OECD; F. Leutwiler, President,
National Bank of Switzerland; Olivier Long, Director General, GATT;
and Robert S. McNamara, President, IBRD.
2. The Committee discussed the world economic outlook and the
functioning of the international adjustment process.
The Committee welcomed the economic recovery that has been under
way for the last year; it expressed continued concern, however, about
persistently high levels of unemployment and high rates of inflation in
many countries. The Committee believes that in present circumstances
the restoration of a reasonable degree of price stability will be necessary
to establish the basis for sustained economic growth and the reduction
of unemployment. Accordingly, the Committee is of the view that poli-
cies in the industrial countries at the present time should give priority
to the reduction of price and cost inflation. This would require fiscal
and monetary policies in these countries that would provide effective
control over the expansion of aggregate demand in a manner com-
patible with this objective, even where price and incomes policies are
in effect.
The Committee further agreed that, given the constraint under which
demand management policies in the industrial countries must operate,
special efforts, including the reduction in the barriers to trade in the
315

negotiations now under way, to improve market access to the exports

of developing countries and to increase the flow of development assist-
ance would be indicated.
With respect to the international adjustment process, the Committee
reached the following conclusions:
(a) As a result of the recovery in the world economy, exports are
rising in many countries and the international environment has become
much more favorable for the adjustment of external payments positions.
The Committee believes that such adjustment, which should be sym-
metrical as between deficit and surplus countries, is now both urgent
and opportune.
(b) To this end, deficit countries should arrange their domestic
policies so as to restrain domestic demand and to permit the shift of
resources to the external sector, to the extent necessary to bring the
deficit on current account in line with a sustainable flow of capital
imports and aid.
(c) Industrial countries in strong payments positions should ensure
continued adequate expansion in domestic demand, within the limits
set by effective anti-inflationary policies.
(d) Exchange rates should be allowed to play their proper role in
the adjustment process.
(e) In the context of the use of the Fund's resources, adjustment by
deficit countries can be promoted by a larger use of the credit tranches
and the extended Fund facility.
3. The Committee noted that, in accordance with the agreement
incorporated in the provisions of the Proposed Second Amendment, the
Fund will have the obligation to exercise firm surveillance over the
exchange rate policies of members. The Executive Directors should
consider how this function is to be exercised and should report to the
Committee on this subject.
4. The Committee noted the section of the Annual Report of the
Executive Directors dealing with developments in international liquidity.
In accordance with its terms of reference the Committee requested the
Executive Directors to keep all aspects of international liquidity under
review and to report to it at a later meeting.
5. The Committee reviewed, on the basis of a report by the Execu-
tive Directors, the financial activities of the Fund, including develop-
ments in the Fund's policies on the use of its resources and in the
liquidity of the Fund. The Committee noted the unprecedented expan-
sion in the use of the Fund's resources by members in order to finance
their balance of payments deficits and agreed that, even if all reason-

INTERIM COMMITTEE 317
able efforts toward adjustment were made, there might still be a need
for a large use of the Fund's resources in the near future. The Com-
mittee shared the view of the Executive Directors that greater emphasis
should be placed on the adjustment by members of imbalances in their
payments positions and that the use of the Fund's resources should
present the Fund with the opportunity to promote the use by members
of the kind of adjustment measures that are most conducive to the
interest of all. The Committee noted the actions taken by the Execu-
tive Directors with regard to the Trust Fund and welcomed their inten-
tion to keep the compensatory financing and buffer stock facilities
under review.
6. The Committee endorsed the conclusions of the Executive Direc-
tors on the state of the Fund's liquidity. The Committee urged that,
pursuant to the Resolution on Quota Increases adopted by the Board
of Governors last March, all members that have not yet done :>o should
make the necessary arrangements for the use of their currencies in the
operations and transactions of the Fund in accordance with its policies.
It was agreed that the Fund's liquidity should be kept under close
review. The Committee stressed the fact that prompt adoption of the
Proposed Second Amendment of the Articles and the subsequent com-
pletion of the steps necessary for quota increases under the Sixth
General Review would provide the most effective way of improving the
liquidity of the Fund.
7. The Committee noted that the Executive Directors will initiate
in the near future the Seventh General Review of Quotas so that it can
be concluded, as planned, in February 1978.
8. The Committee noted the report of the Executive Directors
regarding the progress made by members in connection with their
acceptance of the Proposed Second Amendment of the Fund's Articles.
In view of the importance that the entry into force of the amended
Articles will have for the functioning of the international monetary
system, the Committee urged all members that had not yet notified the
Fund of their acceptance of the Second Amendment to complete as
soon as possible the arrangements that would permit them to take
this action.
9. The Committee agreed to hold its eighth meeting in Washington,
D.C. on April 18 and 19, 1977.

COMPOSITION
as of October 2,1976
Willy De Clercq, Chairman

Hannes Androsch Austria
Hans Apel x Germany, Federal Republic of
Abdelkader Benslimane Morocco
Mario Ramon Beteta2 Mexico
Adolfo C. Diz Argentina
W. F. Duisenberg Netherlands
Michel Durafour 3 France
Asumoh Etc Ekukinam 4 Nigeria
Fawzi El Kaissi Iraq
Denis W.Healey 5 United Kingdom
Per Kleppe Norway
P. R. Lynch Australia
Donald S. Macdonald Canada
Masayoshi Ohira 6 Japan
Sawet Piamphongsant7 Thailand
Sambwa Pida Nbagui Zaire
William E. Simon United States
Mario Henrique Simonsen Brazil
Gaetano Stammati Italy
C. Subramaniarn India
Alternate attending for the member:

1 5
Karl Otto Poehl Sir Derek Mitchell
2 6
Ernesto Fernandez Hurtado Teiichiro Morinaga
3 7
Bernard Clappier Snoh Unakul
4
A. Ciroma

INTERIM COMMITTEE 319
ANNOUNCEMENT
October 6, 1976
The Interim Committee at its seventh meeting today in Manila
selected Mr. Willy De Clercq, Minister of Finance of Belgium, to con-
tinue as its Chairman for a new term, following upon the election of
Executive Directors of the International Monetary Fund which took
place on October 5, 1976.
The Committee also decided that its eighth meeting previously
announced for April 18 and 19, 1977 is now to be held on April 28
and 29, 1977 in Washington, D.C.
COMPOSITION
as of October 6, 1976
Mohammed Imady, Chairman ad interim
Willy De Clercq, Chairman
Hans Apel8 Germany, Federal Republic of
Abdelkader Benslimane9 Morocco
Mario Ramon Beteta10 Mexico
Willy De Clercq Belgium
Adolfo C. Diz Argentina
Michel Durafour J1 France
Asumoh Ete Ekukinam12 Nigeria
Fawzi El Kaissi Iraq
Denis W. Healey13 United Kingdom
Donald S. Macdonald 14 Canada
Masayoshi Ohira w Japan
Tengku Razaleigh Hamzah Malaysia
Sambwa Pida Nbagui Zaire
William E. Simon16 United States
Mario Henrique Simonsen Brazil
Gaetano Stammati17 Italy
C. Subramaniam India
Pierre Vinde Sweden

8 13
Hans-Herbert Weber Sir Derek Mitchell
9 14
Hassan Ali Mehran Richie Ryan (Ireland)
10 15
Ernesto Fernandez Hurtado Teiichiro Morinaga
11 16
Bernard Clappier Edwin H. Yeo III
12 17
A. Ciroma Silvano Palumbo

Copyright
Center
Joint Ministerial Committee of the Boards of Governors

of the Bank and the Fund on the Transfer of
Real Resources to Developing Countries
(Development Committee)
PRESS COMMUNIQUE
October 3, 1976
1. The Development Committee (the Joint Ministerial Committee

of the Boards of Governors of the Bank and the Fund on the Transfer
of Real Resources to Developing Countries) held its sixth meeting in
Manila on October 3, 1976, under the chairmanship of Mr. Henri
Konan Bedie, Minister of Economy and Finance for the Ivory Coast.
Mr. Robert S. McNamara, President of the World Bank, Mr. H. Johannes
Witteveen, Managing Director of the International Monetary Fund and
Mr. M. M. Ahmad, Acting Executive Secretary took part in the meet-
ing, which was also attended by representatives from a number of inter-
national and regional organizations and Switzerland as observers.
2. The Committee approved for presentation to the Boards of
Governors of the Fund and the World Bank its second annual report
covering the period July 1975 to June 1976.
3. The Committee considered the program of its future work in the
light of the situation and prospects of developing countries. The anal-
yses presented to it by the staffs of the IMF and the World Bank
showed that the current account deficit of non-oil developing coun-
tries had declined somewhat but was still expected to be running at a
high annual rate of about US$32-33 billion in 1976 and the first half
of 1977. These estimates did not suggest that a significant relief from
current difficulties would be forthcoming in the early part of 1977.
Many developing countries, especially the middle-income countries,
borrowed heavily to maintain the flow of imports and to avoid undue
interruption of their development programs, leading to an increase in
their external debt and debt service payments. The low-income coun-
tries have had little or no growth in per capita income since 1970 and
their level of imports fell by some 20 per cent below those of the late
1960s. Official aid to them has been inadequate. To assist the develop-
ing countries in their adjustment process and to help them achieve a
320

DEVELOPMENT COMMITTEE 321
higher rate of growth, the low-income countries would require addi-

tional concessional assistance and the middle-income countries would
need increased flows from both official and private sources. To be
effective, these in turn would require a greater emphasis upon domestic
policies attuned toward the necessary internal adjustment processes and
toward employment creation.
4. The Committee reaffirmed its strong support for the timely and
satisfactory completion of the Fifth Replenishment of IDA so as to
permit a substantial increase in IDA resources which, in the opinion of
many members, should be in real terms, and to maintain continuity of
its operations beyond June 1977. The Committee also agreed that it
was important that the lending programs of the international lending
institutions remain adequate to help meet the capital requirements of
the developing countries. They asked the Boards of these institutions to
review the adequacy of their capital resources for this purpose and,
where such capital is inadequate, to review the issues prerequisite to
consideration of augmenting such capital.
5. The Committee, with due regard to the functions of the Boards
of the IMF, the World Bank, and other international institutions,
desired to focus attention on the resources situation of the international
development finance institutions, on the volume, terms and distribution
of official flows, and on the role of adjustment in the development
process. The Committee agreed to establish a Working Group which
would, initially, consider the study of the International Resources Bank
requested of the World Bank. In addition, the group could be assigned
other specific matters, including the volume, terms and distribution of
official flows. The Working Group will present its conclusions and
recommendations for the consideration of the Committee.
6. The Committee received a further interim report from the Work-
ing Group on Access to Capital Markets. It was agreed that capital
market countries would endeavor, as far as their balance of payments
situation permitted, to move progressively toward greater liberalization
of capital movements, in particular capital outflows. In the meanwhile,
when regulations governing capital outflows are maintained for un-
avoidable reasons,
—governments of capital market countries would afford favorable
treatment, as among foreign borrowers, to developing country
borrowers with regard to permissions to make an issue or place
in the issue calendar;
—those capital market countries which currently maintain quantita-
tive limits on the amount of foreign issues in their markets would
endeavor to keep developing country borrowers outside these
limits, at least up to specified amounts;

—since the Eurobond market presents potential opportunities for

developing countries to raise finance, countries whose currencies
are in strong demand, and which maintain restrictions on inter-
national issues denominated in their currencies, would endeavor to
give favorable treatment, as among foreign borrowers, to develop-
ing country borrowers.
The Committee noted a number of recommendations in the report
that consideration be given to the removal of legal and administrative
barriers so far as is consistent with investors' protection and urged
capital market countries to give them earnest consideration.
7. The Committee recognized the need to reinforce and expand
technical assistance activities in the field of access to capital markets,
noted the bilateral programs already in the field, recognized the need to
coordinate the implementation of present and future available services,
and recommended that attention be given by the Board of IFC to the
possibility of IFC expanding its activities.
8. The Committee stressed the importance of co-financing by inter-
national and regional development banks as a means of augmenting
private capital flows to some developing countries, noted the progress
being made in this regard and urged that these arrangements be further
expanded.
9. The Committee noted with satisfaction that the Working Group
had considered the subject of multilateral guarantees and the proposal
for an international investment trust and asked that it continue its
studies on these subjects. The Committee also agreed that the Working
Group should present to the Committee at its next meeting concrete
recommendations for improving the various reporting systems on inter-
national financial stocks and flows.
10. The Committee agreed to meet again on October 6 in Manila
and also tentatively to meet on April 17, 1977, in Washington, D.C.,
the time of the next meeting of the Interim Committee.
11. The Committee expressed its deep appreciation to the Govern-
ment of the Republic of the Philippines for its warm hospitality and for
the excellent facilities provided to the Committee for the conduct of its
meetings.

DEVELOPMENT COMMITTEE 323
COMPOSITION
Abdlatif Y. Al-Hamad Kuwait
Hans Apel l Germany, Federal Republic of
Jorge Cauas Chile
W. F. Duisenberg 2 Netherlands
Kjell-Olof Feldt4 Sweden
Denis W. Healey5 United Kingdom
Yong Hwan Kim 6 Korea
Henri Konan Bedie (Chairman) 7 Ivory Coast
Donald S. Macdonald Canada
Manuel Perez Guerrero 9 Venezuela
F. C. Prevatt 10 Trinidad and Tobago
William E. Simon United States
Gaetano Stammati Italy
Cesar E. A. Virata Philippines
Mustapha Zaanouni Tunisia

1 6
Karl Otto Poehl B. H. Shin
2 7
J. P. Pronk Ibrahima Ba (Mauritania)
3 8
Jacques de Larosiere Michiya Matsukawa
4 9
Lennart Klackenberg Benito Raul Losada
5 10
Sir Richard King F. Barsotti

ANNOUNCEMENT
October 6, 1976
At its seventh meeting in Manila on October 6, 1976, the Develop-

ment Committee selected the Honorable Cesar E. A. Virata, Secretary
of Finance of the Philippines, as Chairman and appointed Sir Richard
King, K.C.B., M.C., of the United Kingdom, as Executive Secretary.
Sir Richard is currently Permanent Secretary of the Ministry of
Overseas Development.
COMPOSITION
Abdlatif Y. Al-Hamad Kuwait
Hans Apel" Germany, Federal Republic of
Jorge Cauas Chile
David H. Coore Jamaica
Denis W. Healey 13 United Kingdom
Franklin E. Hope Guyana
Henri Konan Bedie Ivory Coast
Benito Raul Losada Venezuela
Nasr Eldin Mustafa Sudan
Ivar N0rgaard Denmark
Rachmat Saleh Indonesia
William E. Simon15 United States
Gaetano Stammati 16 Italy
Cesar E. A. Virata (Chairman)17 Philippines
Mustapha Zaanouni Tunisia

11 16
Horst Moltrecht Silvano Palumbo
12 17
Jacques de Larosiere J. O. Stone (Australia) served
13
Sir Derek Mitchell as alternate member to permit the
14
Michiya Matsukawa member to serve as Chairman.
15
Richard D. Erb

Copyright
Center
ATTENDANCE
MEMBERS OF FUND DELEGATIONS
Afghanistan Rodolfo C. Clutterbuck

Governor Jose Maria Dagnino Pastore
Carlos E. Dietl
Mohammed Hakim
Alfredo H. Esposito
Alternate Governor Jose Luis Fernandez
Faiz Mohammed Pedro Oscar Fiorito
Algeria Jose Ricardo Grana
Narciso Ocampo
Governor Luis Maria Otero Monsegur
Seghir Mostefai' Edmundo J. Paul
Alternate Governor Raul Pedro Salaberren
Hachemi Saibi Edgardo Silveti
Advisers Francisco P. N. Soldati
Bouasria Belghoula Guillermo Zoccali
Sid Ahmed Benguerrah
Fawzi Benmalek Australia
Mohamed Bessekhouad Governor
Rachid Bouraoui Phillip Lynch
George Corm
Alternate Governor
Ali Kara-Mustapha
J. O. Stone
Nour Eddine Kerras
Hachemi Larabi Advisers
Mahmoud Ourabah A. Agafonoff
Mahfoud Zerouta K. Berry
B. M. Cheek
Argentina A. O. Hay
Governor H. G. Heinrich
Adolfo C. Diz E. Ingevics
D. G. Nutter
Temporary Alternate Governor M. J. Phillips
Juan Ocampo G. F. Taylor
Advisers R. J. Whitelaw
Horacio A. Alonso
Roberto Ancarola Austria
Horacio Arce
Ricardo H. Arriazu Governor
Alberto Ayerza Hans Kloss
Mario Baratella Temporary Alternate Governor
Roberto J. Bullrich Karl Waldbrunner
Carlos A. Carballo Advisers
Marcelo J. Castro Corbat Philipp Rieger
325

Austria (continued) Benin

Advisers (continued) Governor
Erich Schmid Isidore Amoussou
Erwin Schmidbauer Alternate Governor
Heinrich G. Schneider Guy Pognon
Adviser
Bahamas
Jerome Ahouanmenou
Governor
Arthur D. Hanna Bolivia
Alternate Governor Governor
Timothy B. Donaldson Manuel Mercado
Advisers Alternate Governor
Mrs. Ethelyn C. Isaacs Carlos Gumucio
Livingston B. Johnson Temporary Alternate Governor
Basil L. Sands Jacques Trigo
Advisers
Bahrain
Roberto Capriles
Governor Jorge Fernandez
Mahmood Al-Alawi Bernardo Fleschler
Temporary Alternate Governor Jose Justiniano
Alan E. Moore Jaime Resell
Luis Viscarra
Bangladesh Dieter Witting
Governor Botswana
M. Syeduzzaman
M. Nurul Islam H. C. L. Hermans
Alternate Governor
Temporary Alternate Governor
P. H. K. Kedikilwe
A. M. A. Muhith
Advisers Brazil
Abu Sayed Choudhury Governor
Enam Ahmad Chowdhury Mario Henrique Simonsen
Barbados Alternate Governor
Paulo H. Pereira Lira
Alternate Governor
Courtney N. Blackman Temporary Alternate Governor
Alexandre Kafka
Adviser
Advisers
Winston Cox
Alvaro Pinto Aguiar
Belgium Cesar Dantas Bacellar Sobrinho
Luiz Barbosa
Governor Felismino de Figueiredo Barreto
Cecil de Strycker Paulo Vieira Bellotti
Temporary Alternate Governor Oscar Bloch
Jacques van Ypersele de Strihou Fernao Carlos Botelho Bracher
Advisers Luiz Eulalio Bueno Vidigal Filho
Jacques de Groote Sebastiao Camargo
Georges Janson Elmo de Araujo Camoes
Ludovicus Meulemans Gabriel Costa Carvalho
Jan Vanormelingen Constantino de Campos Fraga

ATTENDANCE—MEMBERS OF FUND DELEGATIONS 327
Alvaro da Costa Franco Filho Temporary Alternate Governor

Seisiro Hasizume Gerald K. Bouey
Carlos Lyra Neto Advisers
Luiz Victor Nogueira Magalhaes Earl G. Drake
Ermelino Matarazzo Yves Fortin
Fuad Mattar J. A. Irwin
Jose Carlos Moraes Abreu Alain Jubinville
Ary dos Santos Pinto S. Khiari
Carlos Eduardo Quartim Barbosa Gilles Lalande
Joao Paulo Ricommard Mrs. Helen MacNicol
Jose Maria Sampaio Correa John McNicholas
Swiatoslaw Sirks E. P. Neufeld
Ivo Tonin Jacques L. Trudel
Carlos Alberto Vieira James C. Walz
Antonio Carlos Yazeji Cardoso
Central African Republic
Burma
Governor
Governor Mrs. Marie-Christiane Gbokou
U Aye Hlaing Alternate Governor
Alternate Governor Fran?ois Pehoua
U Maung Shein
Advisers Chad
U Khin Maung Mya Governor
U Min Aung Beremadji Madengar
U Sein Maung Alternate Governor
Machayl Bako
Burundi
Governor Chile
Bonaventure Kidwingira Governor
Alternate Governor Pablo Baraona Urziia
Patrice Nsababaganwa Alternate Governor
Adviser Sergio Undurraga
Bonus Kamwenubusa Temporary Alternate Governor
Roberto Guerrero del Rio
Cameroon
Governor China, Republic of
Marcel Yondo Governor
Alternate Governor Kuo-Hwa Yu
Gottlieb Titti Temporary Alternate Governors
Advisers Pao-Nan Cheng
Jean-Baptiste Assiga-Ahanda Kan Lee
Moise Beke Bihege Advisers
Godfrey Nguionza Hsin-Pao Chia
Edouard Nomo-Ongolo Paul T. M. King
Canada Colombia
Governor Governor
Donald S. Macdonald Hernando Agudelo Villa
Alternate Governor Alternate Governor
William C. Hood Hernan Mejia J.

Colombia (continued) Dominican Republic

Advisers Governor
Silvio Botero de los Rios Fernando Periche
Mrs. Maria Mercedes de Martinez Temporary Alternate Governor
Benjamin Martinez Moriones Carlos Despradel
Jorge Mejia-Palacio Adviser
Jorge Mejia-Salazar Jose Ariza
Vicente Uribe Rendon
Eduardo Wiesner Ecuador
Governor
Congo, People's Republic of the
Danilo Carrera-Drouet
Governor Temporary Alternate Governor
Alphonse Poaty Gustavo Franco
Alternate Governor Advisers
Gabriel Bokilo Pedro Aguayo
Advisers Luis Mejia
Philippe Loembe Jose Romero
Jean-Edouard Sathoud
Egypt
Costa Rica
Governor
Governor Mohamed Abdel Fattah Ibrahim
Bernal Jimenez M. Alternate Governor
Temporary Alternate Governor Aly Mohamed Negm
Mario Ugalde G. Advisers
Advisers Fadel F. Atta
Mario Esquivel A. Ali Gamal El Nazer
Guillermo Heyden Badr El Din Hamdi
Jorge Arturo Murice Mohammed M. Omar
Roberto Picado H. Galal Hassan Osman
Henry Tadros
Cyprus
Governor El Salvador
C. C. Stephani Governor
Alternate Governor Guillermo Hidalgo-Quehl
H. G. Akhniotis Temporary Alternate Governors
Tomas Alfonso Medina
Denmark Mauricio D. Vides Casanova
Governor Advisers
Erik Hoffmeyer Eusebio Martell
Temporary Alternate Governors Jose Maria Rosales
Svend Andersen
Karl O. Bredahl Equatorial Guinea
Niels Ussing Governor
Advisers Ondo Mefie Avang
Sven Boyer-S0gaard Ethiopia
Helmer E. Hetting
Frede Hollensen Governor
J0rn H. Kjaer Aklog Birara
V. Nedergaard Jensen Alternate Governor
O. L. Poulsen Samuel Asrat

Fiji Germany, Federal Republic of

Governor Alternate Governor
C. A. Stinson Karl Otto Poehl
Alternate Governor Temporary Alternate Governor
R. J. A. Earland Otmar Emminger
Advisers
Finland Wolfgang Eger
Werner Flandorffer
Governor Miss Lore Fuenfgelt
Pentti Uusivirta Hans Funke
Alternate Governor Alfred Haertl
Jorma Aranko Hans Janssen
Advisers Alois Jelonek
Veikko Kantola Gerhard Jennemann
Osmo Lares Claus Knetschke
Pekka Malinen Eberhard Kurth
Andreas Landvogt
France Gerhard Laske
Reinhard Muenzberg
Alternate Governor Eckard Pieske
Jacques de Larosiere Helmut Schlesinger
Advisers Siegfried Schumm
Henri Baquiast Dieter Seipp
Michel Beguery Carl Wagenhoefer
Dominique Berthet
Francois Dupont Ghana
Yves Fievet Governor
Didier Floquet Amon Nikoi
Jean Foglizzo
Alternate Governor
Gabriel Lefort
J. L. S. Abbey
Rene-Paul Rigaud
Jacques Henri Wahl Advisers
J. S. Addo
Gabon K. S. Adusei-Poku
E. N. Afful
Governor M. T. Amoako-Atta
Jerome Okinda J. B. Andoh
Alternate Governor T. E. Anin
Casimir Oye Mba A. K. Appiah
S. K. Botchway
A dvisers
W. Danso-Misa
Emmanuel Ondo Methogo
George K. A. Hammond
Robert Renombo
St. John Thompson
The Gambia Greece
Governor Governor
I. M. Garba-Jahumpa Xenophon Zolotas
Alternate Governor Temporary Alternate Governor
Alek A. Rozental Nicolas P. Kyriazidis
Advisers A dvisers
J. A. Langley Demetrius Chalikias
S. K. O'Brien Coker Michael Vranopoulos

Grenada India
Governor Governor
George F. Hosten C. Subramaniam
Temporary Alternate Governor Alternate Governor
L. F. Wilson, Jr. K. R. Puri
Guatemala Temporary Alternate Governors
S. Jagannathan
Governor Manmohan Singh
Roberto Mazariegos G.
Temporary Alternate Governor Advisers
J. Federico Linares M. M. S. Malik
J. Shivakumar
Guinea S. P. Upasani
G. Venkataramanan
Governor
N'Faly Sangare
Indonesia
Alkaly Soufiane Toure Governor
Ali Wardhana
Guyana Alternate Governor
Governor Arifin M. Siregar
Franklin E. Hope Temporary Alternate Governor
Alternate Governor Bima Ariotedjo
Patrick E. Matthews
Advisers
Advisers Marjanto Danusaputro
Edward M. Agostini Sofjan Djajawinata
Clarence F. Ellis M. Arief Djanin
Miss Nani Gandabrata
Haiti
Faisal Harahap
Governor R. A. Kartadjoemena
Antonio Andre Byanti Kharmawan
Temporary Alternate Governor Deddy Nurjaman
Adrien W. Bonnefil R. Soejoto
Mr. Srihadi
Honduras B. Sugiharto
Governor R. Eddy Suhardie
Guillermo Bueso Miss Tan Lhee Hiang Nio
Muljana Wiraatmadja
Vicente Diaz
Iran
Advisers
Juan C. Marinakys Governor
Paul Vinelli Hassan Ali Mehran
Iceland Shahpur M. Shirazi
Governor Advisers
Johannes Nordal Miss Afsar Afsari-Fard
Alternate Governor Housin Kamali
Jon Sigurdsson Ahmed Kooros
Adviser Alexander Majloumian
Jon Sigurdsson Ali M. Rad

Iraq Temporary Alternate Governor

Governor Timothee N'Guetta Ahoua
Fakhri Y. Kaddori Advisers
Alternate Governor Florent Amany Gnissan
Subhi Frankool Rene Amichia
Lamine Diabate
Adviser
Leon Diane
Mr. Al-Haimus Oumar Diarra
Charles P. Gomis
Ireland Andre Hovine
Governor Camille Konan
Richie Ryan Souleymane Kone
Alternate Governor Kouadio Kra
C. H. Murray Miss Dominique Mauprivez
Adviser Leon Naka
Donal Lynch Jacques Pontvianne
Jamaica
Israel
Governor
Governor
David H. Coore
Arnon Gafny
Alternate Governor
Alternate Governor
G. Arthur Brown
Eliezer Sheffer
Temporary Alternate Governors
Advisers
Noel Chin
Yoram Ben-Zeev
Maurice S. Tenn
Moshe Cohen
Moshe Meirav Advisers
Shlomo Seruya H. P. Bartlett
D. R. Clarke
R. I. Mason
Italy
Governor Japan
Gaetano Stammati Alternate Governor
Temporary Alternate Governor Teiichiro Morinaga
Silvano Palumbo Temporary Alternate Governors
Advisers Genso Fujimoto
Pietro Battaglia Masao Fujioka
Rosario Bonavoglia Taro Hori
Fabio Bonci Kaichi Kawaguchi
Lamberto Dini Michiya Matsukawa
Ms. Fernanda Forcignano Advisers
Alfredo Ginex Yoshihito Amano
Lucio Izzo Takashi Anzai
Francesco Parrillo Norio Hattori
Giorgio Rota Takatoshi Kato
Giovanni Sacco Akira Kaya
Fabrizio Saccomanni Toshihiro Kiribuchi
Emilio Sacerdoti Toshiharu Kitamura
Tooru Kodaki
Ivory Coast Tadayuki Koizumi
Governor Haruhiko Kuroda
Abdoulaye Kone Rei Masunaga

Japan (continued) Chang Suk Kim

Advisers (continued) Kyung Ho Kim
Fujio Matsumuro Seung Woo Kwon
Masanao Matsunaga Jong Kun Park
Kenjiro Nagasaka Tong Won Rhie
Nariaki Nakayama Myoung Ho Shin
Yoshihiko Okuda
Moriyuki Saito Kuwait
Haruhisa Segawa Governor
Hiromoto Segi Abdul Rahman Salim Al-Ateeqy
Reiichi Shimamoto Alternate Governor
Shoji Takahashi Hamzah Abbas Hussein
Makoto Utsumi Advisers
Mikio Wakatsuki Khalid A. Al-Ateeqi
Kiichi Watanabe Fahad Mohammed Al-Sabah
Koji Yamazaki Nabil Jaffar
Jordan Zacharia Nasr
Governor Nassim Saliba
Salem Massadeh Lao People's Democratic Republic
Mohammad Said Nabulsi Bousbong Souvannavong
A dvisers Alternate Governor
Zuhair Sh. Asfour Bounhong Luangkhot
Hisham J. Safadi
Abdul Majeed Shoman Lebanon
Kenya Temporary Alternate Governor

Governor Raja Himadeh
D. N. Ndegwa Lesotho
Governor
A. Abdallah
A. M. Mapetla
A dvisers
Alternate Governor
T. K. Birech-Kuruna
L. B. Monyake
Kenneth S. N. Matiba
A. Vienna Liberia
Korea Governor
Governor James T. Phillips, Jr.
Yong Hwan Kim Alternate Governor
Alternate Governor Charles A. Greene
Sung Whan Kim Advisers
Temporary Alternate Governors Miss Miata Beysolow
In Yong Chung Elie E. Saleeby
Tae Hyuk Ham Libyan Arab Republic
Bong H. Kay
Byong Hyun Shin Governor
A dvisers K. M. Sherlala
Byung Ju Chang Alternate Governor
Sun Keun Choi Abdulla A. Saudi
Yung Mo Chung Advisers
Wee Ho Kee Ali Hawas

Sulaiman Ihtash Advisers

Mohamad Ismail Albert Clary
Mustafa Said Younis Oumar Coulibaly
Sidi Coulibaly
Luxembourg
Malta
Governor Governor
Jacques-Francois Poos Daniel M. Cremona
Temporary Alternate Governor Alternate Governor
Raymond Kirsch C. Lino Spiteri
Adviser
Madagascar Anthony Debono
Governor
Leon M. Rajaobelina Mauritania
Francois d'Assise Indrano Ahmed Ould Daddah
A dvisers Alternate Governor
Alfred Rakotonjanahary Moustapha Saleck
Miss Renee Razafintsalama
Mauritius
Governor
Malawi
Sir Veerasamy Ringadoo
A. H. Madinga Goorpersad Bunwaree
Temporary Alternate Governor A dvisers
F. L. Mambiya France Empeigne
Advisers Dipnarain Manna
J. A. K. Munthali Venkatchar S. Raghavan
F. Z. Pelekamoyo Mootoosamy Sidambaram
Ranapartab Tacouri
Malaysia Savak S. Tarapore
Governor Mexico
Ismail bin Mohammad AH
Alternate Governor
Alternate Governor Ernesto Fernandez Hurtado
Wong Yoke Meng
Advisers Alfredo Phillips O.
Abdul Hamid bin Pawanchee
Advisers
Alias Ahmad
Pedro Galicia
Duleep Singh Kaulsay
Eduardo Montalvo-Ruiz
Fong Weng Phak
Eduardo Pesqueira
Abdul Malek
Jesus Rodriguez Montero
Redza Za'ba
Mrs. Conception Rubio
Zakaria Ismail
Francisco Suarez
Zulkifly Abdul Rahman
Morocco
Mali Governor
Governor Prince Moulay Hassan Ben
Founeke Keita El Mehdi
Oumar Makalou Ahmed Bennani

Morocco (continued) Alternate Governor

Advisers A. R. Low
Mohamed Aissaoui Advisers
Omar Akalay J. J. Bryant
M'Hamed Bargach E. G. Buckton
Abdelkader Ben Salah R. S. Deane
Abdel-Latif Benani W. A. E. Green
Hadj Abdelmajid Bengelloun
Mohamed Benkirane Nicaragua
El Habib El Fihri Governor
Ahmed Haiti El Wardi Roberto Incer B.
Abdelkader Erzini Alternate Governor
Bensalem Guessous Carlos Lopez Solis
Abdeslam Jaidi
Abdelkrim Kadiri
Gen. Gustavo Montiel
Mohamed Lahlou
Otmane Slimani Ricardo Parrales
Mrs. Hope Portocarrero de
M'Hamed Tazi
Somoza
Nepal Advisers
Governor Frank Arana Icaza
Kill Shekhar Sharma Noe Beltrand
Nestor O. Caldera
Alternate Governor Luis Duran Downing
Devendra Raj Panday Guillermo Solorzano A.
Temporary Alternate Governor Tun Ring
Kalyan Bikram Adhikary
Adviser Niger
Sambhu P. Acharya Governor
Moussa Tondi
Netherlands
Alternate Governor
Alternate Governor Ahmadou Mayaki
C. J. Oort
Temporary Alternate Governor Nigeria
A. Szasz
Advisers Governor
P. Arlman A. E. Ekukinam
D. H. Boot Alternate Governor
P. Lieftinck Adamu Ciroma
A. IJ. A. Looijen Temporary Alternate Governor
E. F. Mansur S. B. Falegan
J. Nierstrasz Advisers
G. A. Posthumus Miss F. U. Adibua
H. O. Ruding Alhaji Shehu Awak
V. A. Servage J. O. Bass Musa
B. Vliegenthart M. O. Fashola
T. de Vries I. Fetepigi
P. C. Witte C. E. Okobi
B. I. Onwameze
New Zealand H. M. Osha
Governor Olu Sanu
R. D. Muldoon M. B. Yesufu

Norway Paraguay
Governor Governor
Knut Getz Wold Carlos Chaves Bareiro
Thomas L0vold Oscar Jacinto Obelar
Advisers
Peru
Jon Aase
Bue Brun Governor
Thormod Eriksen Carlos Santistevan
Hermod Skanland Alternate Governor
German de la Melena
Oman Temporary Alternate Governor
Governor Winston Temple-Seminario
Yusuf A. Nimatallah
Philippines
Adviser
Warren M. Woods Governor
Gregorio S. Licaros, Sr.
Pakistan Alternate Governor
Governor Cesar E. A. Virata
S. Osman All Temporary Alternate Governor
Alternate Governor Gilberto Teodoro
Siraj Yusuf Khan Advisers
Advisers Pedro M. Almanzor
Ziauddin Ahmad Gregoria Arnaldo
Jamiluddin Hasan Mrs. Escolastica B. Bince
M. R. Khan Amado R. Brinas
Bashir Ahmad Malik Esteban Cabanos
Lorinda Carlos
Panama
Antonio O. Casern, Jr.
Gregorio A. Castillo
Governor R. Marino Corpus
Nicolas Ardito Barletta Gen. Pelagio Cruz
Alternate Governor Roman Cruz, Jr.
Ricardo de la Espriella, Jr. Victor Deoferio, Jr.
Advisers Panfilo O. Domingo
Rafael Aleman Basilic Estanislao
Ibrahim Oweiss Virgilio M. Garcia
Luis C. Pabon Jaime C. Laya
Felix Armando Quiros Benito Legarda, Jr.
Ernest Leung
Papua New Guinea Gregorio Licaros, Jr.
Cesar J. Lomotan
Governor Victor Macalincag
Julius Chan Ruben P. Macapinlac
Alternate Governor Alejandro Melchor
Henry To Robert Gregorio Mendoza
Advisers Romulo Mercado
Ross Garnaut Jose V. de Ocampo
Tore Lokoloko Reynaldo Palmiery
John Spicer Vicente T. Paterno
Kenneth Woodward Efren I. Plana

Philippines (continued) Temporary Alternate Governor

Advisers (continued) Mansour Al-Turki
Ignacio Ramires Advisers
Alex Z. Reyes Ahmed Abdullatif
Alfredo Pio de Roda, Jr. Mohamed Said Al-Haji Ali
Alfredo Romualdez Abdul Aziz Al-Rashid
Eduardo Z. Romualdez Ahmad Balamash
Beethoven Rualo M. Umer Chapra
Gerardo P. Sicat
Gabriel C. Singson Senegal
Jesus C. Sison Governor
Wilfrido C. Tecson Becaye Sene
Jose Tengco, Jr. Alternate Governor
Tomas Toledo Mamadou Abdoulaye Mbacke
Cesar C. Zalamea
Advisers
Portugal Pierre Babacar Kama
Ady Khaly Niang
Governor Seydou Niang
Jose da Silva Lopes
Alternate Governor Sierra Leone
Antonio de Seixas da Costa Leal Governor
Temporary Alternate Governor S. L. Bangura
Manuel Jacinto Nunes Temporary Alternate Governor
Advisers V. A. W. Nylander
Carlos Saldanha do Valle A dvisers
Joao Salgueiro A. Bangura
C. Maju
Qatar
C. J. Smith
Alternate Governor E. P. A. Soneye
Majid Al-Majid A. B. Taylor
A. Tejan
Romania
Governor Singapore
lulian Bituleanu Governor
Temporary Alternate Governor Michael Wong Pakshong
Nicolae Eremia Temporary Alternate Governors
Advisers Ng Kiat Chong
Ion Barac Yeo Teng Yang
Sandu Marinescu Somalia
Radu Mateescu
Eugen Stoenescu Governor
Omar Ahmed Omar
Rwanda Alternate Governor
Governor Ahmed Mohamed Nur
Celestin Ndagijimana Advisers
Alternate Governor Ali Mohamed Ibrahim
Jean-Baptiste Ngirabacu Jama Rabile God
Saudi Arabia South Africa
Ahmed Zaki Saad G. W. G. Browne

Temporary Alternate Governor Sweden

J. H. de Loor Governor
Advisers Hans Lundstrom
J. C. Malan Alternate Governor
C. F. Noffke Arne Linda
Spain Advisers
Alternate Governor Rolf Andreen
Jose Maria Lopez de Letona Per Asbrink
K. B. Erickson
Bertil Lund
Federico Trenor y Trenor
Gunnar Lund
Advisers Cai Melin
German Calvillo Ms. Gunilla Svedin
Alberto Cerrolaza
Eduardo O. de Toledo Syrian Arab Republic
Andres Travesi Governor
Sri Lanka Mohammed Imady
Felix R. Bias Bandaranaike Nassouh Daccak
Alternate Governor A dvisers
H. E. Tennekoon Arfan El-Azmeh
Bashar Kabbara
C. A. Coorey Tanzania
H. A. de S. Gunasekera Governor
S. Narapalasingham A. H. Jamal
W. Rasaputram Alternate Governor
G. B. Wikremanayake C. M. Nyirabu
Adviser Advisers
J. Oliver Perera F. D. Mbaga
Sudan D. P. Mutalemwa
I. M. Rashidi
Governor Taymour Saleh
Ibrahim Mohamed AH Nimir
Alternate Governor Thailand
Abdel Rahman Abdel Wahab Governor
Advisers Snoh Unakul
Omer Hassan Awad Temporary Alternate Governors
Mahdi El Faki Kraisri Chatikavanij
Sharfi Omer Abu El Hassan Kiatikorn Phromyothi
Sapana I. Jambo A dvisers
Hamadelniel Ahmed Mohamed Sunti Dhebmanee
Ibrahim Abdel Moneim Sobahi Tamchai Kambhato
Swaziland Pravit Klongwathanakith
Banyong Lamsam
Governor Sukum Navapan
R. P. Stephens Sudin Phujudanon
Alternate Governor Somsart Ratanasak
E. A. Z. Mayisela Chatri Sophonpanich
Adviser Boonlert Sortrakul
D. A. I. Ring Vijit Supinit

Togo United Arab Emirates

Governor Governor
Yao Grunitzky Hassan Abbas Zaki
Kwassivi Kpetigo Ronald J. Scott
Advisers Advisers
Yao Afanou A. S. Assaad
Boevi Mawussi Lawson Jean A. Bataillard
Ezzat El Alfi
Trinidad and Tobago Ismail Abdullah Mansoor
Adel Shukri
Governor
Mohammed Sultan
F. Barsotti
Alternate Governor United Kingdom
V. E. Bruce Alternate Governor
C. W. McMahon
Tunisia
Governor Sir Derek Mitchell
Mohamed Ghenima W. S. Ryrie
Alternate Governor A dvisers
Mohamed Bouaouaja R. F. R. Deare
A dvisers J. C. Edwards
Ali Chaouachi G. Fitchew
Ezzedine Farhat C. P. Haddon-Cave
Noureddine Hamza P. H. Kent
Taoufik Karoui E. Loader
H. Maud
Turkey S. W. Payton
I. P. Wilson
Governor
Sabahattin Alpat United States
Tayyar Sadiklar William E. Simon
Advisers Alternate Governor
Tune Bilget Arthur F. Burns
Osman Siklar
Alaeddin T. Yoruk
Charles A. Cooper
Uganda Sam Y. Cross
Richard D. Erb
Governor Gerald L. Parsky
M. S. Kiingi Hal F. Reynolds
Alternate Governor Henry C. Wallich
Onegi Obel Edwin H. Yeo III
Advisers Congressional Advisers
Z. K. S. Bukenya Mike Gravel
T. Buruku William L. Scott
J. Kahoza Robert G. Stephens, Jr.
H. Kajura Advisers
Ivan Mulindwa Joseph W. Barr
A. Serwamba Normand Bernard

Paul H. Boeker Advisers

Robert C. Fauver Claudio De Blois
Henry H. Fowler Mrs. Aura Osuna de Carrasco
Richard Frederick Ramon Carrasco
John C. Gartland Fernando Chumaceiro
Christian Herter, Jr. Capt. Remigio Elias Perez
Alan Holmes Leonardo Ferrer
Ms. Nancy P. Jacklin Roberto Guarnieri
S. Stanley Katz Martin Martini Urdaneta
George D. Krumbhaar Ildegar Perez-Segnini
Thomas B. Leddy Luis Alberto Santander
Carl Lohmann Eugenio Soler Alonso
John O. Mongoven Arturo Sosa, Jr.
William N. Morell Roosevelt Velasquez
Norman Mosher
Barry S. Newman Viet Nam
Jerry M. Newman
L. Roy Papp Governor
Maxwell Rabb Tran Duong
Alexis Rieffel Alternate Governor
David Rossiter Nguyen Lam
L. William Seidman Adviser
William H. Sullivan Cao Dae Cuong
Edwin M. Truman
Paul A. Volcker Western Samoa
F. Lisle Widman
H. David Willey Governor
George H. Willis Vaovasamanaia R. P. Phillips
Bernard Zinman Alternate Governor
Alistair Hutchison
Upper Volta Advisers
Alternate Governor Richard Carruthers
Ambroise Batienon Keith Taylor
Adviser
Yemen Arab Republic
Kassoum Congo
Governor
Uruguay Mohamed Ahmed Al-Gunaid
Jose Gil Diaz Abdulla Al-Sanabani
Alternate Governor
Nilo R. Berchesi Yemen, People's Democratic
Republic of
Adviser
Carlos Schroeder Governor
Fadhle Mohsin Abdulla
Venezuela Alternate Governor
Governor Ahmed Obeid Fadhli
Benito Raul Losada
Yugoslavia
Alfredo Lafee Governor
Alfredo Machado G. Branislav Colanovic

Yugoslavia (continued) Advisers

Alternate Governor Fataki Nemele
Josko Strukelj Mawakani Samba
Temporary Alternate Governor Muanda di Baziuki
Izak Drutter Mrs. Tshibambe Kabamba
Wa Bashiya
Advisers
Tomislav Badovinac
Zrinko Bubas Zambia
Gavro Cerovic Governor
Mrs. Gordana Hofmann
J. M. Mwanakatwe
Peter Ilic
Gavra D. Popovic Alternate Governor
Vladimir Radovic L. J. Mwananshiku
Vlado Togunjac Advisers
Mirko Zee Miss L. P. Chibesakunda
Rolf Jeker
Zaire
C. N. Lihusha
Governor Wila D'Israeli Mung'omba
Sambwa Pida Nbagui R. K. Sharma

ATTENDANCE—OBSERVERS 341
OBSERVERS
Cape Verde Douglas C. Gunesekera
Corentino Santos Graeme F. Rea
Manuel Costa David F. Fisher
Sam-Chung Hsieh
Guinea-Bissau Jay B. Carter
Wolf Preuss
Victor Freire Monteiro S. M. A. Kazmi
Jose Lima Barber P. S. Hariharan
Alfredo Ferreira Fortes Akira Tsusaka
Maldives
G. M. Lambert
Sir John Chadwick
Adam Maniku Isao Kanamoto
Kedar N. Kohli
Sao Tome and Principe
Victor Correia Bank for International Settlements
Seychelles Rene Larre

R. T. P. Hall
Chamery Chetty Alexandre Lamfalussy
Guy Morel Miss Ginette Meylan
Surinam
A. Bascoul
V. M. de Miranda Bank of Central African States
African Development Bank Christian Joudiou

G. R. Bouckat-Bou-Nziengui
Kwame Donkoh Fordwor
Amadou Boukar Center for Latin American
E. A. Mwanjisi Monetary Studies
Khalilou Sail Fernando Rivera
Omar AH
Nabil S. Mohareb Central African Customs
and Economic Union
Andean Development Corporation
Pierre Tchanque
Julio Sanjines G.
Antonio Barberena Central American Bank for
Economic Integration
Arab Bank for Economic
Development in Africa Enrique Ortez Colindres
Chedly Ayari Alejo Aguilar
Ali A. Khosropur Alfredo B. Noyola
Djim Sylla Central American Monetary
Arab Fund for Economic and Council
Social Development Jorge Gonzalez del Valle
Saeb Jaroudi
Central Bank of West African
A. Raouf Bouhaouala
States
Abdelkader Chanderli
Abdoulaye Fadiga
Asian Development Bank Alassane Ouattara
Shiro Inoue Marcel Kodjo
C. S. Krishna Moorthi Harouna Bembello

Commission of the European Henry J. Costanzo

Communities Eduardo Figueroa
Wilhelm Haferkamp League of Arab States
Frederic Boyer de la Giroday
Abdul Hassan Zalzalah
Giampietro Morelli
Andre P. Louw OPEC Special Fund
Jean-Claude Eude
Franz Froschmaier Mohammed Yeganeh
Ibrahim F. I. Shihata
Common Organization of African Hamid Zaheri
and Mauritian States
Organization for Economic
Kouanvi Tigoue Cooperation and Development
Commonwealth Secretariat Emile van Lennep
Stephen N. Marris
R. P. Deane Helmuth Fuehrer
F. B. Rampersad Rodney Dobell
Harry Travers
CONTRACTING PARTIES to the General
Agreement on Tariffs and Trade Development Assistance Committee
Olivier Long Maurice J. Williams
Gardner Patterson Organization of Arab Petroleum
Council of Arab Economic Unity Exporting Countries
Abdul Aal Al-Sagban AH Ahmed Attiga

Walid Khadduri
Nasouh Barghouti
United Nations
East African Community
J. P. Benoit
Al Noor Kassum
G. Arsenis
E. I. M. Mtei
A. Inostroza
H. J. Obbo
W. Blatter
East African Development Bank K. Gunaratham
Misheck B. Ngatunga Yusuf Ahmad
S. Y. Mukasa Herman J. de Nie
United Nations Development
European Investment Bank Programme
Yves Le Portz Bradford Morse
Sir Raymond Bell Krishan Kapur
Andre George Donald Bergstrom
Wolfgang Thill Claude de Kemoularia
Dieter Hartwich
Eugenio Greppi United Nations Educational,
Christopher Sibson Scientific and Cultural
Organization
Food and Agriculture Organization Werner Moller
of the United Nations
Jan P. Huyser West African Economic Community
Moussa Ngom
Inter-American Development Bank
Antonio Ortiz-Mena World Health Organization
Edmundo Valencia-Ibanez Dr. C. J. Ross-Smith

ATTENDANCES-OBSERVERS 343
Philippine Conference Organization Jose Carpio

Jose R. Tengco, Jr. Fabian S. Ver
Juan Quintos, Jr. Jolly Bugarui
Amado R Brmas
Ramon V. Tiaoqui
Cesar Lomotan
Antonio C. Laurel
Joy Virata Andre Navato
Renan V.Santos Gabriel C. Smgson
Luz Sese Antonio Abaya
NormaNierras Cesar Macuja

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Center
EXECUTIVE DIRECTORS, ALTERNATES,

AND ADVISORS
Alternate Executive Advisors to Executive
Executive Directors Directors Directors
Jahangir Amuzegar Costa P. Caranicas
Per Asbrink J0rn H. Kjaer
Sam Y. Cross Thomas Leddy
Jacques de Groote Heinrich G. Schneider
Nazih Deif Mohamed Finaish Fouad K. Hussein
Lamberto Dini Eduardo O. de Toledo
Bernard J. Drabble Donal Lynch
S. Jagannathan Warnasena Rasaputram
Alexandra Kafka Winston Temple-Seminario
Kaichi Kawaguchi Rei Masunaga
Byanti Kharmawan Sein Maung Abdul Malek
Pieter Lieftinck Tom de Vries
H. R. Monday, Jr. Wila D'Israeli Mung'omba James K. E. Cole
Eckard Pieske Gerhard Laske
William S. Ryrie Pendarell Kent
Dante Simone Santiago Sevilla
Francisco Suarez Roberto Guarnieri
Jacques Henri Wahl Jean Foglizzo
R. J. Whitelaw R. S. Deane
Antoine W. Yameogo Samuel Nana-Sinkam Christian Bouchard
344

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Center
REFERENCE LIST
OF
PRINCIPAL TOPICS DISCUSSED
<Lffr


Reference List of Principal Topics Discussedl
BALANCE OF PAYMENTS ADJUSTMENT

General Comments 40, 41, 67, 72-73, 80, 83, 93, 96, 104, 108,
109, 120, 165, 166, 173, 177, 181, 185, 188,
201, 202, 210, 211, 223, 226, 229-30, 234, 244
Adjustment Versus Financing 16-18, 20, 25, 32, 41, 45, 70, 93, 96, 97-98,
109, 182-83, 203, 244
Exchange Rate Arrangements 7, 17, 27, 28, 32, 36, 53, 54, 73-74, 83-84,
91, 93, 95-96, 105, 107-108, 123, 128-29,
131-32, 135, 139-40, 144, 148-49, 155, 163,
175, 216, 224-25, 236, 237, 238-39
Role of Commercial Banks 18, 51, 54, 70, 73, 86, 96, 109, 121, 135, 156,
158, 171-72, 185, 193, 203, 211, 239
Role of Fund Financing 20, 25, 27, 30, 31, 35, 70, 73, 75, 84, 94, 98,
108, 144, 173, 181-82, 193, 203, 211, 212,
216, 225-26, 231, 239, 245
DEVELOPMENTS IN WORLD ECONOMY

Economic Recovery and Outlook 1, 2, 5, 12, 15, 26, 27, 30, 39, 44, 47, 58, 61,
66, 72, 79, 83, 103, 105, 106, 127, 138, 140,
152, 158, 161, 189, 210, 223, 233
Conditions of and Prospects for:
Industrial countries 5, 12, 15, 16, 22, 40, 53, 58, 61, 67, 80,
96-97, 103, 138, 155, 205, 210, 212, 223,
229, 230, 233
Developing countries 5, 14, 15, 22, 31, 35, 39, 47, 58, 61, 62, 64,
70, 74, 80, 83, 84, 86, 97, 121, 123, 139, 140,
147, 155, 158, 161, 165, 185, 197, 201, 205,
210, 212, 223, 226, 229, 234
Inflation and Recession
General comments 1, 2, 5, 6, 12, 13, 14, 16, 22, 24, 27, 35, 40,
66, 72, 74, 80, 83, 86, 87, 103, 104, 106-107,
120, 127, 139, 144, 153, 158, 171, 178,
179-80, 184, 187, 192, 201, 215, 216, 223,
233, 234, 243
1
This list relates only to the Addresses and Statements. It excludes discussions of
individual countries, tributes to the host country, and personal tributes. References are
to pages.
347

Demand management policies 26, 28, 128, 180, 181, 193, 201, 219, 220,
223, 243-44
Other anti-inflationary measures 14, 28, 128, 153-54
Unemployment 13, 26, 27, 30, 31, 39, 45, 80, 83, 103, 104,
106, 109, 127, 129, 153, 177, 178, 180, 223,
234, 243
INTERNATIONAL LIQUIDITY
General Comments 82, 84, 97, 130, 135-37, 140, 164, 168, 174,
203, 225, 244, 246
Composition: Gold, SDRs, and Currencies. 2, 7, 8, 31, 55, 56, 58, 65, 66, 70, 94, 130,
136, 140, 148, 149-50, 156, 160, 164, 174,
190, 199, 204, 207, 216, 225, 237, 246
Control in Supply of 8, 26, 29, 31-32, 46, 54, 70, 104, 130, 131,
135-37, 140-41, 151, 156, 164, 190, 203-204
INTERNATIONAL MONETARY FUND

Amendment to Articles of Agreement 2, 7, 20, 24, 27, 31, 33, 36, 37, 38, 44, 46, 48,
51, 52, 53, 57, 58, 64, 65, 69, 74, 76, 83, 88,
92, 105, 111, 130, 133, 135, 136, 141, 147,
148-50, 155-56, 160, 175, 181, 190, 198, 207,
211, 213, 223, 224, 227, 231, 236, 238, 241,
242, 245, 246
Annual Report 11, 13, 14, 28, 36, 47, 55, 58, 70, 82, 84, 103,
107, 127; 133, 135, 136, 138, 139, 147, 152,
153, 160, 165, 168, 181, 188, 192, 210, 213,
223, 224, 226, 234
Development Committee 48, 64, 74, 86, 116-19, 122, 126, 133, 148,
186, 187, 191, 198, 199, 211, 238, 242, 245,
247
Gold Sales and Distribution 23, 31-32, 37, 70, 77, 94, 142-43, 164,
175-76, 206, 223, 226, 236
Interim Committee 22-25, 34, 35, 36, 48, 65, 70, 148, 178, 179,
199, 207, 238, 245
Liquidity of Fund 25, 27, 30, 31, 37, 42, 48, 51, 82, 84, 173,
182, 198,213, 231
Quotas in Fund 8, 20, 23, 27, 31, 33, 36, 37, 38, 46, 48, 59,
64-65, 77, 82, 84, 111, 126, 130, 136, 148,
173, 175, 176, 190, 198, 212, 213, 223,
225-26,231,236,242,245
SDRs: Allocations and Characteristics.. . .48, 84, 127, 130, 136, 140-41, 149-50, 164,
169, 174, 176, 190, 199, 203-204, 225, 239
Surveillance and Consultations 7, 8, 18, 20-21, 25, 27, 29, 32, 36, 46, 48, 51,
53, 54, 55, 57, 58, 65, 69, 76, 82, 83-84,
94-96, 105, 108, 123, 131, 132, 155, 160,
163, 175, 176, 202, 236, 244, 246

REFERENCE LIST OF PRINCIPAL TOPICS DISCUSSED 349
Use of Fund Resources

Buffer stock financing 6, 19, 20, 49, 52, 60, 84, 126, 135, 141, 183,
229, 245
Compensatory financing.............. 8, 19, 20, 37, 48, 49, 51, 52-53, 59, 60, 64,
77, 105, 111, 125, 130, 136, 141, 142, 145,
148, 151, 168, 172, 183, 198, 223, 226, 229,
232, 236, 237
Credit tranches 8, 23, 25, 37, 46, 48, 59, 77, 108, 125, 130,
136, 145, 163, 168, 172, 199, 223, 226, 245
Extended Fund facility 25, 125, 141, 145, 163, 168, 172-73, 202,
203, 232, 245
Oil facility 16, 19, 20, 64, 105, 124, 130, 136, 141,
144-45, 156, 168, 172, 182, 183, 185, 188,
223, 229, 233
Subsidy Account I l l , 124, 129, 130, 156, 183, 198, 233
Trust Fund 8, 23, 51, 59, 64, 77, 111, 116, 117, 125-26,
130, 136, 141, 142-43, 145, 157, 163, 164,
168, 176, 183, 198, 199, 206, 214, 223, 226,
233, 237, 245
Usability of currencies 27, 31, 37, 46, 141, 156, 173, 207, 224
NEEDS OF DEVELOPING COUNTRIES

Access to Capital Markets 3, 42, 117, 118, 157, 171
Access to Markets in Industrial Countries.6, 14, 24-25, 45, 48, 49, 100, 102, 126, 153,
201-202, 211, 216, 220, 223, 227, 242, 244
Commodity Arrangements 34, 35, 43, 78, 98-99, 104, 109-10, 134-35,
139, 199, 216-17, 227
Development Assistance 2, 6, 10, 14-15, 24, 33, 50, 71, 76, 77, 85, 99»
100, 104, 105, 114,117-18, 120, 129, 157-58'
162, 167, 170, 183, 184, 197-98, 206, 216,
220, 223, 227, 244
External Debt Problems 7, 17, 27, 28, 32, 35, 37, 53, 54, 73, 83-84,
91, 93, 95, 105, 107-108, 123, 128, 129,
131-32, 135, 139-40, 144, 148, 155, 163,
175, 224, 225, 236, 237, 238-39
International Monetary Reform and New
Economic Order 35, 58, 59, 60, 62-63, 76, 78, 98-100,
109-15, 116, 121-24, 133, 134, 147, 148-52,
157, 163, 164-65, 190, 197, 200, 204, 206,
231, 233, 246
SDR Link 8, 57, 66, 113, 149-50, 169, 190, 199, 204,
216,224,231,246

(Report) International Monetary Fund (1976) - Summary Proceedings of The Thirty-First Annual Meeting of The Board of Governor, October 4-8, 1976.

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SUMMARY PROCEEDINGS

©International Monetary Fund. Not for Redistribution

©International Monetary Fund. Not for Redistribution

OF THE BOARD OF GOVERNORS

OCTOBER 4-8, 1976

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The Thirty-First Annual Meeting of the Board of Governors of the

These Summary Proceedings include statements (or portions of state-

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Statements relating to the work of the Bank are reproduced in the

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ADDRESS BY THE PRESIDENT OF THE

It is a pleasure for me to welcome, on behalf of the Government and

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Already, published studies of the world economic outlook, and in

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But these developments, although commendable and significant, form

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OPENING ADDRESS BY THE CO-CHAIRMAN OF THE

It is a great privilege to follow the distinguished President of the

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zation, and crossroads of three continents. Ancient in its proud Arab

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The developing countries have asserted in many international forums

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East oil producers, has been remarkable. This performance is even

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progress it has achieved under the dynamic leadership of Mr. McNamara

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A further price was paid in the adoption of an automatic formula

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national financial institution focusing on the private sector—has com-

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PRESENTATION OF THE THIRTY-FIRST

BY THE CHAIRMAN OF THE EXECUTIVE BOARD AND

Mr. Chairman, I join you in thanking President Marcos for his

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ceeds, unemployment in the industrial countries seems likely to remain

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national product, and a reduction in the growth of the public sector

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official development assistance. In this regard, it is gratifying that the

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deficits. Additional urgency is lent to this need by the buildup of

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I know that there is concern in developing countries that balance of

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other commodities that might be established by agreement between

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members and surveillance over the international adjustment process

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DISCUSSION OF FUND POLICY AT

REPORT TO THE BOARD OF GOVERNORS OF THE