THE DEVELOPMENT COMMITTEE MEETING OF THE WORLD BANK / IMF WASHINGTON D.C. SEPTEMBER 22, 1992
My Group welcomes the President's Report for its timely and pertinent contents. We are now passing through a period of rapid changes on many fronts. We have left behind us the Cold War, but we have yet to arrive at a new pattern of global relations to take account of the profound economic, political and strategic changes that have place. Some of these changes have indeed taken us by surprise, such as the collapse of Communism in Eastern Europe and the dismantling of the former Soviet Union. Others have been gradual but no less far-reaching, such as the rise of new economic powers in East Asia, the globalization of the world economy and the successive technological and managerial revolutions which have fundamentally altered the balance of economic strength among the regions. These changes offered both opportunities and challenges and uneven benefits. While some have been able to make rapid adjustments to the new realities, others seem less certain about having to cope with the new situation and are driven to desperate and inward-looking solutions.
Both the industrial and developing countries now have the collective responsibility to seize upon the new opportunities created to enhance overall prosperity. It is our belief that in an increasingly interdependent world, both industrial and developing countries must cooperate to create and sustain a favourable global environment to enable all nations to meet their development objectives. The burden of structural adjustment must not be laid upon the backs of developing nations only. For some of the poorest countries, abrupt adjustments would be too painful if at all possible. In this respect, industrial countries should readily recognize that they too benefit from the progress in developing countries. However, it is sad to note that the greater burden has been shifted to the developing countries in making the necessary adjustments to promote world growth and development.
The response of the industrial countries to the more important issues confronting us like the extended development agenda and global trade liberalization has been either inadequate or not forthcoming. Global trade liberalization offers the greatest potential to yield the resources needed for development financing, especially in the developing countries. Yet the crucial Uruguay Round negotiations are now still at an impasse. The commitment of the G-7 leaders at their July 1991 Summit to see through a successful conclusion to the Uruguay Round of negotiations by the year's end has proven futile. The challenge for all nations must be to maintain and strengthen the global free trade system. For this purpose, every country must work together in striving towards an early, balanced, and successful conclusion to the Uruguay Round of negotiations. Its failure will benefit no one. Its success, however, would provide greater liberalization and expansion of world trade which would benefit all countries. We should therefore not allow purely short-term political considerations to frustrate what we consider as urgently needed measures to promote and energize global trade and development.
Efforts at improving the environment for trade and investments by developing countries are, however, being thwarted by the formation of exclusive trading blocs. We already note that NAFTA, will, in effect, result in higher entry requirements for exports from third countries. Initial estimates indicate that more than US$2.5 billion or 4 per cent of Asean trade with North America could be diverted. In the immediate term, this will have a significant impact on the region's export-led drive and its effect on future investment decisions.
We meet this year amidst a slowdown in the growth of the world economy, attributed in large part to the weak economic performance in the industrial countries. It is therefore, clear that the developed countries too need to undertake adjustments. For a start, developed countries should consolidate their fiscal positions. Lack of progress since the late 1980s in addressing the excessive budgetary imbalances in some of the key developed countries has increased inflationary expectations and has been the main factor contributing to the persistently high real long-term interest rates. This in turn has constrained growth. A determined effort by developed countries is also required to bring down trade barriers, to reduce unproductive resource allocations through industrial and agricultural subsidies and to remove structural rigidities, especially in the labour market.
Developing countries on their part readily accept their responsibility and role in the adjustment process through the adoption of macro-economic policies and structural reforms, undertaken with much sacrifice, in both the public and private sectors, particularly within the context of liberalizing their economies. However, the success or otherwise of these measures by the developing countries are contingent upon a favourable international economic environment.
We do not dispute that developing countries need to make efficient use of available aid resources, and increasingly rely on their own domestic savings to fund development programs. These alone, however, will not be adequate to meet their resource requirements. An adequate provision of external assistance is also critical for economic growth, poverty reduction and environmental protection. The importance of concessional assistance to implement the developmental efforts of the poorer countries cannot be overemphasized. In this respect, IDA-10 bears special relevance. Developing countries are faced with vastly extended and formidable development agendas, encompassing both unfinished and new priorities, that requires substantial additional resources. These needs must be satisfied so that developing countries will be able to grow. Quite a large number of countries have surfaced as new claimants on IDA resources. As such we urge all donor countries to respond adequately to the needs of developing countries in committing resources for the IDA-10 Replenishment. Present indications are unfortunately not promising, since even maintaining resources at the real level of IDA-9 would translate into a reduction in per capita IDA resource available to the poor countries. IDA-10 has also been entrusted with the added responsibility of environmental financing. In this respect, we urge that funding for environment should not be at the cost of other development projects in developing countries. There must be `new' and `additional' resources. It is therefore, a matter of deep concern that the response to date from donors has been discouraging with regard to the `earth increment'. It is also disappointing that financial committments to fund Agenda 21 of UNCED too fell short of the requirements as estimated by the UNCED Secretariat.
We are encouraged to note the steady progress with regard to debt and debt service reduction. We are particularly happy to learn of the implementation of the enhanced Toronto terms for several countries. However, many low income developing countries continue to encounter serious problems due to their excessive indebtedness. We therefore, urge the full implementation of the Trinidad and Tobago terms and also the provision of tailoring debt repayment to capacity to pay.
As many developing countries are vigorously pursuing policies and programs for private sector development, the role of foreign direct investment has become increasingly important. It has become not only a pivotal source of external financing but also an effective instrument contributing to greater efficiency in resource use, technological advancement and market expansion. In this respect, both the source and recipient countries have an equally important role to play in promoting foreign direct investments. It is imperative that source countries encourage outward flows of direct investment through taxation, bilateral agreement, institutional arrangements, investment guarantees, export credits, technical assistance and information. Recipient countries too need to remove administrative, legal and institutional obstacles to foreign direct investments. They also need to reform financial markets, improve macro-economic policies and accord equal treatment to all potential investors. In this respect, the guidelines on the legal framework for the treatment of foreign investment would, undoubtedly, provide the basis to promote foreign investment in developing countries. Since the guidelines are prepared as general principles, our approach needs to be flexible and adaptable to the specific requirements of countries.
The Bank is now facing the greatest challenge ever, to support the economic transformation of the former Soviet Union. The need for increased aid resources has been elevated and, in our view, has to be fulfilled by the donor communities to avert political and economic crisis in the former Soviet Union. However, we urge that these flows to the former Soviet Union and Eastern Europe should not jeopardize the efforts of developing countries undergoing structural adjustments and macro-economic reforms.
We are deeply concerned over the impact of severe drought in Southern and Eastern Africa. We think that the Bank has done commendable work in helping the drought stricken countries. Nevertheless, we strongly recommend that the Bank continue and even strengthen these efforts and all donors should undertake to increase the level of support that can alleviate the plight of people affected in these countries.