The World Bank for Malaysia at the Joint IMF-World Bank Annual Meetings, Madrid, 4 October 1994
Our meeting this year marks a watershed in the history of the Bretton Woods Institutions -- IMF and the World Bank. Its significance is not because it coincides with their 50th anniversary, but more importantly because we are now living in a period radically altered from that when these institutions were conceived. The voices calling for the reform of these institutions must be supported to enable it to "embrace the future."
We must rise to the challenge of the unprecedented consensus in world opinion towards economic growth. Never before countries and societies with all shades of political opinion have come to agree upon the primacy and necessity of growth to ensure the prosperity and the just distribution of economic wealth.
Both institutions must actively forge a stable international economic environment that is conducive to growth and sustainable development. The World Bank must enhance its fundamental objective of helping borrowers reduce poverty and pursue broad-based growth. We have witnessed vast improvements in the lives of the people in the world. However, in developing countries, mass poverty and rampant destitution and widening inequalities remain the greatest challenge to the global conscience.
The World Bank and the IMF are indeed powerful agents for reforms both in social and economic spheres. We all concur in the basic proposition that macroeconomic stabilization and restructuring are necessary measures for growth: and development should result in and be accompanied by the realization of humanitarian ideals -- which include the enlargement of freedom, accountability in the public sphere, justice in distribution and the elimination of all forms of oppression. Nevertheless, no matter how passionate our belief in these ideals may be, we must guard ourselves against trying to impose them in varying and complex circumstances. It is true that poverty eradication and economic reforms are to some extent contingent upon political order, and their effectiveness requires a comprehensive approach. However we must have a sense of priority. If we can achieve poverty eradication, economic stabilization and political reform that path shouldb pursued. Otherwise our conscience dictates that the flow of assistance for development to the poorest nations must continue, for them that assistance means survival.
We note the significant progress made in the last few years in reducing debt problems. Further action is necessary to reduce debt to sustainable levels and the return to economic normalcy. Donor countries and multi-lateral institutions must ensure the flow of sufficient resources to these countries to help support their efforts for economic adjustments.
The fact that some developing countries had been able to record sustained growth when the industrialized economies were toiling under recession points to the success of prudent economic management. Developing countries have the capacity to harness domestic sources of growth and diversity trade relations to non-traditional markets. One must realize that the sustainability of growth for developing countries also means diversifying their sources of growth, domestic as well as international. Acceleration in regional economic integration and vigorous efforts to harness sub- regional growth potentials are the fastest means to reduce long-standing dependency.
However, the growth enjoyed by developing countries should not be jeopardized by the imposition of non-trade issues such as labour standard, minimum wage, human rights and environment. For most of us in the developing world, there will be continuous, consistent and pragmatic efforts to improve the welfare of workers. In countries with excess labour, the effective implementation of universal labour standards may appear benign and theoretically appealing, but practically cruel in reality. It only means eroding the advantage these countries possess: labour competitiveness, thus effectively placing employment beyond the reach of the poorest -- groups without education and with the least minimum skills.
This misplaced concern is equally evident in the attempt to entangle trade with environmentalism and a particular brand of political correctness. Genuine efforts to conserve the environment and the advocacy of political reforms to expand the horizon of human liberty must be commended. But, this entanglement also help acts as a Trojan horse to smuggle in non-tariff barriers that will only subvert and undermine the progress of a free and multilateral world trading system. Thus, genuine advocates of these issues must not be deceived by motives that are less altruistic and eventually harmful to the very people whose rights they aspire to champion.
We are relieved with the economic recovery in the industrial countries. However we must be wary of the instabilities inherent in the global economic system which continue to threaten the durability of the industrial countries' economic recovery. Foremost among them are umemployment and the continuing instability in the financial and exchange markets. The burden imposed by instability i nexchange rates especially with respect to their external debt management is enormous. Some of the so-called soft loans have turned out to be very "hard" once the impact of exchange rate valuation is factored in. In this regard, developing countries find it difficult to accept the practice of certain developed countries getting together to determine the exchange rates of the world, without the consideration of their effects on others.
A free movement of capital across national borders, both by direct business investments and by purchases and sales of financial assets, is certainly beneficial and help facilitate financing of productive ventures. Unfortunately, the capital flows needed to achieve an efficient allocation of world savings are today a small fraction of world wide transactions in world savings in the currency markets, which are estimated to run at $1 trillion a day. The bulk of these transactions are speculations and arbitrages, seeking to make quick money on exchange rate fluctuations and on international interest rate differentials. They contribute little to rational long term investment allocations. Reform of the international monetary system has become a necessity to restore stability in financial and currency exchange markets.
Finally, if we genuinely believe in the relevance of Bretton Woods Institutions we must be willing to reform and redefine the global economy to enable all countries to achieve their growth potential.