Speech

96/19 Chairman of the Executive Board and
Managing Director of the International Monetary Fund
at the Closing Joint Session of the Annual Meetings
Washington, D.C., October 3, 1996

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Mr. Chairman, Governors: I have listened intently to all that has been said during the past few days, and I thank you for your friendly support and good wishes and, above all, for the candor and insight that you have brought to our discussions.

In the course of these meetings, I have been struck by four recurring themes:

* First, your cautious optimism about your countries' future in the global economy;

* Second, your strong consensus on the most effective economic strategies for securing this future;

* Third, your desire to have a strong, effective IMF to help members in this process;

* And fourth, your sense of common purpose and shared responsibility for your mutual prosperity in the global economy.

Let me take each of these themes in turn.

First, your cautious optimism.

You have noted with satisfaction that the world economic situation is favorable: world economic growth has become stronger and more widespread; inflation has been brought under better control; and the prospects for continued global economic expansion are good. As you rightly point out, today's encouraging situation and outlook is due to the fact that so many of your countries have strengthened their economic policies. Indeed, in the words of the Governor from India, "We should recognize that the relatively favorable economic situation is not a fortuitous outcome, but the product of many years of hard work and sacrifice in pursuit of sound economic policies at both the national and international levels."

Yet your optimism is guarded because you know that weaknesses remain in each of your economies and that the forces of globalization can accentuate them. Many of you have been quite frank about the problems you face—in reducing fiscal deficits, creating more jobs, strengthening the banking sector, and eliminating the structural problems that stand in the way of fuller integration into the global economy. Many of you are also concerned about the uneven distribution of private capital flows, and their potential volatility; about the fact that some countries have not shared in the expansion of world trade and capital flows and that aid flows are declining; and about the unmet needs in health and education in many countries. A number of you have also mentioned the risks that protectionism could pose to the global economy. Indeed, we must all be concerned about these issues and find ways to address them.

At the same time, however, I think all of us have sensed a new dynamic in the world economy. The rapid pace of global integration and its impact on world trade and finance has inspired many countries to accelerate reform. Increasingly, countries are realizing that, in the words of our Chairman, "Reaping further gains from globalization requires a firm commitment to even further opening of our economies."

* * * *

Indeed, the reform process does appear to be gaining momentum. And why is this so? Because of the broad consensus on economic strategy—the second theme emerging from our discussions.

So many of you have spoken eloquently about the visible payoffs for macroeconomic and structural reform! I particularly recall the Governor from the Philippines speaking of his country's "progress from being 'the sickman of Asia' to being"—well he put it two ways: "its rising star" and "a new gentler, kinder tiger;" and the Governor from Korea's reminder that, "though once one of the world's poorest countries," his country had "managed to transform its simple agrarian economy into an industrial economy within a short period of time." The vibrant economy of your own country, Mr. Chairman, is also a monument to the benefits of sustained adjustment and reform.

In this context, many of you have pointed to the continuing validity of the strategy set out in the Madrid Declaration and its emphasis on macroeconomic stability and structural reform. But increasingly, you are also bringing other issues to the table—such as the importance of investing in health and education; the role that such investments can play in increasing social equity; the link between social equity and the sustainability of the reform process; and yes, what Vice President Gore has termed, "the challenge of good government."

As you recall, this latter point was one that I stressed in my opening address, and I am gratified that a number of you insisted on its fundamental importance for sustained, high-quality growth. Bangladesh, Chile, Denmark, and others have remarked on this. The essential point is this: good governance is inextricably linked to the efficiency of resource allocation, to incentives for savings and investment and, increasingly, to external competitiveness—for capital inflows tend to be attracted to countries where investors can count on the transparent and responsible conduct of public affairs. Indeed, for all of these reasons, good governance is central to the basic economic objectives that the Bretton Woods institutions are trying to help their members achieve.

Governors, you have laid out an ambitious reform agenda for your countries. In the words of the Governor from Australia, "None of this is easy. But it is important to accept the challenge." It is gratifying to see how many of your countries have accepted the challenge, and how much progress you have achieved toward stronger, more sustained, more broadly shared growth.

* * * *

In turning to the third theme—your desire for a strong, effective IMF—let me assure you that we at the Fund also "accept the challenge." We hear your call to continue strengthening Fund surveillance—in industrial, developing and transition countries alike—and we will continue our efforts in full evenhandedness. Indeed, as Chairman Aninat has said, surveillance is now "more relevant than ever." For this reason, and in light of the challenges of globalization, I particularly welcome the Interim Committee's new declaration on the "Partnership for Sustained Growth."

You have also expressed very strong support for the Special Data Dissemination Standard; indeed, we will build on this initiative by establishing a general data standard. As part of our surveillance activities, we will also take up your call to help strengthen members' financial systems, especially the soundness of their banks, and to give further consideration to the role the Fund could play in encouraging capital account convertibility, even through an appropriate change in its Articles of Agreement.

We have also heard your call to strengthen Fund resources. I think the Governor of Sri Lanka expressed the conviction of the entire membership when he said, "Countries that take this difficult [adjustment] path...deserve help and encouragement from the international community to sustain their efforts and soften the severe hardships and dislocation that would inevitably accompany them."

All of you have welcomed the agreement that will permit a self-sustained, and therefore de facto permanent, ESAF, and the Fund's contribution through ESAF to help relieve the debt burden of the highly indebted poor countries. Many of you have mentioned your intention to make a bilateral contribution to ESAF, and I encourage others to join them. This is a superb demonstration of what our new partnership is all about. Industrial countries and advanced developing countries must also make room in their budgets for increased official development assistance. I can think of no better expression of our new partnership and certainly no better investment in the future than supporting in this way the development efforts of poor countries.

We must also thank the countries participating in the New Arrangements to Borrow for their help in doubling the credit lines available to the Fund. You have also expressed satisfaction at the consensus reached at the Executive Board on an equity allocation of SDRs; I trust that a final agreement will be reached in good faith before the Spring meetings.

Yet all of you have emphasized that the Fund is a quota-based institution and must remain so. I have heard the call of many members for early progress on the Eleventh Review, and I assure you that this will be our priority in the coming months. I am also mindful of the concern of many members that quotas should better reflect the new economic realities in today's global economy while ensuring an adequate increase for all members; we will need to address these issues in the coming months.

* * * *

Finally, I would like to highlight the sense of common purpose and shared responsibility that have guided our deliberations here this week. At the end of the day, all of our countries are seeking similar goals, and each of our countries has a stake in the success of all the others. In the words of the Vice President of the United States, "If we have learned anything from the second half of the twentieth century, we have learned this: that we cannot achieve peace and prosperity in isolation or in the absence of a healthy international economic system."

So, let us keep our sights on our common goals: greater stability in the world, and stronger more sustained, more broadly shared, and higher quality growth. And let us return to our daily tasks with a commitment to our new partnership and with a renewed sense of purpose, which you, Mr. Chairman, expressed in such a visionary fashion. You told us that:

"The context of stability and economic progress we are experiencing is a promising sign. But it shall not take profound root in the history of mankind unless it serves to open up clear opportunities for all of our citizens.... It is this crucial link of economic and social development with the efforts at the dignification of mankind that makes our work a truly meaningful task."

Thank you for these inspirational words.

As this is the last time I will appear at these Meetings in the company of the Secretary of the Fund, Mr. Leo Van Houtven, I would like to tell him that I will miss him greatly—for many reasons that I cannot expand on now, including the nice way he had of calling me to order from time to time!

And now, before he lowers the gavel with a bang, let me say thank you, ladies and gentlemen, and wish you a safe and pleasant journey home.