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The World Bank and the IMF

Glimpses of the 1991 Annual Meetings

by M. Sayeduzzaman Star Guest Columnist
THE recently concluded Annual Meeting* of the World Bank and the IMF Governor* tn Bangkok were unique tn more than one way. It took place in the heart of the fastest growing developing economy tn the world today al a time of declining global growth rate*. The Asian Experience was at the tip of every participants longue. The Meetings were long on policy analysis and prescriptions and abort on financial decisions, celebrating the demiae of communism. The all powerful G-7 ministers were more preoccupied with i**uea outside the mainatream of the meclinga. The USSR pree mpted the bulk of their lime and they spent more of thetr time in separate closed-door meetings than in the Plenary sessions or in its two Committees (the Interim Committee and the Development Committee). The Bank had a new President attending the Annual Meetings for the first time. And for the first time in nearly forty five years the World Bank appeared on the way to being a really universal Bank. Albania and Mongolia became full members and candidatures were announced of others In the queue — USSR. Estonia. Latvia. Llthu anta, Switzerland. Marshal Islands and the federated states of Micronesia.
The tenor of the meeting was .well reflected in the opening statement of the World Bank President : The most dramatic difference from 10 years ago, of course, Is the relaxation of superpower tension Equally fundamental is the broad convergence of development thinking which has replaced ideological conflict. The role of Government is being reconsidered throughout the world, and the potential of the private sector increasingly appreciated. Pco pies and Governments are recognizing that It is their countries' policy framework and governance which will largely determine their future prosperity."
World Economic Issues It was revealed that 1991 would record the lowest
growth of the global economy since 1982 — less than one per cent. !Vr capita income of the developing countries as a whole declined in 1990 and furllv r decline Is Inevitable In 1991. In the midst of this gloomy picture there was a general euphoria in the meetings about the end of the cold war and ihc demise of the era of central planning Everyone was euphoric that the end of East West confrontation provided a unique opportunity to the wor Id to address the twin problems of world poverty and envtronmenlal degradation. The developing countries, particularly the low income countries, however, pointed out that their economies faced adverse prospects because of deterioration of the external environment (shortage of cap! lai. uncertain interest and exchange rales, stalling of trade talks and growing protectionism) at a time when they were undertaking strong adjustment measures and were liberalising their economics.
The meetings appeared to reach general agreement on broad priorities* for the 199Os Identified .is — achievement of sustainable economic growth and development poverty reduction. and protection of the environment.
Other Issues on which there was "wide support" may be enumerated as — striking a new balance between the public and private sectors, need to reduce unproductive use of re sources such as excessive mill tary expenditure, and the Im portance of good governance It was obvious that extreme positions on the role of the public and private sectors were moderated by the Aslan experience.
One Important Issue high lighted in the meetings was the shortage of global capital and the need for raising global savings for meeting the additional claims on global re sources on account of the unification in Germany, the economic transformation of Eastern Europe, the prospects for reforms in the USSR and reconstruction of the Middle
East All available data indicate that the supply-demand balance in international capital flows is becoming tighter and the participant* stressed the need to enhance saving* around the world. The major industrial countrie* were urged to cut down their deficit*. and view* were widespread that all countrie* tn the world need to hold down non-productive public expenditure especially excessive military expenditure. The US Governor, however. did not came out on this issue tn the meetings. The Managing Director of the IMF was par ticularly emphatic on thi*. Some developing countries. Including two major countries in South Asia were none too happy at this stance of the Fund But the Managing Director made no secret that such expenditure has important economic and financial effects and was clearly relevant to the work of the IMF". The Nordic countries highlighted a proposal to establish a register of conventional arms transfers under the auspices of the United Nations, and further added that "the requirements of transparency and accountability must also apply to the suppliers of external resources, including the private sector and the NGOs." Drawing attention to the average level of 5% on defence spending. Belgium suggested that countries which spend leas than 2% of their GDP on military expenditure should receive special aid treatment' similar to suggestions made by Japan some time earlier. One may note that roughly at the same lime the UK and Canada made clear in Harare that they would Increasingly link aid to human rights.
The developing countries will have less, however, to celebrate. It was made qutte clear in the speeches of donor country Governors and In the statement* of the Bank President and Fund MD that countries will have to depend
more and more on their internal policies and resource* for development. Again, to quote the Bank Pres ide nt : * External conditions are a factor, of course. But the quality of do mestic Institutions and poll de* determines how well countries adjust to external shocks and exploit economic opportunities. This realization Is perhaps the most important building block for the future."
USSR, Long on Talks, Short of Cash
The G-7 minister* were deeply absorbed In issues relating to the problems and challenge* facing the USSR, now an Associate Member of the IMF. Grigory Yavlinsky, the Soviet economist who led the USSR delegation to ttie meetings attracted considerable attention. The Soviet team ran Into hard negotiations — and the G-7 tn thetr prolonged meeting* with the delegation made it quite clear that what the Soviet Union needs la hard measure*. There was no immediate commitment of aid, and the G-7 agreed to send a team to Moscow within the next few weeks to review the economic reform measure* being put in place by the USSR. Yavlinsky foresaw a liquidity problem but hoped that hi* country would be able to overcome the potential problem with G-7 help. Mention was made of the USSR far ing a financing gap of I 7b In the last four months of 1991. and It was reported by sections of the press that the 0-7 had made a secret contingency plan' to bail out the USSR tn the even of a payprents crisis. Japan offered * 5OOm from the Ex-Import Bank for food and medicine as “humanitarian assistance"! Germany suggested a "whole spectrum of advisory services" by the World Bank/IMF. describing the USSR as a favoured target for direct foreign private Investment.
Norman Lamoni, the UK Chancellor of the Exchequer,
made most use of the Annual Meetings forum to wax eloquent on the situation in the USSR, saying The collapse of the World * oldest centrally planned economy is perhaps the most Important economic development of our lifetime.
And it has brought into focus one of the key theme* of these meeting* over the last decade — the failure of central planning and state socialism* His response to the apprehension expressed by some developing countries that global resources might be disproportionately preempted by the USSR was most interesting. To quote : "Help for the Soviet Union is not at the expense of anyone — the whole world will benefit from the integration of a democratic Soviet Union into the world economy. Successful reform will provide a vast market for goods, an enormous increase In trading opportunities. a real stimulus to world growth. And. the reduction in military spending now tn prospect will not only make the world a safer place to do business in. It will also allow resources, across the world, to be released for more productive use. Reform In the Soviet Union Is not a parochial concern of Europe or the West. It is an unmitigated good for the entire world." Some concern was generated In the midst of the meetings by the declared intention of the National Bank of Ukraine that the Republic was Interested In following the Baltic States in applying for -IMF membership — which would be separate from that sought by the USSR ! The amount of time and attention devoted by the G-7 to the case of USSR — a non-member of either the Bank or the Fund, was noted with great Interest by most developing member countries. Perhaps in the not too distant future, the USSR Is expected to be a member of both the Fund and the Bank. In that context many question* have remained unresolved.
What will be the quota of the USSR ? Will It be based on its currently uncertain national economic statistics or on the historical data which have
western Governments and organizations? Never in the history of these two Institutions a country which is likely to be a borrower in the near future, became a member with such large economic strength (and consequent voting power) Will these issues be frankly and openly discussed in the executive boards of the two institutions or will decision be taken by the G-7 outside the Boards and Imposed on them ? The developing member countries as also the smaller Industrial countries will be eagerly watching the developments.
It may be recalled that towards the end of the Second World War when the setting of new international Institutions were being discussed at Lake Success and at Bret ton Woods. USSR actively participated in those deliberations. But USSR ultimately dissociated Itself from signing the Articles of Agreement as Il was unwilling to undertake the obligations of membership such as full disclosure of national economic data (foreign exchange reserves, budgetary statistics etc.) on a regular ba sis. ironically, after fortyfive years the USSR is showing more eagerness to become members of the Fund and the Bank now than newly independent nations In th* post colonial period of the fifties and sixties.
(To be Concluded Tomorrow. )
The first time the auther attended the Annual Meetings of the World Bank and the IMF was In 1970 In Copenhagen — as Alternate Governor of the IMF. Since then unta 1987 when he resigned from the Government, he attended altogether fifteen *uch meetings either as Governor or Alternate Governor of one of the two Bretton Woods institutions. The Bangkok meeting was his seventeenth, this time as a former Alternate member of the Bank's Executive Hoard. as was the case tn 1990 tn Washington DC.