Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized 90 COMMITTEE Its Origins and Achievements, DEV25 DEVELOPMENT The Development Committee August 1991 The Development Committee Its Origins and Achievements, 1974-90 Joint Ministerial Committee of the Boards of Governors of the World Bank and the International Monetary Fund on the Transfer of Real Resources to Developing Countries (Development Committee) Washington, D.C. Copyright 0 1991 The World Bank 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First printing August 1991 The Development Committee was established on October 2, 1974, by parallel resolutions adopted by the Boards of Govemors of the Intemational Monetary Fund (IMF) and the World Bank. It is formally known as the Joint Ministerial Committee of the Boards of Governors of the World Bank and the Intemational Monetary Fund on the Transfer of Real Resources to Developing Countries. The Development Committee is the only joint ministerial body of the IMF and the World Bank Group, and it gives particular attention to the problems of the developing countries. As such, it provides a focal point in the structure of intemational economic cooperation for the formation of a comprehensive overview of diverse intemational activities in the development area, for the efficient and prompt consideration of development issues, and for the coordination ofinternational efforts to deal with the problems offinancing development. The Committee is required to advise and report to the Boards of Govemors of the World Bank and the IMF on all aspects of the broad question of the transfer of resources to developing countries in relation to existing or prospective arrangements among countries, including those involving intemational trade payments, the flow of capital, investment, and official development assistance. It makes suggestions for consideration by those concerned regarding the implementation of its conclusions, and it reviews, on a continuing basis, the progress made in fulfillment of its suggestions. The Committee's twenty-two members, usually Ministers of Finance, are ap- pointed in tum for successive periods of two years by one of the countries or groups of countries represented on the World Bank's or the IMF's Board of Executive Directors. The Committee is led by a Chairman selected from among its members. He is assisted by an Executive Secretary who is elected by the Comnmittee. This pamphlet is a revised version of a pamphlet of the same tide published in September 1990 under ISBN 0-8213-1685-0. ISBN 0-8213-1806-3 Foreword The publication of this pamphlet on the origins and achievements of the Development Committee over the past sixteen years is timely and should be welcomed. As chairman of the Committee for the past four years, I have been struck by the insufficient public awareness of the work of the Commnittee despite the extent and depth of its consideration of development issues of importance to the global economy in general and the developing countries in particular. The publication of this pamphlet should help to fill this gap in public information, encapsulating as it does the essential elements of the history and role of the Committee, its functions and modalities of operation, and the main issues on which it has deliberated. The pamphlet also highlights some of the problems that the Committee faces and the challenges that lie ahead in the 1990s. From my own experience with the work of the Committee, I would highlight a few selected points, illustrative of my personal assessment. It is clear that even after the Commrittee's establishment and despite its sustained dedication to promoting the transfer of real resources to developing countries, the issue of resource transfers is still a central concern of the international com- munity. Indeed, the Committee is needed as much today, if not more, than it was in 1974. The eradication of mass poverty remains the central challenge of development. Al- though policies of developing countries geared to poverty reduction are essential, substantial progress within a reason- able time frame will not be possible without increased aid flows in support of programs carried out by developing iii countries. It is also as true today as it was in 1974, when the Committee of Twenty recommended the establishment of the Development Committee, that net transfers to develop- ing countries are critical for these countries' growth and development as well as necessary for a smoothly functioning international monetary system. • International development problems require careful and sustained action-oriented discussions to reach consensus on their solutions and to show results. More often than not, this process has taken much time. Thus, as is illustrated in the pamphlet, development issues such as those concerning Sub-Saharan Africa and external debt problems, particularly in Latin America, were addressed repeatedly for many years before signs of progress began to emerge. The heightening of international awareness of the problem of development in Sub-Saharan Africa, the strengthening ofthe debt strategy for heavily indebted middle-income countries and other severely indebted countries, the improved understanding by adjusting countries and the institutions regarding the ap- proach to adjustment programs--all these and others are major contributions by the Committee. But this was the result ofyears ofpainstaking work. This provides a convinc- ing answer to comments sometimes characterizing the De- velopment Committee as a mere deliberative body. It also suggests, however, the need for a greater sense of urgency and a quickened pace of deliberation if problems are to be solved before they become worse or more intractable. • After Bretton Woods, the 1960s and 1970s were probably the most productive periods for multilateralism and high hopes for international cooperation as a means of solving development problems. Although, undoubtedly, faith in multilateralism has weakened in the 1980s, there has been evidence in the Committee of a strengthening and revival ofa concerted international approach to dealing with inter- national development issues. This holds good promise for the future. iv • We should be mindful of the difficulties the Corrunittee has faced in carrying out its mandate and of the efforts to make it more relevant and effective. It has had to carry out its work, particularly in the past decade, in an environment that was not very favorable for resource transfers, given the financial constraints, trade practices, and monetary policies of some industrial countries. The importance of adjustment and sound policies by developing countries also had to be taken into account. Delays in carrying out adjustment pro- grams often compounded the difficulties in finding solutions to the growth and development problems ofthese countries. The Committee had to find balanced approaches to these development issues on which consensus among developed and developing countries could be reached. In order to improve the effectiveness of the Committee, steps were taken to strengthen its institutional framework and its relationship with the World Bank and the IMF and to enhance its role as a joint body of the governors of these two institutions. As we look forward to the 1990s, many daunting challenges lie ahead for the Committee. The development prospects of developing countries may well depend on how the Committee responds to such challenges as the emergence ofEastern Europe as a claimant for development finance, which raises issues for the flows of capital from traditional donors to developing countries. At the same time, however, the relaxation ofEast-West tensions presents opportunities for redirecting resources for aid flows, while the encouragement to nondebt private flows as a major form ofresource transfers to developing countries is an important priority for the coming decade. And how we deal with global and national environmental problems and the sharing ofinterna- tional responsibilities, particularly for financial assistance to de- veloping countries, is yet another major issue to be resolved. Furthermore, the prospects ofmany developing countries depend on enlarging export earnings, and hence the outcome of the V General Agreement on Tariffs and Trade (GATT) negotiations for the Uruguay Round is vital. The implications for the Committee, dedicated as it is to enlarging resource transfers, are clear, impor- tant, and pressing. I strongly commend this pamphlet for study by policymakers, universities, economic research institutes, private sector leaders, and the general public interested in development issues and international cooperation. B. T. G. CHIDZERO Harare, Zimbabwe September 1990 vi Contents Preface ix The Origin and Evolution of the Development Committee 1 Terms of Reference and Structure of the Development Committee 4 How the Committee Works 8 The Work and Achievements of the Comrnittee 11 The InitialPeriod 11 1975-79 13 The 1980s 16 ExternalDebt 18 The Role of the WorldBank and the IFC 21 Sub-Saharan Africa 23 Environment 25 Transferof Resources 28 Poverty 30 Trade and Development 31 Countries'Policies 32 The Impactof Industrial An Evaluation of the Committee 33 Appendix A. Members of the Development Committee, January 7, 1991 38 Apendix B. Observers to the Development Committee 40 Appendix C. Development Committee Pamphlets 41 Appendix D. Text of Parallel IBRD and IMF Resolutions Establishing the Development Committee 43 vii Preface In 1984, to commemorate a decade of its existence, the Devel- opment Committee published The Development Committee: Its First Ten Years. This publication briefly sketched the Committee's origins, working methods, and achievements. Fifteen years after the inception of the Committee, it is timely to produce a more in-depth account of the Committee's beginnings that puts into perspective the role and place of the Committee in the present global environment. Because of the dramatic changes that have affected developing countries in the decade of the 1980s, a detailed account of the Committee's work and activities in this period should also provide useful information on the Committee up to the present. This report reviews shifts in the activities of the Committee in response to changes in the world economic environment that affect developing countries. By tracing in a historical perspective the Committee's activities in dealing with specific development issues, a better appraisal of the importance of its work may be possible. ix The Origin and Evolution of the Development Committee In July 1972 the Board of Governors of the International Mon- etary Fund established a ministerial-level Committee of Twenty to advise and report on all aspects of international monetary reform. Seven technical groups, which reported to deputies representing members of the comrmittee, undertook the prepa- ratory work; one of these groups studied in detail questions relating to the transfer of real resources to developing countries. Developing countries participated fully in the work of the com- mittee, the deputies, and the technical groups. The "Outline of Reform" presented by the committee inJune 1974 listed as one of the main features of a reformed international monetary system the promotion of net flows of real resources to developing countries. This was seen as an integral part of the reformed system, together with an effective adjustment process, cooperation in dealing with disequilibrating capital flows, the introduction ofan appropriate form of convertibility, better international manage- ment of global liquidity with special drawing rights (SDRs) becoming the principal reserve asset, and consistency between arrangements for adjustment, convertibility, and global liquidity. Whereas the "Outline of Reform" was essentially concerned with the monetary aspects of the world economic system, its annex 10, on the special interests of developing countries, noted that promoting economic development was an important objec- tive of reform. Accordingly, the comrmittee considered that the net flow ofreal resources to developing countries should be given positive encouragement. The Committee of Twenty recognized the necessity for further work beyond that being done on reform l of the international monetary system, in particular on the follow- ing subjects: • The amount and quality of official development assistance • The policies and procedures of multilateral development finance institutions • The improvement of access to financial markets • International financing schemes for commodity regulation and price stabilization. To carry forward a study of these questions, the Committee of Twenty recommended that a joint ministerial committee of the IMF and the World Bank be established. The committee's Tech- nical Group on the Transfer of Real Resources had considered several possibilities for the body that would carry on the work: the Interim Committee of the Board of Governors of the IMF; a group similar to the Committee ofTwenty but organized by the World Bank; a group of officials that would report to ministerial bodies and so provide coordination between Fund and Bank ministerial groups; and a joint Fund-Bank ministerial group. Tb,e last-named option found favor because of the overlap ofinterests between the IMF and the World Bank and the ease of coordina- tion, which could provide a starting point for a much wider coordination of the policies of the other international organiza- tions involved in this area. The group also believed that over the years issues of primary responsibility of the IMF, such as adjust- ment and the financing oftemporary balance ofpayments deficits, and those of the World Bank in the field ofdevelopment finance had become increasingly interrelated and that this reality should be recognized through the creation of a joint body. The international economic environment in the early 1970s was a background factor contributing to the creation of a com- mittee on the transfer of real resources to developing countries. Compounding an uncertain outlook for the world economy at the time, the sharp increases in the price ofoil between 1973 and 1974 led to large current account deficits in developing countries, which had to finance the adjustment by borrowing or by drawing down reserves. Although a number of industrial countries also 2 incurred large current account deficits with the major oil-pro- ducing countries, the technica:i group of the Committee of Twenty felt that these countries should not reduce their aid flows to adjust their balance ofpayments. The group believed that there needed to be mechanisms for transferring part of the financial surpluses of net oil exporters to developing countries, particularly those that were having difficulty in borrowing on international capital markets. It was concerned about the position of a group of countries identified by the World Bank as the most seriously affected. Accordingly, it examined how the financing problem could be met by enlarging flows from bilateral official sources, from multilateral development financial institutions, and from the oil exporters. The Committee of Twenty recommended that, as a priority, the proposed joint ministerial committee give urgent attention to the problems of the developing countries most seriously affected by exceptional balance ofpayments difficulties. In October 1974 the Boards of Governors of the World Bank and the International Monetary Fund accepted the recommen- dation of the Committee of Twenty and approved parallel resolutions for the establishment of a joint ministerial committee of the two Boards. This body, the Development Committee, was to study the broad question of the transfer of real resources to developing countries and recommend measures to be adopted in order to implement its conclusions. 3 Terms of Reference and Structure of the Development Committee Members of the Development Commnittee are designated by each member government of the World Bank or the IMF that appoints an Executive Director or by a group of members that elects an Executive Director. Members must be governors of the World Bank or the IMF, ministers, or others of comparable rank. The term of office is two years. The composition of the Commnittee alternates between that of the World Bank's Board of Executive Directors and that of the IMF's Board of Executive Directors (currently, twenty-two members each). In addition, each mem- ber and group appoints seven associates; this enables members of "constituencies" not represented on the Committee to partici- pate in the meetings. The current members of the Committee and the countries they represent are listed in appendix A. The chairman of the Committee is selected from among its members. Since the inaugural meeting of the Committee in October 1974, there have been six chairmen:. Henri Konan Bedie, Minister of Economy and Finance of Cote d'Ivoire (1974-76); Cesar E. A. Virata, Minister of Finance of the Phil- ippines (1976-80); David Ibarra Mufnoz, Secretary of Finance and Public Credit of Mexico (1980-82); Manuel Ulloa Elias, Prime Minister and Minister of Economy, Finance, and Commerce of Peru (May-September 1982); Ghulam Ishaq Khan, Minister for Finance, Commerce, and Economic Coordination of Pakistan (1982-86); and B. T. G. Chidzero, Senior Minister of Finance Economic Planning, and Development of Zimbabwe (1986-90).1 1. Since September 1990 the Cornmittee has been chaired by Alejandro Foxley, Minister of Finance of Chile, as its seventh chairman. 4 By convention, there is a regional rotation for the selection of the chairman. The term of the appointment is usually two years, but in some cases this has been extended. The chairman calls and presides over meetings of the Committee and is responsible, with the managing director of the IMF and the president of the World Bank, for organizing its work. Whereas the chairmen have traditionally been from developing countries, the executive secretaries have been nationals of devel- oped countries. The Cornmittee has so far been served by five executive secretaries: Henry J. Costanzo, United States (1974- 76); Sir Richard King, K.C.B., M.C., United Kingdom (1976- 80); Hans E. Kastoft, Denmark (1981-84); Fritz Fischer, Federal Republic of Germany (1984-87); and Yves L. Fortin, Canada 2 (1987-91). The executive secretary is responsible for planning, organizing, and reporting on the work of the Development Committee under the general direction of the chairman. The terms ofreference ofthe Development Committee are spelled out in detail in the empowering parallelresolutons, as follows: * The Committee is to provide a focal point in the structure of international economic cooperaton for the formation of a comprehensive overview of diverse international activities in the development area and for efficient and prompt consideration of development issues. * It is to coordinate international efforts to deal with problems of financing development. * It is to maintain an overview of the development process. * It is to advise and report to the Boards of Governors of the World Bank and the IMF on all aspects of the broad question of the transfer of real resources to developing countries and to make suggestions regarding the implementation of its conclusions. The Development Comrittee is also required under its terms of reference to establish a detailed program of work, taking 2. Since July 1991 the Committee has been served by Peter Mountfield, United Kingdom, as its sixth executive secretary. 5 account of the topics related to capital flows to developing countries that are specified in the "Outline of Reform" (for example, official development assistance, multilateral develop- ment financial institutions, and world financial markets). The resolutions specifically charged the Development Com- mittee to give urgent attention to the problems of the least developed countries and of those developing countries most seriously affected by balance of payments difficulties at the time (1974). The Committee was also expected to bear in mind the need for coordination with other international bodies. In discussing how the Committee carries out this mandate, it is important to emphasize the Committee's advisory character. Under its terms of reference, it advises the Boards of Governors on all aspects of the development process, focusing on the broad question of the transfer of real resources to developing countries, and makes suggestions for consideration by the Boards. The Committee does not impinge on the functions of the Executive Boards of the World Bank and the IMF, which are responsible for formulating the policies of the two institutions. Its status, how- ever, clearly adds weight to its conclusions and suggestions regarding issues that come before the Boards ofExecutive Direc- tors. Furthermore, as a unique forum ofministers concerned with finance and development and representing the world community at large, the Committee provides an opportunity for constructive and orderly dialogue among groups of countries at various stages ofdevelopment. Consensus-reaching by the Development Com- mittee at a high political level can also facilitate decisionmaking in appropriate national and international bodies. A review procedure for monitoring the performance of the Committee was built into its terms of reference. The parallel resolutions provided that at the end of two years from the effective date of the resolutions the Board of Governors should review the performance of the Committee. The first such review was carried out in July 1976, when the Executive Directors of the World Bank and the IMF reaffirmed that the Committee was a useful forum for the discussion of issues relating to the transfer of real resources and that there should be no change in its 6 mandate. Two more reviews were undertaken in 1978 and 1981, when various suggestions on work methods were made to improve the effectiveness of the Commrittee. These reviews reaffirmed the Committee's mandate to consider all matters relating to the transfer of real resources. Among the main sugges- tions for improving the Commnittee's effectiveness was that the Executive Directors, as representatives of member governments, should be involved to a greater extent in the preparatory work for Development Comrnittee meetings, including the agenda, the work program, and the review of papers written for the meetings. No further review was undertaken by the Boards after 1981, but in 1987 the Committee itself reviewed and clarified the role and responsibilities of the executive secretary. 7 How the Committee Works Development Commnittee meetings are held twice annually, in tandem with meetings of the Interim Committee-in the spring, and in the fall during the annual meetings ofthe World Bank and the IMF. In addition to the members and associates, the Executive Directors of the World Bank and the IMF participate in meetings. The president of the World Bank and the managing director of the IMF are entided to participate in all meetings of the Devel- opment Committee and customarily assist in leading the discus- sions. As part of the Committee's coordinating function, heads of other international financial or economic organizations are invited to participate as observers. Papers from observers con- cermng subj ects on the agenda are sometimes received in advance of meetings and are circulated to members as background, for their consideration. Currently (1990), representatives from the following seventeen organizations participate as observers: the United Nations, the United Nations Development Programme (UNDP), the General Agreement on Tariffs and Trade (GATT), the United Nations Conference on Trade and Development (UNCTAD), the International Fund for Agricultural Develop- ment, the African Development Bank, the Asian Development Bank, the Inter-American Development Bank, the Arab Bank for Economic Development in Africa, the Arab Fund for Eco- nomic and Social Development, the Commission of the Euro- pean Communities, the European Investment Bank, the Commonwealth Secretariat, the Organisation for Economic Co- operation and Development (OECD), the Development Assis- tance Commiittee (DAC) of the OECD, the Islamic Development Bank, and the Organization of Petroleum Exporting Countries (OPEC) Fund for International Development. In addition, Swit- 8 zerland, because of its special position, is represented as an observer. It is alsonow the practice for the chairman ofthe Group of Twenty-Four (a group of developingcountries) to addressthe Committee at its meetings. The work of the Development Committee, including the formulation of its agendas, the planning of its work program, and the preparation of papersfor Committee meetings, is coordinated by the executive secretaryin consultation with the chairman and with the assistanceof a steering committee of representativesof the World Bank and the IMF. As envisaged under the parallel resolutions, the executive secretary, in carrying out the work, draws on the staffofthe World Bank and the IMF to the maximum extent feasible. Papers for meetings are prepared by the appro- priate staff ofthe World Bank, the IMF, orbothjointly, depending on the subject. Although the institutions have final responsibility for preparing papers, the papers are reviewed by the Executive Boards of the World Bank and the IMF. Meetings are held for one day, starting with a plenary session with general statements by members and a private luncheon hosted by the chairman at which members discuss a specific topic. A short afternoon plenary session is followed by a final plenary session to endorse the communique, after which the chairman holds a press conference. The communique sets out the consensus of the meeting after discussion of issues papers on the various agenda items and includes the work to be carried out by the institutions for the next meeting. It also provides guidance to the institutions on issues relevant to them that have been discussed at the meetings. The Committee submits to the Boards of Governors an annual report, which is available to the public, on the progress of its work. Since 1984 the Committee has published a series of pamphlets containing the principal papers presented to Develop- ment Conmmitteemeetings. The pamphlets are listed in appendix B. In its first ten years the Committee undertook much of its work through working groups and task forces made up of officials from member governments. Working groups on access to capital markets (1975-78) and on development finance and policy 9 (1977-79) and task forces on private foreign investment (1979- 80), nonconcessional flows (1980-82), and concessional flows (1982-85) were established and produced reports for the Comrrmittee's consideration. Some of these reports have been published by the Committee. Following a review of the practice of utilizing such groups to facilitate the work of the Comnittee, it was decided in 1979 that working groups should be abolished but that task forces-with a specific linited task and duration- mnightbe formed to study certain issues, with the approval of the Development Committee. 10 The Work and Achievements of the Committee Three broad phases in the Development Committee's work, corresponding to world economic conditions affecting develop- ing countries, can be distinguished. * In the period immediately following its establishment, the Comrnittee had to deal with the economic and financial impact of the first oil shock (1973-74) and the emergence of generalized floating. * In the 1970s it reacted to the recycling of OPEC surpluses and to the increased commercial bank financing of devel- oping countries. • In the 1980s the Committee's work reflected the second oil shock (1979-80) and the period of external debt problems and adjustment in developing countries. The Initial Period Topics on the Development Committee's agendas in the early 1970s included the effects of the prevailing situation on the prospects of developing countries; current commodity issues; access to capital markets; and the resource situation of multilateral development lending institutions. In particular, the Committee responded to its mandate to give urgent attention to the problems of the least developed countries and ofthose developing countries most seriously affected by balance of payments difficulties at that time. The current account deficits of developing countries that produce nonoil primary commodities had grown substantially between 1974 and 1975, and 1976 would be the third successive 11 year of extraordinarily large current account deficits financed by heavy borrowings on hard terms and by substantialdrawdowns of reserves.Studies by the IMF had shown that income per capita in low-income countries had grown little or not at all since 1970. This concern led the Committee to recommend the establish- ment of a one-year intermediate facilityof the World Bank-the "third window"-which was under active consideration in the Board of Executive Directors of the World Bank in the spring of 1975. The Development Committee supported the creation of an interest subsidy fund to make possible lending on terms intermediate between those of regular World Bank loans and those of concessionalcredits offered by the International Devel- opment Association (IDA). The World Bank established a third window for one year, beginningJuly 1, 1975, to provide assis- tance up to $1 billion in the forthcoming fiscalyear in addition to the World Bank's regular operations.3 The Committee alsoinvited the Boards of Executive Directors ofthe World Bank and the IMF to studythe desirabilityof creating a special trust fund that would provide additional highly conces- sional resources to meet the requirements of the countries most seriously affected by balance of payments difficulties. It was recognized, however, that the main responsibility for this subject lay with the Interim Committee and the IMF Board of Executive Directors. After study by the Boards of Executive Directors, it was determined that such a trust fund, to be administered by the IMF, should provide balance of payments assistance to low-in- come developing countries for the next two to three years in support of medium-term economic adjustment programs. It was envisaged that the termns of assistance would be more concessional than those applying to regular IMF facilities. The Interim Com- mittee subsequently decided to establish the trust fund, financed from the profit on the sale of gold by the IMF. The Development Committee played an active role in setting forth various consid- erations to be taken into account by the Executive Directors of 3. Dollar amounts are current U.S. dollars, unless otherwise specified. A billion is a thousand million. 12 the IMF in completing work on the establishment of the trust fund. 1975-79 In the late 1970sthe Development Committee directly addressed its central mandate-the transfer of real resources to developing countries. Attention was focused on the need to increase the volume of official development assistance(ODA). As a share of gross national product (GNP), ODA had declined steadily during the previous decade and a half-from 0.52 percent in 1951 to 0.36 percent in 1975-and was projected by the World Bank to fall further. In 1977-79 the Commnittee'sWorking Group on Development Finance and Policy studied the situation. Against the background of its report, the Committee stressedthe urgent need to reverse the trend and move toward the United Nations' target of 0.7 percent of gross domestic product (GDP), to soften tenns of assistance,to untie aid, and to increase the amounts of local cost financing. The Committee agreed that ODA should remain one of its prime concerns and should be kept under close review. The same working group alsoexamined the role of multilateral development institutions and the contributions they could make toward increasing the flow of resources. For the first time, a comprehensive review was carried out not only of the World Bank and the three largest regional development banks but also of the European Investment Bank, the European Development Fund, the UNDP, the World Food Programme, the International Fund for AgriculturalDevelopment, the OPEC SpecialFund, the Arab Bank for Economic Development in Africa, the Islamic Development Bank, the Arab Fund for Economic and Social Development, and the Special Arab Fund for Africa. The broad conclusion was that the multilateral development institutions have special advantages in and potential for organizing increased flows. The report stated that the growing requirements for assistance should preferably be met through existing multilateral development institutions by means of flexibility in their policies 13 and programs, replenishment of their special funds, and increases in their capital at appropriate levels. The Comrnittee also consid- ered a proposal for the establishment of an International Re- sources Bank that had been put forward by the United States at the UNCTAD-IV meeting. It concluded that it was more feasible to expand the operations of the World Bank Group and regional development banks in the development of fuel and nonfuel minerals in developing countries. At this time the Committee also discussed measures for im- proving the access of developing countries to capital markets in order to increase flows of resources. A Working Group on Access to Capital Markets (1975-78) undertook a number of studies on various proposals, such as an intemational investment trust, multilateral guarantees, cofinancing by international develop- ment banks and commercial lenders, multilateral investment insurance, and promotion of private direct foreign investment. The working group found that the principal obstacles to access to capital markets by developing countries were lack of expertise by borrowing countries and insufficient information on the part of lenders regarding the creditworthiness of potential borrowers. Accordingly, the Committee arranged a seminar for market operators and potential borrowers, which was held in Paris in October 1978. Representatives from the regulatory agencies of capital market countries and from the World Bank, the Interna- tional Finance Corporation (IFC), the IMF, the OECD, and re- gional development banks also participated. In response to requests from official and private institutions, the Development Committee in 1978 issued a report, "Developing Country Access to Capital Markets." The Development Committee's work in the last half of the 1970s was undertaken against a background of considerable international activity in the field of North-South relations. The period saw the conclusion of UNCTAD-IV, in 1976, the 1977 Conference on International Economic Cooperation (CIEC) in Paris, and the publication of the Brandt Comrnission's report in 14 February 1980.4 The CIEC provided some impetus for the Committee's work, as it identified many subjects that required follow-up action. These included access to capital markets, pri- vate foreign investment, official development assistance, stabili- zation of export earnings, and indebtedness. Because of the concern in various international forums about the need to offset the adverse effects on developing countries of fluctuations in export earnings, particularly earnings from primary products, the Development Commnittee invited the World Bank and the IMF to prepare a report on the subject. Following IMF and World Bank studies on the stabilization of export earnings, the Committee focused on the important role of the IMF's compensatory financing facility (CFF). It pointed to the possible need to ease access to IMF resources that can be drawn under this facility, as well as under the IMF's extended fund facility (EFF). Subsequently, the extension of the maximum repurchase period of the EFF from eight to ten years was adopted by the IMF Board of Executive Directors. The Committee followed closely the progress of the negotia- tions for setting up a common fund for commodities, which was being developed by UNCTAD. It noted that in the longer run, vulnerability to fluctuating export earnings would be reduced by diversifying exports. A suggestion made at the Seventh Special Session of the UN General Assembly for an international invest- ment trust to attract private investment was examined by a working group of the Committee following study by the IFC. The Development Committee welcomed the Brandt Commission's report, which, particularly in the parts relating to the World Bank and the IMF, included items that the Develop- ment Committee considered should be followed up. The Devel- opment Commrittee commnissioned specific papers by the World Survival(Cambridge, Mass.:MIT Press, 1980). 4. North-South:A Programfor The Brandt Commission later published a second report, Common Crisis WorldRecovery North-South:Cooperationfor (Cambridge,Mass.:MIT Press,1983). 15 Bank and the IMF on recommendations that were of particular relevance to the Committee. It was noted that both the Bank and the IMF had already implemented some of the recommendations and that other issues were under consideration. The Develop- ment Committee particularly stressed that the Brandt ComrnMission's proposals on the reduction of poverty should receive special attention. The 1980s As the 1980s commenced, the Development Committee focused more closely on adjustment issues and problems of external indebtedness in developing countries. It also addressed specific development issues of current concern-notably, the role of the World Bank and the IFC; Sub-Saharan Africa; environmental problems; the transfer of resources; poverty; trade and develop- ment; and the impact on developing countries of industrial countries' policies. In the spring of 1980 the Committee discussed program lending for structural adjustment, giving political sup- port to the World Bank's proposal to increase lending for this purpose to countries facing severe balance of payments deficits over a prolonged period. It was envisaged that this type of assistance could help countries carry out structural adjustments in their economies so that short-term balance of payments difficul- ties would not disrupt an orderly and sustained program of development. At several meetings the theme was stressed that successful adjustment efforts were essential for significantly im- proving growth rates in developing countries. At the same time, developed countries as well as capital-surplus oil-exporting coun- tries were encouraged to give technical and financial support to the adjustment and development efforts of developing countries. The Development Committee strongly supported the World Bank's efforts in 1985-86 to expand significantly its lending to the highly indebted countries for structural and sectoral reforms. The Committee's central message in this period was that coun- tries had to adjust to the adverse external economic environment in order to move toward sustained economic growth. While it 16 commended adjustment programs, the Conunittee was never- theless consistendy concemed about the possible effect of these adjustments on the poor. It accordingly urged intemational institutions and govermments to give special attention, in the design and implementation ofadjustment programs, to protecting the most vulnerable groups in society. The Committee strongly recommended targeted compensatory measures for the poor, as well as income-generating activities to support them. At its meetings in 1989 the Committee conducted its first global review of experience with structural adjustment programs. The spring 1989 meeting focused on the design and implemen- tation of these programs. At the fall 1989 meeting attention was given to the resource requirements of these programs and the extemal environment within which they were being imple- mented. 5 Understandings were reached that if structural adjust- ment programs were to be successful, they should be owned by the adjusting countries themselves, with sustained political com- mitment to sound macroeconomic policies. There needed to be greater realism about the time frame of these programs, taking account of the country's social, demographic, and political envi- ronment. Poverty reduction objectives and means for mitigating adverse effects on the poor needed to be integrated into the design of programs.6 Financing to support these programs also needed to be adequate and timely. The importance of the adoption by industrial countries of economic policies supportive of develop- ing countries' adjustment efforts was underlined. In summary, the Development Committee's work in the 1980s gave strong political support to the need for adjustment sustained by World Bank and IMF programs. Its discussions, however, helped to improve understanding in the intemational community of the conditions under which adjustment programs could be effective while mitigating any adverse social impact. 5. See Development Committee pamphlet 23, Problems andIssuesin Structural Adjustment(Washington, D.C., 1990). 6. See Development Committee pamphlet 13, Protecting the Poor during of Adjustment(Washington, D.C., 1987). Periods 17 External Debt A pervasive issue in Development Committee discussions in the 1980s, and one that was pursued in tandem with the Interim Committee, was the extemal debt problem of developing coun- tries. Following the debt crisis in August 1982 the Committee addressed this problem at its spring 1983 meeting, noting the severity of the debt-servicing problem faced by many countries, largely in Latin America. Two years later the Committee took its first broad approach to the subject at an extended session in spring 1985. It concluded that the restoration of creditworthiness would require the continuation of adjustment efforts supported by financial flows, improved access to markets, and, where appro- priate, multiyear rescheduling arrangements. By the time of the fall 1985 meeting there was growing concem that many coun- tries, particularly in Latin America, were still experiencing serious difficulties as a result of the debt problem. Reflecting this concem, in October 1985 at the annual meet- ings of the World Bank and the IMF and the Development Committee meeting, held in Seoul, Republic of Korea, U.S. Secretary of the Treasury James Baker took an initiative for strengthening the intemational debt strategy. This initiative had three essential elements: adoption by the principal debtor coun- tries of comprehensive macroeconomic and structural policies; a continued central role for the IMF in conjunction with increased and more effective structural adjustment lending by multilateral development banks in support of market-oriented policies for growth; and increased lending by private banks in support of adjustment programs. The Committee agreed that these elements needed to be closely integrated within a consistent framework to strengthen growth prospects. It also noted that the World Bank had an increasing role to play in support of growth-oriented adjustment. 7 The next critical step in the evolution of the Development Committee's thinking on the debt problem took place in the of 7. See Development Committee pamphlet 10, A StrategyforRestoration Countries(Washington,D.C., 1986). Growthin Middle-Income 18 spring of 1989. By then, the focus in the Commnittee was on the development prospects of severely indebted countries and the debt strategy. Parallel to the Development Commnittee's consid- eration of debt issues, the Interim Committee was also engaged in a review of the debt strategy, with the prime emphasis on the financial aspects, given the central role of the IMF in the strategy. There was concern that the Development Committee address in its discussions the plight of all severely indebted countries, not merely the middle-income countries. The Commnittee continued to reaffirm support for a strengthened debt strategy based on a cooperative framework that embraced debtor countries, com- mercial banks, and official creditors. In April 1989 new ground was broken. On the initiative of U.S. Secretary of the Treasury Nicholas Brady, following proposals by France and Japan, the Development Comrnittee agreed on the principle of debt reduc- tion-to be supported by the World Bank and the IMF with resources set aside by each institution-through voluntary mar- ket-based debt reduction transactions negotiated with commer- cial banks. The Group of Twenty-Four had also for some time been advocating debt reduction as a solution to the debt problem. The World Bank and the IMF were requested to develop and implement specific proposals to achieve the objectives agreed at the meeting. In May 1989 the World Bank and the IMF moved quickly to develop operational guidelines for support of voluntary reduction of commercial bank debt and debt service. By the spring of 1990 the Committee was in a position to encourage the World Bank and the IMF to continue their support of the arrangements, building in the necessary flexibility under the guidelines. Although attention had largely been focused on severely in- dlebted middle-income countries with commnercial debts, the Development Comrnittee, in its concern that the problems of all severely indebted countries be addressed, also dealt with the difficulties of the severely indebted low-income countries and the lower-middle-income countries with debts owed mainly to official creditors. In September 1987 the Committee discussed proposals for action for low-income countries facing exceptional 19 difficulties, especially the seriously indebted countries in Sub- Saharan Africa. In an earlier discussion (May 1987) the Commit- tee had encouraged Paris Club creditors to work toward realistic rescheduling terms for the poorest nations undertaking strong adjustment programs, and the World Bank and the IMF were asked to prepare proposals for action. The British Chancellor of the Exchequer, Nigel Lawson, had launched a three-point ini- tiative in September 1987 to lighten the debt burden on the poorest, most distressed countries in Sub-Saharan Africa, as he believed that the prospects of attaining creditworthiness were dim for most of these countries. The chancellor proposed the conver- sion of aid loans into outright grants; longer repayment and grace periods in rescheduling loans; and the reduction of the interest rates on these debts to well below market level. Although the Comrnittee noted that progress had been made internationally in that several donor countries had converted loans into grants and the Paris Club had extended grace and maturity periods, there was a problem in reaching a consensus regarding the reduction ofinterest rates on nonconcessional official debt. The Committee agreed, however, to encourage creditors and debtors to consider measures, where possible, for reducing interest rates in official reschedulings or for taking alternative measures that would have a similar impact. A year later, at the Berlin meeting in fall 1988, against the background of the consensus on debt relief measures reached earlier that year by the Toronto economic summit, and with the political support of the members, the Committee was able to note with satisfaction that a framework of options for creditors had been worked out by the Paris Club. The options provided for cancellation of a portion of debt, extension of maturities, and concessional terms on market interest rates for nonconcessional debt. Another category of severely indebted countries facing uncer- tain development prospects that was identified by the Committee consisted oflower-middle-income countries heavily indebted to official creditors. Beginning in September 1989 their difficulties were addressed, and a consensus emerged that international attention was required. A return to orderly debtor-creditor 20 relations did not seem in prospect for many of these countries. The question of possible concessionality of rescheduling there- fore arose. This was a difficult problem for the Committee, although around that time Paris Club members had agreed on longer-term rescheduling maturities for two lower-middle-in- come countries. The issue then before the Committee was how creditors could find ways to assist such debtor countries achieve a viable external situation within a reasonable period of time. In this respect, the conclusions of the Houston economic summit in July 1990-that the Paris Club should continue to review additional options for addressing the debt burden of these coun- tries-was helpful to the Development Committee as it contin- ued considering the problem at the September 1990 meeting. The Role of the WorldBank and the IFC In the context ofworld recessionary conditions in the early 1980s and their effect on growth in developing countries that required increased external capital flows, the Development Committee reviewed the lending programs of the multilateral development institutions and examined the implications for their capital re- quirements. In 1983 the Commnittee asked the World Bank to propose measures that would allow an expansion of the World Bank's lending program, subject to financial prudence. Noting the World Bank's intention to expand lending in real terms by 5 percent a year starting in 1985, the Commnittee urged the Bank to proceed with a selective capital increase in line with the Fund's Eighth General Review of Quotas. In the fall of 1983 the Commnittee held discussions on an appropriate size for the selec- tive capital increase, within a broad range of $3 billion to $20 billion. A consensus was reached for about $8 billion, and the Executive Directors were requested to work out the specifics. Negotiations for a selective capital increase of $8.4 billion for the World Bank were completed in 1984. In the spring of 1985 the Development Committee discussed the future role of the World Bank against the background of the discussions by the World Bank's Board of Executive Directors in 21 the previous year. The Committee endorsed the broad consensus emerging from those discussions, which called for an expansion in the World Bank's lending program to enable the Bank to respond more effectively to the needs of its borrowing members. To facilitate an early consensus on the future financial require- ments of the World Bank, including the possibility of a general capital increase, the Committee requested that the World Bank management prepare a report containing five-year lending pro- jections and their implications in terms of resources. This report was considered at Seoul in the fall of 1985, when members reached an important political conclusion that paved the way for a general capital increase by the World Bank. The Committee agreed that the Bank should be provided with the capacity to increase its quality lending and that it should not be constrained by lack of capital or borrowing authority in meeting future demands. A year later the Committee concluded that a substantial general capital increase would be required if quality lending materialized as expected, and at successive meetings the Com- mittee exerted considerable pressure for an expeditious conclu- sion of deliberations for a general capital increase. By the spring of 1988 the Committee was able to welcome the agreement by the Board of Executive Directors for a $74.8 billion increase in the World Bank's capital. A further review of the role of the World Bank Group took place in the spring of 1990 in the context of a discussion on the contribution of the private sector to development. In particular, the Development Committee encouraged the World Bank to give very high priority to private sector development in its operations. To ensure better integration of private sector consid- erations into the World Bank's operations, the Committee saw the need for close coordination within the World Bank Group. The importance of the IFC and the Multilateral Investment Guarantee Agency (MIGA) in assisting private sector development was particularly noted, as was the need for the IFC to have adequate means offulfilling this role. Continued discussion in the IFC Board of Directors on the question of a capital increase for the Corporation was encouraged. It was observed that the IMF 22 could assistprivate sector development by helping countries to develop an enablingenvironment through the adoption ofsound macroeconomic polcies. In the 1980s the Development Committee also gave consid- erable political support to IDA replenishment, assisting in a resolution of problems concerning the availability of commnit- ment authority under the sixth replenishment of IDA(IDA6). The Commnittee subsequently urged a level of replenishment for IDA 8 that would maintain, in real terms, the concessional resources under IDA 7 and enable IDA to continue its role in poverty alleviation and economic development. It particularlypressedfor the early effectiveness of IDA 8 replenishment in view of the exceptional difficultiesfaced by many low-income countries in the fall of 1987. Africa Sub-Saharan In the 1980s the Development Committee played an important role in raisingthe level ofinternational awarenessof the desperate economic situation in Sub-Saharan Africa, in improving under- standing of the problem, and in mobilizing the support of the international community. The problems of Sub-Saharan Africa were repeatedly addressedin Development Commnittee agendas in the 1980sand were discussed on the basisof a number ofstudies undertaken by the World Bank and the Fund. The first major World Bank paper on the subject,8 prepared against the back- ground of the LagosPlan ofAction adopted by the Organization of African Unity, was presented to the Commnittee in 1981. The Committee was concerned about the dismal economic prospects for the region outlined in the report, although it noted the potential for growth through appropriate adjustmentsin domestic economic policies, increasedflows of resourcesto the region, and improvements in world trading opportunities. The World Bank was askedto take the lead in promoting a dialogueforj oint action An Africa: in Sub-Saharan Development 8. Published asWorld Bank, Aaelerated AgendaforAction (Washington,D.C., 1981). 23 by African governments, donors, and international agencieswith a view to accelerating growth. African governments had also developed their own proposals in the Dakar Memorandum of March 1982, and at Helsinki in the spring of 1982the Comnrittee requested the Bank to formulate specific programs of action, taking Dakar into account. The World Bank's report was endorsed by the Conmittee in the fall of 1984 after discussion of Sub-Saharan Africa at both meetings that year. The Comnmnittee specifically charged the World Bank to explore with donors various approaches for mobilizing the resources required to implement the proposed program for Sub-Saharan Africa. By January 1985, with the establishment of a $1.2 billion Special Facility for Sub-Saharan Africa by the World Bank in agreement with donors, the Com- mittee could feel some satisfactionabout its efforts.Nevertheless, the Conmmittee continued to be concerned about the worrisome balance of payments outlook for Sub-Saharan Africa,which was compounded by debt-servicing problems and declines in com- modity prices. It consequently appealed to official creditors to take into account the long-term nature of these countries' prob- lems. A review of the long-term perspective for development in Sub-SaharanAfricawas further pursued by the Conmmittee in the spring of 1990 on the basisof a World Bank report later published as Sub-Saharan Africa: From Crisisto Sustained Development. The Comrittee endorsed the broad approach of the report's long- term strategic agenda. The Commrittee encouraged World Bank and IMF initiatives designed to benefit Sub-Saharan Africa.11 The World Bank launched the SpecialProgramn of Assistance(SPA)for low-income debt-distressed countries in Sub-Saharan Africa following a in Sub-Saharan 9. Published as World Bank, TowardSustainedDevelopment Africa: AJoint Programof Action (Washington, D.C., 1984). 10. Washington, D.C., 1989. 11. See Development Committee pamphlet 21, Progress of Initiatives to Benefit Sub-Saharan Africa (Washington, D.C., 1990). 24 donors' conference in December 1987. The three-year program provided for a substantial increase in highly concessional, quick- disbursing financing and debt relief on softer terms, with the aim of restoring a normal debtor-creditor relationship. Donors pledged adjustment cofinancing resources under the SPA. The Comrnittee recommended that the SPA framework be extended beyond 1990. It therefore welcomed an agreement in principle by donors to an extension of the program and urged donors to indicate the level of adjustment assistance for 1991-93. The IMF established two new facilities to help low-income countries with protracted external payments problems undertake adjustment programs and improve their balance ofpayments. The structural adjustment facility (SAF), established in March 1986, and the enhanced structural adjustment facility (ESAF), established in December 1987, made resources available to eligible countries on highly concessional terms. The Development Committee could lay claim to a productive period in the 1980s, as it crystallized the international community's efforts to tackle the grim problem of Sub-Saharan Africa. It could point to several concrete results: better under- standing and a strengthened political will on the part of Sub- Saharan African governments as they undertook the necessary macroeconomic policies and reform programs, and the strong response of the intemational community in mobilizing resources in support of those reforms. With the Comrnittee's political encouragement, the World Bank and the IMF played a key role not only in developing an analytical framework for policy changes in the region but also in developing their own programs for dealing with the region's problems, with international support. Environment In the late 1980s environmental issues became an increasingly important subject for the Development Committee's consider- ation. The Commnittee was inspired by the publication in 1987 of the report of the World Commission on Environment and Development, Our Common Future (commonly referred to as the 25 Brunddand Report),12 and the international debate that fol- lowed. The topic "environment and development" was first discussed as a major agenda item in the spring of 1988 against the background of a World Bank report on its environmental pro- gram. 13 These discussions led to an improved understanding of the subject by members from both developing and industrial countries. Conceptually, there emerged a consensus in the Com- mittee that there were close linkages between growth, develop- ment, and znvironmental considerations and between enviromnental degradation and poverty. It was concluded that a cooperative effort by both developed and developing countries was required to address the problem of environmental pollution. Noting the importance of global climatic change, the Committee encouraged the World Bank to increase its emphasis on conver- sion to less environmentally damaging fuels and to assist in the introduction of alternatives to chlorofluorocarbons. The Committee was also concerned that there be public awareness of the World Bank's work in the environmental field in order to build public confidence in the World Bank's com- mitment to sound environmental practices. Thus, members agreed at Berlin in fall 1988 that the World Bank should review the environmental aspects of its operations and prepare an annual report. The first such re ort, for fiscal 1990, was published by the World Bank in 1990. It describes concrete actions in various areas of the World Bank's environmental work, including a substantial increase in the number offree-standing environmental projects financed by the Bank, a sigruficant increase in the incidence of environmental components in traditional Bank project and sector lending, the implementation of a systematic Press,1987. 12. New York:OxfordUniversity 13. Development Committee pamphlet 17, Environmentand Development: the WorldBank's New Policies Implementing (Washington, D.C., 1988); See also Development Committee pamphlet 14, Environment,Growth,and Development D.C., 1987),and Development (Washington, 22, World Committeepamphlet the Environment: Bank Supportfor Report (Washington, D.C., 1989). A Progress FirstAnnual Report,Fiscal1990. 14. The WorldBank and theEnvironment: 26 environmental impact assessment process for World Bank lending operations, and greater cooperation with other agencies working in the field. The Committee particularly encouraged the Bank to continue its efforts to integrate environmental considerations more fully into its operations. In its discussions on environmental issues, the Committee recognized that integrating environmental considerations into development projects could entail heavy costs for developing countnes. Accordingly, at the fall 1989 meeting, acting on a proposal by Minister jiirgen Warnke of the Federal Republic of Germany, the Committee requested the World Bank to prepare a study of the mechanisms and financial requirements that might be needed to address the environmental challenges of the devel- oping world. The French minister, Pierre Beregovoy, proposed the establishment of a new facility within the World Bank, funded by voluntary contributions, to assist developing countries with global environmental problems and noted that France was pre- pared to make a sizable contribution. The World Bank responded promptly by preparing a report on "Funding for the Global Environment" that was discussed at a meeting with donors, the United Nations Environment Programme (UNEP), and the UNDP in Paris in March 1990. 15 The World Bank's proposal for a Global Environment Facility was designed to address problems of the ozone layer, emissions of greenhouse gases, protection against degradation of international water resources, and biodiversity. At its spring 1990 meeting the Commnittee encouraged further work on the Bank's proposal, noting that while efforts should be pursued for a pilot mechanism based on the World Bank's proposals, the Bank should expand its existing environmental programs to assist developing countries to meet the same objec- tive. The Committee further pursued the subject of funding for the environment at its September 1990 meeting. 15. Published in Development Committee pamphlet 24, Development Issues: Presentations to the Development Committee, May 8, 1990 (Washington, D.C., 1990). 27 Transfer of Resources In keeping with its mandate, at its meetings in the 1970s and 1980s the Development Committee consistendy addressed the question of the transfer of resources to developing countries, largely on the basis of reports by the working groups on devel- opment finance and policy and on access to capital markets and by the Task Force on Concessional Flows. There was much concern about the slow growth in official development assistance and its decline as a percentage of GNP in many donor countries, problems in the access to capital markets by developing countries, the promotion of direct foreign investment, and the need for an increase of flows by the multilateral development institutions. A major exercise was undertaken on the subject in October 1982 with the establishment of a special Task Force on Conces- sional Flows made up of representatives from the industrial countries, OPEC, and developing countries under the chairman- ship of ProfessorJohn P. Lewis of Princeton University. The task force, which reported in July 1985, was required to pursue and widen the continuing study ofthe problems affecting the volume, quality, and effective use of concessional flows in the short and long term.16 The report reached three broad conclusions: that most aid has been productive and helpful to development; that there is need for political leadership to play a role in strengthening support for aid; and that donor governments should redouble their efforts to increase aid flows to low-income countries, particularly as official development assistance was forecast to grow by only about 2 percent annually for the rest of the decade, compared with 6 percent in the 1970s. In endorsing the report, the Committee urged that its suggestions be taken into account by all governments concerned. It requested the World Bank to take a leadership role in following up on the task force conclusions and to report progress to future Development Committee meetings. 16. See Development Committee pamphlet 7, Report of the Task Forceon Concessional Flows(Washington, D.C., 1986); and Development Committee pamphlet 8, Aidfor Development: The KeyIssues.SupportingMaterialsfortheReport of the Task Force Flows(Washington, D.C., 1986). on Concessional 28 By spring 1988 the Commnittee had decided to address specif- ically as a major agenda item the broad subject of the "adequacy of all forms of resource transfers to all developing countries to enhance the momentum of their development." The president of the World Bank then noted that the total volume of flows had declined significantly since the early years of the decade. A background paper by the World Bank focused on the adequacy of the resources available for the highly indebted countries, Sub-Saharan Africa, and low-income Asia. It concluded that a reduction in the outward flow of resources to the highly indebted countries would allow them to invest more in their domestic economies and achieve some modest growth. (There was a negative net transfer for many developing countries, notably in Latin America.) Regarding Sub-Saharan Africa, present initia- tives for financial support needed to be sustained. Low-income Asia needed capital inflows that could be targeted to poverty objectives. The importance of broadening resources for develop- ment, particularly those derived from world trade, was empha- sized. This required open world markets. At its April 1988 meeting the Commrittee emphasized the importance of an en- larged volume of financial flows to developing countries for economic growth, the alleviation of poverty, environmental conservation, structural adjustment, and the resolution of debt difficulties. There was also a need to improve prospects for commodity export earnings and to reduce protectionist measures so as to enhance resource flows. Following the Committee's full-scale review and discussion of resource transfers in the spring of 1988, it was agreed that all future Development Committee agendas should include, as a standing item, trends in the transfer of resources. To support this item, at each meeting the report by the president of the World Bank now includes a section on the transfer of resources to developing countries, providing a status report with statistical tables on long-term aggregate net flows and transfers to all developing 17. See Development Committee pamphlet 18, The Adequacy of Resource Flows to Developing Countries (Washington, D.C., 1988). 29 countries. The report by the World Bank's president at the September 1990 meeting noted a stagnation of net disbursements of ODA in 1989, as well as a sharp drop in net resource flows, although there was an encouraging rebound in the level ofprivate direct investment in 1989-almost triple that in 1985. Poverty In all the discussions in the early years of the Development Committee on increasing flows of official development assistance to developing countries, the underlying concern was the endemic incidence of mass poverty trends and deteriorating social condi- tions in many developing countries. The Committee therefore welcomed the World Bank's initiatives in the 1980s to place greater emphasis on poverty in its operations, and it stressed the importance of increased investments in poverty alleviation pro- grams. The Committee was concemed about the plight of the poor in countries undertaking adjustment programs and agreed that this deserved special attention through increased flows and more targeted use of resources. In September 1988 an in-depth discussion on poverty by the Comrittee took place in Berlin. 8 The Conmittee concluded that the reduction of poverty was a crucial objective of develop- ment and that intensified efforts were needed to attain this goal. The international community should, therefore, provide addi- tional and well-targeted concessional resources and a favorable external environment to promote growth and strengthen poverty programs, particularly in low-income countries. There was agreement that the Committee should review periodically prog- ress in dealing with the poverty problem. A discussion on "strategies for effective reduction of poverty in the 1990s," on the basis of a paper prepared by the World Bank and the IMF, took place at the September 1990 meeting. EffortstoReduce 18. See Development Committee pamphlet 19, Strengthening Poverty(Washington, D.C., 1989). 30 Tradeand Development Because of the close interdependence of world economies, link- ages between trade and development assumed great importance in the Development Commnittee in the mid-1980s. Expansion of trade and foreign exchange earnings from exports was noted as critical for global economic recovery. Accordingly, the Commit- tee addressed the topic "trade and development" in the spring of 1983, for the first time. The subject was discussed again at both meetings in 1984, on the basis of papers prepared by the World Bank and the IMF, and in the spring of 1985.19 The Committee concluded in these discussions that open access to markets for the exports of developing countries was an essential support to their current adjustment efforts and to the long-term solution to the debt problem. The Commnittee also put its political weight behind efforts in the GATT to liberalize and strengthen the international trade system through a new GATT round of multilateral trade negotiations in which developed and developing countries could participate. The Development Committee has closely followed the prog- ress of the multilateral trade negotiations under the Uruguay Round and at the spring 1990 meeting appealed for an early agreement on outstanding issues, particularly in agriculture and industry, so as to avoid the drift toward protectionism. There was a crucial recognition in the Committee that an improvement in market access was, in many cases, more important than flows of official development assistance or debt relief in facilitating the growth and adjustment efforts of developing countries. There was also some concern at the possible effects of regional trading blocs on developing countries. To facilitate the regular review of international trade issues on its agendas, the Committee, whose membership is primarily made up of finance and development 19. See Development Committee pamphlet 3, Linkagesbetween Trade and the Promotion of Development (Washington, D.C., 1983). For a further discussion, see Development Committee pamphlet 6, Trade and Development (Washington, D.C., 1985). 31 ministers, had the benefit of briefings on current developments by the director general of the GATT. The Impact of Industrial Countries' Policies Toward the end of the 1980s some members of the Development Committee became increasingly concerned about the impact of industrial countries' policies on the growth and development prospects of developing countries. In the fall of 1987 the Com- mittee reached the understanding that, in general, growth pros- pects for developing countries continued to be adversely affected by persistent weakness in commodity prices, modest growth in industrial countries, increasing protectionist pressures, high debt service burdens (with the added impact ofincreases in real interest rates), and inadequate external financial flows. It pointed to the importance of paying attention to the impact of industrial and agricultural policies on developing countries.21 The subject was again addressed in Berlin in September 1988, when the crucial importance of developed countries' trade and industrial policies for the adjustment, growth, and development of developing countnes was emphasized. The common benefit of outward- looking industrial policies for developed and developing coun- tries alike was underlined. There was general agreement on the need for greater liberalization of both international trade and industrial policies affecting the agricultural and manufacturing goods of developing countries. Noting that gains from trade could be derived by both industrial and developing countries, the Comrittee stressed the need for active participation in the Uruguay Round by all countries. The Comrnittee continues to attach great importance to the subject and plans to pursue this topic further at a future meeting. 20. See Development Committee pamphlet 15, Market Prospects of Raw Materials (Washington, D.C., 1987). 21. See Development Committee pamphlet 20, The Impact of the Industrial Policiesofthe Developed Countries on the Developing Countries (Washington, D.C., 1989). 32 An Evaluation of the Committee In attempting an evaluation of the Development Committee, it is useful to assess the present state of relations between developed and developing countries. The past two decades have witnessed a growing integration of developing countries into the world economy through close interaction regarding money, finance, trade, debt, and the global environment. The international com- munity has put much effort into finding answers to the problems arising from a more interdependent world, including those stem- ming from the impact of industrial countries' policies on devel- oping countries. But much remains to be done. The developing countries themselves can no longer be regarded as a monolithic group, as their individual and regional characteristics and interests are so varied. The multipolar world that has now emerged more than ever requires a forum in which development issues can be constructively discussed and understandings reached for the global good. More than fifteen years ago the Governors of the World Bank and the IMF, on the recommendation of a group of ministers (the Commnittee of Twenty), supported by experts, became convinced ofthe need to establish ajoint ministerial committee of the World Bank and the IMF-the Development Commnittee-to consider the question of the transfer of real resources to developing countries. This Comrnittee would also need to address economic and trade issues that affect the transfer of resources, in keeping with its terms of reference. This was set in the context ofproposals for international monetary reform and the view that promoting economic development was an integral part of reform. Whereas world conditions in 1974, including the balance of payments problems of developing countries, supported the need for a committee that would promote external capital transfers, the 33 question can well be posed whether such a committee is relevant today. A positive answer to this question could be found from an examination of the economic challenges to the developing coun- tries in today's world. The current development outlook is far from encouraging. The World Bank estimated in its July 1990 report "The Developing Countries and the Short-Term Outlook for the Global Economy: An Update"22 that the aggregate growth rate for low- and middle-income countries in 1989 was 3.4 percent and is expected to be 3.2 percent in 1990. The situation is worse when the regions are disaggregated. Africa is not expected to exceed 1.0 percent per capita growth in this decade. Latin America continues to be beset by adjustment and debt problems, although there are prospects for the restoration of growth with the adoption of an appropriate policy framework. The economic conditions facing developing countries were a cause for concern when the Development Committee was cre- ated in 1974. It is therefore sobering to note that GDP growth rates for low- and middle-income countries have deteriorated since then-from an average of 5.2 percent a year in 1973-80 to only 3.2 percent a year in 1990. Although the importance of policy reform in developing countries is recognized, the Devel- opment Committee's mission of studying and recommending measures for the transfer of resources in order to promote economic development is clearly as relevant today as in the early 1970s. The catalog of development issues reviewed by the Develop- ment Committee since its inception, as highlighted in this study, points to the serious nature of the economic problems that have retarded development in the 1970s and 1980s and the challenges ahead, Extemal debt problems have disrupted growth and devel- opment in a number of low- and middle-income countries. Although adjustment, policy reform, good management, and development of human resources are the fundamental answers to these problems, the inadequacy of external financial flows has Economics 22. International World Bank,Washington, Department, D.C. 34 increased the difficulty of solving the problems. In the case of Sub-Saharan Africa, although the Committee has done much in the policy field and in mobilizing resources for the region, the long-tern perspective for development in the region calls for substantial capital flows to support human infrastructure and institutional development before sustained development can be achieved. The World Bank's recent study on poverty (World Report1990)23points out that more than one billion Development people-about one-third of the total population in developing countries-now live in poverty; more than 500 million of these people are in South Asia. Effective strategies for the reduction of poverty in the 1990s require appropriate policies by developing countries, but this needs to be supported by favorable external economic conditions, including the increased availability of for- eign financing and particularly of official development assistance. The prospects for opening export markets to improve the potential for increased export earnings by developing countries are also not very encouraging. As the negotiations for the Uru- guay Round drew to a close at the end of 1990, the outdook for successful agreements on liberalization of markets seemed uncer- tain. The consequences of failure could set back development and have serious repercussions on developing countries' growth prospects. Global environmental issues are now a matter of high interna- tional political importance. Developed and developing countries are in broad agreement on the objectives of global environmental policy. But tackling these environmental issues, both at the national and the global level, requires a cooperative effort that is likely to entail substantial sums of money. The international community will need to find answers to this problem in the 1990s. Finally, the dramatic geopolitical changes in the world and the inclusion of Eastern European countries in the demand for the world's limited resources of external capital pose problems that need to be addressed. The relaxation of East-West security 23. New York: Oxford University Press, 1990. 35 tensions suggests that there will be a "peace dividend." But will it be used to increase aid volumes, and how will it be shared? Can developing countries be effectively assured that there will be no diversion of traditional aid flows from donor countries? The Development Committee will clearly be needed in the 1990s as the international community confronts these develop- ment problems. As the world comes to grips with these difficult development issues, the policy aspects will need to be addressed on a high political level in an international forum in which the prospects for economic and financial action are greatest. But there is need for realism about the obstacles in the environment in which the Comrnittee works. For a commnittee whose fundamen- tal mandate is the transfer of resources to developing countries, the present world financial environment of budgetary constraints in major industrial countries is clearly difficult. The 1970s were, in a sense, an ideal period for multilateralism and international cooperation. In such forums as the United Nations, the Confer- ence on International Economic Cooperation, and the Brandt Commission developing countries expressed high hopes that intemational understandings between North and South would lead to solutions to their development problems. The 1980s have witnessed more pragmatism under the pressure of individual national development problems and a weakening faith in multi- lateral solutions. But there have been signs in the work of the Development Committee of a revival of multilateralism, as well as of purposeful concerted international action. Developing and developed countries can now call on the Development Commit- tee as a major intemational body working to maintain the dialogue in an examination of development issues. As a joint committee of the govemors of the IMF and the World Bank, the Development Committee enjoys the support of an institution at the center ofthe international monetary system and ofthe world's principal development financial institution. The opportunities are there for developing countries to help find solutions to their problems in a common effort with industrial countries that will benefit the international community as a whole. 36 As a committee of govemors, the Development Commiittee can also take special advantage of the opportunity to influence the direction of the World Bank and the IMF in the interest of development. The fact that the work of the Committee in development is of a long-term nature and often does not show immediate results should not weaken political support. This historical account demonstrates that patient pursuit of difficult issues over time can produce results and that the political mo- mentum in the Development Committee on these issues should not be underestimated. 37 Appendix A. Members of the Development Committee, January 7, 1991 Mohammad Abalkhail, Minister of Finance and National Economy, Saudi Arabia Ibrahim Abdul Karim, Minister of Finance and National Economy, Bahrain representing Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Socialist People's Libyan Arab Jamahiriya, Maldives, Oman, Pakistan, Qatar, Somalia, Syrian Arab Republic, United Arab Emirates, and Republic of Yemen Pierre B®ovoy, Minister of State for Economy, Finance, and the Budget, France Mohamed Berrada, Minister of Finance, Morocco representing Afghanistan, Algeria, Ghana, Islamic Republic of Iran, Morocco, and Tunisia Nicholas F. Brady, Secretary of the Treasury, United States Guido Carli, Minister of the Treasury, Italy representing Greece, Italy, Malta, Poland, and Portugal Madhu Dandavate, Minister of Finance, India representing Bangladesh, Bhutan, India, and Sri Lanka Tekola Dejene, Minister of Finance, Ethiopia representing Angola, Botswana, Burundi, Ethiopia, The Gambia, Kenya, Lesotho, Liberia, Malawi, Mozambique, Nigeria, Sierra Leone, Sudan, Swaziland, Tanzania, Uganda, Zambia, and Zimbabwe Kablan Daniel Duncan, Minister of Economy and Finance, C6te d'Ivoire representing Benin, Burkina Faso, Cameroon, Cape Verde, Central African Republic, Chad, Comoros, People's Republic of the Congo, C6te d'Ivoire, Djibouti, Equatorial Guinea, Gabon, Guinea, Guinea-Bissau, Madagascar, Mali, Mauritania, Mauritius, Niger, Rwanda, Sao Tome and Principe, Senegal, Togo, and Zaire 38 Alejandro Foxley, Minister of Finance, Chile representing Argentina, Bolivia, Chile, Paraguay, Peru, and Uruguay Jorge Gallardo Zavala, Minister of Finance and Public Credit, Ecuador representing Brazil, Colombia, Dominican Republic, Ecuador, Guyana, Haiti, Panama, Suriname, and Trinidad and Tobago Ryutaro Hashimoto, Minister of Finance, Japan Paul]. Keating, M.P., Deputy Prime Minister and Treasurer of the Commonwealth of Australia representing Australia, Kiribati, Republic of Korea, New Zealand, Papua New Guinea, Philippines, Seychelles, Solomon Islands, Vanuatu, and Western Samoa Wim Kok, Deputy Prime Minister and Minister of Finance, Netherlands representing Cyprus, Israel, Netherlands, Romania, and Yugoslavia Norman Lamont, Chancellor of the Exchequer, United Kingdom Allan Larsson, Minister of Finance, Sweden representing Denmark, Finland, Iceland, Norway, and Sweden Philippe Maystadt, Minister of Finance, Belgium representing Austria, Belgium, Hungary, Luxembourg, and Turlcey Miguel Rodriguez, Minister of State and Head, CORDIPLAN, Venezuela representing Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Spain, and Venezuela J. B. Sumarlin, Minister ofFinance, Indonesia representing Fiji, Indonesia, Lao People's Democratic Republic, Malaysia, Myanmar, Nepal, Singapore, Thailand, Tonga, and Viet Nam Wang Bingqian, State Councillor and Minister of Finance, China JOrgen Warnke, Federal Minister for Economic Cooperation, Germany Michael H. Wilson, Minister of Finance, Canada representing Antigua and Barbuda, The Bahamas, Barbados, Belize, Canada, Dominica, Grenada, Ireland,Jamaica, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines 39 Appendix B. Observers to the Development Committee 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 Commonwealth Secretariat General Agreement on Tariffs and Trade Inter-American Development Bank Intemational Fund for Agricultural Development Islamic Development Bank Organisation for Economic Co-Operation and Development OPEC Fund for Intemational Development Switzerland United Nations United Nations Conference on Trade and Development United Nations Development Programme 40 Appendix C. Development Committee Pamphlets 1 The Development Committee: Its First Ten Years (English, French and Spanish) 2 Current Development Issues: Reports by the Presidentof the World Bank to the Development Committee, 1983 and 1984 3 Linkages betweenTrade and the Promotionof Development 4 ResourcesforDevelopment 5 Developing Countries:Medium-Term Prospects 6 Trade and Development 7 Report of the Task Forceon ConcessionalFlows (English, French and Spanish) 8 Aid for Development: The Key Issues. Supporting Materials for the Report of the Task Forceon ConcessionalFlows 9 Status Report on ConcessionalFlows:April 1986 (English, French and Spanish) 10 A Strategyfor Restoration of Growth in Highly Indebted Middle-Income Countries (English, French and Spanish) ii Opening Statements to the Meeting of the Development Committee, by Ghulam Ishaq Khan, Chairman: April 1985-September 1986 12 The Twelfth Annual Report of the Development Committee: July 1985-June 1986 (English, French and Spanish, in one pamphlet) 13 Protectingthe Poor During PeriodsofAdjustment 14 Environment, Growth, and Development 15 Market Prospectsof Raw Materials 41 16 Proposals for Enhancing Assistance to Low-Income Countries That Face Exceptional Difficulties 17 Environment and Development: Implementing the World Bank's New Policies (English and Gennan) 18 The Adequacy ofResourre Flows to Developing Countries 19 Strengthening Efforts to Reduce Poverty 20 The Impact of the Industrial Polides of the Developed Countries on the Developing Countries 21 Progress ofInitiatives To Benefit Sub-Saharan Afiica 22 World Bank Support for the Environment: A Progress Report 23 Problems and Issues in Structural Adjustment 24 Development Issues: Presentations to the Development Committee, May 8, 1990 25 The Development Committee: Its Origins and Achievements, 1974-90 26 Development Issues: Presentations to the 3 9th Meeting of the Development Committee, Washington, D. C.-Septanbtr 24, 1991 42 Appendix D. Text of Parallel IBRD and IMF Resolutions Establishing the Development Committee IBRD Governors Resolution 294, October 2, 1974 IMF Governors Resolution 29-9, October 2, 1974 WHEREAS the Committee of the Board of Governors of the International Monetary Fund on Reform of the International Monetary System has recommended the establishment ofa joint ministerial committee of the Boards of Governors of the Inter- national Monetary Fund (the Fund) and the International Bank for Reconstruction and Development (the Bank) to carry for- ward the study of the broad question of the transfer of real resources to developing countries and to recommend measures to be adopted in order to implement its conclusions; WHEREAS it is desiiable to consider the question ofthe transfer of real resources to developing countries in relatiol) to existing or prospective arrangements among countries, including those involving international trade and payments, the flow of capital, investment, and official development assistance; WHEREAS the said Committee has invited the Managing Director of the Fund to discuss with the President of the Bank the preparation of appropriate parallel draft resolutions on the establishment of such a joint ministerial committee for adoption by the respective Boards of Governors of the Fund and Bank; WHEREAS pursuant to such discussions the President of the Bank and the Managing Director of the Fund have proposed to the Executive Directors of the Bank and Fund, respectively, and the Executive Directors of the Bank have approved the submis- sion of this Draft Resolution to the Board of Governors of the Bank and the Executive Directors ofthe Fund have approved the 43 submission of a parallelDraft Resolution to the Board of Gover- nors of the Fund; WHEREAS the Comrnittee as envisaged would be helpful in providing a focalpoint in the structure ofinternational economic cooperation for formation of a comprehensive overview of diverse international activitiesin the development area, for effi- cient and prompt consideration of development issues, and for coordination of international efforts to deal with problems of financing development; and WHEREAS the Board of Governors of the Fund [Bank] is considering the saidparallel resolution; NOW, THEREFORE, the Board of Governors hereby RE- SOLVES: 1. Establishment and Composition ofJoint Ministerial Com- mittee (a) There is establishedaJoint Ministerial Commritteeof the Boards of Governors of the Bank and Fund on the Transfer of Real Resources to Developing Countries (hereinafter called the Development Comrnittee). (b) The members of the Development Comrnmittee shall be governors of the Bank, governors of the Fund, ministers, or others of comparable rank. (c) The members of the Development Committee shall be appointed in turn for successive periods of two years by the members of the Bank and the members of the Fund. The members of the Bank shallappoint the members of the Commritteefor the first period of two years, which shall run from the date of the adoption of this Resolution until the date of the regular election of executive directors in 1976. (d) Each member government of the Bank or the Fund, as the case may be, that appoints an executive director and each group of member governments of the Bank or of the Fund, as the case may be, that elects an executive director shall appoint one member of the Development Committee and up to seven associates, 44 and, for any meeting when the member of the com- mittee is not present, may appoint an alternate with full power to act for the member at such meeting. (e) Each member and associate shall serve until a new appointment is made by the member government or member governments of the Bank or the Fund, as the casemay be, that are entitled to make the appointment or until the next succeeding regular election of exec- utive directors, whichever is earlier. 2. Chairman The Development Commnittee shallselect a Chairman from among its members, who shall serve for such period as the Committee determines. The Chairman of the Boards of Governors of the Bank and the Fund, or a governor designated by him, shall convene the first meeting of the Commnittee and shallpreside over it until the Chairman has been selected. 3. Meetings (a) Members ofthe Development Committee, associates, and the executive directors of the Bank and the Fund, or in their absence their alternates, shallbe entitled to participate in meetings of the Committee, unless the Committee decides to hold a session restricted to members, the President of the Bank, and the Manag- ing Director of the Fund. Participation in respect of each item on the agenda of a meeting shallbe limited to one person in respect of each member government or group of member governments that appoint a member of the Comrnittee. (b) The President ofthe Bank and the Managing Director of the Fund shall be entitled to participate in all meetings of the Development Committee, and each may designate a representative to participate in his place at any meeting when he is not present. Each may be accompaniednormallyby two members of hisstaff, at any unrestricted session of the Commnittee. 45 (c) The Development Committee shall invite the heads of other international financial or economic organi- zations, as well as other persons, to attend or partici- pate in meetings of the Committee relating to their areas of responsibility. 4. Tenns of Reference (a) The Development Committee shall maintain an over- view of the development process and shall advise and report to the Boards of Governors of the Bank and the Fund on all aspects of the broad question of the transfer of real resources to developing countries, and shall make suggestions for consideration by those concerned regarding the implementation of its con- clusions. The Committee shall review, on a continu- ing basis, the progress made in fulfillment of its suggestions. (b) The Development Committee shall establish a de- tailed program of work, taking account of the topics listed in Annex 10 of the Outline of Reform. The Committee in carrying out its work shall bear in mind the need for coordination with other international bodies. (c) The Development Committee shall give urgent at- tention to the problems of (i) the least developed countries and (ii) those developing countries most seriously affected by balance of payments difficulties in the current situation. 5. Procedures (a) The Development Committee shall meet at the time of the annual meetings of the Boards of Governors of the Bank and the Fund and, in addition, as often as required. The Chairman may call meetings after con- sulting the members of the Committee and shall consult them on calling a meeting if so requested by any member of the Committee. 46 (b) A quorum for any meeting of the Development Committee shall be two-thirds of the members of the Committee. (c) The Development Committee may establish sub- committees or working groups from time to time. (d) The Committee shall appoint an Executive Secretary, who shall be entitled to participate in all Committee meetings. The Executive Secretary, supported by a small staff as necessary, and drawing on the staffs of the Banlc and the Fund to the maximum extent feasible, shall be responsible to the Committee for carrying out the work directed by the Chairman. (e) Appropriate arrangements shall be made for the coor- dination ofthe work of the Development Committee and the work of the Executive Directors of the Bank and the Fund. (f) The President ofthe Banlc and the Managing Director of the Fund shall arrange to carry out technical work requested by the Committee and provide administra- tive support for the Committee within the compe- tence of their organizations. (g) The Committee may request assistance from interna- tional organizations or other bodies or individuals in connection with the preparation of its work. (h) In reporting any suggestions or views of the Devel- opment Committee, the Chairman shall seek to es- tablish a sense of the meeting. In the event ofa failure to reach a unanimous view, all views shall be reported, and the members holding such views shall be identi- fied. (i) The Development Committee shall report not less than once a year to the Boards of Governors on the progress of its work and may publish such other reports as it deems desirable to carry out its puq,oses. G) The Development Committee may determine any aspect of its procedure that is not established by this Resolution. 47 6. Administrative Costs The Bank and the Fund shall make such financial appropri- ations, in equal proportions, as are necessary for carrying out the work of the Development Committee. 7. Review 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. 48 Joint Ministerial Commnitteeof the Boards of Governors of the World Bank and the International Monetary Fund on the Transfer of Real Resources to Developing Countries (Development Committee) 1818 H Street, N.W., Washington, D.C. 20433, U.S.A. Telephone: (202) 477-1234 Facsimile: (202) 477-6391 Telex: wui 64145 WORLDBANK- RCA 248423 WORLDBK Cable Address: INTBAFRAD WASHINGTONDC ISBN 0-8213-1806-3