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World Bank and IMF annual meetings

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06 273 4631 OCT 16, 1991

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I am very pleased to have the opportunity to address this meeting of the Governors of the World Bank and International Monetary Fund, my first as Governor for Australia.

On behalf of Australia, I extend a warm welcome to Mr Preston. We look forward to working closely with you in your important role as the new Bank .President.

I also congratulate Mr Camdessus Director. on his reappointment as Managing

Australia is very pleased to welcome Albania and Mongolia, the newest additions to our membership.

Our particular thanks go to the Government and people of Thailand, for their impressive efforts in hosting this event, and their charming hospitality.

The past year has been one of great difficulty in the world economy. The countries of Eastern Europe and the Soviet Union are in upheaval. The aftermath of the Gulf War, the difficulties of many heavily indebted countries and the recession in several major countries have affected not

only the countries concerned but the whole of the international community.

The best available forecasts for the world economy suggest that the ^pconomic tide has turned. But there remain two major dangers.

One danger is that fiscal and monetary policies in industrial countries may depart from their adherence to a medium-term approach. It is vital that their macroeconomic policies be directed towards the medium-term objective of securing sustainable growth with low inflation. Rising demands on global

savings will need to be met by fiscal consolidation, particularly in the -United States. Fiscal and monetary policies must avoid pump-priming, and safeguard against a return to high inflation. That would undermine much of what has been achieved over the past decade.

The second danger lies in the urgent problem of international trade, where the industrial countries have a special responsibility to show leadership. As the President of the Bank has noted, twenty of the twenty- four OECD countries are more protectionist now than they were ten years ago. The loss in income to developing countries caused by industrial countries'




FROM AUSTRALIA 06 273 4631 OCT 16, 1991 2:01PM P?03 TO:


protectionism is estimated to be about twice the total value of all official development assistance. The cost to themselves of industrial countries' protectionism is even greater. It has been estimated that the ending of agricultural subsidies would reduce the United States' trade deficit by more

than 40 billion US dollars, and generate 3 million new jobs within the European Community.

Success in the Uruguay Round, in the very near future, is critical to the future of the multilateral trading system. The President of the Bank has already observed that no international issue affects the developing countries more than this. If the Round fails, many countries may react by

stepping backwards into direct protectionism and inward-looking trading blocs, depriving the world of large efficiency and welfare gains.

Australia was profoundly disappointed at the failure of leadership shown by industrial countries in the Uruguay Round last year. We must ensure this is not repeated this year. As Finance Ministers, we have a special responsibility to insist that our Ministerial colleagues for agriculture and industry recognise the broader national and international

interests involved.

Reductions in protection, especially in Europe and especially in agriculture, are necessary for success in each of the great economic endeavors before us now - bringing prosperity to Eastern Europe and the republics of the Soviet Union, helping countries in other regions to make the transition to open, market-oriented economies, and restoring heavily-

indebted countries to a more viable condition.

The challenge for industrial countries in reducing protection is considerable - as we in Australia know from recent experience - but it should be seen in perspective. The extent of adjustment required on the part of sectional interests in the industrial countries is much less than what is now occurring in Eastern Europe, or what is required of many

developing countries under the Fund's and Bank's adjustment programs.

Our host country, Thailand, is one of several in the Asian region that demonstrate to all the benefits of adopting market-oriented policies. Other countries in Indo-China are beginning to move in a similar direction. The comprehensive settlement in Cambodia which is now imminent should mark a turning point in external assistance to this area, including from the Fund and Bank. The time has now come to help Vietnam clear its arrears and become eligible for drawings, which I hope will be associated with a sound program of structural adjustment and financial assistance from other


Australia has been particularly hard hit by the current export subsidy war in agricultural products between the European Community and the United States. We have experienced our most severe recession for sixty years, and there has been a sharp cyclical turnaround in our fiscal situation from

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surplus to deficit. Despite this, we have increased our aid budget this year, but our capacity to provide aid in coming years will remain constrained.

Whereas in past replenishments of multilateral funds we have been able on several occasions to help fill gaps beyond our burden-sharing allocations, we have now been forced, regretfully, to reduce our share of the next replenishment of the Asian Development Fund. We shall need to take

the same approach towards the next replenishment of the International Development Association. I stress that this is not motivated by any large misgivings about IDA's objectives or methods, which we continue to support, but only by the present constraint on our capacity to make new financial


Australia supports the Bank's recent initiatives on poverty reduction, human resource development - including women in development - and protection for the environment. We have also stressed the need for borrowing countries themselves to increase their budgetary support in these areas. We would encourage other countries to examine critically their public expenditures,

especially military spending, and ask themselves whether they can afford not to have these resources devoted to education, to health, or to other constructive purposes. We also support the increased emphasis being given by the Bank to private sector development in mixed market economies.

Australia believes that both the Bank and the Fund have important roles to play in helping to overcome the many challenges facing the world economy, and in fostering a favourable environment for economic growth. The institutions need support from all of us in performing their roles.

The extent of that support in the future will be enhanced by evidence of their effectiveness in implementing programs and projects, and the efficiency with which they administer themselves. They have an opportunity to show the same strength of purpose in pruning activities and in cutting costs as we are being encouraged to have as Ministers in our own governments.

So, Mr Chairman, I am finishing where I began - extending support to the Bank's new President, and the Fund's re-elected Managing Director, in their leadership of their institutions, and ourselves as members, in the challenging years ahead.