The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
DepnrtmenloftheTREASURY
•WASHINGTON, D.C. 20220
jf
TELEPHONE 566-2041
FOR RELEASE
October 3, 1979
ADDRESS BY
SECRETARY OF THE U.S. TREASURY
G. WILLIAM MILLER
BEFORE THE ANNUAL MEETING OF
THE INTERNATIONAL MONETARY FUND AND WORLD 3ANK
BELGRADE, YUGOSLAVIA
OCTOBER 3, 1979
Mr. Chairman, Mr. McNamara, Mr. De Larosiere, fellow
governors, distinguished guests:
On behalf of the United States, I want to express our
appreciation to the Government of Yugoslavia for inviting us
here.
Yugoslavia's energetic and independent spirit has long
attracted the world's admiration and respect. And Yugoslavia's
full participation in the work of the IMF and the World Bank
has shown how nations with different economic and political sys
tems can cooperate to mutual advantage. We join the other
participants in thanking the Government of Yugoslavia for its
warm hospitality to us here in Belgrade. My remarks today are
addressed to one central theme.
Restoring balanced growth to
the world economy will require purposeful domestic adjustment on
the part of all nations--large and small.
The two international
institutions whose work we are reviewing at this meeting can
help us make these adjustments in effective and mutually rein
forcing ways.
We must make sure they are in a position to do
so.
We must make sure they have our support to do so.
In the
last analysis, however, the responsibility rests with each of
us.
My country, as the largest economy in the system, is
determined to carry out that responsibility in full.
Only when
balance is regained, will it be possible to resume the steady
economic advance we all desire.
Mr. Chairman, this is the final annual meeting of the Bank
and Fund during the decade of the 1970's.
It has been a decade
marked by troublesome strains in the world economy.
The will
and ability of nations to cooperate internationally have been
severely tested.
M-101
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
2
The underlying strains might easily have led individual
countries to the pursuit of inward-looking policies--to selfdefeating efforts to protect their own limited interests at the
expense of the broader interests of the community of nations.
That this did not occur is convincing testimony to the vision
of the architects of the Bretton Woods Institutions, and the
maturity and wisdom of their successors—the representatives of
the governments gathered here today.
The difficulties of the 1970's are all too familiar.
The
gains that have been achieved despite those difficulties are
less widely appreciated.
In the >face of unprecendented payment
imbalances, severe inflation, and high and persistent unemploy
ment, international cooperation has been strengthened in
important ways:
— Agreement was reached on far-reaching trade liberaliza
tion;
-- Flows of official development resources continued to
expand;
— Private financial markets successfully channeled huge
flows of funds from surplus to deficit countries, and
developing countries gained access to these private
capital markets on a substantial scale;
— Intergovernmental cooperation in exchange markets
became stronger and closer;
— The IMF Articles underwent comprehensive revision,
laying the basis for orderly evolution of the inter
national monetary system.
This progress was not accidental. Nation's might have
responded to the problems of the 1970's by imposing trade and
capital controls, by cutting back aid, and by aggressive com
petition in exchange rate policies.
If that had happened, the
world would have suffered staggering economic losses.
Instead
we chose deliberately to seek cooperative solutions.
Recognizing
that the pervasive links among 3ur economies made cooperation
essential to our individual as well as our collective well-being.
We must not forget that lesson.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
3
Once again the world economy has been destabilized by a
large oil price shock, almost equal in dollar amount to that of
1973-74.
On an annual basis, the jump in oil prices will in
crease the import bill of the developed countries by almost
$75-billion and of the developing countries by $15-billion.
This action is
disrupting international payments balances and
adding greatly to the problems of containing inflation and
reducing unemployment.
Furthermore, uncertainty about the
availability and price of energy seems likely to persist.
Inflationary pressures, building up over a period of years, have
become so virulent as clearly to require resolute, sustained,
countermeasures.
In this uncertain international economic
environment, the prospects for world economic progress are less
promising.
And that is a particularly harsh prospect for the
one-fifth of the world’s population facing absolute poverty.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
4
These problems are world wide.
They are shared in
common, to varying degrees, by all our societies'? They
can be successfully overcome only through persistent
national action, augmented by intensified international
collaboration.
And that means relinquishing a degree
of autonomy in national action.
It is in this context that we must examine the present
and future work of the IMF and the World Bank group.
These
two institutions provide the infrastructure for world
cooperation in economic policy, in finance, and in develop
ment.
The degree to which we support them represents
the central measure of our willingness to support more
effective global economic management.
Intensified collaboration is the course we must choose
for the 1980's.
It is therefore essential that the IMF
and the World Bank group be strong enough to do the job—
strong enough in authority, operations effectiveness, and
resources.
I proposed, therefore, to outline my views on
the future direction of policy in these two institutions
and on the tools they will need to do the job.
International Monetary Fund
Financially, the Fund is in a strong position to face
the new testing period that lies ahead.
The supplementary
financing facility has been activated and remains almost
fully available.
The quota increase scheduled to take
effect next year will add a large and timely infusion of
resources.
The compensatory financing facility, which
proved so valuable during the cyclical downturn of the
mid-70's has recently been substantially liberalized and
will provide an important element of security to primary
producing nations.
Furthermore, the IMF has revised its
guidelines on conditionality so that it can foster orderly
balance of payments adjustment in ways that meet the needs
and circumstances of members.
Nonetheless, there is more to be done to assure the
adequate utilization of the IMF's financial resources and
to strengthen the Fund's capacity to manage the monetary
system.
Three areas deserve early attention.
First is surveillance.
Under the amended articles,
Fund surveillance--surveillance over members' general economic
policies as well as exchange rate policies--is the centerpiece
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
5
of international monetary cooperation. Without effective
surveillance, there is no system.
The Fund has moved
cautiously and prudently in implementing its surveillance
procedures.
Bolder action is now required.
One possibility would be for the Fund to assess the
performance of individual countries against an agreed
global strategy for growth, adjustment and price stability.
Another possibilityywould be to provide that any
nation I with an exceptionally large payments imbalance—
deficit or surplus—must submit for IMF review an analysis
showing how it proposed to deal with that imbalance. Now,
only those countries borrowing from the Fund have their
adjustment programs subjected to such IMF scrutiny.
Greater symmetry is needed.
We should also consider inviting the managing director
to take the initiative more often in consulting members
directly where he has concerns about the appropriateness
of policy. Any such approaches must, of course, be fully
in accordance with the fundamental principle of uniform
treatment for all members. For its part, the United States
welcomes and values the Fund's views and advice, and would
see merit in a more active role on the part of the managing
director in initiating consultations with members.
As a further step, we might now give serious consideration
to the establishment of the courtcil, as successor to the
Interim Committee, and give it a more specific and direct
role in the surveillance process.
There would be value in
such a move, both substantively and symbolically, and I
urge that each of us give fresh consideration to this idea.
The second area for improvement is that of international
liquidity. There has been solid progress over the past
twelve months in enlarging the role of the SDR in the
monetary system. A more fundamental move, the establishment
of a substitution account is now under consideration.
If,
working together, we can resolve the problems involved in
setting up that account— and I am hopeful that with good
will it will be possible to resolve them in due course—the
result would represent an important new approach toward
greater reliance on an international reserve asset and a
more centrally managed international monetary system.
The third area in which it may be possible to strengthen
the system and make the IMF more useful and influential
is in the field of cooperation with the private financial
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
6
markets.
This is not a new idea.
But the arguments in
favor of it have become more compelling.
We all recognize that the private markets will, in
the future as in the past, have to play by far the major
role in channeling financing from surplus to deficit nations.
Official institutions, including the IMF, play a vital
role in this process, but it is essentially catalytic in
nature.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
7
We must ensure that the IMF is doing all it appropriately
can and should do in order to ensure that private financing
flows smoothly and efficiently.
We should reexamine ways in
which the fund can encourage the availability of better
information on international bank lending, with greater
uniformity with respect to potential borrowers.
This could
facilitate the process without jeopardizing the IMF’s close
and confidential relationships with members.
We should also
explore ways of encouraging earlier recourse to the IMF by
countries facing difficulty, in the interests of maintaining
overall financial stability and avoiding the need for more
severe adjustment measures at a later stage if problems are
left unaddressed.
World Bank
The successful contribution by the fund to the smooth
operation of the world economy will help the World Bank to
encourage longer-term economic improvement in the developing
world.
Over the past ten years we have called for a steady
expansion in the scope of the bank's activities and it has
never failed to respond effectively.
The bank is now the
largest single source of external finance and technical
assistance for economic development and the primary exempli
fication of international cooperation to achieve social and
economic advance.
It must continue to be so.
As President McNamara
pointedly reminded us, the goals we set and the choices we
make today in this difficult area of economic policy will
have a critical bearing on whether conditions in the world
will be tolerable a generation from now.
This is a weighty
responsibility; it is one we cannot avoid addressing.
The size of the problem is graphically described in the
second world development report, for which I offer my
appreciation and congratulations.
Over the next two decades,
750 million new job opportunities will have to be created in
the developing world.
The extent of success in this endeavor
will determine how many people in the world are able to
enjoy economic wellbeing, and any shortfall will determine
how many are left to face conditions of absolute poverty at
the beginning of the 21st century.
In this situation, capital will always be extremely
scarce in relations to needs.
It will be essential, there
fore, that bank loans, IDA credits, and IFC investments
should stimulate, to the maximum degree, mobilization of
domestic savings in the developing countries and the flow
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
8
of private capital from abroad.
Specifically this means:
— Greater emphasis on creating productive job
opportunities in the rural areas, where poverty and
underemployment are pervasive.
Without more progress
here, the food problem could become worse, population
pressure will become more severe, and the flow of
people to cities could become overwhelming.
— New approaches to job creation in cities and the
provision of low-cost basic services to the urban
poor.
-- Investments in human capital through programs in
education, health and family planning.
— In all areas, a conscious and more effective program
to reduce capital investment per job created, and to
insure that in a fundamental economic sense invest
ments pay for themselves.
Only then will capital
used today be recovered tomorrow to be invested for
the benefit of others.
— New initiatives to encourage co-financing.
-- More ambitious efforts to expand production of energy
fuels, including new applications for renewable energy
technology.
The quantum jump in the price of oil is
exerting a sharply constraining effect on economic
growth everywhere, with particularly harsh effects
in the oil importing developing countries.
An increase
in the availability of domestic energy supplies is
necessary to increase the productivity of domestic
labor and capital.
To move in this direction requires that the bank be able
to expand the scope of its activities. We believe that the
capital of the bank must be increased substantially, and for
this reason, supported the resolution of the executive
directors to that effect.
We also support a sixth replenishment of IDA, and look
to the completion of the negotiations before the end of this
year.
In accordance with our legislative procedures, our
action in both respects will involve the close cooperation
of the United States Congress.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Private Financial Markets
9
Strengthening the capacity and effectiveness of the IMF
and the World Bank is also necessary to enable private markets
to function smoothly and effectively. The latest increase
in oil prices will place new demands on these markets to
move funds from surplus to deficit countries.
The actions of
the two Bretton Woods Institutions serve to strengthen the
adjustment process, economic prospects and credit positions
of borrowing countries--all of which is a necessary foundation
on which private lending can take place on a sustainable basis.
This process also emphasizes how the work of the two institutions
reinforce each other.
More generally, a strengthened cooperative approach,
looking toward a more orderly management of the world economy,
provides a framework within which each nation can address
common problems in a mutually supportive way.
The United
States recognizes its role in this system and will continue to
act to carry out its national and international responsibilities.
United States Progress and Policies
Economic growth in the United States during the past four
years has been strong, and has made a major contribution to
world economic recovery. Output has increased by 22 percent
in real terms. Thirteen million new jobs have been created.
At the same time, our rapidly growing market has provided a
major economic stimulus for other countries recovering from
world recession. Most notably, this has benefitted the
developing countries, which have increased their exports of
manufactured goods to the United States much more rapidly than
to other countries.
The United States is well aware of the important role of
the dollar in the international monetary system. We are
determined to maintain reasonable balance in our external
accounts and to assure that the dollar is sound and stable.
We have acted vigorously to meet that obligation, with policies
to strengthen underlying economic conditions, and with force
ful exchange market operations to counter market disruption.
The U.S. balance of payments has improved markedly.
Our
current account deficit will be reduced from $14 billion in
1978 to a few billion in 1979, despite an increase of $16
billion in the cost of oil imports.
Next year, 1980, we expect a substantial current account
surplus.
Continued strong export performance, a rising sur
plus on services, slower import growth, and U.S. determina
tion to respond forcefully to unwarranted exchange market
pressures, all provide a firm basis for dollar stability
strength in the period ahead.
We have already achieved important progress in strengthen
ing the dollar exchange rate. The dollar has declined in terms
of some currencies, moved higher in terms of others and remained
stable relative to most. Measured against the average of OECD
currencies, the dollar is now about 5 percent above level
From the viewpoint of the OPEC nations,
prevailing last fall.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
10
in relation to the other currencies they use to purchase their
imports, the dollar has increased about 8 percent on average
from a year ago.
Notwithstanding the favorable changes in the value of the
dollar measured in terms of these averages, the United States is
determined to maintain exchange market stability for the dollar
in terms of individual major currencies, such as the Deutsche
Mark.
The United States also recognizes the necessity of solving
its energy problem. We are making substantial progress.
Since 1973 the amount of energy required to produce a unit of
real output in the United States has dropped by 7-1/2 percent,
and in the industrial sector, it has dropped by 20 percent.
The ratio of the increase in energy consumption to the increase
in GNP has fallen by one-third since 1973.
That performance
compares favorably with other industrial countries.
Household
energy consumption has leveled off.
Our transportation fleet
is rapidly becoming more fuel efficient—the average miles per
gallon for new cars rose from 13 in 1973 to 19 in 1979, and
will rise to 27.5 by 1985.
More must, and will, be done.
President Carter has
announced a series of measures, both administrative and legis
lative, which will sharply improve the overall U.S. energy
position.
Phased decontrol of domestic crude oil prices by
September 30, 1981 will reduce oil imports by an estimated 1.5
million barrels per day by 1990.
In addition, immediate
decontrol of heavy crude oil prices will stimulate increase in
production estimated at 0.5 million barrels per day. Creation
of an Energy Security Corporation will provide the resources
to help finance private sector development of synthetic fuel.
Major emphasis also being placed on developing renewable
sources of energy. When fully in place, our energy program
will cut oil import requirements by 4 to 5 million barrels per
day.
At the recent Tokyo Summit, the United States agreed that
from now through 1985, we would import no more than 8.5 million
barrels per day of oil, the level that prevailed in 1977.
The
President established a lower goal 8.2 million barrels per
day, for 1979. We are firmly committed to meeting the import
targets.
Inflation continues to be our country's more serious
problem.
It threatens our ability to achieve full employment,
it impedes investment, and it impairs productivity. We are
determined to bring inflation under control and regain price
stability.
Our recent record is not satisfactory to us.
Food and
energy prices have temporarily driven U.S. price indices into
the double digit range.
Energy alone accounted for more than
one-half the total rise in finished goods prices at the
producer level in the latest three-month period.
In coming
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
11
months this pressure will recede as the effects of recent OPEC
price actions work their way fully through the economy.
Food
prices have moderated in the wake of good harvests.
Special factors aside, the inflation rate is still much
too high and must be brought under control.
This cannot be
done quickly or easily.
It can only be accomplished by a firm
application of sound policies which deal with the economic
fundamentals.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
12
All major instruments of U. S. economic policy are being
directed toward this task.
Fiscal policy is directed toward
restraint.
- ■
We have arrested the increase in government outlays in real
terms and tax receipts are rising.
The federal deficit has been
reduced from 3 percent to 1 percent of GNP.
The Federal Reserve
is exercising monetary discipline and will continue to keep firm
limits on the growth of money supply.
Despite rapid increases in
recent months, the increase in Ml over the past year was held to
4.9 percent less than half the increase in consumer prices.
The Federal Reserve is committed to meeting its targets for
limiting the rate of growth of money and credit.
These fiscal and monetary policies are supported by price
and pay policies that will help moderate inflationary forces.
On September 28, President Carter announced a national accord
with U. S. trade union leadership that provides for labor’s
involvement and cooperation on important national issues.
The
national accord confirms that top priority will be given to the
war against inflation.
It recognizes that the discipline es
sential to wring out inflation will mean a period of national
austerity. As part of the accord, labor leadership agreed to
participate in the voluntary program of wage and price restraint.
The involvement and cooperation of labor—and of management—
in developing and implementing policies to control inflation is
critical for success, and this cooperation has now been
strengthened.
The national accord will add momentum to our
comprehensive attack on inflation.
The United States intends to reinforce the foundation on
which to achieve sustained growth with price stability. We are
headed in the right direction and are determined to stay the
course. We are also determined to work with the nations gathered
here to strengthen the international economic system, both
through our own actions and through support of the IMF and the
World Bank.
Mr. Chairman, let me add a personal postscript. The curtain
will soon fall on the decade of the ’70’s.
It has been a turbu
lent period for the world's economy.
Progress has fallen far
short of our great hopes.
Facing, as we do, another period of major adjustment, we
have heard few words of encouragement at these sessions.
It is
right that we should be realistic about our difficulties.
It
is right that we should not delude ourselves with false expec
tations.
It is possible, however, as we begin to prepare the
agenda for the '80's, to see some cause for hope.
In particular,
we have not given in to the temptation to become self-centered.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
13
The institutions for international economic cooperation are
alive and well.
The IMF and World Bank are proving their
resilience, rising to meet the challenges.
For its part, the United States is unequivocally dedi
cated to dealing effectively with its own inflation and energy
problems.
This is the single most important contribution we
can make to our own economic health and that of the world
community.
I assure you that we have the will, determination and
preserverance to succeed in this endeavor.
You can count on
it.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
DepartmentoftheTRHSURY
> WASHINGTON, D.C. 20220
|
TELEPHONE 566-2041
FOR RELEASE
October 3, 1979
ADDRESS BY
SECRETARY OF THE U.S. TREASURY
G. WILL I All MILLER
3EF0RE THE ANNUAL MEETING OF
THE INTERNATIONAL MONETARY FUND AND WORLD BANK
BELGRADE, YUGOSLAVIA
OCTOBER 3, 1979
Mr. Chairman, Mr. McNamara, Mr. De Larosiere, fellow
governors, distinguished guests:
On behalf of the United States, I want to express our
appreciation to the Government of Yugoslavia for inviting us
here.
Yugoslavia's energetic and independent spirit has long
attracted the world's admiration and respect. And Yugoslavia's
full participation in the work of the IMF and the World Bank
has shown how nations with different economic and political sys
tems can cooperate to mutual advantage. We join the other
participants in thanking the Government of Yugoslavia for its
warm hospitality to us here in Belgrade. My remarks today are
addressed to one central theme.
Restoring balanced growth to
the world economy will require purposeful domestic adjustment on
the part of all nations--large and small.
The two international
institutions whose work we are reviewing at this meeting can
help us make these adjustments in effective and mutually rein
forcing ways.
We must make sure they are in a position to do
so.
We must make sure they have our support to do so.
In the
last analysis, however, the responsibility rests with each of
us.
My country, as the largest economy in the system, is
determined to carry out that responsibility in full. Only when
balance is regained, will it be possible to resume the steady
economic advance we all desire.
Mr. Chairman, this is the final annual meeting of the Bank
and Fund during the decade of the 1970's.
It has been a decade
marked by troublesome strains in the world economy.
The will
and ability of nations to cooperate internationally have been
severely tested.
M-101
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
2
The underlying strains might easily have led individual
countries to the pursuit of inward-looking policies--to selfdefeating efforts to protect their own limited interests at the
expense of the broader interests of the community of nations.
That this did not occur is convincing testimony to the vision
of the architects of the Bretton Woods Institutions, and the
maturity and wisdom of their successors—the representatives of
the governments gathered here today.
The difficulties of the 1970's are all too familiar.
The
gains that have been achieved despite those difficulties are
less widely appreciated.
In the >face of unprecendented payment
imbalances, severe inflation, and high and persistent unemploy
ment, international cooperation has been strengthened in
important ways:
— Agreement was reached on far-reaching trade liberaliza
tion ;
— Flows of official development resources continued to
expand;
— Private financial markets successfully channeled huge
flows of funds from surplus to deficit countries, and
developing countries gained access to these private
capital markets on a substantial scale;
-- Intergovernmental cooperation in exchange markets
became stronger and closer;
— The IMF Articles underwent comprehensive revision,
laying the basis for orderly evolution of the inter
national monetary system.
This progress was not accidental. Nation's might have
responded to the problems of the 1970's by imposing trade and
capital controls, by cutting back aid, and by aggressive com
petition in exchange rate policies.
If that had happened, the
world would have suffered staggering economic losses.
Instead
we chose deliberately to seek cooperative solutions.
Recognizing
that the pervasive links among our economies made cooperation
essential to our individual as well as our collective well-being.
We must not forget that lesson.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
3
Once again the world economy has been destabilized by a
large oil price shock, almost equal in dollar amount to that of
1973-74.
On an annual basis, the jump in oil prices will in
crease the import bill of the developed countries by almost
$75-billion and of the developing countries by $15-billion.
This action is
disrupting international payments balances and
adding greatly to the problems of containing inflation and
reducing unemployment.
Furthermore, uncertainty about the
availability and price of energy seems likely to persist.
Inflationary pressures, building up over a period of years, have
become so virulent as clearly to require resolute, sustained,
countermeasures.
In this uncertain international economic
environment, the prospects for world economic progress are less
promising.
And that is a particularly harsh prospect for the
one-fifth of the world's population facing absolute poverty.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
4
These problems are world wide.
They are shared in
common, to varying degrees, by all our societies. They
can be successfully overcome only through persistent
national action, augmented by intensified international
collaboration. And that means relinquishing a degree f •
of autonomy in national action.
'
t
*»
It is in this context that we must examine the present,
and future work of the IMF and the World Bank group.
These
two institutions provide the infrastructure for world
cooperation in economic policy, in finance, and in develop
ment.
The degree to which we support them represents
the central measure of our willingness to support more
effective global economic management.
Intensified collaboration is the course we must choose
for the 1980’s.
It is therefore essential that the IMF
and the World Bank group be strong enough to do the job—
strong enough in authority, operations effectiveness, and
resources.
I proposed, therefore, to outline my views on
the future direction of policy in these two institutions."’
and on the tools they will need to do the job.
International Monetary Fund
Financially, the Fund is in a strong position to face
the new testing period that lies ahead.
The supplementary
financing facility has been activated and remains almost
fully available.
The quota increase scheduled to take
effect next year will add a large and timely infusion of
resources.
The compensatory financing facility, which
proved so valuable during the cyclical downturn of the
mid-70's has recently been substantially liberalized and
will provide an important element of security to primary
producing nations.
Furthermore, the IMF has revised its
guidelines on conditionality so that it can foster orderly
balance of payments adjustment in ways that meet the needs
and circumstances of members.
Nonetheless, there is more to be done to assure the
adequate utilization of the IMF's financial resources and
to strengthen the Fund's capacity to manage the monetary
system.
Three areas deserve early attention.
First is surveillance.
Under the amended articles,
Fund surveillance—surveillance over members' general economic
policies as well as exchange rate policies--is the centerpiece
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
5
of international monetary cooperation. Without effective
surveillance, there is no system.
The Fund has moved
cautiously and prudently in implementing its surveillance
procedures.
Bolder action is now required.
One possibility would be for the Fund to assess the
performance of individual countries against an agreed
global strategy for growth, adjustment and price stability.
Another possibility/would be to provide that any
nation I with an exceptionally large payments imbalance—
deficit or surplus—must submit for IMF review an analysis
showing how it proposed to deal with that imbalance. Now,
only those countries borrowing from the Fund have their
adjustment programs subjected to such IMF scrutiny.
Greater symmetry is needed.
We should also consider inviting the managing director
to take the initiative more often in consulting members
directly where he has concerns about the appropriateness
of policy. Any such approaches must, of course, be fully
in accordance with the fundamental principle of uniform
treatment for all members. For its part, the United States
welcomes and values the Fund's views and advice, and would
see merit in a more active role on the part of the managing
director in initiating consultations with members.
As a further step, we might now give serious consideration
to the establishment of the courtcil, as successor to the
Interim Committee, and give it a more specific and direct
role in the surveillance process.
There would be value in
such a move, both substantively and symbolically, and I
urge that each of us give fresh consideration to this idea.
The second area for improvement is that of international
liquidity. There has been solid progress over the past
twelve months in enlarging the role of the SDR in the
monetary system. A more fundamental move, the establishment
of a substitution account is now under consideration.
If,
working together, we can resolve the problems involved in
setting up that account— and I am hopeful that with good
will it will be possible to resolve them in due course—the
result would represent an important new approach toward
greater reliance on an international reserve asset and a
more centrally managed international monetary system.
The third area in which it may be possible to strengthen
the system and make the IMF more useful and influential
is in the field of cooperation with the private financial
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
6
markets.
This is not a new idea.
But the arguments in
favor of it have become more compelling.
We all recognize that the private markets will, in
the future as in the past, have to play by far the major
role in channeling financing from surplus to deficit nations
Official institutions, including the IMF, play a vital
role in this process, but it is essentially catalytic in
nature.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
7
We must ensure that the IMF is doing all it appropriately
can and should do in order to ensure that private financing
flows smoothly and efficiently.
We should reexamine ways in
which the fund can encourage the availability of better
information on international bank lending, with greater
uniformity with respect to potential borrowers.
This could
facilitate the process without jeopardizing the IMF’s close
and confidential relationships with members.
We should also
explore ways of encouraging earlier recourse to the IMF by
countries facing difficulty, in the interests of maintaining
overall financial stability and avoiding the need for more
severe adjustment measures at a later stage if problems are
left unaddressed.
World Bank
The successful contribution by the fund to the smooth
operation of the world economy will help the World Bank to
encourage longer-term economic improvement in the developing
world.
Over the past ten years we have called for a steady
expansion in the scope of the bank's activities and it has
never failed to respond effectively.
The bank is now the
largest single source of external finance and technical
assistance for economic development and the primary exempli
fication of international cooperation to achieve social and
economic advance.
It must continue to be so.
As President McNamara
pointedly reminded us, the goals we set and the choices we
make today in this difficult area of economic policy will
have a critical bearing on whether conditions in the world
will be tolerable a generation from now.
This is a weighty
responsibility; it is one we cannot avoid addressing.
The size of the problem is graphically described in the
second world development report, for which I offer my
appreciation and congratulations.
Over the next two decades,
750 million new job opportunities will have to be created in
the developing world.
The extent of success in this endeavor
will determine how many people in the world are able to
enjoy economic wellbeing, and any shortfall will determine
how many are left to face conditions of absolute poverty at
the beginning of the 21st century.
In this situation, capital will always be extremely
scarce in relations to needs.
It will be essential, there
fore, that bank loans, IDA credits, and IFC investments
should stimulate, to the maximum degree, mobilization of
domestic savings in the developing countries and the flow
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
8
of private capital from abroad.
Specifically this means:
— Greater emphasis on creating productive job
opportunities in the rural areas, where poverty and
underemployment are pervasive.
Without more progress
here, the food problem could become worse, population
pressure will become more severe, and the flow of
people to cities could become overwhelming.
— New approaches to job creation in cities and the
provision of low-cost basic services to the urban
poor.
-- Investments in human capital through programs in
education, health and family planning.
— In all areas, a conscious and more effective program
to reduce capital investment per job created, and to
insure that in a fundamental economic sense invest
ments pay for themselves.
Only then will capital
used today be recovered tomorrow to be invested for
the benefit of others.
— New initiatives to encourage co-financing.
-- More ambitious efforts to expand production of energy
fuels, including new applications for renewable energy
technology.
The quantum jump in the price of oil is
exerting a sharply constraining effect on economic
growth everywhere, with particularly harsh effects
in the oil importing developing countries.
An increase
in the availability of domestic energy supplies is
necessary to increase the productivity of domestic
labor and capital.
To move in this direction requires that the bank be able
to expand the scope of its activities.
We believe that the
capital of the bank must be increased substantially, and for
this reason, supported the resolution of the executive
directors to that effect.
We also support a sixth replenishment of IDA, and look
to the completion of the negotiations before the end of this
year.
In accordance with our legislative procedures, our
action in both respects will involve the close cooperation
of the United States Congress.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Private Financial Markets
9
Strengthening the capacity and effectiveness of the IMF
and the World Bank is also necessary to enable private markets
to function smoothly and effectively. The latest increase
in oil prices will place new demands on these markets to
move funds from surplus to deficit countries. The actions of
the two Bretton Woods Institutions serve to strengthen the
adjustment process, economic prospects and credit positions
of borrowing countries—all of which is a necessary foundation
on which private lending can take place on a sustainable basis.
This process also emphasizes how the work of the two institutions
reinforce each other.
More generally, a strengthened cooperative approach,
looking toward a more orderly management of the world economy,
provides a framework within which each nation can address
common problems in a mutually supportive way.
The United
States recognizes its role in this system and will continue to
act to carry out its national and international responsibilities.
United States Progress and Policies
Economic growth in the United States during the past four
years has been strong, and has made a major contribution to
world economic recovery.
Output has increased by 22 percent
in real terms. Thirteen million new jobs have been created.
At the same time, our rapidly growing market has provided a
major economic stimulus for other countries recovering from
world recession. Most notably, this has benefitted the
developing countries, which have increased their exports of
manufactured goods to the United States much more rapidly than
to other countries.
The United States is well aware of the important role of
the dollar in the international monetary system. We are
determined to maintain reasonable balance in our external
accounts and to assure that the dollar is sound and stable.
We have acted vigorously to meet that obligation, with policies
to strengthen underlying economic conditions, and with force
ful exchange market operations to counter market disruption.
The U.S. balance of payments has improved markedly.
Our
current account deficit will be reduced from $14 billion in
1978 to a few billion in 1979, despite an increase of $16
billion in the cost of oil imports.
Next year, 1980, we expect a substantial current account
surplus. Continued strong export performance, a rising sur
plus on services, slower import growth, and U.S. determina
tion to respond forcefully to unwarranted exchange market
pressures, all provide a firm basis for dollar stability
strength in the period ahead.
We have already achieved important progress in strengthen
ing the dollar exchange rate. The dollar has declined in terms
of some currencies, moved higher in terms of others and remained
stable relative to most. Measured against the average of OECD
currencies, the dollar is now about 5 percent above level
prevailing last fall. From the viewpoint of the OPEC nations,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
10
in relation to the other currencies they use to purchase their
imports, the dollar has increased about 8 percent on average
from a year ago.
Notwithstanding the favorable changes in the value of the
dollar measured in terms of these averages, the United States is
determined to maintain exchange market stability for the dollar
in terms of individual major currencies, such as the Deutsche
Mark.
The United States also recognizes the necessity of solving
its energy problem. We are making substantial progress.
Since 1973 the amount of energy required to produce a unit of
real output in the United States has dropped by 7-1/2 percent,
and in the industrial sector, it has dropped by 20 percent.
The ratio of the increase in energy consumption to the increase
in GNP has fallen by one-third since 1973.
That performance
compares favorably with other industrial countries.
Household
energy consumption has leveled off.
Our transportation fleet
is rapidly becoming more fuel efficient--the average miles per
gallon for new cars rose from 13 in 1973 to 19 in 1979, and
will rise to 27.5 by 1985.
More must, and will, be done.
President Carter has
announced a series of measures, both administrative and legis
lative, which will sharply improve the overall U.S. energy
position.
Phased decontrol of domestic crude oil prices by
September 30, 1981 will reduce oil imports by an estimated 1.5
million barrels per day by 1990.
In addition, immediate
decontrol of heavy crude oil prices will stimulate increase in
production estimated at 0.5 million barrels per day.
Creation
of an Energy Security Corporation will provide the resources
to help finance private sector development of synthetic fuel.
Major emphasis also being placed on developing renewable
sources of energy. When fully in place, our energy program
will cut oil import requirements by 4 to 5 million barrels per
day.
At the recent Tokyo Summit, the United States agreed that
from now through 1985, we would import no more than 8.5 million
barrels per day of oil, the level that prevailed in 1977. The
President established a lower goal 8.2 million barrels per
day, for 1979.
We are firmly committed to meeting the import
targets.
Inflation continues to be our country's more serious
problem.
It threatens our ability to achieve full employment,
it impedes investment, and it impairs productivity. We are
determined to bring inflation under control and regain price
stability.
Our recent record is not satisfactory to us.
Food and
energy prices have temporarily driven U.S. price indices into
the double digit range. Energy alone accounted for more than
one-half the total rise in finished goods prices at the
producer level in the latest three-month period.
In coming
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
11
months this pressure will recede as the effects of recent OPEC
price actions work their way fully through the economy.
Food
prices have moderated in the wake of good harvests.
Special factors aside, the inflation rate is still much
too high and must be brought under control.
This cannot be
done quickly or easily.
It can only be accomplished by a firm
application of sound policies which deal with the economic
fundamentals.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
12
All major instruments of D..S. economic policy are being
directed toward this task. Fiscal policy is directed toward
restraint.
J- . ,/ / • it
We have arrested the increase in government outlays in real
terms and tax receipts are rising.
The federal deficit has been
reduced from 3 percent to 1 percent of GNP.
The Federal Reserve
is exercising monetary discipline and will continue to keep firm
limits on the growth of money supply. Despite rapid increases in
recent months, the increase in Ml over the past year was held to
4.9 percent—less than half the increase in consumer prices.
The Federal Reserve is committed to meeting its targets for
limiting the rate of growth of money and credit.
These fiscal and monetary policies are supported by price
and pay policies that will help moderate inflationary forces.
On September 28, President Carter announced a national accord
with U. S. trade union leadership that provides for labor's
involvement and cooperation on important national issues.
The
national accord confirms that top priority will be given to the
war against inflation.
It recognizes that the discipline es
sential to wring out inflation will mean a period of national
austerity. As part of the accord, labor leadership agreed to
participate in the voluntary program of wage and price restraint.
The involvement and cooperation of labor—and of management—
in developing and implementing policies to control inflation is
critical for success, and this cooperation has now been
strengthened.
The national accord will add momentum to our
comprehensive attack on inflation.
The United States intends to reinforce the foundation on
which to achieve sustained growth with price stability. We are
headed in the right direction and are determined to stay the
course. We are also determined to work with the nations gathered
here to strengthen the international economic system, both
through our own actions and through support of the IMF and the
World Bank.
Mr. Chairman, let me add a personal postscript.
The curtain
will soon fall on the decade of the '70's.
It has been a turbu
lent period for the world's economy.
Progress has fallen far
short of our great hopes.
Facing, as we do, another period of major adjustment, we
have heard few words of encouragement at these sessions.
It is
right that we should be realistic about our difficulties.
It
is right that we should not delude ourselves with false expec
tations.
It is possible, however, as we begin to prepare the
agenda for the '80's, to see some cause for hope.
In particular,
we have not given in to the temptation to become self-centered.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
13
The institutions for international economic cooperation are
alive and well.
The IMF and World Bank are proving their
resilience, rising to meet the challenges.
For its part, the United States is unequivocally dedi
cated to dealing effectively with its own inflation and energy
problems. This is the single most important contribution we
can make to our own economic health and that of the world
community.
I assure you that we have the will, determination and
preserverance to succeed in this endeavor.
You can count on
it.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
DepartmentoflheTREASURY
•WASHINGTON, D.C. 20220
jjf
TELEPHONE 566-2041
FOR RELEASE
October 3, 1979
ADDRESS BY
SECRETARY OF THE U.S. TREASURY
G. WILLIAM MILLER
3EF0RE THE ANNUAL MEETING OF
THE INTERNATIONAL MONETARY FUND AND WORLD BANK
BELGRADE, YUGOSLAVIA
OCTOBER 3, 1979
Mr. Chairman, Mr. McNamara, Mr. De Larosiere, fellow
governors, distinguished guests:
On behalf of the United States, I want to express our
appreciation to the Government of Yugoslavia for inviting us
here.
Yugoslavia's energetic and independent spirit has long
attracted the world's admiration and respect. And Yugoslavia's
full participation in the work of the IMF and the World Bank
has shown how nations with different economic and political sys
tems can cooperate to mutual advantage. We join the other
participants in thanking the Government of Yugoslavia for its
warm hospitality to us here in Belgrade. My remarks today are
addressed to one central theme.
Restoring balanced growth to
the world economy will require purposeful domestic adjustment on
the part of all nations--large and small.
The two international
institutions whose work we are reviewing at this meeting can
help us make these adjustments in effective and mutually rein
forcing ways.
We must make sure they are in a position to do
so.
We must make sure they have our support to do so.
In the
last analysis, however, the responsibility rests with each of
us.
My country, as the largest economy in the system, is
determined to carry out that responsibility in full.
Only when
balance is regained, will it be possible to resume the steady
economic advance we all desire.
Mr. Chairman, this is the final annual meeting of the Bank
and Fund during the decade of the 1970's.
It has been a decade
marked by troublesome strains in the world economy.
The will
and ability of nations to cooperate internationally have been
severely tested.
M-101
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
2
The underlying strains might easily have led individual
countries to the pursuit of inward-looking policies--to selfdefeating efforts to protect their own limited interests at the
expense of the broader interests of the community of nations.
That this did not occur is convincing testimony to the vision
of the architects of the Bretton Woods Institutions, and the
maturity and wisdom of their successors—the representatives of
the governments gathered here today.
The difficulties of the 1970's are all too familiar.
The
gains that have been achieved despite those difficulties are
less widely appreciated.
In the ''face of unprecendented payment
imbalances, severe inflation, and high and persistent unemploy
ment, international cooperation has been strengthened in
important ways:
— Agreement was reached on far-reaching trade liberaliza
tion;
-- Flows of official development resources continued to
expand;
— Private financial markets successfully channeled huge
flows of funds from surplus to deficit countries, and
developing countries gained access to these private
capital markets on a substantial scale;
— Intergovernmental cooperation in exchange markets
became stronger and closer;
— The IMF Articles underwent comprehensive revision,
laying the basis for orderly evolution of the inter
national monetary system.
This progress was not accidental. Nation's might have
responded to the problems of the 1970's by imposing trade and
capital controls, by cutting back aid, and by aggressive com
petition in exchange rate policies.
If that had happened, the
world would have suffered staggering economic losses.
Instead
we chose deliberately to seek cooperative solutions.
Recognizing
that the pervasive links among our economies made cooperation
essential to our individual as well as our collective well-being.
We must not forget that lesson.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
3
Once again the world economy has been destabilized by a
large oil price shock, almost equal in dollar amount to that of
1973-74.
On an annual basis, the jump in oil prices will in
crease the import bill of the developed countries by almost
$75-billion and of the developing countries by $15-billion.
This action is
disrupting international payments balances and
adding greatly to the problems of containing inflation and
reducing unemployment.
Furthermore, uncertainty about the
availability and price of energy seems likely to persist.
Inflationary pressures, building up over a period of years, have
become so virulent as clearly to require resolute, sustained,
countermeasures.
In this uncertain international economic
environment, the prospects for world economic progress are less
promising.
And that is a particularly harsh prospect for the
one-fifth of the world’s population facing absolute poverty.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
t
4
These problems are world wide. They are shared in
common, to varying degrees, by all our societies.
They
can be successfully overcome only through persistent
national action, augmented by intensified international
collaboration. And that means relinquishing a degree
'
of autonomy in national action.
: J : IIt is in this context that we must examine the present
and future work of the IMF and the World Bank group.
These
two institutions provide the infrastructure for world
cooperation in economic policy, in finance, and in develop
ment.
The degree to which we support them represents
the central measure of our willingness to support more
'■ '•
effective global economic management.
J
Intensified collaboration is the course we must choose
for the 1980's.
It is therefore essential that the IMF
and the World Bank group be strong enough to do the job—
strong enough in authority, operations effectiveness, and
resources.
I proposed, therefore, to outline my views on
the future direction of policy in these two institutions’<
and on the tools they will need to do the job.
International Monetary Fund
Financially, the Fund is in a strong position to face
the new testing period that lies ahead.
The supplementary
financing facility has been activated and remains almost
fully available.
The quota increase scheduled to take
effect next year will add a large and timely infusion of
resources.
The compensatory financing facility, which
proved so valuable during the cyclical downturn of the
mid-70's has recently been substantially liberalized and
will provide an important element of security to primary
producing nations.
Furthermore, the IMF has revised its
guidelines on conditionality so that it can foster orderly
balance of payments adjustment in ways that meet the needs
and circumstances of members.
Nonetheless, there is more to be done to assure the
adequate utilization of the IMF’s financial resources and
to strengthen the Fund’s capacity to manage the monetary
system. Three areas deserve early attention.
First is surveillance.
Under the amended articles,
Fund surveillance—surveillance over members' general economic
policies as well as exchange rate policies--is the centerpiece
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
5
1
of international monetary cooperation. Without effective
surveillance, there is no system.
The Fund has moved
cautiously and prudently in implementing its surveillance
procedures.
Bolder action is now required.
One possibility would be for the Fund to assess the
performance of individual countries against an agreed
global strategy for growth, adjustment and price stability.
Another possibilityywould be to provide that any
nation
with an exceptionally large payments imbalance—
deficit or surplus—must submit for IMF review an analysis
showing how it proposed to deal with that imbalance. Now,
only those countries borrowing from the Fund have their
adjustment programs subjected to such IMF scrutiny.
Greater symmetry is needed.
We should also consider inviting the managing director
to take the initiative more often in consulting members
directly where he has concerns about the appropriateness
of policy.
Any such approaches must, of course, be fully
in accordance with the fundamental principle of uniform
treatment for all members. For its part, the United States
welcomes and values the Fund's views and advice, and would
see merit in a more active role on the part of the managing
director in initiating consultations with members.
As a further step, we might now give serious consideration
to the establishment of the courtcil, as successor to the
Interim Committee, and give it a more specific and direct
role in the surveillance process.
There would be value in
such a move, both substantively and symbolically, and I
urge that each of us give fresh consideration to this idea.
The second area for improvement is that of international
liquidity. There has been solid progress over the past
twelve months in enlarging the role of the SDR in the
monetary system. A more fundamental move, the establishment
of a substitution account is now under consideration.
If,
working together, we can resolve the problems involved in
setting up that account— and I am hopeful that with good
will it will be possible to resolve them in due course—the
result would represent an important new approach toward
greater reliance on an international reserve asset and a
more centrally managed international monetary system.
The third area in which it may be possible to strengthen
the system and make the IMF more useful and influential
is in the field of cooperation with the private financial
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
6
I
markets.
This is not a new idea.
But the arguments in
favor of it have become more compelling.
We all recognize that the private markets will, in
the future as in the past, have to play by far the major
role in channeling financing from surplus to deficit nations.
Official institutions, including the IMF, play a vital
role in this process, but it is essentially catalytic in
nature.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
7
I
We must ensure that the IMF is doing all it appropriately
can and should do in order to ensure that private financing
flows smoothly and efficiently. We should reexamine ways in
which the fund can encourage the availability of better
information on international bank lending, with greater
uniformity with respect to potential borrowers.
This could
facilitate the process without jeopardizing the IMF's close
and confidential relationships with members.
We should also
explore ways of encouraging earlier recourse to the IMF by
countries facing difficulty, in the interests of maintaining
overall financial stability and avoiding the need for more
severe adjustment measures at a later stage if problems are
left unaddressed.
World Bank
The successful contribution by the fund to the smooth
operation of the world economy will help the World Bank to
encourage longer-term economic improvement in the developing
world.
Over the past ten years we have called for a steatdy
expansion in the scope of the bank's activities and it has
never failed to respond effectively.
The bank is now the
largest single source of external finance and technical
assistance for economic development and the primary" exempli
fication of international cooperation to achieve social and
economic advance.
It must continue to be so.
As President McNamara
pointedly reminded us, the goals we set and the choices we
make today in this difficult area of economic policy will
have a critical bearing on whether conditions in the world
will be tolerable a generation from now.
This is a weighty
responsibility; it is one we cannot avoid addressing.
The size of the problem is graphically described in the
second world development report, for which I offer my
appreciation and congratulations.
Over the next two decades,
750 million new job opportunities will have to be created in
the developing world.
The extent of success in this endeavor
will determine how many people in the world are able to
enjoy economic wellbeing, and any shortfall will determine
how many are left to face conditions of absolute poverty at
the beginning of the 21st century.
In this situation, capital will always be extremely
scarce in relations to needs.
It will be essential, there
fore, that bank loans, IDA credits, and IFC investments
should stimulate, to the maximum degree, mobilization of
domestic savings in the developing countries and the flow
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
8
4
of private capital from abroad.
Specifically this means:
— Greater emphasis on creating productive job
opportunities in the rural areas, where poverty and
underemployment are pervasive.
Without more progress
here, the food problem could become worse, population
pressure will become more severe, and the flow of
people to cities could become overwhelming.
— New approaches to job creation in cities and the
provision of low-cost basic services to the urban
poor.
-- Investments in human capital through programs in
education, health and family planning.
-- In all areas, a conscious and more effective program
to reduce capital investment per job created, and to
insure that in a fundamental economic sense invest
ments pay for themselves.
Only then will capital
used today be recovered tomorrow to be invested for
the benefit of others.
— New initiatives to encourage co-financing.
-- More ambitious efforts to expand production of energy
fuels, including new applications for renewable energy
technology.
The quantum jump in the price of oil is
exerting a sharply constraining effect on economic
growth everywhere, with particularly harsh effects
in the oil importing developing countries.
An increase
in the availability of domestic energy supplies is
necessary to increase the productivity of domestic
labor and capital.
To move in this direction requires that the bank be able
to expand the scope of its activities.
We believe that the
capital of the bank must be increased substantially, and for
this reason, supported the resolution of the executive
directors to that effect.
We also support a sixth replenishment of IDA, and look
to the completion of the negotiations before the end of this
year.
In accordance with our legislative procedures, our
action in both respects will involve the close cooperation
of the United States Congress.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Private Financial Markets
9
Strengthening the capacity and effectiveness of the IMF
and the World Bank is also necessary to enable private markets
to function smoothly and effectively. The latest increase
in oil prices will place new demands on these markets to
move funds from surplus to deficit countries.
The actions of
the two Bretton Woods Institutions serve to strengthen the
adjustment process, economic prospects and credit positions
of borrowing countries—all of which is a necessary foundation
on which private lending can take place on a sustainable basis.
This process also emphasizes how the work of the two institutions
reinforce each other.
More generally, a strengthened cooperative approach,
looking toward a more orderly management of the world economy,
provides a framework within which each nation can address
common problems in a mutually supportive way.
The United
States recognizes its role in this system and will continue to
act to carry out its national and international responsibilities.
United States Progress and Policies
Economic growth in the United States during the past four
years has been strong, and has made a major contribution to
world economic recovery. Output has increased by 22 percent
in real terms. Thirteen million new jobs have been created.
At the same time, our rapidly growing market has provided a
major economic stimulus for other countries recovering from
world recession. Most notably, this has benefitted the
developing countries, which have increased their exports of
manufactured goods to the United States much more rapidly than
to other countries.
The United States is well aware of the important role of
the dollar in the international monetary system. We are
determined to maintain reasonable balance in our external
accounts and to assure that the dollar is sound and stable.
We have acted vigorously to meet that obligation, with policies
to strengthen underlying economic conditions, and with force
ful exchange market operations to counter market disruption.
The U.S. balance of payments has improved markedly.
Our
current account deficit will be reduced from $14 billion in
1978 to a few billion in 1979, despite an increase of $16
billion in the cost of oil imports.
Next year, 1980, we expect a substantial current account
surplus.
Continued strong export performance, a rising sur
plus on services, slower import growth, and U.S. determina
tion to respond forcefully to unwarranted exchange market
pressures, all provide a firm basis for dollar stability
strength in the period ahead.
We have already achieved important progress in strengthen
ing the dollar exchange rate. The dollar has declined in terms
of some currencies, moved higher in terms of others and remained
stable relative to most. Measured against the average of OECD
currencies, the dollar is now about 5 percent above level
prevailing last fall.
From the viewpoint of the OPEC nations,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
10
ll
in relation to the other currencies they use to purchase their
imports, the dollar has increased about 8 percent on average
from a year ago.
Notwithstanding the favorable changes in the value of the
dollar measured in terms of these averages, the United States is
determined to maintain exchange market stability for the dollar
in terms of individual major currencies, such as the Deutsche
Mark.
The United States also recognizes the necessity of solving
its energy problem. We are making substantial progress.
Since 1973 the amount of energy required to produce a unit of
real output in the United States has dropped by 7-1/2 percent,
and in the industrial sector, it has dropped by 20 percent.
The ratio of the increase in energy consumption to the increase
in GNP has fallen by one-third since 1973.
That performance
compares favorably with other industrial countries.
Household
energy consumption has leveled off.
Our transportation fleet
is rapidly becoming more fuel efficient--the average miles per
gallon for new cars rose from 13 in 1973 to 19 in 1979, and
will rise to 27.5 by 1985.
More must, and will, be done.
President Carter has
announced a series of measures, both administrative and legis
lative, which will sharply improve the overall U.S. energy
position.
Phased decontrol of domestic crude oil prices by
September 30, 1981 will reduce oil imports by an estimated 1.5
million barrels per day by 1990.
In addition, immediate
decontrol of heavy crude oil prices will stimulate increase in
production estimated at 0.5 million barrels per day. Creation
of an Energy Security Corporation will provide the resources
to help finance private sector development of synthetic fuel.
Major emphasis also being placed on developing renewable
sources of energy. When fully in place, our energy program
will cut oil import requirements by 4 to 5 million barrels per
day.
At the recent Tokyo Summit, the United States agreed that
from now through 1985, we would import no more than 8.5 million
barrels per day of oil, the level that prevailed in 1977.
The
President established a lower goal 8.2 million barrels per
day, for 1979. We are firmly committed to meeting the import
targets.
Inflation continues to be our country's more serious
problem.
It threatens our ability to achieve full employment,
it impedes investment, and it impairs productivity.
We are
determined to bring inflation under control and regain price
stability.
Our recent record is not satisfactory to us.
Food and
energy prices have temporarily driven U.S. price indices into
the double digit range.
Energy alone accounted for more than
one-half the total rise in finished goods prices at the
producer level in the latest three-month period.
In coming
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
11
months this pressure will recede as the effects of recent OPEC
price actions work their way fully through the economy.
Food
prices have moderated in the wake of good harvests.
Special factors aside, the inflation rate is still much
too high and must be brought under control.
This cannot be
done quickly or easily.
It can only be accomplished by a firm
application of sound policies which deal with the economic
fundamentals.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
12
<
All major instruments of U. S. economic policy are being
directed toward this task. Fiscal policy is directed toward
restraint.
We have arrested the increase in government outlays in real
terms and tax receipts are rising.
The federal deficit has been
reduced from 3 percent to 1 percent of GNP.
The Federal Reserve
is exercising monetary discipline and will continue to keep firm
limits on the growth of money supply.
Despite rapid increases in
recent months, the increase in Ml over the past year was held to
4.9 percent—less than half the increase in consumer prices.
The Federal Reserve is committed to meeting its targets for
limiting the rate of growth of money and credit.
These fiscal and monetary policies are supported by price
and pay policies that will help moderate inflationary forces.
On September 28, President Carter announced a national accord
with U. S. trade union leadership that provides for 1ahor1s
involvement and cooperation on important national issues.
The
national accord confirms that top priority will be given to the
war against inflation.
It recognizes that the discipline es
sential to wring out inflation will mean a period of national
austerity. As part of the accord, labor leadership agreed to
participate in the voluntary program of wage and price restraint.
The involvement and cooperation of labor—and of management—
in developing and implementing policies to control inflation is
critical for success, and this cooperation has now been
strengthened.
The national accord will add momentum to our
comprehensive attack on inflation.
The United States intends to reinforce the foundation on
which to achieve sustained growth with price stability. We are
headed in the right direction and are determined to stay the
course. We are also determined to work with the nations gathered
here to strengthen the international economic system, both
through our own actions and through support of the IMF and the
World Bank.
Mr. Chairman, let me add a personal postscript.
The curtain
will soon fall on the decade of the ' 70*s.
It has been a turbu
lent period for the world's economy.
Progress has fallen far
short of our great hopes.
Facing, as we do, another period of major adjustment, we
have heard few words of encouragement at these sessions.
It is
right that we should be realistic about our difficulties.
It
is right that we should not delude ourselves with false expec
tations.
It is possible, however, as we begin to prepare the
agenda for the '80's, to see some cause for hope.
In particular,
we have not given in to the temptation to become self-centered.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
13
The institutions for international economic cooperation are
alive and well.
The IMF and World Bank are proving their
resilience, rising to meet the challenges.
For its part, the United States is unequivocally dedi
cated to dealing effectively with its own inflation and energy
problems.
This is the single most important contribution we
can make to our own economic health and that of the world
community.
I assure you that we have the will, determination and
preserverance to succeed in this endeavor.
You can count on
it.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
DepartmentoftheTREASURY
‘WASHINGTON, D.C. 20220
jj
TELEPHONE 566-2041
FOR RELEASE
October 3, 1979
ADDRESS BY
SECRETARY OF THE U.S. TREASURY
G. WILLIAM MILLER
3EF0RE THE ANNUAL MEETING OF
THE INTERNATIONAL MONETARY FUND AND WORLD BANK
BELGRADE, YUGOSLAVIA
OCTOBER 3, 1979
Mr. Chairman, Mr. McNamara, Mr. De Larosiere, fellow
governors, distinguished guests:
On behalf of the United States, I want to express our
appreciation to the Government of Yugoslavia for inviting us
here.
Yugoslavia's energetic and independent spirit has long
attracted the world's admiration and respect. And Yugoslavia's
full participation in the work of the IMF and the World Bank
has shown how nations with different economic and political sys
tems can cooperate to mutual advantage. We join the other
participants in thanking the Government of Yugoslavia for its
warm hospitality to us here in Belgrade. My remarks today are
addressed to one central theme.
Restoring balanced growth to
the world economy will require purposeful domestic adjustment on
the part of all nations--large and small.
The two international
institutions whose work we are reviewing at this meeting can
help us make these adjustments in effective and mutually rein
forcing ways.
We must make sure they are in a position to do
so.
We must make sure they have our support to do so.
In the
last analysis, however, the responsibility rests with each of
us.
My country, as the largest economy in the system, is
determined to carry out that responsibility in full.
Only when
balance is regained, will it be possible to resume the steady
economic advance we all desire.
Mr. Chairman, this is the final annual meeting of the Bank
and Fund during the decade of the 1970's.
It has been a decade
marked by troublesome strains in the world economy.
The will
and ability of nations to cooperate internationally have been
severely tested.
M-101
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
2
The underlying strains might easily have led individual
countries to the pursuit of inward-looking policies--to selfdefeating efforts to protect their own limited interests at the
expense of the broader interests of the community of nations.
That this did not occur is convincing testimony to the vision
of the architects of the Bretton Woods Institutions, and the
maturity and wisdom of their successors—the representatives of
the governments gathered here today.
The difficulties of the 1970’s are all too familiar.
The
gains that have been achieved despite those difficulties are
less widely appreciated.
In the ''face of unprecendented payment
imbalances, severe inflation, and high and persistent unemploy
ment, international cooperation has been strengthened in
important ways:
-- Agreement was reached on far-reaching trade liberaliza
tion;
— Flows of official development resources continued to
expand;
— Private financial markets successfully channeled huge
flows of funds from surplus to deficit countries, and
developing countries gained access to these private
capital markets on a substantial scale;
— Intergovernmental cooperation in exchange markets
became stronger and closer;
— The IMF Articles underwent comprehensive revision,
laying the basis for orderly evolution of the inter
national monetary system.
This progress was not accidental. Nation's might have
responded to the problems of the 1970's by imposing trade and
capital controls, by cutting back aid, and by aggressive com
petition in exchange rate policies.
If that had happened, the
world would have suffered staggering economic losses.
Instead
we chose deliberately to seek cooperative solutions.
Recognizing
that the pervasive links among 3ur economies made cooperation
essential to our individual as well as our collective well-being.
We must not forget that lesson.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
3
Once again the world economy has been destabilized by a
large oil price shock, almost equal in dollar amount to that of
1973-74.
On an annual basis, the jump in oil prices will in
crease the import bill of the developed countries by almost
$75-billion and of the developing countries by $15-billion.
This action is
disrupting international payments balances and
adding greatly to the problems of containing inflation and
reducing unemployment.
Furthermore, uncertainty about the
availability and price of energy seems likely to persist.
Inflationary pressures, building up over a period of years, have
become so virulent as clearly to require resolute, sustained,
countermeasures.
In this uncertain international economic
environment, the prospects for world economic progress are less
promising.
And that is a particularly harsh prospect for the
one-fifth of the world’s population facing absolute poverty.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
4
These problems are world wide.
They are shared in
common, to varying degrees, by all our societies. They
can be successfully overcome only through persistent
national action, augmented by intensified international
collaboration. And that means relinquishing a degree
of autonomy in national action.
It is in this context that we must examine the present
and future work of the IMF and the World Bank group.
These
two institutions provide the infrastructure for world
cooperation in economic policy, in finance, and in develop
ment.
The degree to which we support them represents
the central measure of our willingness to support more
effective global economic management.
Intensified collaboration is the course we must choose
for the 1980's.
It is therefore essential that the IMF
and the World Bank group be strong enough to do the job—
strong enough in authority, operations effectiveness, and
resources.
I proposed, therefore, to outline my views on
the future direction of policy in these two institutions
and on the tools they will need to do the job.
International Monetary Fund
Financially, the Fund is in a strong position to face
the new testing period that lies ahead.
The supplementary
financing facility has been activated and remains almost
fully available.
The quota increase scheduled to take
effect next year will add a large and timely infusion of
resources.
The compensatory financing facility, which
proved so valuable during the cyclical downturn of the
mid-70's has recently been substantially liberalized and
will provide an important element of security to primary
producing nations.
Furthermore, the IMF has revised its
guidelines on conditionality so that it can foster orderly
balance of payments adjustment in ways that meet the needs
and circumstances of members.
Nonetheless, there is more to be done to assure the
adequate utilization of the IMF’s financial resources and
to strengthen the Fund's capacity to manage the monetary
system.
Three areas deserve early attention.
First is surveillance.
Under the amended articles,
Fund surveillance—surveillance over members' general economic
policies as well as exchange rate policies—is the centerpiece
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
5
of international monetary cooperation. Without effective
surveillance, there is no system.
The Fund has moved
cautiously and prudently in implementing its surveillance
procedures.
Bolder action is now required.
One possibility would be for the Fund to assess the
performance of individual countries against an agreed
global strategy for growth, adjustment and price stability.
Another possibility/would be to provide that any
nation
with an exceptionally large payments imbalance—
deficit or surplus—must submit for IMF review an analysis
showing how it proposed to deal with that imbalance. Now,
only those countries borrowing from the Fund have their
adjustment programs subjected to such IMF scrutiny.
Greater symmetry is needed.
We should also consider inviting the managing director
to take the initiative more often in consulting members
directly where he has concerns about the appropriateness •
of policy. Any such approaches must, of course, be fully
in accordance with the fundamental principle of uniform
treatment for all members.
For its part, the United States
welcomes and values the Fund’s views and advice, and would
see merit in a more active role on the part of the managing
director in initiating consultations with members.
As a further step, we might now give serious consideration
to the establishment of the courtcil, as successor to the
Interim Committee, and give it a more specific and direct
role in the surveillance process.
There would be value in
such a move, both substantively and symbolically, and I
urge that each of us give fresh consideration to this idea.
The second area for improvement is that of international
liquidity. There has been solid progress over the past
twelve months in enlarging the role of the SDR in the
monetary system. A more fundamental move, the establishment
of a substitution account is now under consideration.
If,
working together, we can resolve the problems involved in
setting up that account-- and I am hopeful that with good
will it will be possible to resolve them in due course—the
result would represent an important new approach toward
greater reliance on an international reserve asset and a
more centrally managed international monetary system.
The third area in which it may be possible to strengthen
the system and make the IMF more useful and influential
is in the field of cooperation with the private financial
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
6
markets.
This is not a new idea.
But the arguments in
favor of it have become more compelling.
We all recognize that the private markets will, in
the future as in the past, have to play by far the major
role in channeling financing from surplus to deficit nations
Official institutions, including the IMF, play a vital
role in this process, but it is essentially catalytic in
nature.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
7
We must ensure that the IMF is doing all it appropriately
can and should do in order to ensure that private financing
flows smoothly and efficiently.
We should reexamine ways in
which the fund can encourage the availability of better
information on international bank lending, with greater
uniformity with respect to potential borrowers.
This could
facilitate the process without jeopardizing the IMF's close
and confidential relationships with members.
We should also
explore ways of encouraging earlier recourse to the IMF by
countries facing difficulty, in the interests of maintaining
overall financial stability and avoiding the need for more
severe adjustment measures at a later stage if problems are
left unaddressed.
World Bank
The successful contribution by the fund to the smooth
operation of the world economy will help the World Bank to
encourage longer-term economic improvement in the developing
world.
Over the past ten years we have called for a steady
expansion in the scope of the bank's activities and it has
never failed to respond effectively.
The bank is now the
largest single source of external finance and technical
assistance for economic development and the primary7 exempli
fication of international cooperation to achieve social and
e conomi c advance.
It must continue to be so.
As President McNamara
pointedly reminded us, the goals we set and the choices we
make today in this difficult area of economic policy will
have a critical bearing on whether conditions in the world
will be tolerable a generation from now.
This is a weighty
responsibility; it is one we cannot avoid addressing.
The size of the problem is graphically described in the
second world development report, for which I offer my
appreciation and congratulations.
Over the next two decades,
750 million new job opportunities will have to be created in
the developing world.
The extent of success in this endeavor
will determine how many people in the world are able to
enjoy economic wellbeing, and any shortfall will determine
how many are left to face conditions of absolute poverty at
the beginning of the 21st century.
In this situation, capital will always be extremely
scarce in relations to needs.
It will be essential, there
fore, that bank loans, IDA credits, and IFC investments
should stimulate, to the maximum degree, mobilization of
domestic savings in the developing countries and the flow
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
8
°f private capital from abroad.
Specifically this means:
Greater emphasis on creating productive job
opportunities in the rural areas, where poverty and
underemployment are pervasive.
Without more progress
here, the food problem could become worse, population
pressure will become more severe, and the flow of
people to cities could become overwhelming.
— New approaches to job creation in cities and the
provision of low-cost basic services to the urban
poor.
-- Investments in human capital through programs in
education, health and family planning.
— In all areas, a conscious and more effective program
to reduce capital investment per job created, and to
insure that in a fundamental economic sense invest
ments pay for themselves.
Only then will capital
used today be recovered tomorrow to be invested for
the benefit of others.
— New initiatives to encourage co-financing.
-- More ambitious efforts to expand production of energy
fuels, including new applications for renewable energy
technology.
The quantum jump in the price of oil is
exerting a sharply constraining effect on economic
growth everywhere, with particularly harsh effects
in the oil importing developing countries.
An increase
in the availability of domestic energy supplies is
necessary to increase the productivity of domestic
labor and capital.
To move in this direction requires that the bank be able
to expand the scope of its activities.
We believe that the
capital of the bank must be increased substantially, and for
this reason, supported the resolution of the executive
directors to that effect.
We also support a sixth replenishment of IDA, and look
to the completion of the negotiations before the end of this
year.
In accordance with our legislative procedures, our
action in both respects will involve the close cooperation
of the United States Congress.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Private Financial Markets
9
Strengthening the capacity and effectiveness of the IMF
and the World Bank is also necessary to enable private markets
to function smoothly and effectively. The latest increase
in oil prices will place new demands on these markets to
move funds from surplus to deficit countries. The actions of
the two Bretton Woods Institutions serve to strengthen the
adjustment process, economic prospects and credit positions
of borrowing countries—all of which is a necessary foundation
on which private lending can take place on a sustainable basis.
This process also emphasizes how the work of the two institutions
reinforce each other.
More generally, a strengthened cooperative approach,
looking toward a more orderly management of the world economy,
provides a framework within which each nation can address
common problems in a mutually supportive way.
The United
States recognizes its role in this system and will continue to
act to carry out its national and international responsibilities.
United States Progress and Policies
Economic growth in the United States during the past four
years has been strong, and has made a major contribution to
world economic recovery. Output has increased by 22 percent
in real terms.
Thirteen million new jobs have been created.
At the same time, our rapidly growing market has provided a
major economic stimulus for other countries recovering from
world recession. Most notably, this has benefitted the
developing countries, which have increased their exports of
manufactured goods to the United States much more rapidly than
to other countries.
The United States is well aware of the important role of
the dollar in the international monetary system. We are
determined to maintain reasonable balance in our external
accounts and to assure that the dollar is sound and stable.
We have acted vigorously to meet that obligation, with policies
to strengthen underlying economic conditions, and with force
ful exchange market operations to counter market disruption.
The U.S. balance of payments has improved markedly.
Our
current account deficit will be reduced from $14 billion in
1978 to a few billion in 1979, despite an increase of $16
billion in the cost of oil imports.
Next year, 1980, we expect a substantial current account
surplus. Continued strong export performance, a rising sur
plus on services, slower import growth, and U.S. determina
tion to respond forcefully to unwarranted exchange market
pressures, all provide a firm basis for dollar stability
strength in the period ahead.
We have already achieved important progress in strengthen
ing the dollar exchange rate. The dollar has declined in terms
of some currencies, moved higher in terms of others and remained
stable relative to most.
Measured against the average of OECD
currencies, the dollar is now about 5 percent above level
prevailing last fall. From the viewpoint of the OPEC nations,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
10
in relation to the other currencies they use to purchase their
imports, the dollar has increased about 8 percent on average
from a year ago.
Notwithstanding the favorable changes in the value of the
dollar measured in terms of these averages, the United States is
determined to maintain exchange market stability for the dollar
in terms of individual major currencies, such as the Deutsche
Mark.
The United States also recognizes the necessity of solving
its energy problem. We are making substantial progress.
Since 1973 the amount of energy required to produce a unit of
real output in the United States has dropped by 7-1/2 percent,
and in the industrial sector, it has dropped by 20 percent.
The ratio of the increase in energy consumption to the increase
in GNP has fallen by one-third since 1973.
That performance
compares favorably with other industrial countries.
Household
energy consumption has leveled off.
Our transportation fleet
is rapidly becoming more fuel efficient--the average miles per
gallon for new cars rose from 13 in 1973 to 19 in 1979, and
will rise to 27.5 by 1985.
More must, and will, be done.
President Carter has
announced a series of measures, both administrative and legis
lative, which will sharply improve the overall U.S. energy
position.
Phased decontrol of domestic crude oil prices by
September 30, 1981 will reduce oil imports by an estimated 1.5
million barrels per day by 1990.
In addition, immediate
decontrol of heavy crude oil prices will stimulate increase in
production estimated at 0.5 million barrels per day.
Creation
of an Energy Security Corporation will provide the resources
to help finance private sector development of synthetic fuel.
Major emphasis also being placed on developing renewable
sources of energy. When fully in place, our energy program
will cut oil import requirements by 4 to 5 million barrels per
day.
At the recent Tokyo Summit, the United States agreed that
from now through 1985, we would import no more than 8.5 million
barrels per day of oil, the level that prevailed in 1977.
The
President established a lower goal 8.2 million barrels per
day, for 1979. We are firmly committed to meeting the import
targets.
Inflation continues to be our country's more serious
problem.
It threatens our ability to achieve full employment,
it impedes investment, and it impairs productivity. We are
determined to bring inflation under control and regain price
stability.
Our recent record is not satisfactory to us.
Food and
energy prices have temporarily driven U.S. price indices into
the double digit range.
Energy alone accounted for more than
one-half the total rise in finished goods prices at the
producer level in the latest three-month period.
In coming
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
11
months this pressure will recede as the effects of recent OPEC
price actions work their way fully through the economy.
Food
prices have moderated in the wake of good harvests.
Special factors aside, the inflation rate is still much
too high and must be brought under control.
This cannot be
done quickly or easily.
It can only be accomplished by a firm
application of sound policies which deal with the economic
fundamentals.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
12
All major instruments of U. S. economic policy are’being
directed toward this task. Fiscal policy is directed toward
restraint.
’»•/ {
We have arrested the increase in government outlays in real
terms and tax receipts are rising. The federal deficit has been
reduced from 3 percent to 1 percent of GNP.
The Federal Reserve
is exercising monetary discipline and will continue to keep firm
limits on the growth of money supply.
Despite rapid increases in
recent months, the increase in Ml over the past year was held to
4.9 percent less than half the increase in consumer prices.
The Federal Reserve is committed to meeting its targets for
limiting the rate of growth of money and credit.
These fiscal and monetary policies are supported by price
and pay policies that will help moderate inflationary forces.
On September 28, President Carter announced a national accord
with U. S. trade union leadership that provides for 1abor's
involvement and cooperation on important national issues.
The
national accord confirms that top priority will be given to the
war against inflation.
It recognizes that the discipline es
sential to wring out inflation will mean a period of national
austerity. As part of the accord, labor leadership agreed to
participate in the voluntary program of wage and price restraint.
The involvement and cooperation of labor—and of management—
in developing and implementing policies to control inflation is
critical for success, and this cooperation has now been
strengthened.
The national accord will add momentum to our
comprehensive attack on inflation.
The United States intends to reinforce the foundation on
which to achieve sustained growth with price stability. We are
headed in the right direction and are determined to stay the
course. We are also determined to work with the nations gathered
here to strengthen the international economic system, both
through our own actions and through support of the IMF and the
World Bank.
Mr. Chairman, let me add a personal postscript.
The curtain
will soon fall on the decade of the ’70’s.
It has been a turbu
lent period for the world's economy.
Progress has fallen far
short of our great hopes.
Facing, as we do, another period of major adjustment, we
have heard few words of encouragement at these sessions.
It is
right that we should be realistic about our difficulties.
It
is right that we should not delude ourselves with false expec
tations.
It is possible, however, as we begin to prepare the
agenda for the '80's, to see some cause for hope.
In particular,
we have not given in to the temptation to become self-centered.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
13
4
The institutions for international economic cooperation are
alive and well.
The IMF and World Bank are proving their
resilience, rising to meet the challenges.
For its part, the United States is unequivocally dedi
cated to dealing effectively with its own inflation and energy
problems.
This is the single most important contribution we
can make to our own economic health and that of the world
community.
I assure you that we have the will, determination and
preserverance to succeed in this endeavor.
You can count on
it.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Departmentof theTREASURY
; WASHINGTON, D.C. 20220
jf
TELEPHONE 566-2041
FOR RELEASE
October 3, 1979
ADDRESS BY
SECRETARY OF THE U.S. TREASURY
G. WILLIAM MILLER
BEFORE THE ANNUAL MEETING OF
THE INTERNATIONAL MONETARY FUND AND WORLD BANK
BELGRADE, YUGOSLAVIA
OCTOBER 3, 1979
Mr. Chairman, Mr. McNamara, Mr. De Larosiere, fellow
governors, distinguished guests:
On behalf of the United States, I want to express our
appreciation to the Government of Yugoslavia for inviting us
here.
Yugoslavia's energetic and independent spirit has long
attracted the world's admiration and respect. And Yugoslavia's
full participation in the work of the IMF and the World Bank
has shown how nations with different economic and political sys
tems can cooperate to mutual advantage. We join the other
participants in thanking the Government of Yugoslavia for its
warm hospitality to us here in Belgrade.
My remarks today are
addressed to one central theme.
Restoring balanced growth to
the world economy will require purposeful domestic adjustment on
the part of all nations—large and small.
The two international
institutions whose work we are reviewing at this meeting can
help us make these adjustments in effective and mutually rein
forcing ways.
We must make sure they are in a position to do
so.
We must make sure they have our support to do so.
In the
last analysis, however, the responsibility rests with each of
us.
My country, as the largest economy in the system, is
determined to carry out that responsibility in full.
Only when
balance is regained, will it be possible to resume the steady
economic advance we all desire.
Mr. Chairman, this is the final annual meeting of the Bank
and Fund during the decade of the 1970's.
It has been a decade
marked by troublesome strains in the world economy.
The will
and ability of nations to cooperate internationally have been
severely tested.
M-101
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
2
The underlying strains might easily have led individual
countries to the pursuit of inward-looking policies--to selfdefeating efforts to protect their own limited interests at the
expense of the broader interests of the community of nations.
That this did not occur is convincing testimony to the vision
of the architects of the Bretton Woods Institutions, and the
maturity and wisdom of their successors—the representatives of
the governments gathered here today.
The difficulties of the 1970's are all too familiar.
The
gains that have been achieved despite those difficulties are
less widely appreciated.
In the >face of unprecendented payment
imbalances, severe inflation, and high and persistent unemploy
ment, international cooperation has been strengthened in
important ways:
-- Agreement was reached on far-reaching trade liberaliza
tion;
-- Flows of official development resources continued to
expand;
— Private financial markets successfully channeled huge
flows of funds from surplus to deficit countries, and
developing countries gained access to these private
capital markets on a substantial scale;
— Intergovernmental cooperation in exchange markets
became stronger and closer;
— The IMF Articles underwent comprehensive revision,
laying the basis for orderly evolution of the inter
national monetary system.
This progress was not accidental. Nation's might have
responded to the problems of the 1970's by imposing trade and
capital controls, by cutting back aid, and by aggressive com
petition in exchange rate policies.
If that had happened, the
world would have suffered staggering economic losses.
Instead
we chose deliberately to seek cooperative solutions.
Recognizing
that the pervasive links among our economies made cooperation
essential to our individual as well as our collective well-being.
We must not forget that lesson.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
3
Once again the world economy has been destabilized by a
large oil price shock, almost equal in dollar amount to that of
1973-74.
On an annual basis, the jump in oil prices will in
crease the import bill of the developed countries by almost
$75-billion and of the developing countries by $15-billion.
This action is
disrupting international payments balances and
adding greatly to the problems of containing inflation and
reducing unemployment.
Furthermore, uncertainty about the
availability and price of energy seems likely to persist.
Inflationary pressures, building up over a period of years, have
become so virulent as clearly to require resolute, sustained,
countermeasures.
In this uncertain international economic
environment, the prospects for world economic progress are less
promising.
And that is a particularly harsh prospect for the
one-fifth of the world’s population facing absolute poverty.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
4
These problems are world wide.
They are shared in
common, to varying degrees, by all our societies.
They
can be successfully overcome only through persistent
national action, augmented by intensified international
collaboration.
And that means relinquishing a degree
of autonomy in national action.
i -.t-
It is in this context that we must examine the present
and future work of the IMF and the World Bank group.
These
two institutions provide the infrastructure for world
cooperation in economic policy, in finance, and in develop
ment.
The degree to which we support them represents
the central measure of our willingness to support- more
effective global economic management.
Intensified collaboration is the course we must choose
for the 1980's.
It is therefore essential that the IMF
and the World Bank group be strong enough to do the job—
strong enough in authority, operations effectiveness, and
resources.
I proposed, therefore, to outline my views on
the future direction of policy in these two institutions-'’
and on the tools they will need to do the job.
International Monetary Fund
Financially, the Fund is in a strong position to face
the new testing period that lies ahead.
The supplementary
financing facility has been activated and remains almost
fully available. The quota increase scheduled to take
effect next year will add a large and timely infusion of
resources.
The compensatory financing facility, which
proved so valuable during the cyclical downturn of the
mid-70's has recently been substantially liberalized and
will provide an important element of security to primary
producing nations.
Furthermore, the IMF has revised its
guidelines on conditionality so that it can foster orderly
balance of payments adjustment in ways that meet the needs
and circumstances of members.
Nonetheless, there is more to be done to assure the
adequate utilization of the IMF’s financial resources and
to strengthen the Fund's capacity to manage the monetary
system. Three areas deserve early attention.
First is surveillance.
Under the amended articles,
Fund surveillance—surveillance over members' general economic
policies as well as exchange rate policies--is the centerpiece
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
5
of international monetary cooperation. Without effective
surveillance, there is no system.
The Fund has moved
cautiously and prudently in implementing its surveillance
procedures.
Bolder action is now required.
One possibility would be for the Fund to assess the
performance of individual countries against an agreed
global strategy for growth, adjustment and price stability.
Another possibility/would be to provide that any
nation I with an exceptionally large payments imbalance—
deficit or surplus—must submit for IMF review an analysis
showing how it proposed to deal with that imbalance. Now,
only those countries borrowing from the Fund have their
adjustment programs subjected to such IMF scrutiny.
Greater symmetry is needed.
We should also consider inviting the managing director
to take the initiative more often in consulting members
directly where he has concerns about the appropriateness
of policy. Any such approaches must, of course, be fully
in accordance with the fundamental principle of uniform
treatment for all members. For its part, the United States
welcomes and values the Fund’s views and advice, and would
see merit in a more active role on the part of the managing
director in initiating consultations with members.
As a further step, we might now give serious consideration
to the establishment of the courtcil, as successor to the
Interim Committee, and give it a more specific and direct
role in the surveillance process.
There would be value in
such a move, both substantively and symbolically, and I
urge that each of us give fresh consideration to this idea.
The second area for improvement is that of international
liquidity. There has been solid progress over the past
twelve months in enlarging the role of the SDR in the
monetary system. A more fundamental move, the establishment
of a substitution account is now under consideration.
If,
working together, we can resolve the problems involved in
setting up that account— and I am hopeful that with good
will it will be possible to resolve them in due course—the
result would represent an important new approach toward
greater reliance on an international reserve asset and a
more centrally managed international monetary system.
The third area in which it may be possible to strengthen
the system and make the IMF more useful and influential
is in the field of cooperation with the private financial
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
6
markets.
This is not a new idea.
But the arguments in
favor of it have become more compelling.
We all recognize that the private markets will, in
the future as in the past, have to play by far the major
role in channeling financing from surplus to deficit nations
Official institutions, including the IMF, play a vital
role in this process, but it is essentially catalytic in
nature.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
7
We must ensure that the IMF is doing all it appropriately
can and should do in order to ensure that private financing
flows smoothly and efficiently. We should reexamine ways in
which the fund can encourage the availability of better
information on international bank lending, with greater
uniformity with respect to potential borrowers.
This could
facilitate the process without jeopardizing the IMF's close
and confidential relationships with members.
We should also
explore ways of encouraging earlier recourse to the IMF by
countries facing difficulty, in the interests of maintaining
overall financial stability and avoiding the need for more
severe adjustment measures at a later stage if problems are
left unaddressed.
World Bank
The successful contribution by the fund to the smooth
operation of the world economy will help the World Bank to
encourage longer-term economic improvement in the developing
world.
Over the past ten years we have called for a steady
expansion in the scope of the bank's activities and it has
never failed to respond effectively.
The bank is now the
largest single source of external finance and technical
assistance for economic development and the primary exempli
fication of international cooperation to achieve social and
economic advance.
It must continue to be so.
As President McNamara
pointedly reminded us, the goals we set and the choices we
make today in this difficult area of economic policy will
have a critical bearing on whether conditions in the world
will be tolerable a generation from now.
This is a weighty
responsibility; it is one we cannot avoid addressing.
The size of the problem is graphically described in the
second world development report, for which I offer my
appreciation and congratulations.
Over the next two decades,
750 million new job opportunities will have to be created in
the developing world.
The extent of success in this endeavor
will determine how many people in the world are able to
enjoy economic wellbeing, and any shortfall will determine
how many are left to face conditions of absolute poverty at
the beginning of the 21st century.
In this situation, capital will always be extremely
scarce in relations to needs.
It will be essential, there
fore, that bank loans, IDA credits, and IFC investments
should stimulate, to the maximum degree, mobilization of
domestic savings in the developing countries and the flow
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
8
of private capital from abroad.
Specifically this means:
-- Greater emphasis on creating productive job
opportunities in the rural areas, where poverty and
underemployment are pervasive.
Without more progress
here, the food problem could become worse, population
pressure will become more severe, and the flow of
people to cities could become overwhelming.
— New approaches to job creation in cities and the
provision of low-cost basic services to the urban
poor.
— Investments in human capital through programs in
education, health and family planning.
— In all areas, a conscious and more effective program
to reduce capital investment per job created, and to
insure that in a fundamental economic sense invest
ments pay for themselves. Only then will capital
used today be recovered tomorrow to be invested for
the benefit of others.
— New initiatives to encourage co-financing.
-- More ambitious efforts to expand production of energy
fuels, including new applications for renewable energy
technology.
The quantum jump in the price of oil is
exerting a sharply constraining effect on economic
growth everywhere, with particularly harsh effects
in the oil importing developing countries.
An increase
in the availability of domestic energy supplies is
necessary to increase the productivity of domestic
labor and capital.
To move in this direction requires that the bank be able
to expand the scope of its activities. We believe that the
capital of the bank must be increased substantially, and for
this reason, supported the resolution of the executive
directors to that effect.
We also support a sixth replenishment of IDA, and look
to the completion of the negotiations before the end of this
year.
In accordance with our legislative procedures, our
action in both respects will involve the close cooperation
of the United States Congress.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Private Financial Markets
9
Strengthening the capacity and effectiveness of the IMF
and the World Bank is also necessary to enable private markets
to function smoothly and effectively. The latest increase
in oil prices will place new demands on these markets to
move funds from surplus to deficit countries.
The actions of
the two Bretton Woods Institutions serve to strengthen the
adjustment process, economic prospects and credit positions
of borrowing countries—all of which is a necessary foundation
on which private lending can take place on a sustainable basis.
This process also emphasizes how the work of the two institutions
reinforce each other.
More generally, a strengthened cooperative approach,
looking toward a more orderly management of the world economy,
provides a framework within which each nation can address
common problems in a mutually supportive way.
The United
States recognizes its role in this system and will continue to
act to carry out its national and international responsibilities.
United States Progress and Policies
Economic growth in the United States during the past four
years has been strong, and has made a major contribution to
world economic recovery.
Output has increased by 22 percent
in real terms. Thirteen million new jobs have been created.
At the same time, our rapidly growing market has provided a
major economic stimulus for other countries recovering from
world recession. Most notably, this has benefitted the
developing countries, which have increased their exports of
manufactured goods to the United States much more rapidly than
to other countries.
The United States is well aware of the important role of
the dollar in the international monetary system. We are
determined to maintain reasonable balance in our external
accounts and to assure that the dollar is sound and stable.
We have acted vigorously to meet that obligation, with policies
to strengthen underlying economic conditions, and with force
ful exchange market operations to counter market disruption.
The U.S. balance of payments has improved markedly.
Our
current account deficit will be reduced from $14 billion in
1978 to a few billion in 1979, despite an increase of $16
billion in the cost of oil imports.
Next year, 1980, we expect a substantial current account
surplus. Continued strong export performance, a rising sur
plus on services, slower import growth, and U.S. determina
tion to respond forcefully to unwarranted exchange market
pressures, all provide a firm basis for dollar stability
strength in the period ahead.
We have already achieved important progress in strengthen
ing the dollar exchange rate.
The dollar has declined in terms
of some currencies, moved higher in terms of others and remained
stable relative to most.
Measured against the average of OECD
currencies, the dollar is now about 5 percent above level
From the viewpoint of the OPEC nations,
prevailing last fall.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
10
in relation to the other currencies they use to purchase their
imports, the dollar has increased about 8 percent on average
from a year ago.
Notwithstanding the favorable changes in the value of the
dollar measured in terms of these averages, the United States is
determined to maintain exchange market stability for the dollar
in terms of individual major currencies, such as the Deutsche
Mark.
The United States also recognizes the necessity of solving
its energy problem. We are making substantial progress.
Since 1973 the amount of energy required to produce a unit of
real output in the United States has dropped by 7-1/2 percent,
and in the industrial sector, it has dropped by 20 percent.
The ratio of the increase in energy consumption to the increase
in GNP has fallen by one-third since 1973.
That performance
compares favorably with other industrial countries.
Household
energy consumption has leveled off.
Our transportation fleet
is rapidly becoming more fuel efficient—the average miles per
gallon for new cars rose from 13 in 1973 to 19 in 1979, and
will rise to 27.5 by 1985.
More must, and will, be done.
President Carter has
announced a series of measures, both administrative and legis
lative, which will sharply improve the overall U.S. energy
position. Phased decontrol of domestic crude oil prices by
September 30, 1981 will reduce oil imports by an estimated 1.5
million barrels per day by 1990.
In addition, immediate
decontrol of heavy crude oil prices will stimulate increase in
production estimated at 0.5 million barrels per day. Creation
of an Energy Security Corporation will provide the resources
to help finance private sector development of synthetic fuel.
Major emphasis also being placed on developing renewable
sources of energy. When fully in place, our energy program
will cut oil import requirements by 4 to 5 million barrels per
day.
At the recent Tokyo Summit, the United States agreed that
from now through 1985, we would import no more than 8.5 million
barrels per day of oil, the level that prevailed in 1977.
The
President established a lower goal 8.2 million barrels per
day, for 1979.
We are firmly committed to meeting the import
targets.
Inflation continues to be our country's more serious
problem.
It threatens our ability to achieve full employment,
it impedes investment, and it impairs productivity. We are
determined to bring inflation under control and regain price
stability.
Our recent record is not satisfactory to us.
Food and
energy prices have temporarily driven U.S. price indices into
the double digit range. Energy alone accounted for more than
one-half the total rise in finished goods prices at the
producer level in the latest three-month period.
In coming
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
11
months this pressure will recede as the effects of recent OPEC
price actions work their way fully through the economy.
Food
prices have moderated in the wake of good harvests.
Special factors aside, the inflation rate is still much
too high and must be brought under control.
This cannot be
done quickly or easily.
It can only be accomplished by a firm
application of sound policies which deal with the economic
fundamentals.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
12
J J ' J : i C.
All major instruments of U. S. economic policy are being
directed toward this task.
Fiscal policy is directed toward <
restraint.
•
4. • «
*
J
»
l
;i
t
We have arrested the increase in government outlays in real
terms and tax receipts are rising.
The federal deficit has been
reduced from 3 percent to 1 percent of GNP.
The Federal Reserve
is exercising monetary discipline and will continue to keep firm
limits on the growth of money supply. Despite rapid increases in
recent months, the increase in Ml over the past year was held to
4.9 percent less than half the increase in consumer prices.
The Federal Reserve is committed to meeting its targets for
limiting the rate of growth of money and credit.
These fiscal and monetary policies are supported by price
and pay policies that will help moderate inflationary forces.
On September 28, President Carter announced a national accord
with U. S. trade union leadership that provides for labor's
involvement and cooperation on important national issues.
The
national accord confirms that top priority will be given to the
war against inflation.
It recognizes that the discipline es
sential to wring out inflation will mean a period of national
austerity. As part of the accord, labor leadership agreed to
participate in the voluntary program of wage and price restraint.
The involvement and cooperation of labor—and of management—
in developing and implementing policies to control inflation is
critical for success, and this cooperation has now been
strengthened.
The national accord will add momentum to our
comprehensive attack on inflation.
The United States intends to reinforce the foundation on
which to achieve sustained growth with price stability. We are
headed in the right direction and are determined to stay the
course. We are also determined to work with the nations gathered
here to strengthen the international economic system, both
through our own actions and through support of the IMF and the
World Bank.
Mr. Chairman, let me add a personal postscript.
The curtain
will soon fall on the decade of the '70's.
It has been a turbu
lent period for the world's economy.
Progress has fallen far
short of our great hopes.
Facing, as we do, another period of major adjustment, we
have heard few words of encouragement at these sessions.
It is
right that we should be realistic about our difficulties.
It
is right that we should not delude ourselves with false expec
tations.
It is possible, however, as we begin to prepare the
agenda for the '80's, to see some cause for hope.
In particular,
we have not given in to the temptation to become self-centered.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
13
(
The institutions for international economic cooperation are
alive and well.
The IMF and World Bank are proving their
resilience, rising to meet the challenges.
For its part, the United States is unequivocally dedi
cated to dealing effectively with its own inflation and energy
problems. This is the single most important contribution we
can make to our own economic health and that of the world
community.
I assure you that we have the will, determination and
preserverance to succeed in this endeavor.
You can count on
it.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ADDRESS BY THE SECRETARY OF THE TREASURY
J
BELGRADE, YUGOSLAVIA
OCTOBER 3, 1S79
Hr. Chairman, Hr, IIcNamara, Hr.
Governors, distinguished
On
behalf of the
de
Larosiere, fellow
guests:
United States, I want to express
our
APPRECIATION TO THE GOVERNMENT OF YUGOSLAVIA FOR INVITING US
here.
Yugoslavia's
energetic and independent spirit has long
ATTRACTED THE WORLD'S ADMIRATION AND RESPECT.
FULL PARTICIPATION IN THE WORK OF THE
IflF
AND YUGOSLAVIA'S
AND THE i.'ORLD BANK
HAS SHOWN HOW NATIONS WITH DIFFERENT ECONOMIC AND POLITICAL
SYSTEMS CAN COOPERATE TO MUTUAL ADVANTAGE.
We
JOIN THE
OTHER PARTICIPANTS IN THANKING THE GOVERNMENT OF YUGOSLAVIA
FOR ITS WARM HOSPITALITY TO US HERE IN DELCRADE.
i'iY REMARKS TODAY ARE ADDRESSED TO ONE CENTRAL THEME.
Restoring
balanced growth to the world economy will require
PURPOSEFUL DOMESTIC ADJUSTMENT ON THE PART OF ALL NATIONS —
LARGE AND SMALL.
THE TWO INTERNATIONAL I NOT I TUT IONS WHOSE
W8RI4-WE APE nrVinHNO AT TUI? MEfi~WIG CAN HELP US MAKE THESE
ADJUSTMENTS IN EFFECTIVE AND MUTUALLY REINFORCING WAYS.
MUST MAKE SURE THEY ARE IN A POSITION TO DO SO,
SURE THEY HAVE OUR SUPPORT TO DO SO,
In
llE MUST MAKE
THE LAST ANALYSIS,
HOWEVER, THE RESPONSIBILITY RESTS WITH EACH OF US.
COUNTRY, AS THE LARGEST ECONOMY IN THE SYSTEM,
TO CARRY OUT THAT RESPONSIBILITY IN FULL.
llE
IIY
IS DETERMINED
ONLY WHEN BALANCE
IS REGAINED WILL IT BE POSSIBLE TO RESUME THE STEADY ECONOMIC
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ADVANCE WE ALL DESIRE.
Hr. Chairman^
this is the final annual meeting of the
Bank and Fund during the decade of the 1970's,
It has
been
A DECADE MARKED BY TROUBLESOME STRAINS IN THE WORLD ECONOMY.
-tAo.
I HE WILL AND ABILITY OF NATIONS TO COOPERATE INTERNATIONALLY
A •’
HAVE BEEN SEVERELY TESTED.
THE UNDERLYING STRAINS MIGHT
EASILY HAVE LED INDIVIDUAL COUNTRIES TO THE PURSUIT OF INWARD
LOOKING POLICIES — TO SELF-DEFEATING EFFORTS TO PROTECT
THEIR OWN LIMITED INTERESTS AT THE EXPENSE OF THE BROADER
INTERESTS OF THE COMMUNITY OF NATIONS.
THAT THIS DID NOT
OCCUR IS CONVINCING TESTIMONY TO THE VISION OF THE ARCHITECTS
OF THE BRETTON WOODS INSTITUTIONS,. AND TO THE MATURITY AND
WISDOM OF THEIR SUCCESSORS — THE REPRESENTATIVES OF THE
GOVERNMENTS GATHERED HERE TODAY,
The
The
DIFFICULTIES OF THE 19/0'S ARE ALL TOO FAMILIAR.
GAINS THAT HAVE BEEN ACHIEVED DESPITE THOSE DIFFICULTIES
ARE LESS WIDELY APPRECIATED.
IN THE FACE OF UNPRECEDENTED
PAYMENT IMBALANCES,^SEVERE INFLATION, AND^GH AND
A
<
PERSISTENT UNEMPLOYMENT,
INTERNATIONAL COOPERATION HAS BEEN
STRENGTHENED IN IMPORTANT WAYS:
\ ./V—
Agreement was reached on far-reaching
trade
LIBERALIZATION;
Flows
of official development resources continued
TO EXPAND;
Private financial markets successfully
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
channeled
- i HUGE FLOWS OF FUNDS FROfl SURPLUS TO DEFICIT
COUNTRIES,
DEVELOPING COUNTRIES GAINED
ACCESS TO THESE PRIVATE CAPITAL MARKETS ON A
SUBSTANTIAL SCALE;
__ Intergovernmental
cooperation in exchange
MARKETS BECAME STRONGER AND CLOSER;
— The IMF
Articles underwent comprehensive revision,
— --- --------------------------------------------------------------------LAYING THE BASIS FOR ORDERLY EVOLUTION OF THE
INTERNATIONAL MONETARY SYSTEM.
This
Nations
progress was not accidental.
might have
RESPONDED TO THE PROBLEMS OF THE 1970'S BY IMPOSING TRADE AND
CAPITAL CONTROLS, BY CUTTING BACK AID, AND BY AGGRESSIVE
COMPETITION IN EXCHANGE RATE POLICIES.
If
THAT HAD HAPPENED, THE WORLD WOULD HAVE SUFFERED
STAGGERING ECONOMIC LOSSES.
INSTEAD, WE CHOSE DELIBERATELY
TO SEEK COOPERATIVE SOLUTIONS, RECOGNIZING THAT THE PERVASIVE
LINKS AMONG OUR ECONOMIES MADE COOPERATION ESSENTIAL TO
OUR IN Dm DUAL AS WELL AS OUR COLLECTIVE WELL-BEING.
l-E Muy NOT FORGET THAT LESSON.
UNCE AGAIN THE WORLD
ECONOMY HAS BEEN DESTABILIZED BY A LARGE OIL PRICE SHOCK,
ALMOST EQUAL IN DOLLAR AMOUNT TO THAT OF
1973-74.
On
AN ANNUAL BASIS
THE JUMP IN OIL PRICES WILL INCREASE THE IMPORT BILL OF THE
DEVELOPED, COUNTRIES BY ALMOST $75 BILLION AND OF THE
DEVELOPING COUNTRIES BY $15 BILLION.
THIS ACTION IS DISRUPTING
INTERNATIONAL PAYMENT BALANCES AND ADDING GREATLY TO THE
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
- L* PROBLEMS OF CONTAINING INFLATION AND REDUCING UNEMPLOYMENT.
Furthermore,
uncertainty about the availability and price of
ENERGY SEEMS LIKELY TO PERSIST.
INFLATIONARY PRESSURES,
BUILDING UP OVER A PERIOD OF YEARS, HAVE BECOME SO VIRULENT
AS CLEARLY TO REQUIRE RESOLUTE, SUSTAINED, COUNTERMEASURES.
IN THIS UNCERTAIN INTERNATIONAL ECONOMIC ENVIRONMENT, THE
PROSPECTS FOR WORLD ECONOMIC PROGRESS ARE LESS PROMISING.
And that
is a particularly harsh prospect for the one-
fifth OF THE world's POPULATION FACING ABSOLUTE POVERTY.
IHESE PROBLEMS ARE WORLD WIDE.
THEY ARE SHARED IN
COMMON, TO VARYING DEGREES, BY ALL OUR SOCIETIES. THEY
*
CAN BE SUCCESSFULLY OVERCOME ON^Y THROUGH PERSISTENT
ACTION, AUGMENTED BY INTENSIFIED INTERNATIONAL COLLABORATION.
And thatheans
relinquishing a degree of autonomy in national
ACTION.
It
is in this context that we must examine the present
AND FUTURE-WORK OF THE
II1F
AND THE i.'ORLD uANK GROUP.
THESE
TWO INSTITUTIONS PROVIDE THE INFRA-STRUCTURE FOR WORLD
COOPERATION IN ECONOMIC POLICY, IN FINANCE, AND IN DEVELOPMENT
The
degree to which we support them represents the central
MEASURE OF OUR WILLINGNESS TO SUPPORT MORE EFFECTIVE GLOBAL
ECONOMIC MANAGEMENT.
Intensified
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
collaboration is the course we must choose
- 5 -
FOR THE 1980's.
the
It is therefore essential that the
World Bank Group * be
strong enough to do the job
•
INF and
— strong
ENOUGH IN AUTHORITY,'^OPERATIONS EFFECTIVENESS, AND RESOURCES.
I
A
-------
PROPOSE, THEREFORE, TO OUTLINE MY VIEWS ON THE FUTURE
DIRECTION OF POLICY IN THESE TWO INSTITUTIONS AND ON THE
TOOLS THEY WILL NEED TO DO THE JOB.
INTERNATIONAL MONETARY FUND
Financially, the Fund
is in a strong position to face the
NEW TESTING PERIOD THAT LIES AHEAD.
Facility has
The
THE SUPPLEMENTARY FINANCING
been activated and remains almost fully available.
quota increase scheduled to take effect next year will
ADD A LARGE AND TIMELY INFUSION OF RESOURCES.
Financing Facility, which
THE COMPENSATORY
-----------
proved so valuable during the
CYCLICAL DOWNTURN OF THE MID-70'S, HAS RECENTLY BEEN
SUBSTANTIALLY LIBERALIZED AND WILL PROVIDE AN IMPORTANT ELEMENT
OF SECURITY TO PRIMARY PRODUCING NATIONS,
FURTHERMORE, THE
IFF HAS REVISED ITS GUIDELINES ON CONDITIONALITY SO THAT IT
CAN FOSTER ORDERLY BALANCE OF PAYMENTS ADJUSTMENT IN WAYS THAT
MEET THE NEEDS AND CIRCUMSTANCES OF MEMBERS.
Nonetheless, there
is more to be done to assure the
ADEQUATE UTILIZATION OF THE
IF’F'S
FINANCIAL RESOURCES AND TO
STRENGTHEN THE FUND'S CAPACITY TO MANAGE THE MONETARY SYSTEM,
Three
areas deserve early attention.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
- 6 -
First,
Under the amended Articles,
is surveillance.
Fund surveillance — surveillance
over members' general
ECONOMIC POLICIES AS WELL AS EXCHANGE RATE POLICIES — IS
THE CENTERPIECE OF INTERNATIONAL MONETARY COOPERATION.
Without effective surveillance, there is no system. The
Fund has moved cautiously and prudently in implementing its
surveillance procedures. Eolder action is now required,
One possibility
would be for the
Fund
to assess the
PERFORMANCE OF INDIVIDUAL COUNTRIES AGAINST AN AGREED GLOBAL
STRATEGY FOR GROWTH, ADJUSTMENT AND PRICE STABILITY.
Another
possibility would be to provide that any nation
WITH AN EXCEPTIONALLY LARGE PAYMENTS IMBALANCE — DEFICIT OR
SURPLUS — MUST SUBMIT FOR
IMF
REVIEW AN ANALYSIS SHOWING HOW
IT PROPOSES TO DEAL WITH THAT IMBALANCE.
NOW, ONLY THOSE
COUNTRIES BORROWING FROM THE FUND HAVE THEIR ADJUSTMENT
PROGRAMS SUBJECTED TO SUCH
IMF
SCRUTINY.
GREATER SYMMETRY IS
NEEDED.
We
should also consider inviting the
Managing Director
TO TAKE THE INITIATIVE MORE OFTEN IN CONSULTING MEMBERS
DIRECTLY WHERE HE HAS CONCERNS ABOUT THE APPROPRIATENESS OF
POLICY.
Any such approaches
must, of course, be fully in
ACCORDANCE WITH THE FUNDAMENTAL PRINCIPLE OF UNIFORM TREATMENT
FOR ALL MEMBERS.
AND VALUES THE
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
FOR ITS PART, THE UNITED STATES WELCOMES
Fund's
VIEWS AND ADVICE, AND WOULD SEE MERIT
- 7 IN A MORE ACTIVE ROLE ON THE PART OF THE MANAGING DIRECTOR
IN INITIATING CONSULTATIONS WITH MEMBERS,
AS A FURTHER STEP, WE MIGHT NOW GIVE SERIOUS CONSIDERATION
TO THE ESTABLISHMENT OF THE COUNCIL, AS SUCCESSOR TO THE
Interim Committee,
and give it a more specific and direct
ROLE IN THE SURVEILLANCE PROCESS.
THERE WOULD BE VALUE IN
SUCH A MOVE, BOTH SUBSTANTIVELY AND SYMBOLICALLY, AND
I
URGE
THAT EACH OF US GIVE FRESH CONSIDERATION TO THIS IDEA,
■
FTeCOND
liquidity,
AREA FOR IMPROVEMENT IS THAT OF INTERNATIONAL
There has been solid progress over
TWELVE MONTHS IN ENLARGING THE ROLE OF THE
SYSTEM,
A
SDR
the past
IN THE MONETARY
MORE FUNDAMENTAL MOVE, THE ESTABLISHMENT OF A
SUBSTITUTION ACCOUNT, IS NOW UNDER CONSIDERATION.
If,
WORKING
TOGETHER, WE CAN RESOLVE THE PROBLEMS INVOLVED IN SETTING UP
THAT ACCOUNT " |AND
I
AM HOPEFUL THAT WITH GOOD WILL IT WILL
BE POSSIBLE TO RESOLVE THEM IN DUE COURSE — THE RESULT
WOULD REPRESENT AN IMPORTANT NEW APPROACH TOWARD GREATER
RELIANCE ON AN INTERNATIONAL RESERVE ASSET AND A MORE CENTRALLY
MANAGED INTERNATIONAL MONETARY SYSTEM,
IN WHICH IT MAY BE POSSIBLE TO STRENGTHEN THE
SYSTEM AND MAKE THE
IMF
MORE USEFUL AND INFLUENTIAL IS IN
THE FIELD OF COOPERATION WITH THE PRIVATE FINANCIAL MARKETS.
This
is not a new idea.
BECOME MORE COMPELLING.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
But
the arguments in favor of it have
- 8 -
We
all recognize that the private markets will, in the
____
'
FUTURE AS IN THE PAST, HAVE TO PLAY BY FAR JHE MAJOR ROLE IN
CHANNELING FINANCING FROM SURPLUS TO DEFICIT NATIONS.
Official
institutions, including the IMF, play\a vital role
IN THAT PROCESS, BUT IT IS ESSENTIALLY CATALYTIC IN NATURE.
We
MUST ENSURE THAT THE
IMF
IS DOING ALL IT APPROPRIATELY
CAN AND SHOULD DO IN ORDER TO ENSURE THAT PRIVATE FINANCING
FLOWS SMOOTHLY AND EFFICIENTLY.
WHICH THE
Fund
WE SHOULD RE-EXAMINE WAYS IN
can encourage the availability of better
INFORMATION ON INTERNATIONAL BANK LENDING, WITH GREATER
UNIFORMITY WITH RESPECT TO POTENTIAL BORROWERS.
FACILITATE THE PROCESS WITHOUT JEOPARDIZING THE
AND CONFIDENTIAL RELATIONSHIPS WITH MEMBERS.
We
THIS COULD
IMF's
SHOULD ALSO
EXPLORE WAYS OF ENCOURAGING EARLIER RECOURSE TO THE
COUNTRIES FACING DIFFICULTY,
CLOSE
IMF
BY
IN THE INTERESTS OF MAINTAINING
OVERALL FINANCIAL STABILITY AND AVOIDING THE NEED FOR MORE
SEVERE ADJUSTMENT MEASURES AT A LATER STAGE IF PROBLEMS ARE
LEFT UNADDRESSED.
WORLD BANK
IHE SUCCESSFUL CONTRIBUTION BY THE FUND TO THE SMOOTH
OPERATION OF THE WORLD ECONOMY WILL HELP THE WORLD BANK TO
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
_ 0 _
ENCOURAGE LONGER-TERM ECONOMIC IMPROVEMENT IN THE DEVELOPING
WORLD.
OVER~rHF"PAST TEN YEARS WE HAVE CALLED FOR Z^STEAD'Y
EXPANSION IN THE SCOPE OF THE
Bank's
NEVER FAILED TO RESPOND EFFECTIVELY.
ACTIVITIES AND IT HAS
THE BANK IS NOW THE
LARGEST SINGLE SOURCE OF EXTERNAL FINANCE AND TECHNICAL
ASSISTANCE FOR ECONOMIC DEVELOPMENT AND THE PRIMARY EXEMPLIFICATION
OF INTERNATIONAL COOPERATION TO ACHIEVE SOCIAL AND ECONOMIC
ADVANCE.
It
As President IIcNamara pointedly
must continue to be so.
REMINDED US, THE GOALS WE SET AND THE CHOICES WE MAKE TODAY
IN THIS DIFFICULT AREA OF ECONOMIC POLICY WILL HAVE A CRITICAL
BEARING ON WHETHER CONDITIONS IN THE WORLD WILL BE TOLERABLE
A GENERATION FROM NOW.
THIS IS A WEIGHTY RESPONSIBILITY; IT
IS ONE WE CANNOT AVOID ADDRESSING.
The
second
size of the problem is graphically described in the
Horld Development Report,
for which I offer my
APPRECIATION AND CONGRATULATIONS.
750
OVER THE NEXT TWO DECADES,
MILLION NEW JOB OPPORTUNITIES WILL HAVE t5^BE-CRWED IN
THE DEVELOPING WORLD.
THE EXTENT OF SUCCESS IN THIS ENDEAVOR
WILL DETERMINE HOW MANY
N THE WORLD ARE ABLE TO ENJOY
ECONOMIC WELL-BEING, AND ANY SHORT FALL WILL DETERMINE HOW
MANY ARE LEFT TO FACE CONDITIONS OF ABSOLUTE POVERTY AT THE
BEGINNING OF THE 21ST CENTURY.
In this
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
situation, capital will always be extremely scarce
- 19 -
IN RELATION TO NEEDS,
Bank loans, IDA
It
WILL 3E ESSENTIAL, THEREFORE, THAT
credits, and IFC investments should stimulate,
TO THE MAXIMUM DEGREE, MOBILIZATION OF DOMESTIC SAVINGS IN
THE DEVELOPING COUNTRIES AND THE FLOW OF PRIVATE CAPITAL
FROM ABROAD.
Specifically this
means:
Greater emphasis on creating
productive job
OPPORTUNITIES IN THE RURAL AREAS, WHERE POVERTY
AND UNDEREMPLOYMENT ARE PERVASIVE.
WITHOUT MORE
PROGRESS HERE, THE FOOD PROBLEM COULD BECOME WORSE,
POPULATIQN^PRESSURE WILL BECOME MORE SEVERE, AND
THE FLOW OF PEOPLE TO CITIES COULD BECOME OVERWHELMING,
r-
New approaches to job creation
in the cities and the
PROVISION OF LOW-COST BASIC SERVICES TO THE URBAN
POOR.
-- Investments
in human capital through programs in
EDUCATION, HEALTH AND FAMILY PLANNING.
>> In
all areas, a conscious and more effective program
TO REDUCE CAPITAL INVESTMENT PER JOB CREATED, AND TO
INSURE THAT IN A FUNDAMENTAL ECONOMIC SENSE INVESTMENTS
PAY FOR THEMSELVES.
ONLY THEN WILL CAPITAL USED TODAY
BE RECOVERED TOMORROW TO BE INVESTED FOR THE EENEFIT
OF OTHERS.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
- 11 -
— New initiatives to
More ambitious
ENERGY FUELS,
encourage co-financing.
efforts to expand production of
INCLUDING NEW APPLICATIONS FOR
THE QUANTUM JUMP IN
RENEWABLE ENERGY TECHNOLOGY.
THE*Pr"iCE OF OIL IS EXERTING A SHARPLY
CONSTRAINING
EFFECT ON ECONOMIC GROWTH EVERYWHERE, WITH PARTICULARLY
----------------------'
HARSH EFFECTS IN THE OIL IMPORTING DEVELOPING COUNTRIES.
AN INCREASE IN THE AVAILABILITY OF DOMESTIC ENERGY
SUPPLIES IS NECESSARY TO INCREASE THE PRODUCTIVITY OF
DOMESTIC LABOR AND CAPITAL.
To MOVE
IN THIS DIRECTION REQUIRES THAT THE BANK BE ABLE
TO EXPAND THE SCOPE OF ITS ACTIVITIES.
We
BELIEVE THAT THE
CAPITAL OF THE BANK MUST EE INCREASED SUBSTANTIALLY, AND FOR
THIS REASON, SUPPORTED THE RESOLUTION OF I'HE tXECUTIVE
Directors to that effect.
We
also support a sixth
Replenishment of IDA, and look to
the completion of the
NEGOTIATIONS BEFORE THE END OF THIS YEAR.
In
ACCORDANCE WITH
OUR LEGISLATIVE PROCEDURES, OUR ACTION IN EOTH RESPECTS WILL
INVOLVE THE CLOSE COOPERATION OF THE UNITED STATES CONGRESS.
PRIVATE FIHANCIAL MARKETS
Strengthening the capacity and
and the
World Bank
effectiveness of the IHF
is also necessary to enable private markets
TO FUNCTION SMOOTHLY AND EFFECTIVELY.
THE LATEST INCREASE IN
OIL PRICES WILL PLACE NEW DEMANDS ON THESE MARKETS TO MOVE
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
- 12 FUNDS FROM SURPLUS TO DEFICIT COUNTRIES,
two
Bretton Woods
THE ACTIONS OF THE
institutions serve to strengthen
THE ADJUSTMENT PROCESS, ECONOMIC PROSPECTS AND CREDIT POSITIONS
A
A
------
OF BORROWING COUNTRIES — ALL OF WHICH>S A NECESSARY
FOUNDATION ON WHICH PRIVATE LENDING CAN TAKE PLACE ON A
SUSTAINABLE
BASIS.
THIS PROCESS ALSO EMPHASIZES HOW THE
WORK OF THE TWO INSTITUTIONS REINFORCE EACH OTHER,
More
generally, a strengthened cooperative approach,
LOOKING TOWARD A MORE ORDERLY MANAGEMENT OF THE WORLD
ECONOMY, PROVIDES A FRAMEWORK WITHIN WHICH EACH NATION CAN
ADDRESS COMMON PROBLEMS IN A MUTUALLY SUPPORTIVE WAY,
United States
THE
recognizes its role in this system and will
CONTINUE TO ACT TO CARRY OUT ITS NATIONAL AND INTERNATIONAL
RESPONSIBILITIES.
UNITED STATES PROGRESS AND
Economic
POLICIES
growth in the
United States
during the past four
YEARS HAS BEEN STRONG, AND HAS MADE A MAJOR CONTRIBUTION TO
WORLD ECONOMIC RECOVERY.
REAL TERMS,
OUTPUT HAS INCREASED BY 22 PERCENT IN
THIRTEEN MILLION NEW JOBS HAVE BEEN CREATED,
At
THE SAME TIME, OUR RAPIDLY GROWING MARKET HAS PROVIDED A
MAJOR ECONOMIC STIMULUS FOR OTHER COUNTRIES RECOVERING FROM
WORLD RECESSION,
MOST NOTABLY, THIS HAS BENEFITED THE DEVELOPING
COUNTRIES, WHICH HAVE INCREASED THEIR EXPORTS OF MANUFACTURED
GOODS TO THE UNITED STATES MUCH MORE RAPIDLY THAN TO OTHER
COUNTRIES,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
- 13 -
The United States
is wellr aware *of the important role of
THE DOLLAR IN THE INTERNATIONAL MONETARY SYSTEM.
We ARE
DETERMINED TO MAINTAIN REASONABLE BALANCE IN OUR EXTERNAL
ACCOUNTS AND TO ASSURE THAT THE DOLLAR IS SOUND AND STABLE.
L
We
■>
HAVE ACTED VIGOROUSLY TO MEET THAT OBLIGATION, WITH POLICIES
TO STRENGTHEN UNDERLYING ECONOMIC CONDITIONS, AND WITH
FORCEFUL EXCHANGE MARKET OPERATIONS TO COUNTER MARKET DISRUPTION,
The U.S,
balance of payments has improved markedly,
CURRENT ACCOUNT DEFICIT WILL BE REDUCED FROM
1978
1979,
TO A FEW BILLION IN
IN THE COST OF OIL IMPORTS.
$14
BILLION IN
DESPjTE AN INCREASE OF
NeXT
YEAR,
SUBSTANTIAL CURRENT ACCOUNT SURPLUS,
1980,
Our
$16
BILLION
WE EXPECT A
CONTINUED STRONG EXPORT
PERFORMANCE, A RISING SURPLUS ON SERVICES, SLOWER
IMPORT GROWTH, AND
U.S.
DETERMINATION TO RESPOND FORCEFULLY
TO UNWARRANTED EXCHANGE MARKET PRESSURES, ALL PROVIDE A FIRM
BASIS FOR DOLLAR STABILITY AND STRENGTH IN THE PERIOD AHEAD,
Ue
have already achieved important progress in strengthening
THE DOLLAR EXCHANGE RATE.
THE DOLLAR HAS DECLINED IN TERMS OF
SOME CURRENCIES, MOVED HIGHER IN TERMS OF OTHERS AND REMAINED
STABLE RELATIVE TO MOST.
MEASURED AGAINST THE AVERAGE OF
OECD
CURRENCIES, THE DOLLAR IS NOW ABOUT 5 PERCENT ABOVE LEVELS
PREVAILING LAST FALL,
FROM THE VIEWPOINT OF THE
OPEC
NATIONS,
IN RELATION TO THE OTHER CURRENCIES THEY USE TO PURCHASE THEIR
IMPORTS, THE DOLLAR HAS INCREASED ABOUT 8 PERCENT ON AVERAGE
FROM A YEAR AGO,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
- 14 -
Notwithstanding
the favorable changes in the value of the
DOLLAR MEASURED IN TERMS OF THESE AVERAGES, THE UNITED STATES
IS DETERMINED TO MAINTAIN EXCHANGE MARKET STABILITY FOR THE
DOLLAR IN TERMS OF INDIVIDUAL MAJOR CURRENCIES, SUCH AS THE
Deutsche Mark.
------ '
The United States also recognizes the necessity of solving
ITS ENERGY PROBLEM.
We ARE MAKING SUBSTANTIAL PROGRESS, SINCE
1973 THE AMOUNT OF ENERGY REQUIRED TO PRODUCE A UNIT OF REAL
IN THE UNITED STATES HAS DROPPED BY 7 1/2 PERCENT,
" ""
AND IN THE INDUSTRIAL SECTOR, IT HAS DROPPED BY 20 PERCENT,
OUTPUT
The ratio
of the increase in energy consumption to the increase
IN GNP HAS FALLEN BY ONE-THIRD SINCE 1973,
THAT PERFORMANCE
COMPARES FAVORABLY WITH OTHER INDUSTRIAL COUNTRIES.
ENERGY CONSUMPTION HAS LEVELED OFF.
HOUSEHOLD
OUR TRANSPORTATION FLEET
IS RAPIDLY BECOMEING MORE FUEL EFFICIENT — THE AVERAGE MILES
r1
PER GALLON FORjfiEW^CARS ROSE FROM 13 IN 1973 TO 19 IN 1979,
AND WILL RISE TO 27,5 BY 1985,
More must,
and will, be done.
President Carter
has
ANNOUNCED A SERIES OF MEASURES, BOTH ADMINISTRATIVE AND
LEGISLATIVE, WHICH WILL SHARPLY IMPROVE THE OVERALL U.S.
ENERGY POSITION.
prices by
PHASED DECONTROL OF DOMESTIC CRUDE OIL
September
30, 1981 will reduce oil imports by an
ESTIMATED 1.5 MILLION BARRELS PER DAY BY 1990,
In ADDITION,
—
IMMEDIATE DECONTROL OF HEAVY CRUDE OIL PRICES WILL STIMULATE
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
- 15 -
INCREASES IN PRODUCTION ESTIMATED AT 0.5 MILLION BARRELS PER DAY.
Creation
of an
Energy Security Corporation
will provide the
RESOURCES TO HELP FINANCE PRIVATE SECTOR DEVELOPMENT OF
SYNTHETIC FUE(5
f'lAJOR EMPHASIS IS ALSO BEING PLACED ON
DEVELOP ING^RENEWABLE SOURCES OF ENERGY.
WHEN FULLY IN
PLACE., OUR ENERGY PROGRAM WILL CUT OIL IMPORT REQUIREMENTS
BY 9 TO 5 MILLION BARRELS PER DAY.
At the
recent
Tokyo Summit, the United States agreed
THAT FROM NOW THROUGH 1985, WE WOULD IMPORT NO MORE THAN 8.5
MILLION BARRELS PER DAY OF OIL, THE LEVEL THAT PREVAILED IN
1977.
The President
established a lower goal, 8.2 million
BARRELS PER DAY, FOR 1979.
We
ARE FIRMLY COMMITTED TO
MEET I NG THE IMPORT TARGETS..
Inflation continues to be our country's most
It threatens
problem.
serious
our ability to achieve full employment,
We
IT IMPEDES INVESTMENT, AND IT IMPAIRS PRODUCTIVITY,
ARE
DETERMINED TO BRING INFLATION UNDER CONTROL AND REGAIN PRICE
STABILITY.
Our
RECENT RECORD IS NOT SATISFACTORY TO US.
ENERGY PRICES HAVE TEMPORARILY DRIVEN
THE DOUBLE DIGIT RANGE.
U.S.PR ICE
FOOD AND
INDUCES-INTO
ENERGY ALONE ACCOUNTED FOR MORE THAN
ONE-HALF THE TOTAL RISE IN FINISHED GOODS PRICES
PRODUCER LEVEL IN THE LATEST THREE-MONTH PERIOD.
ATHTe
In
COMING
MONTHS THIS PRESSURE WILL RECEDE AS THE EFFECTS OF RECENT
PRICE ACTIONS WORK THEIR WAY FULLY THROUGH THE ECONOMY.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
OPEC
- 16 -
Food
prices have moderated in the wake of good harvests,
Special
factors aside, the inflation rate is still much
too high and must be brought under control,
DONE QUICKLY OR~"eASILY.
This cannot be
It CAN ONLY BE ACCOMPLISHED BY A FIRM
APPLICATION OF SOUND POLICIES WHICH DEAL WITH THE ECONOMIC
FUNDAMENTALS.
. All major
instruments of U.S. economic policy are being
DIRECTED TOWARD THIS TASK,
FISCAL POLICY IS nforpTcp TOWARD
We HAVE ARRESTED THE INCREASE IN GOVERNMENT
TERMS/aND TAX RECEIPTS ARE RISING,
THE FEDERAL
RESTRAINT.
OUTLAYS
IN REAL
DEFICIT
HAS BEEN REDUCED FROM 3 PERCENT TO 1 PERCENT OF
Reserve
GNP.
THE FEDERAL
is exercising monetary discipline and will continue
TO KEEP FIRM LIMITS ON THE GROWTH OF MONfY SUPPLY, _DESPITE
Xc-^***^
fas*-**.
"
RAPID INCREASES IN RECENT MONTHS, THE INCREASE IN1 OVER THE
PAST YEAR WAS HELD TO 4.9 PERCENT — LESS THAN HALF THE INCREASE
zIN CONSUMER PRICES.
THE FEDERAL RESERVE IS COMMITTED TO
MEETING ITS TARGETS FOR LIMITING THE RATE OF GROWTH OF MONEY
AND CREDIT.
These fiscal
and monetary policies are supported by price
AND PAY POLICIES THAT WILL HELP MODERATE INFLATIONARY FORCES.
On September
WITH
U.S.
28,
President Carter
announced a
National Accord
TRADE UNION LEADERSHIP THAT PROVIDES FOR LABOR'S
INVOLVEMENT AND COOPERATION ON IMPORTANT NATIONAL ISSUES.
National Accord
confirms that top priority will be given to the
WAR AGAINST INFLATION.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
THE
It
RECOGNIZES THAT THE DISCIPLINE
- 17 ESSENTIAL TO WRING OUT INFLATION WILL MEAN A PERIOD OF NATIONAL
AUSTERITY.
As PART OF THE ACCORD., LABOR LEADERSHIP AGREED
TO PARTICIPATE IN THE VOLUNTARY PROGRAM OF WAGE AND PRICE
RESTRAINT.
THE INVOLVEMENT AND COOPERATION OF LABOR — AND OF
MANAGEMENT — IN DEVELOPING AND IMPLEMENTING POLICIES TO CONTROL
INFLATION IS CRITICAL FOR SUCCESS, AND THIS COOPERATION HAS
NOW BEEN STRENGTHENED.
THE NATIONAL ACCORD WILL ADD
MOMENTUM TO OUR COMPREHENSIVE ATTACK ON
The United States intends
INFLATION.
to reinforce the foundation on
WHICH TO ACHIEVE SUSTAINED ECONOMIC GROWTH WITH PRICE STABILITY.
We are headed
THE COURSE.
in the right direction and are determined to stay
WE ARE ALSO DETERMINED TO WORK WITH THE NATIONS
GATHERED HERE TO STRENGTHEN THE INTERNATIONAL ECONOMIC SYSTEM,
BOTH THROUGH OUR OWN ACTIONS AND THROUGH SUPPORT OF THE
INF and the World Bank.
Mr. Chairman,
let me add a personal postscript.
CURTAIN WILL SOON FALL ON THE DECADE OF THE 70's.
BEEN A TURBULENT PERIOD FOR THE
WORLD'S ECONOMY.
It
The
HAS
PROGRESS
HAS FALLEN FAR SHORT OF OUR GREAT HOPES.
Facing,
as we do, another period of major adjustment,
WE HAVE HEARD FEW WORDS OF ENCOURAGEMENT AT THESE SESSIONS.
IT IS RIGHT THAT WE SHOULD BE REALISTIC ABOUT OUR DIFFICULTIES.
It
is right that we should not delude ourselves with false
EXPECTATIONS.
It
is possible, however, as we begin to prepare the
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
- 13 AGENDA FOR THE 80'S, TO SEE SOME CAUSE FOR HOPE,
In
particular, we have not given in to the temptation to
BECOME SELF-CENTERED.
THE INSTITUTIONS FOR INTERNATIONAL
ECONOMIC COOPERATION ARE ALIVE AND WELL.
Bank
The
IMF AND WORLD
are proving their resilience, rising to meet the
CHALLENGES.
For its part, the United States
is unequivocally
DEDICATED TO DEALING EFFECTIVELY WITH ITS OWN INFLATION AND ENERGY
PROBLEMS.
This
is the single most important contribution we
CAN MAKE TO OUR OWN ECONOMIC HEALTH AND THAT OF THE WORLD
COMMUNITY.
I
ASSURE YOU THAT WE HAVE THE WILL, DETERMINATION AND
PERSERVERANCE TO SUCCEED IN THIS ENDEAVOR.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
YOU CAN COUNT ON IT.
@FedFRASER