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Public Papers - 1989 - September

Remarks at the Annual Meeting of the Boards of Governors of the International Monetary Fund and World Bank Group

1989-09-27

Thank you all very much. Thank you. And thanks especially to my good friend, our Secretary of the Treasury, Nick Brady. And thank you, Nick, for your outstanding economic leadership.

Chairman Lee and President Conable, Mr. Camdessus, it really is a pleasure for me to be here and to welcome you all to Washington, DC. And it's a special privilege for me to be here in the company of my old friend, former Congressman, now President Barber Conable. We in the United States are keenly aware of these annual gatherings, the importance of them -- you drive the work of all of us in maintaining a strong international economic and financial system.

And this is my first opportunity to speak to you as President of the United States. But I've followed the activities of the International Monetary Fund and the World Bank throughout my years of public service. And I have visited many of your homelands and seen firsthand the problems created by inadequate growth and development, problems that your two distinguished institutions are working hard to solve.

We've witnessed a dramatic shift over the past few years in the debate over how to achieve sustained growth and development. All across the world, there's been an almost simultaneous rediscovery of the power created when individuals are given the freedom to act in their own best interests. True, we're here today mainly to discuss economic freedom. But make no mistake: In the end, both economic freedom and political freedom are essential and inseparable companions on the road to national prosperity. The jury is no longer out. Look at the two economic systems and see who has prospered and who has struggled. Let's put an end to this economic experiment -- because history has decided.

It is not climate, natural resources, or cultural traditions that make the difference. I said it in my own Inaugural Address: ``We know what works: Freedom works. We know how to secure a more just and prosperous life for man on Earth: through free markets, free speech, free elections, and the exercise of free will unhampered by the state.''

In Latin America, in Africa, Mexico, courageous leaders are turning away from state control of their economies. Economic restructuring and deregulation are opening the door to private initiative. And already they're seeing results. Even more stunning is the transformation in thinking in the Communist countries -- in both the Soviet Union and in Eastern Europe. During my recent travels in Poland and Hungary, I was impressed by the people but also impressed by the almost universal acceptance of the free market as the best hope -- indeed, the only hope -- for reversing the economic fortunes of these two proud countries. And we will welcome the efforts of the Soviet Union to liberalize and decentralize their economy. I have said many times -- and I want to repeat it here today -- that I want to see perestroika succeed. A more open and humane Soviet Union can only be in the best interest of the West. And as we see the evidence of that reform, we can match it with steps of our own.

The rediscovery of these basic truths in the East has been matched by a recommitment to them in the West. Today the members of the European Community are dedicated to eliminating internal barriers to economic activity by the end of 1992. And Europe's leaders assure me that this will not be at the cost of new external barriers to trade with the EC.

The Peruvian economist Hernando de Soto has helped us understand a worldwide economic phenomenon. By walking the streets of Lima, not analyzing official statistics, he found that the poor of Latin America -- who have never read Jefferson or Adam Smith -- ran their affairs democratically, outside the formal economy, organizing their private, parallel economy in a free and unregulated manner. De Soto's great contribution has been to point out what, in retrospect, may seem obvious: People everywhere want the same things. And when left alone by government, people everywhere organize their lives in remarkably similar ways. De Soto's prescription offers a clear and promising alternative to economic stagnation in Latin America and other parts of the world. Governments must bring the ``informal'' workers into the regular economy and then get out of the way and let individual enterprise flourish.

We each must do our part. And yes, the industrial countries have a special responsibility. We must coordinate economic policies to help provide sustained growth with low inflation, reduced trade imbalances, and greater stability in exchange markets. We in the United States are working especially hard to reduce our own Federal budget deficit and to increase our national savings rate. All our nations have a responsibility to ensure a fair and open trading system. And we have a tremendous opportunity to advance that cause now by making success of this all-important Uruguay round of trade negotiations, making the political commitments necessary to ensure a success. Look, they will not be easy, but we must strengthen the GATT and allow our markets to open in a mutual, step-by-step fashion.

As we seek to extend and expand growth in the world economy, the debt problems faced by developing countries are central to the agendas of the IMF and the World Bank. Over the past year, the international community's strengthened approach to these problems has truly provided new hope for the debtor nations. America's Secretary of the Treasury, Nick Brady, has helped direct the focus on debt reduction as a complement to continued new lending -- bringing developing nations and commercial banks back to where they belong, back to the negotiating table. Quick action by both the IMF and the World Bank has given this new strategy vital support. By making clear the terms under which they will support the reduction of debt burdens and by working with countries to develop the necessary economic reform programs, these institutions have made it possible to reduce debt burdens and provide a solid foundation for growth.

Thanks to these initiatives, Mexico reached an agreement with its creditor banks enabling Mexico to make enormous progress in reducing its debt burden. It also helped restore -- almost instantly -- restore confidence in the Mexican economy. And it's already resulted in a return of capital and new foreign investment. This agreement underscores the benefits other debtor countries stand to realize from this approach. Mexico's savings from this package will free resources for productive use in the economy, leading to increased investment, leading to improved growth. What Mexico has done is not a miracle. It's a product of hard work and sustained commitment.

The strengthened debt strategy is flexible enough to address the unique needs of each country, but the strategy will not work without sound economic policies in the debtor countries. Inefficient, unrealistic, growth-stifling policies simply must go. Benefits are available to a broad range of other countries that pursue economic reforms. Several are now actively engaged, I'm told, with the IMF and World Bank, and with the banking community itself. Commercial banks have a special role in making this process work, and they must follow through on efforts made with Mexico and the Philippines and broaden their efforts with other countries.

We encourage these steps not as self-sacrifice but self-interest. True, success not only will help the debtor nations. But it will also strengthen the banks, by putting their own portfolios on a sounder basis. One of the lessons of the 1980's, especially the debt crisis, is that we're all in this together. And when we cooperate, we all come out winners. The IMF and the World Bank are at the crossroads of our cooperative efforts. The IMF must continue to foster the sound economic policies necessary for sustained growth. As part of that responsibility, the Fund has assumed an important and very welcome role in the strengthened debt strategy.

The United States recognizes that the IMF must have adequate resources to fulfill its critical role. And we will continue to work with other members in the hope of reaching a decision on the quota question -- on quotas by the end of the year. The United States has always supported the IMF, and we will continue to do so. We'll all look to the World Bank to help build the foundation for a future global prosperity that reaches all peoples. Its efforts to promote structural reform and development are absolutely crucial to resolving debt problems. The Bank's decisions to take on new responsibilities on the debt front are very welcome. Also, to address the significant problems of the poorest countries, the International Development Association, IDA, was established and will continue to have the support of the United States.

We have also learned, as I emphasized Monday at the United Nations and last summer at the Paris summit, that environmental destruction knows no borders. To make growth truly sustainable, we must weigh environmental considerations more heavily as we make economic decisions. And we must also find ways to strengthen our environmental and development efforts through innovative thinking, such as the ``debt for nature transactions.'' Over the years, as we've come to understand the effect of environmental destruction on the long-term growth of developing countries, the World Bank has increased the priority it assigns to environmental concerns. We applaud those efforts, but there is more to be done. We need to work more cooperatively to develop constructive solutions to global warming, including measures to promote energy efficiency and conservation and greater protection of forest resources.

In addressing the challenges of the 1980's, we have come to a deeper understanding of the importance of cooperating as a community of nations to address common problems. I can think of no better current example than the need to work together to deal with international drug trafficking and money laundering. It is a worldwide problem. Drug money undermines honest businesses, corrupts political institutions, and even threatens the security of nations. To conceal their obscene profits, drug barons must wash their money by cycling it through financial institutions and illegitimate shell corporations. The United States renews its call upon all countries to ratify the United Nations Vienna Convention and make money laundering a criminal and extraditable offense. We need tough measures to crack down and track down and confiscate the profits of drug-related crime.

I am encouraged by the G - 7 [Group of Seven] democracies interested in this coordinated response to the money laundering menace. But I urge everyone to join with us to explore new ways to stop money laundering in its tracks.

And there may be no greater opportunity before us -- all of us -- today than the challenge of Poland and then, on the broader landscape, Eastern Europe -- the entire Eastern Europe, where countries are in the throes of dramatic political and economic change. The United States and its international partners have already undertaken new initiatives toward Poland. But now, in the light of clearly growing needs, the recent accession of a Solidarity-led government, and our self-evident stake in its success, we must do more. We understand the Polish Government has under consideration a bold plan for economic recovery. And I call on the IMF and the World Bank to work rapidly with Poland to develop such a program and ensure its successful implementation. For its part, the United States intends to be out in front of this effort, to take advantage of this historic development and to ensure its success.

Today our mutual efforts to improve global growth, to ease the burdens of developing countries -- their indebtedness -- and to open markets for trade have demonstrated anew that progress is best achieved by facing pressing issues together. This is a lesson that we must carry with us into the 1990's if we are to pass on to future generations a global economy that is strong and resilient and able to provide for the aspirations of the citizens of all our countries. Thank you very much for your hard work. Thank you for your service. Thank you for your commitment. God bless you and the nations that you represent. Thank you very much.

Note: The President spoke at 9:32 a.m. in the ballroom at the Sheraton Washington Hotel. In his opening remarks, he referred to Kyu Sung Lee and Barber B. Conable, Chairman of the Board of Governors and President, respectively, of the International Bank for Reconstruction and Development; and International Monetary Fund Managing Director Michel Camdessus.

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