8. The debt problem was jointly created by the actions of all parties.   It is therefore the joint responsibility of all to seek solutions.  The world must not repeat the disasters that flowed from the demands for unrealistic resource transfers in connection with reparations and interallied war debt during the interwar years. Co-operation among central banks and the skillful responses of the Bank for International Settlements and the International Monetary Fund (IMF) have succeeded in containing thus far the debt crisis.  Govern the gravity of the economic situation of developing countries and of a number of commercial banks in the developed countries, it is clear that special emphasis needs to be given to proposals for practical action to manage development and debt problems rather than to react to them.  There is now an urgent need for a comprehensive solution to the debtor-creditor problem.  This statement spells out some of the principles that should apply in working for such a solution.  This task is or paramount importance if a major international crisis is to be averted.


9. Debtor countries should pursue realistic adjustment programmes agreed in good time with the IMF, as they pursue development programmes with the World Bank.  Such programmes need to combine a sustained improvement in the balance of payments with a resumption of economic growth and development.  At present, the essential, even if unpopular, role of the IMF is that of negotiating adjustment programmes with countries confronting balance of payment or debt-servicing problems.  There must be conditionality, otherwise fresh credits will not flow.  This conditionality must take into account the interests of debtors and creditors alike and the social and political situations of the countries concerned.  The conditions applied in the future should not so seriously affect the economic, social and political fabric of the country, the living conditions of its people, or the availability of critical development inputs, that they call in question the possibility of a resumption of growth and continuing economic and social progress.


10. Countries should create favourable conditions for the return of flight capital, which has reached substantial dimensions in a number of countries in recent years and which contributes significantly to the debt problem. Likewise they should try to attract more direct private investment.  This above all, entails realistic exchange rate policies, the avoidance of artificialities in domestic pricing and the removal of bureaucratic restrictions on foreign investment, which must, however, reflect the concerns and interests of both the investors and the recipient countries.


11. Given the economic situation faced by debtor countries, an element of austerity is inevitable in effective adjustment programmes but austerity should not be pushed beyond the level essential for successful medium-term adjustment. Adjustment programmes should encourage the transformation of productive structure, stabilisation and increased capital formation, so that countries can adapt to the changing conditions of the world economy.


12. On the other hand it is politically intolerable that as a result of fluctuations in interest and exchange rates, debtor countries can not predict the maximum debt service payments that they will have to make in dollars for the year ahead. This uncertainty has a devastating effect on national planning and development. Measures to increase predictability are needed to provide some degree of protection against such fluctuating rates.

13. The contribution of the commercial banks should be to provide fresh money and interest relief in instances where a debtor country is making a good-faith commitment to adhere to an IMF programme, and to devise mechanisms that will cap the debt service payments that countries have to transfer. Measures will need to be tailored to meet the situation of individual debtor countries while taking into account the concerns of the creditors. To contain annual debt repayments where they become excesive such measures may include:

• the restriction of annual debt service payments of a debtor country to an agreed maximum;

• the consolidation of short-term debts to medium-term fixed interest bonds;

• multi-year rescheduling instead of the current shortest term practice;

• capitalization of interest; and

• additional special measures, as may be required, for developing countries on case by case basis.
  
  

14. The poorest developed countries, in comparison with other groups of countries, have been forced into excessively hars adjustment measures, partly in response to changes in their terms of trade, as a result of declining prices for their primary products coupled with dramatic increase in oil prices. The scale of indebtedness of these countries in world terms is not substantial and particular measures should therefore be taken to bring the termsof debt repayment for these countries into line with their longer term capacity to pay, while upholding the basic principle that obligations should be honoured.


15. The governments of creditor countries should support the establishment of the mechanisms such as the Paris Club. They should take account of the vital interests of debtor countries, in particular, in a lowering of world interest rates and in trade expansion when they formulate their macro-economic policies. Stability and confidence would be greatly enhanced if governments of the Organization of Petroleum Exporting Countries (OPEC), other governments and central banks would agree to consolidate a larger part of their deposits into medium term bonds.


16. The inernational financial institutions must be furnished with a levelof financial resources commensurate to their tasks. Banking legislation should be harmonized, particularly with regard to reserve requirements among the major creditor countries. Governments of creditor countries must also anticipate lower tax revenues due to the losses of commercial banks.


17. It is important to work towards international understanding on a coherent set of measures along the lines set out above, constituting in effect, a General Agreement to Lend.

18. Policies to promote the development of developing countries should take into account the economic situations and objectives of individual countries and strive for appropriate conditions for intensive international co-operation for development.  There are no easy, general solutions: progress can only be made step by step.


19. While the debt crisis is the main cause of the recent setback to development in the middle income countries, the deterioration of the terms of trade has also been critical, particularly to many low income countries.  Natural disaster and catastrophic climatological conditions have further aggravated the desperate situation of many developing countries.  The continuing excessive population growth in many areas implies that per capita income has been falling in many places.  A resumption of development will again demand contributions from all the parties involved: from the developing countries themselves, whose own efforts contribute most, from the western developed countries, and from the centrally planned economies.


20. Developed countries, of both East and West, have a singular responsibility to increase trade and aid and to encourage the transfer of technology which is essential to modernisation and adjustment, and thus to exports and the servicing of debt.  Recent measures that have curtailed the magnitude of contributions my multilateral organizations to the cause of development are misguided and run counter to the very interests of developed countries.  The replenishment of the International Development Association (IDA) should be concluded rapidly and at the level proposed by the World Bank management.   This should be done, whether or not all countries are prepared to contribute their previously agreed shares.


21. Initiatives by the management of the World Bank Group to strengthen and enlarge its operations should be strongly supported.  In particular, there should be a substantial increase in World Bank capital.  The United Nations Development Programme (UNDP), as the central agency for multilateral technical assistance, must have significantly increased support in view of its critical role in assisting developing countries in heightening human skills which is the foundation of effective and sustainable economic development.


22. The developing countries at all levels of development have the principal responsibility for their own development.  The experience of a number of East Asian countries has demonstrated the beneficial effects of policies emphasizing human resource development, population planning, exploitation of the possibilities offered by international trade, and encouraging direct private investment, which is the most efficient way of transferring technology, compatible with the objectives, values and conditions of each country.  In addition, developing countries stand to gain substantial dividends from helping each other in a more systematic way, through regional co-operation, and economic and technical co-operation among themselves.


23. The particular problems of the least developed countries require urgent and sustained attention through intensified assistance from the wider world community.  There is an urgent need for a rapid increase in concessional assistance to these countries, together with measures n the field of trade and technical co-operation to increase their earnings and strengthen their domestic capabilities.


24. In order to promote a dramatic increase in resources for the deprived peoples of these countries, the InterAction Council intends to launch an extensive campaign so as to mobilise public opinion throughout the world, together with private sector organizations, in particular, corporations and banks.