Statement by Mr. Jin at the executive directors' meeting of October 29, 1992

International Bank for Reconstruction and Development FOR OFFICIAL USE ONLY EDS92-29 FROM: Vice President and Secretary November 2, 1992 EXECUTIVE DIRECTORS' MEETING OF OCTOBER 29, 1992 Statement by Mr. Jin Attached is a copy of the farewell statement by Mr. Jin Liqun at the Board meeting of October 29, 1992. Distribution: Executive Directors and Alternates Office of the President Executive Vice Presidents, IFC and MIGA Vice Presidents, Bank, IFC and MIGA This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  FAREWELL STATEMENT Jin Liqun October 29, 1992 I beg your leave to speak at a little more length than usual. My first words must be in whole-hearted acknowledgement of the unqualified commitment and professional integrity of Bank management and Bank staff working on China. Their contribution over the years to my country has already left an indelible mark. The most populous country on Earth is now firmly set on the road of fast growth. But it remains at a very low income level and these Bank staff, with their profound understanding of China's economic and social landscapes, continue their unsparing efforts for her further development. The years I have served on the Board have witnessed extraordinary and often traumatic changes. The Bank is now truly global and is faced with a vortex of pressing issues. A level head is called for if we are to see the changed world in an undistorted perspective and address the various issues facing the Bank in a way that truly balances the interests of its developed and developing members. Consensus has been stressed as the solution to controversial issues faced by the Bank. We need consensus that is built on the central point rather than on the fringes. There does not, prima facie, seem to be any major disagreement on the general role that the Bank is to play in the post-Cold War era. Poverty reduction, environmental protection, human resource development and other emphases are agreed areas for the Bank's involvement. However, the way in which these objectives are to be achieved is sometimes quite controversial; and since the approaches adopted may have a major effect on actual outcomes, the debate over means may at times appear almost more important than the end itself. It seems to me that effective three-way communication and mutual understanding between Part One and Part Two members, between the Bank and its members, and between the Executive Board and the management, are vital to the success of the Bank in fulfilling its development mission. Different forces are at work on this institution -- that is to be expected -- but like tugboats around a great ocean liner, they must pull in unison if the ship is to navigate with any success. The attitude toward the Bank of Part One members, particularly the major shareholders, is crucial in this connection since it has a direct impact on the relations between the Board and the management, and on the Bank's relations with its borrowing members. To a substantial extent, the shareholders' policies on the Bank work through the medium of the Executive Directors, whose challenge is to live up to and reconcile their dual responsibilities. It seems to me that Executive Directors, the critical link between the shareholders and the Bank, can best serve the interests of this institution without compromising their duty as representatives of their respective governments if they strive to facilitate a  2 two-way feedback with their own input based on frank analysis and sound judgement. Recently, we have seen a tendency toward excessive outside interference in the Bank's deliberations with some major shareholders trying to influence Bank decisions in the belief that their ideas are the best and that their models will work. The implications for the future of this institution are serious and we oppose any attempt to interfere in the independent decision-making of the Bank's management. Putting aside for the moment politically motivated interference, attempts to shepherd the management even for purely technical considerations will prove deleterious in the long run. A global financial institution that is kneaded and molded to a shape desired by a few developed members will be ill- fitted to serve the needs of its developing members who are the majority. I believe that the Bank's management sees this and does try to maintain an impartial stance under pressure. But it is awkward for the Bank's management, and dangerous for the Bank, to be torn in two directions. Management should be given a free hand to operate the Bank on the basis of those policies endorsed by the Board in a democratic atmosphere. On the other hand, it is right that management be free to think independently and to design development strategies. But this should be done in the light of the broad experience of all the institution's members, developed and developing alike, not in obedience to the limited interests of a given country or a group of countries. Broadly speaking, difficulties which arise in this three-way relationship will affect policy formulation and the way Bank members are treated. And indeed, Board discussions, in my experience, have more or less mirrored differences of approach to the key issues faced by the Bank. The first such issue is reform and those related to it, such as the role of the government, the market, and privatization. My opinion is that reform is most likely to succeed when designed in the light of the real situations of the concerned countries and implemented in gradual steps. The pace of reform may need to differ with differing country realities. However, even in a country in deep crisis when the people may be ready to accept "strong medicine", drastic reform at hurricane speed risks losing the broad support of the very population it is intended to benefit. There is a Chinese fable of the impatient farmer who used to pull on his crops to make them grow faster. Under this enlightened treatment, the crops did, indeed, look a little taller, but of course, they soon withered and died. Nature can perhaps be prodded a little, but she cannot be rushed. This is also true of reform. On the other hand, we often hear it said that one cannot cross a chasm in two leaps. True. But I submit that we don't have a chasm before us -- we have a river, and the rational way to proceed is from stepping stone to stepping stone. We are given, among other admonitions, that the government should keep its hands off the market; that subsidized credit or whatever subsidy should be done away with. However, the hands of the government have never been kept off the market in the industrial countries; subsidies abound, especially in sectors which produce goods for export. Confucius said, "Do not do unto others what you do not want them to do unto you." In other words, treat others the way you would like  3 to be treated. And we heard much of the magic of the marketplace. Let market forces operate freely and all will be well; private ownership is all that is needed for efficiency. Does it ever occur to the proponents of this theory that the World Bank is the biggest state-owned financial institution on Earth? Is the World Bank inefficient? If it is not, where does that leave the argument? And if it is inefficient, is it not a little awkward for the staff of an inefficient publicly-owned Bank to lecture borrower members on how to run their economies efficiently? Should the World Bank be privatized? An answer in the affirmative is absurd. Perhaps we should ask ourselves why there have been consistent differences in the performance of the countries categorized as market economies. There are a number of factors behind the different growth profiles of such countries. Paradoxically, a market economy functioning with minimum government interference requires the very thing that it tries to do away with, Government -- and a strong government at that -- one capable of efficient macroeconomic management and of enforcing the rules and regulations that guarantee the smooth functioning of the market. There is a story of a geologist who had been lost in the wilderness for months on end. When he finally stumbled upon a human habitation he was at first overjoyed and then terrified to see in letters five feet high the legend: "Private Property. Trespassers will be shot on sight!" I put it to you that those who suddenly find themselves catapulted into a market economy are in a situation similar to that of my luckless geologist: they may face bankruptcy, unemployment and hyperinflation in place of abundant supplies of affordable goods and a hefty paycheck. The security they had come to expect disappears at precisely the time that it begins to be urgently needed. The market benefits us, certainly; but it also fails us. The road to affluence, if it is achieved at all, is long and arduous. A second major issue of our changed times is the environment. How do we come to terms with it? With the specter of the Cold War vanishing, the spotlight is trained, glaringly it may seem to some, on environmental topics. Some people decry the degradation associated with growth and the World Bank, which has been financing development projects for 40 odd years now, has suddenly become everyone's whipping boy in this regard. As I remarked at the outset, a sense of perspective is needed. The developed countries with their financial resources and technology can afford high environmental standards. They can afford to balance economic opportunity against the survival of an endangered fish or bird. But in many low-income countries it is Man who is the endangered species, the burning issue is nothing less than that of human survival. Developing countries do not have to grow the way the rich countries did. For that to happen, they need help from the developed countries. As an inappropriate illustration, the baby should not be denied the right to grow simply because it makes a mess. Help it; and it will grow and learn to keep things spick-and-span. The Bank should use its own judgement in balancing the needs of development  4 and environment and addressing the short-term and long-term requirements in an intergrated fashion. A third major issue I wish to touch on is political conditionality. Democracy, human rights, military expenditures, etc. are cited as factors influencing the major shareholders' support for countries whose record in those respects is believed not good. We question the appropriateness of bringing these issues to the Bank. The way these issues are discussed here puts developing members unfairly on the defensive. It sometimes seems that the developing countries are allergic to these nice aspects of civilization for which developed countries have such a penchant. However, it must be understood that first and foremost there is the question of definition. Even if there are widely accepted definitions of democracy and human rights, the question still remains as to the way in which these concepts are applied -- and demonstrated, for questions of "image" are at play here too -- in practice. No-one would seriously maintain that democracy as practiced in some western countries is a perfect model to be universally adopted by others. At least no-one would do so explicitly. The Bank should be careful not to be led astray here. The ground is very dangerous and full of pitfalls, not least the danger that expedience will be stressed over principle and that outside interference will determine Bank practice at the expense of consistent and impartial treatment of developing members. We all know that for many borrowers, Bank Loan and Credit Agreements are loaded with conditions that are said to be necessary to the success of the operation in question. The project documents demonstrate this with such mathematical rigor and cool precision that nothing short of the entire package could have any chance of being cleared by the Board. For other projects, mirabile dictu, conditionality mysteriously disappears altogether. I am baffled. I cannot explain it. It is understandable that Part One countries try to influence the Bank's policies in the belief that their development experience can contribute to the Bank. And their experience can be valuable. For instance, Japan's experience in directed credit is a case in point. On the other hand, what worked in a particular developed country and at a particular time in history may not be equally effective in today's developing countries. The crux of this matter in many cases is not so much the correctness or incorrectness of the policy advice, but the applicability for a given country at a given time. A "correct" policy applied to the wrong country at the wrong time will give wrong results. Unfortunately, our discussion with the Bank is more often than not a prelude to a particular project, rather than an open debate from which no immediate, binding conclusion is expected. When it comes to borrowing and conditionality, Aye, there is the rubl Cicero once said, "Even if they brought forward no proof, their very authority would convince me." Time and again, the Bank's very authority convinces and a Borrower is brought to terms. But the status of being a borrower should not strip us of the right to contradict on critical issues and the Bank should be less chary of subscribing to the views of its clients who can, after all, be expected to know their own country. I do not intend to detract from the excellent work Bank staff have done in borrowing countries but I really would like to know whether some of them actually did believe what they preached to us. In some cases, no doubt, the conviction was real, in others, I suspect, staff were under institutional pressure. Their own  5 views and ideas on Bank policies or the true economic situation of a particular member may not represent the orthodox thinking of the Bank, but they may be correct. And in any case, they deserve to be heard rather than brushed aside as heretical. The Bank's relationship to its borrowing members is almost invariably construed as a one-way contribution. But there is also a great deal which the Bank owes to its borrowers. Our reciprocation is not just financial, although a big portion of the Bank's ever-increasing net income is, in fact, due to precisely this. No. Our input is also significant in intellectual terms. The pool of our development experiences is a major source of wisdom for the Bank to draw on for inspiration in designing country lending strategies and preparing lending operations. The on-going Asian Miracle Studies is a notable example of this and I must add that China's performance in coastal areas could be very interesting reading if incorporated in those studies. Mr. Chairman, you have said that the Bank has to listen more. I am therefore encouraged in concluding this address, to offer some ideas which have been current for some time among my people. On environmental protection: about 2,000 years ago the proverb "Those who take shelter under the trees should not chop them down" entered our language and every Chinese knows the simple truth of it. The idea of "small" as opposed to "big" government was articulated 500 years before that, by Lao Tzu, who advised the ruler to "govern but not to interfere." And again, two thousand five hundred years ago, K'uan Tze saw the importance of investing in people when he said, "If you plan for a year, plant a seed; if for ten years, plant a tree; if for a hundred years, teach the people". In all modesty, there are many other enlightened ideas, common coin of our daily exchange, which express not only universal wisdom but strictly practical advice directly relevant to our own time and place. I am sure that this is true of other ancient civilizations which, for various reasons, in modern times find themselves the students rather than the teachers. China, I think, is a good student, we are learning much from the advanced countries of the West -- in science, technology, macroeconomic management and many other areas. But is it too much to hope that we can learn from each other? Let me, since I have presumed on your patience, speak plainly, personally and in a way which I hope you will find entirely scrutable. I do not know how many of you have visited China and explored the way we enjoy our private life. The first time I set my foot in this land I was most impressed by the vast lawns that surround every suburban house. I was reminded of the exquisite gardens of China, beautiful in a different way. The Chinese garden is designed in a variety of patterns, with pebble walkways dividing the land into lots for vegetables, flowers and trees and other features. Perhaps the differing occidental and oriental ideas of beauty defy comparison. Each is one way of seeing. I have heard that the British invented the lawn-mower and so the Germans immediately rushed out and invented chemical fertilizers. Or the other way round, I don't remember. In any case, the point is that in the West, you cut the grass and then spread chemical fertilizer to make it grow so that you can cut it again. It seems that we Chinese are ahead in this aspect of environmental consciousness: we do not use gas-burning, global-warming lawn mowers. Nor do we use chemicals  6 that poison the soil and underground water. We hand prune the plants and let the grass grow the way it likes. Our reform is censured, derided even, as slow-moving and piecemeal. We brush this carping aside and go steadily forward. We have crossed the Rubicon and will not go back. We in China are not trumpeting a full-scale privatization program that is likely to cut a wide swathe of social damage across the country. Instead, we are determinedly building a socialist market economy based on a multiform ownership system, which is most attuned to the needs of our country. Public ownership remains the mainstay, but the private sector is gaining strength steadily. Let me quote a line from John Keats, "Heard melodies are sweet, but those unheard are sweeter." While I take great pride in the success of the economic reform in my country, I hope that all melodies of reform, heard and unheard, that are played in tune with the rhythms and cadences of the nations will be equally sweet. Farewells are times for thanks. It has been a privilege to work with my colleagues on the Board, with the Bank's management and with the staff whom I have known. My thanks are due to all those in the Chinese ED's office, they exemplify that spirit of team work and cooperation which is vital to development. In particular, my appreciation goes to Mr. Wang for his support and to our advisor, technical assistants and secretaries whose concerted efforts have made my four years of service a time of real joy. Finally, I would like to extend, through Mr. Coady, my thanks to the people and Government of the United States for all that my family have enjoyed during our stay in this country. Thank you, Mr. Chairman.