Foreword

A year of asymmetric shocks

For most of the countries we work with, 1998 was a difficult year; one of the most troubled of the passing decade. It was a year of profound change and volatility; some would say a year of asymmetric shocks.

The shocks are quickly summarized: a turbulent financial market, the uncertainties of a globalizing world economy and the strains of required adjustment. There were plummeting commodity prices, a slowdown in world import demand and greater risk aversion among investors. In some countries, perennial social problems, such as hunger, disease, homelessness and civil unrest, magnified the effect. The weather phenomenon, El Niño, brought severe flooding and drought as well, destroying crops, water supplies and, in some cases, rural infrastructure.

It certainly was a year of anomaly: estimates put the global costs of the East Asian financial crisis (and its contagion effect) in 1998 at about 1% of world output; some $260 billion or the equivalent of the annual income of sub-Saharan Africa. The effects of the crisis have been felt most dramatically by the developing world and the largest impact has been on the poorest segments of the populations, with millions of jobs lost, as were unquantifiable opportunities and, in fact, hope for so many. Some quickly concluded that much of the activity of financial markets no longer related to wealth provision and job creation, but to detrimental speculation and arbitrage. The East Asian crisis was also, if not the single most important factor in the slowdown in commodity prices, the accelerator of the decline: earnings losses in some commodity-dependent countries equaled an estimated 12% of gross domestic product.

In this troubled environment, the Fund continued to carry out its mandate. It was out in the field, providing customary, timely assistance and trying to make a difference in many affected, low-income countries. It was active supporting projects and programs, assisting various development schemes, and strengthening its cooperation with other agencies dedicated to the improvement of the well-being of the less privileged countries and populations.

Routine operations apart, the Fund was involved in meetings and joint efforts on best practices and approaches toward promoting development. The Fund took the decision to engage in private sector activities. We responded to recipient countries in their quest regarding greater involvement of the private sector in the development process, but also recognized the role of the state as a facilitator of economic activities, arbiter of fair business practices and guarantor of the legal framework. The Fund also cooperated in advancing the HIPC (highly indebted poor countries) Debt Initiative, and approved modalities to bring promised HIPC relief to a first batch of qualifying countries.

Nineteen ninety-eight was also the first year of the Fund's Thirteenth Lending Program, designed to deliver assistance over a two-year period to beneficiary countries. The 13th lending program is important for several reasons, among them the further softening of already significantly concessional lending terms. The improved terms have come about to ensure that OPEC assistance to fellow developing countries remains relevant and is consonant with the needs of the beneficiary countries.

Also in 1998, the OPEC Fund moved swiftly to extend humanitarian emergency assistance to a number of countries struck by natural disasters. The objective was to provide medical and other relief supplies to affected people within the shortest possible time. We were privileged to work with dedicated and committed authorities and organizations that put to best use the limited resources we were able to make available.

As the following pages put in perspective, the OPEC Fund, in fiscal 1998, extended a total $156 million in project and program loans to 25 countries, worldwide. Some 26 projects and programs were financed by these loans which were deemed essential by the recipient countries. In addition, the Fund provided grant assistance worth a total of $4.5 million to finance 32 technical assistance schemes, emergency operations and research and studies.

Cumulatively, the OPEC Fund has delivered some $5.2 billion in development financing over its 22-year history; no small achievement for an institution owned by countries which, themselves, are also developing, and for most depending for their livelihood on a single commodity whose price has hit a 12-year low. Our projects and programs have gone to help increase productivity, develop skilled human resources, create social safety nets and support greater opportunities for all. We have targeted education, health care, water supply, road construction, food security and policy measures to improve conditions for the poor.

The difficulties and asymmetry, which marked 1998 notwithstanding, the OPEC Fund still looks forward to the future with confidence. While we do our part, fortunately backed by our Member Governments, we encourage others to rally round the poorer countries in their struggle for survival. Fears of a "hazardous," globalizing world economy, with its overriding emphasis on privatization, deregulation and rationalization should not persist. Globalization should be viewed and properly managed, to deliver on the promises of enhanced trade, long-term investment and benefits to all. Also, currency stability, low inflation and more efficient markets should be the objectives of a renewed development compact or "new architecture" between developing countries and donors. Our common aim should be durable growth, reduced poverty and a culture of peace.

The OPEC Fund proposes to continue to support cooperating countries as they strive to restore macroeconomic stability and remedy structural weaknesses. We shall continue to work with them to create an enabling environment for their development. The new international financial architecture we aim to build in cooperation with others, will be broadly-based and will require commitment.

On a personal note, I would like to avail myself of this opportunity to thank our Member Governments, the Ministerial Council and Governing Board of the Fund for yet another successful year. Our salutation also goes to our cooperating countries whose development aspirations remain our primary concern. The OPEC Fund stands by them, working with them to attain the worthy goals they individually set themselves.

Y. Seyyid Abdulai

Director-General