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Bank Group Annual Meeting

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
December 1967
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Martin P. Shivnan

APLEA by the President of the World Bank Group, Mr. George D. Woods, for a new, creative response to the unprecedented current needs and opportunities of the developing world received widespread support at the Annual Meetings in Rio de Janeiro in September.

Governors from developing and industrialized nations alike listed as a necessary part of this response a series of priority items, including an early and substantial replenishment of IDA’s resources, greater continuity from one year to another in the flow of aid, an attack on the debt-servicing problem, a new approach to the need for increased export earnings by developing countries, and greater coordination of assistance strategies by nations providing aid.

As part of the proposed approach, the Governors, in response to a request from 15 Finance Ministers meeting in Dakar, Senegal, resolved to ask the Bank, in consultation with the Fund, to study the problem of price stabilization for primary products and to submit a report on possible solutions and their economic feasibility for consideration, if possible, at the next Annual Meetings.

The President of Brazil, His Excellency Arthur da Costa e Silva, welcoming the Governors to his country, described the occasion as “a moment of maturity for the international community” and emphasized that flexibility and the courage to innovate were healthy tendencies “which must continue” side by side with the growth of resources available for development.

Mr. Woods urged “harassed parliaments and men of broad vision” in the industrialized countries to “take a second breath” as they approached the 1970’s, emphasizing that policies and performances that had been tolerable even ten years ago were not good enough to meet today’s needs and were clearly insufficient to meet future needs. The past was no longer a sufficient guide for the present situation facing humanity, caught up in a rate of technological and social change—including population growth—never before experienced.

Mr. Woods stressed repeatedly that merely marginal changes in the policies of the industrialized countries toward the underdeveloped nations could yield results of the greatest significance; by contrast the changes which traditional societies had to make in order to modernize themselves were widespread and struck at the very core of their peoples’ lives.

Governors from a wide range of countries expressed concern and disappointment over the recent falling off in international private investment and the stagnation and, in some cases, decline of bilateral and multilateral aid, particularly on “soft” terms. Although recognizing that there had been budgetary and balance of payments constraints in the industrialized countries, many Governors warned of dangers ahead in the 1970’s resulting from a deterioration in the quantity and quality of aid, and the legacy of heavy service obligations on the accumulated indebtedness of the developing countries.

Mr. David Horowitz, Governor of the Bank of Israel, warned of the danger of reaching the “brink of despair” some time in the 1970’s unless these trends were reversed. Mr. N. M. Uquaili, Finance Minister of Pakistan, underlined the seriousness of the current growth of debt service payments, which far outstripped the growth in developing countries’ export earnings and which was further aggravated by deteriorating terms of trade. The international community owed an obligation to itself and to the developing world to tackle this problem, he said, particularly from the viewpoint of a substantial softening in the terms of aid.

However, Governors from three of the biggest industrialized countries—Mr. Henry H. Fowler, U.S. Secretary of the Treasury and Governor for the United States, Mr. James Callaghan, Chancellor of the Exchequer and Governor of the Fund for the United Kingdom, and Mr. Karl Schiller, Federal Minister of Economics and Governor for Germany—reported to the Meetings that their Governments were now pursuing policies designed to lead to higher growth rates for their economies in the future, with the promise of a resultant world-wide expansion of economic activity and higher level of trade. Mr. Callaghan said that he expected this renewal of growth trends to be discernible by the end of 1967 and “quite obvious” by the spring of 1968.

Mr. Woods, referring to these statements, again emphasized in his closing address that the allocation of only a small proportion of the expected increase in the gross national products of the industrialized countries to development finance would mean an immensely larger proportional increase in the external resources available to the developing countries.

Earlier, he had stressed the need to drive home to the taxpayers and legislatures of the industrialized countries that the development effort they had been asked to support—and which they would continue to be asked to support—had paid (and would continue to pay) dividends in important sections of the world. Developing countries embracing at least half of mankind had experienced growth rates in the last 15 years comparable with those in the industrialized countries; some 251 countries had achieved growth rates of 5-10 per cent during 1966, and recent average growth rates in 92 countries, if continued, were sufficient to double their gross national product (GNP) within the 1960’s.

In the last 15 years, the GNP of the developing countries as a whole had more than doubled, and per capita income, despite population increases, had risen by 40 per cent. By contrast, said Mr. Woods, for most of the history of the human race, life for the majority of mankind had been “nasty, brutish, and short,” fluctuating only between varying degrees of poverty.

The Joint Chairman of the Boards of Governors, Mr. Kare Willoch, Minister of Commerce and Shipping and Governor for Norway, stressed that the record of the last few years reflected a remarkable intensification and broadening of the effort to come to grips with development in all its dimensions.

Cautioning against public impatience over the progress of development, he pointed out that far-reaching structural changes were often necessary for economic growth and this fact was frequently compounded by the inevitable lags between investments and their benefits. Many investments, he said, would only make their benefits felt in years to come. In this context, he drew attention to the fact that over three quarters of Bank and IDA disbursements for development purposes had been made within the last 10 years and, of this total, more than 60 per cent had taken place within the last 5 years.

However, he was also impressed by the “critical—even dangerous—nature of the debt service problem” and by the inadequacy of development resources.

IDA Replenishment

On the question of IDA replenishment, Mr. Woods, having expressed the hope that solutions to some of the problems hitherto impeding a substantial replenishment might begin to take shape, reported in his closing address that the amount of replenishment and the kind of balance of payments safeguards to be adopted were still under negotiation.3 But he warmly commended (and in his speech at the close of the Meetings said that he would act upon) a suggestion by the Finance Minister and Governor for the Netherlands, Mr. H. J. Witteveen, that a special high-level meeting or series of meetings be called as soon as possible to reach a firm agreement. He expressed the hope that by this or similar means the outstanding issues would be resolved in the near future in a manner permitting IDA to operate, without any change in its basic principles, at a very much higher level than in the past.

The U.S. Governor, Mr. Fowler, describing IDA replenishment as the most important business pending before the Governors of the Bank family of institutions, said that President Johnson fully supported the efforts of the Bank’s management. He added that, if the multilateral agencies were to fulfill the high hopes held out for them, they had to have increasing funds committed by the donors for a long-term period—a goal which, he stressed, could only be achieved with the protection of balance of payments safeguards.

Mr. Callaghan, the British Governor, said that, in his Government’s view, the question of IDA replenishment should be settled before the end of 1967. The U.K. Government supported a substantial replenishment and would be prepared to consider, if necessary, a system of administrative deferment of the use of contributions from governments which might otherwise suffer serious balance of payments difficulties.

Mr. Mitchell Sharp, Minister of Finance and Governor for Canada, pointed out that an increase in the level of IDA replenishment to US$800 million a year would be equivalent to an additional transfer of US$0.90 a head by the population of the industrialized countries—hardly excessive when compared with the contrast of per capita incomes of $2,000 and $160 a year in the industrialized and nonindustrialized countries, or the expected annual increase in these incomes of $70 and $3, respectively.

Mr. Morarji Desai, Deputy Prime Minister and Minister of Finance and Governor for India, calling for an early decision, said that the best way to achieve the desired widening of the base of IDA’s operations would be to obtain both a substantial replenishment and one that would ensure a steady increase of the funds available.

Among other Governors supporting the need for IDA replenishment was Mr. Mikio Mizuta, Finance Minister and Governor for Japan, who pointed out that Japan had increased its foreign aid by more than 10 per cent during 1966. Mr. Bong Kyun Suh, Finance Minister and Governor for Korea, suggested that Governors consider the advisability of calling for a general increase in the subscriptions to IDA by all its members.

Referring to the measures which had helped IDA to continue making commitments over the past year, Mr. Woods instanced “extraordinary support” from several sources, including the Swedish Government which, for the sixth consecutive year, had made a special contribution, and the action of the Swiss Government in putting in hand legislation to authorize a loan on the same concessionary terms as IDA granted to its borrowers. He said that the loan would break new ground in IDA financing, being the first borrowing by the Association. Mr. B.I. Kai-Samba, Member of the National Reformation Council and Governor for Sierra Leone, suggested that more countries should follow the Swedish and Swiss examples.

Although IDA had been helped by the transfer of $75 million from the Bank’s net income, authorized by the Governors at the last Annual Meeting, the Governors were asked to authorize only a token transfer to IDA at the current Meeting. The reasons, said Mr. Woods, were the rising volume of disbursements by the Bank against commitments prevously made and the tight condition of the international capital markets. The Bank had been unable to obtain suitable access to the European bond markets in particular, although there was good evidence that this situation would change during the current fiscal year.

Debt Service Burden

Referring to the need for a widespread attack on the problem of debt service burdens, Mr. Woods stressed, as “absolutely essential” if development assistance were not to become an exercise in self-defeat, the need for a decisive move on the part of aid-giving countries toward much longer grace periods and repayment terms and toward lower initial interest rates. The service on past official debt, including interest and amortization, already offset two fifths of the official flow of capital to the developing countries. In the case of some aid-giving countries, service payments received on past debts were such that their net transfer of capital to the developing countries would soon dwindle to zero. Often suppliers’ credits—which accounted for nearly half the total current debt service of the developing countries—had to be repaid before the equipment that they financed had made any contribution to national productivity.

Mr. A.A. Atta, Governor for Nigeria, said that most developing countries devoted substantial parts of their budgets to interest payments and loan amortization—substantially reducing, and sometimes exhausting—the domestic resources available for development. Mr. Eduardo Z. Romualdez, Governor for the Philippines, pointed out that some countries were now paying out more than 20 per cent of their total export receipts in debt service payments—a dangerously high proportion. Mr. J.P. Paraskevopoulos, Governor of the National Bank of Greece, argued that further endeavors were needed to increase the amount of “soft” aid and to harmonize the terms of various donors’ assistance.

Mr. G.E. Strang, Minister of Finance and Governor for Sweden, suggested that a more liberal pattern of development assistance terms be established. He suggested that, for example, donor countries should supply at least 80 per cent of their aid either through multilateral agencies, through bilateral channels on IDA or even softer terms, or through untied development loans with low interest rates and long repayment periods: alternatively, he said countries might consider a blend of these methods.

Foreign Trade

Many Governors from developing countries emphasized foreign trade as one of the key sectors in which small changes in their relations with the industrialized countries would yield greatly magnified returns. Mr. Kirti Nidhi Bista, Deputy Prime Minister and Governor for Nepal, said that many developing countries had suffered in 1966 and 1967 because of the weakening in their export receipts. It was pointed out that exports, especially of primary products, provided about four times as much foreign exchange as official development finance and international private investment. Mr. Woods drew attention to the fact that even a 1 per cent increase in the developing countries’ share of the world’s export trade in 1966—equivalent to restoring to them the percentage share that they had lost over the preceding five years—would have brought about a $1 billion increase in their 1966 foreign exchange earnings.

Mr. Courmo Barcourgné, Minister of Finance and Fund Governor for Niger, speaking on behalf of the West African Monetary Union (which consists of Dahomey, Ivory Coast, Mauritania, Niger, Senegal, Togo, and Upper Volta), stressed the importance of the proposed Bank study of commodity stabilization agreements. He said that such agreements could help to ensure a regular flow of resources to the developing countries, facilitating their most effective utilization.

Mr. Debré, the Governor for France and one of the signatories of the Dakar document, stressed the desirability of the international organization of markets for certain raw materials and other, notably tropical, products. The measures to be studied could include the stabilization of prices and the organization of stocks. As a corollary it would be necessary for the producing countries also to accept certain restraints, he said.

Mr. Tan Siew Sin, Minister of Finance and Governor for Malaysia, said that the primary commodity price studies to be made by the Bank and the Fund could well signify the beginning of a new era in their respective histories. In addition to problems of uneconomic prices, he argued that the Bank could well look into problems of excessive freight rates for both the exports and imports of the developing world, and the problem of difficult terms of entry into the industrial countries for developing countries’ manufactures.

Mr. Manuel Acosta Bonilla, Governor for Honduras, speaking on behalf of 19 Latin American countries4 and the Philippines, said that a solution to the problems of primary products along the lines described was a matter of deep concern to the Latin American nations where, despite rising productivity, the growth in personal incomes had fallen in the first half of the 1960’s partly because of their deteriorating terms of trade with the industrialized countries. A solution to the basic products problem would help their balance of payments prospects and permit them to increase their imports to levels more in keeping with their development needs.

The gravity of the problem had been one of the factors prompting the first steps towards regional integration in Latin America, and he stressed the importance of the help of the industrialized countries and of international institutions for the fulfillment of this goal.

Mr. U. B. Wanninayake, Governor for Ceylon, who was elected Chairman of the Boards of Governors for the ensuing year, pointed out that the difficulties facing developing countries over the terms and amount of development assistance gave a new sense of urgency to the need for a solution to the primary products problem. Measures to tackle the problem should supplement the expected recovery in economic activity among the industrialized countries. Both Mr. Janko Smole, Governor for Yugoslavia, and Mr. J. J. Litho, Governor for the Democratic Republic of Congo, stressed that the primary products problem ranked with the debt servicing burden in demanding an urgent solution.

International Finance Corporation

The role of private capital, and particularly the impressive record of the International Finance Corporation in attracting venture capital into the developing countries, received widespread commendation. Congratulating IFC on a “most satisfactory year,” Mr. Paraskevopoulos, the Governor for Greece, said that this reflected the greater diversification of its operations and its increasing partnership with private investors.

Stressing the great shortage of expertise for the identification and development of viable private investment projects, Mr. J.S. Gichuru, Minister for Finance and Governor for Kenya, emphasized the importance of any help that IFC could provide in this field. Other African Governors appealing for a wider role for IFC in Africa included Mr. Paul Bomani, Minister for Economic Affairs and Development Planning and Governor for Tanzania, and Mr. L. Kalule-Settala, Minister of Finance and Governor for Uganda.

Wide-Ranging Discussion

In a wide-ranging discussion, Mr. Fowler, the U.S. Governor, and Mr. J. Milton Weeks, Secretary of the Treasury and Governor for Liberia, were among those commending the Bank-promoted International Centre for the Settlement of Investment Disputes. The first Annual Meeting of the Administrative Council of the Centre was held on the opening day of the Governors’ Meetings and many Governors pointed out that the Centre merited support because of its contribution to the improvement of the climate in which international investment took place.

The Bank Group’s contributions toward the development of education and agriculture came in for numerous comments. Although education was one of the investments which took a long time to produce economic dividends, it was pointed out that one of the statistics with considerable meaning for the future was the estimate by UNESCO (with whom the Bank Group worked closely on educational investments) that the number of children in school had doubled between 1952 and 1963 in Latin America and South Asia, and had tripled in Africa.

A number of Governors referred to the enormous problem of population growth, which had reached a rate sufficient to double the population of the less developed world within a single generation, and to the associated need to increase food production. According to the Food and Agriculture Organization of the United Nations, food requirements were expected to increase threefold by the end of the present century.

Stating that it was encouraging to see some countries beginning to make advances in population control, Mr. Woods stressed that this was only a beginning, and added that neither this, nor the increased application of chemical fertilizers to agriculture, were in themselves sufficient to meet the challenges facing the developing world. This problem could only be resolved within the framework of the larger process of change associated with economic development.

The joint Chairman, Mr. Willoch, pointing out that total farm production in the developing countries had fallen almost 5 per cent over the years 1965 and 1966, said that, because of population growth, the decline in food production per capita was even more severe. These facts were a “grim and powerful endorsement” of the Bank Group’s decision to engage itself more fully in the difficult task of agricultural development, he added.

Among others who discussed the food and population problems were Mr. Ching-Yu Chen, Minister of Finance and Governor for the Republic of China, who urged that population control be rigorously pursued by the governments of the developing world; Mr. Juan-José Espinosa, Finance Minister and Governor for Spain, who argued that, on the food front, agricultural and livestock projects merited the Bank’s special attention; and Mr. Yilma Deressa, Finance Minister and Governor for Ethiopia, who also stressed the need for increasing Bank activity in the agricultural sector.

Bank Annual Meeting

The report in this issue of Finance and Development of the Bank Annual Meeting is greatly condensed, touching only upon a small portion of the speeches and activities.

A more complete record of the Meeting is published by the Bank in a volume entitled Summary Proceedings. It is available free on request from:

Publications Office

International Bank for Reconstruction and Development

1818 H Street, N.W.

Washington, D. C. 20433

U.S.A.

Including Bolivia, Chile, the Republic of China, Colombia, Costa Rica, El Salvador, Greece, Guatemala, Honduras, Jamaica, Kenya, Korea, Malaysia, Mexico, Nicaragua, Nigeria, Panama, Peru, the Philippines, Spain, Tanzania, Thailand, Trinidad and Tobago, Turkey, and Venezuela.

The Republic of China, Greece, Israel, Jordan, Korea, Nicaragua, Panama, Spain, and Thailand.

One proposal had called for $ 1 billion a year over a three-year period.

Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, El Salvador, Guatemala, Haiti, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay, and Venezuela.

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