Chapter

Discussion of Fund Policy by Governors at Bank, IFC, and IDA Session 1

Author(s):
International Monetary Fund. Secretary's Department
Published Date:
November 1965
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Statement by the Governor of the Bank and Fund for Zambia

A. N. L. Wina

… Many developing countries find that they have to increase the burden of their foreign debt through expenditure on structural improvements, before they can proceed to the execution of those productive projects which the nation’s resources will ultimately justify. In such circumstances it is inevitable that the import bill and the requirements of debt servicing increase faster than export earnings. The neglect that such countries have suffered from in the past, and the very backwardness of their development, are likely to make this unavoidable, however harshly governments try to curb the import of consumer nonessentials.

Because the import and debt-servicing bill may grow just at the time when the price of a leading export weakens, we welcome the arrangements that are being made by the IMF for compensatory finance. Well over 90 per cent of our own export earnings come from copper. Because the price of copper has been buoyant recently and because my Government has preferred projects that are productive to those that are merely prestigious, we have achieved a real rate of growth of over 10 per cent in the year since Independence, and we have increased our employed labor force by about the same amount. But the very robustness of an economy such as ours, so dependent on a single export, makes it potentially vulnerable to price fluctuations that may occur in the future. …

As regards the problem of international liquidity, my Government fully supports the Managing Director of the IMF in the points that he put forward at the end of his address. We believe, as he does, that the functioning of the international monetary system and proposals for its improvement are matters of concern to all members of the Fund.

We cannot promise that our support in this matter will be decisive. We are, however, grateful for the assurance given yesterday by some members of the Ten that the problem of world liquidity will at some stage be brought before a broad forum representing both developing and developed countries. The Fund seems to me to be the more suitable medium for such discussions. We are glad to note also that in some detail and more forcefully this view has been expressed by other countries. I believe this to be essential not only for the maintenance of world confidence of a purely financial nature, but also for the establishment of world trust in the broadest political sense.

Let me once again on behalf of the Government and people of the Republic of Zambia say how proud we feel in joining and participating in the deliberations of these important organizations.

Statement by the Governor of the Fund for Congo (Brazzaville)

Edouard Ebouka-Babackas

… For this reason we once again stress the importance of the role that the international financial institutions must play in the training of professional staff. An increase in the number of fellowships and training courses for nationals of the developing countries would be both useful and desirable.

To refer finally to the subject of the increase in quotas, it must be admitted that this decision imposes a heavy sacrifice on those of our countries that are experiencing financial difficulties. Despite this, the majority of us are going to subscribe to the proposed increase. In agreeing to accept this sacrifice, we are demonstrating—if, indeed, any demonstration is necessary—our willingness to play our full part. We are accordingly entitled to expect that the reform of the monetary system that is engaging the attention of all of us will take into account all the interests involved. At all events, it must no longer provide an opportunity for the wealthy nations to exploit the poorer and less developed nations.

In conclusion, we wish to reaffirm our faith in the immense possibilities of the international financial and economic institutions and to express our conviction that they will work for the economic development of our countries and thereby enable us to contribute our just share to the growth of world trade.

Statement by the Governor of the Bank for the United Arab Republic

A. M. El Kaissouni

Three major subjects have been highlighted in the 1965 Reports of both the Bank and the Fund. The first subject relates to the international monetary system and international liquidity, the second to the flow of financial resources to the developing countries, and the third concerns the developments in the external indebtedness of developing countries and debt renegotiation. …

The sustained rates of growth achieved in some advanced countries despite their balance of payments deficits are of significant interest since they are the outcome of the experiment with sustained growth; a policy that rejects return to stop-go economics as a means to restore external balance, and relies on an increase in productivity and competitiveness through appropriate cost policy and sustained investments. The advantages of such a policy to the world as a whole are tremendous. But the policy of achieving external strength through internal economic development often entails balance of payments deficits which have to be corrected over a long-run period. These deficits which are necessary for uninterrupted growth and development point to the constant need for a still greater role to be played by the Fund and the Bank as well as through international monetary cooperation in general. Any obstacle to the proper functioning of the international monetary system, such as the lack of adequate liquidity, is a threat to the development of the world.

This suggests the necessity for a systematic creation of a new asset, coupled with the readaptation to world needs and feasible policy objectives of the drawing rights in the International Monetary Fund. Thus, the compensatory financing facility could be increased from one tranche to two tranches and the criteria for using this facility could be improved to take into account results to date and discussions in UNCTAD. Similarly, it may be desirable to increase the possibilities for any country to draw beyond 200 per cent of its quota when circumstances justify it, as well as to lengthen the period of repayment, and to consider the possibility of allowing members to draw automatically an additional tranche.

But the systematic reserve creation is an international responsibility and not that of a limited number of industrial countries. If the developments in the industrial countries point to the necessity of increasing international liquidity to maintain steady growth at the time there is external imbalance, the developing countries are in the same condition. Their need is even more urgent: their per capita income is growing at less than 2 per cent per annum, compared to 4 per cent in advanced countries; they comprise over two thirds of the population of the world, and their need for a sound international monetary system that would help the steady growth of their economies is therefore vital.

We consider that the International Monetary Fund, where both developed and developing countries are represented, is the appropriate institution for the study of liquidity and for the systematic reserve creation. We also believe that due consideration to the interests and problems facing the developed and developing countries on an equitable, regular and assured basis suggests the necessity of reallocation of the voting power or at least the creation of a system of conciliation between the different interests similar to that adopted by the UNCTAD. …

Statement by the Governor of the Bank and Fund for the Sudan

Hussain El Shareef Yousif El Hindi

… Before I conclude, I want to say a few words about international liquidity. The clarity of exposition in the Fund’s Annual Report contributes greatly to the understanding of this involved matter and the suggestions regarding the possible role of the Fund in the creation of international liquidity certainly merit serious attention. The problem of international liquidity has so far been discussed in a way as if it is the sole concern of the highly developed and industrialized countries. However, the developing countries have a great stake in this question. Increased international liquidity is indispensable for the growth of world trade; such growth is vital for the development of the poor nations. The pressing need for it, however, is in order to provide a bigger volume of aid. Shortage of liquidity inhibits donors because of the concern for inadequate gold and foreign exchange reserves.

In our opinion, there are already indications in the international economic climate of the possibility that an over-all shortage of international liquidity may develop quicker than it appeared probable a few years ago. Should such a shortage be allowed to develop and to be followed by the adoption of deflationary policies by a number of the industrialized countries, the effects of this on the developing countries would be disastrous. The flow of capital would diminish, tied loans would spread more, and thus reduce the real value of the aid received and would make its utilization more difficult. In the last analysis, the developing countries may be forced to curb imports severely, a situation which is bound to adversely affect the level of economic activity in the industrialized countries themselves.

It is for all these reasons that we firmly believe that all countries, developed and underdeveloped, should have a voice in the discussions and decisions about international liquidity. Furthermore, we believe that a greater sense of urgency is needed and that devising a solution acceptable to all is not beyond the ingenuity of man. Finally, it is our conviction that whatever is agreed to be done should be done within the Fund.

In our last meeting in Tokyo, we pointed out that the Sudan’s main concern is to match expenditure with resources. This is still true: it is also true that the Sudan continued to experience strains on her balance of payments. With the budgetary and monetary measures taken and the Fund’s assistance, we have gone and will go a long way to alleviate those strains and stresses.

Appreciative as we are of the Fund’s efforts in this respect, we strongly feel that the terms and conditions under which the Fund provides such compensatory assistance (and, indeed, any other assistance) should be reconsidered with the view of softening them. It is no secret that a very limited number of members have so far made use of these arrangements, in spite of the pressing need of many for such assistance.

Last but not least, I wish to extend a warm welcome to the Governors from Malawi and Zambia who have joined our membership since we last met. I also extend greetings to my colleague, the observer from the recently independent State of Singapore who will soon join our ranks. I am sure they will enrich the discussions of our challenging task.

Statement by the Governor of the Bank for Paraguay

César Romeo Acosta

… I wish to point out that, as concerns the problem of international liquidity, the Group of Ten industrialized countries should not overlook the situation of the underdeveloped countries, since any unilateral solution will not contribute to the well-being of the peoples who constitute the majority of the countries of the world. …

Statement by the Governor of the Bank and Fund for Ceylon

U. B. Wanninayake

I represent a Government which assumed office in Ceylon only a few months ago. I am happy to state that from the very outset my Government has been in close association with the Bank and the Fund. We found ourselves facing an acute foreign exchange crisis and a severe shortage of essential imports which was hampering the utilization of existing productive capacity. Monetary pressures were raising prices and living costs. In this situation we had recourse to the Fund and we were also able, with the assistance of the Bank, to enlist the cooperation of certain donor countries for an aid program. I must acknowledge with appreciation the role played by these institutions and their staff in helping us to face our problems, and I look forward to a continuation and further strengthening of our relationship with them. In the course of this meeting, we have been continuing the great debate on the two major issues of concern to these institutions—the problem of enhanced resources for development and the problem of the evolving international monetary system. …

The Chairman, Mr. Woods and several other speakers have quite correctly stressed the responsibilities which the developing countries themselves must shoulder in the matter of internal policy. There is an observation I wish to make in this context. The experience of my country in recent times has clearly underlined a very important and salient fact. It is that the successful pursuit of sound internal policies, of fiscal and monetary stability and the like is intimately linked to the adequacy of external resources. The Fund is in a position to offer some resources in support of a stabilization policy. But I am convinced that in most cases these would not in themselves be sufficient unless supported by larger resources made available through the Bank and its affiliate agencies, through the assistance of donor countries or by other means.

It is for this reason that the whole question of the relationship between the international monetary system and the needs of the developing countries needs to be reviewed afresh. The developing countries are members of the system. They are expected to abide by its rules and to pursue its objectives. Yet, can we be assured that the facilities afforded by the system and by the institutions which form part of it are sufficient to enable the developing countries to fulfill their role in a manner consistent with the attainment of adequate growth? This, to my mind, is one of the most important questions concerning the stake which developing countries have in the reform of the international monetary system. It has been said in this chamber that the problem of international liquidity, in particular, and the problem of monetary reform, in general, are essentially concerned with short-term resources and that these are separate from the needs of the developing countries, which are for long-term resources. I cannot agree with the validity of such a rigid distinction. If proper participation by the developing countries in the rules of the monetary system requires long-term resources and these resources are not forthcoming in adequate measure through conventional channels, should we rule out of consideration altogether the possibility of establishing a more direct and effective link between the monetary system and the needs of developing countries? The developing countries have rightly said that they wish to be consulted on the debate on monetary reform. The time is now appropriate for these countries to formulate and consolidate their views so that their participation in the debate would be truly effective.

One final point. I was encouraged by the reference by Mr. Schweitzer to the work that the Fund is now undertaking to improve the compensatory financing facility. Several speakers have urged that compensatory assistance should be provided for a decline in the terms of trade rather than for a fall in export earnings alone. My own country’s experience in recent years vividly illustrates the importance of this reform. We suffered a decline in the terms of trade by 13 per cent in two years alone, but since this was almost entirely due to an increase in import prices we were unable to avail ourselves of the compensatory financing facility. I do sincerely hope that this particular improvement in the scheme will be made effective at an early date.

Let me conclude by expressing the hope that the year ahead will witness greater progress in the field of development and monetary affairs and see a further strengthening of the sister institutions, the Bank and the Fund.

Statement by the Governor of the Bank for Dahomey

François Aplogan

… The Fund has been no less active. The countries receiving its financial assistance have been more numerous than in the previous year, and, it may be noted that, of a total of 34 countries, 32 are developing nations.

In the sphere of technical assistance, my country is in a good position to judge the efforts made by the Fund, since an expert from its Fiscal Affairs Department has, for some months, been assigned to my Government as financial adviser. This year, again, senior Dahomean officials will participate in the training course at the IMF Institute.

It is my hope that Mr. Woods and Mr. Schweitzer will find here the expression of our gratitude for the great attention they have devoted to the problems of developing countries.

Despite these results, much has still to be accomplished. …

Once again this year, the Fund has deliberated at length on the problems of international liquidity. For the solution of these problems, it would be unrealistic to fail to take into account the interests of the primary producing countries. …

But the efficacy of all measures depends, in our opinion, on a practical organization of the markets for primary products. Among these measures, a recent suggestion would particularly repay our attention, despite some difficulties. It entails the creation of new liquidities based on primary products, the list of which would be drawn up in appropriate fashion. This important contribution has the advantage of establishing a close relationship between problems of development and problems of the international monetary system, both of which are exercising our minds at this time.

Statement by the Governor of the Bank and Fund for Malawi

J. Z. U. Tembo

This twentieth meeting of the Board of Governors is the first at which Malawi has been represented as a member of the Fund and the Bank. I am delighted and proud to be here but, at the same time, I must confess to feeling some humility in the presence of so many experienced and able delegates who have achieved much over the last two decades to build up the machinery for international monetary cooperation.

Mr. Chairman, I should like to thank you, the Managing Director of the Fund, the President of the Bank and, indeed, my fellow Governors for the warm welcome which has been extended to the Malawi Delegation. My Government regards membership of the Fund and of the Bank and its affiliates as one of the significant results of Malawi’s independence; though a small country, we shall endeavor to play a constructive role as members of the four institutions and fully accept the responsibility which membership entails. Immediately after Malawi became independent in July of last year, my Government applied for membership of the Fund and Bank and the smoothness with which negotiations moved owes much to the expert assistance and the close and friendly cooperation accorded to Malawi by the staff of the Fund and Bank and by the Executive Directors for the United Kingdom. I would like to express my warm thanks to all those who have taken part in the processes which have enabled me to be present here today.

I also wish to refer, with pleasure, to the recent visit of an IMF mission to Malawi and to earlier visits by members of the staff of the World Bank. These contacts have already proved useful and stimulating and we look forward to a further strengthening of relations.

The economic problems facing Malawi are not much different, except perhaps in degree, from those of other developing countries. With a per capita income equivalent to some $24, Malawi must rank as one of the least developed countries in Africa. We are entirely dependent upon agriculture, and, while we are still only at the threshold of a period of economic development, our external indebtedness, arising largely from the breakup of the Federation of Rhodesia and Nyasaland, is substantially greater, relatively speaking, than the average for developing countries. Although we are thus faced with serious financial problems, we are rich in human resources and in the fertility of our soil. …

Mr. Chairman, I ask indulgence for dwelling on the problems of my country and of underdeveloped countries generally. They have been better and more comprehensively put to this body before now. But these are matters of vital importance to us—we live with them every day and in every decision we take. We are acutely conscious that whatever our efforts to create a suitable climate for investment, to instill a sense of dedication and hard work in our people, and to plan a sensible and constructive use of our financial resources, successful economic development does not lie in our hands alone. It is for this reason that we, like many other countries of Africa, look to the Fund for the proper ordering of the world’s financial and economic affairs so that our own efforts can bring their just and needed reward. It has been said in this body before that the less developed countries have to run fast in order to stand still. Indeed the situation is probably worse than this; the evidence of recent years is that prices of the primary products have remained generally static and low by comparison with the prices of industrial goods. …

This Annual Meeting will be closely concerned with the question of international liquidity and with the work which has been done on this subject since the meeting in Tokyo. While a solution lies in agreement among the major industrial countries of the world, many of us in the developing countries are deeply concerned. If matters are allowed to drift, there is a real danger that restrictions on the movement of capital and on the flow of aid to less developed countries will be unavoidable. We look to the major countries whose currencies have been financing most of the world’s trade and development not only to reach an early solution acceptable to all but also to take us into their confidence so that present uncertainties may be dispelled and allow planning for development to proceed from a firm foundation.

We have only quite recently gained political independence. We recognize that to improve our people’s standard of living and to achieve true economic independence there is much we can and must do to help ourselves. While there will be a continuing need for aid, both technical and financial, for some years to come, we shall do our utmost to stand on our own feet as soon as possible. We believe that the proper management of the world’s financial resources and the promotion of world trade without artificial barriers will help us to achieve this aim. Our future prosperity depends in large measure upon the efforts made by the Fund, the Bank, and its affiliates to tackle the problems which confront us today. We in Malawi are fully prepared to cooperate with our fellow members to this end.

In conclusion, may I thank you and my fellow Governors for hearing me so patiently.

Statement by the Governor of the Bank and Fund for Jamaica

D. B. Sangster

… From figures recently published, it appears that, over the last five years, private capital outflows have remained static in the case of some developed countries and declined in the case of others. An exception to this general trend has been in the field of commercial credits which have increased, but it is precisely this area which has put many debtor countries in difficulties. The inevitable result of this must be that greater pressures are placed on the international agencies and on government-to-government bilateral loans. To the extent that restrictions on private capital flows may result from balance of payments difficulties in some of the major countries of the world, developing countries have a definite interest in finding an orderly solution to international monetary problems.

It has been taken for granted in the past that world liquidity and world monetary issues were matters to which the larger countries of the world would devote their attention, while the developing countries would concern themselves with bringing pressure to bear on the International Bank and other lending institutions for capital aid. There has been ample evidence in the statements made at this meeting that many countries outside the Group of Ten are concerned about possible developments in the international payments system which is closely linked with the problem of reserve creation.

In a sophisticated world which has solved so many complex problems in all fields of science it must surely be a blot on our particular branch of the sciences if we cannot bring forth a solution which will disassociate the creation of new international liquidity from the balance of payments deficits of certain countries. Nor should such a solution result in the reduction of private capital outflows or the curtailment of purchasing at adequate prices of the goods and services produced by developing countries. In the light of what has happened, I have not been able to understand those who say that the present system of world monetary arrangements needs no reform, unless those who advocate this view are willing to accept that we can only have a currency system which moves from crisis to crisis in some of the major countries of the world and which provides no order or stability. We look forward, therefore, to a very early consensus on the next step which should be taken in world monetary reform, and I am convinced that the IMF is the proper place in which the necessary decision should be taken.

Statement by the Alternate Governor of the Fund for Ethiopia

Menasse Lemma

… Lately much has been said and written about the important subject of international liquidity and the reform of the international monetary system. The Executive Directors have not, at this stage, reached a common view on the merits of the various approaches put forward. Although one cannot but feel frustrated at the way a solution acceptable to all has eluded us, I am confident that the Executive Directors will continue to devote further attention to these matters in the coming year and reach an appropriate solution.

We live in a world in which interdependability between nations is growing very rapidly. Prosperity or adversity in any country or group of countries greatly influences the rest of the world. Nations can no longer live in isolation. We therefore expect that the Executive Directors, in their future recommendations on the problems of liquidity and the reform of the international monetary system, will reach a solution in keeping with the concept of the internationality of the Fund which embraces the rights and interests of all its members.

September 30, 1965.

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