Opening Address by the Chairman of the Boards of Governors, the Governor for Iran1

International Monetary Fund. Secretary's Department
Published Date:
October 1966
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Jamshid Amouzegar

It is indeed a great privilege and a distinct honor for me to welcome you all to our twenty-first Annual Meetings, and to make a few introductory remarks about our organizations’ past accomplishments and their tasks ahead.

First, however, I wish to thank the Government and people of the United States for their gracious hospitality and to extend a most cordial welcome to our guests. I extend a special welcome to the Governor for Singapore, which became the one hundred and fourth member of the Fund and Bank on August 3, and to the Governor for Guyana, who has today completed the steps making his country the one hundred and fifth member of the two organizations. We should take special note, also, of the presence here of Delegations from the Gambia and from Indonesia, which have both applied for membership in these organizations.

Twenty years ago tomorrow in this very same place, the Governors of the Fund and the Bank gathered together for their first Annual Meetings. The twenty years in retrospect present vivid evidence of the vitality of a group of institutions, constantly looking forward, continually reappraising their mission while holding out stability to a gyrating world. In reflecting upon the past, I am torn between two sentiments: pride in our institutions and their achievements, and disappointment that the world has not yet fully met the challenge of the fundamental issues of development.

As for the accomplishments, the World Bank Group has so far provided more than $11 billion for development projects in 89 countries. In recent years they have taken an increasingly active role in agriculture and educational development while pursuing their paramount interest in the financing of infrastructure. They have given large-scale assistance for the growth of industry, and this activity will be broadened and accelerated as the momentum of IFC’s operation continues and the Corporation exercises its new authority to borrow from the Bank.

On more than one occasion, the Bank’s objective intervention has deflected international discord and helped to channel energies into productive achievement. Increasingly, it has applied its experience and professional competence to the search for solutions to some of the more intractable problems of development. The Convention on Settlement of Investment Disputes is one such result. The Bank’s Executive Directors who proposed that Convention are now considering another to facilitate the flow of private funds by establishing a system for the international insurance of investments. In addition, a study conducted by the Bank’s staff has resulted in the outline of a Scheme for Supplementary Financial Measures, now under consideration by the United Nations Conference on Trade and Development. It offers a specific method for dealing with one of the most vexing handicaps of developing countries—the uncertainty of export earnings which depend upon highly volatile world markets for primary agricultural commodities.

Turning to the Fund, I should like to give recognition to the good work that this organization has performed. Despite the doubts cast upon the operation of the Fund in the early days, this institution has been able to grow in a flexible manner to meet its increasing obligations and responsibilities. Total drawings on the Fund have exceeded $12 billion and net drawings outstanding today approximate $4.8 billion. Few, if any, would have predicted this impressive record. In the last year alone, in addition to advisory and consultative services, the Fund provided financial assistance, either through direct purchase transactions or in the form of stand-by arrangements, to a record number of 37 member countries, all but 2 of which may be classified as nonindustrial. In the past fiscal year sales of currency to member countries were the highest ever and on April 30, 1966, outstanding balances of drawings from the Fund and unused stand-by arrangements far exceeded the total at the close of any previous fiscal year.

There have also been important developments which will affect the financial aspects of the Fund operation in future years. One such notable development is the enlargement of the Fund’s resources providing for general and special increases in quotas. In consequence of this, total quotas today are in excess of $20.5 billion, compared with less than $16 billion before the Resolutions were approved in March 1965. These added resources can give us confidence that the Fund will be even better able to continue the work on the financial side that has proven to be so helpful to all members in the past.

The Fund’s continuing active work in the field of international liquidity also deserves special attention. I think that we can all be heartened by the sense of forward progress that is gained from reading the chapter of the Fund’s Annual Report that is devoted to this important problem. In this Report one finds several passages radiating hope that we are in the process of arriving at a consensus that will be beneficial to all. I refer in particular to the possibility of the deliberate creation of reserves in attempting to attain an appropriate rate of growth in reserves. It is indeed a great satisfaction to note in the Report that Mr. Pierre-Paul Schweitzer, the distinguished Managing Director, has taken the initiative to present to the Executive Directors a statement on how reserves can be created in the Fund or in close association with it; that his proposals are based on the principles that reserve creation is the concern of all member countries; that they provide that all should participate with due safeguards both in the distribution of newly created reserves and in the decisions that lead to their creation; and that such creation should take place either through the Fund or through an affiliate of the Fund. Despite a recent unfortunate setback, I am sure that all of us can look forward with great expectation to the result of continuing study of this and alternative ways to move forward in the field of international liquidity.

Turning to the world’s general economic picture, however, I note with regret that with the so-called development decade more than half over, the gap between aspirations and achievements remains wide, indeed wider in many instances. The Annual Report of the Bank and International Development Association shows that while the industrial countries have achieved unprecedented prosperity, laggard progress in agriculture, increases in population, inequities and imbalances in world trade and finance—these and other factors of immense complexity have offset much of the gain in the developing countries. While we have learned a great deal about development and our discussion of its intricacies has become more sophisticated, the needs have remained essentially the same: adequate external financial aid, a wide range of technical assistance, and improvement in the credit position and economic policies of developing countries. In the last 15 years, the real gross national product in the developing countries of Asia, Latin America, and Africa as a group has increased by an average annual rate of 4½ per cent. In some of these countries the growth rate has hardly kept up with population increase. In others a population growth of between 2 and 3 per cent a year has wiped out much of the production gain. To offset this unfortunate situation, everyone agrees that the magnitude of development finance must be increased and its terms must be made easier. Yet the reverse is happening. While the capacity of the developing nations to receive aid is gradually but surely increasing, and the developed countries’ ability to offer aid is also firmly on the rise, the latter’s willingness to help the emerging countries seems to be dwindling. A specter of narrow nationalism, inward orientation, and withdrawals from long-range commitments to the cause of international cooperation and assistance again seems to be haunting some advanced countries.

Nor is this all. More than half the inflow of development finance is now being offset by debt servicing on the part of the developing nations. A former World Bank official has in fact shown in a recent essay that low income countries are now paying more in interest and principal on World Bank loans than the Bank is disbursing on those loans. In his opinion, Bank loans in the year 1964 were responsible for a flow of resources from the poor to the richer nations. Indeed one must be concerned that the goal of 20 years ago is still so distant.

The Bank’s Report this year places these multiple problems of development in the right perspective. The fundamental problem is one of priorities. Many countries both rich and poor have permitted themselves to be diverted from the cause of economic development by current exigencies of various kinds. Nations, like men, find it difficult to keep their eyes on distant goals when present threats and vicissitudes confront them. I do not wish for a moment to underestimate the magnitude of difficulties which confront either the developing or the industrial countries and which have sometimes deflected their attention from the imperatives of economic development. The leaders in developing countries in particular must grapple with acute shortages of domestic financial resources and human skills and not only with a scarcity of foreign exchange but also uncertainty concerning the levels of both export earnings and external assistance. The shortage of foreign exchange in most developing countries is a major bottleneck for implementation of national development programs. Although this whole problem is related to the question of trade and development, it is also an important aspect of the structural changes that are necessary in developing countries to bring about conditions for self-sustained growth.

I would also like to draw your attention to still another fundamental problem faced by the developing countries. These countries have often been advised to concentrate on the development of the sectors in which they have comparative advantage, that is, on production of primary products, and to trade the available surpluses for imports of manufactured goods including capital goods. Yet the concept of comparative advantage is not a static one; it is a dynamic concept. Changes in relative scarcity of factors of production, changes in relative prices of commodities, discovery of new resources, acquisition of technical skills, development of infrastructure, and other external economies and similar factors may cause a shift in factor ratios and their comparative advantage.

Developing countries, in order to bring about the conditions for a rapid growth and to increase their productivity, have no alternative but to introduce changes in their economic structure. This may be achieved by a process of industrialization parallel with agricultural development in order to reduce the reliance on production and exports of primary products alone. Continuing uncertainties surrounding the export of primary products, however, make it essential for developing countries to consider diversification of their economies and development of their industrial sector at a more rapid rate. As late as 1964, foodstuffs, raw materials, and petroleum still accounted for 85 per cent of their total exports. In view of the immensity of these problems it is indeed noteworthy that so many developing countries have managed to adhere as well as they have to sound economic policies. There is undoubtedly room for improvement in the use of aid by the emerging nations. But even with the most efficient coordination of aid and the best of performance by its recipients, self-sustaining economic growth will be a receding hope for many countries unless enough resources of foreign exchange are available to finance the imports required. If these countries are to have peace and stability they must have external help and capital for investment to tide them over economic difficulties. Fractions of the cost of the steps which would eventually be taken to restore stability and order in a troubled area would ensure far more tranquillity and peace if contributed toward implementation of economic development. But the curious reality of the mid-twentieth century seems to point to the opposite direction: illogical as it may look, the costlier the peace missions, the greater seems to be their chance of getting support from the rich and the politically powerful nations.

The capacity of the industrialized countries to afford an effective precrisis assistance is adequate. Their national income has been increasing in the aggregate at the rate of $40-50 billion a year and if over the last 5 years only 1 per cent of that increase had been devoted to additional development support we should by today be not very far from a satisfactory level of assistance. The 20 or so industrial countries of Western Europe, North America, and the Western Pacific account for over a $1,000 billion of the world’s product. These 20 countries with less than one fifth of the world’s population produce and enjoy more than one half the world’s wealth. By contrast, taking only the developing countries within the World Bank’s membership, another segment which is one half of the world’s population accounts for only one sixth of world product. It is unrealistic to think that this state of affairs can persist. In an age when man is literally soaring to the stars, it is indeed pitiful that he has not yet managed to raise to decent levels the standard of living of two thirds of the earth’s inhabitants.

An expansion in the flow of private capital can of course add to the availability of foreign exchange, either by increasing exports or producing substitutes for imports. But if the past experience is any indication of future expectations, it would be fanciful to hope that private funds would be made available on an adequate scale to countries where the need is greatest or that they would soon generate enough production of the kinds required to ease the shortage of foreign exchange. We, therefore, inevitably reach the conclusion that there is an urgent need for increased external assistance from the industrial countries and on more concessionary terms.

Economic development in poorer countries has acquired a stronger momentum thanks to our common efforts of the last 20 years. The opportunity which now exists to take advantage of this achievement and speed the process of growth through productive investment has never been greater. The need is small in relation to the vast capabilities of the industrial countries, but action to meet it has so far been blocked by obstacles which have assumed formidable proportions, but which, in essence, are political and technical problems in dealing with payments imbalances among themselves.

These and other problems of trade, aid, payments, and growth should be tackled in a coordinated manner by everyone concerned. Recent efforts by the Bank, the Fund, and the United Nations Conference on Trade and Development in presenting the plight of the developing countries and their increased interest and involvement in world economic reforms seem to move in the right direction. There are numerous plans for the creation of international liquidity, and its distribution to developed and developing countries alike, which could be adopted and put into effect. The essential thing is to act and to act fast before it is too late.

In his recent address to the Ministerial Meeting of the Development Assistance Committee, Mr. George Woods, the distinguished President of the World Bank, warned that “today the disparity between the living standards of a prosperous fraction of mankind and the rest of humanity is a gulf that separates the two, but tomorrow it may swallow up both rich and poor in political strife and economic chaos.” A more candid interpretation of this eloquent warning may be to say that the issue of international aid giving is too important to be left to the aid givers alone.

Fortunately for us all, the poor and the rich are both represented in this hall today. Let me ask them both to consider before the close of this session what more can be done in the years to come to attain the common goal which has gathered us together. I am confident that with sufficient good will and good faith on the part of aid givers and aid receivers the present difficulties can be overcome in the spirit of international collaboration which gave birth to our institutions 20 years ago. I am equally confident that the industrial countries will be able to solve not only their own problems but also find means to meet the requirements of their less prosperous neighbors.

As Governors of the Fund and the Bank we have an obligation to help focus the world’s attention on the need to press forward toward self-sustaining economic growth in all countries. These meetings offer an unequaled opportunity in this regard. Unless we come forward with new ideas, new proposals, new ways and means to meet the challenge of world economic problems—trade, aid, international finance, monetary reform, and noninflationary, full-employment growth—our journeys to these meetings simply to approve a number of routine resolutions and to make some general statements would hardly be justified. The difficulties in our way are many and varied. Millions of our people must during the years to come undergo such changes in their ways of thinking and in their ways of living as men in former times have never known. To achieve this, a common devotion of all of us is required. Never before has there been greater or so widespread a need for initiative and for new experiments in international cooperation. I hope as a group we shall not miss the opportunity.

Delivered at the Opening Joint Session, September 26, 1966.

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