Chapter

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

Author(s):
International Monetary Fund. Secretary's Department
Published Date:
October 1967
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Statement by the Governor of the Bank for the United Arab Republic—Hassan Abbas Zaki

It gives me great pleasure to begin this statement by welcoming Guyana, The Gambia, Botswana, and Lesotho into the family of our institutions. The return of Indonesia to membership is also an occasion for rejoicing.

At this stage, too, I would like to express our Delegation’s joy at being in this great and beautiful city and to offer our thanks to the host Government for all its most generous and effective efforts to make the occasion of our meetings this year most memorable.

Coming now to the business before this Annual Meeting, I must start by complimenting the President of the Bank Group and the Managing Director of the IMF on their thoughtful statements, in the three reports in front of us, leading in a most masterly way to a grasp of the complex and multiple problems of world economy.

Their compelling presentation of the problems of developing countries and the deep sympathetic understanding with which these problems are expounded are both gratifying and inspiring. I find myself encouraged to include in this brief statement a warning as to the gravity of some of the tendencies pervading the international economic relations of today.

Most alarming among those tendencies is the fact that the growth in exports of the developing countries has been considerably slower than the expansion of trade among the industrial countries and of over-all world trade.

This development aggravates the already deteriorating balance of payments situation between the developed and the developing countries. Furthermore, this deterioration comes at a time when, as is stated in the Bank’s Report, “For the sixth successive year there has been little improvement in the over-all level of development assistance provided by the high-income countries.” It comes also at a time when “competing demands for capital have made it more difficult and more costly to obtain finance for development by borrowing in the world’s capital market.”

An additional serious development of an urgent nature is the increasing burden of debt and debt service as related to current export proceeds of developing countries.

To state it briefly and without dramatization, the developing countries—toward the end of the UN Development Decade—seem to be in the following predicament:

Their terms of trade vis-à-vis the industrial countries are again deteriorating; their share of international trade is shrinking, debt service is absorbing a continually bigger share of their export proceeds, and the cost of acquiring development capital is increasing.

It has been said repeatedly that economic development is an international responsibility. But while each day bears new evidence of the importance of this statement, little has been done to carry through its profound implications.

On the other hand, one is bound to wonder as to what would have been the situation in the absence of the Bank and the IMF and the steps taken by them to improve the environment for development. Development cannot continue in a world where trade is hampered and international payments are not in equilibrium. This is why, Mr. Chairman, I hope you will allow me to include in my statement one or two remarks which relate mainly to the business of the IMF.

In this connection, the amendments introduced to the procedure of compensatory financing constitute a step forward in the right direction. However, it is our belief that further steps are necessary to cope with some aspects of the deteriorating situation of the exporters of primary products among the developing countries. We feel that automaticity should be extended to include the whole area of compensatory financing once it has been established that a member is entitled to it.

A complementary step which is necessary in order to strengthen the basic policy of compensatory financing is the concretization of the proposals concerning supplementary financing. It is hoped that the studies relating to this subject will bear fruit in the near future.

The cooperation of the IMF under the guidance of its Managing Director, Mr. Schweitzer, with the representatives of the Ten has resulted in the Resolution presented to this Board of Governors in its present session. As a developing country, the UAR feels that any improvement in international liquidity could be beneficial to world trade in general. Therefore, we support in principle the results reached in this connection.

However, we feel that the measures proposed can be improved to become generally more adequate. Specifically they scarcely take into account, in a direct manner, the interests of the developing countries. We hope that efforts to remedy this will be continued and that the views of the developing countries expressed by their representatives on various occasions, which, on the whole, found support in the Report of the Group of Experts on International Monetary Issues and the Developing Countries will not be ignored in the future evaluations of the effectiveness of the scheme for the creation of a system of special drawing rights.

The efforts of the Bank and the Fund in guiding the work of coordination groups both for development financing and rescheduling of debts are worthy of praise. This role is developing into a major function and a service of great importance to the less fortunate developing countries. The multilateralization of aid is, in our estimation, the soundest approach in tackling development financing as an international responsibility. . . .

I have kept my brief statement within the strictly economic field in which we all agreed to set the limits of our business in this gathering. I am sure that the distinguished delegate of the United Kingdom, in raising the question of the closing of the Suez Canal, did not mean to introduce a political element into our deliberations.

Therefore, rather than ignore the observations of the honorable delegate, I would like to endorse what he said relating to the economic loss to the world resulting from the closing of that vital waterway; in fact, my country must be relatively the biggest loser. But going further into the discussion of reasons why the Suez Canal is closed to world traffic would draw us into a discussion which as we all know belongs to another international forum.

Statement by the Governor of the Fund for the Central African Republic—Alexandre Banza

It is with legitimate pride that I speak today, in my capacity as present Chairman of the Committee of Management of the Central African Customs and Economic Union (UDEAC) and on behalf of the five countries of which that Union consists, to this distinguished gathering. I am also, however, fully conscious of the formidable responsibility that is mine in setting forth our problems, which are giving ever greater cause for concern from year to year.

I am indeed proud to give expression here to the hopes and aspirations of the 12 million people who live, or rather exist, in a territory the geographical extent of which approaches that of Western Europe, and who are distributed over five sovereign States, namely, the Federal Republic of Cameroon, the Central African Republic, the Republic of the Congo, the Republic of Gabon, and the Republic of Chad.

Following the achievement of our independence, which occurred so recently, there was a great temptation for each of us to live apart, within our own frontiers, and some countries have, quite legitimately, chosen this path, both in Africa and elsewhere. We ourselves decided otherwise, for we considered that the best means of consolidating our political independence, developing our economies in harmony with each other, and meeting the difficulties of the modern world was to continue, on the economic plane, the fraternal and fruitful relationships that had been established among us in the course of more than half a century. This is how the UDEAC came into existence, having been set up by a treaty signed in Brazzaville between the five States I have just mentioned. Benefiting by the fact that active and close monetary cooperation already existed within one and the same area of issue, our organization is the culmination of painstaking study and patient and carefully considered effort pursued jointly since 1961, for the purpose of forming a strong and well-designed community, affording access to a real common market; our institution is also distinguished by the solidarity of its member States. As its name indicates, the UDEAC forms the institutional framework of a customs organization providing, inter alia, for a common external tariff and for economic cooperation for the purpose of achieving harmony in the systems of taxation and investment, as also in the matter of the projects undertaken in the interests of the industrial development of the five States.

“Each time we join forces in action we shall achieve success,” declared the President of the Republic of Chad on the occasion of the signature of the treaty, and, in fact, ever since it was set up, our Union has given proof of astonishing vitality, thus giving a valuable example of understanding between nations which, in a spirit of mutual respect for national sovereignty, are combining their efforts in an attempt to obtain, in an extended geographical grouping, the means of achieving coordinated development and a more rapid rise in the standard of living of their populations. The initiative thus shown deserves to be encouraged by an appropriate measure of aid, for it represents an important and specific contribution to the attainment of African unity, as was emphasized by the President of the Federal Republic of Cameroon, on the occasion of the opening of the Port Gentil oil refinery, which is shared by all our five States, when he said: “Here we have an example of sound and helpful cooperation … African unity will be attained through sub-regional organization. . . .”

To summarize what I have already said, let me quote the senior member of our Heads of State, the President of the Republic of Gabon, when he said: “We are five, but in fact we are only one, the UDEAC.” Let me also sincerely thank the authorities of the Fund and the Bank for having been good enough to invite our organization, represented here by its Secretary General, to attend the proceedings of this Annual Meeting in the capacity of an observer.

Quite independently of the conclusions, with which we fully associate ourselves, that were set forth in the resolution adopted at Dakar by 15 Ministers of Finance, and in the memorandum of the African Group, it remains for me to deal with UDEAC’s relations with the Bank and its affiliates, on the one hand, and with the Fund on the other. The concluding part of my speech will be devoted to an examination of our immediate problems, which I make no claim of revealing to you for the first time; my aim is more modest, and is an essentially practical one, being that of convincing you of the need for urgent action to solve these problems.

The orders of magnitude to which I have already referred—the area of Western Europe on the one hand and 12 million inhabitants on the other—reflect the extent of the needs to be met in the matter of infrastructure, transport, economic achievement, and social development, in comparison with the weakness of our economies; these economies are weak because they remain, in large measure, dominated by the primary agricultural sector. We nevertheless entered the fight for development with the assistance, both bilateral and multilateral, of our traditional friends; this assistance, which sometimes lacked cohesion in the matter of its distribution, very soon proved to be insufficient. This is why we placed great hopes on the international financial institutions of which we became members five years ago. . . .

With regard to the International Monetary Fund, even though our present monetary organization protects us, for the time being, from the difficulties encountered by other countries in the balance of payments field, we have nevertheless paid close attention to the discussions that have taken place, since our last meeting, between the representatives of the Group of Ten and the Fund authorities on the proposed reform of the international monetary system. We should like to record our satisfaction at the conclusion of the agreement reached in London, which respects the principle of universality as regards the creation of fresh liquidity and recognizes the central function that the International Monetary Fund will have to discharge in the carrying out of the reform advocated.

However, “capital does not grow out of nothing,” and we should be deluding ourselves if we imagined that the creation of additional reserves could provide a lasting solution to our basic problem, which consists of achieving a stabilization of the prices of our agricultural export products at a level that would guarantee an adequate return to the grower.

“God helps those who help themselves” is an old saying that holds good in all latitudes, and we have made it our motto whenever possible. Thus, the member countries of the Common Organization of African and Malagasy States (OCAM), who are producers and consumers of sugar, have reached agreement on the terms and conditions governing the marketing of that product, since it had become apparent to us that, on the world plane, nothing was to be expected for a long time to come.

In the case of the other leading products, such as coffee, cocoa, cotton, bananas, and oilseeds, almost all of which are intended for export to the industrialized countries, it is unfortunately impossible to lay the foundations for a similar agreement. In point of fact, although our products are essential to our respective economies, their quantity is not sufficient, on the world market, to enable our points of view to be heard, either by the large producer countries or by the leading consumer countries. So far as the products I have mentioned are concerned, we are literally paralyzed. If I may be allowed a metaphor, we find ourselves, willy-nilly, in a galley that is at the mercy of the waves—as rowers, of course—without knowing how long our painful voyage will last. Thus our producers and communities are severely exposed to the fluctuations of world trade, especially when these changes—as has been the case during the past few years—have been, more often than not, in a downward direction. At the same time—and this is a secret to no one—the prices of manufactured products are constantly increasing.

A few figures will suffice to fix our ideas in this matter. In 1957, the Chad or Central African producer received CFAF 2,600 for 100 kilograms of cotton, sufficient for the purchase of four blankets and eight meters of cotton fabric; in 1967, the 100 kilograms of cotton still command the same price, but this no longer suffices for the purchase of more than one blanket and three meters of fabric. The same argument applies to cocoa, coffee, and other products, the prices for which have remained practically unchanged for ten years. I shall pass over in silence the consequences of the falls in price that have occurred in the interim.

Such has been the reward for the praiseworthy work done by our planters, who, during the same period, have not spared their efforts. With or without the assistance of the public authorities, they have achieved a notable increase in the tonnage produced, modernized their operating methods, improved the quality of their products, adapted these latter to the tastes of distant consumers by undertaking painful reconversion of their plantations, and diversified their crops in an attempt to improve their conditions of life.

In the technical jargon of economics, this situation is modestly called “a deterioration in the terms of exchange.” So far as we are concerned, we prefer to use the more realistic expression of one of our Chiefs of State, the President of the Central African Republic, who has called the present state of affairs “a veritable scandal.”

In this sphere, we regret to have to draw up this year, once more, a certificate of nullity. The meetings organized by the chief bodies concerned in this matter, FAO, UNCTAD, and GATT, in which the IMF has generally participated, have not, during the past financial year, contributed the slightest hope of a solution.

Faced with such a painful set of circumstances, the most disastrous course would be for us to give way to discouragement, and for the developed countries to confine themselves to giving routine, token aid, thus sparing themselves a bad conscience.

So far as we are concerned, we have multiplied our contacts, with a view to reinforcing the cohesion of the developing countries in the fight to ensure their survival and in order to achieve the “balanced prosperity” that the President of the Republic of the Congo wished to see. We are also expecting a great deal from the forthcoming World Conference at New Delhi, for which we shall be making careful preparations next month in Algiers, as part of the “Group of 77,” in order to consolidate and, if possible, expand the results recently achieved in Geneva on the occasion of the last meeting of the Conference on Trade.

Among the solutions that we have adopted, those relating to the prefinancing of buffer stocks of raw materials presuppose that a substantial contribution will be forthcoming from international financing institutions and from the industrialized countries of the world, who are at present in control of the situation.

Thanks to the imagination of its experts and under enlightened stimulus from its Managing Director, the Fund has managed to define and apply, and then to liberalize, the formula for compensatory financing. This extension of the Fund’s activities inspires us with a certain optimism; its action in the sphere that causes us anxiety, and to which I have just referred, may, in our opinion, be a decisive one, and we do not doubt that the Fund will manage, on this occasion as on others, to assume its full measure of responsibility and go beyond the present framework of its Articles of Agreement. This is in any case the wish that I now express, for the sake of the future of our peoples. Further, I trust that we shall soon be able to refer, in the field to which I have just alluded, to the “Rio Agreements.”

I must apologize for having stated my case at such length. By comparison with the heights of eloquence that have been reached in this assembly, and with the noble titles that have been attached to certain subjects of reflection, my remarks may have produced a shock, because they were too robust, too incisive, and doubtless also too “terre à terre”; it was, however, my duty to express my views in this form, for they correspond to our immediate anxieties and to our deep-felt aspirations.

I cannot conclude my statement without associating myself with the welcome that has been extended to the new members of the Fund and Bank, and, on behalf of the five countries of the UDEAC, to express our warm thanks to our Brazilian hosts for their cordiality in receiving us.

Statement by the Governor of the Bank for Israel—David Horowitz

I would like first of all to associate myself with the expressions of gratitude to the Brazilian Government and its people for the very kind and warm hospitality which they were so kind to extend to us and also to extend my greetings to the new members of our associations of the Bank and of the International Monetary Fund.

It is with great diffidence that one tries to draw a balance sheet of performance in development by economic aid as viewed against the magnitude of the task.

It is a sad and sorry tale of decline of aid, with the trends in the 1950’s of a more abundant flow of capital to the underdeveloped nations reversed in the 1960’s. The sum of capital transferred from the developed to the underdeveloped two thirds of humanity is being eroded by the deterioration in terms of trade, and—if calculated, as it should be, per head of population—by the population explosion. Relatively, the decline is even more pronounced, for the net flow of capital is hardly more than ½ of 1 per cent of the gross national product of $1,500 billion from a rapidly growing volume of production in the developed nations.

Moreover, the more than tenfold gap in investment per head of population between the two parts of the world—the privileged and the underprivileged—foreshadows an even more gloomy and deplorable future.

At the present rate of the flow of capital, as a dwindling share of the swiftly rising gross national product in the developed nations, any approach to a more acceptable economic relationship between the two divisions of mankind would take centuries. Mr. Schweitzer defined this situation in his speech as follows: “It is a matter for deep concern that the flow of long-term financial resources to the less developed countries in recent years has lagged behind the growth of output in the industrial world.”

Nor is the qualitative composition of that flow any more comforting: less grants and more loans, and on stiffer conditions.

The Report of the Bank to this meeting says: “The share of grants in official bilateral aid has declined from 76 per cent in 1961 to 65 per cent in 1965 and to 63 per cent in 1966.”

Nearly four fifths of the investment in underdeveloped nations is financed from local resources that are squeezed out of populations living on or below subsistence levels, and even this apparently positive development is not an unmixed blessing. It implies a reduction in consumption of local products, as capital goods are as a rule imported. Paradoxical as it may seem, in the underdeveloped world it is not less important to finance the primary consumption than it is to finance development there. The driving force for any stepping-up of production is first and foremost a larger market. In the first stage of development, higher consumption stimulates demand and allows for the establishment of many enterprises whose possibility is predicated on economies of scale. The experience of countries which are presented as “success stories” in development shows that the development was based, above all else, on effective demand, which served as a basis for the economies of scale in numerous industries.

Not by narrow infiltration, but by a break-through, have some countries achieved spectacular development and progress.

What happened in my own country, which is particularly unendowed with natural resources, was a break-through by way of increase of population and import of capital: these created effective demand and a domestic market conducive to growth. Thanks to this, the gross national product could go up by an average of 10 per cent per annum for 16 years, and the national product could be quadrupled, the population more than trebled, exports multiply 20 times, and the standard of life per head of population rise by 250 per cent within 18 years.

Similar if less spectacular statistics can be quoted for other countries which are considered as “success stories” in development.

Of course, capital alone is not sufficient, but it is indispensable. Without a flow of capital, other means will be of no avail.

As the situation now is, the Report of the IMF mentions that the growth in the flow of capital to developing nations in the years 1960-65 was smaller than in the 5 previous years and that “the growth of per capita output was distinctly lower than in the second half of the 1950’s.”

Thus, the two gaps, the one in standards and consumption between the developed and underdeveloped worlds and the second—even more perilous and ominous—in investment, linked with the steady mounting of debt payments, for which the zero hour of equilibrium between capital flow and redemption should strike at some time in the 1970’s, may bring us to the brink of despair and to an imminence of failure if the scope and conditions of aid alike should be perpetuated in their present dimensions. . . .

Our contention is that economic growth is primarily the function of investment. However, a new kind of escapism is now the fashion. The thesis is that growth is overwhelmingly the function of skill, knowledge, and technological level, and that there is no point in pouring capital into countries which do not possess these prerequisites. The facts are that technical assistance is more readily available than capital. UN technical assistance, the OECD, and bilateral technical aid are at disposal, and even more of these can be purchased in the free market. There is a tremendous margin of possibilities. My own country can claim to have done not a little in this field. Our technical assistance to developing nations, if calculated per head of population, is twice that which is extended by the OECD, the club of the wealthiest nations in the world, and additional facilities in this sphere are forthcoming from a variety of sources.

The second road of escapism is the emphatic contention that the developing nations do not make any effort on their own behalf. No one will argue that the endeavors of the developing nations are always adequate. But the very fact that four fifths of investment there comes from internal sources contradicts this other form of shirking the real issue.

It is also a fact that, wherever capital was available, the results were gratifying. To quote a report on research carried out for the Office of Program Coordination of AID:

“The possibilities of securing rapid and sustained development by effective use of foreign assistance have been strikingly demonstrated in the past decade by such countries as Greece, Israel, Taiwan and the Philippines. In each case, a substantial increase in investment financed largely by foreign loans and grants has led to rapid growth of GNP followed by a steady decline in the dependence on external financing. Not only was growth accelerated by foreign assistance, but the ability of each economy to sustain further development from its own resources was very substantially increased.”

But the flow of capital today is taking a direction opposite to global needs, and the most specious plea advanced to justify this contrary trend is that money markets are tight. Money markets will always be tight as long as there is no stagnation in economic activity and demand, and the market can be tightened by raising internal demand and investment effectively in highly developed countries. Over $30 billion of bonds are floated every year on the financial markets of the developed countries, and only a negligible proportion of that flotation enters the developing ones. This is a problem of priorities: the tightness of the market is, to a very great extent, the function of policy, and it can be escalated.

The Economic and Social Council of the United Nations comments thus on the problem:

“The developing countries have relatively little access to the world’s capital markets. This is in part a problem of regulations and procedures but at root it reflects the inadequacy of their credit standing when judged by market criteria. In recent years, moreover, conditions have been particularly tight in most markets, and interest rates appreciably higher than those at which the developing countries have in fact borrowed from governments and from international institutions. If, in order to avoid the budgetary constraint and to take advantage of favorable balance of payments positions in particular countries, more use is to be made of the capital market, it will thus have to be done through a mechanism which has both an appropriate credit ranking and the ability to re-lend at less than market rates.”

… Here is the crux: access of developing countries to the free capital market. . . .

Statement by the Governor of the Fund and Bank for Canada—Mitchell Sharp

I would like first to thank our Brazilian hosts for inviting us to hold this very important Annual Meeting in this beautiful city. I would like also to congratulate them on the excellent facilities which they have provided for us and for the kindness of their hospitality. Canadian businesses have long had close links with this country, and as a private businessman I have had the pleasure of being closely associated with some aspects of the development of Brazil. Canada’s economic and political ties with Latin America are developing rapidly. Individual Canadians are coming more and more to appreciate the importance of this area for the future of our own country. Our contacts are becoming more frequent. Earlier this year, the Central Bank Governors of the American Continent did us the honor of accepting the invitation of the Bank of Canada to hold their fourth reunion in Canada. Let me now turn to the agenda.

The most important item on our agenda relating to the International Monetary Fund is the Resolution dealing with the establishment in the Fund of a new facility, based on special drawing rights, to meet the need, as and when it arises, for a supplement to existing reserve assets. Through close consultation with the Executive Director representing Canada on the Board of the Fund, and through our membership in the Group of Ten, Canada has helped to develop the plan proposed in the Resolution. Although the plan is not completely in accord with Canadian views, we are strongly in favor of it, and I should like to explain briefly why.

The total volume of reserve assets in the hands of national monetary authorities has so far been basically dependent on the supply of gold for reserve purposes and the balance of payments positions and reserve policies of a handful of major countries. There has been growing recognition of the inadequacy of this system in the modern world. A number of ad hoc arrangements have been devised in recent years which have succeeded in shoring up the system when it was threatened by sudden shocks. But a more fundamental change was necessary to ensure that aggregate first-line reserves of the world’s payments system would be brought under the deliberate management of the nations of the world acting together to meet their combined needs. As the Managing Director has said, the international community should be able to control reserves, instead of reserves controlling the community.

The regulation of the total supply of international liquidity will be achieved by creating in controlled amounts a supplement to existing reserve assets. The amounts actually to be created will be decided later for a five-year period on the basis of the anticipated over-all needs of member countries and the actual and prospective supply of gold and reserve currencies.

For this system to work it is essential that the supplement to existing reserve assets be acceptable and attractive to the national monetary authorities who will be expected to hold it and to exchange it with each other, and convincing to the world at large. To this end special drawing rights are to be created in a separate account in the International Monetary Fund, which member countries in balance of payments need may use without challenge or commitments concerning their internal policies to exchange with the Fund or with each other for convertible currencies. These special drawing rights are to be endowed with certain characteristics—a moderate rate of interest and a gold value guarantee—which will make them attractive to hold. Their transferability will be ensured by undertakings by member countries to use these new drawing rights in balanced relationship with their other reserves and to accept them up to quite generous limits.

Another feature of the plan also designed to ensure acceptance and transferability is the requirement that countries using the supplement to the maximum amount of their allocation should restore or “reconstitute” some part of their original holdings. We would have preferred the plan without this particular provision, as in our view the system will work best if the new facility is regarded by monetary authorities as being as freely usable as their other foreign exchange assets. Naturally, all reserves must sooner or later be reconstituted by the ordinary processes of adjustment if countries are to be in a position to cope with recurrent imbalances in their payments positions. However, the plan is sufficiently flexible to enable it to be adapted in the light of experience.

The breadth of membership of the Fund ensures that the regulation of the supply of unconditional liquidity in the world will be responsive to the needs of the whole system. The arrangements under which the members must achieve a broad consensus of view on major decisions will ensure that we move forward at a deliberate pace in this bold undertaking. Similarly, the key role to be played by the Managing Director of the Fund in securing the essential consensus and in dovetailing the new facility with the supply of conditional liquidity is of great advantage. The Fund has had more than twenty years of experience in pioneering the frontiers of international financial cooperation, and the staff has learned to combine imagination and caution in approaching the problems of its diverse constituency. In the process the Fund has evolved to meet the changing requirements of the world. The patient and wise leadership which the present Managing Director of the Fund has given convinces me that he is the person to entrust with the job of launching this new endeavor. These are the main reasons why Canada gives strong and enthusiastic support to the creation of a reserve facility in the Fund.

The Resolution provides for a report concerning amendments to the Articles of Agreement and By-Laws which the Executive Board may recommend apart from those necessitated by agreement to establish a new facility. These two sets of amendments are quite properly to be presented in two separate reports, and with the same target date, though the Resolution does not provide that the acceptance of the special drawing right proposal is conditional on the acceptance of other amendments to the Fund Agreement. I do wish to stress the importance of speed in preparing the two reports. In our view it is of the greatest importance that the establishment of the new facility proposed to us at this meeting should actually take place as quickly as possible.

The setting up of the new facility will be a major step forward in strengthening the international monetary system. It will not, however, be a universal panacea. If countries persistently mismanage their own economies, even the most perfect management of the supply of international liquidity will not shield them or their trading partners from the consequences. Balance of payments disequilibria will continue to be one of the clearest and most disturbing manifestations of such mismanagement. The improved management of international liquidity will contribute toward an environment favorable to an appropriate adjustment of national policies. The smooth functioning of the international system will still depend essentially upon the national policies of each of our countries.

Canada has had its share of difficulties in finding the right combination of policies to achieve our various goals. For several years members of the staff of the Fund have in our annual consultations pondered with us in a very frank and thoroughgoing fashion on the problems of formulating fiscal and monetary policies appropriate to the needs of the Canadian economy. In the past year or 18 months we have been successful in moving the Canadian economy from an unsustainable rate of growth to one that is within our capacity, without completely interrupting the expansion. In the process our imports have continued to rise. But it is clear that we have been more successful in maintaining economic growth than we have been in achieving stability of costs and prices. It is our purpose, however, to combine continued growth with price stability—indeed I doubt whether in the long run the one can be achieved without the other—and we intend to make use of every means available to us to restore the balance. . . .

Statement by the Governor of the Bank for China—Ching-Yu Chen

Mr. Chairman, I wish to join other Governors in expressing our thanks to you and to the management and staff of the Bank and Fund for the efficient handling of these meetings. On behalf of my Delegation, I also wish to thank the host country, the Republic of Brazil, for its most generous hospitality and the excellent facilities placed at our disposal during the 1967 Annual Meetings. Brazil is indeed a great country, and Rio is one of the most beautiful cities in the world. My Delegation wishes to extend our compliments to Mr. Woods, Mr. Schweitzer, and their colleagues for the remarkable achievements of both the Bank and the Fund in the fiscal year 1966/67, and our best wishes for continued success in the years to come. . . .

I am happy to report to my fellow Governors that in my country the volume of trade in 1966 increased by 12 per cent over 1965, showing a total of approximately $570 million for exports and $603 million for imports. The increase in our exports is due primarily to diversification of our products and also shifting from agricultural products to industrial commodities. For the year 1966, industrial products accounted for 49 per cent of our total exports, while agricultural and processed agricultural products were reduced to 20 per cent and 26 per cent, respectively. Mr. Woods has done a great honor to my country by including the Republic of China in the list of member countries which have made “economic achievement with fastest rate of growth.” However, my Government is not fully satisfied with whatever success we may have achieved, and we are certainly not complacent. We shall continue to exert our efforts to further increase our industrial production and broaden our export markets. In doing so, we still need continued external assistance and capital inflow, particularly for infrastructure projects which have comparatively slower return but which are very necessary for healthy economic growth. . . .

Mr. Chairman, I would like to make some brief comments on the operations of the International Monetary Fund. The continued increase in outstanding drawings indicates once again that the Fund is meeting the needs of member countries facing balance of payments problems. At present, primary producing countries are still confronted with price fluctuations, resulting in export shortfalls. In this connection, we note with satisfaction that the matter is receiving increasing attention at this meeting. It may also be noted that, at present, the compensatory financing facility and drawings or stand-by arrangements are being made available to an increasing number of primary producing countries.

My Delegation wishes to join previous speakers in expressing its appreciation to the Managing Director, the staff, and the Executive Directors for their accomplishments in the preparation of the Outline of a Facility Based on Special Drawing Rights in the Fund. While details have yet to be worked out, we are happy to see that, after two years of intensive study and discussions, the Outline provides adequate guidance for future deliberations. We consider it prudent and wise to confine the rules for reconstitution to the initial period and to review such rules for subsequent periods. The success of any system, no matter how well conceived, will of course depend on the members’ spirit of cooperation, which has been most evident in the experience of the Fund.

As to the possible amendment of the Fund’s existing Articles of Agreement other than those needed for establishing the new facility, one must not forget that these Articles have served their purposes well, with adequate latitude to meet operational needs. For instance, we do not believe any change in the provision requiring a majority vote of 80 per cent on important policy decisions of the Fund is called for. The special drawing rights scheme, which calls for an 85 per cent majority on major issues, is distinctly a special case, and the special case should not be used as a justification for changing the voting system of the Fund in general.

Statement by the Governor of the Bank for Honduras—Manuel Acosta Bonilla

I consider it a great honor to my country and a singular honor to me personally that I have been appointed to speak in the name of Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, El Salvador, Guatemala, Haiti, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, the Philippines, Uruguay, and Venezuela. . . .

If we analyze briefly the position of the developing countries, we find that these figures, taken together, indicate a rise in their gross domestic product in the order of 4.8 per cent in the period 1960-65. This shows that the productivity of these countries has continued to grow, but not at a satisfactory rate, since on a per capita basis, in the afore-said period, their rate of development was less, due to the rate of growth of their population, which was 2.4 per cent. Within this general picture, the area included within the Latin American countries showed a decrease in the growth of per capita income from 1.9 per cent in 1955-60 to 1.7 per cent in 1960-65, which reflects in part the deterioration of the terms of trade between the industrialized countries and those of Latin America.

The reduction in the rate of increase in the productivity of the industrialized countries, which can be observed from the middle of 1966, has had an unfavorable impact on the exports of the developing countries. With concern we note that, unless there is a rise in the rate of productivity in the industrial countries, the export revenues of our countries during the rest of the present decade would increase at a rate less than that achieved in the 1955-60 period, and consequently this would impede even further the growth of our countries.

This dependence of the growth of the developing countries on the rate of increase of their exports accentuates the urgent need to introduce changes in the trade policies of the industrial countries in order to facilitate the movement in world markets of the primary and manufactured products exported by the developing countries. For this reason, the situation of their basic products in the international market causes deep concern to the countries of Latin America, especially as concerns the problems linked to overproduction, the absence of regulation of the market, and the discrimination practiced by some industrial countries in regard to imports coming from the developing countries. The solution of the problems indicated would give our countries a greater capacity to avoid greater imbalances in their balance of payments and, in the case of Latin America, would permit an increase in their imports more in keeping with their development needs.

It is for this reason that we welcome with great interest the reference made by President Woods in his brilliant opening address to the fact that, if instead of declining as a proportion of world trade the exports of the less developed countries last year had been able to maintain the same modest position that they had occupied during the previous five years, in that case, the share of the less developed countries in world exports would have been 1 per cent larger, which “would have earned them well over a billion dollars more of foreign exchange than their exports actually did earn in 1966. If a one per cent adjustment in shares of world export trade would bring about a billion-dollar improvement in the fortunes of the poor, then surely the matter is worth consideration and action.” We believe that while the 1 per cent referred to would have little significance for the industrial countries, it would be of vital importance to the developing nations.

Concerned by the gravity of these problems, the Latin American countries have already taken the first steps toward regional integration, certain that this will hasten the growth of their economic progress. The Presidents of the Latin American countries recently agreed, at Punta del Este, to fix goals for the formation of a regional common market which would embrace an area with 200 million inhabitants. In this huge task, the aid of the industrial countries and of the international institutions, especially those concerned with financial matters, would be of the greatest importance. . . .

We believe that the fact that the World Bank has financed the acquisition of goods and services with the currency of the borrowing countries constitutes an important step in the financial techniques in aid of development, a step which fosters international cooperation undertaken to promote the growth of our countries. As a consequence, we believe it indispensable that this policy should be continued and strengthened.

There are several important grounds upon which we base our support for the expansion of this policy. The use of credit to finance local costs will stimulate efficiency in domestic industries, so that they will be able to obtain international bids solely on the basis of the advantage to themselves. Likewise, the stabilization programs adopted by many of our countries will be strengthened by World Bank financing of local costs, avoiding the inflationary pressures resulting from the need to provide local resources in order to use foreign credits. In the case of agricultural and educational projects—in which the participation of the Bank has been welcomed with general approval—a reduction in the financing of local costs would as a practical matter make their execution very difficult. Finally, we believe that treating as local costs the purchases made by a member country within the integrated economic area of which it is a part would give larger scope to this policy. . . .

In the Annual Meetings of previous years, the Latin American countries have put forth the idea, which we wish to re-emphasize on this occasion, that the Bank should take part in and cooperate with the stabilization policies of its member countries. I speak of the advisability of coordinating the carrying out of stabilization programs with the development programs aided by long-term loans. Although the initiative and responsibility belongs to the national authorities, we believe that the IMF and the World Bank are in a position to provide more adequate international cooperation through effective coordination between themselves. . . .

Finally, the Governors of the Latin American countries and the Philippines are proud that Brazil has been chosen as the seat for this Twenty-Second Meeting of Governors of the World Bank and IMF, whose achievements, we are sure, will mark a new epoch in the strengthening of financial cooperation among the member states.

Statement by the Governor of the Bank for the Netherlands—H. J. Witteveen

First of all I want to join other Governors in thanking our Brazilian hosts for having invited us to this beautiful city so bursting with life and energy and for the gracious hospitality which abounds wherever we go. It is an inspiring and at the same time challenging thought that our institutions are meeting here in one of the largest developing countries where major achievements go hand in hand with hopes and expectations, within the scope of the objectives of both the Bank and Fund, which are still awaiting fulfillment. I wish the Brazilian Government and the Brazilian people the greatest success in their energetic striving for progress.

It gives my Delegation particular satisfaction that Indonesia has reassumed Fund and Bank membership. . . .

Statement by the Governor of the Bank for Tanzania—Paul Bomani

Let me, in the first place, join my colleagues in thanking His Excellency, the President of Brazil, for his kind address of welcome. His decision to offer his country and the beautiful city of Rio de Janeiro as host to this august assembly was a wise move. We, in the developing world, have plenty in common with this great country, in that we share the same experience in the problems of marketing our agricultural commodities, such as coffee, sisal, and many primary products. In Tanzania we also have the problems of development of vast lands with sparse population. In our case, and of course in the case of Brazil, our population does not call for the use of the pill as seems to be the need in some other developing countries, as indicated by Mr. Woods. Given the development instruments, that is, capital and skill, our vast lands are capable of producing more food to feed millions of the hungry world.

Mr. Chairman, I would like to share with you and my colleagues, the sentiments expressed about the extraordinary beauty of this city and the generous hospitality that we have enjoyed since our arrival. If you permit me, I would like to add that it is particularly gratifying for an international congregation, such as this, to meet in this great country where its people of different origin and background live harmoniously and happily. Our presence here for this important Conference is not only an inspiration to many of us, but it also offers a great opportunity for us to learn from this country’s experiences. . . .

Many developing countries registered in the past year significant achievements in the field of economic growth and cooperation. During 1966, my own country increased its real per capita income by almost 7 per cent, and, with our neighbors in Kenya and Uganda, we signed a treaty establishing the East African Community, designed to strengthen our regional cooperation in all fields of economic activity. . . .

I would like, in passing, to mention the importance of local cost financing in the light of our usual shortfalls in export earnings and heavy pressures on our budgetary allocation. At this point, I must congratulate the distinguished Governor for Malaysia on the way in which he presented the real problems confronting the developing world. When he clearly stated the destructive effects of the unfavorable terms of trade on our economies, he was indeed speaking for many of us who have constantly been hard hit by unfair contraction of prices for our primary commodities. Prices for Malaysian rubber have caused the same problems to Malaysia as the problems we have in Tanzania with prices for our sisal. These have fluctuated from £120 per ton in 1964 to £63 per ton today, reducing our earnings from £20 million to barely £10 million sterling last year. This difference constitutes a larger amount than the World Bank Group or any other lending institution has ever lent to Tanzania in one year. . . .

Finally, Mr. Chairman, my Delegation would like to join you in welcoming the new members and to offer our warm and sincere congratulations to the Governors for Indonesia and The Gambia.

Statement by the Governor of the Bank for Nepal—Kirti Nidhi Bista

First of all I would like to associate myself with the previous speakers in expressing our sincere thanks to our hosts, the Government and the people of Brazil, for the warm welcome extended to us. We are also indebted to His Excellency, the President of Brazil, for the inaugural speech which has set the tone for our discussions. May I also take this opportunity to welcome, on behalf of my Delegation, the Governors for Indonesia and The Gambia and also the representatives of Botswana.

We have read with considerable interest the Annual Reports of the Fund and the Bank. These Reports, as usual, give us a very useful review of developments in the world economy and in international financial affairs and provide us with detailed records of the Fund’s and the World Bank Group’s activities of the past fiscal year. It is disheartening to note that per capita income in a large number of developing countries rose only slightly or declined in the first half of the present decade, and the situation further worsened during 1966 and 1967 because of the recent weakening in the export receipts of the less developed countries. From the record of economic progress the less developed countries have achieved in the past six years, it is almost definite that the target of economic growth set for the Development Decade is not going to be fulfilled. It has often been stressed that developing countries should make all efforts to mobilize domestic resources before they look for external assistance. This is no doubt true, but whatever steps we may take, internal resources are likely to be very modest in relation to the investment requirements necessary to achieve even a reasonable rate of growth.

Furthermore, it is a matter of serious concern to the Fund and also to other international bodies interested in the growth of trade volume between the developed and the less developed countries to note that the total exports of countries dependent mainly on agricultural products increased only moderately from 1965 to 1966, while the prices of commodities that they generally import continued to rise, and, therefore, there was scarcely any increase in the import purchasing power of this large group of countries. This trend is not likely to be reversed as long as the developed countries do not liberalize their existing policies and practices regarding imports. In view of the technological revolution taking place in the developed countries, synthetic raw materials are gradually replacing many of the farm and forest products. Such countries have also been expanding their own raw material base so as to be less dependent on imports. Unless the developed countries show greater sympathy and extend more cooperation to the less developed world, not only in respect of aid but also with regard to trade and capital flow, the prospects of this region’s coming up to economic maturity look bleak. I would, therefore, like to support the views expressed by the Managing Director in his statement that the industrial countries should improve the access to their markets of goods produced in the developing countries and that they accord high priority to the flow of development assistance. . . .

We consider the proposal before us regarding the creation of additional reserves a revolutionary step in the field of international monetary cooperation. Our views were adequately expressed by the Governor of Malaysia on behalf of the group, and we support the Resolution before us.

To conclude, the healthy trend started by the Bank and the Fund of giving special consideration to the needs of the developing countries is in keeping with their needs. There is no doubt that these two institutions are being looked at by all member countries, especially the developing ones, as their friend and guide in the fields of monetary, fiscal, and developmental problems.

Statement by the Governor of the Bank for Paraguay—César Romeo Acosta

… As to Paraguay, the annual rate of economic growth was about 5 per cent in the period 1960-66, as a result of increased investment in productive sectors and infrastructure projects and the improvement of exports. Investments were concentrated in the transportation, agricultural, and electric power sectors. The rate of investment since 1960 has been 16 per cent of gross domestic product. This investment indicates a capital-output ratio of three to one, which we consider satisfactory, considering the nature of the investments, which in general have been intended to meet the national economy’s development needs. The investments were financed by means of an increase in private saving that led to increased economic activity and higher export earnings, and also by means of a larger flow of external capital to the public sector, supplementing its own internal savings.

Savings of the private sector held in the form of bank deposits increased in the five years ended July 1967 at a cumulative rate of 36 per cent per year. The increase recorded during the 12 months ended in July was 38 per cent. Private investment has increased considerably in recent years as a result of the favorable climate that has prevailed in the country for long-term investment. In this connection mention may be made, among other things, of the stimulus provided by long-term financial aid granted for industrial equipment and development of other basic sectors, including livestock, forestry, and agriculture. This assistance has been supplemented appropriately through short-term and medium-term operations. At the same time, the flow of foreign private capital has increased gradually, especially in the sector of industry.

In the four-year period 1963-66, investments of the Central Government represented about 20 per cent of each year’s budget expenditures, of which one fourth was made with external resources and the remainder with public saving. These investments went mainly into infrastructure projects such as roads, electric energy, ports and airports, expansion of the merchant marine, telecommunications, and colonization, as well as to social needs—housing, health, and education. However, in this period an increasing proportion of public saving also went to promote production directly on the basis of specific economic activation programs. These programs were implemented through the National Development Bank, an institution that receives a large part of its resources from fiscal sources in the form of capitalization. . . .

The Government is now engaged in introducing improvements into the system of collecting public revenues and rationalizing budget expenditures. In this way it expects to achieve new levels of saving in order to give continuity to the various public investment programs without unbalancing the budget.

Paraguay enjoys a reasonable monetary stability, which we consider adequate in view of the nature of domestic production and foreign trade. The policy of monetary stabilization also provides support for the effort being made by the Government to give momentum to economic progress.

The balance of payments has been favorable for several consecutive years, including 1966. This has led to continual increases in reserves, which reached their highest level at the end of last August relative to any previous period. Paraguay has no arrears in the fulfillment of its external financial obligations.

Domestic prices have recorded few changes in recent years. The cost of living increased only 2.9 per cent in 1966, and during the 8 months of the current year the increase recorded was 0.8 per cent.

We must point out that the success achieved by Paraguay in regard to economic and social development is due, among other factors, to the political and social stability the country has enjoyed for more than a decade. This has permitted the Government to design and carry out development plans with long-term projections, without any interruption in the implementation of the various programs drawn up to overcome the deterrents to economic development. An outstanding and historic aspect of this political process is the existence of a new National Constitution since last August 25. The new “Magna Carta” consecrates the objectives of economic development in an imperative to which the Government must give shape, and there are embodied in the Constitution principles that the Government has been following in its work of progress, such as repatriation of citizens, fair distribution of land within the framework of respect for private property, freedom of the press exercised by all political sectors through their own journalistic organs, and, above all things, the right to live free and with dignity within the national territory. . . .

Finally, we express our thanks to the Government of Brazil for having given us such a magnificent welcome to this wonderful city of Rio de Janeiro, offering us at every turn the kindness and courtesy characteristic of the noble Brazilian people.

Statement by the Governor of the Bank for Somalia—Hagi Farah Ali Omar

It gives me great pleasure to express, on behalf of the Somali Delegation, our sincere thanks for the warm hospitality and courtesy shown to us since our arrival by the people and Government of Brazil.

I would further like to state how grateful we are to have had the President of the Republic of Brazil addressing us here, and I am certain that his wise words will contribute greatly to our deliberations.

We gratefully acknowledge the help that the Fund has extended to us in the form of valuable technical assistance and a series of stand-by arrangements which will help us carry on our economic, fiscal, and development programs within our traditional climate of monetary stability. Even though we have not utilized last year’s stand-by, we would be obliged to seek further assistance this year.

This last year has been an eventful one, and political tensions in many areas of the world have become more significant hurdles to development efforts and, in the case of the Middle East crisis, have had severe bearing on the economies and trade of not only the participants but also many other parts of the world.

There were, however, some favorable events in the field of international cooperation, of which I need mention here the agreement reached in the long drawn out GATT negotiations, better known as the “Kennedy Round,” and the London understanding reached by the Group of Ten on the subject of world reserves and liquidity. We are glad of this agreement on reserve creation which, if not an ideal solution to the problem, brings us a step nearer to such goals.

We in Somalia support the contingency plan for unconditional and automatic drawing facilities which was approved by the Executive Directors of the Fund. We are especially glad that no new institution is contemplated for administering the scheme and that the International Monetary Fund would rightly be charged with the responsibility. This obviously entails amendments to the Fund’s Articles of Agreement.

We commend the efforts of Mr. Schweitzer and the Executive Board and the Deputies of the Group of Ten in reaching this compromise, which we think is acceptable in all quarters. While we realize the vital responsibilities of the major industrialized countries in the club of Ten in any decision to create and activate any increase in world reserves, we expect them also to bear in mind the vital interests of the developing world in its share of those responsibilities. . . .

Finally, Mr. Chairman, allow me to congratulate you on your effective management of these meetings, and may I congratulate also Mr. Schweitzer and Mr. Woods, and their staffs at all levels, not only for yet another year of success for the Fund and the Bank but also for the excellence of the arrangements for the meetings and the documentation, interpretation, and translation services that enable us to conduct our deliberations under the best possible conditions.

September 27, 1967.

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