Discussion of Fund Policy at Closing Joint Session 1

International Monetary Fund. Secretary's Department
Published Date:
October 1967
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Statement by the Governor of the Bank for Nigeria—A. A. Atta

I would like to join my fellow Governors in the glowing tributes paid to the President and the people of Brazil for their hospitality, to you, Mr. Chairman, for your address and wise counsel and the able manner in which you have handled this large assembly, and lastly, to the President of the Bank and the Managing Director of the Fund for their untiring efforts to achieve the aims and objectives of the Bank and the Fund, as illustrated both in their addresses and Annual Reports.

Coming back to this country, Nigeria’s historical connection with Brazil is well known, and dates back to nearly a century ago when a group of Brazilians of Nigerian origin returned to take part in the early development of our commerce and industry. Today, the legacy of these pioneers is seen everywhere in the capital city of Lagos, which has its “Brazilian Quarters,” with characteristic Brazilian architecture, monuments, and way of life.

I will now comment briefly on the Nigerian political situation. Strife and political disorder have put Nigeria in the news since January 1966. Many delegates, I have no doubt, would be wondering why such a potentially rich country, with a great future and opportunity to raise the living standard of its people, should find itself in strife and civil war. The fact of the matter is that most Nigerians passionately desire peace, which they regard as a precondition for economic development and progress. But war has to be fought in order to establish peace. The war was brought about by a few ambitious men belonging to one of the major ethnic groups who, in the early hours of January 1966, murdered a number of political and military leaders other than those of their group and imposed, shortly thereafter, a system of government which every Nigerian leader, throughout the long struggle for independence, has rejected as unworkable. The collapse of the first Military Government in July 1966, was a direct reaction to the extreme centralization imposed on the country by a group of men who had no public support. Since then, the country has returned to a federal system based on equality of opportunity for all the ethnic groups who desire, and are able economically, to have a state of their own within a Nigerian Federation. The armed conflict actually started when certain members of a tribal group, out of about 240, refused to accept the federal system of government. This tribal group has, within a period of five months, from January 1966, shifted from a position of extreme centralization to extreme decentralization which would mean the breaking up of Nigeria into four countries, each quite autonomous in every respect and having no authority whatsoever at the center. The Federal Military Government regards the rebels’ proposal as unworkable in the modern world and as a negation of the spectacular progress made hitherto, and the growing bond of oneness which has been evolved since 1914. In short, the war has come about because most Nigerians believe that the rebels’ case would offer neither political stability nor meaningful economic future for our people.

Despite the upheaval and the uncertainties created by the crisis, it is gratifying to state that there has been continuing economic progress in Nigeria. The rate of economic growth in 1966 was even a little faster than the year before, and the public sector continues to achieve a healthy current revenue surplus for the financing of development. A trade surplus of the magnitude of £27 million was recorded in 1966. The production of primary export commodities and minerals was higher than the year before. The crisis had, however, affected the inflow of foreign capital, but in the main the setbacks currently experienced in our economy are not of structural nature and will be removed as soon as normalcy is restored by the Federal Military Government. This will not be far from now. . . .

The burden of the debt servicing in the developing countries has, in recent years, become a serious problem. The net effect of the rising debt servicing burden is that, today, most developing countries devote substantial parts of their budgets to interest payments and loan amortization. To alleviate this burden, it is absolutely essential that aid-giving countries and organizations, including the World Bank, must take a decisive step toward much longer repayment moratoria and more liberal repayment terms than hitherto. Unless this is done, economic assistance will become a fruitless exercise which will fail to achieve the noble objectives of accelerated growth.

As I mentioned earlier, service on past official debts, including both interest and amortization, has adversely affected the finances of developing countries and has substantially reduced, and in some cases exhausted, the domestic resources available for development. This, coupled with the almost universal inclination of donor countries to finance only foreign exchange components of projects, or projects with higher foreign exchange content, has greatly inhibited the determined development efforts for many developing countries, particularly in Africa. . . .

I will now turn briefly to matters relating to the activities of the International Monetary Fund. For the less developed countries, the continuing shortage of the means of financing economic development has been associated with the unhealthy state of international trade in primary commodities. For the developed countries—although there has been a vast expansion of world trade since the close of the Second World War—the means of financing that growth has not kept pace. The effects of these factors have been a succession of policies of monetary and commercial restraint in industrialized countries which have, in turn, robbed the less developed countries of the benefits obtainable from expanded primary exports.

As the Managing Director has rightly observed, for 1966 and 1967 “the impact” of policies which seek to protect or improve the international payment positions of the industrialized countries has always “been felt most forcibly by the less developed group of primary producing countries.” Since the unfavorable state of world trade has been attributed to the shortage of the means of international payment, the less developed countries have been foremost in giving support to proposals aimed at improving the position of international liquidity. We in Nigeria had hoped that whatever mechanism is evolved for augmenting international reserves would be linked directly to the most acute problem of this century—the economic development of the less developed countries.

From the Outline scheme for the creation of special drawing rights submitted to the Board of Governors at this meeting, it is clear that the problem of developmental credit has not been directly associated with the plan for additional reserve creation. The desire of the overwhelming majority of the less developed members of the Fund has, therefore, been ignored. However, it must be admitted that, judging from the position of many developed countries in the past Annual Meetings, and at other levels of discussions, the agreement embodied in the Outline scheme for a contingency plan represents a significant step forward in the evolution of a more flexible mechanism for increasing international liquidity in line with the growth of international transactions.

Agreement on the principle of creation of special drawing rights within the Fund and that of universality in matters related to the distribution of the new reserve represents a reasonable compromise for the majority of Fund members. The Managing Director is to be congratulated for his role in convincing all members of the Group of Ten to accept the fact that the developed and the developing countries have equal stake in the matter of international liquidity. Nigeria, therefore, gives its support to the Outline scheme.

In pledging our support for the scheme, I recognize that details of the plan are yet to be worked out before an amendment to the Articles of Agreement is submitted to national governments. It is hoped that the Managing Director will approach this task with equal dynamism so that the amendment may go to member governments before the end of the year. I also recognize that the Outline remains a mere proposal for a contingency plan. The argument on the timing of activation, and/or the conditions for activation, remain unsettled. We urge that agreement be reached on the activation of the contingency plan as early as possible in order to relieve the present shortage of the means of international payment.

In this regard, Nigeria would have been happier if the decision for the activation of the contingency plan were by a simple majority vote of the Fund members. The present proposal which raises the vote to 85 per cent creates a serious misgiving in the minds of many countries, and it is to be hoped that member countries will merely regard the higher number of votes as a means of ensuring the general acceptability of the special drawing rights as a means of international payment and not as an instrument for retarding the operation of the plan. In this connection it has been stressed that the less developed countries will derive indirect benefits, in the form of developmental credits, in the wake of the special drawing rights. If international politics will continue to dictate the direction and magnitude of the flow of foreign aid, after the activation of special drawing rights, then this stress would appear to be misplaced. It is our hope that this will not be so.

The enlargement of drawings, under the Fund’s scheme, for compensatory financing of fluctuations in primary export earnings has been a welcome improvement. We still feel, however, that some additional adjustment of policy in this direction is necessary if the scheme is to provide the maximum relief. First, we urge a reduction in the interest charges on drawings under this scheme. Such reduction will provide a measure of relief at a time when, as the Managing Director himself has well recognized, external debt servicing has become unduly burdensome to the less developed countries. Secondly, the scheme should be modified to provide drawing facilities to finance the loss of earnings resulting from the decline in world prices of particular primary products which bulk large in total export of primary exporting countries. Unless this modification is made, countries whose export prices are offsetting, as in the case of Nigeria, succeed only in either standing still or in making marginal progress. For example, Nigeria, like other cocoa producers, suffered serious declines in cocoa export earnings in the period 1964/65. Since the losses incurred in export earnings from this commodity were offset by earnings from other primary exports, Nigeria could not avail itself of the compensatory facility. The problem created by this type of development warrants examination by the Fund.

Another development which has taken place within the last two years, and on which I desire to comment, is the spread of currency devaluation in the primary exporting countries. The Fund in its current Annual Report has appeared in favor of currency devaluation, or “exchange rate adjustment,” as a short cut in correcting balance of payments disequilibria. The treatment of the problem in the Annual Report in Chapter 4 leaves much to be desired. It would have been more enlightening if the Report had discussed more specifically the experiences of some of the less developed member countries who have undertaken currency devaluation on the advice and approval of the Fund. In this way, specific benefits which have accrued and/or reasons for failure of devaluation to achieve the desired adjustment and export advantages would have been stated. Since the Fund plays such an important advisory, and often, decisive role in the decision of a less developed member country to undertake devaluation, it is incumbent on the Fund to state, in no uncertain terms, the advantages which accrued to members who have already undertaken currency devaluation as a policy of economic adjustment. The treatment given to this important issue in the Report does not serve to bolster the conviction that devaluation is beneficial to primary exporting countries.

Mr. Chairman, I am grateful for the time allowed me to comment on those vital issues which affect our common good, and it is my hope that the world community will approach the problems of economic development and trade with enlightenment.

Statement by the Governor of the Fund and Bank for Liberia—J. Milton Weeks

Mr. Chairman, permit me, on behalf of my Delegation, to join you, the President of the Bank Group, and the Managing Director of the Fund in expressing our sincere appreciation to the President, Government, and people of Brazil for the privilege of holding our Annual Meetings in this great and historic city.

We are now approaching the end of our deliberations. The words addressed to us by His Excellency, the President of Brazil, at the beginning of our meeting have remained a constant source of inspiration and wisdom. I join those who have preceded me on this rostrum to thank the President not only for his timely encouragement to us but also for the splendid arrangements made by the Brazilian Government to facilitate our meetings and ensure our comfort.

For me, coming from Liberia, which looks directly across the ocean to Brazil, I have been tremendously impressed with the level of development in this country.

This city and its people have received us with open arms and a warm heart. No effort has been spared to make our stay here enjoyable and memorable. We shall leave Rio full of praise of the warm hospitality of its people and eager to return to continue to discover more of its charm and beauty.

It is also a pleasure for me to extend a warm word of welcome to The Gambia which is meeting with us for the first time, and we look forward to an early admission date when Lesotho and Botswana will have completed their membership in the Fund and Bank Group. We are also glad that Indonesia has resumed its seat among us.

The more universal our institutions become the more strengthened they will be in achieving their objectives.

It is also my privilege to extend congratulations to the President of the Bank Group and the Managing Director of the Fund and their respective staffs for the comprehensive Reports which they have submitted for the consideration of the Boards of Governors. We are certainly encouraged by the deep awareness on part of the Fund and Bank Group of the basic problems of the world economy.

Speaking as the representative of a developing country, I am particularly gratified by the increasing emphasis in the Reports of our institutions on the interrelationship, indeed the very close interrelationship, between the developed and the less developed countries. It cannot be emphasized too strongly that the only hope for success of the universal development effort will be through the exercise of a full and satisfactory partnership in fact as well as in name based on mutual appreciation of the problems of all parties.

In both the Fund and the Bank Reports, one notes the cyclical trend in economic activity in the industrialized countries in the period 1965 to 1967, and the policies which have been adopted by most of these countries to offset inflationary and deflationary forces and correct the resulting imbalance in their external payments. The unmistakable lesson gathered from these experiences is that there has been a greater reliance by the industrialized countries on monetary policy rather than fiscal policy to solve their internal economic problems. A direct consequence of this policy bias has been a regime of high interest rates which prevailed, more or less, throughout 1966 and into 1967.

The Bank Report records that “by mid-1966 interest rates in major financial markets had reached their highest levels since the 1920’s despite continued high levels of savings in the industrial countries. . . . As economic activity slackened in the second half of 1966, monetary policy became less restrictive. Interest rates declined by the end of the year in most capital markets, but by mid-1967 they had risen again to well above the level prevailing since the twenties. The higher interest rates considerably increased the cost of capital for international development institutions and for the few developing countries which borrowed in external capital markets.” I might add that this phenomenon increased the cost of capital also to the developing countries, which did not borrow directly in external capital markets. It can readily be seen that the high cost of borrowing imposes a tremendous strain on developing countries, such as mine, which are already saddled with heavy debt service burdens. In our case, debt service presently represents more than 20 per cent of total revenues.

The Fund and Bank Reports reveal, moreover, that the oscillations between acceleration and deceleration in the momentum of economic activity in the industrialized countries have had serious effects on the flow of public and private capital from the developed to the developing countries, in addition to the hardening of the terms of development loans in recent years. Actually, the flow of private capital to developing countries declined considerably from 1965 to 1966.

Probably the most significant effects of economic fluctuations in the industrialized countries on the developing countries have been the drastic fall in primary commodity prices. The Bank Report observes that “the deceleration of growth of the world economy since the middle of 1966 has adversely affected demand for most primary commodities.” In Liberia we have been seriously hurt as a result of the fall in prices of our two major export commodities—iron ore and rubber—resulting in a disturbing aggravation of our budgetary and balance of payments problems.

These are among the reasons why we welcome the initiative of the Fund in the discussions on international liquidity which have taken place over the past four years; and I take this opportunity to congratulate the Managing Director, Mr. Schweitzer, the Executive Directors, and the staff of the Fund for the constructive role which they have played in these discussions.

For the past few years, the search for a solution to the complex problems of international liquidity has dominated Fund-Bank Annual Meetings. While we of the underdeveloped world have chafed at the pace of these discussions, at the same time we recognize that we had to exercise patience in the hope that we would gain some benefits from a scheme that is designed essentially to meet the requirements and problems of the industrialized countries. After all, we do have a vested interest in the health of the developed economies.

To have expected more from the international liquidity exercise than a modest, evolutionary solution would have been unrealistic. Within the framework of their profession and of the political exigencies imposed upon them, the standard-bearers of international finance have done their job, and I hope they have done it well. I am, however, of the opinion that the result of the exercise is too narrow, and I am convinced, furthermore, that the developed world will come increasingly to believe in the correctness of this view. This view is already shared by many important leaders of the international financial community. . . .

While we do not agree that the proposed solution is the best possible one, yet we are prepared to go along with it because we consider that it represents a measure of progress which will provide us with some small, but badly needed, increment in our reserves. In addition, by alleviating the pressures on the balance of payments of the developed countries, it is hoped that this new facility will induce them to arrest the drift that has become apparent over the past few years in their attitude to foreign assistance and probably weaken the tendency to violent swings in commodity prices. We would, therefore, support the Resolution accepting the Outline facility and the consequential amendments to the Fund’s Articles of Agreement. It is our hope, however, that the enabling amendments will not be conditional upon other substantive changes in the present Articles or accompanied by restrictions which might in any way reduce the broad administrative powers of the Fund management in establishing criteria for member countries’ use of “conditional liquidity” as is now provided by the Fund. . . .

Returning to the problem of international liquidity, it is only human to take the attitude that charity begins at home. However, if such an attitude prevails in the developed world, the problems of the developing world will not only become more intransigent but may well compound the problems of the developed world. In the absence of adequate foreign financial assistance and in the face of deteriorating terms of trade and heavy debt service burdens, we cannot solve our problems alone. We consider that the developed world must also have a vested interest in the health of the developing world.

The situation that confronts my country is probably similar to that of most other developing countries. In the absence of more acceptable forms of development financing, we were obliged to accept large debt obligations on very onerous terms. We have, however, learned a painful lesson. As the upward investment spurt petered out and world market prices for our main export commodities turned sharply downward, we were faced with great difficulties and were forced to seek some alleviation of our debt obligations. At the same time we drastically trimmed our development efforts and imposed harsh tax measures on our people. We undertook, furthermore, to foreswear less desirable forms of financing. We do not complain at having done these things, even though it has entailed greater hardship than would be tolerated, or even dreamed of, in industrialized countries, e.g., a lower level of domestic activity and higher consumer prices combined with a virtual freeze on wages and salaries in the public sector. If one is realistic, one should ask oneself for how long can one convince one’s people of the merits of financial orthodoxy when one’s only prospect, in the absence of increased primary commodity prices or increased foreign assistance, is a further drastic tightening of the belt.

The developed countries advocate the pursuit of financial orthodoxy for developing countries. We have a measure of faith in the virtues of financial orthodoxy, but faith alone without good works will not suffice. If the developed world is to demonstrate to the millions of impoverished people all the world over the correctness of its basic approach to the solution of the problems of underdevelopment, then the developed world will have to ensure that the flow of finance to the developing world regains its momentum. . . .

In closing, Mr. Chairman, I want to say that we have been satisfied with the manner in which our meetings have been conducted, and on behalf of myself and my Delegation, I wish to congratulate you on your able leadership.

Statement by the Governor of the Bank for Pakistan—N. M. Uquaili

By now, so much has been said on the various issues confronting the world economy that there is perhaps little new that one can add to it, but the problems of the developing countries are such that they would bear repetition.

To begin with, may I express the appreciation of my Delegation to the managements of the World Bank Group of institutions and the International Monetary Fund on their well-presented Annual Reports. These Reports are known for their comprehensiveness, clarity, and objectivity and bring into sharp focus the basic problems confronting the developing countries, which we have been discussing in this forum year after year for almost two decades now. These Reports bring out clearly that for the sixth successive year there has been little improvement in the over-all level of development assistance provided by the high-income countries; that the terms on which such assistance has been given have become harder and harder; and that the rising debt burden is proving extremely difficult for a number of developing countries to shoulder.

The world-wide deteriorating climate of foreign assistance is a matter of utmost concern for the developing world. While the developing countries stand at a crucial stage of their economic development, when they need a much higher flow of external resources than ever for a decisive push toward the much-cherished goal of self-sustaining growth, they are faced with reduced availability of aid funds the world over. The high-income countries seem to be getting impatient with, or tired of, the aid requirements of the developing world. The need for economic assistance is no longer looked upon with the sympathy and understanding that characterized the start of the Development Decade. . . . We realize that some of the highly developed countries may have balance of payments or budgetary difficulties of their own. These difficulties are, however, largely transitory and should not be allowed to distract from the ideal of ensuring a reasonable standard of life to the great mass of humanity inhabiting the developing world.

A matter of equally serious concern to the developing countries is the hardening terms of external assistance in a period of declining levels of such assistance. The debt burden of the developing countries has increased over the last decade from $10 billion in 1956 to over $41 billion by 1966. The annual service charges on this debt have risen during the same period from $800 million to nearly $4,000 million. The rate of increase in debt service charges, amounting to about 10 per cent per annum, is far above the rate of growth in the export earnings of the developing countries. Currently, of the total gross capital outflow of about $10 billion to the developing countries, as much as 40 per cent goes back to the developed world in the form of debt repayments. Taken together with the rise in prices of capital equipment and other aid imports, the net inflow of foreign assistance in real terms is even lower than that indicated by these figures.

This is a dangerous trend, and we should take serious note of it if the decade of the 1970’s is not to become a period of large-scale defaults. It is imperative that foreign aid and loans should be made available on much softer terms than those prevailing at present. The international community owes this obligation to itself and to the developing world. We were glad to note last year that the Development Assistance Committee of the OECD had called upon its members to improve the terms of their assistance and suggested a minimum period of 25 years for repayment and a maximum 3 per cent interest rate. Except for one or two countries, these recommendations have yet to be implemented. . . .

While the aid climate has been deteriorating, there has been no noticeable improvement in the prospects of normal trade of the developing countries. The developed countries continue to maintain many tariff and nontariff barriers in respect of goods originating from developing countries, though they have agreed to reduce tariffs on goods traded among themselves. The outcome of the Kennedy Round has come as a great disappointment. It is indeed disheartening that the less developed countries are not likely to derive any material benefit from the biggest round of tariff cuts since the Second World War. We had hoped that UNCTAD would herald an era of progressive economic collaboration between the developed world and the developing countries and that there would be a material increase in the benefits which the developing countries would derive from growing international trade. In fact, the Annual Reports before us point out that trends exactly the contrary continue to prevail. In terms of volume, exports of primary products from developing countries have increased by 5.5 per cent per annum during 1960-65, as against an expansion of 9.5 per cent in the export volume of manufactured goods. At the same time, in relation to the prices of manufactured goods, the average price level of primary commodities has declined, implying a further deterioration in the terms of trade of primary producers. Not much progress has been made so far on international commodity agreements to stabilize the prices of primary exports. As such, the second UNCTAD Conference, due to meet early next year, can only start on a note of pessimism, unless the developed world changes its basic attitudes toward trade with the developing countries.

In what, from the point of view of the developing countries, is a bleak picture, the agreement on the basic issues for the creation of additional international liquidity by the Group of Ten offers a ray of hope. As pointed out by Mr. Schweitzer, this is a historic development in the field of international monetary cooperation, for which the IMF, particularly Mr. Schweitzer and his hard-worked staff, should be complimented. We have been all along of the view that a suitable and satisfactory international monetary system is just as important for the developing countries as for the developed world. Being a compromise formula, the proposed scheme does not meet all the desired objectives, but it is a welcome feature of the scheme that the principle of universality and automatic access to the special drawing right has been accepted. Since the flow of more aid on softer terms is, in our view, likely to be facilitated by the scheme coming into operation, we would urge its early acceptance and activation. At the same time, we would express the hope that, as experience is gained in its operation in the coming years, necessary improvements would be made in it in the mutual interest of both the developed and the developing countries. What I have particularly in mind is the contribution which the scheme can, in due course, make to easing the trade and foreign exchange problems of the developing countries.

Progressive ideas are all the more valuable in a period of retrograde developments. Instead of being depressed or overwhelmed by the current international developments, we should try, to the best of our capacity, to influence the course of these trends for the benefit of economic development in the less developed parts of the world. This is the kind of leadership that we seek from the World Bank Group and the IMF. I am confident that the Bank and the Fund will continue to provide this leadership in future as they have done in the past. . . .

Before I conclude I would also like to express the sincere thanks of my Delegation to our gracious hosts, the Government and the people of this great country, for the warm reception they have accorded us and the generous hospitality they have lavished on all of us.

Statement by the Governor of the Bank for the Sudan—Abdalla Siddig Ghandour

I would like to join all those fellow Governors who expressed their appreciation and sincere thanks to the Government and people of Brazil for the warm welcome and excellent arrangements they have made for us here in this magnificent city.

We have decided to make a joint statement on the activities of the Fund and of the Bank Group, not only for reasons of expediency but more so to underline the unity of purpose of these august institutions. The promotion of economic growth under conditions of stability remains as never before to be the challenging objective of both.

At the outset of my joint remarks I should like to express our great appreciation for the outstanding work done during the preceding year by the Executive Directors and staff of the Fund and the Bank Group. The 1967 Annual Reports are lucid and most informative and ably survey the problems of the world economic development and the international payments mechanism. The addresses of Mr. Schweitzer and Mr. Woods, which introduced the respective Annual Reports, were as usual full of penetrating comments and stimulating ideas. . . .

We note with dismay that toward the end of the United Nations Development Decade the question of aid to the developing countries still remains the most vital aspect of and the most serious factor hampering their development efforts. We believe in the principle of self-help, that each developing country should provide from its own resources the major portion of the financing of its economic development, but it is still an accepted fact that for some time to come an appreciable injection of capital from abroad is necessary to maintain an accelerated rate of economic and social progress. And yet in spite of all the efforts that have been made and pleas and aspirations expressed by and through international forums, the total capital flow to the developing nations had remained stagnant over the first half of the 1960’s, declined in the preceding two years, and in real terms the value of both was less.

This leveling off and decline in the net amount of the flow of supplementary external financial resources is coming at a time when most of the developing countries:

(1) Have increased and are continuously increasing their capacity wisely, constructively, and productively to absorb a far greater inflow of foreign capital and assistance. Their potential in this respect can easily double if sustained efforts and assistance are devoted to the preparation of the numerous identifiable projects that are beginning to emerge.

(2) Are experiencing a reduction in their foreign exchange earnings and reserves due to the difficulties of marketing their exports, the downward trend in the prices of such exports and the upward trend in the prices of their basic imports.

(3) Are beginning to face the burden of debt servicing. Though debt servicing now already absorbs over 60 per cent of the inflow of external assistance, what is really alarming is that this proportion will continue to rise.

Perhaps these phenomena which I have outlined, however serious they are, can be explained in terms of specific factors and combinations of circumstances. What is far more alarming, however, is the outlook for the future. A crisis in the international aid to the developing countries seems to be gathering momentum. There are signs that the original impulse which led to a progressively increasing outflow of aid in the 1950’s is now running out of steam. For though the gross inflow of foreign capital to developing countries is still at a high level, yet the amounts which industrialized countries have been voting in their annual budgets are falling away. This may sooner become a trend if not urgently and consciously checked. Again we join others who plead that all statesmen will seriously ponder over this matter and do their best to check this grim prospect. What is needed is not only a substantial increase in the amount of aid but a very considerable easing of its terms; since the capacity of the developing countries as a group to service additional external debts is rapidly diminishing, their resort to short-term suppliers’ credit has been inevitable though ill-advised. . . .

My country has in recent years experienced both an internal financial imbalance and an external payments disequilibrium. These difficulties are associated with our efforts to accelerate our economic development and with the vagaries of primary commodities’ marketing and pricing. The annual exchange of views with the Fund has always been beneficial, and in our resolve to attain internal and external equilibrium for the sake of a more sustained and healthier growth we had the benefit of the Fund’s advice, technical assistance, and stand-by arrangements. The new policies which had been adopted to reduce the inflationary pressures on the economy and their vigorous continuation in this fiscal year and the next one will, with the help of the Fund, eliminate the balance of payments deficit, restore internal equilibrium, and provide a sound basis for a larger rate of growth.

We also join all those who commended the Executive Directors, the Managing Director, and the staff for the efforts they have exerted in the difficult negotiations on the question of international liquidity. This question and the need to reform the international payments mechanism had occupied much of the attention of our past three meetings. This is rightly so, as it is one of the fundamental problems facing the world today—a problem which calls for a basic solution providing for a reasonable growth in monetary reserves. The “forces of those who are concerned about the inflationary potential of too radical innovations and the forces of those who fear the potential deflationary and restrictionist consequences of no reform at all” had, together with some rather extraneous factors, resulted in the new facility, special drawing rights, which is the subject of one of the main Resolutions submitted to us. We are, of course, glad that the innumerable series of meetings have produced some concrete results. We believe that the new arrangement represents a positive step forward and could lay the foundations for a more solid basis for global monetary cooperation. We hope, however, that the new drawing rights will help the richer countries to overcome their balance of payments difficulties and thereby remove the constraints on increased amounts of aid to the developing countries. We therefore regard the new arrangement as a reasonable and helpful interim solution which should pave the way for more fundamental changes providing a direct link between the deliberate creation of the new additional reserves to development financing to developing countries.

Last but not least, I would like to extend our welcome to the new and prospective members; their experience and views will no doubt enrich our discussions.

Statement by the Governor of the Fund and Bank for Jamaica—Edward Seaga

… Special machinery is also needed to increase the activity of the private sector in trade. A special Resolution has been introduced on the agenda of this Conference to discuss the deterioration of terms of trade as it affects developing countries and to maintain price stabilization for primary products. That this matter, which has been discussed internationally for several years, is to be specifically presented at this level is very welcome news. The point has been made repeatedly that better terms of trade mean less aid, and that aid and trade are twin problems, which comprise two faces of the same coin.

Jamaica supports the Resolution for special consideration of this problem. But realizing that success or failure may well depend on the machinery for study, we suggest that, concurrent with the investigations of a study group, a number of interested member nations should meet to outline their interests and tackle at that level problems raised by the study group. This would provide machinery to resolve problems as they appear and thereby shorten the time for conclusions to be reached.

This, indeed, is the same type of machinery used in the investigations concerning international liquidity which generated the proposals which are now before us.

Jamaica supports the new proposals for special drawing rights to increase international liquidity as a means of strengthening the major currencies, and as a possible means of increasing trade by bringing some immobilized resources into play. We in the developing world have taken note of the political interplay in evidence at this Conference on this important point and sincerely hope that we will not be caught in the middle by lack of action on the implementation of the Resolution. As long as a deadlock continues, the same excuses for not increasing aid will be offered to us.

It must definitely be noted that within the past couple of years the major problems which have been placed on the agenda of international discussions for study and decision have been the trade and financial difficulties of the industrialized countries. The agreements flowing from the Kennedy Round have little effect on the real problems of the developing world; nor is it likely that the proposals for increasing liquidity will have any real direct impact on the major problems of most primary producing countries.

The point must be made, therefore, that the time has come to bring the full focus of world attention on matters of major importance to the developing world.

No problems better commend themselves for this intensive treatment than the proposals for price stabilization and examination of the means of increasing aid. . . .

In summary, let us:

(1) Take note that development activity is beginning to settle into a pattern with some results and firm expectations for the future;

(2) Accept the need for increased investment and aid to accelerate the momentum of economic growth toward self-sufficiency;

(3) Explore the realm of the private sector for the “new dimension of aid and investment” needed to supplement the limitations placed on budgeted aid from the public purse;

(4) Study the possibilities for organizing international support schemes for guarantees (a) against deflation of currency values, and (b) stabilization of world prices for specific primary commodities, both of which can open doors of private investment and trade to overcome the stagnation of aid;

(5) Make available a portion of IDA funds to all developing countries for schemes which essentially require soft money so as to avoid a build-up of debt repayment pressures which imperil development; and

(6) Focus international attention now on selected major problems of the developing world, this being the effective machinery to produce real results which are urgently needed.

I feel it is my duty not to close my comments without paying a very special and warm tribute to our host country, Brazil, for providing what must be one of the most beautiful settings in the world for this particular Conference and for measuring up to what we in the developing world would expect of them in doing a man-sized job in providing all the facilities and comforts necessary for this Conference, which always pleases us when the developing world can measure up to its own responsibility.

Statement by the Governor of the Fund and Bank for Uganda—L. Kalule-Settala

On behalf of the Uganda Delegation to this year’s Annual Meetings of the Bank and the Fund, I would like to express our appreciation to His Excellency, the President of Brazil, for his excellent address to us when opening this year’s proceedings.

I would also like to extend our grateful thanks to the Government of Brazil and the citizens of Rio de Janeiro for the warm and kind reception accorded since our arrival.

Sir, I join fully Governors who have spoken before me in expressing my appreciation for your clear and commendable statement on the economic and monetary problems of the member countries in the Bank Group and the Fund.

I also wish to thank Mr. Woods and Mr. Schweitzer for their excellent statements on the activities and achievements of the Bank Group and the Fund during the past year, as well as on some of the problems that are still to be resolved.

Uganda Economy

If I may be permitted, I would like to speak about the performance of the Uganda economy.

The Uganda economy has been growing at a reasonably fast rate during recent years. Over the past five years, per capita income in the monetary sector has grown at an annual average rate of nearly 2½ per cent. Fixed investment, on which will depend future output, particularly in the industrial sector, rose from £ 18 million sterling to £32 million sterling per annum over the past three years. Domestic savings were running at a high level but were offset by “private capital flight.” It is estimated that between the years 1961 and 1965, the economy probably lost almost £50 million sterling of foreign exchange by way of net long-term private capital transfers.

With greater public demand for services and the need to develop the economy so as to improve the standards of living of our people there have inevitably been generated heavy pressures on our budgetary resources, despite their sufficiently rapid annual increase. In the past two budgets, the Government has taken firm fiscal and monetary remedial measures to restore a proper financial balance both externally and internally. The Government has also taken vigorous steps to diversify the agricultural sector, the main source of Uganda’s export earnings. At this juncture, I would like to express the appreciation of my Government for the external assistance received from bilateral sources and from the International Development Association which has supplemented our efforts in raising resources for development of key sectors, such as education, health, communications, livestock, and agriculture.

East African Economic Community

In my address to fellow Governors last year, I referred to certain developments in the economic and monetary fields involving my country and its East African neighbors, Kenya and Tanzania. Since then I am glad to state that the three East African Governments have reached agreement on a new form of association and have signed a treaty for an East African Economic Community. The treaty, which will come into force on the 1st December this year, establishes an East African common market and provides for its proper function and regulation.

We have united with our neighbors in a common market to expand our agriculture, commerce, and industry as a means of furthering the development of our respective countries. We have agreed to continue to administer certain basic services in common so as to reap economies of scale to our mutual benefit.

There will naturally be need for the three Governments to coordinate their economic and monetary policies so as to ensure the proper functioning of the Community. In this respect we have continued and will continue the practice of full coordination of our fiscal policies through close consultations between the three finance ministers. Similarly, the central banks are fully consulting each other on all matters of mutual interest so as to ensure that our governments harmonize their monetary policies. In fact, there have already been held five useful meetings between our central banks.

We have agreed to set up a regional development bank to be known as the East African Development Bank, which will be an integral part of the Community, with the purpose of correcting imbalances and promoting a more balanced industrial development between the three economies and to make it possible for the three economies to become more complementary in the industrial field. The Bank is also intended to supplement the activities of national development agencies. It is our hope and desire that this new institution, in collaboration with the African Development Bank and other international financial agencies, should prove an effective instrument for organizing and employing new resources for our development.


I would now like to make a few comments on the question of international liquidity. In his Annual Report last year, Mr. Schweitzer reasoned at length that reserve creation was the concern of all member countries of the Fund, that all should participate both in the distribution of new reserves and in the decisions which lead to the creation of such new reserves, and that such creation should take place in the Fund. It is gratifying therefore to know that all these basic principles are embodied in the Outline Plan before us.

The new liquidity facility, if adopted, will make the international monetary system more elastic and ready for the eventuality of international liquidity shortage. This is indeed a welcome landmark in the development of our international payments system. It is to be stressed, however, that the creation of the new facility will still leave each country with the responsibility of bringing about a greater degree of equilibrium in its balance of payments. I would also like to say that the conditions under which the special drawing rights will be issued will impose a certain degree of discipline on those nations using them.

May I congratulate the Managing Director, the Executive Directors of the Fund, and the Deputies of the Group of Ten upon their ingenuity, patience, and diligence in producing the Outline Plan. I accept the scheme in a compromising spirit. I say compromising spirit because the scheme does not meet all the desired objectives of member countries in the Fund. It is to be regretted, for example, that the balance of payments adjustment process and the resulting need for liquidity in respect of less developed member countries of the Fund (which will number 109 when Lesotho and Botswana join us in due course) are not directly catered to under the scheme. It is something that is left to be looked after partly indirectly through a hope that developed and richer member countries of the Fund will liberalize trade and international finance transfers and partly by the whole subject being remanded for discussion in another forum. I do, however, trust that, assuming the scheme is “capable of further development,” the Directors of the Fund will render the amendments to the Articles and the Rules capable of adaptation and that an early and urgent step will be taken by the international financial community toward improving directly the balance of payments adjustment process needs of the less developed countries. . . .

Development Resources

Once again I feel obliged to refer to the fact that the over-all flow of financial resources from the more developed to the less developed countries has not kept pace with the growth in wealth in the richer countries. The situation has been aggravated in the past years by the excessive deflationary policies followed in certain developed countries, with the purpose of correcting imbalance in their balance of payments positions. These policies have tended to weaken further the demand for primary products from the less developed countries. They have also led to an over-all reduction in the long-term capital flow to the developing countries. To correct these adverse effects, there is clearly an urgent need for those industrialized countries that are enjoying surpluses in their basic balances to seek an appropriately greater rate of economic expansion at home. . . .

Finally, I also wish to join other fellow Governors in welcoming Indonesia and The Gambia to membership in the Bank Group and the Fund.

Statement by the Governor of the Bank for Indonesia—Frans Seda

It is with singular pleasure that I avail myself of the opportunity to address this distinguished meeting, for this is the first Annual Meeting since Indonesia again became a full member of the International Bank for Reconstruction and Development and of the International Monetary Fund. We are also hopeful of becoming shortly reassociated with the Bank’s affiliated institutions, the International Finance Corporation and the International Development Association. The warm words of welcome extended by you, Mr. Chairman, and by others, are greatly appreciated by us.

On this first occasion since our re-entry, permit me to thank you and, through you, the Boards and the managements of both the Bank and the Fund for their understanding and cooperation during our negotiations regarding the renewal of our membership.

Before commencing the few observations which I have to offer, I would like to congratulate you, Mr. Woods, and Mr. Schweitzer for the excellent, illuminating statements made on the first day of our meeting, parts of which I will reflect upon in the course of my intervention.

Our relations with the international financial and economic community will be based on the new situation in Indonesia and her new economic policy. My country has re-established its state ideology and its 1945 Constitution, the spirit of both of which was violated by a previous regime. We are now using the relevant provisions of our Constitution as guidelines for our new economic policy which is geared toward achieving economic growth and social justice. Taking into consideration our ideal to promote growth simultaneously with a fair distribution of the acquired wealth among our people, we have restored the functioning of the market system which we now consider a more adequate medium for the smooth operation of our economy than controls and regulations. Whereas no modern state can forgo guidance, planning, and supervision, our position is that such should be of a general, supplementary, and corrective nature.

Since October 3, 1966, we have started implementing our economic policy. Our first objective is to put order in a disordered house. That effort implies the achievement of monetary stability simultaneously with the rehabilitation of our existing industries, both as a prerequisite for and a first start toward economic development.

Our exchange system was reformed, giving room to the interplay of supply and demand instead of, as in the past, resorting to allocations and licenses. We also unfroze our price system by reintroducing the market system and abandoning subsidies which, together with price ceilings, distorted the real picture of our economy. While we are reaping some harvest from our efforts, to the extent that we managed to reduce the rate of inflation considerably, we have not completely achieved our objectives. Money supply and prices still tend to rise, albeit at a slower rate. We are determined to pursue our course; we are gratified that, so far, we have been given both understanding and support from friendly countries.

In this connection I would like to commend the IMF and its staff members for their tireless, patient, very able, and dedicated work in assisting us. I believe that the Fund’s attitude greatly contributed to the confidence shown by many nations in both bilateral and multilateral talks and meetings such as held in Tokyo, Paris, and the Netherlands.

If to govern is to foresee, my Government, while still engaged in overcoming one of the worst postwar inflations, is already thinking of and making other preparations for a start, at some future date, of economic development proper. We intend to draft a plan of which the tentative operational date would be the year 1969. Anticipating the future, more massive and systematic action in the field of development proper, my country adopted, at the beginning of this year, a foreign investment law, among others, for replacing a former ill-advised policy that economic development should be financed mainly by attracting suppliers’ credits. Years ago the IBRD gave a warning against such one-sided method of financing. I believe that the Bank has been proven right. First of all we realize that economic development has to rely on our own resources. We further realize that additional means ought to be balanced and varied, coming from different sources—international, national, and private—so that the burden of repayment and reimbursement could be more adequately spread and adjusted to needs. We are now exploring the possibility of attracting foreign investment, a source of financing hardly touched upon by us. We are gratified that foreign entrepreneurs are showing interest in the possibility of operating in Indonesia to their and our benefit. Their confidence in our economic future enhances our own conviction.

I do not need to explain to this gathering of the world’s highest qualified persons that private capital alone cannot adequately meet the financial requirements of developing countries. Loan capital will still be needed both bilaterally and multilaterally. In this connection, I express the hope that the highly developed countries would meet the call of the United Nations to apportion the expected 1 per cent of their GNP for development purposes. . . .

Balance of payments problems encountered by some highly developed countries are expected to be alleviated by the newly conceived device of special drawing rights. They should therefore not weigh too heavily in considerations for continuing support to IDA in its original, untied form. . . .

Now allow me to dwell for a few more moments on the problem of the need of development capital.

As both the excellent Annual Reports of the Bank and the Fund show, economic growth in some large industrialized countries slackened in the past year and with it their need for raw materials, of which my country is one of the suppliers; hence, we are deeply interested in a reversal of that hopefully temporary trend. If, in a way, the development of the business cycle in the major developed countries has a momentum of its own, such is far less the case with certain steps and measures undertaken by some of them. Economic development and the state of our economy in general are mainly, but not entirely, our own responsibility, and in this respect we would wish that developed countries could and would be more conscious of the repercussions of events generated by or through them on the weaker economies of others. We are grateful for the understanding shown vis-à-vis the need of additional capital and know-how of developing countries. However, international economic cooperation is not confined to providing capital and know-how.

I have already cited the effect of the decline of the business cycle on our economy. The control of this business cycle is a matter that concerns the relevant countries, but it is also a matter of international concern. I would also like to mention steps recently taken by the Common Market, namely, among others, the imposition of an import duty of 9 per cent on palm oil, one of our important export products. If no alleviation could be provided, for instance, by way of a quota based on our traditional export to our client countries in the Common Market, we are afraid of losing many millions of dollars of exports which we can hardly afford to forgo under our circumstances.

I do not want to be misinterpreted. The Common Market is a great endeavor, which is one of the shining examples of successful regional cooperation, but we cannot remain indifferent to some of its negative aspects for such developing countries as mine, and I believe for a few others also. It is not my intention to take stock of all steps undertaken by some highly developed countries with harmful effects for weaker economies. The release of stockpiles, the decline of exports due both to the business cycle and to certain arrangements at a time that my country is desperately trying to expand its earnings, the short-run fluctuation of the prices of commodities which has been discussed so many times in the United Nations and UNCTAD but, so far, without tangible results, the matter of the worsening terms of trade of developing countries, and so forth are affecting the development of the economy of my country and of others in similar conditions. All of them tend to nullify or reduce the domestic efforts as well as those internationally or bilaterally undertaken. I am of the opinion that efforts to provide assistance to developing countries, however welcome and needed, should be matched by as vigorous or even more vigorous efforts to enable their exports to grow, because exports are their main source of development capital.

Permit me now, Mr. Chairman, to end my intervention by expressing our satisfaction and gratitude that our reparticipation in the work of the Bank and the Fund happens to take place in this beautiful city of Rio de Janeiro. Brazil and Indonesia are on opposite sides of the world, but we have at least three things in common: the great wealth of our natural resources, the less developed state of our economy, and the desire and determination to grow and to let our peoples benefit from the wealth of our lands. May I most warmly thank the Government of Brazil, through you, Mr. Chairman, for the opportunity given to us to be here and for the very cordial hospitality extended to and enjoyed by us.

Statement by the Governor of the Fund and Bank for Kenya—J. S. Gichuru

I must first compliment and express my thanks to the Government of Brazil for the excellent arrangements that have been made for the 1967 Joint Annual Meetings of the Bank and Fund in this wonderful city of Rio de Janeiro. The striking evidence of spectacular economic development in a country, not so long ago regarded as backward and undeveloped, provides perhaps the best backdrop to these Annual Meetings. It also underlines the remark of the President of the Bank, Mr. George Woods, in his inspiring statement on Monday when he said that he would like to hear more about the success stories of development. The evidence here before our eyes in Rio is inspiration to all of the poor countries in the world.

Like other Governors before me, I must congratulate the Bank and the Fund on achieving once again such a high standard of excellence in their Annual Reports. These two Reports are now regarded as among the most authoritative commentaries each year on the state of the world economy. The depth of their analysis and the lucidity of their exposition attain a standard of which the two institutions can be justly proud. I wish, however, that it were possible for us to be as proud of all events disclosed in these Reports. It is clear from Tables 1 and 2 of the Annual Report of the Fund that we have seen a serious disturbance in the progress of the world economy. The Fund’s Report and Mr. Schweitzer’s statement on Monday underline the fact that, in large measure, this disturbance was caused by national policies out of step with world economic needs.

A downturn in the economies of nearly all of the major industrial countries has not only interrupted their own prosperity but seriously affected the economic progress of the developing world. I shall, however, later in this statement return to the ridiculous contradiction of industrial countries giving aid when their trade policies defeat the objects for which the aid is given. At this point, I merely want to add my plea to that of Mr. Schweitzer and repeat what I said in my statement in Washington last year, that countries maintaining persistent balance of payments surpluses have a responsibility to the economic community just as great as those countries in persistent deficit, and as I said then: “this responsibility should be discharged to the rest of the world, either by those countries following an expansionary policy in their economies or by their giving much greater financial support to the international agencies and/or direct development aid to the poorer countries.”

My own country enjoyed a very prosperous year in 1966. Gross national product increased by over 10 per cent, capital formation by 40 per cent, agricultural output by 15 per cent, exports by II per cent, and imports by 14 per cent. In addition, we achieved a small balance of payments surplus. Since the country achieved independence at the end of 1963, gross domestic product in the monetary economy has moved ahead at an average rate of 7½ per cent. I am confident that, if a buoyant world economy can be maintained, we shall be able to advance the economy in real terms at an average rate of more than 6 per cent in spite of the inevitable bad harvests that are bound to occur. Once we have been able to provide the Kenya economy with a more substantial infrastructure, we shall be able to consider accelerating this rate further. Our success is, however, heavily dependent on the maintenance of an expanding level of world trade, and all our efforts and also the efforts of countries providing us with valuable development assistance will be nullified if, to use your own expression, Mr. Chairman, countries start to “export recession.” On a more optimistic note we have in the last year signed an East African Treaty for mutual economic cooperation with our neighbors Tanzania and Uganda.

In the current year, we have seen a serious downturn in the prices of a number of our more important export commodities, reflecting a lower level of demand. Earlier in the year we forecast the growth of our economy in 1967 at a little more than 6 per cent; we have recently had to reduce that forecast to 4 per cent or 5 per cent, in large measure due to the downturn of the world economy in the first half of the year.

At the Annual Meetings in Washington last year, one of our distinguished colleagues spoke of unlicensed amateur physicians crowding at the bedside of the international monetary system. It was not completely clear, though perhaps implied, whether the developing countries were the unlicensed amateurs referred to in that context. Whether this was or was not so, I would prefer to liken the developing countries not to amateur doctors but to anxious relatives having a place by right at the bedside of the world economy when it is clearly ailing, and when the more skilled physicians stand aside and argue, firstly, whether or not the patient is ill, and, secondly, if he is ill, whether his symptoms relate to one particular disease or something quite different. As relatives we have a right to be concerned, particularly if the symptoms of the disease might become evident in ourselves and if there is danger of an epidemic spreading throughout the world. For this reason I welcome the emphasis given in the Fund’s Report to the interrelationships between the industrial countries and the underdeveloped primary producers. I accept fully, as stated on page 39 of the Fund’s Report, that “the foreign exchange problems that have confronted less developed countries are, to some extent, of external origin. Continued weakness or instability in foreign demand and the existence of tariff and nontariff barriers to trade maintained by developed countries have been obstacles to a sustained expansion of export earnings of less developed countries,” and also on page 47 when it says that “for certain tropical products exclusively produced in the less developed areas, the widening of markets abroad is hindered by high internal taxes in a number of importing countries.” Yet it is frequently those same importing countries which are providing aid to develop the producing countries.

The developing world has for the last four years attempted to argue—without much success—that there is a close relationship between liquidity and aid. We have been told consistently that we ought not to confuse liquidity with aid. Perhaps strangely, now that there is a broad measure of agreement on the Outline for an increase of world liquidity, there is a rather greater readiness to appreciate that there is such an interrelationship as far as the developing countries are concerned between trade, aid, and liquidity. We have never attempted to argue that liquidity as such is aid, but we do hold to the view that aid is liquidity. There is, I think, fairly general agreement that the Outline scheme for special drawing rights attached to the draft Fund Resolution fails to meet all hopes and expectations looked for from a scheme for the expansion of world liquidity. However, I think there is general agreement that, in the circumstances, the proposed Outline represents a step forward, and the fact that a Resolution is to be put forward to this meeting this week can be regarded as a major achievement.

The draft Resolution on this subject to be put before us this week charges the Executive Directors to continue their work and to provide us with proposals for detailed revision of the Articles of the Fund. I support fully this Resolution but I would urge in the strongest terms that the Executive Directors must make every effort to complete the work by next April as required by the Resolution, but if it is not possible to complete a full revision of the existing Articles of the Fund, this should not be allowed to delay the finalization of the Articles relating to special drawing rights. Secondly, I would urge that there should be no undue delay in the activation of the scheme of special drawing rights. I spoke earlier about the skilled physicians arguing over symptoms. There is no doubt in my mind that the Reports of the Fund and the Bank demonstrate in clear terms that the need for a higher level of international liquidity exists now. We would be failing in our duty if the patient, which all diagnostic techniques available to us show to be ailing, is not given the new medicine the Outline scheme provides. . . .

It is clear from the analysis presented to us by both the Bank and the Fund that, given the activation of the new scheme of international liquidity and rather greater expansionist policies on the part of those countries in a fortunate position of persistent balance of payments surpluses, the prospect for the world economy and world trade should be brighter. It is, however, important to realize that by itself such prosperity will still, in large measure, be enjoyed by the richer industrial countries, and, although the developing countries themselves look for a higher level of trade from prosperity in the industrial countries, unless there is a reversal of the trends we have seen in recent years we can expect that the principal benefits will still accrue disproportionately to the rich. The developing world has suppressed its doubts about the new liquidity arrangements because it feels that the important thing is first to have a prosperous world economy. We do, however, also feel that the time has come for much greater imagination, and indeed sacrifice, to be applied to the problems of the developing countries. . . .

I have spoken at length because these are issues of greatest importance to the developing world. The industrial countries have already shown great understanding of our problems, and if they would bear with us for just a few more years I am sure that we can look forward to the day when development will have reached the stage in which an increasing number of countries now classed as underdeveloped will be able to stand on their own feet and exist as viable economic communities with rates of growth sustainable and comparable with those in the more advanced countries of the world. The problem can, however, not be put off for very much longer. The imaginative initiative in the financial field with regard to liquidity must now be directed toward new policies for aid and trade. It is to these problems in the next 12 months that both the Bank and Fund must give particular attention.

Statement by the Governor of the Bank for Sierra Leone—B. I. Kai-Samba

I wish to join previous speakers in thanking the Government and people of Brazil on behalf of my Government and the people of Sierra Leone for the warm hospitality extended to us.

I would like also to register my appreciation for the commendable way in which our affairs have been managed by the staff of both the World Bank Group and the Fund. . . .

Turning to the Fund, my Government is grateful for the Fund’s support of our efforts to solve our balance of payments difficulties; in particular, for the timely stand-by credit of $7.5 million extended to us in November 1966 and for technical assistance by Fund officials, working so imaginatively with our officials in our economic and financial management.

We have adopted various additional fiscal and monetary measures consistent with the guidelines suggested in the stand-by arrangement. My Government has reinforced with new vigor our program for recovery and stabilization and has, in the process, reaffirmed our intention to attack our external payments problems in ways which would not compromise unduly our traditional liberal foreign exchange policies. Indications are that in the near future we would be able to produce a reasonable surplus in our current budget, reduce—we hope, substantially—the deficit in the capital account, and stem the drain on our external reserves.

While we recognize that the major initiatives for our economic consolidation, recovery, and expansion must be taken by ourselves, we, like many other developing countries, are concerned about tendencies in world trade and capital movements, particularly during the last three years, which even with the most optimistic interpretations signify that, on balance, the share of the developing nations in world trade has been declining and capital movements have been falling. This reduced flow of funds into the developing nations coincided with a contraction of grace periods and maturities as well as higher interest rates.

The escalation in debt servicing obligations of low-income nations would have to be sharply and urgently constrained. We recognize our potential contribution to this end but venture to suggest that some kind of a breakthrough in the initiatives of lending nations and multilateral institutions is presently needed.

On the other hand, we acknowledge with gratitude the several ways in which the Fund has been helping developing countries in the past and express our trust that the Fund would continue to work actively for the reconciliation and harmonization of interests which we all so fervently desire.

Statement by the Governor of the Bank for Haiti—Clovis Desinor

Permit me, on behalf of the Haitian Delegation, to join with all the previous speakers at this meeting by expressing to His Excellency the President of the Republic of Brazil, and to its noble people, our sincere and hearty thanks for the warm and enthusiastic welcome extended to us. I should like to convey to them fraternal greetings and to assure them of the firm friendship of the Government and people of Haiti.

I should also like to thank more especially Brazil and Honduras who are a part of the Latin American bloc to whom we are fully linked. And the reason I say this is they have expressed our difficulties and our aspirations.

I should also like to thank the Chairman and Delegates in advance for their kind attention to the statement that I have to make today.

In the present stage of world history when so many vital problems have to be faced—involving the demise or survival of concepts, interests, and hegemonies, as well as the bringing into existence of new scales of values for the building of a better world and the satisfaction, at least to the extent of the vital minimum, of the immense and manifold needs of its peoples—may the small black republic in the Caribbean add its voice to that of the other nations, not in order to join in the Aeschylean chorus chanting the plaints of the countries of Latin America, of the Third World, of all the developing countries and evoking all the heart-rending images of hunger and death—these images of the “Mocambos crabs” described by Don Helder Camara, Archbishop of Recife—or to swell the volume of the cries directed by the poor countries to the wealthy ones—these cries that rise from every conference hall, even to the most recent meetings at Punta del Este and Viña del Mar in our own America—permit the voice of our little free and sovereign black republic—faced with the same situation that it has been confronting for years past—to make itself heard in this assembly, as a member of the institutions now met together for the purpose of reporting to all of us on the results of their activities and the measures they have taken throughout the world, merely to proclaim the need for change both in the structure and in the attitude of these institutions, and of all the international institutions, in order to permit the bringing about of a transformation in the life of the developing countries and their peoples, who represent a little over half the human race. Like President de Gaulle, President Duvalier has never ceased to declare that this has been and continues to be essential Haiti wishes to say so here, even if it is not telling you anything new.

As a member of the IMF, Haiti signed the institution’s Articles of Agreement nearly 15 years ago. We are attached to our institution, which has proved its worth. Nevertheless, we appeal for a revision of its basic design, in line with the changes that have taken place in the world during the past 20 years. We have in no way departed from the spirit of Bretton Woods, and shall never depart from it, for Haiti, in the international sphere, stands for intellectual and moral integrity, as an inviolable principle in its relations. Haiti remains fundamentally attached to the aims of the Fund, namely, to assure the smooth working of the international monetary system and the achievement of stability of exchange rates; to facilitate the expansion and growth of international trade; to shorten periods of disequilibrium and reduce the extent to which they affect balances of payments, and so on. During these 15 years we have worked hard to honor these obligations contracted with the Fund. At the same time, we have waged a hard and painful fight to reconcile the needs of our country’s economic development with the need, in accordance with Fund policy, to maintain the convertibility of our currency and the rate of exchange. We should like, however, while sparing you any detailed analysis, to suggest that we are entitled to wonder, to ask ourselves, whether our reasonable and well-founded hopes permit us to believe in the success of sound monetary management when associated with a destructive and crucial underdevelopment. The system has enabled the industrialized countries to increase their exchange reserves. Most of the European countries, and also Japan, have witnessed a tremendous growth in their reserves since 1948. In practice, the IMF has yielded good results, in the way it has operated, for the large industrialized countries. With the last commitments made, it remains possible to defend the dollar and the pound sterling, for the greater benefit of the institution.

But the developing countries, the countries of the Third World, on which Haiti calls for witness, will continue for a long time to come to experience the greatest difficulties within the IMF framework, as at present designed, unless a specific change is made in the direction of the adoption of a special policy for the developing countries. Twenty years! Some change must surely be needed. Twenty years after the Fund was set up, no developing country connected with it has succeeded in regularizing its monetary situation. The basic conditions of the IMF charter have not even been complied with. All the industrialized countries have fixed the parity of their currencies in terms of gold and have organized freedom of transfers resulting from current transactions. For the underdeveloped countries the currency position is completely different, in spite of the fact that these countries agreed to fix the parity of their currencies in gold weight. Theirs is the drama of convertibility secured by means of currency restrictions, wage freezes, dismaying cuts in the operational expenditures of hospitals, sanatoria, canteens, etc.—all in order to safeguard the value of the currency; and the parity established is merely an illusion.

As to the foreign exchange reserves of our developing countries, compared with those of the industrialized countries they are falling continuously. The monetary remedies that may be prescribed by the Fund within the present framework of the system and its rules are incapable of correcting this position, for its cause is underdevelopment characterized by: (a) explosive population growth; (b) illiteracy; (c) falling prices for raw materials and for agricultural products such as coffee, cocoa, and sisal, sometimes by more than 50 per cent, in cases where the world market for a commodity has not been totally eliminated by man-made products (rubber, sisal); (d) the need for investment expenditure for the establishment of a social and economic infrastructure; (e) disequilibrium brought about when industrialization is embarked upon with domestic capital; (f) lack of savings; and (g) the flight of capital to the richer countries. These are some examples, though specific examples, of the characteristics of underdevelopment that the purely monetary remedies—within the framework of the obligations of the Fund and the existing system—are not designed to cure or even to take into account.

Haiti would like to propose that some change is called for and that that change is essential. We wish our position to be understood. It is the fact that we have confidence in the moral value of the institution that leads us to seek, through its agency, some line of force capable of serving as a support for the measures taken by the developing countries, which the Fund cannot, on its own and solely by the use of the monetary measures to which it is restricted by its rules, raise from their state of underdevelopment. Let there be no mistake about this! We should like to see the Fund benefit by an extension of its role and its responsibilities vis-à-vis the developing countries. In this connection perhaps we may be allowed to put forward a few suggestions.

The foreign exchange problem of the Third World, to which our country belongs, is not due to a monetary accident but to a structural disequilibrium in the balance of payments. Purely monetary remedies are inadequate and incomplete. So far as we are concerned, alongside the great reforms advocated by the giants of commerce and industry—our customers—other reforms, equally illuminated by just aspirations, might also be proposed with respect to the structure and operation of the Fund.

As regards structure, it is important that the revised Articles of Agreement of the Fund recognize the need for a different attitude to be adopted, in dealing with the world’s monetary problems, depending upon whether the developed industrialized countries or developing countries are being considered. The monetary disequilibria of industrialized countries will most frequently be related to prevailing economic activity levels, while in the case of my country and of other Third-World countries the monetary disequilibrium will be a structural disequilibrium. Consequently, the means of action and the stabilization programs will be entirely different, depending on whether we are dealing with industrialized or developing countries. That is one suggestion.

In the developing countries, where the rate of savings is somewhat low, monetary stability and convertibility can only be secured by increasing production. Because these countries are compelled to restrict investment credits and reduce operating expenditure, they are condemned to vegetate in a constant and hopeless state of equilibrium of misery. This is to sacrifice economic and social progress to the lure of monetary stability.

We would recommend a revision whereby the IMF would become an active element of a coherent and organized whole with the IBRD and that the general policy of the international financing institutions and mechanisms be established in relation to the efforts of the IMF. We believe that this would result in more effective study of monetary problems. Because the solution of numerous monetary difficulties of the underdeveloped countries is subordinate to economic progress, it would be necessary in such cases for the other international financing institutions and the governmental agencies of the free world to come to the aid of these countries in distress in order to arrive at a durable and certain solution to their monetary problems. As Albert Chalandon has written: “the underdeveloped countries do not have to undergo the shocks of the vast capital movements that take place between the industrial countries. For them, the problem is not located on the monetary plane. They need permanent, long-term aid, an aid that belongs to the domain of financial assistance and economic cooperation. These are,” he continues, “measures of an economic nature, such as the organization of markets and the stabilization of the prices of the raw materials that they produce at a level capable of improving the terms of trade to their benefit, or the development of investment operations or of grants and low-interest loans.”

Having regard to the difficult conditions of development of Haiti and the other Third-World countries that have to contend with a dual exchange need—liquidity and investment funds—the IMF is requested to apply a very comprehensive policy toward Haiti and these other Third-World countries with respect to the utilization of the Fund’s resources. Section 2 of Article I of the Articles of Agreement of the Fund is almost an anachronism for the underdeveloped countries, since world trade benefits the industrialized countries in particular. Haiti requests that a special system be adopted within the IMF for the underdeveloped countries; for example, that the drawings made for exchange difficulties and for export falls should be amortized only in the event of a satisfactory recovery. We believe that to act otherwise is to condemn these countries to resorting to certain exchange restrictions. Any monetary compartmentalization is prejudicial to “the harmonious expansion and growth of world trade.” Moreover, it is clear upon reflection that in helping the poor developing countries of the Third World, the industrialized countries are doing no more than defending their own interests better, while at the same time ensuring the survival of an unreduced free world.

In a new concept of the development of the Fund we would continue to find it better armed effectively to aid the underdeveloped countries to surmount the difficulties that affect the lives of their peoples.

This is how we see the future shape of meaningful aid on the part of the Fund, of the World Bank, and of the inter-American and international agencies to the peoples of the free world. This brief examination of the structure and the policy of the Fund must not and could not in any way impair the quality of the services rendered to the free world by the IMF, not overlooking Haiti, where the presence of the Fund and its financial and technical assistance, in conjunction with the domestic policy of the Haitian Government, have enabled us per fas et nefas to maintain the convertibility of a national currency that has remained stable since 1919. But this effort has been made at the expense of the country’s economic and social development. In spite of 9 years of effort and of struggle, carried on side by side with the IMF, it has not been possible to improve our exchange reserves. The fact is, that Haiti, exemplifying the Third-World countries, needs external resources for the financing of the necessary investment expenditures for the acceleration of its economic and social development. President Duvalier put it this way on May 22, 1963: “However jealous the nations of this hemisphere may be of their independence and their sovereignty, they have all discovered and realized that the pursuit of growth within a framework of order and peace is impossible without the cooperation and assistance of the nations that are better off and better organized and that possess effective means of action to contribute to that growth. . . .” “The wealthy nations,” he wrote in 1966, “must understand that they cannot and must not, if they are to avoid crises and folly, remain deaf to these cries of the poor nations and continue to adhere to outdated positions incompatible either with historic and geographic realities or with the universal expectations of humanity.”

… Haiti has undergone and continues to undergo a series of trials from which it emerges better tempered for all the battles necessary to secure the generalized well-being of its generous people. It cherishes no illusions.

We believe that international monetary cooperation will not bear fruit for the underdeveloped countries and that the objectives defined by the IMF in Article I of its Articles of Agreement will remain no more than a dream, unless the Fund, through the exertion of its high moral authority and its credit, succeeds in securing the commitment of the rich members of the Fund to collaborate with the underdeveloped countries, as a clearly defined and accepted statutory obligation.

Haiti, located at the crossroads of confronting civilizations, seeking in all circumstances to afford an example of reason and moderation, unreservedly approves the decision taken by the IMF working group, under the able and intelligent direction of Mr. Pierre-Paul Schweitzer, and the Group of Ten, following the examination of the obligations that they have mutually accepted with a view to effective contribution to the conservation of the international monetary system of payments, and its stability, and at the same time to secure the establishment of special drawing rights instead and in place of the creation of new international liquidities, a decision decreed by collective wisdom and supported, in spite of its lack of realism and precision, by France, the nation of reason, moderation, and logic.

We have no hesitation in stating the need or indeed necessity for change in the structure of the Fund to the benefit of the underdeveloped countries.

Statement by the Governor of the Fund for Algeria—Seghir Mostefai

In joining with the Governors who have already spoken at this meeting to express my pleasure at the opportunity we have been given to meet in this country, I do not feel that I am merely fulfilling the obligations of courtesy and gratitude toward our hosts, the Government and the people of Brazil.

The fact is that, speaking today as a member of this meeting, true, but even more as a representative of a developing country, I feel that Brazil, because of its importance and its tremendous possibilities, forms an impressive backdrop that gives special interest to the opinions and preoccupations we are so eager to express.

While reconfirming here our support of the memorandum on the activities of the Bank and Fund prepared by the African Group, to which we belong, I am able to add a few brief comments which reflect my country’s sentiments on the key problem of the present meeting.

At previous Annual Meetings, when international liquidity was being considered in terms of principles, my Delegation always endeavored to demonstrate the need, in connection with problems affecting essentially the rich countries, to move toward a real international monetary reform capable of providing a solution for the problems of the less rich countries as well. We have maintained, more precisely in regard to additional liquidity, that it was both necessary and possible to establish a direct link between the arrangement for its creation and the financing of development in the countries of the Third World.

If we felt that we could uphold such a view it is because we have for a long time repeatedly heard at these meetings and elsewhere that the danger that mankind would face if the gap between the industrialized countries and the nonindustrialized countries widened had been generally and unanimously recognized.

Today we find before us, at the end of the studies conducted on this problem, an Outline on which we must decide. Like previous speakers, we note the innovation that it makes through the principle of universality that it established, especially when we recall that heretofore arrangements actually directed at the same purposes have been set up and have operated outside the IMF, that is, without us.

However, it is clear that for the developing countries, participation in collective decisions is not intended to satisfy self-esteem. It has meaning only insofar as these decisions give sufficient consideration to their preoccupations and objectives.

I am obliged to note that, directly, the arrangements provided for in the Outline do not contemplate the creation of additional means intended for financing development.

There are those who imagine that, indirectly, the additional means provided by an increase in the over-all volume of reserves of the industrialized countries could increase this financing. For our part, and considering the lessons of the past, we do not find that these possibilities have been established. They could be only at the cost of a change of approach not offered in the Outline.

Being unaware of neither the complexity of the problem nor the divergent view to which it has led, we understand that the Outline may appear finally as the expression of a truce. But the truce, which marks a pause in the research effort and a delay in the implementation of definitive solutions, presupposes, in order to obtain the unreserved acceptance of all, that each of the beneficiaries can find in it a remedy, however incomplete or provisional, for its difficulties.

At a time when needs are becoming more pressing each day, the efforts undertaken by the different institutions concerned with development and international economic relations have not been able to overcome either the uncertainties of aid to the Third-World countries or the resistance to a constructive examination of their problems: bilateral aid is decreasing; the resources of the Bank Group are dwindling or are increasingly difficult to obtain; the Kennedy Round has not given the least consideration to our preoccupations; the Outline evades them.

In the face of these vicissitudes, the World Conference on Trade and Development at New Delhi, for which my country has the honor to receive a preparatory meeting bringing together representatives of the Third World, now represents the final authority before which all those who should, can, and are prepared to make their contribution to the progress of the developing countries will have the opportunity there to accept finally the necessary sacrifices required by world solidarity and equilibrium.

Statement by the Governor of the Bank for Burundi—Eric Manirakiza

First of all, we should like to thank Brazil for its welcome. The beauty of Rio is famous throughout the world, and this deserved renown is matched by so much graciousness and kindness on the part of all the people that to be here surprises and delights the visitor afresh every single day. We would like the Government and people of Brazil to know that we shall have lasting memories of our stay here. . . .

The maintenance of monetary stability, the development of the economy, the raising of the standard of living—these are problems common to all countries; however, the means for solving them are often very different, and some countries have but minimum means to meet immense needs. Burundi is a typical example. As a developing country that has only recently won political independence, with a currency unattached to any area, the sole guarantee of which is the labor of its population—98 per cent rural—its subsistence needs are covered almost entirely by exports of coffee and cotton, two products whose prices have constantly deteriorated. . . .

The second hope concerns the difficult but urgent problem of the stabilization of prices for raw materials. Each year, in spite of renewed efforts, the purchasing power of our population is lower because export of increased amounts of cotton and coffee is hardly sufficient to cover a constant volume of imports. The deterioration of the terms of trade is for us no mere theory but a menace that grows more serious and burdensome yearly. It is absolutely necessary that international arrangements put an end to this imbalance which brings all our peoples’ efforts to naught and which amounts to a virtual plundering of all the primary producing countries.

The final point in our statement has to do with the prospective creation of a new reserve asset to supplement gold, the dollar and sterling balances, and the gold tranche of the members’ quotas in the International Monetary Fund.

We are happy to note that the discussions that have been going on for several years are to result in the creation of new facilities to the advantage of all members of the Fund, and on a nondiscriminatory basis. For this we pay very special homage to Mr. Pierre-Paul Schweitzer, Chairman of the Executive Board and Managing Director of the International Monetary Fund, and also to all the developed countries which followed his lead.

It would be desirable, in addition, to combine the creation of new international liquidity with the granting of development credits to countries in the Third World. These countries would not keep the foreign exchange received, but would use it for purchases in industrialized countries.

These, Mr. Chairman and Governors, are the few considerations that we wished to submit to you during the closing session of this august assembly. I am confident that they reflect the thinking of many countries represented here. I hope they will be followed by results, for they seem to me to be the basis on which a harmonious development of the world economy can be established.

Statement by the Governor of the Fund and Bank for Burma—U Kyaw Nyein

I shall be very brief. In the first place, we heartily support the Resolution before this Board seeking authority to work out procedures for the setting up of a scheme of special drawing rights for all member countries as a supplement for gold and international reserve currencies, as being both desirable and essential at the present stage of evolution of the international monetary system. Indeed, it is regrettable that these proposals should have materialized after so long a period of hedging and hesitation, and in which, to be true to our own conscience, motives of speculation and self-interest have played their due part.

I agree with Mr. Schweitzer that, with the advent of the new international asset, we seem to have placed our feet squarely on the threshold of a new era in which a new sense of collective responsibility will be born in the field of trade and payments. The main trouble with gold as an asset was that its relative scarcity caused panic conversions into it in times of crisis. We have to fear the opposite danger in the case of the new asset. But experience with domestic credit has long since proved that a judicious and well-proportioned creation of credit has proved its usefulness and has come to stay; and there is hardly any reason to suppose this analogy would be inapplicable in the case of credit internationally created. The Fund as the coordinator in this process would be a better agency than any national or collection of national monetary agencies, simply because of its paramount international character. The implication that the less developed countries with their physical majority in the Fund would be likely to dominate the whole show is to impute to them a sense of adolescence and irresponsibility which is less than charitable. We only ask that they may be given the opportunity to show how they can develop moderation, once responsibility is put into their hands. . . .

I have heard it observed on this rostrum that to help developing countries it is the demand of the developed countries for primary products for which an increase should be sought; I am afraid this is only one side of the picture; the demand of primary producers for capital and consumer goods needs also to be fulfilled; thus, the process should operate complementarily in both directions. For that, development finance will continue to be needed by developing countries, and this on softer terms. Until such time as an international central monetary institution endowed with sufficient international confidence to enable it to create its own assets for both short and long terms is evolved, I am afraid Mr. Woods will have to continue his rounds from door to door in search of long-term finance.

It now remains for me to render our sincerest thanks to the President, the Government, and the people of Brazil for their deep and warmhearted hospitality shown to us during our stay in this charming city. My thanks also go to the Chair for its suavity and impartiality in the conduct of these deliberations.

Statement by the Governor of the Fund and Bank for Malawi—J. Z. U. Tembo

I wish to join my friends in expressing our gratitude to the President, the Government, and the people of the Republic of Brazil for the warm welcome which they have accorded us. For the first time, we are meeting in the Southern Hemisphere and in a country which, like my own, falls under the category of underdeveloped. For this reason, this particular session assumes greater significance. It helps us to focus our attention, even more vividly, on the many serious economic problems now facing the world at large.

I have also noted with great satisfaction the Annual Reports presented by Mr. Woods, President of the World Bank, and Mr. Schweitzer, the Managing Director of the Fund. I welcome these Reports. We are indeed fortunate in having the services of these two dedicated men and their staffs, whose efficiency and diligence has impressed most of us.

I would also wish to welcome the representatives of Indonesia, who have rejoined the Bank and the representative of The Gambia, who have recently joined us. I also welcome the indications of Botswana and Lesotho to join this world body.

Many speakers have touched on all the important monetary and economic problems confronting this meeting. Without wasting much of your time, I would like to dwell on a few of these, if only to underline and endorse those views which affect my country more.

In this context, I am happy to see that some progress has been made toward the easing of the problems of international liquidity by the prosposal to set up special drawing rights recently agreed by the Deputies of the Group of Ten and the Fund. Malawi gives qualified support to this agreement. The proposals fall short of the expectations of most of us, but we recognize the fact that a step has been taken in the right direction. Malawi recognizes the fact that the mere creation of additional drawing rights will not immediately solve the problems of developing countries. We hope, however, that the creation of such additional rights will in turn enable the developed countries to increase the volume of aid to the developing countries and to consider favorably the suggestions and pleas to ease the terms of such aid and to reduce the volume of tied aid. . . .

In conclusion, I would like to say one or two words regarding the operations of the Bank and the Fund. My country has benefited greatly from the advice given by missions sent to it under the auspices of these two organizations from time to time. These visits have proved useful. However, I would like to suggest that, in future, an attempt should be made by both the Bank and the Fund to coordinate general economic missions by sending joint teams and joint questionnaires. It would also be of great help if questionnaires could be sent well in advance and could follow a standard form, the answers to which could be updated from year to year. In this way, there could be a very considerable saving in time of our own officials.

Statement by the Alternate Governor of the Bank for Austria—Hugo Rottky

At the outset of my statement I want to convey to you the best regards of the Austrian Governor, Minister Dr. Schmitz, who was prevented from attending this meeting by budget negotiations. I would also like to express my personal appreciation to the Government of Brazil for its very warm welcome and hospitality. . . .

The present trend of both economic development and development finance can only be considered as disquieting indeed. Many factors causing this grave concern are interlocking, and one cannot refer to them without repeating well-known facts which have been stated several times in recent years.

Among the various problems, however, are some which have a particular bearing upon the situation with respect to raising capital in the markets, and it is of highest importance that they be given full attention in this institution.

To assist the less developed countries in their efforts to accelerate progress toward self-sustained economic development, the more advanced countries are expected not only to provide real resources but also to bridge the foreign exchange gap by advancing financial resources. In this connection I do not want to touch upon the monetary issues related to this problem. I would rather focus on the most pressing problem which concerns the Bank as well as the donor countries, namely, the discrepancy between requirements and availability of long-term funds necessary for economic growth. We are well aware that the burden of accumulated foreign debt service will severely reduce the net flow of assistance still necessary for some time ahead. Difficulties in servicing foreign debt have already caused serious problems for both lender and borrower countries. In this regard the Bank deserves our fullest appreciation for making every effort to overcome these problems.

The slowing down of foreign assistance vis-à-vis the increasing absorptive capacity of the developing countries is causing disappointment. There is also some doubt about the willingness of the contributing countries to expand aid, on the one side, and about the efforts and performance of the developing countries on the other side. But we should realize that financial aid to a certain extent involves some sacrifices. It means setting aside funds which could be profitably used by the donor countries, no matter how advanced, for their own economic and social growth. We would be mistaken, however, to attribute the slowing down of foreign assistance to a deliberate policy. There are several limiting factors adversely affecting the flow of financial resources which, in my opinion, can hardly be tackled successfully within the next few years.

In evaluating the assistance efforts of any country we should also bear in mind that there is not only a disparity among borrower countries as to the different stages of development but also a striking heterogeneity among the industrial countries as to their relative abilities to provide assistance.

A landlocked country like Austria, with, for historical reasons, less established ties to the developing countries and a less competitive industry, has first of all to increase its industrial capacity and efficiency by an appropriate investment policy. Strong pressure from competition and increasing pressure from wages, even anticipating higher productivity, compel important and incisive structural adjustments such as economic integration itself, formation of larger industrial enterprises, and improvement of capital equipment per labor unit, etc. In the long run, the developing countries would benefit from such measures, as they would provide the basis for an increase of imports from these countries as well as for a stimulation of the flow of assistance in the future.

As long as a labor surplus kept wages low in Europe, even the small domestic markets allowed for profits providing adequate self-financing while additionally required long-term capital could easily be raised in overseas markets. In recent years, however, investment financing had increasingly to resort to domestic capital markets and the Euro-dollar market. Most of the small domestic markets, however, have yet to adjust to the changed situation.

It should be mentioned in this connection that serious efforts have been made in Europe to improve the functioning of capital markets and that two studies have been completed by the OECD and the EEC. The OECD study has been prepared in cooperation with the IMF. It is to be expected that the results of these studies will have favorable effects on the functioning of the capital markets and will stimulate saving in all forms, especially contractual saving so badly needed for accumulation of long-term capital. With only a few exceptions, the mechanism of the capital markets has to be adjusted to changed conditions to bring about a more efficient and less expensive mobilization, collection, and distribution of capital.

On the way to a closer economic integration of Europe, one has to consider the deep-rooted historical, cultural, and institutional diversities of the individual countries. This integration, however, seems to me a sine qua non to achieve a better balanced economic development to the advantage of the industrial countries and of the whole world. Only such progress can alleviate the pressure on these economies and their capital markets and bring about a better absorptive capacity for exports from less developed countries, as well as larger means for development finance so badly needed in the Third World.

In my country every effort is made to adjust the economy to the changing conditions of the world, to adapt the structure of industry, to facilitate the mobility of labor, and to use fiscal and monetary policies to maintain an appropriate growth of the economy. It is inevitable that such an adjustment process puts a heavy strain on the economy, especially of a small country like Austria. Nevertheless our efforts in the fields of foreign aid have been considerable. Austria has done its best by cooperating with the IMF, the World Bank and its affiliates, the Asian Development Bank, and the OECD, and in joining some consortia. . . .

September 29, 1967.

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