Chapter

Discussion of Fund Policy at Bank, IFC, and IDA Session1

Author(s):
International Monetary Fund. Secretary's Department
Published Date:
October 1968
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Statement by the Governor of the Bank for the Philippines—Eduardo Z. Romualdez

… We welcome the attention that the staffs of the World Bank and the Fund have jointly given to the problem of stabilizing the world prices of primary commodities. We share the sentiments expressed by our neighbors concerning the loss of valuable foreign exchange resources that we, in the developing world, suffer from the steady erosion of prices of certain primary commodities. …

Statement by the Governor of the Bank for Sweden—Gunnar Strang

Speaking on behalf of the five Nordic countries, Denmark, Finland, Iceland, Norway, and Sweden, I want to join the previous speakers in their words of welcome and good wishes to the new President of the Bank Group. …

My main topic today will be the complex one of development finance. However, the dramatic events in the monetary field over the last year have certainly demonstrated that the smooth functioning of the international monetary system is a prerequisite for mobilizing an adequate amount of funds for development finance.

It is therefore essential that member countries proceed as rapidly as possible to the ratification of the necessary amendments of the Articles of Agreement of the Fund. The new monetary instrument of the SDR’s should be activated in due time in a spirit of joint venture conducive to monetary stability, economic growth, and a steady increase in international trade, from which the developing countries would also benefit.

In 1961, President Kennedy, speaking on development assistance, stated: “We have not only obligations to fulfill, we have great opportunities to realize.” These words are equally true and valid today, 7 years later. But the efforts of the richer nations to meet the challenge and to realize these opportunities have become less and less convincing. The share of gross national product that developed countries devote to official assistance has continued to decline since 1961. In the gigantic second session of UNCTAD there was hardly any issue on which agreement on positive action in favor of the developing countries could be reached.

It is a sad state of affairs that we are witnessing a slowing down of progress in the field of development assistance. This tendency must be reversed.

We join in deploring the present lack of a joint strategy, and promise our support for the preparations now under way for making the next development decade a more successful one. …

Another fundamental problem is that of the debt-servicing burden. …

The Nordic countries are considering ways and means of softening the terms of their development assistance. In this connection I may mention that the Swedish Government is prepared to make its contribution to this end by reducing the burden of all Swedish development credits to be repaid over less than 25 years. Sweden intends to double the grace period of these credits from 5 to 10 years. The repayment period for all Swedish development credits will thereby be 25 years or more. It is hoped that this action will form part of a general advance toward softer terms and conditions.

The increasing tendency toward tying development loans to deliveries gives ground for concern. The negative effects on the value of aid of this tendency may be offset by an increase in the share of multilateral aid in total development aid. But a condition is of course that tying practices should not be allowed to spread from bilateral to multilateral assistance. …

Statement by the Governor of the Fund and Bank for Trinidad and Tobago—F. C. Prevatt

Mr. Chairman, permit me to express my personal pleasure, and that of my Government, that Mr. Schweitzer has agreed to continue his services with us as Managing Director of the International Monetary Fund and that Mr. McNamara has assumed the Presidency of the World Bank Group. The enormous responsibilities which attach to these high offices in the Fund and the Bank Group are in demonstrably capable hands. …

Since our meeting in Rio de Janeiro last year the world has experienced a series of recurring monetary crises. We in Trinidad and Tobago have been seriously affected by them. We have suffered substantial losses in the purchasing power of our already small reserves; we have had to pay more for the imports we need and we have received less for our exports; we have experienced increasing restrictions in capital inflows; and the reinvestment of profits earned in our country by foreign companies has been adversely affected by the guidelines which have been introduced by major capital exporting countries. We hope that the high degree of international monetary cooperation evident during the past 12 months will continue, and that it will result in further improvements to the international payments system and in relief from the downward pressure on world trade and on the standards of living of peoples in the developing countries.

We in Trinidad and Tobago are fully aware that the task of developing our country rests largely on our own efforts, and that this requires the maximum feasible mobilization and the most efficient use of our domestic financial and human resources, in accordance with properly formulated development plans. We have always acted in the light of this awareness; we will continue to do so. However, because we are a small developing country, we must depend heavily on trade and inflow of capital. We must export. Fair and remunerative prices for the goods we export are vital to us, so that we can pay for the imports which we cannot do without. We must, for some time to come, depend heavily upon inflows of private international capital to cooperate with us in exploiting the assets we have, and so to produce income, employment, and rising standards of living for our growing population. And finally, we need official assistance at both the national and international level to fill the gap between our needs and the resources we can provide through our own efforts.

It is abundantly clear that the developing countries will enjoy economic expansion only if the world production system is restructured to allow for an expansion in exports by these countries to the developed countries. The conclusion of equitable international commodity agreements and a substantial export of capital to developing countries are also necessary. The conclusion of equitable international commodity agreements is a logical starting point and would provide immediate and important benefits to the developing nations. However, the opportunity to expand production and income on an adequate scale must go far beyond what can be derived from the sale of raw materials; it will require access to world markets for more highly processed goods in steadily increasing volume as output can be expanded on competitive terms. This of course implies that the developing countries will themselves provide steadily expanding markets for all sorts of production as their incomes rise, so that the world as a whole stands to benefit from their economic growth. Furthermore, it is clear that these beneficial results will be heavily dependent on a substantial export of capital to the developing countries, especially in the initial stages. In the past these needs have not been given due attention, especially during periods of monetary crisis, and, consequently, the adjustments have fallen on those countries least able to bear them.

In the past these needs have been subjected only to study and analysis; action on the necessary scale has not been forthcoming. I hope that the developed nations will take the action called for by these analyses and studies to give effect to their promise of support, that this action will be taken now, and that the next decade will be appropriately described as the “Action Decade.”

We in the developing countries rely heavily on the World Bank, the International Monetary Fund, and other international organizations to assist us financially and technically to stimulate our growth sectors and to establish and equip the financial and other institutions we require. The upward trend in interest rates is therefore of particular concern to us, especially when this upward trend is set against the downward movements in commodity prices. …

We attach great importance to the new SDR facility. Trinidad and Tobago accepts the amendments of the Articles of Agreement of the Fund, and we are about to seek parliamentary approval for the appropriate changes in our law to permit us to participate in the scheme. We hope that there will be an early activation of this facility and that this early activation will lead to a resumption of discussion on the linkage between the new reserve asset and the provision of untied aid, as was advocated by several other delegations.

I have made several references to the need for an international system to facilitate an expansion in exports on which our economic growth depends. You will therefore appreciate our great interest in the studies on commodity price stabilization schemes being jointly carried out by the Fund and the Bank. We look forward to early and positive results ensuing from these studies in depth.

We have given a great deal of thought to proposals before us for distributing part of the annual net income of the Fund. We recognize the legitimacy of the proposal before us, but we consider that the interest of the international community will be better served by applying these resources to other pressing areas such as an expansion in loanable funds for development purposes. We therefore support the amended proposal circulated on this subject.

I conclude by recording my appreciation for the close and cordial relationship which we in Trinidad and Tobago have enjoyed with the staffs of the Fund and of the Bank. They have convinced us of their sympathy with our development problems and we are encouraged by their approach. We are confident that these cordial relations will continue.

Statement by the Governor of the Bank for Turkey—Cihat Bilgehan

It is my great pleasure to have the honor of addressing this distinguished gathering of the Governors of the International Monetary Fund and the International Bank for Reconstruction and Development and its affiliates. Knowing that your valuable time is very limited, I shall dwell briefly on certain points concerning these institutions.

First of all, I would like to express my appreciation to you, Mr. Chairman, for the opening remarks which we enjoyed listening to with deepest interest; and our thanks to Mr. Schweitzer and Mr. McNamara for the precise and detailed Annual Reports they submitted to us, reflecting another year of great effort and success of both managements toward attaining solutions to many financial and economic problems. …

Needless to say, the adoption of special drawing rights, which is the outcome of the very praiseworthy efforts of the Executive Directors and the management of the Fund, is a big stride toward alleviating the pressure on international liquidity. We are now looking forward to an early implementation of this system. In addition to the special drawing rights, it is our hope that the national policies will be so adjusted that they will not hamper further development of world trade. There is no doubt that such an expanded trade will be to the benefit of all nations.

In concluding my remarks, I feel it is a most pleasant duty to express our deepest thanks to Mr. Woods for his past services and our best wishes for success to the new President of the Bank, Mr. McNamara, and to Mr. Schweitzer on his extended term.

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

… The creation of new liquidity, the special drawing rights, should be linked with a diversion to development of part of the resources thus brought into being, dogmatic objections notwithstanding. …

Thus, the combination of grants judiciously used, access to the capital market, and use of part of the special drawing rights for development through IDA, all with a view to promoting self-sustained growth in the underdeveloped nations, would go a long way to filling the vacuum between the opportunity for a new deal, between a mighty forward leap in the economy of the world, and current backwardness of performance, and would be in welcome harmony with the vision of New Economics and the guiding philosophy of humanism.

Statement by the Governor of the Bank for the Democratic Republic of Congo—Victor Nendaka

… In view of its present economic structure, Congo attaches the greatest importance to the efforts made by the World Bank and the International Monetary Fund toward reducing fluctuations in commodity prices and diminishing their impact; directly or indirectly, these fluctuations affect the financial resources of the country, its balance of payments, its export earnings, its import capacity, its ability to finance its development—practically all aspects of its economic activity.

However, beyond and in addition to these stabilization measures that should be taken at the international level, Congo should promote private or mixed endeavors in industrialization, in diversification of resources through the creation of new activities, and in local processing of primary products, both in order to mitigate the effects of price changes and to gratify its industrial aspirations.

Recently, also, private companies have been established in Congo at the initiative of American, European, and Japanese groups, in the sectors of mining, agriculture, and tourism. …

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

At the outset I would like to congratulate Mr. McNamara on his appointment as President of the World Bank and Mr. Schweitzer on his reappointment as the Managing Director of the Fund. With men of their eminence and mature experience at the helm we can look forward with confidence to the continued growth of these institutions and the further strengthening of their role in the field of international finance and development. …

The year 1967-68 was a year of unusual activity both for the Fund and the World Bank. It is creditable that the Executive Directors of the Fund were able, in less than a year, to complete their report to the Governors proposing amendments in the Fund’s Articles of Agreement necessitated by the adoption of the Resolution relating to the special drawing rights scheme last year. We are also appreciative of the studies conducted by the staffs of the Fund and the Bank on various problems affecting the less developed countries. The joint study on the stabilization of prices of primary products and the World Bank studies on the export experience of developing countries and export credit are valuable documents and should greatly help policy formulation in future years. The question of stabilization of commodity prices being one of great importance and urgency for the developing countries, I would urge—as in fact was suggested by Mr. Schweitzer yesterday—that the study be completed well in advance of our Annual Meeting next year.

The hopes and aspirations of the developing world are enshrined in these two institutions. Every year we flock to their portals in this annual ritual to see and assess the extent to which our prayers of previous years have been answered. Every year, however, it is our experience that “the hungry sheep keep looking up.” The year 1967-68 was no exception…. The rate of growth of export earnings of the less developed countries as a group went down by almost half. Tariff and trade barriers for the developing countries continued to operate as harshly as ever. The terms of foreign assistance showed little sign of softening, while the debt servicing liability became more burdensome. …

Both the Fund and the Bank Reports have focused attention on the strains to which the world economy was subjected during 1967. Particularly disturbing was the reduction in the growth of world trade which reflected the slowing down of demand and output in the major industrial countries in the course of 1966 and its intensification in the first half of 1967. Despite the recovery of economic activity in the industrial countries in the second half of 1967, world trade increased by only 5 per cent in 1967 as a whole, as against the impressive rate of expansion of over 8 per cent between 1960 and 1966. Taking the year from the third quarter of 1966 to the third quarter of 1967, the rate of expansion in world trade was still more disappointing and was only 2 per cent. The slowing down of world trade has had a markedly adverse effect on the exports of the developing countries. Not only were their export earnings affected, but the slowdown in the expansion in world trade also impinged on the growth in aid commitments for them which remained stationary at the level of the preceding years.

While there was no improvement in the quantum of aid for less developed countries during 1967-68, their debt servicing problem became more acute. Due to restricted availability of credit on soft terms, increasing use of suppliers’ credit had to be resorted to by the less developed countries. As a result, the blend of soft and hard loans has been quite different from what could be considered desirable, leading to a considerable hardening in the average terms of available assistance. It is obvious that the harder the terms the higher will be the future gross amount required merely to maintain a constant net amount of foreign assistance. According to an estimate made by the Development Assistance Committee of the OECD, on the same average terms as in 1965, the gross official capital flow would have to be increased from $5,750 million in 1965 to $7,820 million in 1975 and further to $10,180 million in 1985, if the flow of official capital to the developing countries net of amortization and interest is to be kept only unchanged. In fact, as the World Bank President remarked in the 1967 Annual Meeting, if the volume of development finance does not grow and if there is no improvement in the terms of aid, development aid would simply eat itself up, and for some aid-giving countries net official transfers would soon turn out to be zero. Improved programing and better terms of aid are, therefore, an urgent and inevitable necessity for the protection of development effort in less developed countries. In fixing their level of aid, I hope the developed countries will keep in mind the concept of aid flows net of debt repayment.

The year 1967-68 has been a disappointment in other respects also. In this forum last year developing countries expressed their strong sense of disillusionment with the results of the Kennedy Round of tariff negotiations. This year we had earnestly looked forward to UNCTAD II to ease the problems of less developed countries. The central issues were those that have already been debated for years, namely, trade preferences for developing countris, greater access for their products in the markets of developed countries, commodity agreements, the volume of aid, and the supplementary financing scheme. There was, however, a regrettable lack of understanding on all these issues and none of them received more than a vague recognition. I believe the world as a whole is committed, in common concern, to the task of the economic uplift of the developing countries. The crucial element in this process is the adequate availability of external finance. Developing countries can acquire these resources by enlarged trade and greater external assistance. But both these sources are shrinking. …

The year 1967-68 was a trying year for the world monetary system also. Much will now depend on the restoration of a better balance in the world payments system through the elimination or reduction of the payments deficits of the two reserve currency countries. While it is reassuring that the reserve currency countries are making determined and sustained efforts to cope with their payments problem, the process of adjustment is likely to prove painful. In this context I would like to draw attention to the fact that in bringing about the needed adjustment in their balance of payments, the developed countries appear to be relying heavily on instruments of monetary policy, particularly the interest rate mechanism. While the consequences for world trade are the same whether the curtailment of domestic demand in these countries is brought about by fiscal policy or monetary policy, the less developed countries stand to lose more if the main emphasis is on monetary policy. Such a policy would, on the one hand, reduce the spontaneous movement of private capital to the developing countries and on the other aggravate their debt servicing problems by causing a rise in the general level of interest rates. It would be in the larger interest of the world economy if the demand contractionary policies of deficit countries rely more on fiscal than monetary measures and are also accompanied by suitable expansionary policies on the part of surplus countries.

As we recognized in this forum last year, for a satisfactory growth in world trade an increase in international liquidity appears to be essential. The early activation of the special drawing rights scheme, which has already been approved, would not only be helpful in easing the world liquidity situation but would also improve the climate for world trade, aid, and investment. It is our hope that the remaining steps before the scheme can be activated will be taken expeditiously so that it may begin to play its appointed role in world financial affairs.

The adoption of the special drawing rights scheme has necessitated certain amendments in the Fund’s Articles of Agreement. Certain other changes have also been approved in the Articles of Agreement, mainly on the initiative of the European Common Market countries. I feel there is need for re-examining some of the provisions of the Fund’s charter in the context of recent developments on the aid front. As the expected increase in aid flows has failed to materialize and the less developed countries are faced with an acute financing problem, it is worth considering whether the terms on which facilities are available from the Fund cannot be softened. I have particularly in view the articles relating to repurchase obligations by member countries and the period within which repurchases must be made. Promotion and maintenance of high levels of employment and real income and the development of the productive resources of all member countries are important objectives of Fund policy as set out in the Fund Articles of Agreement. I hope the Fund authorities will initiate studies of the type I have suggested.

The developing countries are currently in a crucial stage of growth. Several of them have built up a large potential for development by investing in the necessary infrastructure and evolving the appropriate institutional framework. Organizations for the efficient implementation of development projects have come into being. Techniques of planning at the national and local level have become more sophisticated. Just when these favorable factors have prepared the developing countries for entrance into a more ambitious phase of development, the international climate is tending to become indifferent. If this trend continues, the challenge of development would rapidly outgrow our combined efforts to meet it. This not only would be a sad event for the future of the developing countries but it is also likely to affect the economic well-being of other countries and, if “development is peace,” as Mr. McNamara, quoting Pope Paul, said last Monday, it might even endanger world security. …

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

… Finally, I would like to comment on the matter of real importance before the Fund, the problem of world liquidity. But I do wish to preface my remarks here with a note of sincere congratulations to Mr. Schweitzer on the assumption of a second term of office. Faced with an unprecedented period of monetary instability, his leadership evoked the necessary international cooperation which was basic to the success of the new approaches evolved to deal with the old problem of world liquidity.

The problem is indeed old; what worries us is that it threatens to be immortal.

The decision to introduce and implement special drawing rights is an important first step in the improvement of world liquidity. The recently concluded Basle facility to ease the pressures on sterling is yet another.

Both will strengthen the two international reserve currencies and maintain more lasting order and strength.

But it would be a serious mistake to rest on these achievements. Much of what has been accomplished is in any realistic assessment only a breathing spell within which the world must quickly come to grips with the basic problem inherent in maintaining international reserve currencies. Years of study and proposals lay behind the fundamental question of how the world should hold its reserves.

There is no need to mention these here; what is more important is to recognize that out of the wealth of ideas and the ferment of action the SDR has been evolved to operate side by side with the dollar, the pound, and gold, and it has taken five years and many crises since the wheels were first set in motion by the IMF and the Group of Ten in 1963 to accomplish this. This is historically recorded on page 13 of the IMF Annual Report, 1968.

If further evolution is to take place, and it must be apparent that we have not reached the end of the road, if more lasting order and stability is to come, then we must urge that crisis should not be the stimulant to new and further thought but that the Fund should renew its responsibility quoted on page 12, Chapter 2, of its Annual Report, 1968 to “focus on the subject of international liquidity at least once every five years.”

That five-year cycle has now come full turn again in 1968. It might seem unreal to propose early renewal of the longer look at the basic problems of world liquidity while new facilities designed to help are still untried. But more far-reaching reforms will undoubtedly be necessary and will come, we are certain.

When they do, we wish to see them evolve from the orderly process of study and not hastily put together in the heat of crisis and political pressure.

The initiative is in the hands of the Fund; the responsibility is still there; it goes on.

Statement by the Governor of the Fund and Temporary Alternate Governor of the Bank for Argentina—Adalbert Krieger Vasena

I have been given the great honor and responsibility of addressing this august assembly on behalf of Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, El Salvador, Guatemala, Haiti, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, the Philippines, Uruguay, and Venezuela. It is my task to outline the viewpoints of these countries regarding the activities of the International Bank for Reconstruction and Development and its affiliates during the past year, and our thinking on the subject of international cooperation. …

An analysis of the evolution of the developing countries and the events in the world of finance and trade reveals that progress has been neither as great nor as rapid as had been hoped.

The gap between effort and achievement in international monetary cooperation, on the one hand, and in economic and trade cooperation, on the other, is clearly very marked. International financial cooperation has been strengthened by the support given to the key currencies to preserve the smooth operation of the international monetary system, by the effectiveness of the stand-by arrangements, by the evolution of the special drawing rights facility, and by the efforts of the gold pool countries to keep the system stable.

On the other hand, there are signs of a decline in the rate of growth of world trade, chiefly in the flow of products from the developing countries to the more advanced countries, accompanied by fluctuating or stagnant prices for primary products. In this connection, we feel it is appropriate to draw attention to the remarks made by Mr. Schweitzer to the effect that the developed countries will have to rethink their trade policies, since they hamper access to their markets by many primary products.

The fact that we are talking about these aspects of international cooperation indicates that the time has now come to analyze the mechanisms used in the past, evaluate the results achieved, and identify the alternative courses of action for the future, in order to attain the rapid economic growth demanded by our peoples. …

The decisions adopted within GATT during the so-called Kennedy Round benefited the industrial nations first and foremost. The Latin American countries and the Philippines are anxious that a new effort be undertaken within the framework of GATT and other agencies to consider the problems affecting access by their products to the markets of the more developed countries, bearing in mind the fact that the lengthy discussion of this subject at the UNCTAD meeting in New Delhi failed to elicit an adequate response.

In the sphere of trade cooperation it is necessary to abolish the restrictions and preferences in the industrial countries that affect primary products (or to extend those preferences to other countries), as well as the systems of subsidies, in operation chiefly in Europe, which generate serious distortions not only in trade relations but also in the field of international finance. In regard to the possibility of new restrictions being introduced, we are worried by the protectionist tendencies that are now gathering strength both in Europe and in the United States of America, since, if they were to materialize, they would spell disaster for the developing countries.

The enormous sums spent by industrial nations on subsidies to promote uneconomic activities ultimately produce negative effects, since they are inevitably reflected in a decline in the welfare of their peoples. A farm policy based on the production of expensive foodstuffs brings additional inflationary pressures to bear on the industrial structure of the developed countries, while at the same time creating unfavorable conditions for the less advanced nations, due to the reduction in world-wide demand for primary products and to the increased cost of the industrial products which they have to buy abroad. The import capacity of the developing countries tends in consequence to diminish, thus reducing their scope for growth.

In the light of this evidence, we are confident that, just as the world responded satisfactorily in the field of international monetary policy, the same good will and inventiveness will be forthcoming to evolve formulas to curb the spread of trade restrictions and bring about more equitable trading relations among the countries of the world. …

The more advanced countries will need to make larger financial contributions and provide easier access to their capital markets for the issues that are made. They are able to do so, since in this Development Decade they have increased their real annual income by a much greater amount than the total annual incomes of the developing countries of Asia, Africa, and Latin America.

This larger financial contribution from the more advanced countries will, without any doubt, receive the response of the greater internal effort that the developing countries will make to improve the administration of their individual economies, to modernize their productive structures, and to bring into effect greater social justice founded on the availability of more real wealth and not on the illusion of inflation. In this connection it should be emphasized that in the Latin American countries and the Philippines considerable progress has been made in perfecting the tax systems, tax collection, and the mobilization of genuine resources for infrastructure investment, with very satisfactory results which represent the best inducement to persevere in this course. …

Statement by the Governor of the Bank for Belgium—Baron Snoy et d’Oppuers

… I wish first to use this opportunity to greet our colleagues and assure them that the policy of the Government, to which I have the honor of belonging, remains like that of its predecessors: firmly attached to the objectives and principles of the Bretton Woods institutions. They have our hearty support.

These institutions illustrate in a concrete and increasingly effective way a positive achievement of our contemporary world: a growing awareness of the need for widespread international collaboration.

I also greet the respected heads of our institutions, Mr. Schweitzer and Mr. McNamara, and, through them, the impressive body of international public servants formed in the course of nearly a quarter of a century under the leadership of a succession of men of exceptional ability. …

The task of promoting human welfare is a vast and complex undertaking, and a long-term one. What progress has been achieved is due to the modern awareness of the nature of the problems we are confronting and the need for increasing international solidarity. Our policy must not be permitted to swerve from that goal. Multilateral institutions, such as the World Bank and the Monetary Fund, are most effective instruments for keeping us alert to our basic purpose, despite immediate troubles and worries. We must encourage their efforts. They are a positive achievement in our contemporary world. …

I certainly hope that we shall be able to carry on with our intention to give continuous support, in the course of years to come, to the Association, and the brief comment I am going to make on the amendment presented by the Governor of Mali to the proposed decision relating to the distribution of the net income of the Fund does not detract from this policy.

I can only be in sympathy with the intent and purpose of such proposal. However, I have doubts on the proposed method of supplying IDA with more funds. We should not, I believe, create confusion between the functions of the Fund and those of the Bank Group. Their collaboration is desirable, but as a matter of principle and sound management their tasks and the use of their resources should remain directed toward their respective purposes. In my country, such confusion would raise so serious a problem of budgetary procedure as to make the suggestion of the Governor of Mali hardly practicable. …

Statement by the Governor of the Bank for the United Arab Republic—Hassan Abbas Zaki

I would like to take this opportunity first to reiterate—on behalf of the United Arab Republic delegation—our congratulations and good wishes to Mr. Schweitzer, whose term of office as Managing Director of the Fund has been recently renewed, and to Mr. McNamara, who has assumed the high office of President of the World Bank and its affiliates. …

Turning to the new special drawing rights facility to be established by the Fund, there is no doubt that the creation by deliberate action of an international fiduciary asset of an automatic type in the IMF—to supplement world monetary reserves as and when the need arises—is an important step in the evolution of the international monetary system, coming as it does at a time when that system is seriously threatened.

In this connection, I wish to refer particularly to two points: in the first place, a successful working of the scheme is conditional on the effective implementation of the adjustment process in international payments. “Opting out” by one or more important Fund members may also jeopardize the practical utility of the SDR’s. It is to be hoped that in carrying out the adjustment process the developed countries with large deficits would not resort to so restrictive a policy as to bring pressure to bear on the balance of payments of developing countries.

The other point I would like to refer to is the fact that in the formulation of the SDR scheme, the developing countries were not recognized as a special case. In other words, the proposed arrangements do not provide for a link between reserve creation and development finance. Developing countries participating in the scheme would be allocated special drawing rights in proportion to their quotas in the Fund. While it is true that the share of the developing countries in the total of quotas of Fund members is much larger than their share in the aggregate reserves of Fund members and, as such, they have a larger share in the allocation of special drawing rights than otherwise would have been the case, nevertheless, those quotas were established more than twenty years ago on a basis which has left them with a relatively inadequate share in the Fund’s aggregate resources. This is so because of the greater vulnerability of developing countries to fluctuations in the balance of payments arising from greater volatility of prices of primary commodities than of manufactures, coupled with the inadequacy of export earnings to sustain a satisfactory rate of economic growth. All these factors render the needs of developing countries for liquidity relatively greater than those of the advanced countries. For this reason a revision of the quotas of a number of developing countries is a compelling necessity if they are to derive real benefit from the allocation of SDR’s.

As it is, the changes to be introduced in the Articles of Agreement of the Fund are mainly intended to accommodate and incorporate the special drawing rights within the structure of the Fund, and, as such, they do not differentiate between developed and developing countries. In our view, the opportunity should have been seized to introduce the necessary changes in the Fund’s rules and practices to cope with the problems of the developing countries. One way of doing this could have been the insertion in the Articles of a special section or annex dealing with such problems on the lines followed by the GATT a few years ago when a special section was added to the General Agreement.

Mention may be made in this connection of the following measures based on the need to differentiate in the treatment between developed and developing countries as regards the use of the Fund’s resources:

(1) The increase of unconditional assistance by the application to drawings in the second credit tranche of the same conditions that are applied to drawings in the first credit tranche, while in the meantime easing conditions for drawings in the higher tranches. We are of the opinion that while the allocation of SDR’s takes care of the need for additions to existing reserve assets, this should not run counter to the need for applying automaticity to the first credit tranche, which—in view of the small quotas of developing countries—would provide them with greater and more timely assistance than the special drawing rights allocated to them.

(2) The period fixed for the discharge of repurchase obligations—now generally ranging from three to five years—should be extended to from six to eight years.

(3) The scale of charges for the use of the Fund’s resources should be reduced for developing countries with a maximum not exceeding 3 per cent, notwithstanding the extension of the repayment period.

(4) The consideration of help to be extended for the repayment of short-term and medium-term obligations because of their increasing burden on the balance of payments position.

(5) The Fund’s compensatory financing facility should be further expanded. As pointed out in our statement last year, automaticity should be extended to include the whole area of compensatory financing once it has been established that a member is entitled to it.

As to the other important item on our agenda—the Stabilization of Prices of Primary Products—my delegation wishes to pay tribute to the staffs of the Fund and Bank for the extensive study prepared jointly in this connection in pursuance of the Resolutions adopted by the Governors of the Fund and the Bank last year.

We hope that the forthcoming comments and recommendations—still to be submitted—would embrace practical and prompt solutions to some of the recognized problems, to the mutual benefit of the developing and developed countries.

Without anticipating such recommendations, we are sure that the Fund, in addition to the services it now renders to the world economy and problems of international payments, has an important role to play in the commodity field. The improvement of the compensatory financing facility—as well as other changes that may be introduced in the broader context of commodity stabilization—could make a good contribution to the solution of a number of problems arising from export fluctuations and instability of commodity markets. …

Before I conclude, I wish to welcome to the community of the Fund and the Bank the new member countries, Malta, Botswana, Lesotho, and Mauritius. …

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

… If aid is thus appropriately geared to economic yield, also in terms of foreign exchange, the debt problem should become manageable, provided of course that recipient countries pursue sound economic policies. There is, however, one problem in this connection that requires further scrutiny, namely, the management by recipient countries of their short-term obligations. There is in my opinion a strong case to look much more actively into the sometimes disquieting growth of the volume of short-term commercial credits and to follow more deliberate policies to control effectively the volume of short-term indebtedness; there should also be a greater awareness both in credit-giving and in credit-receiving countries of the implications of their actions on the indebtedness situation.

In this respect I would counsel against the opinion that some stretching of commercial terms would constitute a solution to the problem.

I dwelt at some length upon this special issue because it warrants our concern. I will therefore be very brief on one more point I would like to make concerning a procedural matter. I am referring to the joint study that has been undertaken by the staffs of the Bank and Fund in response to the Rio Resolutions on the stabilization of prices of primary products.

I hope that the Executive Directors will submit their report well in time for us to consider it for appropriate action at the next Annual Meeting. In view of the magnitude and complexity of this problem, I feel, however, that we should leave the Executive Directors as much time as is compatible with this target. …

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

We have met once again in the joint Annual Meetings of the two largest international financial institutions in the world—the Fund and the World Bank Group. In these Annual Meetings we have the phenomenon of over 100 countries—large and small—meeting for only one week amidst all the fanfare of social events to deliberate upon and presumably find solutions for the herculean, and, one might add, almost awesome, financial and economic problems of the world, as these problems affect all countries both collectively and individually. One would, of course, be lacking in depth of insight and in perception if one went away with the notion that everything that happened is what takes place in this hall.

Among the many substantive activities that take place outside this hall and which are reflected in our deliberations is the year-round toil of our Executive Directors, management, and the staffs of the Fund and the Bank Group which makes possible such an efficient organization for our Annual Meetings that our deliberations proceed with almost clockwork precision. I take this opportunity to extend to them our hearty congratulations for their devotion to duty.

Apart from these behind-the-scene activities, what are the concrete objectives of our Annual Meetings? I find a threefold answer. The first is the drawing up of a balance sheet, or, if you like, a stocktaking of past performances. This objective is normally enshrined in the Annual Reports submitted by the Executive Directors to the Boards of Governors. The second consists in an evaluation of past performances with a view to drawing appropriate lessons for the future. The third consists of a courageous and, oftentimes, ambitious effort to map out new directions for the future and/or enlarging on existing courses of action.

For the most part, the second and third objectives are expressed in the opening statements of the top executives of the Fund and the Bank Group, and in the statements of the Governors. In listening to, or reading, the speeches of the Governors one gets the first impression that there is a strong consensus that we all desire to move in the same direction. However, in practice when we are faced with the realities, then a somewhat different picture emerges which, while understandable, considering the different interests involved, is nevertheless disturbing at times. Desire like the concept of demand in economics must be effective to be meaningful.

We are all too familiar with the well-known dichotomy of the developed countries, on the one hand, and the developing countries on the other. Even in these groupings there are also differing shades of interest. For analytical purposes, one might distinguish a third element, the management of our institutions, whose responsibility it is to reflect the interests, desires, and aspirations of the two broad economic groups—the developed countries which are, for the most part, the donors of aid; and the developing countries, which are almost entirely the recipients of aid.

While it must be recognized that there is a growing awareness of an identity of interests, desires, and aspirations between the developed and the developing countries, one cannot escape the painful conclusion that the problem of reconciliation is not an easy one, and the management of our institutions must be congratulated for the courageous efforts which they have made in this direction since Bretton Woods.

This difficulty of reconciliation is amply illustrated in the latest Annual Reports of the Fund and the Bank which carry the familiar theme of the past few years concerning the adverse effects of the slow-down of demand and output in the major industrial countries on the prices of primary commodities in 1966 and in the first half of 1967, and consequently upon the external positions of many primary producing countries.

Summing up this precarious situation in his dynamic and inspiring inaugural address, Mr. McNamara observes: “It is already clear beyond contradiction that during the first four fifths of the Development Decade the income gap between the developed and the less developed countries has increased, is increasing and ought to be diminished. But it is equally clear that the political will to foster development has weakened, is weakening further, and needs desperately to be strengthened.”

Two obvious and well-recognized conclusions follow from these authoritative observations: first, the crying need for appropriate measures by the world community of nations to minimize the cyclical fluctuations in primary commodity prices; and, second, the paramount requirement for economic diversification to remove the heavy dependence of developing countries on a narrow range of primary commodities. These two conclusions have broad implications for collective action on a massive scale.

Returning to the theme of reconciliation between what appear to be conflicting interests between developed and developing countries: what has been the latest response to this supreme challenge to international development—the challenge of the alleviation of poverty and despair among the millions of underprivileged peoples of the world? The second session of UNCTAD held in New Delhi early this year provides an answer. According to the World Bank Report, “the discussions during the Conference centered around four major questions,” and “at the conclusion of the Conference these questions remained largely unanswered.”

The answers to these question do not, of course, depend upon one group of countries, but upon collective action between all countries, providing the political will and the incentive to self-help are present. When speaking about the problems of development, it is convenient to talk in terms of “countries,” but in the final analysis, as President Johnson so forcefully asserted in his keynote address at the beginning of these meetings: “People are the key to development.”

With the rapid advance in science and technology, the pace of development in the developed world is proceeding at an astounding pace, including the rapid strides in the fields of transportation and communications. A small modicum of this development is spilling over into the developing world, thanks partly to public and private assistance and investments from the developed world. These developments are contributing to the rising tide of expectations the world over, and we have the somewhat confusing picture of the apparent timeless transformation of poverty and despair into impatience and desperation. But despite the tide of expectations which continues to rise, the process of economic and social change seems to move with glacial speed. The implications of this phenomenon for peace and stability are fairly obvious.

Returning to our two groups of institutions, it is heartening to note the new thrust and the new dimensions which they have assumed.

In Mr. Schweitzer’s review of the world monetary situation during the past year, it is gratifying to note the part the Fund has played in preserving the stability of the major reserve currencies which is so essential to sustained development of the world economy. It can only be hoped that, despite the balance of payments problems of these countries, there will soon be a restoration of, and indeed a signficant increase in, development assistance from these major donors.

The conclusion of arrangements for the establishment of the new facility of special drawing rights within the Fund is a gratifying step in the right direction of increasing international liquidity as an essential condition of monetary stability. Liberia has voted in favor of the Resolution establishing the new facility and it is expected that the amendments to the Fund’s Articles of Agreement incorporating the new provisions will be ratified during the next session of our national legislature which convenes later this month.

The Fund has rendered Liberia valuable assistance during the past few years of difficult financial problems resulting largely from drastic and continuing declines in the prices of our two major export commodities—rubber and iron ore. This assistance, for which we are deeply appreciative, has taken the form both of a series of stand-by arrangements and of technical assistance. In the face of the continuing weakness of the markets for rubber and iron ore, we have made strenuous and sustained efforts at fiscal and financial reforms to cope with the situation—efforts which can stand up to review by any normal test. …

I must congratulate the staffs of the Fund and Bank for the extensive work they have done so far on the problem and possible solutions of the instability of primary commodity prices in response to the Resolution on this subject adopted by the Board of Governors in Rio de Janeiro in September 1967. It is noted that while the analytical section (Part I) of the study has been completed and transmitted to the Board of Governors for their information, the section embodying possible courses of action by the Fund and the Bank (Part II) is still under examination by the staffs of the two institutions. My delegation is prepared to vote in favor of the draft resolution on this subject submitted by the Executive Directors in the hope that the entire study will be completed as soon as possible.

In his statement on Tuesday, Secretary Fowler indicated that this is his last meeting with us as United States Governor. I wish to express to Secretary Fowler the appreciation of my delegation for the valuable contribution he has made to the success of our institutions during his incumbency as United States Governor of the Fund and the Bank, and for the cooperation he has given to our country. We wish him continuing success in his future undertakings.

In conclusion, I wish on behalf of my delegation to express our deep appreciation to the Government and people of the United States for the warm welcome extended us during this session of our joint Annual Meetings. It is a great pleasure also for me to welcome into our midst the new member countries of Botswana, Lesotho, Malta, and Mauritius. And to you, Mr. Chairman, I express congratulations for the able manner in which you have conducted our institutions during your tenure of office.

Statement by the Governor of the Bank for Spain—Juan José Espinosa

… It so happens that we are about to witness the entry into the international community of the new nation of Equatorial Guinea. It will be for its Government to decide whether to join the World Bank Group. May I here express the warm wishes of my Government that Equatorial Guinea, which begins her international life so full of hope and in a spirit of fraternal friendship with Spain, may pursue her development with the greatest speed and effectiveness, and may find here the best possible response to her request, if, as I hope, the new Government decides to join. …

Also urgent is the study of the need to increase the exports of developing countries through adequate preferential treatment and complementary financing. Attention should be given to the need to mitigate the insecurity and fluctuation in the prices of basic products, and to consider the problem of the heavy burden imposed on developing countries by their external indebtedness, combined with the rising expense of international credit. …

Statement by the Alternate Governor of the Bank for Kenya—J. N. Michuki

First, I would like to join other Governors in welcoming Mr. McNamara as the President of the World Bank Group, and to congratulate Mr. Schweitzer on his reappointment as the Managing Director of the IMF. …

A second cause of disappointment lies in the very limited progress which appears to have been made in tackling the problem of the instability and disappointing trend of primary product prices. I should like to emphasize that the developing countries, and Kenya in particular, accept the responsibility to do what they can themselves to overcome this problem. In the case of Kenya, for example, we are very conscious of the need to diversify our economy to some extent, and some progress in this direction is being recorded. It may also be worth drawing attention to the plan adopted at the Conference of Governors of the African Development Bank, which took place in Nairobi at the end of August, to concentrate on streamlining agricultural production, thus making it more efficient; to search for ways of substituting home production for imports; to increase efforts to find new ways of earning foreign exchange; and to emphasize the importance of fostering economic cooperation on a regional and subregional level.

Despite our best efforts, however, the problem of primary product prices is one which can only be tackled if the industrial countries and the international institutions devote vigorous action to this end. It is not altogether clear whether this is going to happen, but we have faith in the ability of both the Bank and the Fund to work out proposals which would substantially assist in the solution of the problems which prompted last year’s Resolution. …

October 3, 1968.

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