Discussion of Fund Policy at Closing Joint Session1

International Monetary Fund. Secretary's Department
Published Date:
October 1968
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Statement by the Governor of the Fund for Lebanon—Joseph Oughourlian

It is not unlikely that I am one of the senior Governors among you, though not necessarily the oldest!

It was in fact in September 1949 that I made my first appearance as Alternate Governor of the Fund in the Annual Meetings of the Fund and the Bank which then as now were held in Washington. I came again to these meetings in subsequent years, sometimes as Governor of the Fund and sometimes as Governor of the Bank. After a gap of some years, I once more took my place among you in 1966 as Governor of the Fund.

I know, therefore, from experience that speeches gain from being short. I shall therefore be brief, hoping thus to obtain your cordial patience.

The problems that we consider in our meetings, and upon which, practically, the fate of our national economies and the economy of the world depend, may be identified under a few headings. Turn and turn about, they have had the spotlight in our meetings, in accordance with the events which, from one period to another, have dominated the economy of the world.

I shall confine myself to two questions:

(1) The first concerns gold. The 1949 meeting saw the dramatic debates between Mr. Nicolaas Ph. Havenga, the representative of South Africa, who energetically argued for raising the price of gold, and Mr. John W. Snyder, the United States representative, who even more energetically rejected this demand.

That was, however, the period when Fort Knox was bursting with the world’s gold; when the annual deficit of the rest of the world in relation to the United States was on the order of $7-8 billion, which that generous creditor was furnishing in the form of grants and credits.

After some twenty years, the same question is under discussion, the same attitudes are once again in evidence, but under what difference circumstances! So different, in fact, that if, on the one hand, the “barbarous relic” has regained its pre-eminence, on the other, the very role of gold in the monetary system is reconsidered!

These are extreme positions which will doubtless be merged in an appropriate solution, because we are every day made more and more aware of the fact that we are all in the same boat and that our destinies are interdependent. Have we not seen furthermore, since our last meeting, exemplary manifestations of cooperation and interdependence? In this regard the evolution of the Fund’s role is also significant, an evolution that has gone as far as the revolution that has brought about the deliberate creation of reserve assets under the name of special drawing rights. This is certainly not a panacea that excuses anyone from the fundamental disciplines.

My country knows that it will have only an insignificant portion of these special drawing rights. However, Lebanon agreed to their creation, in order to remain faithful to its ideal of friendship and collaboration among peoples.

(2) The second question I am going to raise, as briefly as possible, for your consideration concerns the economic development of the so-called developing countries.

International organizations, universities, and, more especially, the International Bank, have already acquired very broad experience in this field. The “science” of development is nevertheless in its infancy, and one of the obstacles that it must overcome, it seems to me, is the preconceived idea that the only model for development is that of an industrialized country.

Development is not a phenomenon marginal to the over-all economy of a country. It is an integral part of it; it concerns all sectors in the life of a country: education and vocational training, such as scientific research or the construction of communications media. The financing of development does pose a particularly difficult problem for the developing countries, because shortage of capital is one of the characteristics of these countries. As their fiscal resources and domestic capital are clearly insufficient to ensure a socially acceptable minimum growth rate, a large supplement from external sources is indispensable: private enterprise capital and loans from regional or international organizations, mainly from the International Bank and its affiliates.

The portion of its over-all expenditure that a country may dedicate to the factors of development that fall within its purview depends naturally upon the other items and priorities. For, when all is said and done, the same law governs a strong economy and a weak economy; neither can exceed a certain limit of taxation, nor spend more than it earns, without causing imbalances that compromise the domestic and external value of its money, the continuity of its progress, and its social order.

Now, many developing countries are obliged to increase their military expenditures more and more. In raising this point, I have no thought of going beyond our own economic and financial sphere; even less do I think that the priority given to national defense can be questioned. But it is clear that military expenditures can be undertaken only to the detriment of equally indispensable investments and certain types of consumption. This is where the drama comes in, because these sacrifices are becoming more and more unbearable and may be at the root of social explosions. How can we then pass silently over such an important factor, without mutilating our development research? Should we not, on the contrary, pay particular attention to this fact, which is one more difficulty to add to the natural ones that must be faced by the developing countries?

The financing of development by foreign lenders, and, to remain within our own circle, by the International Bank, is an operation that involves specific techniques, methods, and problems. But from the point of view of the country which receives the foreign aid, development is a matter falling within its economic and financial policy, with its impacts on prices, exchange rates, balance of payments, and currency. This aspect of development primarily concerns the Fund.

Thus, the decision of Mr. McNamara, the President of the International Bank, to establish an international commission to study the past and future of world development is very timely. …

So, if I may, I should like to make the suggestion that the Commission’s inquiry should not be limited to the “poorest,” the “least developed” countries, and that express provision should be made for the Commission to collaborate closely with the Monetary Fund as it is for its collaboration with the United Nations Economic and Social Council and the OECD Development Assistance Committee.

While we are convinced that development is an essential condition for peace in the world, each of us must work at the national and international levels to give it every chance of success.

Statement by the Governor of the Fund and Bank for Sierra Leone—M. S. Forna

On behalf of my delegation, I would like, first of all, to join other speakers in thanking the President, Government, and the people of the United States for the warm hospitality extended to us. I would like to congratulate Mr. Schweitzer on his reappointment and Mr. McNamara on his appointment as President of the Bank. …

During the period between the two World Wars, the world economy collapsed largely as a result of the serious problems encountered by one or two of the leading industrial countries in the world. These problems were quickly transmitted to other industrial countries and, in even more severe form, to the primary producing countries. From the experiences of the last year or so, we can probably safely conclude that cooperation on international economic affairs in recent years has reduced the threat to world trade and development arising out of the difficulties of one or two major industrial nations. In that time, as the Annual Report of the Fund points out, the economic advance was halted or seriously slowed down in several industrial countries. One major reserve currency has been devalued, and the currencies of at least two other industrial powers have come under sustained attack. Despite these difficulties, the value of world trade has continued to grow, albeit for a time more slowly than in recent years, and the economies of several of the industrial countries have recovered and now look forward to a healthy rate of growth. These are very welcome developments, notwithstanding the problems still facing the present international monetary system. The degree of cooperation developed among the guardians of this system is impressive and has received well-deserved praise in this year’s Annual Report. The complexity and ingenuity of the measures adopted to preserve the system are also worthy of the admiration which they have received. There are, however, certain aspects of this cooperation and these measures which have attracted the particular attention of the developing countries, and these aspects themselves may merit some consideration.

The first point emerging from the experiences of the last year or two is that the flow of development assistance is seriously affected by difficulties in the economies of the developed nations. The pressures on the balance of payments of certain major developed countries, and on the economies of the reserve currencies in particular, have both reduced the amounts channeled to the developing countries and increased the cost of the assistance which was available. The difficulties faced by IDA in replenishing its resources are a particularly striking illustration of this point. In a very direct way, therefore, the stabilization of the world monetary system is eagerly awaited by the poor countries of the world, since instability in this system results in a disruption in the flow of loans and grants for development purposes.

Another feature of the recent efforts to save the existing monetary system is that, although action was taken fairly quickly when the system was seriously endangered, these efforts were applied only when the rupture of the system appeared to be imminent. That is to say, the crises created by the gold rush of March and the threatened diversification of sterling area country reserves in the months leading up to July 1968 were tackled and staved off virtually at the last moment, and only because ultimately the stronger currencies would themselves have foundered along with those under attack.

The measures and devices which emerged from the cooperation of the world’s principal monetary authorities are also obviously temporary. Despite their success in solving the immediate problems created by the external payments difficulties of the reserve currency countries, both the two-tier gold price and the various stand-by and currency swap arrangements have been characterized by many observers as patches for two separate but related parts of the international monetary system which have threatened to break down and bring the whole structure with them. Whether such arrangements will do the job until a basic recasting of the system is accomplished is, literally, a matter of speculation, but it is quite clear that a number of years will elapse before such a reorganization is complete. In the meantime, we shall have to manage with a system which shows a tendency to shudder noticeably with every shock, and which communicates these shudders in a magnified form to the developing countries.

None of these observations is new, but taken together, they make a point which has received insufficient stress in the discussions of these matters. The international monetary system, as it operates at present, reflects overwhelmingly the views and preoccupations of the rich countries of the world. If strains develop in the system, steps are taken to deal with them only when they threaten directly the economies and currencies of the rich members. And the measures to remove this threat take little account of the needs of the poorer members. To some extent, this is easily understood; the members on whose participation, management, and contributions the system vitally depends should expect to have a predominating voice in the management of the system, and any running repairs to the system must be made with reference to their particular problems, since these problems invariably create the need for such repairs. At the same time, however, the question should be asked whether this need be so, and whether temporary solutions cannot also take account of the special needs of the poorer countries.

Such a question may be raised in the current debate on the methods by which countries running a substantial external deficit and those enjoying a large and persisting surplus can be brought into closer balance. Basic or fundamental solutions, such as a system of flexible exchange rates, a general realignment of pegged exchange rates, or a large increase in world monetary reserves either do not enjoy general acceptance or require lengthy preparation and negotiation. Hence, a number of interim solutions have been offered, such as more expansionary policies in the surplus countries, more restrictive policies in deficit countries, or selective revaluation of the currencies of certain surplus countries. The difficulties with these solutions are that they frequently are scarcely more acceptable to the parties concerned than the more basic solutions and, more importantly for the poorer nations, in themselves they contain nothing which ensures a resumption of the flow of aid to developing countries.

The policies advocated for reducing the external imbalances among the major industrial countries contain real political and social drawbacks, and governments are in general understandably unwilling to inflict sacrifices in their domestic economies too quickly or too drastically. This is particularly true in the case of surplus countries, although the Annual Report of the Fund does draw attention to the progress made in this area of cooperation. This is not to advocate that countries in deficit do not have an obligation to correct this deficit by the application of sound economic policies. However, as recent experiences have indicated, even strong medicine takes time to work, and, in the meantime, a continuous threat is posed to the stability of the monetary system as a whole.

Some measure of relief has been achieved by encouraging the outflow of capital from surplus countries, principally by giving foreign governments and companies access to the domestic capital market of the surplus countries. This approach also has its limitations, however, since speculative short-term capital inflows may completely offset the longer-term outflow through the capital market. In a word, this approach permits a transfer of the surplus but does not ensure it. In addition, the long-term capital may itself have come from the deficit countries, and the evident competitiveness of the surplus countries also makes it possible that in the final analysis the capital outflow may itself add further to the surplus countries’ reserves.

Finally, such an approach is in no way geared to the needs of the developing countries, except insofar as they, or the international development agencies, also have access to the capital markets of the surplus countries. We have seen very welcome moves in this direction in recent months, and these initiatives have been warmly welcomed in the developing countries. Taken as a whole, however, the use of capital markets as a means of correcting payments imbalances and restoring the flow of development assistance is haphazard and inadequate.

Nevertheless, the concept of dealing with chronic imbalances through capital movement may be worthy of additional consideration, if suitably expanded and institutionalized. To put the matter simply, what is needed at the present time is a means by which the surplus countries can somehow channel their excess reserves into long-term loans for developing countries, and these loans used for the purchase of goods and services in the deficit countries. Essentially, such an arrangement would combine a redistribution of reserves between surplus and deficit countries with a redistribution of income between rich and poor countries.

The conversion of the surpluses into loans could be carried out by diverting all reserves in excess of a certain level into a development fund to be administered by the Bank and certain other development banks and agencies. Such an approach would ensure that objective economic criteria would continue to be used in the actual awarding and disbursement of development loans, and the trend toward direction of aid through multilateral channels would be continued.

There are, of course, certain objections to such a scheme. In the first place, it would be a purely temporary device, and would do nothing to alter the basic reasons for the emergence of chronic payments surpluses and deficits. Indeed, its adoption may even perpetuate the overvaluation and undervaluation of currencies. However, as indicated earlier, it is not meant to provide a basic solution to the problem of international payments adjustments, but rather to provide a means by which crises can be avoided while more fundamental solutions are being pursued, and to avoid the drying up of development aid which normally accompanies such crisis. Further, its effect in perpetuating disalignments in exchange rates may, in many cases, be no greater—and much less painful—than other currently used expedients, and may assist the international balancing mechanism in cases where no fundamental disequilibrium in exchange rates exists.

The question also arises under what circumstances the scheme would come into operation. Clearly, the current payments situation would be one in which this scheme could be tried, and it ought to be clearly within the competence of the Fund to judge when the relative surplus-deficit positions in the major countries would warrant the operation of such a scheme. One further question concerns the time required to organize and implement such an arrangement. No doubt some time would be needed to prepare suitable channels for the transfer of the surpluses into the development fund, and for the borrowing institutions to prepare themselves for what would be for many a new kind of activity. These technical difficulties, however, would surely yield to expert and energetic work in the various international organizations and central banks.

I should like, at this stage, to record our thanks to the Fund for its financial and moral support toward our efforts and hope that the Fund will continue to help developing countries as it has been doing in the past.

In conclusion, I would wish that the friendly and businesslike atmosphere which has characterized all our meetings in the past will stay with us and that our present deliberations will yield fruits that we and posterity may come to enjoy.

Statement by the Governor of the Fund and Bank for Mauritius—Veerasamy Ringadoo

The accession of Mauritius to independence early this year has enabled the Government to apply for membership in the International Monetary Fund, the World Bank, and its affiliates, and I am proud and privileged to represent my country here today as perhaps the very newest member of the Fund, our membership having been formally approved only within the last week or so. I am most grateful to the Managing Director of the International Monetary Fund and the President of the World Bank and their officers for their assistance in promoting our early membership in the two institutions and the affiliates.

Being new in this international setup I do not want to enter into the details of the working of the Fund, the Bank, and its affiliates or deal with the complicated issues involved, but I will limit myself to expressing my appreciation at the re-election of Mr. Schweitzer and at the appointment of Mr. McNamara as the head of the Bank. … On the question of a scheme for the stabilization of prices of primary products, I have noted the intention of the Fund and the Bank to submit their conclusions in a year’s time. This matter is vital for the developing countries, and the urgency for finding a solution need not be debated. I therefore share the disappointment of the distinguished delegate for France, Mr. Ortoli, and urge an earlier solution to the problem.

Mauritius, in addition to being the newest member, is also, perhaps, in a geographical sense, the smallest, since our island and its dependencies cover less than 800 square miles but already carry a population of about 800,000 people. This, as you will be aware, constitutes one of the densest agricultural populations in the world, and this fact gives rise to many problems and causes deep anxiety, especially when, as in our case, the population continues to grow rapidly and could at this present rate double itself well within 25 years.

Long before this condition of affairs has been reached, however, the population will have outgrown the carrying capacity, or means of subsistence at an acceptable rate, of the island itself; and this is naturally a cause of very great anxiety to us for, although we cannot expect posterity to help us, we are very mindful of what it may say of us if we fail now to cope adequately with the problem. And in essence the problem is to reduce the rate of population growth as far as this is possible, while at the same time developing the other resources of the island to the maximum in order to enable it to carry that increasing population without seriously diminishing the existing standards of living.

The standards of living, or the standard of life, as it might more appropriately be termed, in Mauritius are comparatively high. Although we have only recently attained independent status, we have from early in the nineteenth century known and developed democratic institutions, and we have managed very largely to staff our own public services. This is not to say that we are independent of the outside world for technical and other assistance. Far from it. But a large fund of skilled labor and other workers is now available in the island, and it is primarily these workers who have developed the economy to a high degree, although it is still essentially primary in form.

The burden which now bears so heavily, in both the political and the social sense, upon us is the fact that we have very nearly reached the limits of possible development as a primary economy and this so far without the advantages and opportunities of developing secondary industries which, if they were to succeed, would depend largely on outside markets. We already have more than 40,000 unemployed to care for: this is just under 20 per cent of the total economically active population; and, as already indicated, the prospects are that this condition of mass unemployment must increase, at any rate for some time to come. And as the burden increases it necessarily reduces the capacity of the economy to save or otherwise provide resources for development.

There is nevertheless a considerable development potential, and the Government is occupied in exploring every avenue for promoting this potential both in the public and in the private sector. We are particularly anxious to encourage investment from overseas in industry and welcome any inquiry as to possibilities and prospects in this regard. We are ready to do much to stimulate and encourage activity in the various opportunities for investment which are now known to exist or could be found. The country already has a well-developed infrastructure which the Government is striving to maintain and to expand; but, for the reasons already indicated, this imposes so heavy a burden on the public revenue resources under present circumstances that there is little or nothing to spare for public sector development. As with so many other developing countries, we must look to outside supply sources for development capital, and it is essentially, if not primarily, to the Fund and the Bank and its affiliates that we are encouraged to look.

Because our links with Great Britain are both close and cordial we hope for a continued flow of capital aid from the United Kingdom, from which we have had much help already. Our problem is such now, however, that what we may hopefully expect from the United Kingdom will no longer suffice to cover our needs if the economy is to be developed to bear the increasing burdens of which we are already so vividly aware. For all these reasons, then, in addition to the satisfaction it gives us to be associated with other countries more or less developed in this great body of nations, we trust that we shall have a due share in whatever resources are available for development. It would seem selfish, however, if we were to leave it at that, for our membership means much more to us. We hope that we, too, in our turn, will be able to assist other member countries one way or another out of our rich experience of the past and also out of our resources which, if meager by some standards, nevertheless still enable us to look with hope to the future and especially the hope of our being able to make a worthwhile and significant contribution to the well-being of mankind.

I have used the short time available to describe in brief the situation and problems of my own country. Let me nevertheless assure the representatives of other countries that we are also interested in their problems, and I trust that the years to come will give us all an opportunity of understanding one another better so that this will contribute to the general good. May I conclude by affirming on behalf of my Government and for my country our great pleasure and satisfaction, indeed our gratitude, that our membership has been approved.

Statement by the Governor of the Bank for the Sudan—Hussein El Sherif El Hindi

… Before I contribute a few observations on the Fund, I would like to congratulate Mr. Schweitzer on his election to a second term of office. His leadership during the last trying and critical year will not be forgotten.

For many years past we have been discussing the twin problems of international liquidity and reserve assets. When we last met in Rio de Janeiro there was general agreement that the existing international monetary system was no longer able to solve our monetary problems and that, although the special drawing rights scheme is not the ultimate solution, there is no doubt that it would greatly help in the solution of the present monetary difficulties. I appreciate the legislative enactments leading to the acceptance and creation of these new reserve units, but the process seems to be very slow going. The pace of growth of international trade is quicker than that of international liquidity, and unless the SDR scheme is speedily ratified and activated, we in the developing world are bound to suffer from the resulting adverse effects on the development of world trade and economy—and this at a time of reduced capital aid.

It will be recalled that at Rio a Resolution was passed asking the Fund to study the problem of stabilization of prices of primary commodities. I observe with interest that in the tentative draft of this study the Fund seems to be looking beyond the traditional policy of compensating for export fluctuations and to be looking to a far-reaching concept of prices and market stabilization through the operation and financing of commodity buffer stocks. This new approach to an old problem will open up new and imaginative possibilities for the Fund. The study will no doubt have to be detailed, refined, and evaluated, but I would like to suggest that the financing of buffer stocks should be handled through the Fund and that, if its resources fall short of financing needs, it should resort to borrowing and, if necessary, its Articles of Agreement should be further amended. Furthermore, I appreciate that new facets of the scheme may still have to be explored and the questions raised by the study answered, but still we hope that the progress in these matters and the evolving of definite and practicable recommendations will be speeded up.

I will now conclude with a few remarks concerning the application of present policies and its effects on developing countries.

To achieve internal and external balance while maintaining reasonable levels of development is not an easy formula; to achieve these objectives at once within the short period usually prescribed by Fund missions would require the adoption of harsh restrictions which, if applied as tightly as required, may lead to social and political upheavals.

Conditionality of drawings within the Fund credit tranches is at present being applied with some severity, especially in the upper credit tranches; there is a need for increased flexibility in drawing rights. Such drawings, we propose, should be automatic and made available with far fewer restrictions and without policy conditions. Judgment of performance in developing countries should be on the basis of results rather than on adherence to specific policy measures or application of unrealistic ceilings in stand-by arrangements.

Utmost importance should be assigned to resolving the problem of stabilizing the prices of primary products; fluctuation in the prices of these commodities and the persistent unfavorable trend in the real terms of trade aggravate the problem of disequilibrium in the balance of payments of developing countries.

Lastly, ways must be found for a “link” between reserve creation, the new SDR’s, and development finance.

Statement by the Governor of the Fund for Niger—Courmo Barcourgné

I shall take only a few minutes of your time and, at that, not only on my own account but also on behalf of the Governors of the six countries, Dahomey, Ivory Coast, Mauritania, Senegal, Togo, and Upper Volta, which, with Niger, make up the West African Monetary Union with the Banque Centrale des Etats de l’Afrique de l’Ouest as their common institute of issue.

In our own small way we have already, for the last six years, achieved the type of monetary cooperation between sovereign states that economists recognize as the ideal: with pooling of our foreign reserves and a common administration of our monetary system. The system is all the better for it and, with the support of the cooperation that we established with France, on July 8, 1967, we were able to abolish all restrictions on our foreign payments to any country whatever. Although, for reasons of solidarity and precaution, we temporarily reinstated certain exchange control measures in June 1968, those measures were repealed in all our States from last September 15.

This free convertibility of our currency, favorable as it may be to our development and to the foreign enterprises concerned in it, nevertheless imposes on us a strict discipline with regard to the creation of our currency, and this discipline is particularly difficult to maintain when interest rates in developed countries are at such high levels as those presently in effect, which are detrimental to the conditions attaching to financing on the scale of the problems of developing countries.

Since we are thus constrained to watch the evolution of the international monetary system very attentively, we are directly interested in any measure likely to improve its functioning. But it is difficult for us to evince any great enthusiasm regarding the present provisions on the proposed creation of new special drawing facilities. It is true that everybody now recognizes that these new facilities are only a way of supplementing international liquidity, and that on this account they are likely to enter into the composition of a system acceptable to the entire international community. Authoritative voices have also advocated that, in the reform of the international monetary system, needs special to the developing countries be taken into consideration, in a manner, no doubt, yet to be determined.

We are convinced that all avenues in this respect will be explored and turned to account by Mr. Schweitzer, whom we are so glad to see again today, and for a long time to come, at the head of the Monetary Fund.

It is not the least of the paradoxes of the Bretton Woods institutions that every year, for 22 years, they have invited their members to discuss monetary problems and problems of financing and development, at the same time and in the same surroundings, but without ever sufficiently emphasizing the need for a joint study. It seems to us, however, that the effectiveness of one of the institutions is each day more dependent on its cooperation with the other. …

People describe underdevelopment as a threat to peace, but that is because it is, above all, a protest and revolt in the face of perpetual rejection, in the long run, of the solutions that must be devised for its problems. We are perfectly well aware that our needs, even those for which there are the soundest reasons, cannot all be met immediately; but at least we expect them to be taken into consideration and the means of satisfying them put into effect without delay.

In this respect we greatly regret that there have not been submitted to this meeting all the studies and proposals already worked out by Bank and Fund staff concerning possible intervention by these two institutions in the stabilization of prices for primary products.

It is not right to propose that we defer until our next meeting the mere study of proposals already drawn up, which would have the effect of postponing the first decisions until 1970 at the earliest. Therefore, our seven States of the Monetary Union have joined with another group of countries to put forward a draft resolution urging that our Board be notified of the Bank and Fund proposals by December 31, 1968, at latest.

The States on whose behalf I address you once again express their trust in the Bretton Woods institutions by setting their hopes on joint action by these two organizations in searching with the greatest speed for solutions requiring a common effort and international solidarity, which alone is truly able to combat underdevelopment.

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

… I also take this opportunity to congratulate the Managing Director of the Fund for his reappointment and to wish him well in his new term of office. Finally, it is a pleasure to welcome Botswana, Mauritius, Lesotho, and Malta to the joint meetings for the first time as members.

Our task as members of the international economic community remains, and is becoming increasingly, formidable. The past year has been one of crises and of stresses. Increasing scarcity of international liquidity and balance of payments crises in several major industrial economies have combined to raise interest rates (forcing the World Bank to follow suit), and made the flow of untied capital transfers and progress toward trade liberalization more difficult. In this context, I share the concern expressed by other Governors regarding the continued delay in the replenishment of IDA resources. If the result of adjustments by economies suffering balance of payments problems is to reduce world growth rates, resource transfers, and international trade expansion, the cost to the developing world—in lower export volume, deteriorating terms of trade, and worsening borrowing conditions—will be high. Such a pattern of adjustment would to a significant degree shift the real burden of adjustment to the developing countries who are least able to bear it.

It would not be proper to paint a picture of total gloom and despair. The measures which were taken earlier this year as well as the agreement on the establishment of the special drawing rights indicate that, given the will, the international community has the capacity to meet these challenges. It is my earnest hope that the ratification and activation of this agreement will not be unduly delayed.

It is also encouraging to observe that in spite of these unfavorable developments certain developing countries, including my own, were able to record some solid achievements. Nonetheless, the nature of the challenge confronting us remains stark, a conclusion only the more clearly underlined by the President of the Bank’s delineation of the unevenness of growth among developing countries. It is disconcerting that, at a time when many developing countries are making strenuous efforts and achieving significant successes in increasing their self-reliance, the industrial world’s cooperation in our joint battle for development is stagnant or actually declining. …

The unresolved problem of replenishment of IDA resources emphasizes the need to evolve a mechanism for providing this institution with a permanent source of funds. It is with regret therefore that the Fund should, at a time when IDA’s position is so critical, have initiated the unprecedented distribution of part of its profits. Even at this late hour, I should like to make an earnest appeal to the beneficiaries to surrender these funds to IDA. As a long-term measure, I would like to propose that consideration be given to modifying the Articles of the Fund to permit an automatic transfer of all or part of its net income to the Association.

The danger that adjustments will result in reduced growth of world trade in 1969 is a real one. To primary producing countries this prospect is ominous. To cite our own case, the loss from falling prices of sisal (once our largest export) has, over 1965-68, come to a 50 per cent fall in unit price and a total export loss of T Sh 780 million, which is more than total public and private net capital inflow over the period and about 15 per cent of annual gross domestic product. In this regard I do not need to overemphasize the importance to us of the questions of commodity price stabilization at remunerative levels and the need for the industrial economies to remove restrictive discrimination against our exports. Thus, while I welcome the preliminary work on commodity stabilization done to date by the Bank and Fund, I cannot but record my deep regret at the failure to produce concrete recommendations even for interim action. The failure of UNCTAD to reach agreement on the reduction of subsidies in respect of uneconomic agricultural production in the industrial countries is equally disappointing. If it is sensible to urge developing countries to diversify out of high-cost coffee production, how much more sensible it is to urge developed industrial economies to diversify out of high-cost cotton or beet sugar production. Their flexibility in resource allocation and their ability to bear the transitional costs are surely much greater than ours. …

In Tanzania we have increasingly acted on our conviction that the main thrust to development must come from our own efforts. Confidence in our capacity has grown during the implementation of our first Five-Year Plan—now in its final year. By the end of the five-year period, we shall have mobilized nearly double the volume of domestic resources originally considered possible, and these will have financed well over half of all development spending. Conversely, only little more than half of our external resource projections will have been realized. Our next Five-Year Plan will provide for continued increases in the absolute level and percentage share of domestic savings. However, if the domestic efforts are not to be frustrated, a significant volume and a reliable flow of foreign capital will be essential.

For many years the import content of our investment programs will remain high while present price projections for our major exports offer little hope of corresponding growth of foreign exchange earnings. Only through long-term investment designed to restructure our economy, both to reduce the relative dependence on imports and to develop new exports, can sustained economic growth be achieved. I might add that resource transfer for this purpose will—both in the short run and the long run—make Tanzania a better trading partner and, therefore, enable it to play its full part as a member of the international trading community.

During the past year, the inauguration of the East African Community has strengthened the capacity for long-term development of Kenya, Tanzania, and Uganda and provided the foundation for an expanding area of economic integration in Eastern Africa. One of the institutions of the Community is the East African Development Bank, designed to assist in accelerating industrial development in the partner States. Specifically, the Bank is designed to promote a more balanced trade pattern within the Community. I believe that for small countries the development of viable industrial sectors is intricately linked with the attainment of regional economic integration. In this context I would call attention to the importance of bilateral and multilateral financial participation in, and support for, this important institution.

One aspect of our program of self-reliance is increased emphasis on rural development. If development is to have human meaning, it must reach the masses of the people who, in Tanzania, are peasant farmers. Effective rural development, therefore, requires decentralization in development planning and implementation. It also calls for increased flexibility by external donors and lenders. Rural development is in large measure a matter of small projects, such as training centers, local clinics, cattle dips, feeder roads, district storage facilities, and small processing plants. This does not exclude the need for certain large-scale projects which have a direct impact on the ability of rural communities to participate effectively in economic development. These include irrigation projects, main highway links, and cattle ranching in respect of some of which we are receiving welcome assistance from the World Bank Group. However, the tendency in external finance, with its elaborate feasibility studies, concentration on direct import content, complex administrative procedures, and long time lags, is to give undue bias to large-scale projects. In other words, existing methods of effecting capital transfers from both international financial institutions as well as from major donor countries tend to discriminate against integrated rural development programs comprising not only large-scale projects but, especially, small-scale projects. The result is an unhealthy channeling of resources into those large-scale projects which may, in some cases, be criticized as “prestigious” and “capital city” in emphasis. …

The picture before us today is neither reassuring nor hopeless. The development of the international monetary system still poses major challenges for all of us, as does the process of adjustment necessary for debtors and creditors alike. In respect of trade opportunities and resource transfers open to developing economies, 1968 has—at best—continued the post-1960 pattern of basic stagnation with recurrent periods of deterioration. On the other hand, the determination and capacity of most developing countries to marshal their own resources—both human and material—for development has continued to grow. As a result, not only their capacity to use, but also their real need for, international resource transfers and expanded opportunities for trade is now higher than ever before. That is the challenge which both the President and Managing Director have posed to us in their addresses. More rapid development is now within the grasp of many poor countries if, but only if, buoyancy in international trade, adequate international liquidity, and a rising level of resource transfers from industrial economies on at least somewhat less onerous average terms can be achieved. These conditions are far from impossible to fulfill: if they are not met, then, it is not the means but the will that will be lacking.

Statement by the Governor of the Fund for the Central African Republic—Antoine Guimali

Speaking before this august meeting on behalf of my country, I realize how difficult is my task. It is indeed a difficult task to try to convince people of the need to take prompt action to come to the aid of a country at grips with the worst difficulties.

Mr. Chairman, the facts of the problems which we face are known to you, and their continuing presence is made clear in these words of the President of the Central African Republic: “Some of you are going to reach the moon, whereas our country does not yet have permanent access to the sea.” …

“God helps those who help themselves,” they will say to us. Therefore my Government has with determination turned its attention to economic problems under the aegis of a method called “Operation Bokassa.” With determination we have declared war on uncultivated and underdeveloped land. We are proud to announce the positive results of this effort. To cite but one example, in 1966 and 1967, cotton production increased by 72 per cent with 42,000 tons, as against 24,000 tons in 1965; for the crop year 1967/68 we reached 48,000 tons. My Government thus attributes particular importance to the increase in cotton production because of the need for maintaining the export level and for supplying our cotton mill from the Central African cotton industry.

But what benefit can the Central African farmer derive from this effort when, in 1967, 100 kilograms of cotton barely enabled him to have a blanket and 3 meters of cloth, whereas in 1957 he could buy, with the same 100 kilograms, 4 blankets and 8 meters of cloth? That, Mr. Chairman, as our delegation told you last year in Rio, is the reward for the laudable effort made by our planters who have worked unstintingly, on the one hand, to increase the tonnage of their production, modernize their method of operation, improve the quality of their products, adapt them to the tastes of distant consumers by arduous reconversion of plantations and, on the other hand, to diversify their crops with a view to improving their living conditions. Under these circumstances, you will perhaps understand our annoyance when we join the President of the Central African Republic in saying that this state of affairs is a “real disgrace.” In this connection, our disappointments are very deep after the failure of the New Delhi Conference, and we do not understand the delay of the Fund and Bank staff in putting off for another year the submission of conclusions on the ways by which these two institutions could in practice cooperate to find a viable solution of the problem posed.

Thus, briefly, I have recalled the persistent facts of our problems. This reminder reflects essentially our bitterness. …

In conclusion, I wish to thank the American Government and people for their kind and friendly hospitality. …

Our thanks also to the Managing Director of the Fund, whom we congratulate on his reappointment. We express our gratitude to all of the authorities of the Fund and the Bank and to all of our friends in financial, economic, and other circles who have given of their valuable time to organize this meeting.

Statement by the Governor of the Bank for Guyana—P. A. Reid

I am not sure that I can find my way in the maze of complex and abstruse economic jargon which economists use to chart what is happening in the world, but one salient fact stands out. Our world—yours and mine—is faced with practical problems that must be tackled, not by moral support alone but by deeds. This is the challenge which confronts us today in the International Bank for Reconstruction and Development and the International Monetary Fund. It is comforting that we have men with the drive, courage, and capacity of Mr. McNamara and Mr. Schweitzer to meet that challenge.

Being a very simple man, I incline to view the prospect before us in simpler terms, in terms of human needs and aspirations, for it is the human element that is ultimately important.

The problem which I propose to discuss is primarily a problem of developing countries, but, in the modern context of trade and commerce, of rapid transportation, and easy communication between nations, it becomes a problem of the whole world.

The problem that faces developing countries is that of expanding their capacity to produce so that their citizens may enjoy a better level of living. In most cases they are not deficient in potential human and natural resources, but need capital, technology, and drive to develop these resources.

The peoples of these countries aspire to do this. They are conscious that startling technological developments are taking place which are radically extending the productivity horizons of the world. New methods of agriculture multiply the capacity of the land to produce. Every day, new uses are found for materials which were previously counted as waste. These new techniques, if applied to the resources of the developing countries, could work a startling transformation in their levels of living.

But these countries find that what they can do is limited. The stark fact of their low income and rudimentary development makes their savings insufficient for the capital needs of even a moderate rate of growth.

Their resources of technology and motivation are even more limited, by reason of the absence of a sufficiently high level of education, research, and business experience. It therefore means that, to promote its development, a developing country must import from abroad a large part of its capital, technology, and business drive. These are hard to come by. Private foreign investment capital has tended to flow more toward industrialized economies with established home markets. Loan and grant capital from governments or international organizations in most cases lack the individual motivation which ensures proper business drive. Much of the capital is needed for infrastructural development, and the terms need to be liberal to provide for a long period of fruition.

Ultimately, the loans must be repaid from increased production. Repayment poses balance of payments problems for an economy which is dependent on one or two export crops, subject to unstable world prices, and which is in some cases choked off, by various measures, from overseas developed markets. All these factors underline the problem of a developing country in achieving an adequate rate of economic growth.

This is the standard pattern of the economy of a developing country. This underlines the haunting contrast in the world today. On the one hand, there is a vast improvement in technology, in the possibility of providing the good things of life, in the awareness of the world that these prospects exist; on the other hand, the frustrating failure to put these improvements and these prospects to full use, because of the way access to capital and knowledge is organized. …

The work of the committee which has been studying the question of stabilization of prices of primary products is also of prime importance. We should all support the initiative taken by certain Governors, principally from the African territories, to urge that the second part of the report be speedily submitted, with concrete proposals for improvement. …

Against this encouraging picture of increased activity at the Bank, we must set the discouraging prospect in relation to the replenishment of IDA resources. The delay in this has been a source of keen disappointment to all developing territories. I hope that this matter will soon be resolved. Meanwhile, Guyana heartily endorses the Amendment to the Fund Resolution on distribution of income which has been put forward by several African nations, to the effect that countries should give consideration to allocating this income to IDA.

The other major problem to be tackled is that of the ups and downs of reserve currencies. Guyana welcomes, therefore, initiative which is being taken to introduce an additional facility for the settling of international debts. The Government of Guyana has already presented a motion before the House to approve the amendments to the Articles of Agreement of the Fund. This indicates her decision to participate in the Special Drawing Account.

Before I resume my seat it is fitting that I join in the general tribute to Mr. Woods, who has served the Bank so assiduously. Addressing last year’s meeting he quoted a Chinese proverb, that a journey of a thousand miles must begin with one step. The step has been taken. The journey has begun. But, unless momentum is maintained, the road stretches interminably before us.

I should like to see some landmarks behind us. If we can pass the landmark of the IDA replenishment, the landmark of price stabilization of primary products, the landmark of special drawing rights, we shall have the feeling that we are making progress, and have visible proof that the journey is worthwhile.

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

On Monday we had the privilege of listening to a succession of impressive speeches by the President of the United States, by you, yourself, Mr. Chairman, by Mr. Schweitzer, and by Mr. McNamara. These speeches together described the monetary and developmental problems that face the world today. They provide a prologue which it is hard for those of us who follow to live up to.

At this meeting it gives me great pleasure to join in welcoming my friends the representatives of Botswana, Lesotho, Malta, and Mauritius. All are developing countries; all, I am sure, will benefit as Malawi has done through membership in the institutions represented here. …

Could not the developed countries abandon the proposal to transfer net profits of the Fund to certain of their members? This would not require the making of any actual payments, merely the giving up of a benefit which could not have been planned on. But, if the net profits of the Fund could be made available immediately to IDA, it would enable the Association to continue in operation for the next few months. …

The need to make money available on soft terms for the underdeveloped countries is made the more urgent by the delays that seem likely to take place before any satisfactory solution is made of the problem of stabilizing commodity prices. We welcome the progress that has been made so far in studying the problem; I would be more enthusiastic if I could see the prospects of any early solution. …

October 4, 1968.

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