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

International Monetary Fund. Secretary's Department
Published Date:
October 1969
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Statement by the Governor of the Bank for Austria—Stephan Koren

. . . Recalling the events of [the twelve months since we last met], the most remarkable one was without doubt the sharp rise in interest rates. On the Euro-dollar market these rates have reached unprecedentedly high levels.

The causes of the high interest rates are manifold. The main cause seems to be the fundamental change in the monetary policy of the United States which has occurred in the course of last year. Also, the limits of capacity and tightening labor markets have led to rising prices in many European countries. In these countries interest rates rose partly because monetary policy was not able to isolate the home market from the international market and partly because the internal demand had to be checked by monetary policy.

We may regret current interest rates, we may regret the effect they have on our investment plans. We must keep in mind that interest rates in the United States were not pushed up in order to create difficulties to borrowers or to stop growth, but to stop inflation. European governments have been urging the United States for a long time to curb inflation. Tightening credit alone may not be sufficient to achieve that end. Without tight credit, however, no results can be obtained. In the long run, growth cannot be achieved by inflation.

In an inflationary situation there is always the dilemma that a policy designed to curb the inflationary rise of demand will hit investment demand and thereby growth. But we cannot put the whole weight of the fight against inflation on one component of demand, for example, on consumption alone, and let the other components rise at an inflationary pace. . . .

I would now like to comment briefly on the role Austria can play in development financing. Austria is well endowed in many respects, but it is a traditional importer of capital. In the last ten years the annual net inflow of capital was about $120 million. Most of this was on account of long-term borrowing by industry, but in recent years there was also considerable government borrowing abroad. These borrowings were made on commercial terms.

Its heavy reliance on foreign capital for the financing of investments has made Austria sensitive to restrictions on capital outflows. In that respect our situation resembles that of many other countries represented here. Restrictions on capital flows are like restrictions on trade. Once adopted they are difficult to remove. We hope that the present tendency to introduce or tighten restrictions on capital flows will not continue.

In the current year the volume of Austrian borrowing abroad was considerably reduced. However, domestic requirements for the improvement of the structure of industry remain large. Austria will therefore continue to be an importer of capital for some time to come. We do not, however, consider that an obstacle to lending abroad. Capital movements are not a one-way road. By lending as well as borrowing we think we can serve the interests of the international community as well as our own. . . .

I think that one of the most important lessons that can be learned from the experience of the last decade is that problems of development cannot be solved by simply providing money. Money can buy factories, dams, reactors, and other things. But it cannot guarantee development. To achieve development, appropriate structures, institutions, and attitudes have to be created. Furthermore, policies compatible with steady growth and monetary stability have to be pursued, realistic exchange rates have to be established and maintained, domestic resources have to be mobilized, and their allocation to high-priority productive uses has to be ensured. …

Statement by the Governor of the Bank for the Democratic Republic of Congo—Louis Namwisi

… I feel that the organization of commercial distribution is another sphere in which the World Bank and its affiliates could play a useful part. A number of developing countries find their progress hampered by the lack of efficient commercial distribution networks and by the improper functioning of the rules of competition in the tertiary sector. The result is that the intermediaries make exorbitant profits, supplies are insufficient, and prices are continually on the increase. In order to remedy this situation I recommend that technical assistance be made available in the form of studies and permanent missions of specialists recruited by the World Bank Group or by other international agencies—in certain cases the financing of competitive supermarket chains and storage facilities might also be indicated. By agreeing to take an interest in this sector, the World Bank Group will be able to support the Monetary Fund when it recommends import liberalization and price stabilization, since the success of such measures depends on a rational marketing system for consumer goods.

. . . The current strain on capital markets should in particular lead us to reflect again on measures that could gradually make the borrower’s obligations less vulnerable to the increases in interest rates that stem largely from inadequacies in the balance of payments adjustment policies of the industrialized countries. . . .

An alleviation of the strain imposed by interest rates is all the more necessary since it has now become clear that development finance from external sources is being provided to a decreasing extent in the form of risk capital. Whatever desire most of the young countries may have to link foreign equity participation to national development efforts, the circumstances cause loans increasingly to occupy a preponderant place in the utilization of external savings, just as the role of the foreign entrepreneur is evolving gradually from the functions of a holder of equity capital to those of a holder of management contracts.

In view of this de facto situation, the structure of external debt that we consider normal should be reconsidered; indeed, the burden of servicing loans contracted abroad has assumed proportions that can be explained to a large extent by the fact that the share of profit transfers in our foreign exchange expenditures is tending to diminish. Let us try to take this new situation into account in establishing desirable debt standards and seeking means capable of lightening the interest charge that falls on the now most usual form of foreign financing.

. . . The new countries are fully aware that the success of their efforts depends in the first place upon themselves, upon the realistic nature of their development policies, upon the effectiveness of forms of association with foreign enterprise, and upon progress in the technical training of national managerial staff.

The Congo for its part has endeavored during the past year to promote its development by various new means. A national development company now being created hopes to avail itself of the support of the Bank and its affiliates. An investment code is establishing a favorable climate for foreign capital, and we have settled amicably and equitably the dispute that set us against nationalized mining enterprises. In a number of sectors we have concluded management contracts that limit the role of foreign companies to the performance of a specified task without participation on their part in the policy of the company or organization that they assist, according to a formula that appears to me to avoid the dangers of neo-colonialism.

We hope to continue next year our efforts to make our country, in the heart of Africa, a dynamic force for development in conditions of stability.

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

. . . The cumulative onus of debts is a sort of time bomb which may explode at any moment in the seventies, when debt repayments will amount to as much as the entire volume of financial help. The accumulated debt of 92 underdeveloped countries increased fourfold in one decade from the end of 1956 to the end of 1966.

On the other hand, it is a reassuring fact that wherever capital was available, the results were positive. To quote from a study carried out for the Office of Program Coordination of AID:

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

The one source of investment capital which was resorted to a very small extent is the capital market. Some $41 billion of fixed-interest securities were launched on the world’s capital markets in 1967. The share of developing countries in that colossal accumulation of capital is microscopic, and is confined to two or three countries with special conditions. We have here a clear-cut case for priorities.

A 1 per cent allocation from the GNP of the developed world of some $1,850 billion in 1967 would nearly double the annual capital flow to developing nations, and that surely is far from crying for the moon, which by the way did not prove such a fantastic and impossible proposition.

The purpose of my own Proposal in this field is not only the amelioration of the terms of aid, but perhaps, even to a greater extent, the promotion of a larger flow of loan capital to the underdeveloped nations. Obviously, with the interest subsidy, the constraint and limitations imposed by the price of money on the capital markets are reduced, and international institutions such as the World Bank and the regional development banks are endowed with greater flexibility in meeting the commercial terms of capital.

The Proposal can be characterized as an attempt to build a bridge between capital markets and the underdeveloped nations and to make it possible to borrow hard and lend soft. . . .

If the whole complex of international financial institutions is involved on a global scale and as an instrument of international economic policy, there is no reason why the profits of the Fund could not also be used for an interest equalization fund, thus facilitating the access of the underdeveloped world to the expanding capital markets.

A blend of my Proposal for access by developing countries to capital markets, with the use of new liquidity reserves for development, the special drawing rights, and at least a maintenance of the current volume of grants-in-aid, could revolutionize the present state of affairs. . . .

Statement by the Governor of the Bank for Colombia—Abdón Espinosa Valderrama

It is my honor and responsibility to bring to this meeting the voices of Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Ecuador, El Salvador, the Philippines, Guatemala, Haiti, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, the Dominican Republic, Uruguay, and Venezuela; in these countries live almost 300 million people whose hopes, vicissitudes, and problems are alike. . . .

From the most widely diverging points of view there is agreement that the funds transferred to developing countries are insufficient. In the Bank Report it is noted that the 1 per cent of gross national product of the members of the Development Assistance Committee declined to the equivalent of 0.75 per cent. It would not, therefore, be advisable to add to the small amount of the transfer the increase in its cost which, in the last analysis, enlarges the burden of indebtedness and cuts down the availability of foreign currencies year by year.

When the special drawing rights come into effect it will no longer be possible to point to a scarcity of international liquidity as the motive for decreasing the amount of loans or for failing to increase them. This applies even more to advocating interest rates so high that they undoubtedly prejudice development efforts. The decade of the seventies well deserves to be one of activation, correction, and incentive in the areas of the world that have not experienced the astounding progress of the industrial countries. . . .

Statement by the Governor of the Bank for Greece—Emmanuel Fthenakis

I wish to join previous speakers in expressing our deep appreciation to the Government and the people of the United States for the hospitality they have extended once more to all of us. May I also express, on behalf of the delegation of Greece, our thanks to the Bank’s President and to the Managing Director of the International Monetary Fund for their enlightening statements at the opening of the Joint Session.

The distinguished speakers who preceded me on the podium discussed various aspects of the over-all monetary and development problems that the world is facing at present. I would therefore, in the limited time available, rather concentrate your attention on certain specific points connected to the expansion program of the Bank, on the one hand, and to the new IMF policy proposals on the other. . . .

Now let me touch very briefly on the two critical problems that beset the world’s monetary system. The first is the incipient shortage of reserve assets and the second, the system of rigid international rates.

The IMF is expected to deal with the first, the shortage of world liquidity, by endorsing activation of the new facility, the SDR’s, which the world monetary community has recently instituted. Undoubtedly, it is the most important and far-reaching step taken in the international monetary field since the 1944 Bretton Woods Conference.

The question arises, however, as to whether in allocating the SDR’s special provision should be made for the developing countries, whose shortages of liquidity become acute in the conditions prevailing now in the international capital and money markets. The allocation of SDR’s solely on the basis of the members’ quotas in the Fund places the developing countries at a disadvantage. One wonders whether some method of allocation should not be devised in order to offset, to a certain degree, this disadvantage. At any rate, Greece wholeheartedly supported the decision to allocate special drawing rights and we now support the Managing Director’s proposal for activation.

The second critical problem mentioned by Mr. Schweitzer, the flexibility of exchange rates, is more difficult to tackle, as under the present system maintaining rates of exchange becomes a matter of domestic politics or even of national honor. In the Fund’s Annual Report, one reads that its Executive Directors, and I quote: “discussed intensively the mechanics by which exchange rates can be changed.” We firmly believe that proposals to increase the flexibility of foreign exchange rates should not be considered as a substitute for necessary or sound internal policies. The whole question needs the most careful consideration. . . .

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

. . . Before the end of this meeting the Governors of the Fund are expected to take the historical decision to allow the first allocation of special drawing rights to supplement existing reserves in order to meet the rising global need for international liquidity. Various suggestions have been made to establish a link between reserve creation and development finance, either by way of allocating special drawing rights to the Bank or IDA, or by way of joint action by industrialized nations to pass on part of their share in the special drawing rights to the developing countries, via intermediaries or directly. I see great objections to such suggestions. The function of international reserves is to be available in case of need for the financing of temporary maladjustments in the balances of payments of their holders and recipients, not to increase the flow of capital for development assistance which involves a long-term transfer of real economic resources that should be financed out of genuine savings. Otherwise it could become a source of inflation. Therefore, it might bring the whole action of reserve creation into jeopardy if part of the newly created reserves were to be used for whatever good purposes one might choose, but which are alien to their true function. Using special rights to create the illusion of avoiding the burden of the real sacrifice involved in development assistance may be an alluring proposition but I have little doubt that this would mean rendering a very poor service indeed to the whole monetary system generally and the position of special drawing rights in that system in particular. I am afraid that the introduction of this device would degrade the new reserve asset, which—in my conception—should be as good as gold and reserve currency holdings. . . .

Following the Resolutions adopted at our last year’s meeting, the Executive Directors of the Fund and the Bank have completed the Part II of their respective studies of the problem of the stabilization of prices of primary products and submitted their reports on specific financial measures and other ways in which our institutions might assist in finding solutions to this problem. I wish to thank the Executive Directors for their concise reports and for the constructive decisions they have already taken on this subject. From the outset I have felt that the contribution which the World Bank Group could appropriately make to the solution of this problem should be directed toward remedying as far as possible the fundamental causes underlying the instability of primary products, namely, periodic disparities between supply and demand, and reducing the vulnerability of the primary producing countries to erratic price fluctuations of their export products, rather than the direct financing of commodity surpluses held in stock, which is by its nature a commercial activity. Such financing may be helpful temporarily in support of sound structural policies locally pursued or under well-conceived and well-managed international commodity agreements. Insofar as this constitutes an additional short-term burden on the balance of payments of the countries concerned, I have no objection to the special assistance decided on by the International Monetary Fund but, in my opinion, the Bank should concentrate its efforts on the promotion and support of structural improvements of the nature I indicated. Particular importance should be attached to the diversification of production in the primary producing countries with the assistance of the Bank Group directly, and through cooperation of the Bank Group with commodity diversification funds set up by appropriate international commodity arrangements. I am glad to report that recently my Government has made a financial contribution to the Coffee Diversification Fund which we expect will be used in close cooperation with the World Bank and possibly regional development banks. . . .

Statement by the Governor of the Fund for Gabon—Augustin Boumah

Having attained their independence in this modern day and age, the Federal Republic of Cameroon, the Central African Republic, the Republic of the Congo (Brazzaville), the Gabonese Republic, and the Republic of Chad have all taken their place in a modern monetary institution of multinational scope whose existence is particularly justified at a time when the world is evolving in the direction of large-scale units, and when, as recent events have shown, no one currency can claim to be immune to the vicissitudes of fortune that affect another. I therefore speak today on behalf of these five nations, grouped together in a monetary union founded on the principles of broad, mutually trusting, and effective cooperation.

First of all, permit me to join on behalf of our five nations in the tributes paid at this meeting to the work accomplished by the Fund and by the Bank and its affiliates during the past fiscal year. Permit me also to extend greetings to the Governor for Swaziland, who is with us today for the first time, and also to the observers from Equatorial Guinea, Cambodia, Southern Yemen, and the Yemen Arab Republic, which will become full members of the Bank and the Fund.

We also pay tribute to the spirit that animates these institutions, whose rules of operation enable countries of modest size to be heard in the concert of the international community, particularly through the intermediation of our Executive Directors, and thus to participate in decisions that concern the proper balance and harmonious development of this community, as members that form part of it.

Among practical accomplishments, we note with pleasure the successful outcome of the efforts for establishment of the system of special drawing rights. But it goes without saying that we are interested also in the evolution of the various aspects of certain problems that affect our countries particularly closely and which my predecessors of the Monetary Union have dwelt upon in detail in this forum at our previous meetings. Among these, I wish to refer, first, to that of stabilization of the prices of primary products, and second, to that of the financing of development aid.

We have followed with great interest the work done by the Fund following the Resolution adopted in 1967 in Rio de Janeiro and reaffirmed in Washington in 1968 concerning primary products. We have just read the study transmitted to us on this topic, and I should like rapidly to review the reflections that it inspires in us.

On the Fund side, the improvement of the mechanism of compensatory financing should enable it to assist those member countries that wish to enter into agreements on the establishment of international buffer stocks. While this is no more than a first step, we feel that it is a much too timid one, for the financial support thereby offered is too meager and accompanied by too many conditions to constitute a true and durable solution to this problem. As for the decisions taken by the Bank, these are limited chiefly to measures aimed at the diversification of production and improvement of the competitive capacity of primary products, without providing for any concrete action aimed specifically at assisting the developing countries to alleviate the consequences of the fluctuations in the world prices of these products.

Meanwhile, these prices remain greatly depressed. To mention only the products that directly affect our own economies, I would point out that cotton prices are still well below what they were at the beginning of the 1950’s, and that the purchasing power of a bag of coffee fell by 50 per cent between 1953 and 1967, even though one of the objectives of the International Coffee Agreement was precisely to assist growers to develop their resources and to raise their standard of living. I shall not dwell on the difficulties that beset our sugar production, which suffers from the additional disadvantage of competing with that of the industrialized countries. The income of our cocoa growers is protected for the moment only by cyclical factors—but for how long?

It is therefore with no surprise that we read in the recent reports of the Secretariat of the United Nations Conference on Trade and Development that “the gap between the rich countries and the poor countries has widened in 1968.” In the face of such a cruel state of affairs, the most disastrous course would be for us to abandon ourselves to despair, and for the developed countries to limit themselves to the timid measures that are being proposed to us and which a great English-language weekly has described as “crumbs for the poor.”

For this reason, in spite of our disappointment about the modesty of the proposed solutions, we also discern in this study an encouraging aspect. In accepting the responsibility to contribute to the study of the problems of primary products, the Fund and the Bank have demonstrated their readiness to take them out of the category of embarrassing and insolvable problems. While this first step is undoubtedly praiseworthy, it is not enough to have set the wheels in motion; they must go on. It is appropriate, therefore, to reopen the discussion of this entire question, but I must forcefully stress that true progress cannot be expected in this field without a real political commitment on the part of the developed countries.

I have referred already to the question of special drawing rights. Permit me to return to it for a few moments, by way of transition, to affirm that our countries will participate in this system, and to suggest that it would now be desirable to define the practical means by which a link could be established between the new reserve units and the expansion of aid to the developing countries. In this, we know that we can count on the enlightened assistance of the Managing Director of the Fund, Mr. Pierre-Paul Schweitzer, to whom we express our appreciation for the unremitting attention that he has given to the problems that concern us. . . .

The foregoing are the problems which I wished, on behalf of the five member states of our Monetary Union, to present for consideration by the meeting.

Permit me to conclude with the words of a great poet: “Every man, in his night, steers by the lamp of his own hope.”

It is our hope that our institutions, as the vanguard of international cooperation, will be able to light this lamp for us. For to us, the lamp of hope that guides us is development.

Statement by the Governor of the Bank for Ethiopia—Mammo Tadesse

. . . There must surely be at least a tinge of regret when, in an assembly such as this, we have to recognize that in 1968/69 “development” in this sense has had to yield pride of place—or at least of publicity—in the world of international economics to problems and activities in quite different fields. I refer, of course, to the aftermath of the sterling devaluation, to controversies over the gold price, to the disruptive effects of the ebb and flow of speculative funds from one center to another, to the flight from the franc, and the flight into the deutsche mark, and last but not least to the devaluation of the franc itself, which have absorbed the attention of international economists, financiers, central bankers, and statesmen, and have also claimed most of the economic headlines during the past year.

It is not that these matters are unimportant or unworthy of the concern they have caused, but what I would venture to suggest is that the solutions to these monetary problems will have very little relevance for the developing nations, or even for the real economic problems of this world, unless at the same time they do, and can be seen to, facilitate solutions to the problems of development.

. . . The present rate of 7 per cent is a high rate of interest for any developing country to pay, but it falls particularly heavily on countries such as Ethiopia—and there are many others—which need massive investments in the subsistence sector to provide the basis of economic diversification and relieve them of dependence on a single export crop. Such investments, by their nature, take a long time to yield results. An increase in the rate of interest consequently imposes a particularly heavy burden in such cases. . . .

In Ethiopia we find ourselves, in effect, trying to finance development programs for a population of about 19 million people in the subsistence sector, out of the savings and taxes which can be raised from the small monetary sector which comprises perhaps four or five million. And the cost of investment in this subsistence sector is, in Ethiopia’s case, further augmented by the mountainous nature of the country.

Even if the monetary sector has a high growth rate—as ours had in the first half of this decade until the fall in coffee prices—the very smallness of the sector prevents it from making a sufficient contribution to solving the larger problems of the rest of the country. But when, as in our case, it is also dependent on a single export crop—coffee—and this is subject to unpredictable price fluctuations, the position becomes overwhelmingly difficult. . . .

Statement by the Governor of the Bank for Algeria—Cherif Belkacem

The speeches made at this Annual Meeting once again show the great interest that the members of the international financial institutions have in the problems of development and in the need for gradually reducing and eliminating the terrible disparities in living standards that afflict the world today.

The unanimity expressed on this subject is cause for satisfaction to the developing countries, which are struggling to escape from their tragic predicament and to break the vicious spiral of their own poverty.

This unanimity recognizes that underdevelopment is the collective responsibility of the community of nations and, in particular, of the association of nations forming the International Monetary Fund and the International Bank for Reconstruction and Development, who, by the common preparation and implementation of adequate mechanisms, must solve together the international financial problems arising, on the one hand, in the monetary and balance of payments sphere and, on the other hand, in the area of the development of the productive resources of the member countries, particularly those less advanced.

The Bretton Woods Conference documents clearly bring out that the financial institutions created on that occasion were truly called upon to play a central and decisive role in the pursuit of the purposes assigned to them; they were to be the instruments for the solution of the members’ financial problems by means of international cooperation laid down as a rule of action. . . .

The over-all target of the action taken by the community of nations forming our international financial institutions should be to afford the economically backward nations a rate of growth approximately triple that of the rich nations.

But, for this, adequate financial resources are needed.

“Are the mechanisms set up in our institutions suitable for such action, as regards both the scope of the resources required and the conditions on which the developing countries may have access to them?”

Before continuing, I should first like to pay tribute to the efforts perseveringly made in the Fund and the Bank and its affiliates to assist the underprivileged countries in overcoming their difficulties and combating underdevelopment.

Their action has been effective, considering the means at their disposal and the financial and other restrictions placed on their activities. . . .

If the steps taken by the underprivileged countries to raise themselves from their underdeveloped condition provide wealth and new resources for the industrial countries, it is only normal and right between partner nations that the benefits be passed on to the countries that have created them. There is no sacrifice here for the industrial countries; all that is entailed is taking into account the advantages they have gained from the development activities of the third world.

It should be said openly that financial aid, even at no cost to the recipient, can be excellent business for the countries granting it. Figures published before our independence showed that aid equal to 10 yielded in favor of the colonial power:

Within a short time: additional exports 5 times the amount of this aid;

Each year following the entry into production of the investments financed: additional exports of the order of 45 per cent of the value of this production.

The according of grants-in-aid is at best, therefore, nothing more than a sharing between partners of the benefits resulting from development activities; only it is essential to reach agreement on a division more equitable and more in accordance with the intensity of the needs involved.

But if the aid takes the form not of grants but of loans at high interest rates, the benefits are very inequitably distributed—the poor countries are seriously injured and development efforts are soon slowed down or compromised by drainage of the financial resources; the problem of servicing the debt, which numerous poor nations have already had to face, is but the concrete manifestation of this state of affairs. . . .

There should be a radical overhaul of the methods and procedures, the more so in view of the fact that this seems to me in no way to require any modification of the statutory provisions governing our institutions.

The broad outline of a solution seems to me to lie in a macro-economic view of the problems to be resolved and the methods to be used for this purpose. Besides, such a view is implicit in the fact that we are a community of states forming financial organizations and that it is as states that we have to consider the questions raised for our consideration.

If the industrial countries receive new tax revenues and expand savings in consequence of their exports in connection with the investment efforts of the developing countries, borrowing at high rates on their capital markets will never repay to the poor countries the equivalent of these benefits, of which, however, they have been the cause. On the contrary, the more there is of such borrowing, for the purpose of lending the proceeds, at high interest rates, to equip the developing countries, the more entrenched the anomaly I have indicated will become. . . .

I understand, too, that the authorities of the industrial countries have their reservations about solutions that may pose new problems or make additional demands on their financial management, shifting onto their shoulders the responsibility for finding the necessary resources when it had been so convenient to reap the benefits of the poorer countries’ development and at the same time leave to the onerous interplay of the capital markets the task of mobilizing the resources whereby those efforts can come to fruition.

But I would remind you that, pending the results of the studies I have mentioned, there is an immediate means whereby the industrial countries, at no cost to them, can place at the disposal of the Bank and its Group very substantial new resources, enabling these institutions without delay to expand their lending to a considerable extent on terms compatible with the real financial possibilities of the underdeveloped countries.

This measure was the subject of my message to you last year, and my only excuse for bringing it up again is the gravity of the problem of development and its financing.

My message consisted of a proposal, based on the anticipated issue of special drawing rights by the Fund, which, without at all modifying the mechanisms for activating those rights, multiplied their useful effect.

We now know that the total special drawing rights will amount to $9,500 million in the next three years.

I did not, of course, request last year that these special drawing rights should be used for development financing, since it might then be alleged that they had been diverted from their purpose.

But the proposal I made, which I reiterate, is that the national currency counterpart of the allocation of special drawing rights be placed by the receiving countries at the disposal of the Bank and IDA, instead of returning to their national treasuries. These institutions would thus have some $9,500 million in additional resources at very low cost.

This solution, which accords perfectly with the Fund’s statutory provisions on the instruments of international liquidity, calls for no sacrifice on the part of the industrial countries. It affects only their access to their share in the special drawing rights. Furthermore, since the equivalents in their national currency would in principle be utilizable only with their agreement, to finance purchases of goods and services from them, they would automatically receive the equivalent value in additional economic activity which, I think I have demonstrateed briefly but clearly today, exerts a vigorous expansion effect and, in the view of one Minister of Finance, engenders additional tax receipts and new savings.

These considerations seem to me to be decisive and to override objections that the industrial countries would be able to make to my proposal.

Algeria, since reconquering its independence, has demonstrated a particular fondness for international cooperation; it is convinced that the world’s problems can be solved by this means.

This is the spirit in which I have addressed you again today and in which I have submitted proposals whereby the international financial institutions may be further improved as instruments of that cooperation.

I hope, though without too much confidence, that the rich and powerful countries will understand that international cooperation is not designed solely for the promotion of their own interests and preferences, and that it must serve the interests of the community of nations.

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

. . . Paraguay has continued to apply a monetary and exchange policy effectively within a framework of stability compatible with the growth of the economy. The favorable effects of this policy are reflected in the very limited domestic price changes.

Exchange devaluations and restrictions on payments and transfers have had no part in our monetary policy. The movement of capital continues without restriction for the purpose of facilitating foreign private investment and invigorating economic development.

Finally, it should be pointed out that Paraguay is continuing the process of economic expansion achieved in earlier years as a result of the application of economic policies directed toward integral development targets. . . .

October 1, 1969.

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