Chapter

Discussion of Fund Policy at Third Joint Session1

Author(s):
International Monetary Fund. Secretary's Department
Published Date:
October 1969
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Statement by the Alternate Governor of the Bank for Ghana—Jones Ofori-Atta

Mr. Chairman, may I with your permission extend to my fellow Governors the felicitations and warm greetings of the people of Ghana and the new civilian government on the occasion of the formal transfer of power by the military-police government which has ruled Ghana for the past three and a half years.

I am happy to report that Ghana is back to representative government. The new civilian government of Ghana supports and fully endorses the Articles of Agreement of the International Monetary Fund and those of the World Bank Group. We are ready to cooperate with the Fund and the Bank within the limits of our resources for the furtherance of peace, progress, and economic prosperity for all mankind.

I intend to be brief in my remarks.

In the past few years the system of international monetary cooperation devised twenty-five years ago at Bretton Woods has come in for severe buffeting. Bretton Woods has served the world very well. It has led to rapid expansion of world trade, better utilization of the world’s resources, and has above all encouraged a spirit of international monetary cooperation among both developed and developing countries.

The exchange rate crises which are now a common experience and a daily expectation have proved the basic soundness of the system of fixed exchange rates. These paroxysms are, however, warning us to take a fresh look at the whole system of international monetary cooperation and the assumptions of Bretton Woods. I would want to submit that the assumptions of Bretton Woods are outdated.

I think the greatest lesson of Bretton Woods is that an orderly exchange rate system would prevail only if there is an effective multilateral control. This is where we regretfully sense a departure from the spirit of Bretton Woods. Decisions of far-reaching importance have been taken outside the general framework of the Fund. We are presented with a fait accompli. Our only business is to endorse.

International monetary control is increasingly becoming a big-league game. We hope that in the years ahead, the Fund will be able to re-establish itself as the international machinery for monetary control.

May I now turn to the question of the special drawing rights. By the decision of both the developed and developing countries to activate the special drawing rights, the members of the Fund have agreed to create a special line of credit which is an addition to international liquidity. But the main beneficiaries of this new reserve asset are the developed countries—the members of the big league. We had hoped that this would offer an opportunity to step up the volume of aid to the developing countries. What we find, however, is that the developed countries are refusing to consider linking SDR’s with aid transfers to the developing world.

In spite of the legal limitations on the Fund as an institution, we would urge the management to keep an open mind on the issue because we are convinced that some linkage arrangement is both justified and possible.

Coupled with the issue of the creation of additional reserve assets is the problem of the adjustment of quotas of member countries. We are anxious that the next round of quota adjustments should lead to the strengthening rather than the dilution of the share of the less developed countries in the Fund. The reason for this is simple. We believe that with the creation of SDR’s, of which over 70 per cent will be available to the rich countries, and the various other forms of international monetary arrangements now becoming current among the rich countries, they can now afford to be less dependent on the Fund for assistance to correct temporary balance of payments disequilibria. We, the developing countries, on the other hand, have fewer of the other alternatives. The next round of quota revision should therefore take this view into account to ensure that, by increasing the quotas of the developing countries both individually and as a group, the volume of conditional reserves available to us in terms of quotas is increased.

On the question of the adjustment process and the international monetary system, we have come to realize the healthy results arising from a judicious combination of exchange rate adjustment and consistent fiscal and monetary policies. Here we do not believe that formulas can be devised to suit each country or situation. What is important is that countries should maintain a less rigid attitude toward the various mechanisms for exchange rate adjustment, so that, whenever the need does arise, discussions can take place in a less inhibited atmosphere so as to foster international monetary cooperation. . . .

Turning to domestic issues, the very transition to civilian government has tended to highlight certain problems which the Government cannot afford to ignore or shelve for long. Among these is the problem of unemployment, which has proved to be particularly intractable. The stabilization problem, which the military Government pursued with some degree of success and with the help of the International Monetary Fund, has in turn resulted in a high level of unemployment and a slowing down of development. It is now necessary to tackle the unemployment problem and to resume our development efforts on an acceptable scale without compromising monetary and price stability. While every effort will be made to mobilize savings at home for our development efforts, much foreign assistance will still be needed on a level which will ensure orderly democratic government in Ghana. . . .

In a period when our major efforts are directed toward the larger issues of international liquidity, quota revision, and internal adjustment processes, the efforts which some of us are making toward removing restrictions on trade and payments are apt to be over-looked. I would like to state, however, that my country continues to make gradual progress toward the removal of restrictions to trade and payments to the extent that our balance of payments prospects permit. This year more goods have been placed on open general licenses and current transfer payments have been effected on a much more regular basis than before, although our over-all reserve position does not always permit us to cushion ourselves against seasonal shortages of foreign exchange. We have plans to further liberalize trade and improve our payments position. Our efforts in the coming years will be directed more toward improving our export performance than restriction of trade and current transfer payments. In all this, we shall need the active support and cooperation of both the Bank and the Fund and the assistance of donor countries to maintain an adequate level of aid flows on true aid terms, so as to encourage us in our efforts toward liberalizing trade and payments while at the same time keeping up the pace of development.

Statement by the Governor of the Fund for Ivory Coast—Konan Bédié

This year’s meetings of the Fund and the World Bank Group are dominated by numerous problems of exceptional importance and scope.

In the fields both of international monetary cooperation and of development aid, so much has been achieved or is being achieved, so many new facts have emerged or are emerging, and so many new perspectives are opening up that it is difficult to obtain a comprehensive grasp of all their facets and to derive from them, by an exercise of synthesis, their full significance and implications.

I shall therefore confine my remarks to an examination of two topics which, while undoubtedly specific, are of fundamental importance for the progressive development of international economic cooperation and for the accomplishment of the purposes of the Bretton Woods institutions.

I refer, first, to financial aid for development, and, second, to the stabilization of the prices of primary products at remunerative levels.

Stripped to their essentials, these two questions constitute the two facets—financial and commercial—of a single problem: that of the possibility, within the framework of international cooperation and world trade, of deliberately influencing the distribution of income among nations of differing economic level.

On this point, it may be stated that no satisfactory beginning has been made, on the part of the industrialized nations, in the application of the code of conduct formulated by the world conferences on trade and development.

Public aid still falls far short of the goal of 1 per cent of gross national product of the industrialized countries. Not only has this goal not been attained, but we must record, with regret, that bilateral public aid, instead of increasing, has been steadily declining, in absolute terms, for a number of years.

With regard to access to markets, not only does the institution of a system of general preferences in favor of the underdeveloped countries remain no more than an avowal of principle which is used on occasion, in a negative sense, against regional associations that practice such preferences, but no diminution has taken place in the various restrictions that are imposed, particularly on primary products.

Everything happens just as if the discussions at UNCTAD level could not have any repercussions on the development assistance effort of the industrialized countries.

In this situation, the underdeveloped countries have reposed many hopes in the Bretton Woods institutions, which since the Rio meetings have very auspiciously tackled the questions of development aid and of the stabilization of prices, seeking to devote to them the maximum effort within the limits of their scope for action. . . .

Permit me to add to this note of personal appreciation a no less grateful tribute to Mr. Pierre-Paul Schweitzer, Managing Director of the Fund, who, in the midst of the considerable problems with which he has had to deal this year, has not neglected to extend to many countries, including my own, the benefits of the invaluable technical assistance of the Fund’s experts, an assistance which we are most gratified to know is to be continued.

I should now like to turn to the question of the stabilization of primary products.

In this connection, the accomplishments in the monetary field to which we are today paying tribute, and which happily coincide with the twenty-fifth anniversary of the Bretton Woods institutions, are in marked contrast to cautious and timid efforts that these same institutions have decided to devote to the problem of the stabilization of primary products.

It has been said that the voluntary creation of additional liquidity within the framework of the Fund opens up a new era in the field of monetary cooperation and that it marks the accession of the international community to monetary civilization. There can be no doubt that this assertion would be even more true if the industrialized countries were to agree that a part of their SDR’s be earmarked for the development of the third-world countries, as has been proposed by Ministers Valéry Giscard d’Estaing and Emilio Colombo.

The activation of the SDR’s is not a measure that stems from temporary improvisation, but rather a fundamental measure which will exert a decisive influence on the functioning of the international monetary system.

We should have liked to have been able to say the same about the decisions taken by the Fund and the Bank on the subject of the stabilization of the prices of primary products at remunerative levels.

In this case, we have to recognize that the adjustments proposed are not fundamental measures. While it is unnecessary to dwell on the small compass of the financial effort that will be deployed, it is appropriate to point out that neither the new facility decided on by the Fund nor the limited cooperation to be furnished by the Bank to activities of diversification and stabilization will contribute decisively to solution of the problem of primary products. It is hardly necessary to stress that the solution sought is much more the avoidance of losses due to fluctuations than the compensation of these losses by supplementary indebtedness.

The study by the Fund and the Bank has clearly brought out the fact that stabilization of the prices of primary products at remunerative levels would result from political decisions negotiated between producing and consuming countries and entailing a general agreement on a desirable distribution of income from trade in primary products.

To put the matter clearly, the problem of primary products:

sets up an opposition between those industrialized countries that are the principal consumers and those underdeveloped countries that are the principal producers;

cannot be validly resolved without the agreement of the industrialized countries in order to determine remunerative prices, that is, fair prices that take due account of the concept of profit for the producers of primary goods.

Such an agreement does not at present exist; much less does the will exist on the part of the industrialized countries to promote it. We can hardly blame the Fund and the Bank, since such an agreement does not fall within their competence, and also because the weighting of the voting power within these institutions means that the industrialized countries can by themselves ensure that their point of view prevails by holding up the search for truly useful solutions.

This being the case, the question remains open of the role of the Fund and the Bank in the management and financing of balanced arrangements between industrialized and underdeveloped countries on the stabilization of the prices of primary products at remunerative levels. For this reason we regard the measures proposed within the existing framework of our relations as temporary solutions which cannot fail to pave the way for subsequent progress by our community.

Thus, hamstrung by the absence of a general agreement essential to the solution of the problem, and perhaps rightly apprehensive that too violent a conflict within their ranks between industrialized and underdeveloped countries could disrupt the sound conduct of their activities, the Fund and the Bank have adopted an excessively cautious attitude which we are able to understand but which we find it difficult to accept as the solution to a problem with such serious implications for the economies of the developing countries.

This is a topic that calls for candid and straightforward discussion.

For it is not enough to accept, just as they come and for lack of a better alternative, decisions which many consider to be inadequate; what must be done is to seek now the means by which the solution of the problem of primary products can be advanced without disrupting the smooth functioning of our institutions.

To see this it is enough, in the first place, to consider certain facts:

The problem is bound to be relegated to a secondary position by the Bretton Woods institutions.

The aid assistance that these institutions will furnish to each country as a result of the decisions taken by them this year on the stabilization problem will be insufficient.

It will be insufficient because it will be extended only to the small number of countries able to deploy the four or five buffer stocks that can validly be mobilized. It will be ineffective for solution of the specific problem of stabilization because in assisting these countries alone the Fund and the Bank will have to take into consideration the other financial obligations of these countries, deriving from their development needs and the consequent restriction of their repayment capacity. It will be ineffective for another reason also: it will exert little effect, at medium range, on the management of supply, that is, on the fluctuations, not of prices, but in production. In the last analysis, it is the desire of the producing countries not to be forced to use these compensatory facilities.

A practical framework must therefore be found within which it is possible to combine the possibility of effective negotiations between industrialized and underdeveloped countries on trade in primary products, and the possibility of effective action by the Fund and the Bank in this field.

Such a framework could take the form of an international agency for the management of primary products, whose structure provides for parity between producing countries and consuming countries.

In our view, this agency would:

facilitate the negotiation of international agreements on primary products, the purpose of which would be not only the constitution of buffer stocks, but also the determination of fair prices with due regard to the profit of which the producer is so frequently deprived on the world markets;

act as the correspondent agency, and the financial intermediary vis-à-vis the Fund and the Bank, of the institutions administering the product agreements, and would relieve the countries of the supplementary indebtedness of the compensatory financing;

issue a code of conduct aimed at regulation of production of the products concerned.

Having regard to the close link between the question of stabilization and that of balance of payments equilibrium and development financing, it follows that this agency would have to be located in the ambit of the Bretton Woods institutions.

With regard to marketing boards and to the primary products price equalization funds set up in many countries, it appears to us that the functioning of this agency would be facilitated by the possibility of drawing on the Fund under the heading of compensatory financing, which avoids the constitution of excessively high reserves to the detriment of the producers.

My country will join in any initiative taken in this sense, and appeals to the spirit of cooperation which, in other fields in which our institutions have acted, has resulted in the finding of well-developed solutions that have ultimately advanced the interests of all concerned.

The problem of stabilization of the prices of primary products is one of special importance, not only because of its looming social consequences, at the level of the peoples of the developing countries, as a result of the deterioration in the terms of trade, but also because the concept of development aid will be seriously restricted and impaired to the extent that account is taken only of the financial and technical aspects of assistance.

The importance of the primary products in world trade is such that their equitable treatment on the world markets would suffice greatly to strengthen development aid policies.

The truth is that the action we need to take goes beyond compensatory financing of the losses suffered by the developing countries on the primary products markets as a consequence of the defects in the organization of those markets and of monopolistic and protectionist situations. The real problem is for producing countries and consuming countries to come to an agreement to determine fair prices and to set up mechanisms that ensure the primary producers of stable incomes, through a dialogue that takes realistic account of the human bonds that unite us.

Statement by the Alternate Governor of the Fund for Korea—Jae Sul Lee

I am happy to have the privilege of addressing this gathering of the Governors of the Fund and the Bank.

On behalf of the Korean Government, I would like to express my sincere appreciation to the United States Government for the warm and friendly hospitality accorded to all of us who have gathered to attend the meeting of these two great world institutions.

I should like to express my profound gratitude to Mr. Schweitzer for his excellent stewardship of the Fund during the past year and to the Fund staff for their effective work in evolving measures for strengthening the international monetary system. . . .

I must also praise the Fund and the Bank for the valuable and informative Annual Reports which they have laid before us.

The year through which we have passed since our last Annual Meeting has been epoch-making in the evolutionary process of improving the international monetary system. The requisite number of governments have completed the process of ratification and have notified the Fund of their acceptance of the responsibilities of participation in the scheme of special drawing rights. These actions probably constitute the most important event in monetary affairs since Bretton Woods. The way has been opened for prompt and sensitive responses to the need for liquidity in the growing world economy.

After long, painstaking efforts, we are about to see the activation of the new special drawing rights. I believe we are justified in placing the greatest confidence in this facility, which should make possible the growth of international liquidity and monetary stability in the years ahead.

We have learned, from past experience, the real cost of the world’s monetary instability. Measures to increase world liquidity, thereby bolstering confidence in these Bretton Woods institutions, were somewhat overdue. If they had been taken earlier, who can say how different the monetary, financial, and possibly even the political history of the world might have been, and perhaps the harmful developments that we have had to face would have been minimized if not totally avoided. However, I am very pleased to learn that we are approaching one step closer to enhancing the world’s monetary stability from which the developed, as well as the developing countries, will reap great benefits in the future.

In this context, I extend my sincere thanks to all fellow Governors who have supported the activation of this facility. I believe that this is the proper time and place to discuss the essential steps needed to bring about the actual allocation of special drawing rights and to ensure the actual operation of this facility in the nearest future. It is also most important that the special drawing rights should be activated in adequate volume in order to ensure that the growth in world trade is not hampered by a shortage of international reserves. I also mention, for the record, that I am still of the view that in the distribution of special drawing rights special consideration should be given to the development needs of small-quota countries.

While believing that special drawing rights should be activated as soon as possible, I am of the opinion that it is necessary to increase members’ quotas adequately in order to maintain the role of the Fund and its image. On the whole I agree with the general approach of the Fund staff in its various studies. I believe that, in addition or parallel to a substantial general increase, there should also be adequate selective increases where these are necessary to better reflect the growth of some members. It is my view that selective quota adjustments should be made on the basis of economic trends during the past five years and that in determining these adjustments sympathetic consideration should once again be given to the smaller developing countries.

Although we now see the fruition of efforts that have extended over many years to improve the international monetary system, new problems such as the rise in interest rates in the chief money and capital markets of the world call for new studies and solutions. The present high interest rates are threatening the continuity of economic development in countries such as mine and, unless reduced in the near future, will certainly result in a slackening of over-all growth rates. . . .

While the Korean gross national product continued to increase rapidly over the past two years, primary productions suffered a serious setback because of unfavorable weather conditions. As a result, prices of food grains rose considerably, and large food imports became indispensable. In order to eliminate this element of instability in the economy and to enhance the standard of living in rural areas, the Korean Government is adopting policies intended to achieve a balanced growth of agriculture and industry. With this background in mind, we fully recognize the importance of Mr. McNamara’s policy of increasing investment in the agricultural sector.

We are all aware of the great costs that the developing countries will have to incur in terms of men, money, and materials if they are to realize within a very short span of time the level of development that the industrialized countries required many decades to achieve.

We of Korea have made tremendous efforts to speed up our own development process. Our success, often cited as a model to other developing countries, must be considered modest when viewed in terms of the needs of our people. The successes we have achieved and will realize in the future are based on our own efforts under the dynamic and imaginative leadership of our President, but these must, if necessary, be supplemented to a significant degree by external assistance. I am certain that the development progress Korea has achieved to date could not have been achieved without the external assistance from international financial institutions such as the Fund and the Bank as well as from developed countries. . . .

As the developing countries increase their rate of development, it is inevitable that their import requirements will expand. This makes it necessary that their export earnings should increase at an adequate rate, because, even though the gap between foreign exchange earnings and payments might be bridged during a period of transition by recourse to foreign borrowing, the servicing of the foreign debt is ultimately a charge on export earnings.

In order to permit an appropriate increase in these earnings, it is most important that the developed countries should reduce restrictions on the import of the products of developing countries to their markets.

Other actions that will contribute to the promotion of export earnings include measures for the diversification of exports and for the stabilization of primary product prices through commodity agreements and buffer stock financing arrangements. The Fund and the Bank have already taken some steps in some of these fields.

It is our view that these activities should be expanded and made more concrete. It is also important that arrangements should be considered for the refinancing of export credits so as to enable developing countries to compete with the developed countries on more equal terms in the export of manufactured goods. The highly competent staffs of the Bank and the Fund might well examine this possibility as well as the general question of credit facilities for the export of capital goods from one developing country to another.

In conclusion, I hope that this meeting will prove an important milestone in the improvement of the international monetary system, and that the Bank and the Fund will play an increasingly vital role in promoting international cooperation and building a pyramid of prosperity throughout the world.

Statement by the Governor of the Fund for Germany—Karl Blessing

I should like to begin my remarks by paying tribute to the President of the World Bank and to the Managing Director of the Fund and their staffs for the excellent work performed during the past year. . . .

I should also mention the pressing and complicated problem of the prices of primary products, which remains to be solved during the years to come.

The reports of the Executive Directors, both of the Bank and of the Fund, based on extensive studies prepared by the two staffs have been submitted to the Boards of Governors as requested. I welcome the decisions of the Executive Directors; they represent a helpful contribution to the solution of the commodity problem in a sensible and feasible way under the terms of the agreement.

Let me now turn to the monetary field. I am glad to note that the Fund again played its proper part in the eventful year under review. In spite of the unsettled monetary situation world trade again rose considerably and the standard of living in general improved. Unfortunately, this favorable development has been accompanied by considerable inflationary pressure in a number of countries. The fact that the rate of inflation has been different from country to country is mainly responsible for the disequilibria in the balance of payments which have been causing such concern in recent years. During the past years the surplus countries had to finance in increasing amounts the gaps of the deficit countries, especially at short term—a state of affairs which cannot last. It is high time that the inflationary course comes to an end and that better equilibrium in the balance of payments is restored by applying a better adjustment process and a better harmonization in pursuing the economic aims of the various countries. The gap between the deficit countries and the surplus countries should be filled to a greater extent by goods and services and to a lesser extent by short-term money or central bank assistance. Otherwise, we shall be in great danger of slipping back into foreign exchange restrictions, and other dirigistic measures with all their disadvantages for world trade.

I am glad that serious endeavors to bring inflation under better control have lately been made in a number of important countries. The high rates of interest prevailing in the United States and this country’s restrictive fiscal policy give ample evidence of its determination to restore confidence in the dollar and to do away with the inflationary expectations in the U.S. economy. In this respect, I am much reassured by the statement made by the Governor for the United States. The dollar is at the center of the Western monetary system. It is, therefore, of paramount importance to improve the dollar’s situation, since this means to improve the whole monetary system. In my opinion even a temporary cooling off of U.S. business activity would not be too high a price to pay to ensure that the dollar can play its proper role.

Also in the United Kingdom, in France, and in the Netherlands—to mention only a few—courageous steps are being undertaken to suppress increases in prices and costs which, once they have taken place, can hardly be reversed. These developments culminated in the devaluation of the French franc, which adjusted this important currency to a realistic level, and which, together with the accompanying domestic measures, should bring the French economy back into equilibrium.

I should now like to say a few words about the situation in my own country. Since the beginning of the year the German economy has been booming. High domestic investments, high demand from abroad, and, lately, very high consumer demand have contributed to the present boom. Labor resources and productive capacities are exhausted, and further production increases are becoming more and more difficult, in spite of the presence of 1.4 million foreign workers. Prices therefore are rising, and they are likely to rise even faster as a result of the increasing disproportionality of demand and supply. The recent wage increases will add to the cost and price pressure. Fortunately fiscal policy this time is not contributing to the boom but to a certain extent is even acting anticyclically.

In spite of the domestic boom our foreign trade surpluses have remained nearly the same as during the stagnation period of 1967. In the first eight months of the year our imports rose by about 22 per cent as compared with the same period in 1968. But our exports likewise increased by 16 per cent. Our surpluses remain comparatively high in spite of the 4 per cent border tax on exports and the 4 per cent subsidy on imports introduced last November. The large expansion of our exports is mainly due to the fact that demand from abroad continued to be very high as a consequence of persistent inflationary pressures in other countries.

As a good creditor we have made every effort to channel these surpluses back to other countries by a policy favoring capital exports. During the first eight months of the current year, our long-term net capital exports reached an amount of roughly $3 billion. Long-term capital exports were three times as high as our surpluses on current account, amounting to somewhat more than $1 billion. Our basic balance of payments in fact was therefore in deficit by about $2 billion. The fact that nevertheless the total reserves of the Deutsche Bundesbank rose by nearly $1.5 billion between January and August is entirely due to the heavy short-term capital inflow, and the changes in the terms of payment which took place in May in connection with the revaluation expectations of the deutsche mark. We intend to continue our capital export policy in order to contribute our share to the capital needs of the world while at the same time reduce domestic German liquidity, a reduction which we badly need to keep our boom under control. Even after the increase of the discount rate in September capital exports are still going on.

Recently the German monetary situation made headlines in the press. At the beginning of last week we again had large speculative inflows of foreign exchange as a result of the persisting revaluation expectations. The inflows were particularly large on Tuesday and Wednesday. The German Government therefore felt that it was necessary to close the exchange markets on Thursday and Friday. By doing that we wanted to protect our partner countries from losing reserves on a large scale and we wanted to avoid a situation in which the German economy became too liquid. Over the week end the question arose whether the markets should be opened again on Monday. It was decided at first to open the markets but, after an opening of only two hours, we gained nearly a quarter of a billion dollars. Therefore, the market was closed again, and in view of the existing uncertainties it was decided by the Government to relieve the Bundesbank temporarily from the obligation to intervene in the market at the limits hitherto observed. Of course, this measure is of a temporary nature only.

Meanwhile the exchange rate for the deutsche mark has been quoted at a premium of about 5 per cent in the market. We fully realize that the present situation can only last for a short period, but I am not now in a position to say how long this transitory period will last. I wish to say that we very much appreciate the spirit of understanding shown by the Fund in these difficult days.

In their excellent Annual Report the Executive Directors have discussed exchange rate policy as a means of securing better balance of payments adjustment. I would very much prefer to see more flexible monetary, fiscal, and economic policies pursued in the various countries rather than making exchange rates more flexible, although I have to admit that in the world in which we live an adjustment through domestic policies is often politically and socially difficult. I want to stress, however, that I am strongly against unlimited fluctuations of exchange rates, as they are liable to hamper world trade. The temptation of their being used as trade policy weapons is always present. As I have just said the present German measures are only temporary and should not be interpreted as a deviation from my general point of view.

It may, however, be worthwhile to examine whether a greater elasticity in correcting exchange rates within predetermined limits may contribute to establishing and maintaining realistic parities. I would therefore support the suggestion that the Executive Directors continue their studies. I strongly concur, however, in the view expressed in the Annual Report that the essential characteristics of the present system should be preserved.

In pursuing these studies three points should be kept in mind, namely:

  • We should not enter into experiments just for experiments’ sake.

  • We must not look for overperfect and automatic solutions.

  • A more flexible exchange rate policy does not release us from monetary discipline, and we should be careful not to weaken it by making downward adjustment of parities too easy.

The fundamental problems of our time cannot be solved by technical devices but only by greater monetary discipline and by better coordination of the economic and fiscal policies of the various countries.

These remarks apply just as much to the special drawing rights, which also cannot be considered a cure-all for the problems facing us. In giving our agreement to the activation of the new reserve medium for a period of not more than three years we act on the assumption that during this period there will be further progress in overcoming the balance of payments difficulties. In this context I note with satisfaction the great efforts made by the two reserve currency countries.

Certainly the activation of the special drawing rights can avoid a shortage of international liquidity which might occur as a result of the gold situation or as a result of an improvement of the balance of payments of the United States. I welcome the statements by other speakers that the activation of the special drawing rights should not weaken the efforts made toward greater stability. With the deliberate creation of reserves we are entering a new phase of monetary management and we are well advised to proceed with the utmost caution in order not to discredit the new instrument.

Let me close with a few remarks on the forthcoming quinquennial review of Fund quotas. I support the mandate to be given to the Executive Directors to report to us by the end of the year. I am, however, not convinced that a large increase in quotas is called for. The fact that in the recent past the Fund has always had a sufficiently large stock of gold and usable currencies at its disposal to meet all requests for drawings seems to indicate that there is no urgent need for a major increase in conditional liquidity. In my view the over-all adjustment of Fund quotas should be limited to a moderate general increase and to a selective increase of those quotas which are clearly out of line.

The overriding aim of all our endeavors should be to strengthen the role of the Fund in such a way as to promote discipline and better working of the adjustment process.

Statement by the Governor of the Fund for Tanzania—A. H. Jamal

The unequivocal and positive statements of the President of the World Bank and of the Managing Director of the Fund are a clear indication that these two world institutions, given their present competence and capabilities, do recognize what the world’s pressing problems are and what objectives are desirable. I wish to extend my warm appreciation to Mr. McNamara and Mr. Schweitzer for their unrelenting endeavors in the service of world order.

It is equally clear that national policies pursued by governments and societies, particularly those of the major industrialized countries—with the exception of a few—are seriously out of alignment with the humane outlook and the rationale of the thinking of the two top executives of these world institutions.

We in Tanzania agree that self-reliance should be the basis of true progress. To that end we have achieved between 80 and 90 per cent targets, both for the Central Government and for the economy as a whole in respect to the five-year plan period 1964-69. Indeed, in the years 1967-69 we exceeded the original goals. This we were able to do largely by mobilizing in support of our development program domestic resources from surpluses on recurrent budget and sale of long- and medium-term securities. We were able to finance 60 per cent of the Central Government’s program in this way. The average annual growth of real domestic product over the plan period was between 5 and 5½ per cent, or 80 per cent of the target rate.

If the prices of our major commodities had remained stable, we would have exceeded by far our planned target rate of 6½ per cent and we would have been able to finance over 80 per cent of the Central Government Development Program from our own resources.

As for the second five-year plan, which commenced three months ago, our goal is a 6.7 per cent annual growth in output and 10 per cent in investment. . . .

We accept the Fund’s advice that we should pursue realistic fiscal and monetary policies, and we hope that our policy so far would have been seen to be so. At the same time, it will be appreciated that, as Tanzania is a country so dependent on agricultural commodities whose prices cannot be relied upon and is subject to unpredictable weather conditions, it is little short of a miracle that we have so far been able to keep our options sufficiently broad.

We believe in regional economic cooperation, and to that end we will, on a fully reciprocal basis, comply with the obligations which we have freely entered into, together with our partners Kenya and Uganda, as cosignatories of the Treaty for East African Cooperation.

All this, and much more, we must do and we shall endeavor to do. But all our efforts, as indeed those of other developing countries, will be of only very limited value as long as the world community does not come to grips with the world’s central issue.

The central issue is: how soon will the developing countries be accepted as equal trading partners in the world, instead of being left to the mercy of highly organized markets, with all the sophisticated and historically accumulated equipment that is available to the technologically advanced nations? How soon will it be possible for all the developing countries to say at home that, if the prices of trucks and milling machinery are to go up by, say, 3 per cent next year, the price of coffee or cotton or sisal will also go up in the same proportion? How soon will there be a truly international and equitable division of labor, on the basis of comparative advantage, so that it will not be viewed as inevitable that, for instance, half of the world’s sugar production, protected beet sugar from the industrial economies, would continue indefinitely to be high-cost, effectively barring the growth prospects of efficient tropical cane producers? . . .

It is now clear that we shall be activating the SDR scheme. I have previously welcomed it as a significant first step in technical reform of the international monetary system; but I must restate the misgivings I have voiced in the past as well.

Already the industrial world’s present major preoccupation is inflation. Already interest rates are exceedingly high and for the developing world this is a deflationary circumstance. Already there are various kinds of barriers against the products of the developing world in the markets of the industrial world. This, too, is a deflationary circumstance for the developing world. So, the total situation being what it is, what assurance is there that the SDR’s will not bring about an accentuation of the adverse circumstances already confronting the developing world?

Individual industrial nations are pursuing restrictive fiscal and monetary policies. Cumulatively, this is having a deflationary effect on the developing world. This year, while Tanzania’s exports will rise by 10 per cent in volume, its export earnings will go up by only 5 per cent. In other words, commodity price declines in 1969 alone will cost Tanzania nearly 100 million shillings, a sum equivalent to our probable SDR allocation over the next three years!

So international corrective action is needed for precisely the same reasons that national corrective measures are needed and effectively taken by the developed world. The poor countries are weak and vulnerable. If we in Tanzania devalued our currency by half, we would not be creating an international monetary situation! We, the developing countries, are at the receiving end. We are made vulnerable through no fault of ours, indeed, despite all our efforts.

I regret that the opportunity has been missed to create a link between SDR’s and the development needs of the world. Contrary to the belief expressed by the distinguished Governor of an advanced country, I believe that such a decision would have been less inflationary in its effect than the possible effects of the present decision.

It seems we are now going to examine the possibility of the “limited flexibility” of exchange rates. Please, Mr. Schweitzer, what will happen to our commodity prices?

I should like to recall, Mr. Chairman, your remarks concerning the need for full participation by all concerned in the decision-making process. I sincerely hope that there will be immediate recognition on the part of the industrialized world that some international corrective measures are needed without a great deal of delay. . . .

The SDR’s in the future must be linked with the development needs of the third world. The creation of SDR’s may have been prompted by the preoccupations of the industrialized world. Their application must take place as part of an international fiscal and monetary policy in aid of development. After all, as the distinguished Governor for Sweden stated so accurately, most of these resources end up eventually in the factories of the industrialized countries.

The central issue of commodity prices and trade in manufactured goods from developed countries must not be dodged any more. The present work done on some of these matters by the Bank and the Fund is not adequate. Here I would like to fully endorse the position put forward by the distinguished Governor for the Ivory Coast, and I sincerely hope that the Governors, particularly the distinguished Governors of the industrialized world, will make a careful study of what he had to say. We are bound to find ourselves in an abyss if we continue to remain blind to this crisis. . . .

Statement by the Governor of the Bank for Yugoslavia—Janko Smole

At the outset let me say that I have read the excellently prepared Annual Report of the Fund with great interest, but also with mixed feelings. Successes and achievements in the world economy during the past year were intermingled with, and very often offset by, continuing inflation, coupled with disturbances in the monetary field. Whilst the increase in world trade and relative stability of commodity prices were to the benefit of most developing countries, the international monetary instability not only influenced the trend of their economic development, but also put additional strains on their balance of payments through the increased cost of capital and various import restrictions still in existence or even newly introduced. To my mind, it is hardly possible to conceive of a sound and stable economic development of individual countries without a relative stability of the international monetary system. Steps should be taken, both on the international and the national levels, to restore the confidence that is at present largely lacking in some leading currencies. Whilst such credit should be given to the international monetary cooperation displayed chiefly by a group of the countries mainly responsible for the proper functioning of the international monetary system, it is nonetheless indispensable that such cooperation should be broadened, in order that full account also be taken of the interests of countries outside that group.

The problem of international liquidity has been much discussed here and elsewhere. At one time, we rightly considered that this problem would become a major obstacle to further development of trade and consequently to the development programs of many countries. Now we are all pleased to see that a new instrument has been devised to cope with this problem by the creation of special drawing rights, which, hopefully, will be activated in an adequate amount in the near future. By doing so, we shall diminish the constant threat to over-all liquidity.

The developing world is now expecting the Fund to begin to consider what improvements may be introduced into the system of special drawing rights and in the present international monetary system as a whole, in order to meet more fully the requirements of developing countries, for the fact is that the developing countries, which need additional liquidity most, will be obtaining only a small portion from the special drawing rights as presently conceived.

Here I should like just to mention two points. First, in the forthcoming general review of quotas, thorough consideration should be given to the liquidity problem of individual less-developed member countries. Any future special distribution of quotas should be made solely for the purpose of correcting large disparities, where appropriate; in this way, the position of individual countries and the over-all existing relations between various groups of countries should not be adversely affected at the expense of the developing countries. On the contrary, I consider that the time has arrived to improve these relations in the light of what many Governors have stated at previous Annual Meetings. Secondly, serious proposals have been received from various quarters to relate the special drawing rights to the financing of development. Whether this is done through a formal institutional link or through more informal arrangements is probably not decisive: what is decisive is that the world community cannot afford to miss this opportunity to increase the flow of resources for development, which we all agree is badly needed.

. . . The general increase in interest rates will undoubtedly further aggravate the balance of payments position of developing countries, already far from satisfactory, in spite of the figures showing a general improvement during the past period. The developing countries, including my own, have to divert a large share of their foreign exchange receipts to payments of interest on loans and credits contracted. This tends to slow down their economic growth and to aggravate the debt services problem, which has certainly now become an acute one. . . .

Two more features should be mentioned here. They refer to both Bank and Fund activities.

The first one concerns the participation of the Bank and the Fund in the commodity price stabilization programs. Encouraging progress has been made in this respect in the past period. The reports before us do indicate forms and the role which they could play in this regard. However, I am sure that both the Bank and the Fund will keep the matter under consideration and seek to introduce further improvements. . . .

The second problem which I would like to mention here is the distribution of net income both of the Fund and the Bank. I welcome the proposal before us that a larger share of the net profit of the Bank be transferred to IDA. It is to be recommended that this practice be continued. However, in respect to the Fund practice, initiated last year, in line with the corresponding provision of the Articles of Agreement, I suggest that the member countries concerned be invited to consider the possibility that such profit, or part of it, be diverted to purposes to be determined, in order to help developing countries to ease their balance of payments difficulties.

I have listed some of the problems which I believe are of great importance to my country and to the developing world as a whole. We should not forget that there is still a gap, with inherent dangers, which divides the world into two quite distinct parts, according to their level of development. It is our duty—and we should not fail in this duty—to deploy the greatest efforts to narrow this gap as quickly as possible. Although the Fund and the World Bank Group can be proud of the successes achieved in the 25 years of their existence in maintaining relative order in the conduct of international monetary affairs and in assisting member countries in financing the needs for their development, the developing world expects further results in the future.

In conclusion, I wish to welcome those countries that have joined our expanding Bretton Woods family in the past period. I also wish to record my appreciation for the close and cordial relationship that my country has enjoyed in the past with the management and staff of the Fund, the Bank, and IFC. I am sure this good relationship will continue.

Statement by the Governor of the Fund and Bank for Kenya—Bruce McKenzie

May I start by saying how impressed my delegation was with the opening speeches of the President of the Bank and the Managing Director of the Fund. The Managing Director’s speech not only covered the progress of the Fund during the past year but pointed out the critical areas which require concerted efforts, if many of the financial problems which confront modern nations are to be solved for the benefit of increased international trade and cooperation. These problems over which, we maintain, the developing countries have had no control, have had their origins in the developed countries and have adversely affected confidence in the monetary system, to the detriment of the economic progress of the developing countries. We therefore urge that, whatever solution is found appropriate, it will be one which facilitates the rapid growth of world production and trade.

We welcome the creation of the special drawing rights and look forward to their activation, but we regret that it was not found possible to link the SDR’s with development finance. Neither are we entirely happy with the conditions stipulated in the buffer stock arrangements. We are of the view that these arrangements ought to have had a wider application by not requiring a country to be in balance of payments difficulties before it qualifies for the facility. . . .

Restrictive practices designed to protect domestic agriculture in developed countries at the expense of farmers in developing countries must be reduced. Nor must these protective devices be dropped in respect of agricultural products alone. In the years ahead, developing countries must build up industries which are based on agricultural output. The products of these industries must be able to find markets in the richer countries of the world, just as at present the developing countries are providing markets for machinery and other industrial products. Nothing is more scandalous or economically ridiculous than the way some developed countries protect low productivity industries, instead of moving their resources into the more sophisticated industries and relying on the poorer countries for the commodities their industries are in a better position to provide.

The Bank and the Fund have made proposals to minimize fluctuations in prices of primary products. These are welcome, but they leave untouched the real problem of a long-term trend of prices of primary products declining in relation to the prices of manufactured goods. As productivity rises, these problems become more acute and raise serious questions, to which far too little attention is paid. For example, are the developed countries concerned about the effect of the many millions of dollars put into the production of synthetic substitutes for commodities being produced by developing countries, such as sisal, pyrethrum, and rubber?

With the technological breakthrough in agriculture and the closer integration between agriculture and industry within developing countries, the necessity for more trade between developing countries arises, but here is another roadblock. We are reaching a point of desperation, at which some of the giant commercial organizations of the world are applying cutthroat policies to undermine the export markets of developing countries.

It is tragic, at a time when the World Bank is so dramatically stepping up its assistance, that bilateral efforts of major developed countries looked at in real terms as a percentage of GDP should be falling off. We understand some of the reasons for this, but cannot accept the feeling existing in many developed countries that the flow of financial aid is not narrowing the gap and that the effort is not worthwhile. Yet is it really aid, when the money we get has to be repaid—often with additional interest charges—when much of it can only be used to buy machinery or other goods from the aid-giving country itself, sometimes at uncompetitive prices and sometimes for industrial projects which hardly prove viable. And further let me remind you of the extremely high rates of interest prevailing in the world today, which have the effect of killing some of the desirable projects stone dead.

Another roadblock we foresee in the next decade is the inadequacy of expert services to assist in feasibility studies, project planning appraisal, and, finally, implementation. We would welcome plans to alleviate this situation, and would suggest that the UN institutions coordinate more closely their recruitment and grades of service. A further roadblock which needs looking into is the difficulty which the brighter, younger, progressive men are having in breaking through the bureaucratic hierarchy in our institutions.

I also wish to refer to the lack of assistance in the diversification of the economies of developing countries. We in Kenya are able to supply our own foodstuffs and other essentials, as well as to produce an exportable surplus of most commodities. The target rate of growth set out in our development plan has been achieved over the past four years; in real terms, the GDP has risen at an average rate of 6.3 per cent. Our next five-year development plan aims at a higher rate, and we have good reason to be optimistic, but not complacent. We intend to create new horizons through development of tourism and the manufacturing industry. . . .

Let me frankly admit that the major task of development lies with us developing countries, and that we do not expect everything to be done for us. It is our own determination and our own efforts which will make or break us in the next Development Decade. However, we are dependent on the donor countries for the prices we get for our exports, and subject to them for the prices we pay for our imports; we are dependent on the donor countries and international organizations for the flow of capital, and to some extent, the flow of trained manpower. Therefore, in conclusion, may I venture to suggest that, if we are even to begin to solve our problems, then it is for all nations to ensure that their responsibilities are faithfully discharged, remembering that the developing countries must be given a fair slice of the cake.

Statement by the Governor of the Bank for Peru: Francisco Morales Bermudez C.

I have devoted close attention and deep thought to the speeches of Mr. McNamara, President of the Bank, Mr. Schweitzer, Managing Director of the Fund, and Mr. L. B. Pearson, Chairman of the Commission on International Development. There is nothing that anyone can add to such brilliant expositions.

This Annual Meeting of the Fund and the Bank is held in the spirit of international cooperation, and the principal objective of this cooperation, in the present state of world affairs, is undoubtedly the fight against underdevelopment, which has led to the unavoidable need to redesign the pattern of economic relations between industrialized and developing countries. The Bank and Fund have taken a highly significant step in this direction during the past few years by undertaking a review of traditional policies and adopting new ones, within the framework of an over-all concept known as “Strategy for Development.”. . .

Another special request for this “Strategy for Development” would be that the industrialized countries be required to review their tariff and customs policies in such a way as to abolish the discriminatory treatment suffered by our manufactured goods, the obstacles of a nontariff nature that hinder the marketing of our primary products, and policies encouraging uneconomic production which eliminate all possibilities for competition and distort international trade. Consideration must also be given to the fact that the instability of the demand for primary products leads to abrupt fluctuations in export prices and to the progressive deterioration of our trade relations, with a consequent reduction of our import capacity, a fundamental variable in the growth process of the underdeveloped economies.

In the macroeconomic context of the “Strategy for Development,” particular attention should be devoted to bringing about a significant increase in exports of goods and services, to taking action on the factors determining the supply and demand of employment and on productivity, and to raising the flow of capital in the developing countries so that they may truly achieve their development.

It is also necessary to lay down effective methods and procedures aimed at liberalizing foreign borrowing, reducing interest rates, and increasing the volume and duration of credits. The establishment of an interest equalization fund, fed by contributions from international financing agencies and developed countries, might be a solution.

It would also be desirable to proceed without more ado to the activation of the credit system based on the special drawing rights, which has been ratified by the majority of the member countries, including Peru. Rapid activation of this new mechanism is sure to be of particular importance for the developing countries, which are always the most seriously affected by the ups and downs of the international cycle and the lack of liquidity of the system.

Developing countries such as Peru need to import capital goods, which means that export credits represent an instrument of ever-increasing importance, even though they involve special difficulties and have to be administered equitably for all concerned. On the one hand, they pose balance of payments problems for the developing countries, which find themselves in the awkward position of having to evaluate each application in the light of their scant possibilities, of their economic growth requirements, and principally of their external payments position. On the other hand, the developed countries ought to review the restrictions imposed for balance of payments reasons on their freedom to make investments in the underdeveloped countries, installing compensatory mechanisms in which existing or future international agencies would participate, perhaps in the form of investment centers at world, regional, or subregional level.

. . . Top priority in the economic field has been assigned to fiscal and monetary reform and to a strengthening of the balance of payments, so as to preserve the stability needed to facilitate structural changes and to help to re-establish confidence in the development and investment possibilities offered to domestic and foreign capital by those same structural changes.

Thus, where fiscal policy is concerned, it has been possible on the basis of a rational program for keeping down inessential public expenditures, limiting current expenditures to keep the rate of public investment at the highest possible level, to correct the massive fiscal deficit which for many years represented one of the inflationary factors in the development of our economy. Although our balance of payments position is at present sound, we must, starting next year, have a greater volume of foreign exchange available in order to intensify imports of capital goods not produced in Peru, a part of our economic program essential to the strengthening of our industrial development. Refinancing of our external public debt is therefore a matter of particular importance, as is investment in the mining sector, a source of substantial foreign exchange earnings. Peru’s laws on this subject are far-reaching and positive.

Agrarian reform is progressing along the lines recommended at Punta del Este. This is a genuine agrarian reform, enjoying both the support of all Peruvians and full international backing. This important measure has been undergirded by the enactment of a Water Code, which provides for the efficient utilization of water resources, and the establishment of credit and agricultural extension policies which, provided that sufficient financial resources are available, will help this Revolution to achieve economic goals that are highly beneficial and of deep social significance. The other reforms (of the fishing industry, taxation, credit, business, and the public administration) are being studied with the participation of the public and the private sectors, and their results are certain to be orderly and methodical, beneficial to the whole country. Furthermore, foreign investment is well received in Peru and is protected by Peruvian laws, which seek to make equitable provision for the national interests and the interests of the investor alike. . . .

Development is our principal target, development exclusively in the service of man. While facing up to the complexities of the present day we are not losing sight of our fundamental intention to speed up the rate of development. Only within a framework of accelerated expansion of the production of goods and services shall we be able to catch a glimpse of social progress, bring about a better distribution of income to benefit the poorest citizens, absorb the unemployed labor force and thereby achieve peace and tranquillity among our people. It is certainly important to check inflation, but this is not a goal in itself—it is merely one of the conditions on which development depends. We are aware that uncontrolled inflation makes it impossible to speed up the development process. But this does not mean that we agree with that theory which recommends guaranteeing “tomorrow’s” development at the expense of a recession “today.” If this is dangerous for a country with a certain degree of development or even a developed country, how much more of a danger does it represent for the poor and the unemployed in the underdeveloped countries. It is like asking someone who is ill to say which illness he would like to die from. . . .

Statement by the Governor of the Bank for the Sudan—Mohammed El Mekkawi Mustafa

At the outset of my statement may I congratulate the President and the staff of the Bank and the Managing Director and the staff of the Fund for their excellent record of achievements during the past fiscal year as reflected in their lucid and well-prepared Reports. . . .

I now turn to the Fund and express our thanks to the Managing Director and his staff for their efforts, which have culminated in putting forward the SDR’s to augment international liquidity which had lagged considerably behind growth of international trade. The effort and achievement in this respect are highly commendable. Yet it is disheartening to note that the share of the developing countries is going to be as meager as their rate of growth, which will aggravate the social and economic disparity between the rich and poor in the world community.

It is therefore earnestly hoped that some more equitable distribution will be found to favor the less developed countries. It is further hoped that the developed countries, who will receive the major share of the new facility, will agree to establish a link between the creation of the SDR’s and development financing. It is not asking too much to say that part of the additional resources created by the SDR facility should be directed toward development financing in the underdeveloped countries in order to offset the disappointing results of the United Nations Development Decade.

My delegation strongly supports the proposal on the revision of quotas, yet we sincerely hope that, when it is considered, a formula will be found whereby the gap between the rich and poor not be further aggravated. It is hoped that agreement can be reached whereby at least the existing relative distribution of quotas and voting powers as between the developed and the developing countries will be maintained, if not improved, to favor the less developed countries.

However, it will be observed from the statement delivered by the distinguished Governors from the less developed countries that, nearly without exception, the problems cited seem to be so similar that the objective observer has no option but to conclude that a great majority of the members of these institutions have a common cause, which from the sheer unanimity of their statements demands serious and urgent consideration by the management of the Bank and its affiliates and by the Fund.

Finally, my delegation would like to renew its expression of confidence in both the Bank Group and the Fund and to voice its appreciation of the roles they have so far played in the advancement of international cooperation, and looks forward to seeing them become more effective and more flexible in dealing with the ever-increasing complexities of the modern economic problems that beset the world community.

Last but not least, I wish to welcome the new member countries to the community of the Bank Group and the Fund.

Statement by the Alternate Governor of the Fund for the Syrian Arab Republic—Adnan Farra

It gives me pleasure to extend at the outset my warm welcome to the new members, Southern Yemen and Swaziland. I am also pleased to see among us the representatives of the countries that have applied for membership, namely, the Yemen Arab Republic, Cambodia, and Equatorial Guinea.

Our thanks go to the managements of the Fund and the Bank for their valuable 1969 Annual Reports. We are also grateful to these twin institutions for the second part of their reports concerning the stabilization of prices of primary products and containing an outline of the measures they can take in the field of commodity price stabilization.

I would like, however, to avail myself of this opportunity to make the following remarks:

In general we are pleased to note that the Amendment to the Fund’s Articles of Agreement has entered into force and that the requirement for participation in the Special Drawing Account has been met. We regret, however, that the Amendment precluded the establishment of an organic link between the creation of SDR’s and the provision of development finance to developing countries. It clearly implies that institutions that provide development assistance are debarred from engaging in operations and transactions involving SDR’s. We feel, however, that the present Articles of Agreement of the Fund do not rule out two alternative versions of a link. The first version which was mentioned in a slightly different way by Minister Colombo of Italy during last year’s Annual Meeting is that acts creating SDR’s should be accompanied by voluntary contributions to multilateral institutions engaged in development finance. These contributions should be made by the developed countries from their reserves and their size would be a uniform proportion of the share of each in the creation of special drawing rights. The second version, which is mentioned in a just-published report by an UNCTAD Expert Group on International Monetary Issues, is that developed countries should make contributions in their national currencies to IDA in a uniform proportion to their annual allocations of SDR’s.

My delegation, therefore, urges the developed countries who are members of the Fund and who are the main beneficiaries from the creation of SDR’s to consider the introduction of such a link at an early date after the activation of this new reserve asset. This would render the distribution of benefits from the activation of SDR’s fairly equitable. A contribution to this end would also result from approving special increases in the quotas of developing countries. We hope, therefore, that when the Executive Directors of the Fund proceed under the terms of the proposed Resolution concerning the adjustment of quotas that they will take into consideration the special position of developing countries and propose an adjustment which would give these countries a larger share in total Fund quotas. This is justified on the ground that they are more in need of international liquidity, their export earnings are subject to short-term declines, and the scope for the curtailment of their imports is more limited in general than is the case with the developed countries.

We welcome the recent decision taken by the Executive Board of the Fund to create a special facility equivalent to 50 per cent of quota in order to assist member countries to finance contributions to international buffer stocks. This decision is a major contribution by the Fund to the task of commodity price stabilization. There is, however, one feature of the facility to which my delegation objects, namely, “that a member drawing under the facility at a time when it still had gold tranche drawing rights at its disposal would pro tanto lose such drawing rights.” We feel that this condition is not necessary and adversely affects the international liquidity of countries participating in international buffer stocks. Moreover, we also regret the fact that the Fund finds it necessary to impose the condition that drawings under the compensatory finance facility and the buffer stock facility taken together may at no time exceed 75 per cent of quota. We urge that this condition be dropped and that the full limits of both of these facilities, namely, 100 per cent of quota, may in case of need be made immediately available.

The stabilization of the prices of primary commodities is no substitute for granting them freer access to the markets of developed countries. It is also no substitute for measures that should be taken by the developing countries themselves in order to diversify their exports in such a manner as to increase their production of those exports for which international demand is rising and to lower the pace of producing those exports for which international demand is slackening. Moreover, the developing countries have to increase economic cooperation among themselves on a regional or subregional basis. These measures taken by the developed and developing countries alike are likely to put a halt to the declining trend of the share of the developing countries in world trade. Thus, excluding the trade of the centrally planned economies, this share declined from 30 per cent in 1948 to 20 per cent in 1968. . . .

Measures in the field of commodity price stabilization, market access, and supplementary financing are no substitutes for a larger flow of development finance. It is this belief that led UNCTAD II to take its Decision 27(11) which recommends that each economically advanced country should endeavor to provide developing countries annually with a financial resource transfer of a minimum net amount of 1 per cent of its gross national product at market prices. This target which is accepted by the major developed market economy countries is also endorsed by the United Nations Resolution 2415 (XXIII) of December 17, 1968. Unfortunately, however, the actual record shows that, in general, this target is far from being achieved. Thus, the latest Annual Report of the Bank states that the net flow of capital to developing countries has not increased in step with the growth of the national product of the developed countries. And this has happened precisely at a time when development assistance on an expanded scale would enable many developing countries to consolidate the gains they have made in recent years, and could help others to initiate a genuine development effort.

In addition to the failure to achieve the 1 per cent target, the over-all terms of development assistance have tended to harden. The proportion of grants in total official disbursements has declined from 70 per cent in 1961 to 56 per cent in 1967 and the use of the practice of tying aid to procurement in the donor country is growing. There is no doubt that balance of payments considerations played an important role in causing this unsatisfactory state of affairs in the field of development assistance. We hope, however, that the imminent allocation of SDR’s and therefore the expected increase in international reserves would lessen the balance of payments constraint and bring about a genuine move toward achieving the 1 per cent target and improving the over-all terms of development assistance.

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

On behalf of my delegation and myself I wish to express appreciation to our host country, the United States of America, for its kind hospitality which is making our stay here in Washington a most enjoyable one. I also wish to express our gratitude to the President and staff of the World Bank and to the Managing Director and staff of the International Monetary Fund for the excellent arrangements made for the meetings and for the great trouble they have taken to see that we are well serviced.

The country which I have the honor to represent, Trinidad and Tobago, is a small developing country which has benefited in the past from the operations of the World Bank and the International Monetary Fund. Both these institutions are now undergoing certain important changes, and my country is very concerned that these changes should not worsen the position of developing members, but that they should aim at improving the operations of the Bank and the Fund in ways which would benefit all member countries, large and small, developed and developing.

I wish to make some brief comments on some of the changes which are now in train in the Bank, and in the Fund. . . .

The next subject to which I wish to refer is the decision of the Fund and Bank to stabilize the prices of primary commodities. Developing countries require the stabilization of primary commodity prices at remunerative levels to assist them in their pursuit of development policies and programs. We feel, however, that the Fund and Bank should involve themselves further in this matter and that the extension of the existing export compensatory financing facility has not gone far enough. We would propose that the joint limit on the use of the Fund resources for both buffer stocks and export compensatory financing should be further raised from 75 to 100 per cent of quota.

We welcome the decision of the Fund and Bank to give increased attention to the commodity policies followed by their members. Trinidad and Tobago, as a small country heavily dependent on exports, is very concerned with the serious problems which less developed countries face in their attempt to expand their exports; for, as I stated at our meeting last year, “it is abundantly clear that the developing countries will enjoy economic expansion only if the world production system is restructured to allow for an expansion in exports by these countries to the developed countries.” Within recent years we have noted the increased reliance on protective and restrictive policies applied to trade and payments by the developed countries. These restrictions have severely affected and inhibited the development efforts of the developing countries. We sincerely hope that with the establishment of the special drawing rights facility a serious effort will be made by the major countries to remove the restrictions imposed in recent years.

The reason given by developed countries for their restrictive measures is their balance of payments position. We understand that the special drawing rights facility is primarily intended to relieve balance of payments pressures. Now that we have agreed to activate this facility, we look forward to the expeditious removal of these restrictive policies, especially as such measures, once adopted, tend to perpetuate themselves.

There is one feature of the special drawing rights facility to which I must refer. It has been very disappointing to developing countries that the developed countries could not establish a link between the creation of special drawing rights and development finance. It is unfortunate that while the developed countries were able to agree on the creation of a facility which will benefit them most, they could not establish a link to development finance which would be the benefit of developing countries. However, we have not lost hope, as we acknowledge with gratitude the initiative of Italy in its proposal to allocate unilaterally the foreign exchange equivalent of a portion of its special drawing rights to the International Development Association or for investment in World Bank bonds. We hope that the consciences of the developed countries will be so moved by this example that the question of a link will obtain immediate study, and that a satisfactory solution will be found in the very near future.

I now wish to say a few words on the question of quotas: we accept and approve the Resolution on this question which is before the meeting. There are difficulties involved in a quinquennial review of Fund quotas, difficulties which are being compounded by the decision to allocate special drawing rights on the basis of existing quotas. We think it is vital for the effective functioning of the Fund that the developing countries be adequately represented and, as this representation is based on quotas, steps should be taken to ensure that the result of any redistribution of quotas should at least not adversely affect the present position of developing countries.

This year marks the twenty-fifth anniversary of the Bretton Woods Agreement. During these twenty-five years the member countries have together faced and overcome problems and crises from time to time. This year we are fashioning certain changes in the international monetary system, and Trinidad and Tobago is confident that with continued cooperation between all member countries, with good will and understanding among us all, the World Bank and the International Monetary Fund will, in the future, continue to serve the interests of developed and developing countries alike.

October 2, 1969.

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