Discussion of the Seventeenth Annual Report1

International Monetary Fund. Secretary's Department
Published Date:
November 1962
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Statement by the Governor for Turkey—Ekrem Alican

It is a great pleasure and honor for me to participate personally, for the second time, in one of the Fund’s Annual Meetings, which I believe will benefit all member countries.

It is also a privilege and satisfaction for me to have the opportunity, here in this distinguished gathering, to express our thanks and appreciation to the management of the International Monetary Fund, and especially to Mr. Jacobsson and Mr. Cochran and their colleagues, for their never-failing interest and assistance to our country and for their understanding of our problems during all the years of close collaboration with the Fund.

We have learned that Mr. Cochran will be retiring on October 31 of this year from his present job in which he has so competently served since 1953. It is a source of regret for us to be deprived of his valuable collaboration which we enjoyed for so many years, and I sincerely wish him the same success in the future.

The Annual Report, which is so ably prepared as in the past years, gives us a very clear picture of the international monetary situation and of the Fund’s achievements toward the attainment of balance in external payments, monetary stability, and development of the productive resources in all member countries.

The past year, as reflected in the Annual Report, witnessed a general easing in the payments problems of the world, although there were some factors which tend to increase the imbalance in international payments.

The world industrial production rose somewhat steadily, but at a slower rate as compared with the previous year. World trade also increased in much the same manner. In short, the year was one of general expansion in the industrial countries.

Yet, the past year was again a difficult year for the less developed primary producing countries. This was mostly attributable to the decline in the prices of the primary products on which the hopes of these less developed countries are based for foreign exchange earnings.

Short-term difficulties of these countries, including my country, have been overcome by the availability of the Fund’s resources as in the previous years. But if such countries want to achieve sustained development, short-term measures will not be a remedy. Instead, long-term measures will be needed, as has been comprehensively noted in the Annual Report before us. Now I am quoting from the Report, “The postponement for a relatively short period by means of credit, of the impact of balance of payments difficulties is of limited value to a country unless there is a reasonable expectation that its exports will recover or its import demand will decline.… For the improvement of their position, the less developed countries will mainly need to achieve a long-run strengthening and broadening of their economies. A no less important condition for sustained development … is that the economy be provided with the solid foundation of sound monetary and fiscal policies.…”

We are happy to observe that this view is also shared by the Chairman and the Managing Director and was strongly and convincingly expressed in their wise opening speeches.

Now, in this context, being convinced of this line of thinking, I wish to take the liberty of stating very briefly our achievements and plans in Turkey looking toward the attainment of development under stable conditions.

During the 1960 Annual Meeting here in Washington, I had stated that Turkey was “continuing with determination to implement the stabilization program adopted in 1958 in collaboration with the Fund and OEEC,” and I had added, “The Turkish Government has taken a series of measures in recent months designed to achieve internal stability.”

Now I can say with satisfaction that in my country the implementation of the stabilization program was a success in creating a sound basis for a planned development.

As it is expressly stated in the Program of the new Turkish Coalition Cabinet, the main goal of our Government is to continue its efforts for a sustained development under stable conditions and in conformity with sound planning. An average growth rate of 7 per cent per annum has been set as a target. To this end, the level of investments will be increased without recourse to inflationary measures. Our exports will be promoted and foreign investments will be encouraged. Already certain measures have been taken to ease exchange control.

Our Five Year Development Plan, which covers the period of 1963–67, has been adopted by the Cabinet and is about to be presented to the Grand National Assembly.

It would be worthwhile to mention that these goals have been accepted and will be implemented firmly by the Coalition Government, composed of the representatives of three political parties.

A consortium to finance our Five Year Development Plan has already been established by OECD with the participation of friendly capital exporting countries. This we interpret as an indication of wholehearted support of our economic well-being.

Before concluding my remarks, I would like to take this opportunity to reaffirm our confidence in the continuing success of the Fund and our appreciation for the assistance and support rendered to our country by the Fund up to now.

I would like to express our sincere hopes and wishes for the progress and prosperity of fellow nations participating in this distinguished meeting.

Statement by the Governor for Sierra Leone—A. M. Margai

At this Seventeenth Annual Meeting, I bring to the member countries of the Bank and its associates greetings and wishes of continued progress from the Government and people of Sierra Leone.

It was at the last Annual Meeting in Vienna that the Boards of Governors passed resolutions setting forth the terms and conditions under which Sierra Leone could be admitted to membership in these organizations. These terms and conditions having been complied with, we feel greatly honored that I am able to take my place at this meeting as a Governor, together with representatives of other newly independent countries. Sierra Leone is a very small country and our national income is small by Western standards; nevertheless, with the aid of our meager but diverse mineral and agricultural resources, we have a history of economic and financial stability of which we are justly proud.

Our Government is based on sound democratic principles adhering to the Charter of the United Nations, of which we are the one hundredth member, and, by any standard, we respect the liberty of the individual as well as freedom of speech.

In the commercial field, we pursue an open door policy. This, coupled with attractive tax concessions and our democratic system of government, provide conditions that are conducive to external investment.

We have, during the past years, followed with keen interest the activities of the Fund and the Bank in other parts of the world. Last year, a mission from the Fund visited Sierra Leone for a brief period. This year, a mission from the Bank visited Sierra Leone in May and conducted a preliminary survey of our social and economic needs. For the interest thus manifested in our welfare at a time when we had not become members of these organizations, we are truly grateful.

We are fully convinced that political independence without economic independence is a sham, and that it is imperative to create conditions and establish institutions which foster economic growth and stability. To this end, we have drawn up a Ten Year Economic and Social Development Plan to cover the period 1962/63 to 1971/72. The cost of financing the Plan will be met partly from our own revenues and partly, it is hoped, by assistance sought from the Bank and its affiliates and from friendly countries. We have also decided to establish a National Bank, which will not only issue and manage our currency, but will carry out all other activities expected of a central bank, thus playing a major and increasingly active role in the economic and financial life of our country.…

Statement by the Governor for the United States—Douglas Dillon

First of all, I wish to pay tribute to our retiring Deputy Managing Director, Mr. Merle Cochran. His long diplomatic and financial experience has been an important element in the Fund’s success, and his vigor and impartiality have enhanced its high standards.

The Annual Report makes clear that the International Monetary Fund has had an exceptionally active and successful year. That is evident from the statistical summary of the Fund’s operations—total drawings by 22 countries of $2.2 billion spread over 10 different currencies, and repurchases of $1.3 billion. It is also evident in the continued growth of the Fund’s membership. I should like to welcome the new members who have joined since we met in Vienna—Cyprus, Kuwait, Liberia, Senegal, Sierra Leone, Somalia, Tanganyika, and Togo—and to express my pleasure over the large number of pending applications for membership, of which many are on our agenda.

One basic function of our international monetary system is to assure the time and resources necessary to facilitate the adjustments that are an inevitable consequence of economic change and progress. But, no matter how soundly conceived and operated, no monetary arrangement can absolve a country of the responsibilities that go hand in hand with the benefits of participating in world trade and investment. That is why the first order of business for each of us must be the development of programs that combine external financial equilibrium with economic growth at home.

There are no simple prescriptions that can be readily utilized at all times and by every country. That is recognized by the United States, which experienced relatively slow growth and sizable external deficits during the later 1950’s. We are now attacking both of these problems with vigor, and the results are encouraging.

Since the end of the mild recession 18 months ago, the value of total output has expanded by more than $55 billion, or roughly 11 per cent. Unemployment has been appreciably reduced. At the same time, increases in average wage rates in manufacturing—roughly 3 per cent per year—have been smaller than during other postwar recoveries, and have remained within the limits of rising productivity. Prices for manufactured goods are now slightly lower than during the recession months of 1961—and, in fact, have remained virtually stable for four years.

Although our economy continues to move steadily ahead unmarred by the excesses that characterized earlier periods of expansion, we are not satisfied. The rate of investment in new productive facilities has continued to lag, and we still have too many idle human and physical resources. To meet our obligations to ourselves and to other nations, we must put those idle resources to work—and we must do so in ways that will add to our productive efficiency and reinforce the prospects for price stability.

Broad agreement has developed among our citizens that one of the keys to progress is tax reform—reform designed to stimulate investment and to release the brakes on growth inherent in our present rate structure. A good beginning has already been made. The tax treatment of depreciation has been thoroughly modernized. A 7 per cent tax credit—similar to the investment allowances now used in many other countries—has been approved by both Houses of our Congress and is expected to become law shortly. Together, and for the first time in many years, these reforms will place investment in new equipment in the United States—so far as taxes are a factor—on a basis roughly comparable to that in the other industrialized countries. We intend to submit the remainder of the tax reform program to Congress in January at the start of its next session.

Although we had hoped for a balanced budget in the current fiscal year, ending next June 30, we now recognize that another moderate budget deficit appears likely. Because our business recovery has not moved as rapidly as we had anticipated, revenues will fall below projected levels. However, the currently envisaged deficit, accompanied by appropriate monetary and debt management policies, should not give rise to fears of inflation. For our problem is not excessive demand and scarce resources, but rather excess capacity, too much unemployment, and a tax structure that has become a drag on productivity, new investment, and growth.

With this in mind, the basic aim of our monetary and debt management policies over the past year has been to assure an ample supply of credit to support domestic expansion, while simultaneously maintaining a rough equality between the return available on short-term investments in the United States and in the leading money markets abroad. We have concentrated the bulk of new Treasury borrowing in the short-term area of the market, and, as a result, key short-term rates are now a full half of 1 per cent higher than a year ago. Meanwhile, funds for productive long-term investment have remained in ample supply. And long-term rates for corporate bonds, mortgages, and state and local government securities—which have a far more important relationship to domestic investment—have held at or below the levels to which they had declined in the recession months of 1961.

While concentrating our new cash borrowing in the short-term area, we have, at the same time, undertaken a significant restructuring of the outstanding federal debt. The slow but steady shortening of the average maturity of the marketable debt that had proceeded throughout the 1950’s has been reversed. After allowing for the effects of last week’s advance refunding, the average length of the debt has been increased by 20 per cent since January 1960. The general public now has more of its funds in government bonds of longer than 20-year maturity than at any time since the early fifties. We have not jeopardized prospects for price stability by monetizing excessive amounts of debt through the banking system. The money supply—demand deposits and currency—is today less than 2 per cent larger than a year ago—certainly no cause for inflationary concern during a period in which over-all economic activity has risen by some 6 per cent.

As we move ahead in financing the current budget deficit, we will continue to tap a cross section of the vast amount of funds becoming available in the market. Some of those funds will come from the rapidly growing savings accounts in our commercial banks. Some will represent a prudent increase in the money supply, as our productive capacity increases. Meanwhile, the Treasury will continue to seek opportunities for placing longer-term bonds with individuals and with investment institutions.

That should not be interpreted as an intention to press ahead with long-term financing, or to constrict the money supply, to the point of impeding the availability of funds for business investment. Should the economic advance generate a growing and buoyant demand for funds for domestic investment, with consequent pressures on the supply of resources, a moderate rise in long-term interest rates would be a natural and appropriate response. But a blunt effort at this time to push long-term rates up, in an attempt to crowd out of our markets some marginal amount of foreign borrowing, seems to me both contrary to the needs of the free world for an expanding economy in the United States and quite futile in terms of our balance of payments.

It is true that a sizable number of foreign securities have been floated in the New York market this year. However, such borrowing is attracted as much by our well-developed market facilities and by our complete freedom from controls as by relatively small differences in over-all interest costs to borrowers—costs that for many foreign offerings have run to 6 per cent or more. I have suggested on other occasions that the fundamental, long-run solution to the anomaly apparent today—with borrowers in some of the surplus countries seeking credit in a deficit country—lies in the further development of the capital markets in Western Europe and the abandonment of outmoded controls and restrictions on the free flow of capital that still are far too prevalent.

Imposition of capital controls by the United States would not be a satisfactory solution. It would be contrary to all that we have been striving for in freeing trade and payments between countries. It would not be in keeping with our special responsibilities as custodian of a reserve currency. And it would be contrary to our own long-run interest in ensuring that funds move to where they will be used most productively.

The magnitude of this type of portfolio investment, in relation to our balance of payments, should not be overstated. Foreign bonds and notes totaling just under $600 million were sold in our market during the first six months of this year. Of this amount, as much as one third was for the purpose of refunding other dollar obligations. Often a quarter—and sometimes much more—of the individual issues were taken up by investors abroad: one indication that it is market facilities as much as long-term rate differentials that tend to attract these issues to the New York market. Moreover, in some cases, the new funds raised have been used for investment in productive facilities in this country or for purchases of American goods and services.

At the same time, in cooperation with some of the principal surplus countries, a reverse capital flow has developed in the form of prepayments of debt owed to the United States—a flow that so far this year has totaled nearly $550 million from France, Italy, and Sweden. And it is also worth pointing out that the return flow of earnings from our rapidly growing private investments abroad, which now amount to nearly $60 billion, was running at an annual rate of $3.6 billion during the first half of this year—$300 million higher than in 1961, and $1.1 billion higher than just four years ago in 1958.

So far as our over-all balance of payments is concerned, further improvement has been apparent. The deficit for the first eight months of the year ran at an annual rate somewhat over $1.5 billion, in contrast to last year’s $2.5 billion, and to the average of $3.7 billion during the years 1958–60. These eight-month results were influenced both by a substantial inflow of Canadian funds during the first half of the year and by a sharp reversal of these flows during July and August.

A particularly encouraging development for the longer run has been our ability to maintain a decidedly favorable balance of trade, even while domestic recovery was generating a sizable increase in our imports. An important factor, of course, has been price stability which laid the foundation for the increase of 6½ per cent which we achieved in our exports during the first half of this year as compared to the same period a year ago. We intend to continue to strengthen the competitive capacity of our industry over the coming years. That is one of the chief reasons why our tax program has placed so much emphasis on improving the climate for productive investment.

In recent years, our military effort in defense of the free world has resulted in a net balance of payments outflow averaging roughly $2.6 billion a year. Through our own economies, and arrangements for the procurement of additional American equipment and services by our allies, that figure will drop to about $1.75 billion in 1962. We firmly intend to bring about substantial further reductions over the next few years. Our intention reflects our conviction that a more equitable sharing of these defense burdens can and must be reached.

Our economic assistance programs total about $4 billion a year. We are aiming to provide 80 per cent of that aid in the form of United States goods and services, as compared with an average of about two thirds in recent years. Meanwhile, we look to other industrialized free nations to provide a fair share of the expanding needs for development assistance.

The reduction in dollar outflows that is being achieved by these and other government actions, together with the growing returns from our overseas investments and the improved competitive position of our exports, underlies our goal of the early achievement of balance in our international payments.

Progress toward a basic equilibrium in the payments position of deficit and surplus countries alike is the true foundation for any lasting international monetary stability, but alone it is not enough. We must also be prepared to cope with those sudden, and potentially large, movements of short-term funds that can be set off, often with little or no warning, by a variety of influences. This is partly a matter of the amount of international liquidity that exists at a given time, which in turn rests on our joint ability to maintain the usefulness of key currencies, side by side with gold itself. But equally important, it is essential that we have the facilities for quickly mobilizing additional resources, when and as they are required, and applying them effectively at the point of need.

That is the significance of the special borrowing arrangements which are being established through the Fund by a number of the industrialized countries. We expect to receive final approval of these arrangements for the United States from our Congress before the end of the current legislative session. Thanks to earlier action by other participating countries, the agreements will then become effective.

Meawhile, we have initiated actions in other directions to reinforce the defenses of our monetary system, supplementing and complementing the facilities available through the Fund. These new initiatives started more than a year ago, when the United States for the first time in a generation began to intervene in the foreign exchange markets and to hold convertible foreign currencies as a part of its international reserves. Working closely with other countries, various techniques have been carefully tested in a wide variety of situations. Their usefulness for dealing with incipient disturbances in the exchange markets and unusual swings of short-term money has, I believe, now become clear to all.

The amounts of convertible currencies presently at the disposal of the United States, largely as a result of reciprocal currency agreements and direct Treasury borrowing, are not inconsequential. They amount to approximately $900 million in cash or stand-by facilities. Should large and potentially disruptive flows of funds actually develop, these facilities could be further enlarged. In addition, should the need arise, the United States is also prepared, in concert with other affected countries, to provide forward exchange to the market, thereby facilitating the holding by private parties abroad of dollars that have passed into their hands for what may prove eventually to have been a temporary period. In these ways, a pattern has been established for prompt and effective international action to meet unusual pressures when and if they develop, and to contain and diffuse their impact.

The potential value of such cooperative arrangements was vividly demonstrated by the experience in 1961 when sterling was under heavy pressure. More recently, the shock of the temporary Canadian difficulties and the potentially disturbing effects of the sharp break in the stock markets of the United States and other industrialized countries this spring were accommodated smoothly and effectively.

Responsible cooperation among monetary authorities has also borne fruit in new techniques for handling transactions on the London gold market so that it may better fulfill its basic purpose of providing a workable and flexible mechanism for distributing the supply of newly mined gold. It is clear that temporary and erratic fluctuations in the market price of gold in response to real or fancied political and economic developments serve no legitimate interest. It is equally clear that it does not serve the interests of the official participants in the market to engage in transactions in ignorance of their implications for each other.

That is why the authorities of a number of countries have begun to exchange information and to coordinate their operations in the gold market—not on the basis of hard and fast rules, but in accordance with common understandings reached in frequent consultations. The object is to contain within a reasonable range those fluctuations which occur in response to passing influences—to emphasize that the private purchase of gold is unlikely to yield speculative profits and instead can be expected to be a costly and unrewarding use of funds.

In all these ways, we are justified in looking back upon the past year as a period of striking progress in strengthening our international monetary system—a system that, in the last analysis, rests firmly on the maintenance of the dollar at its present gold value as a key reserve and trading currency.

But, necessary as it has been to strengthen the defenses against temporary swings of short-term funds, we must not allow progress in this area to divert our attention from the fundamental need to achieve an over-all equilibrium in basic trade and investment flows.

For the United States, this requires continued and vigorous effort in many directions. We must maintain and improve the competitive position of our exports through price stability at home and aggressive selling abroad. We must also continue to reduce the dollar flows associated with our defense effort overseas and with our widespread economic assistance programs.

Continued effort is also required by the surplus countries to open their markets to foreign products and borrowers, to minimize the foreign exchange costs of our defense deployments, and to assume a fairer share of the burden of economic assistance.

Those are the basic challenges of the day. They are challenges that can and must be met. They can, of course, be met most readily by cooperative action among nations. But we recognize that in the final analysis, each nation must accept the responsibility for taking the actions needed to maintain the soundness of its own currency in international markets. This we in the United States are fully prepared to do, in the knowledge that a sound dollar is essential not only for us at home, but also for the continued and healthy growth of trade and commerce throughout the entire free world.

Statement by the Governor for Canada—Donald M. Fleming

The past year has been an unusually eventful and important period in Canada’s relationships with the International Monetary Fund.

Following the Annual Meeting in Vienna last year, Canada took part in a series of discussions on the provision of supplementary resources for the Fund. When the formal decision on arrangements for Fund borrowing of supplementary resources was taken, Canada undertook to participate to the extent of US$200 million. Parliament will be asked at its forthcoming Session which begins next week to enact the necessary legislation.

Last November the Fund held its first full-scale consultation with Canada. This took place under the procedures recently adopted for consultations between the Fund and countries operating under Article VIII. We were pleased to welcome to Ottawa an able and well-informed staff mission, with whom we had frank and intensive discussions.

On May 2, Canada adopted a new par value for the Canadian dollar at 92.5 cents in terms of United States currency, thus bringing to an end the fluctuating rate system which had been in effect since 1950, and bringing Canada back into full conformity with Article IV. This step was warmly welcomed by the Fund.

Finally, Canada found it necessary on June 24 to call upon the Fund’s resources for the first time, and made a drawing of several currencies in an amount equivalent to US$300 million.

To put these events in perspective, and particularly to explain the nature of the emergency which arose in June, I should like to review very briefly the economic and financial background.

During the decade after the war, world demand for Canadian basic materials and other exports was very strong, and there was heavy investment in the development of our resources. The Canadian dollar, which, after previous difficulties in determining a parity, had been responsive to market forces since 1950, rose to a substantial premium in terms of the United States dollar. As long as the external demand for our products and the pressure on our resources was maintained, the relatively high value of our currency was helpful in restraining inflationary pressures. However, when world demand for our products eased, and our economic growth became less rapid, the exchange rate failed to move down to a level more appropriate to our economic circumstances. Buoyed up by a continuing and substantial capital inflow, the high exchange rate impaired the international competitive position of Canadian industries, and was an important factor in our inability fully to absorb our rapidly expanding labor force. Unemployment rose and was aggravated by heavy deficits on international current account. For some years we imported annually from abroad more than a billion dollars worth of goods and services in excess of our exports.

As a central element in its program to encourage economic growth and redress our international current deficit, the Canadian Government in 1960 and 1961 took a series of steps to facilitate an orderly movement of the exchange rate to a more appropriate level. These steps included the removal of certain special incentives to capital movements and a number of measures designed to make it more attractive for Canadian borrowers to draw upon Canadian savings instead of seeking funds abroad. In my budget statement in June 1961, I indicated that, as these measures might take some time to achieve their purpose, the Exchange Fund would, if necessary, be used to purchase foreign exchange and thus influence the rate. As it turned out, this was not necessary. For most of the period between June 1961 and May 1962, the Canadian dollar moved within the range of 3 to 5 per cent discount on the United States dollar and the Exchange Fund’s interventions continued to be directed toward moderating movements in the rate, not toward bringing such movements about.

In April of this year, however, it had become clear that there was considerable uncertainty in the exchange market and that this was giving rise to speculative pressures. In these circumstances, the Government concluded that the time had come to declare a par value and give those engaged in international transactions the advantages and security of a fixed rate of exchange. We knew, of course, from our earlier consultations with the Fund, that such a step would be greatly welcomed by the Fund and its member countries. The return to a fixed par value on May 2 resulted in a marked firming in the exchange market for the Canadian dollar.

A period of stable market conditions followed the return to a par value. This gave way, however, in mid-June, to an increasing degree of uncertainty and instability which intensified to a point where a comprehensive program of emergency action was essential. The large inflow of capital, which for many years had financed and supported a large and, latterly, an undesirably large deficit in our current account balance, had dried up, and had actually been replaced by a speculative capital outflow of substantial proportions.

The emergency program announced by the Prime Minister, Mr. Diefenbaker, on June 24 included measures designed to have a direct effect on the current account, to increase our holdings of foreign exchange, to reduce the Government’s budgetary deficit, and generally to restore confidence and revive the appropriate capital inflow.

To reinforce the exchange reserves, which had fallen by about 50 per cent, to $1,100 million, the Government drew $300 million from the International Monetary Fund and arranged a line of credit with the United States Export-Import Bank of $400 million. The Bank of Canada entered into reciprocal currency arrangement with the United States Federal Reserve System in the amount of $250 million and made a comparable arrangement with the Bank of England in the amount of $100 million.

I should like to take this opportunity to express again the warm appreciation of the Canadian Government to the countries and the institutions which participated in providing this support and to the Government of France, which helpfully prepaid half of its outstanding debt to Canada. The speedy and effective response, not only of the Fund as an institution but also of those of its members which participated, or offered to participate, was greatly appreciated. Here again was a clear demonstration of the willingness and ability of the international community to come quickly to the aid of a currency in difficulty. We are particularly grateful to the Managing Director for the understanding and helpful role which he played.

Within the framework of the emergency program, the most important measure designed to bring about an immediate reduction in our heavy current account deficit, which was still running at an annual rate of $1 billion, was a graduated scale of temporary surcharges on certain classes of imports, affecting about one half of Canada’s total imports. The items exempted were mainly raw materials, various industrial components, and certain foodstuffs, including fresh fruits and vegetables, citrus fruits, tea, and coffee.

A second measure was the reduction in the customs exemptions allowed to Canadian tourists returning home from abroad.

These two measures, together with the effects of other measures in the program, are expected to improve the current account by some $300 million on an annual basis.

A third measure adopted was a reduction of government expenditure by $250 million in a full fiscal year. This, combined with estimated revenue of $200 million from the import surcharge, should reduce the budgetary deficit by some $450 million in a full year.

When these measures were announced, the Government also made a number of important undertakings in connection with the emergency program. First, I quote Prime Minister Diefenbaker’s statement: “The Government is determined to defend the foreign exchange value of the Canadian dollar as established last month at 92½ cents U.S.” Second, again quoting the Prime Minister: “It is the Government’s intention to continue to maintain a climate in Canada hospitable to foreign investment and the Government will not be imposing any exchange controls.” Third, while it was anticipated that the normal inflow of capital would revive, longer-term measures of a positive and constructive nature would be introduced to reduce the deficit in our current international accounts.

At the same time as the announcement by the Government of its emergency program, the Bank of Canada announced that it was reverting to the system of a fixed bank rate and raised the rate to 6 per cent.

I now wish to report to you on how our situation has progressed since this program was adopted. So far progress has been encouraging. The primary task in June was to restore confidence. This was clearly achieved. Our exchange reserves, which had fallen to about $1,100 million on June 24, stood at $2,114 million at the end of July and $2,330 million at the end of August. The July and August figures, of course, include $650 million of borrowings from the International Monetary Fund, the Federal Reserve System, and the Bank of England. The line of credit of $400 million with the Export-Import Bank has not been drawn upon. Last Thursday my colleague, the Minister of Finance, announced that negotiations had been completed for a $250 million Government of Canada external bond issue in the United States and that an equivalent amount of the line of credit with the Export-Import Bank had been terminated at the request of the Government.

While we are confident that our reserve position will continue to improve, it is not to be expected that the high rate of improvement experienced in July and August will continue. To the extent that the crisis was magnified by speculative positions, including “leads and lags,” an early reversal of such positions was to have been expected, once confidence was restored; but subsequent increases in reserves may come more slowly. It is not yet clear whether and to what extent inward long-term capital movements have resumed, and insufficient time has yet elapsed for evidence of the developments in our underlying trade situation. Our reserves, net of borrowing, are still considerably below a desirable level. We cannot yet take the view that our balance of payments problem is solved, or that we can yet dispense with the emergency measures we adopted in June.

However, I wish to emphasize that the import surcharges which were adopted as part of the emergency program are strictly temporary. Let me recall a statement I issued to the press on June 29: “The temporary application of these surcharges should not be interpreted as signifying any change whatsoever in the long-term commercial policy of the Canadian Government. The Government will continue to seek the reduction of trade barriers of all kinds, enlarged opportunities for Canadian exports, and the expansion of world trade on a multilateral and nondiscriminatory basis.” We have given repeated assurances, not only to our own people but to the members of the International Monetary Fund and the Contracting Parties to the GATT, that these surcharges will be removed just as soon as our balance of payments and our reserve position permit.

Only last week, speaking to an audience in London, Prime Minister Diefenbaker said: “Someone has asked me whether the adoption of this policy means that it is a commercial policy measure to assure additional protection. I want to point out here, here and now, that these are temporary financial measures adopted for an emergency directed to the improvement of our exchange reserves, and will be removed just on the very day that we see that they should be removed, and they will not be kept on any longer than is necessary.”

For the longer term, we know we must rely on positive and constructive measures designed to bring about a basic improvement in Canada’s competitive position. We shall, of course, continue to need some capital imports, and we will ensure a climate hospitable to foreign investment in our country. But we must also aim at a continuing improvement in our current international account.

Our new and stable rate of exchange will, of course, be a central element in any program to improve our current account. We believe it is already showing beneficial effects. We fully recognize, however, that we cannot rely on the exchange rate to achieve all that has to be done.

In the consideration of other measures, we are as conscious now as we ever were of the special if not unique features of the Canadian economy: its geographical size and the burden of overhead costs borne by a relatively small population, the extent of its dependence upon resources of primary commodities, its close proximity to the world’s greatest economic and financial power. The changing patterns of world trade have not all been to Canada’s advantage in recent years and may not be so in the future. We are confident, however, that the key to the problem is to be found in improving the efficiency and competitiveness of the Canadian economy. We have been devoting increasing attention to this objective. We have undertaken special efforts to improve our productivity, including the creation of a National Productivity Council. We have provided special tax incentives to encourage investment and to promote research. We have adopted measures to facilitate better training and retraining of labor. We have set in motion a comprehensive study of our whole taxation system. I mention these steps as illustrations, rather than as a comprehensive list, of the kind of measures which have been or will be adopted to achieve our longer-term objectives.

The Canadian Parliament will be assembling next week. During the Parliamentary session more will be said about all these matters. In the meantime, the Canadian Government has as a matter of urgency been making a thorough study of the whole spectrum of our current transactions in order to assess all possible courses of constructive action.

Canada will continue to play its part as an outward-looking member of the international community. In trade policy, our objective now, as in the past, remains the expansion of trade on a multilateral nondiscriminatory basis. In finance and payments, we intend to continue fully to support the International Monetary Fund in its important and constructive work.

Before concluding, I would like to express to Mr. Merle Cochran the deep appreciation of the Canadian Delegation for his many years of effective service to the Fund and wish him well in his retirement. In his place, as Deputy Managing Director, Canada welcomes another old and trusted friend in the person of Mr. Frank Southard. As he assumes his new duties he will have our good wishes and our warm support.

Statement by the Governor for Kuwait—Sheikh Jabir Al-Ahmad Al-Jabir

I wish, first, to express my Government’s great appreciation of the overwhelming support it received in applying for membership of this and its sister organizations. We have always followed with great interest the work of these organizations and valued the role they have played and are playing in the vast, complicated, and challenging fields of economic stabilization and development. This is not just lip service; it is the expression of my country’s earnest interest in the promotion of the prosperity and well-being of those who are less fortunate than ourselves.

Kuwait is fully aware of the fortunate circumstances in which she finds herself. She enjoys a favorable balance of payments, a stable and strong currency, and a dynamic fiscal structure. But Kuwait is also aware of the responsibilities which her wealth has of necessity imposed on her, and she intends to take them seriously.

Indeed, Kuwait’s intention to do so has already been demonstrated in several ways. She has created a special Fund for the economic development of the other Arab states and has allocated for it some $140 million, which will be raised to over $400 million when necessary; she has allocated about $1½ million in the current fiscal year as grants-in-aid of various welfare programs in the Gulf; and she has thrown wide open to all newcomers the doors of her free educational and medical services.

Nor have Kuwait’s contributions been confined to the Arab states, even though they have, and rightly so, a first claim on her. For my Government is happy to announce that it plans to send a delegation to several of the newly independent states in Africa with a view to introducing a special assistance program for these countries.

Modest as our attempts may be, however, they hardly fail to indicate Kuwait’s definite desire to devote part of her resources to the promotion of the welfare and prosperity of others. And Kuwait’s admission to the Fund and the Bank and its sister organizations will afford my Government a new and valuable opportunity to widen the scope of our modest operations. As such, my country considers herself especially privileged to have been accorded this distinction.…

Statement by the Governor for France—Jacques Brunei

For the first time I have the privilege of addressing this meeting, and I fully appreciate it. I shall try to contribute briefly to the discussion of the most interesting Annual Report of the International Monetary Fund; and I congratulate Mr. Jacobsson, our distinguished Managing Director, for having maintained during another fiscal year, with the same clearness of judgment and firmness of decision, the basic principles of monetary order and solidarity that govern our institution. I also want to congratulate Mr. Southard for his promotion to the post of Deputy Managing Director. This fact mitigates somewhat our regret at the departure of Mr. Cochran, with whom we have had such friendly relations.

The Report states that, as far as the volume of transactions is concerned, the past fiscal year has been a record one for the Fund. It rightly emphasizes that this activity has been all the more satisfactory as it did not develop in one direction only, since repurchases and reimbursements, as well as drawings themselves, have reached unprecedented figures. It also points out that, instead of being limited, as in a fairly recent period, to one or two major currencies, the Fund’s transactions have brought into play a much greater number of them, especially those of continental Europe which, owing to their return to convertibility and their own strength, have come to be used in a more extensive way. Thus our institution has been able to play, better than at any time in its history, the role of a multilateral revolving fund which had been assigned to it by the Bretton Woods Agreement, and finds itself again, at the beginning of a new fiscal year, in a most favorable position to continue its activity for the benefit of international monetary order.

If, instead of looking back to past transactions, we turn to the general studies made and to the decisions taken by the Fund during the same period, I think we have the same reasons to feel gratified at the considerable work that has been done in both fields. The credit must be given in a very large measure to the patience and energy of our friend Mr. Per Jacobsson. Through his efforts and those of the staff, our procedures have been clarified and made more flexible and, above all, the Fund has been endowed, for the future, with very substantial additional resources. The very existence of these resources should be a matter of thinking for those speculators who are endeavoring—fortunately in vain—to forecast and even to engineer monetary collapse, while completely ignoring that a common will, coupled with ever more diversified and more effective demonstrations of cooperation, constitute a factor of permanent strength for the currencies of the Western world.

Some of these decisions, which had the unquestionable merit of adapting themselves to changing circumstances in a convenient manner, could at the same time show a tendency to differ in some respects from the letter of the Articles of Agreement. The representatives of France—a country of civil law—sometimes felt they had to draw attention to this fact, certainly not to express qualifications, but to sound a warning for caution. We generally believe, however, and I confirm it willingly, that these clarifications were wise and fair in such matters as the conditions under which the Fund’s resources may be used to help a country which suffers from adverse capital movements, the principles which shall govern the choice of the currencies to be drawn or reimbursed, or the granting of appropriate facilities for specified conversions, with some qualifications, however, as far as the rates to be applied are concerned.

These clarifications of the Fund’s thinking and practices are a useful factor of confidence and safety for the future. As far as the basic problems are concerned, we are glad to note that the Fund takes the opportunity of the publication of its Annual Report to recall some fundamental principles which we fully approve, such as the virtues of policies of financial stability, even for member countries that are mainly concerned with development, and the repudiation of the system of fluctuating exchange rates, which, seldom benefiting the country that adopts it, can hardly be reconciled with the concepts of international monetary discipline.

The borrowing arrangement, often designated, to our satisfaction, by the term “Paris Agreement,” is by far the most important among the general decisions of the past months. We have been glad to cooperate with its conclusions, to contribute to it for a substantial amount, and to ratify it rapidly. We hope the pending ratifications of this agreement will not be delayed too long, so that its provisions can be formally and readily applicable in case of need. The interchanges of views that have taken place on the occasion of this meeting show that the former spirit of cooperation of the participating countries is still present nowadays, and this is highly gratifying. If no serious crisis seems to threaten the international monetary order for the time being, we would show too much shortsightedness and complacency if we were led to believe that all the problems had been solved. The Report we are discussing clearly shows that balance of payments disequilibria are still a major source of worry, and carefully suggests a number of actions by the creditor as well as by the debtor member countries, in an effort to mitigate the imbalance.

France is finding herself among the countries of the first category, and the Report classifies her as being in the honorable—but not necessarily enviable—position of the main surplus country in the world for the past year. Therefore, I can neither be surprised nor painfully impressed by its particularly detailed comments upon the policies we are following. Perhaps we may think that it does us too much honor, and we are inclined to fear those praises that may easily turn into criticisms, even if we find in them, not without some satisfaction, the counterpart of the opposite judgments we deserved and accepted a few years ago.

Having returned in the recent past to our traditional position of a creditor country, we are conscious of the responsibilities of this position, and are trying to fulfill them. More precisely, we believe that, during the period under review, France has been following policies which were consistent with the general interest as well as with her most legitimate national ones, and that one may reasonably expect she will continue to follow them.

In the internal field, we have refrained from deflationary policies and from attracting international capital by making money too scarce or too expensive. The new methods of monetary control which have been introduced recently and which may be compared, in many respects, with the classical systems of reserves, did not do too much to help absorb internal liquidity. On the contrary, perhaps we must ask ourselves whether we have been rigorous enough in that respect.

In the field of international financial relations, the existing restrictions have been considerably eased, so that there is now a de facto convertibility for capital transactions, while there exists a system of practically unrestricted freedom in the case of tourism. On the import side, the progressive easing of restrictions resulting from our obligations under the Rome Treaty has been followed by many other decisions entailing an opening of our frontiers to practically all the countries of the rest of the world.

In such circumstances, our balance of payments surpluses have been basically genuine ones, representing as they did legitimate earnings which, while originating in no negligible measure from capital repatriations and long-term foreign investments, actually reflected above all our trading and other current account surpluses in a climate of ever-extended freedom. We have endeavored to make an appropriate use of these surpluses, taking into account our own capacities and needs as well as the unquestionable necessities of international monetary order. I do not want to draw a particular pride from such a remark, but rather to emphasize that our policies have been and remain consistent with the principles of solidarity which are naturally defended within our institution. Since the end of the war, these policies have materialized in the form of permanent contributions toward aid to developing nations, the importance of which is known to everybody when compared with our national income and the contributions of other countries.

In accordance with the same spirit of solidarity, coupled with a deep gratitude for the most generous aid received in the past, these policies have been reflected, during the year under review, in a systematic reimbursement of our long-term foreign debt. Thus, in the past six months, our advance repayments, either in the form of repurchases of annual installments from the IBRD or in the form of genuine reimbursements in favor of friendly countries, totaled $475 million, to which must be added a sum of $55 million, representing ordinary contractual maturities. Our foreign debt, which amounted to $3,269 million during the worst years of our postwar monetary history, have thus been reduced to $1,178.6 million on August 31, 1962. At the same time, the Fund has been able to make an extensive use of its French franc holdings up to 49 per cent of our quota; the outstanding French franc drawings amount to the equivalent of $241.6 million at the present time.

Should we go much faster and further in our present efforts, which are consistent, in our opinion, with the general suggestions of Mr. Jacobsson’s Report, in order to help the restoration of international equilibrium? This is a problem one may rightly put before us and which is already apparent in the suggestions and remarks that are sometimes made about the structure of the financial markets of Europe and their current rates of interest. Of course, we are fully aware that a more pronounced downward drift of long-term rates would be desirable, not only to encourage French investments abroad or to prevent residents from borrowing in foreign centers, but also to facilitate our own investments within the country. Indeed, we never lose sight of this necessity and are constantly trying to find the means of bringing the rates down. But who would deny that, in this particular field, sustained patience is the price to be paid for getting the desired results in a country which scarcely has emerged from inflation and must fulfill simultaneously a number of equally urgent tasks that absorb the whole of its available savings? However, let me emphasize once more that our own interests do coincide with those of countries where cheap money is attracting borrowers, and we hope that reciprocal adjustments will lead to a state of equilibrium satisfactory for all, while definitely rejecting methods of control and restraint that are as dangerous as they are ineffective.

The aim of my analysis of French monetary policy during the past year is to underline the principles that govern it. Creditor countries have their own obligations and responsibilities, which should not be disregarded any more than those of debtor countries whose situations require more urgent attention from the Fund. The monetary structure of the Western world unquestionably rests upon a certain hierarchy of currencies, which is a source of privileges but also a source of responsibilities for some of them. But this structure is increasingly resting upon a set of solidarity rules, and solidarity is a reciprocal virtue. That is why the disciplines which are to be observed, if order is to be maintained in international monetary management, should apply equally to all concerned.

That is why one records with great satisfaction the advances made in the field of free and equal cooperation, and the progressive abandonment of attempts to maintain “established policies” within an unduly restricted national framework (to use the words of the Annual Report).

Undoubtedly, much remains to be done in this respect. New techniques have been developed of late in the form of bilateral arrangements, coordinated action on the forward exchanges, and agreements tending to limit the fluctuations of the gold market. Unquestionably, such arrangements have the interest of an experiment, and they prove useful in practice for the day-to-day regulation of markets. But they can be expected to bring only a relatively limited contribution toward solving the fundamental problem: the problem of strengthening the international monetary system on a permanent basis.

Such a task must be performed more than ever in the different places where we have the pleasure to meet frequently—IMF, OECD, EEC, BIS—and my country is prepared as before to bring a substantial contribution to this objective. However, if we want to show realism and efficiency, we must accept the fact that one of the means of inducing a country to make the most extensive effort is to persuade it that every one of its partners is brought under the same discipline and to give a firm assurance that its vital interests are understood and respected.

Such has been, in fact, the spirit that governed the happy conclusion of the borrowing arrangement between the ten leading industrial nations. And this, too, is the spirit which ought to inspire new studies, always possible and always useful in the ever-changing field of international monetary settlements. If such studies are to be undertaken in a coordinated way, no doubt advantage would be taken of the experience acquired by those international monetary organizations which have contributed to the restoration of the monetary order and are still instrumental in maintaining it by resorting to methods of free and confident cooperation.

Finally, similar principles would have to be applied should new agreements of a more or less monetary character be necessary in order to help the raw material producing countries. Every country should try to adjust the amount of assistance given to its current capacity, and such aid as would be granted should not be automatic, in order to prevent new bursts of inflation. As the French representatives have emphasized many times in the past, we are favoring more specific and, in our opinion, more practical methods which tend to organize the markets, product by product, combining to this end a reasonable limitation of production with the assurance of outlets at stable prices.

We are far from thinking that such a problem, which has received only partial solutions up to now, is not a vital one for enormous populations. We are so much aware of its seriousness that we have been endeavoring for many years to grant the benefits of this stability to the overseas territories that are keeping particularly close relations with us, within this most lively entity which the French franc zone still represents, in spite of many political vicissitudes.

The representatives of the different countries of this zone are with us today, some because they have been members of the Fund for several years, some—Senegal, Togo—because they have just been admitted, some because they have got the assurance that their applications will be accepted in the near future. I hope you will allow me to extend to them all my warmest greetings and to tell them how glad we are to see them participate in our present work.

Statement by the Governor for the United Kingdom—Reginald Maudling

Last year’s Annual Meeting in Vienna took place only a few weeks after the Fund had completed its largest individual transaction, namely, the United Kingdom’s drawing of the equivalent of $1.5 billion and the stand-by arrangement which gave us the right to draw the equivalent of a further $500 million. A few weeks before this year’s meeting we completed the repurchase of our drawing.

Thus, the largest drawing in the history of the Fund was repaid in full within 12 months. The successful recovery of sterling during that period has been a remarkable justification of the policies of the Fund—and I hope I may say, as I was not Chancellor of the Exchequer at the time—of the policies of the United Kingdom and my predecessor, Mr. Selwyn Lloyd. I hope that all who were concerned with the difficult problems of policy and technique which the drawing involved have been encouraged by these developments. I would pay particular tribute to the Managing Director, for whose wisdom and foresight the United Kingdom has once again had cause to be grateful. And may I take this opportunity of referring briefly to Mr. Cochran and Mr. Southard. We take leave of the one with regret and extend a warm welcome to the other. Both are old friends of us all.

At the same time that we completed our repurchase, an application was made—and approved—for the renewal of the stand-by arrangement in the amount of $1 billion. The reasons why we asked for this insurance facility are well known, but this is a further indication of the valuable services which the Fund stands available to perform, both for reserve currencies and others.

May I turn now to the Annual Report of the Executive Directors. It rightly emphasizes what a record year this has been for the Fund in every phase of its operations. Not only did total sales of currency, and the amount of stand-by arrangements made, far exceed the comparable figures for any financial year in the Fund’s history, but repurchases by members were substantially above any previous year’s figures. Moreover, a commendable development in the Fund’s policies has led to the use of a wider range of members’ currencies, not only in drawings but also in repurchases. There has indeed been a remarkable change from the practice in the earlier years of the Fund’s operations, when drawings and repurchases were overwhelmingly made in United States dollars. The new policy of diversifying drawings and repurchases, based as it is on a process of consultation with the Managing Director and his staff, takes account of the welcome fact that an increasing number of currencies can now be regarded as usable for the transactions of the Fund.

I am particularly glad to read the references in the Report to the problems of the primary producers, and to note that the Fund is already doing a great deal—and on an increasing scale—to help them with their short-term balance of payments difficulties. In the 12 months covered by the Annual Report, Fund transactions with such countries were bigger than ever before. Twenty-one of them drew $743 million and at the end of the period outstanding drawings by primary producing countries were about $1.3 billion as compared to around $¼ billion ten years earlier.

But of course short-term credits, whether from the Fund or some other source, cannot provide a full answer to the problems of countries which face the prospect of a continuing decline in the earnings from their main exports. The Annual Report is right to emphasize the serious problems created for the world by the relatively unsatisfactory development of their export earnings. I welcome the prospect of new international agreements for coffee and cocoa, designed to prevent major falls in prices while tackling the underlying problems of imbalance between supply and demand; and also the attention which is being given in the GATT to the possibilities of improving the outlets for the trade of developing countries. In this connection, I welcome also the fact that the Fund is associated with the current United Nations study of the problems arising from fluctuations in receipts from exports of primary products.

The development aid provided from so many sources is vital. But much development may be sterile, and much aid wasted, if growing industrialization is not permitted to lead to growing export earnings, as our Chairman pointed out so forcefully in his opening address. Aid without trade, as has so often been said in the past, is not enough. We are told with authority that it is more blessed to give than to receive: it certainly appears in many cases to be easier. We in the industrialized countries must be ready to do both.

This leads me to the wider problems that face us in the field of trade and payments as a whole. First, I would stress that in my view the immediate situation is more encouraging than might have been expected a year ago. Most major trading countries are much nearer to balance. And the last year has seen such encouraging developments as the borrowing scheme, the entry of the United States into the foreign exchange markets, and the growing cooperation on financial and monetary matters in OECD and between central banks.

As for the immediate situation, attention is still being focused on the deficit in the United States balance of payments. The nature of this deficit is a very special one. On current commercial transactions the United States has a massive surplus, and the problem has arisen because of the enormous amounts spent abroad on aid, defense, and investment. It could be said that the problem is less one of a balance of payments than of a balance of generosity. The success of the United States in reducing their over-all deficit this year is not always fully appreciated—a success which of course owes much to the substantial assistance they have received in the form of advance repayments of debts by other member countries. As a result of these developments, the requirements of the United States to finance its prospective deficits are well within the capacity of the present system of finance, especially when the arrangements we have made over the past year are taken into account. This is a fact in which all of us who wish to see a stable international monetary system can rejoice.

The Fund borrowing scheme will ensure an impressive enlargement of the resources available to the Fund in case of need and will notably spread the burden which previously rested too exclusively on the broad shoulders of the United States. At a time when the Fund’s operations were in danger of being impeded by a shortage of other strong currencies, the borrowing scheme comes as a means of providing the Fund with additional amounts of those currencies in a way which will take full account of the economic strength of the countries concerned at the time of the operation.

Moreover, the United States authorities have been implementing their decision to intervene directly in the foreign exchange markets, like others among us, to smooth and control movements in the exchange rate. I attach great importance to this decision. In the years of rebuilding the international payments system after the war, the United States dollar performed the great and essential service of providing a fixed basis of value. But so long as the United States authorities stood aloof from the foreign exchange market and left the relationship between the dollar and the other currencies of the world to be settled, ultimately, by gold purchases and sales, the monetary relationship between America and her neighbors remained subject in some measure to the limitations of the former gold system. The mere fact of intervention by the American authorities will not in itself produce—and I am sure it is not expected to produce—a dramatic development of the international monetary system; but it opens the door to the introduction of further useful advances which merit careful study.

Both this United States decision and the Fund borrowing scheme are in the direct line of development which the international payments system as a whole has been following since the war and which the Fund itself was designed to promote. That is to say, each has represented an advance in the integration of the existing national currencies into a stronger and a more smoothly functioning international payments system, and moreover a system which is more genuinely international in the sense that responsibilities and advantages are more evenly shared between nations. These developments demonstrate that the Fund and its members are ready to adapt their thought and action to cope with the developing world situation. They are, to quote the Managing Director, “building, and continuing to build in the Western world, a monetary system capable of meeting in the world the needs of our time.” Much, therefore, has been accomplished and the position of the reserve currencies and of the payments system that rests upon them is one of great strength.

But we cannot be content to rest forever at this point. The Managing Director, in the quotation I have given, talked of “continuing to build.” The “needs of our time” are changing fast as our whole world is changing. The success we have achieved—and the strength of the current position—is a basis for further advance in the future.

I believe it is universally accepted that a growing volume of world trade calls in the long run for a growing volume of liquidity, even if not necessarily in arithmetic proportion. Of course there is scope for arguing at any given time whether total liquidity is adequate, or whether there is enough liquidity but unevenly distributed, or whether the liquid resources available are not themselves liquid enough. I am not concerned now with the immediate position to which I have just referred, but with the contribution that the international payments system should make in the future to the growth of world trade and production.

There are those who argue for a return to the classical gold standard. I find it difficult to accept this proposition. Either it means that the volume of world trade must be tied to the amount of gold that can be mined and acquired by monetary authorities, which seems to me a proposition that is not intellectually sustainable; or the volume of gold available must be brought in line with world reserve requirements by variations in the price of gold, and the difficulties of this course are only too clear to all of us. To quote the Managing Director’s Jayne Lectures for 1961, “It is certain that gold output alone cannot be relied upon to bring about the necessary increase in the world’s money supply.”

At present, gold is supplemented by the two reserve currencies—the dollar and the pound sterling. But there is a fundamental difficulty about this system, namely, that the reserve currencies are short-term liabilities of the United States and the United Kingdom—one nation’s reserves is another nation’s debt. The rate of growth of these liabilities cannot be a matter of indifference. The process of accumulating debts can be agreeable—as we all know—especially if in the course of it we can provide a service to our friends. But the fact of having accumulated them can create inhibitions, especially if a large proportion is repayable on demand. Requests for payment may arise at times and in volumes that are determined by factors wholly outside the control of the debtor, but nevertheless that have to be promptly met. If the amounts of such currencies held as reserve assets increase too much there will inevitably be some doubt as to whether any further extension of these holdings would be prudent and practicable. The expansion of the system at any one time is therefore subject to limitations and this may inhibit the growth of world trade and production.

The gold exchange system has already undergone extensive development in the last seventeen years, particularly in the much wider use of the dollar. But despite the many advantages of the system as we know it today, I cannot believe that its evolution can stop here, or that we already have the final answer to the longer-term problems. We shall have to be prepared to supplement present international payments arrangements if we are to make certain that they do not act as a brake upon the possible expansion of world trade and production. Indeed, the last year has already seen the scope of the system increased by valuable new ideas which must be capable of further development. The borrowing scheme, for instance, is a highly practicable arrangement for dealing with a serious threat to the international monetary system. It will enable temporarily weak currencies to be absorbed into the Fund while making available an equivalent amount of stronger currencies. But the resources made available under the borrowing scheme are not part of the normal stock of liquidity, and it is deliberately designed to be used only in exceptional and extreme circumstances.

Another valuable idea recently put forward, namely, the mutual holding of currencies, could constitute a more readily usable method of increasing the part which currencies play. But can we hope under present conditions that this would always be carried far enough, having regard to the normal inhibitions about large holdings of currencies which are temporarily surplus in the markets? Unless, therefore, we can supplement them, these two ideas will have their limitations. Is it not possible for the Fund, building on these ideas, to provide the basis of a multilateral system of a more regular and automatic character which would be capable of expansion to the extent necessary at any time? Some people have seen, for instance, in the obligations created under the borrowing scheme the germ of a truly international paper which might in due time become acceptable and transferable between the monetary authorities and so become a familiar holding among reserve assets. It would certainly be worthwhile to explore this possibility. I am myself, moreover, attracted by the thought that we might develop a system of cooperation between the leading trading countries in the form of a mutual currency account in the Fund. By this, I have in mind an arrangement of a multilateral character under which countries could continue to acquire the currency of another country which was temporarily surplus in the markets and use it to establish claims on a mutual currency account which they could themselves use when their situations were reversed. Such claims on the account would attract the guarantee that attaches to holdings in the Fund. We would hope that such a system would enable world liquidity to be expanded without additional strains on the reserve currencies or avoidable setbacks to their economic growth, and at the same time without requiring countries whose currencies were temporarily strong to accumulate larger holdings of weaker currencies than they would find tolerable.

I am not at this stage putting forward any cut and dried plan. These are not problems that can be solved by slogans or gimmicks. What I have been trying to do is to follow the logic of the argument, and I hope that these ideas that I have mentioned, and indeed any other ideas designed to solve the same real problem, will be actively studied. As the Managing Director said on Monday, “the possibilities of further action are certainly not exhausted.” Nor, I hope, is the collective ingenuity of the world’s leading financial authorities.

To sum up: Great progress has been made in the past year. The international payments system has been strengthened, as have the positions of individual countries. The financial foundations of the gold exchange system are solid. But our tasks are not completed. The growing and changing world urges us to continue our advance. Our objective must be to facilitate the maximum expansion of world trade and avoid unnecessary obstacles to economic growth in the world as a whole or in individual countries. I am sure it can be attained.

Statement by the Governor for the Federal Republic of Germany—Karl Blessing

I think there is once again every reason to express our appreciation of the fine work which has been accomplished in the past year by the Fund and its Managing Director. I should also like to extend to my old friend, Mr. Merle Cochran, our gratefulness for the excellent services he has rendered to the Fund for so many years. To his successor, Mr. Southard, who has established such a fine reputation in his present capacity, I wish the very best in his important new job.

When we met last year in Vienna, we had cause to be worried about the tensions in the international payments situation, and especially about the pressure upon the two key currencies. In the meantime, good progress has been made toward better balance in the position of both currencies, sterling and dollar. I am impressed by the increasing strength of the pound sterling, reflected in the speedy repayment of the British IMF drawing well in advance of its maturity, and I am equally impressed by the firm determination of the U.S. authorities to reduce the still remaining balance of payments deficit and to achieve equilibrium in the near future.

As a correlate to this improvement in the field of the key currencies, some long-standing surplus positions with continental European countries have disappeared or are about to disappear. As regards my own country, it has experienced an unbroken basic surplus for nearly ten years. Last year when we met in Vienna, there was already some evidence of a change in our balance of payments situation. This has, in the meantime, been confirmed by the actual development. Our surplus on current account has disappeared and has indeed been replaced by a small deficit. This reversal has benefited the international payments situation and has contributed to an expansion of world trade. In the first seven months of 1962 our imports have increased by about 13 per cent against an increase of only 3.6 per cent in our exports. Similarly, our imports of services and other invisibles have in the last two years increased by leaps and bounds. All available figures indicate that this development will continue. From the beginning of 1961 up to August 1962, official currency reserves of the German central bank have indeed decreased by no less than about $800 million (not counting the book loss due to the revaluation of the deutsche mark). Thus, we have fed back that amount of liquidity into the international system.

This fundamental change in our external position was partly brought about by the revaluation of the deutsche mark in March 1961, partly by an increase in our internal price and cost level. In spite of the revaluation, which has brought our costs and prices more in line with the international level, our prices and costs have risen considerably, and wage costs have by far outpaced increases in productivity. The fact that the wage-price spiral in our country has been so difficult to contain is in part due to the after effects of the long-standing surplus in our external position, because this surplus had led to high internal liquidity and excessive domestic demand.

This, of course, has been a very painful way of contributing toward international equilibrium, a way which induced considerable domestic opposition since it endangered our internal stability. Fortunately, foreign competition on the home market as well as abroad is now beginning to put a brake on the upward movement of our cost and price level. We very much hope that this adjustment process, with its damaging effect on the internal value of money, has now come definitely to an end, and that we shall be spared any repetition of it.

From this experience, which incidentally is not limited to my country, we should draw some more general conclusions as to the working of the international monetary system. As both frequent adaptations of exchange rates and flexible rates have to be ruled out as being inconsistent with the Fund’s principles and detrimental to international trade, there is no other way but to adjust demand and cost levels as between surplus and deficit countries. Such adjustments cannot, however, be imposed on surplus countries only. It is necessary that—just as under the gold standard—the burden of adjustment has to be shared by both sides. Deficit countries must also contribute by keeping their cost level stable, or even reducing it, for instance, by keeping their wage increases short of increases in productivity. Otherwise, surplus countries would be chasing after a will-o’-the-wisp, and for all efforts to remove their surpluses in the interest of the international system they would be punished by being compelled to import creeping inflation over and over again.

This underlines the great responsibility that rests upon the United States. I think it is no exaggeration to say that not only a satisfactory solution for the U.S. balance of payments problem but also the good functioning of our whole international monetary order depends upon the maintenance of cost and price stability in the United States. The United States as the leading economic and financial power in the world must become the stabilizing center and pivot around which all our economies can safely revolve, and it is gratifying to note that the United States has made encouraging progress in stabilizing its cost and price level over the past few years. It has also given me great satisfaction to learn, from the statement of the U.S. Governor, how much this responsibility is recognized by our great host country for the future as well.

We have been witnessing, over the last few years, a lively discussion on the merits and demerits of our international monetary system. To my mind this discussion has too often been sidetracked by the tendency to look for an institutional panacea where only sound policies of the member countries can provide the answer. If there is monetary disorder within the leading countries, no conceivable international monetary system can function satisfactorily. Where there is a structural basic deficit in the balance of payments, the causes of this basic deficiency must be tackled and removed, and no institutional gadgets can relieve us of that task, however painful it may be.

If one looks at the present international economic situation, it is hard to believe that a shortage of international liquidity and the danger of world-wide deflation are imminent. I am not of the opinion that the disappearance of inflation or a lesser degree of inflation amounts to deflation. Of course, international liquidity should be sufficient to provide adequate time to remove imbalances, but it should also be scarce enough to enforce monetary discipline. Any proposal for reform should therefore be examined from the outset, whether it leads to a strengthening or a weakening of the incentives for monetary discipline and balance of payments equilibrium.

On the other hand, there is something to be said for making available enough international liquidity for help in cases of justified need, and on the basis of approved adjustment programs. It has always been my opinion that the general arrangements to borrow within the IMF fit very well into this line of reasoning; and the German central bank has not hesitated to participate in these arrangements, by making available the very large amount of DM 4 billion (equivalent to $1 billion) on a stand-by basis. The IMF has proved to be the appropriate instrument for dealing with problems of international liquidity efficiently and flexibly. These qualities the Fund has recently demonstrated in the British and in the Canadian case. We would do well to encourage the Fund to continue its useful work on the basis of the principles evolved over the past ten years, which have stood the test of time.

Aside from the general borrowing arrangements within the Fund, there have been some other arrangements between a number of central banks that should also contribute to strengthening our international monetary order against disturbances. These swap arrangements between central banks have often been misinterpreted by the press and by the public at large. They have sometimes been criticized as a “mere patching up” of difficulties where measures of a fundamental character were needed. I think that in the minds of those responsible for such bilateral arrangements there was never any thought of regarding them as a cure for basic disequilibria in the balance of payments. They have always been conceived as providing only temporary assistance against short-term disturbances of a speculative nature. Within that narrower and limited technical sphere, they have proved their usefulness, and I have no doubt that they will continue to do so.

On the other hand, this network of currency arrangements is a part of that wider field of international monetary cooperation which has become closer and closer during the last few years, comprising not only temporary mutual assistance in the foreign exchange field but also a common attitude toward gold markets and a continuous coordination of national monetary and financial policies. This evolution, which has grown out of experience on a trial and error basis, is something quite novel, compared with prewar times, and is about to transform the whole climate of international monetary policy.

Our Managing Director, Mr. Per Jacobsson, pointed out at the last Annual Meeting that the circumstances under which the present gold exchange standard is operating are quite different from those of the gold exchange standard in the twenties. Nobody would deny that the present system involves some risks, but in view of the monetary cooperation prevailing today, and with the assistance of the new multilateral and bilateral currency arrangements, I think we shall be able to live with these risks.

It is certainly a noteworthy development that the United States has itself begun to keep part of its reserves in the form of foreign exchange. This new feature may prove to be of particular importance in the case of a reversal of the U.S. balance of payments toward a renewed surplus position; for it may then help to banish the specter, sometimes conjured up by imaginative economists, of a general liquidity squeeze arising out of U.S. surpluses. It may well be that in the future we may have to develop the gold exchange standard also in other respects. If we share a common responsibility for its good functioning—as I am convinced we do—we may perhaps have to consider how best to arrive at some common principles as to the sharing of its burdens, including a common attitude toward the composition of currency reserves. I believe that our international monetary system, strengthened as it has been by the various innovations, is well equipped to deal with the problems which may face us. And if, in a more distant future, new solutions should be required, I am convinced that we shall find the answers in due course.

Statement by the Governor for the Sudan—Abdel Magid Ahmed

Once more, it is my privilege to express in the name of the Government of the Republic of the Sudan and its people satisfaction at the great progress achieved during the preceding year by the International Monetary Fund, the International Bank for Reconstruction and Development and its affiliates, IFC and IDA. To the management and members of the staffs of these institutions go our warmest congratulations.…

We in the Sudan, like many other developing countries, are engaged in a relentless struggle to improve the economic and social conditions of our people. Thanks largely to the existence of these institutions, we have never felt alone in this struggle. We have always found them a source of wise support and solid strength.

But development is a continuing process. The Sudan has recently launched a Ten Year Development Plan. It may be interesting to note that in formulating our Plan we have been very much preoccupied with many of the problems raised by the speakers at this Annual Meeting.

First and foremost looms the problem of the unfavorable movement of the terms of trade of the bulk of the primary producing countries, like ourselves. While the prices of the imports of these countries have generally risen in recent years, the value of their exports have, in most cases, recorded a definite downward movement. This problem clearly calls for some comprehensive and concerted international action.

In this connection, it may be mentioned that if the emergence of economic regional groupings were to result in restrictive trade policies, the problem of the exports of the primary products will be even more seriously aggravated.

Secondly, the substantial inflow of “soft” loans to developing countries represents their greatest need and hope for development especially at a time when there is general recognition of the importance of greater emphasis on educational, social, and infra-structural investments.

Thirdly, the multilateral approach to aid through the IBRD, or with the help of consortia, is proving to be the most effective way of ensuring coordination and obtaining the maximum benefits from the scarce resources available for aid.…

In the course of the last two years, much attention was given to the problem of international liquidity. It became apparent that international liquidity depends to a great extent on the willingness of the monetary authorities of many countries to hold, in addition to or instead of gold, reserves in the form of the two key world currencies, i.e., U.S. dollars and pounds sterling. The grave dangers to international liquidity arising from sudden switches by monetary authorities from one key currency to another, or from either or both of them to gold, have also now become obvious.

In this connection, it may be interesting to see how the problem of the medium in which foreign exchange reserves should be kept appears from the point of view of a developing country like the Sudan. The Sudan has no formal ties with any monetary area and has full freedom to decide its policy in respect of its foreign exchange reserves. Recently, we have undertaken in the Sudan the task of reassessing our policy of investment of the country’s foreign exchange holdings. Our investment policies are now guided by the following considerations: the medium in which our reserves are kept should be generally acceptable for effecting international payments and, if possible, should be that in which the country normally transacts the bulk of its foreign exchange business or, alternatively, easily convertible into such medium at no or little cost; further, the chosen medium should assure the stability of the value of the reserves in terms of other currencies; it should also, if possible, permit the realization of interest on the reserves. The latter consideration, though not decisive, is of some importance in the case of the Sudan. Because of the fluctuations in the value of its exports the Sudan has to keep relatively large reserves, the earnings from which constitute an important element in the country’s national income and foreign exchange receipts.

We have decided that our purposes can best be served by keeping our foreign exchange reserves in the form of the key currencies rather than in the form of gold. This policy ensures keeping the reserves in the medium in which most of the foreign exchange earnings are actually received; it minimizes the cost of effecting payments anywhere in the world, and permits of profitable investment even on short term. The only possible disadvantage is the risk that the key currency or currencies in which we keep our reserves could undergo depreciation vis-à-vis currencies of other countries from which part of our requirements of goods and services is being obtained.

The Sudan has, therefore, followed with great interest international measures taken in the course of last year to strengthen the existing international monetary system and diminish the risk of devaluation of the key currencies. We have welcomed the strengthening of the resources at the disposal of the IMF, and also the measures of increased direct cooperation between the monetary authorities of the main industrial countries of the world. We believe, however, that the system could be still more strengthened if countries keeping their foreign exchange reserves in the key currencies could be given an exchange guarantee. We have observed that some form of exchange guarantee appeared in the mutual agreements between the main industrial countries. We are of the opinion that the risk of sudden switches from foreign exchange holdings into gold or from one foreign currency into another would be greatly diminished if foreign exchange holdings in the possession of all the monetary authorities, especially those of the developing countries, were given a similar exchange guarantee.…

Statement by the Governor for Japan—Kakuei Tanaka

I should like, first of all, to convey my deep appreciation to Mr. Jacobsson for his excellent and stimulating address.

Since the last meeting we have welcomed a number of new members to the Fund. Many more countries are now taking steps to join. It is encouraging to note this clear indication of the progress of international cooperation achieved in the monetary field centered about the Fund.

On this occasion, I also wish to express to Mr. Cochran, who is leaving the Fund next month, my gratitude for his distinguished services over the past years, and also to welcome the appointment of Mr. Southard to be the new Deputy Managing Director.

Many developments in Fund activities have taken place in the past year. In line with growing activity in international movements of funds, the availability of Fund resources to finance capital transactions has been clarified. Much has also been accomplished to diversify the currencies used in drawings and in repurchases.

Mr. Jacobsson’s proposal at the last meeting, at Vienna, to replenish the Fund’s resources by borrowing has materialized in a borrowing arrangement with the support and cooperation of the participating countries. We are deeply indebted to Mr. Jacobsson and his staff for this achievement. In the belief that this arrangement will be of great help in strengthening the international monetary system, we have already notified our adherence to it. We trust that all the participating countries will complete their procedures for adherence in the near future.

It is also reassuring to note that efforts are being made to obtain more flexibility and to adapt Fund activities to the changing situation of the world economy. I expect that the Fund will continue these efforts and will extend timely and appropriate assistance to member countries in overcoming their balance of payments difficulties.

Because of the very rapid growth of our economy, considerable difficulties in our balance of payments were experienced in the past year. The drastic monetary and fiscal measures taken by our Government since last summer have been effective in gradually calming down and restoring stability to the economy. Our balance of payments position has recently shown steady improvement. The support which the Fund gave us by approving a stand-by arrangement was, I think, conducive to this success. I should like to assure you that we intend to watch carefully future developments and to adhere to the principles of sound fiscal and monetary policies in order that a balance in our international payments will be maintained in the future.

Finally, I wish to say a few words regarding liberalization of our trade and payments. In spite of the considerable difficulties in our balance of payments to which I have referred, we have been and are making sincere efforts to carry on our import liberalization program according to schedule. We expect the ratio of liberalization to reach approximately 90 per cent by October.

We also face many domestic problems, in the field of medium- and small-scale enterprises, agriculture, and others. In such a situation the balancing of our international payments at the same time as we are going ahead with rapid liberalization of our trade is not easy. Expansion of our trade is therefore of vital importance to us.

Free trade in a free market is our common objective. In this respect, it is very regrettable to note that there remain a number of Fund members who still discriminate against our exports, although some improvement has taken place in reducing their discriminatory practices. Japan is already one of the world’s largest markets for the exports of other countries. She can become an even larger market if mutually beneficial trade policies are followed by other countries. It is our sincere hope that the member countries will appreciate our efforts and will remove all remaining discrimination at the earliest opportunity.

Statement by the Governor for Australia—Harold Holt

Once again we are indebted to Mr. Per Jacobsson for another masterly survey of the world monetary scene. Each year we sit respectfully at the feet of this benign economic philosopher and depart wiser, we hope, but certainly better informed. We congratulate you also, Mr. Chairman, for the splendid introduction you gave in the speech with which you introduced our discussions. You are a veteran of these gatherings and we are all able to profit by the knowledge and insight displayed in your presentation.

I should like to join in those well-merited tributes that have been made by others to Mr. Cochran on his retirement as Deputy Managing Director of the Fund. He takes with him our warm regards and best wishes. May I also express my pleasure at the appointment of Mr. Southard as his successor. The great distinction with which he has carried out his duties as Executive Director for the United States will have satisfied all of us that an excellent choice has been made.

I welcome the recognition given in the speeches, both of you, Mr. Chairman, and of the Managing Director, Mr. Jacobsson, to the problems created by unfavorable terms of trade for the primary producing countries. These countries have, over their history, been subject to more violent fluctuations both in their terms of trade and in their balances of payments than the industrialized countries. Most of them have, over the past decade, experienced a serious worsening of their terms of trade. I question whether the extent and effect of this are fully recognized by governments of the more highly industrialized countries. For many, the economic consequences have been serious. This unfavorable economic experience has led to undesirable political reactions. It is not a good thing that a sense of grievance should have grown in the less developed primary producing countries, a sense of grievance which will strengthen if they believe that no serious efforts are being made by those more fortunately placed to face up to their problems.

In the course of his speech yesterday, Mr. Black, in commenting on how the industrialized countries had been favored by the swing in the terms of trade, gave as an illustration the position of one European country, whose experience he said is reasonably typical, which found its total import bill in 1961 about 8 per cent less than it would have been had 1956 prices still prevailed. I can give an illustration running the other way, from the experience of my own country. What the deterioration in our terms of trade has meant to us in loss of export income is quite dramatic. Last year our exports totaled in value something over £ stg. 860 million. If we had received the same prices for the goods we exported in 1961–62 that we received in 1953, our export income would have been the greater by £ stg. 330 million. In other words, our terms of trade today stand at 67 as against 100 in 1953. I am not crying “poor mouth” for Australia. We have been more fortunate than many other countries, in that we have had a strong capital inflow through the past 10 years and indeed for most of the postwar period. We have a strong, well-diversified economy and a high standard of living. But our experience gives us some insight into the way this adverse movement has affected other primary producing countries.

It is just not good enough that this problem of imbalance between the wealthier industrialized countries and the less developed primary producers should be politely ignored year after year, or at best given mere lip service. Words are comforting but can lead to frustration and resentment unless followed by action. I say this in no criticism of the Monetary Fund or the other institutions represented here. On the contrary, the Fund and its allied institutions have done us a service by keeping this matter persistently under notice. It has featured prominently in the speeches made at these meetings by the President of the International Bank and the Managing Director of the Fund. But we Finance Ministers cannot continue to ignore positive action with a clear conscience. We are all men of some influence in our own Governments. We cannot merely vote some addition to the resources of the Fund, the Bank, the Corporation, or the Association, and then wash our hands of the problem.

I do not want to go over the same ground that I covered yesterday, and yet I feel there is no more important matter for me to talk about at these meetings. Should the United Kingdom enter the European Economic Community, a new era would commence in the political and economic history of the world. It would seem that the Commonwealth Prime Ministers, meeting in London, have reached broad understanding on four main needs: the need to work for an expansion of world trade; the need to improve organization of the world market in primary foodstuffs through a fresh approach to international commodity agreements; the need to recognize that opportunities for trade are no less important than aid; the need to regulate disposal of agricultural surpluses so as to help peoples in want. These are all commendable objectives. How quickly can they be translated into practical action?

We are all conscious that while negotiations are proceeding on British entry there have been uncertainties created which, if unavoidable, have had their unfavorable economic repercussions on many economies. It is in the interests of all that these uncertainties should be resolved as speedily as practicable. But while they remain, here are some of the questions being asked by those countries which will be outside such an enlarged and increasingly powerful grouping. Will there be reasonable opportunities of access to this enlarged European market? Will this vast economic community pursue inward-looking policies at the expense of the interests of those outside, or can we reasonably hope that the enlarged community will so conduct itself as to usher in a more liberal trading system for the world?

Some underdeveloped countries fear that they will henceforth be regarded as merely hewers of wood and drawers of water. One of the major purposes of the enlarged European community will be greater efficiency and higher productivity. Will this be allowed to prejudice the growth in the less industrialized developing countries of their own manufactures? For many people, questions such as these breed apprehension. We would welcome at this meeting some forthright expressions from spokesmen for the countries of the Six, from the United States, and from the United Kingdom that they are determined to work together for a better balanced economic development, for a wider sharing of the abundance which is within our reach, and for a wider spread of social justice contributing to the peace and happiness of the world. All of us here can play some part in the creation of a better world economic order for mankind.

Statement by the Governor for India—Morarji R. Desai

I am happy once again to have in the Report of our Executive Directors a record of continued good work by the Fund. The year under review registered a new high level of Fund transactions: purchases, stand-bys, as well as repurchases, exceeded substantially last year’s totals. If this growing volume of business may, in a sense, be taken to indicate how far the world is still from achieving a stable and satisfactory payments situation, it is also, undoubtedly, an index of the growing sensitivity of the Fund to the emerging imbalances and the increasing readiness of member countries to regard resort to Fund borrowings—as well as repurchases—as suitable and legitimate rearrangements between their first and their second line of reserves, rather than as reluctant responses to an exceptional situation.

The Managing Director, Mr. Jacobsson, has in his thoughtful and stimulating address outlined the salient developments in the world’s payments situation. He has also pointed out the directions of further advance. I share Mr. Jacobsson’s optimism on the whole, although I think we cannot afford to forget even for a moment that the less developed countries will have difficult problems to face for many years to come. There has been, over the year, considerable improvement in the relative payments positions of the industrialized countries. However, pressures developed from time to time in respect of one currency or another and, notably and understandably, in respect of major reserve currencies. With the near completion of the Fund’s borrowing scheme, our defenses against speculative attacks on major currencies are stronger. The stability of the world’s payments system is to that extent assured.

It is, however, not to be expected that the Fund can rest on its oars. It is clearly not enough to have machinery that would avert or mitigate crises in balances of payments. A situation in which almost every country has to try, perhaps by turns and with a few breaks, to coax into its vaults, through deflationary measures at home, a bit of the other countries’ gold and foreign exchange reserves is not conducive to maximum growth either of output or of trade. The task, therefore, is to build up an international system of payments that will secure better fulfillment of the wider objectives of policy, namely, full employment and rising levels of income for all members of the international community. It may well be that some of the apparently radical solutions that have been put forward in this field, but have not yet been found practicable, offer valuable pointers to the direction in which further moves ought to be considered. The Executive Directors and the staff will, I hope, keep the possible approaches continuously under study.

Discussions on the world payments situation run, for the most part, and for good reasons, in terms of major currencies and the relative movements of reserves as between the more industrialized countries. But, the imbalances in external accounts of primary producing countries and of countries in the early stages of industrialization are a no less vital problem. Few of them can hope, despite their best efforts, to build up foreign exchange reserves to any great extent, save possibly at the cost of postponing vitally needed investments and reducing the growth rate of their economies. I am glad the Fund follows a reasonably liberal policy in regard to requests for accommodation from countries that have suffered adverse turns in the terms of trade or have other short-term problems to get over. In this connection, I am happy to note that the problems of mitigating the losses on account of sharp falls in commodity prices are under examination in the UN, FAO, and OAS, and that the Fund is associated with these studies. I was particularly happy, Mr. Chairman, to note the stress in your address on adaptation of the Fund’s policies to the needs of the underdeveloped world. This adaptation will need continuous study on the part of the staff, and resourcefulness on the part of the management. In that context, it is, I feel, important that the Fund continues and pushes further its accepted policy of ensuring adequate representation to the newly developing countries, both on the staff and at the higher levels of management.

On policies regarding the use of the Fund’s resources, the Annual Report has brought the position up to date. The Fund has developed a tradition of helpfulness and adaptability which, I am sure, is fully appreciated by all. I made last year a few suggestions regarding the use of the gold tranche and the unnecessary distinction being made between drawings per se and drawings against stand-bys. I do not propose to repeat these points, but I must mention that I regard them as sound and feasible.

I find the discussion in the Annual Report on the importance of financial stability in relation to growth objectives entirely acceptable. Inflation is no answer to the inadequacy of real resources. In no case can it be a substitute for effective mobilization of savings for investment. Fiscal and monetary policies have, at the same time, a developmental role. Briefly, financial or monetary stability is a necessary but not a sufficient condition for development. Efforts along many other lines are essential, and it will, I am sure, be recognized that they are being made in increasing degree in a number of countries. The major tasks, both national and international, of what has aptly been called the Development Decade have been outlined admirably in the recent Report of the UN Secretary-General. The developing countries have to raise the maximum of resources they can domestically. They will also need substantial external assistance. All of them will have to concentrate in increasing degree on the enlargement of exports.

I think the time has gone by when an increase in the levels of trade as between the more industrialized countries could be taken as a satisfactory index of the growth of the world economy. The emphasis has, obviously, to change in favor of promotion of trade between the more developed and the less developed countries—and, undoubtedly, between the less developed countries themselves as their economies get more and more diversified and the overheads of foreign trade, such as trade organizations, transport, and banking facilities, develop. In this context, let me re-emphasize the need, admitted by all in theory but not yet fully reflected in practical policies, on the part of the industrialized countries to throw open their markets more widely to the products of developing countries.

Finally, a word on the Indian situation. We are now in the second year of the Third Five Year Plan. Our balance of payments has been continually under strain and, although we have been able to secure a significant proportion of the external assistance needed for the implementation of the Plan, there have been difficulties because of the insufficiency of untied or freely usable aid. It would hardly be proper for me to go into the details of our requirements or of what has already been agreed to or authorized. In the situation we are facing, a certain proportion of external assistance has to come in the form of nonproject aid or commodity assistance, to enable us, without excessively elaborate procedures and consequential delays, to meet our payments for imports of developmental commodities needed for utilizing effectively the growing production capacity in the country. Nonproject assistance is also needed to enable us to meet our repayment obligations without having to impose crippling restrictions on maintenance imports.

Faced with a paucity of such free resources, and in a situation where some of the assistance available would be disbursable only later, we had to approach the Fund for a stand-by this July. I greatly appreciate the assistance the Fund has given us. We, on our part, have been exerting our utmost to improve our export receipts. We have made a substantial tax effort, toward the realization of the Plan target, on additional resources. We have raised interest rates as part of the same effort. The price situation has been relatively stable, and we are determined to take whatever fiscal or monetary measures are felt to be necessary to ensure growth with stability. Our import policy has been stringent and we have recently tightened it further. The tasks of export promotion are being attended to with earnestness and vigor. Where the claims of domestic consumption and of exports compete, the latter get due priority. There are developments or possible developments in Europe which might affect our export prospects adversely. I touched earlier on the lines along which the interests of developing countries in the sphere of world trade need to be safeguarded. I have every hope that with the continued effort on our own part in India and with the good will and cooperation of international agencies and members of the world community, we shall find the tasks of the Third Plan manageable, despite all their inherent difficulties.

I should like, before I conclude, to express my appreciation of the valuable services the Deputy Managing Director, Mr. Cochran, has rendered during his term of office. Mr. Cochran has intimate knowledge and understanding of the problems of the East, and he brought to bear on his tasks so much good will and cooperative spirit. I wish to extend to him my best wishes on the eve of his retirement from the Fund. I should also like to say a word of welcome to the incoming Deputy Managing Director, Mr. Frank Southard. Mr. Southard has for long been a part of the Fund scene, if I may put it that way. I have no doubt that the Fund will be the stronger for his association with it in this new capacity. I extend to him my warm good wishes.

Statement by the Alternate Governor for Pakistan—Mumtaz Mirza

I am glad to have an opportunity again to meet my fellow Governors and to join them in congratulating the management and staff of the Fund on the further significant contribution which the use of the Fund’s resources during the year made in strengthening the international economy. I am also happy to note that many new members have joined the Fund. The scope of international monetary cooperation is thus being enlarged and the international character of the Fund further strengthened.

It is encouraging to find that the past two years have been characterized by an increasing number of currencies purchased from the Fund. The fact that in repurchase operations a wider use was made for the first time of several currencies is another welcome development. The greater use of currencies other than the dollar has undoubtedly constituted a step toward the integration of the Fund operations into a multilateral system of world payments as originally envisaged.

It appears from the Report that though the payments position of some countries reached a near balance, certain important elements of imbalance continued to persist in world payments during the year. A comforting feature, however, is the movement toward the greater international coordination of monetary policy to which the Fund Report particularly draws attention. The Report mentions many instances of determined efforts made during the year toward defending the existing monetary structure. National monetary authorities appear to be showing growing awareness of their international responsibilities while dealing with the new problems posed by widespread convertibility.

At the last Annual Meeting, we had discussed at length the question of increasing the Fund’s resources through borrowing under Article VII of the Fund Agreement. I am glad that the Executive Board took, in January 1962, a decision on general arrangements to borrow. High hopes have been raised by these borrowing arrangements, which provide another example of the growing tendency toward international solidarity in the monetary sphere and constitute a significant step toward the solution of the world liquidity problem. This approach to the solution of the world liquidity problem is highly commendable in that it did not require any change in the structure of the Fund or in its Articles of Agreement.

While one finds immense possibilities for world economic prosperity in the solid foundation laid for international economic cooperation, I feel that we cannot overlook the fact that the over-all balance of payments position of the less industrialized group of the primary producing countries showed an adverse swing from a surplus of $500 million in 1960 to a deficit of $700 million in 1961. A large part of the deficit was financed by drawings from the Fund. Although the substantial assistance which the Fund provided to these countries is commendable, this does not lessen our concern about the situation. We have to recognize that the Fund is intended to deal with the short-run disequilibrium in balance of payments which is assumed to be temporary and self-correcting. It is not the responsibility of the Fund to pay any attention to the long-term problems with which the less industrialized countries are mostly faced. For a lasting improvement in world trade and payments it is, therefore, of crucial importance that fresh thought should be given to the problems of the less developed countries in matters of international economic cooperation.

This is not to deny the benefits of international cooperation already accruing to underdeveloped countries. The high ratio of foreign aid and loans to total resource availability in many developing countries clearly demonstrates the extent of this cooperation. What I want to emphasize here is that new efforts need to be made in this field. Although the contribution of foreign aid and loans in the acceleration of growth rates in less developed countries has been substantial, these countries cannot and should not perpetually depend on foreign assistance for their economic development.

A sound foreign aid program should help to shorten the period in which the less developed countries can achieve self-sustained economic growth. Foreign aid would thus peter out in course of time. In many underdeveloped countries there is an apprehension—on the basis of current experience, of an almost stationary level of earnings from old export products and insufficient access to markets in the case of new products—that even in the long run their export proceeds will fall short of their import requirements. In view of the expected lag in exports, a shift in favor of heavy industries in their development programs is being accepted in some countries as a compelling necessity. Some underdeveloped countries are thinking in terms of regional pacts so as to ensure export outlets. If these trends intensify, there is every likelihood of fresh diversion in world trade and misdirection of world economic resources. We, therefore, look to the industrial countries to broaden their responsibility toward the underdeveloped countries in the interest of an orderly development in international trade. The industrial countries should not only shun all policies aimed at restricting the inflow of goods from the developing countries, but, on the contrary, should provide the latter increasing access into their markets. It is only by pursuing such liberal policies that we can hope to see the dawn of a new era of world prosperity.

The underdeveloped countries like mine are particularly perturbed at the recent developments in the pattern of international trade. Regionalism which was being persistently denounced at international forums is now replacing multilateralism at one time considered to be the only method of liberating international trade from the fetters of bilateralism or regionalism. It was very refreshing to hear the highest monetary authority advocating the claims of multilateralism in the financial field. I hope this idea will run through all matters economic. But it needs no elaboration that financial and commercial activities in the global context have a common destiny and must be governed by common principles.

May I point out that it has been our constant endeavor to conform to the Fund’s objectives and that considerable progress has been made in this direction in recent years. Physical controls have been rapidly dismantled, and Government has sought to create conditions highly favorable for the operation of market forces and incentives. There has been a substantial measure of import liberalization. Despite the pressure on foreign exchange reserves, my Government remains firmly committed to the policy of maintaining a liberal flow of imports and is definitely averse to reverting to import restrictions.

In fact, the area of freedom in import trade is being steadily enlarged as resources permit. At the same time, notable progress has been made in working off the excess demand from the economy and promoting monetary stability. Perhaps the most outstanding feature of our economy in recent years is that the tempo of development activity has been accelerated in the framework of over-all stability. The success with the stabilization program is so striking as to evoke complaints that the economy is approaching a deflationary situation. We, however, realize that such complaints are a familiar feature of a stabilization program and, therefore, while ensuring that the economy works at its full capacity, propose to continue our policy of striking a balance between claims and resources. In fact, it is by setting our own house in order that we expect to reach our external balance, for it is our conviction that, however comprehensive and spectacular the stabilization program may be, its effects prove short-lived unless it is supported by basic adjustments and reform internally.

Before I conclude, I would like to take this opportunity to join my colleagues in expressing my appreciation of the most valuable service which Mr. Cochran has rendered the Fund, and the wise counsel which he has always given to the member countries individually and, above all, the remarkable understanding which he has shown in dealing with the problems of weak economies. I wish Mr. Cochran long years of health and well-earned rest.

Statement by the Governor for the Philippines—Andres V. Castillo

I am happy once again to see so many familiar faces at this, the Seventeenth Annual Meeting of the Board of Governors of the International Monetary Fund and the International Bank for Reconstruction and Development. I am also glad to see several new ones, the honorable Governors for the fledgling member nations. I join with my colleagues in greeting them and welcoming them to the deliberations of this body, and wish them every success in their efforts to advance their economies within the larger framework of international cooperation in monetary and trade policy called for by their new status as members of the Fund.

For us in the Philippines, this has been a most auspicious year, in the light of the Fund’s overriding objectives to promote the realization of a free and unrestricted flow of trade and payments throughout the world. Early in the year, I am gratified to report, we virtually completed the final phase of our gradual decontrol program, resulting in the lifting of the remaining quantitative restrictions on imports and foreign exchange transactions, as well as a readjustment in the exchange rate for the peso to more realistic levels, as determined by the operations of a free market. In a series of decisive and coordinated moves, the monetary authorities, with the full support of the new Administration, were able to eliminate direct controls and pave the way for the achievement of a unitary exchange rate at a level which could best reconcile the establishment of internal stability with external balance.

This is an extremely difficult task, as you very well know, for an underdeveloped country engaged in the process of developing her economic facilities under conditions of limited financial and technical resource availabilities. In the Philippine case, import and exchange restrictions were first resorted to more than a decade ago, under the provisions of Article XIV of the Fund Articles of Agreement, as instruments of national policy in the face of serious balance of payments difficulties and the massive requirements of economic reconstruction and development. However, the monetary authorities never lost sight of our commitment as a member of the Fund to bring about conditions under which direct controls could be safely dismantled and free convertibility restored at the earliest possible time. The yearly consultations with the Fund have borne much fruit by way of objective analyses of the problems and effective prescriptions for their resolution. It must be emphasized that in meeting its problems, a developing country cannot very well fall back on the classic theories which have generally been formulated for application in the more advanced economies. In the determination of its policies, the developing country must exercise discernment in the application of established concepts, with a critical consideration of its particular situation, and must frequently reshape or innovate where necessary. Let me say that, in this respect, the Fund’s advice and assistance have been of great value to us.

Philippine economic development proceeded at a better than satisfactory pace on the whole, with alternating cycles of rapid growth followed by retrenchment and stabilization, so that by early 1960, the monetary authorities deemed that a stage had been reached when decontrol would not only be feasible but would work toward providing a better environmental framework and a more dynamic basis for the pursuit of future growth.

The lifting of our controls was accomplished in four gradual stages. This was decided upon, rather than an abrupt return to free enterprise and convertibility, in order to spare the economy from an undue dislocation in operations arising from a sudden readjustment of internal prices to the prevailing international levels. The first stage established a limited free exchange market covering one fourth of total transactions. Subsequent phases enlarged this controlled free market to half, and then to three fourths, of the total exchange transactions. The final step was taken last January, with the advent of a change in government administration. For the first time in postwar history, the Government officially adopted an Integrated Socio-Economic Development Program, which among other things called for the complete abolition of controls as a means of restoring stability to the business climate, providing incentive for the expansion of exports and the strengthening of the balance of payments, attracting foreign capital and credits, and establishment of a foundation for proper valuation and long-term planning by both public and private sectors alike. All foreign exchange transactions for imports and invisibles were therefore released to the free market, when the peso was unpegged from its administratively fixed rate and allowed to seek its actual market value in relation to foreign currencies. On the export side, however, one fifth of receipts were temporarily retained at the old exchange rate for revenue and stabilization purposes. The Fund gave early approval to our decontrol program, which also included corollary fiscal and monetary safeguards against inflationary stresses and strains during the sensitive period of readjustment.

These complementary policies to ensure monetary stability are indispensable to a smooth and effective transition from a controlled to a free market system while sustaining a desirable magnitude of development and growth. As we recognize, and as the Fund has often emphasized, the optimum levels of saving, investment, and economic activity are realizable only under conditions of stable money and confidence in the currency. Furthermore, the international value of a national currency would very well depend on the soundness or the fickleness of internal economic and financial policies. For it is axiomatic that whatever reserves in gold and foreign exchange a country possesses, international confidence in its currency tends to rise or diminish with the stability or instability of the domestic monetary situation.

For our part, the fiscal and monetary authorities have implemented a policy of selective discipline over credit and budgetary operations during the first semester of this year. Reversing the previous year’s policy of ease, commercial credit restraints were re-established and maintained on the whole, without, however, denying the essential requirements of business, industry, and agriculture. Rediscount rates and reserve requirements were raised to 6 per cent and 19 per cent, respectively, but a preferential rate of 3 per cent was maintained for production and importation of prime commodities. Rediscount quotas for the banks were established. Special time deposits were required against which import letters of credit could be opened. This requirement, however, was relaxed later in the semester by the exemption of all essential items and capital goods.

As a result, excess reserves of commercial banks declined, and the increase in credits granted slowed down to only 1 per cent this past semester compared with a 20.5 per cent expansion during the previous six-month period. Total money supply, which had risen by 9.4 per cent in the second semester of last year, contracted by almost 1 per cent this year.

On the fiscal side, prudence in government spending and vigorous tax collection characterized operations during the first six months, so that a surplus (₱ 112 million) was recorded in the Government’s cash balances. The balance of payments position has also been definitely strengthened by recent developments, with foreign exchange receipts increasing appreciably to an aggregate volume far larger for the first semester this year than for corresponding periods in the three preceding years. Both production and shipment of export commodities recorded significant acceleration. Furthermore, the international reserve has remained substantially intact at around $130 million, while foreign exchange obligations and commitments have been cut by more than half.

To further ensure the successful readjustment of the economy after the elimination of controls, and inspire an added measure of confidence on the part of business and industry, we have mobilized a Stabilization Fund from various sources. I wish to express my country’s satisfaction at the prompt and effective way in which the Fund responded to our request for a stand-by credit arrangement. Our expression of appreciation also goes to the United States Treasury, and to various large private financial institutions who have provided substantial stand-by accommodations, which we do not expect to draw on, but which nevertheless constitute an available reserve against any contingencies that should arise in the balance of payments situation.

There has occurred a moderate upward movement in domestic prices. However, prices had already been on the uptrend even prior to the elimination of controls, due to programed hikes in import tariff rates under our trade agreement with the United States, as well as business hedging in anticipation of higher exchange rates. What is surprising is not the rise in prices over the first semester of the year, but the moderate size of the rise in view of the degree of exchange devaluation. The effects of the complementary measures of credit and fiscal discipline have undoubtedly played important roles in tempering the unsettling impact of the transition from a regime of controls to a free enterprise system. As is aptly stated in this year’s Annual Report: “The Fund recognizes that the process of economic growth itself is likely to create pressures on resources that may lead to price increases and that not all price increases are incompatible with sound development.”

The success of our decontrol program, with its accompanying stabilization measures, has been reflected not only in the significant sectors of money and credit, public finance, prices, trade, and payments, but in the behavior of the exchange rate for the peso, which has been exhibiting remarkable stability since mid-May this year. The fluctuations in the rate have been less than 1 per cent over the past three months, and we are justifiably gratified by the fact that this stability has been achieved without the formal intervention on the market by the Central Bank.

In short, the performance of the peso has fortunately exceeded previous expectations, and speculative operations which characterized the market in its early months have largely disappeared. Instead of the capital outflow which had been predicted by overanxious economic observers, we have experienced an inflow. Substantial interest on the part of foreign capital in investment prospects in the country has been manifested. The initial stumbling blocks seem to have been hurdled, and the economy is definitely on its way to efficient operation under the new institutional framework. I cannot help but emphasize at this point that the important elements behind the satisfactory progress of our program are the full understanding and support of our President and our people and the prompt cooperation we received from the Fund, the IBRD, and the United States. As we gain in experience, we may acquire a better grasp of the problems and a greater proficiency in their solution. While conditions may not compel a drawing on the Fund’s resources, we shall always welcome the proven value of Fund advice. We trust that our experience in stabilization and decontrol, together with the experiences of other countries which have been notably successful in their efforts, such as Spain and Peru, may provide beneficial guideposts to other members in seeking practical and effective solutions to their own problems.

In the task of attaining a high degree of development with stability, we hope we may continue to count on the understanding and assistance of the more advanced members. Much has already been said on this point, but I believe it is well worth repeating again. In the hands of economically advanced countries lies a matchless opportunity to help bring the developing nations closer to the goals to which their people aspire, not through more aid, but through more trade. If the industrial countries would act with greater sympathy and liberality of policy toward the attempts of the developing economies to earn larger foreign exchange incomes through their exports, a great void of development capital could be filled which would reduce the necessity for development aid.

The specific role of the Fund in influencing the advanced countries toward this objective is still to be explored and exercised, but I need not emphasize how significant a role it could be, particularly for the developing nations of the world, many of them newly emerging to political freedom only to face the awesome problems of social and economic progress. The sooner the developing countries attain a satisfactory state of economic well-being, the sooner will world-wide freedom of trade and payments become a reality.

I wish to conclude my remarks by paying tribute to Mr. Cochran, who is retiring from his post with the Fund, a post he has occupied for the last decade with distinction, giving invaluable assistance, especially to the developing nations. We wish him the best success in any activity he may undertake.

Statement by the Alternate Governor for Ceylon—D. W. Rajapatirana

The Annual Report of the Executive Directors placed before us is an excellent one containing not only a concise account of the work of the Fund during the last year but also a review of the year which is most instructive and helpful to member countries.

We note that in every sphere of operational activity it was a record year; we also note that, in the year under review, the Fund has served much more fully than in any other year of its history as the multilateral revolving fund envisaged 18 years ago at Bretton Woods. We have seen during this period of 18 years, and if I may say more particularly, in the last few years, satisfactory settlement by the management and directorate of the Fund of some problems vitally affecting the economies of the world. To quote just a few instances, the Fund has tackled with success the problem of par values for various currencies; the shortage at one time of a key currency, the dollar, and its consequences; inflation at one time in many countries; inadequacy of resources of the Fund; convertibility of major currencies; and last, but not least important, the successful negotiations leading up to the availability of some $6 billion to meet any large international movement of funds, particularly speculative capital, to prevent thus any slowing down of the major economies of the world.

There remains, however, one very important and difficult objective, namely, the achievement of satisfactory economic growth and high levels of employment which will lead to the amelioration of standards of living of more than half the world which, to a large extent, was a responsibility in the recent past of the colonial and imperial powers of the past. That responsibility international bodies like the Fund must now discharge, with international cooperation from its members.

Men of the highest learning in the social sciences have over and over again drawn attention to the danger in an interdependent world of one part of the world living in comparative luxury, worrying about surplus calories, while another part of the world more numerously populated has to worry where it can find the means to get its already deficient calories. We know ours is a speedy world when it comes to such things as military science, spacecraft, etc.; but when it comes to social sciences, it is a slow world to catch up with the ideas of its best brains in that field. Thus the world lingers just inside the very doorstep of what is its undoubted responsibility. The situation is getting really serious. The Fund Report points to the 1961 experience which is a serious one, namely, that in a year of “high activity in Western Europe and of increasing output in the United States and Canada,” the prices of primary products, which these poor countries must depend on in the economy as previously ordained for them by colonial and imperial powers, declined to the detriment of these poor countries.

Today, most developing countries are facing the problem of deficits in their balance of payments, and there is a crying need to have an active demand for the products of these developing countries. But, what is the position? Statistics will show that, while world trade is increasing, that increase is much faster in the trade between developed countries, i.e., among themselves, than the trade between the developed countries and the developing countries. There is, therefore, no wonder that developing countries are now faced with a heavy erosion of their external purchasing power just at the very time when their need for imports is progressively increasing. Superimposed on this declining trend in export prices as a consequence of the low demand are the erratic short-term fluctuations of these prices. In 1961, cocoa and copra, for instance, dropped as much as 20 per cent as pointed out by the Report itself.

There can be little doubt that the persistent shortage of foreign exchange of developing countries is inhibiting the growth of free and multilateral international trade and is also adding to inflationary pressures in these developing countries—results which we all agree are not in keeping with the ideals of the Fund; but the application of sound economic policies to these developing countries—to use Bismarck’s immortal phrase regarding politics—is the art of the possible. The will and the determination to apply stronger fiscal and monetary policies to meet inflation—stronger because some of these are even strong already—is moderated by political considerations, and that is the price of democracy.

As I said before, the Fund has a good record of achievements, but our international community on monetary and financial matters cannot go forward ignoring the conditions of low economic growth and even stagnation at times in the developing countries, with its vicious circle of shortage of external finance resulting in policies leading to inflation, which in turn soon aggravate the deficit in the balance of payments. The Fund has shown a clear awareness of the problem in engaging in studies in compensatory financing and in the increasing assistance given to the developing countries in recent years, but this assistance is only a trickle compared to the drop in commodity prices of 14 per cent between 1959 and 1961 which wiped out nearly $6 billion from the export earnings of these less developed countries.

It is the hope of Ceylon, and I am sure of the many countries similarly situated, that the Fund will exert its high prestige and employ its talents to the benefit of the trade and payments of these developing countries.

In conclusion, may I, on behalf of Ceylon, thank the Fund, its staff, management, and directorate for the kind consideration we have received at all times. I wish also to express our sincere good wishes to our friend, Mr. Merle Cochran, the retiring Deputy Managing Director, and welcome very warmly also a very good friend, Mr. Frank Southard, the successor in the post.

Statement by the Governor for the South Africa—T. E. Dönges

I find it a little difficult to share the optimism which has been expressed regarding the present international financial situation. The primary producing countries, which have suffered so much in recent years from deteriorating terms of trade, and the reserve currency countries, whose balances of payments have from time to time given so much cause for concern, can surely not be completely happy with the present position.

During the past three years, the Annual Reports of the Fund have mentioned a considerable number of measures designed to strengthen the stability of the international monetary system in general and the two major reserve currencies in particular. It would be difficult to recall a period when so many expedients to this end have followed so rapidly on one another. The announcement of each new device is usually accompanied by a claim that its adoption will provide an adequate level of international liquidity for the foreseeable future. Nevertheless, these experiments, which all involve an increase in international indebtedness, continue to multiply. Moreover, each new expedient is greeted with growing skepticism, now more openly expressed, in a widening circle of informed opinion.

All this suggests that little scope for further maneuvers of this sort remains before the pressure of basic economic realities obliges us all to get down to bedrock. The bedrock of international finance is gold. We have for many years advocated a revaluation of all currencies in terms of gold as the only fundamental means of increasing international liquidity, the essential basis for expanding world trade and prosperity. I do not wish to repeat all the arguments again, but rather to draw attention to a few aspects of special relevance to the problems of today.

We have heard convincing statements emphasizing the need for a strong and stable dollar. We agree wholeheartedly. Any proposal which would be likely to endanger the prestige or the stability of either of the two main reserve currencies would be a perilous leap in the dark. The course which we advocate would have the very opposite effect, if it is carried out in the following manner.

Firstly, the par values of all currencies in terms of gold must be changed by a uniform percentage—except, possibly, in a small number of cases where some intercurrency adjustments may be considered desirable. Secondly, the change must be made in a planned and orderly manner, simultaneously for all currencies, and within the framework of the Fund. Thirdly, the change must be substantial enough to discourage any speculation regarding further adjustments in par values.

Such a procedure would provide a firm foundation for real exchange stability, particularly in the case of the leading reserve currencies where it would do the most good. No holder of dollars or sterling would suffer loss. Indeed, confidence in the dollar and in sterling would in fact be enhanced, since the substantial strengthening of the American and British gold reserves would render the position of these currencies virtually unassailable. Disturbances in the world exchange structure would be minimal, and any inflationary potentialities of the move, which in present world conditions could hardly be regarded in a serious light, would in any case be well within the control of the authorities.

The psychological effects of any move to strengthen exchange stability must always be considered, for confidence is the soul of finance. The recurrent use of special gimmicks to bolster currencies, particularly reserve currencies, is itself damaging to the prestige of the currencies concerned, and is, I believe, actually contributing to the unease regarding currency stability. On the other hand, a substantial, once-for-all appreciation of gold in terms of currencies generally would have considerably less adverse psychological impact on the man in the street than an increase in the prices of the commodities he uses daily.

A revaluation of gold in terms of all currencies would have significant advantages, not only for the reserve currency countries, but also for other industrial countries. It is true that many of these countries now have substantial reserves of gold and foreign exchange. But the over-all shortage of liquidity has led to repeated calls upon these countries to erect a still greater superstructure of international credit on the narrow base of the existing monetary gold stock. If this process should come to a halt, then these countries can expect an effort by others to capture from them a portion of their gold and foreign exchange reserves. In such a scramble for liquidity, world trade and world prosperity would be the losers.

Furthermore, it is of the utmost importance, not only to themselves, but to the whole free world, that the major industrial nations should maintain high levels of employment and an adequate rate of economic growth. In many such countries the position is hardly satisfactory today. So long as levels of international liquidity are relatively low, however, these countries may find it difficult to apply appropriate domestic economic policies because of the effect of such policies on the balance of payments. Higher levels of liquidity, brought about by a revaluation of currencies in terms of gold, would give these countries far greater scope and time for taking purposeful steps to increase the tempo of internal economic activity and overcome the widespread sluggishness that bodes so ill for themselves and other countries.

Many of the advantages which would accrue to the more advanced countries would redound to the benefit of the less developed countries, particularly through the general stimulation of world trade and the maintenance of the demand for primary products. In addition, the advanced countries would be placed in a far better position to carry the burden of their international obligations, including aid to the less developed countries, and to face an increase in such aid with equanimity. But there are other more direct advantages which the less developed countries might expect to gain. A higher gold price would not only discourage new private hoarding—which, together with industrial and artistic demand, absorbed considerably more than half the available gold supplies between 1950 and 1961, but would also draw gold out of private hoards into official reserves. Since private gold hoarding is carried on extensively in many less developed countries, these countries would benefit appreciably. In India alone, for example, it is estimated that privately held gold amounts to some $3 billion. In addition, gold production, which takes place in many of these countries, would be encouraged.

Let us be realistic and recognize the fact that, despite the many sophisticated expedients adopted in recent years to curb, at least temporarily, the demand for gold, this demand still persists as it has done for many decades. It is neither edifying nor profitable to continue the unnecessary struggle among the nations of the free world, each to obtain the gold which it feels it needs out of an inadequate new supply and thus largely at some other country’s expense. This can only have depressive effects on their own internal economies and on the growth of world trade and finance. And if Russia and its allies benefit from a higher gold price and increased international trade, so obviously does the West. Most countries, after all, are quite prepared to trade with the Communist group, for while this trade may benefit Russia and its allies, it benefits equally their trading partners in the free world. The Russian issue, in fact, is quite irrelevant to the main problem.

In matters of finance, it is not only what we do, but how and when we do it, that is important. I believe that a revaluation of currencies in terms of gold is ultimately inevitable; the signs are there for all to see and, to that extent, gold can be left to speak for itself. But I think it would be dangerous to wait too long. We need now a measure to prevent a decline in confidence rather than another nostrum which may temporarily alleviate the symptoms of the malady, but with ever-diminishing effect. I plead once again, therefore, for this step to be taken in good time and in a planned and orderly manner, so that the necessary conditions for an expansion of world trade and prosperity can be created with the least possible disturbance to international financial stability.

The Annual Meeting of the Fund provides an excellent forum for expressing and hearing the opinions of Governors. These opinions will not, and need not, always find general agreement. That is a virtue rather than a cause for concern, provided such opinions are honestly held and are designed to further the general aims of the Fund. Out of the clash of opinions, the truth is often born. And without it, there is always the danger of stagnation. What has been called “divine discontent” has the merit that it shows a desire to do better and better. I therefore personally welcome the many constructive criticisms that have been made—particularly by the Governor for the United Kingdom—and trust that all these criticisms will be fruitfully pursued on their merits.

May I, in conclusion, join in paying tribute to Mr. Cochran’s long and distinguished service with the Fund. His courteous presence will be missed. We wish him all of the best for the future.

At the same time we welcome his successor, Mr. Southard, and wish him many further years of fruitful service with the Fund.

Statement by the Governor for the Austria—Reinhard Kamitz

I would first of all like to congratulate the Managing Director on the lucid and far-sweeping analysis of the international payments situation which he presented in the Annual Report and in his opening address. His statements were, as always, to the point and deserve the greatest attention by all of us.

I note Mr. Cochran is going to retire from his present job. I want to express my thanks to him for all he has done in his capacity as Deputy Managing Director to make the activities of the Fund successful, and I want to wish him good luck for the future.

His well-informed opinion and his advice have always been of great value to me, and I would like to add that it always gave me great pleasure to discuss difficult monetary questions and problems with Mr. Cochran.

His successor, Mr. Southard, is very much welcomed by our delegation.

One of the criteria by which we can measure the success of the activity of the IMF is the number of countries which have been able to accept the obligations of Article VIII; this number has steadily increased over the past several years, and I am happy that Austria has, as of August 1962, joined the ranks of Article VIII countries. The Fund has been most successful in strengthening and expanding international monetary cooperation, which has had very beneficial effects on the world foreign exchange markets. International cooperation in the monetary field owes a great deal to Per Jacobsson, under whose stimulating leadership the Fund has not only stepped up its activity significantly, but has also gradually adapted itself to the changing conditions prevailing in the world economy. The kind of flexibility in the Fund’s attitudes and policies which emerges from the statement of the Managing Director is of the utmost importance.

It is very fortunate that an increasing number of countries are now realizing the economic rationale of the Fund’s policies and have learned through their experience that observance of policies recommended by the Fund works to their own best advantage.

It was very wise of Mr. Jacobsson to deal in his opening address with the problem of international liquidity. His analysis was clear and convincing, and I am sure it will contribute a great deal to eliminate a number of misleading interpretations which have given rise to many misunderstandings. I would also like to thank Mr. Jacobsson for the emphasis he placed on international cooperation and on the coordination of monetary and financial policies. I feel that further improvement in this field would add more than many of us realize to international monetary stability.

Austria has, as you all know, a vital interest in European economic integration. I think one cannot stress too often the fact that the fundamental prerequisite condition for international economic integration is the maintenance of monetary stability. Even though the achievements of the Fund are remarkable, we must never forget that its contribution to monetary stability can and should never take the place of sound fiscal and monetary management in member countries. It is undoubtedly true that in the short run the Fund has the ability, by deployment of its resources, to prop up a weak currency and to curb speculative excesses as well as to help to overcome balance of payments difficulties. But in order to achieve an equilibrium in the long run, every country has to take appropriate internal corrective action. It is sometimes doubtful whether governments will, of their own free will, adhere to such policies or whether the parliaments to which they are responsible will vote for them. Some compulsion to put their houses in order may therefore prove to be helpful. The further progress of the Fund is, in my opinion, intimately related to the problem of whether the Fund can succeed in making its members stick to policies which are correct not only for them, but also in the international context. This is a historical challenge; I hope we shall be able to meet it.

Statement by the Governor for the Italy—Roberto Tremelloni

Since our last Annual Meeting, my country’s policy has been, as before, consistently directed to the consolidation and defense of the system of convertibility, in acordance with the principles reaffirmed at Vienna and subsequently put into effect by the agreement on the Fund’s additional resources. As the Managing Director has already mentioned on various occasions, my country was the first to notify its formal adherence to this agreement.

The Italian delegation had occasion last year to stress the advantages that international monetary collaboration could derive from using different types of machinery operating within different frameworks—such as the International Monetary Fund, regional institutions, and central banks. In confirmation of this view, new monetary techniques, or rather old ones adapted to present needs, have been adopted by central banks through the practice of mutual credits. My country has played an active part in this; furthermore, it has repaid in advance some of its foreign debts, in an effort to make these nonrecurring transactions serve also the ultimate purpose of strengthening the existing international monetary system and its key currencies.

We firmly believe that this purpose is not inconsistent with the Fund’s duties toward the world’s less industrialized countries; on the contrary, it is an essential condition of the effective discharge of these duties. It is in the conviction that we are acting to the benefit not only of a restricted number of countries and currencies, but indirectly of all member nations, that my country gave sympathetic consideration to the measures proposed to extend the Fund’s lending power and so to enable it to relieve temporary strains on the international monetary system. It is in the same spirit of responsibility toward all member nations that we shall examine any further measures and decisions that may in the near future be submitted for our consideration.

Allow me now to describe in a few words what the Italian monetary authorities have done lately to prevent our country’s balance of payments surplus from having harmful repercussions on international liquidity.

In the field of foreign trade, we have opened our doors still wider to imports both from the countries of the European Economic Community and from the rest of the world. Within this framework, Italy introduced quite recently a further reduction in the remaining quantitative import restrictions, as well as an additional, independent, tariff cut, applicable to imports of whatever origin.

Similarly, in the sector of liberalization of capital movements, Italian residents have been allowed, since November last, to purchase foreign currency debentures issued by international financial organizations in which Italy is a member. Almost at the same time, the 1959 regulations authorizing companies to buy shares and subscribe to capital of foreign companies operating in the same field were extended to the purchase of debentures.

In February of this year, we abolished the 20 per cent ratio between foreign security purchases and paid-up capital plus reserves, which had previously governed the foreign investments of the so-called special credit institutes and finance companies.

Domestically, the Italian Exchange Office continued with its spot sales of foreign currencies to Italian banks, linked with forward repurchasing commitments. Taken together with dollar deposits with the banks, the total of these operations reached a figure of $900 million at the end of August this year, against $550 million at the same date in 1961. All this enabled the Italian banking system to improve its foreign currency position and at the same time discouraged the inflow of hot money from abroad.

Finally, my country’s efforts not to disturb international equilibrium by our balance of payments surplus are well illustrated by the changes which took place during the first eight months of this year in the composition of foreign assets financed by the central bank. The portfolio in foreign securities shows over that period an addition of $370 million which was due to an increase in the purchase of foreign currency and lira securities issued by nonresidents as well as to our further repurchases of bonds of foreign loans to Italy.

All these measures ultimately work in the same direction, and we believe they represent a worthwhile contribution to those official compensatory transactions which, we all know, have lately been such an essential factor in improving the balance of international payments.

A striking development during the last 12 months has been the increasing use of European currencies in the operations of the International Monetary Fund. In this connection, may I point out that Italy has always shown herself most cooperative, not only on the occasion of lira drawings, but also in discussing the principles concerning the selection of currencies for drawings and repayments. I take this opportunity to confirm once more that Italy will not create any obstacle to the international use of the lira, and that we shall be glad to participate in any further attempts to find satisfactory solutions for certain technical problems related to the actual drawings in different currencies.

Although we can all agree, I think, with the Annual Report and with the Managing Director’s introductory address to the effect that we have lately made progress in international monetary cooperation, we are, of course, also all aware that many problems still await solution.

But it is my belief that our path is clearly set. It leads from the extension of mutual facilities, which have been so valuable an element in last year’s growing collaboration between monetary authorities, to wider forms of monetary cooperation at the regional and world level, as exemplified by the creation of a masse de manoeuvre of additional resources with the Fund.

Moreover, the cooperation between central banks can undoubtedly be further developed in organic and technically more efficient forms, instead of the sometimes ad hoc forms which such cooperation has assumed in the recent past under the pressure of sudden tensions.

It can therefore be said that there is in existence a sufficiently wide range of valid forms of cooperation, which, being based not on unrealistic automatic mechanisms but on the ability of human will and foresight to produce timely and correct decisions, seem to furnish an adequate safeguard for the present international monetary system.

In the selection of the forms of action which are regarded as most appropriate for meeting the needs of the changing situation, account must be taken both of the assessment of the position and of the considered choice made by the countries bearing the greatest responsibilities, since it is their currencies which are the keystone of the present international monetary system. The other countries, for their part, will show proof of wisdom and realism if, once this choice has been outlined, they cooperate effectively to ensure the success of the policies proposed, in the knowledge that these policies are designed to safeguard not only specific currencies but also the very stability of the international monetary system itself.

If we proceed along this path, at whatever speed seems expedient and possible, we must in any event take care in the meantime not to apply restrictions which might prejudice the full utilization of any country’s economic potential, and we must resist all temptations to unload our difficulties upon the shoulders of our neighbors. In our days, the interdependence of all economies—as exemplified plainly, though not always smoothly, by the degree of internationalization of the money and credit markets—presents us with a challenge and a bright opportunity.

Statement by the Governor for the Greece—Xenophon Zolotas

I welcome this opportunity of congratulating Mr. Jacobsson and the Executive Board and staff on the Annual Report, which testifies to their inexhaustible ability to improve on the already excellent standard of previous Reports.

The past year was one of continued expansion and growing trade—although at a slower rate—largely among industrial countries. On the other hand, the persistent price weakness of primary commodities rendered 1961 another year of difficulty for the less industrialized nations. As pointed out in the Annual Report, in recent years we have witnessed a marked divergence in trade developments. We should not lose sight of this vital issue on which depends the balanced and stable growth of the international economy. The efforts that developing nations must make in order to place their exports on a sound and broader basis cannot be fully effective unless the industrial countries facilitate the access to their markets and sustain an adequate flow of development capital on reasonable terms. Mr. Jacobsson has already emphasized the importance of close international cooperation in this field, in which little has been achieved. It cannot be overstressed that the Fund should provide full cooperation and support to any sound initiative in that direction.

One of the most prominent and encouraging characteristics of the past year has been the progress made in the field of international monetary cooperation. In addition to its immediate benefits, such progress acquires a wider meaning if it is taken as a positive indication of our ability and willingness to respond promptly and effectively to the requirements arising from the increasing interdependence of our economies. It is only obvious that the basic triptych of economic policy goals, i.e., adequate growth rates, together with relative price stability and external equilibrium, cannot be achieved without effective coordination of financial policies.

In recent years, several member countries have altered the basic parities of their currencies. Such realignments are often necessary and desirable for the establishment of realistic par values, providing a sound basis for the expansion of world trade and payments. The removal of fundamental disequilibria and the adoption and maintenance of realistic par values are of primary importance for safeguarding convertibility and multilateralism. In this respect, the recent record of both upward and downward adjustments in exchange rates is particularly encouraging as a sign of the sharing of responsibilities among surplus and deficit countries.

It would be advisable, however, that the appropriateness of economic policy measures be appraised in the context of parallel developments and prospects in the rest of the world. Cost-price disparities, and the resulting trade surpluses or deficits, may easily be corrected or even reversed as a result of developments outside the country concerned.

A typical example in this respect has been the case recently in the United States, where, following the faster rise of prices and costs in other major countries, any serious disparities in cost-price levels in comparison with the rest of the world do not appear to remain. The competitive strength of the American economy has improved without any drastic corrective measures, which in the light of the present course of events would have appeared unwarranted.

The experience of the past year shows once again the crucial dependence of international monetary equilibrium on sound financial policies on the domestic front. In view of the growing interdependence of our economies, the task of reconciling internal equilibrium with external balance becomes ever more pressing and significant. Disparity effects, highly detrimental to international transactions, could be avoided if better coordination were achieved in cost and price developments among the members of the international community.

Experience has shown that, while our arsenal of policy weapons is quite adequate to cope with demand-pull inflation, means of controlling the cost-push side of the problem have scarcely been developed and usually require too high a price in terms of unemployment margins. I believe that the cost inflation problem could be reduced drastically, if the various social groups were persuaded of the detrimental effects of remuneration increases unwarranted by productivity gains. Effective methods of information and persuasion are necessary to obtain general awareness of the fact that the inflationary spiral, in the last analysis, cannot be of benefit to anyone. Several countries have already started in this direction, but some coordination at the international level appears also desirable. The study of the problem undertaken by the Organization for Economic Cooperation and Development deserves, therefore, our warm support. Furthermore, it would be most useful if additional efforts were made in this context, with the cooperation of international labor organizations, in order to institutionalize our common stand against rising costs.

Of special significance, as I mentioned before, is the relative stability of costs and prices in the United States in comparison to other major countries. The improvement in the competitive strength of the American economy has already been manifested in rising exports, sustaining the surplus of basic U.S. transactions with the rest of the world. It goes without saying that these important achievements would be further consolidated and world monetary order substantially strengthened by success in the efforts to ensure a high rate of noninflationary growth in the United States. Under these conditions and prospects, it would be quite absurd to speak of dollar overvaluation and speculate on the possibility of corresponding corrective action.

The assurance of President Kennedy regarding the maintenance of the present parity of the dollar and the firm stand of our American colleagues on this matter deserve our highest appreciation. Any different course of action would be unnecessary, undesirable, and ineffective. As a matter of fact, it is hardly conceivable to have the par value of the dollar altered, without other currencies following suit. Thus, there would not be any significant change in relative prices and trading positions. Furthermore, it is very doubtful whether wholesale devaluations—tantamount to a rise in the price of gold—would help to alleviate the international liquidity problem. Irrespective of whether an increase in the price of gold is presently needed, there are serious objections against the arbitrary redistribution effects of the measure, which, in addition, would penalize those countries that confidently keep down the gold part of their reserves. Moreover, the rise in liquidity from the higher price of gold would most likely be offset by a corresponding shrinkage in the key currency component of world reserves, following the blow to their standing and to the state of confidence.

The increase in the Fund’s resources by borrowing and other measures of effective monetary cooperation, such as the coordinated intervention in the London gold market and short-term credit arrangements of the Basle type, have greatly contributed to the improvement of international monetary conditions. The basic question that has to be examined is whether there is still need to consider means and measures for the consolidation of the international monetary system. Taking into account the sound and effective policies pursued by the U.S. financial authorities, I have no doubt about the vigor of the American economy and the future of the dollar. The dollar has become the international currency that it is today on the basis of the strength and dynamism of the American economy and performs its key role in the best way possible under the present form of the gold exchange standard. Our present monetary system, however, cannot qualify as a genuine gold exchange standard and its actual working is apt to cause unnecessarily heavy strains on the economy of the currency on which it is primarily pivoted. Such disturbances are, in turn, reflected in the whole pattern of international exchanges and payments. It is, therefore, essential to make perfectly clear that the proposals I have made in the past go beyond temporary strains experienced by the key currencies to the core of the matter: the basic deficiencies of our present monetary system as a whole.

The measures I have proposed since last year are not palliatives for the key currencies but basic conditions for the establishment of >a stronger monetary order, i.e., of a genuine, multicurrency, gold exchange standard, the main features of which are the following:

First, reciprocal accumulation of reserve balances among major trading countries in each other’s currencies, with the reserve centers leading the way.

Second, provision of a gold guarantee on foreign official reserve deposits by all major convertible currency countries.

Third, preferential interest rate and tax treatment for foreign official depositors of reserve balances, which possibly could also be extended to private foreign holders of short-term assets.

The above measures are complementary and not substitutes for each other, forming an integral policy device which should be implemented as a whole in order to be fully effective. Thus, while the gradual orientation of responsible authorities to the above policies is very encouraging, I would like to emphasize that in this case a piecemeal approach would be of dubious effectiveness.

I do not intend to analyze in detail here, as I have done elsewhere, the specific functions that each of the above measures would perform. I would like to stress, however, that the over-all result would be the establishment of a multicurrency standard, in which the responsibility of supplying international liquidity and defending the stability of the system would be shared among several leading countries. The mutual piling up of deposits in major convertible currencies—through the appropriate utilization of surpluses and the reciprocal extension of credit—would not only serve as the first line of defense for key currencies and as a means to economize on gold, but would also establish a multilateral monetary infra-structure, made up of a network of interdependent reserve currencies which would meet both the short- and long-term aspects of the international monetary problem.

In such a context, the simultaneous provision of the gold guarantee on foreign official reserve balances by all major trading countries would be indispensable. For it would be hardly possible otherwise to expect national monetary authorities to assume the responsibility of stockpiling each other’s currencies. The strengthening of confidence to this end appears necessary not only with respect to the present reserve currencies, but also and mainly with respect to those currencies that appear eligible to perform a key role in international transactions. On the other hand, as I have emphasized in several instances, if one reserve center were to adopt the measure alone, its efficacy would be limited. The gold guarantee, as I have proposed it, is an integral part of the above system of complementary measures, which would reduce our dependence on gold as a means of international payments while maintaining it as the measure of value. As a matter of fact, it would hardly be necessary to bother about gold in the context of the above system, which would render a number of major currencies perfect substitutes for gold. Since the main responsibility of central banks, which determines the structure of their international assets, is to secure the gold value of their foreign exchange reserves, they should scarcely have a reason to prefer gold to interest-bearing holdings of guaranteed key currencies.

On the other hand, the provision of a multilateral gold guarantee would presently be the best answer to gold speculation and would definitely silence disturbing rumors and disequilibrating activities that exist in this respect. For the provision of the guarantee would serve as an indisputable proof of our firm commitment to maintain the present price of gold.

The current pressure on present reserve centers, due to the excessive recourse to their capital markets by the rest of the world, would be largely alleviated by the raising of several major currencies to the status of international monetary media. At the same time, the proposed differentiation of interest rate and tax policies between the internal and external sectors would allow the existing and eventual reserve centers to secure the independence of their international position from internal policy requirements and render the goal of external balance compatible with domestic high-employment equilibrium and increased rates of growth. It goes without saying that the regular coordination of interest rate policies among the financial centers of the world would be absolutely essential.

With the above system of interconnected policy measures, we need neither transcend our present institutional framework nor limit our national responsibilities for discipline in order to cope effectively with the short- and long-run deficiencies of our present monetary system. We should not lose sight of its basic weaknesses as a result of recent improvements in the international monetary situation. On the contrary, it would be most timely and appropriate to undertake reformative action when it appears to be less urgently required, rather than postpone it till the time of crisis, when it would be overdue and the least effective.

In the long run, there is always the well-known question mark on the ability of the present gold exchange standard to satisfy the liquidity requirements of free and growing world transactions. At present, the problem appears anything but urgent; conditions, however, may change rapidly in case of real or imaginary dangers causing a shrinkage in the foreign exchange component of world reserves, through the interplay of confidence and speculation effects. In a world of high political tensions and uncertain developments, both effects depend on volatile psychological factors and are bound to feed back on rumors. In view of the recurving character of the speculation and confidence effects, it would be unwise to overlook the necessity for reinforcing our defenses against such unsettling occurrences.

Furthermore, a liquidity shortage may become evident faster than we think, if only because the reserve centers are too successful in restoring an over-all surplus in their balance of payments. Reconciling, therefore, the stability requirements of the gold exchange standard with the liquidity needs of the international economy would be one of the serious future problems.

It is only natural that a multicurrency gold exchange standard would be the effective and feasible answer to the threefold issue of liquidity adequacy, speculation effect, and confidence effect, since it has been designed in response to them. The proposed multilateral monetary infrastructure would provide an adequate and sound basis for the expansion of international liquidity, while the confidence and speculation effects would be minimized by the simultaneous provision of the gold guarantee and the coordinated manipulation of interest rate and tax policies.

The implementation of the proposed system should be a matter of international consultations and agreement, among the major trading countries, in which the role of the Fund would be of primary importance. In addition to the various ways in which the Fund could contribute to this end, the fact that the gold guarantee is an established practice in its transactions could probably provide a way out of the psychological barrier that appears to exist in this respect. Thus, it might prove useful that the gold guarantee be extended only on reserve deposits made either through the Fund at the reserve centers, or with the Fund itself. In both instances, the process would be completely voluntary for the countries concerned and the Fund would keep this type of activity outside the quota system. It goes without saying that the reserve balances deposited through or with the Fund would be as freely usable and transferable as ordinary reserve deposits.

It may be more expedient if, in the initial stage, the Fund limits itself to the role of an agent of depositor countries, following their instructions as to the form of their reserve deposits and the currencies in which they would like to hold them.

I believe that in this direction lies a valuable opportunity for the Fund to improve on its outstanding record of contributions to international monetary order.

It should be emphasized again, however, that neither a multi-currency gold exchange standard, nor any international monetary system for that matter, would be fully effective in maintaining over-all equilibrium in world transactions, unless appropriate action is taken to support the balance of payments position of primary producing countries and to promote rapid economic growth in developing nations. Continued expansion of world trade, as well as the stability of our monetary order, will, in the final analysis, depend on the ability and willingness of major industrial countries to run deficits on capital account on a sufficient scale to sustain an adequate rate of growth in the countries in process of development. A reinforced gold exchange standard with an expanded monetary infrastructure would greatly enhance the ability of the developed countries of the Western world to meet these fundamental requirements of international economic order and growth.

Before I conclude, I would like to express our deep appreciation to the retiring Deputy Managing Director of the Fund, Mr. Cochran. With his outstanding qualities, he has rendered excellent services to the Fund and all member countries, and we shall miss him. We wish him all the best.

I would like to take this opportunity to extend our warm congratulations to the new Deputy Managing Director, Mr. Southard, whose exceptional ability and experience provide a guarantee for the successful continuation of his position in the Fund.

Statement by the Governor for the Netherlands—M. W. Holtrop

Though it certainly was a great pleasure last year to convene in the gay atmosphere of Vienna, I must admit that I felt happy this year to return to Washington to a meeting that promised less excitement, but also fewer worries, than did our previous gathering. Last year, we found it necessary, in the light of recent experience, to discuss the strengthening of the Fund’s resources, so as to enable it to better take care of possible emergencies. Now we meet with the double reassurance that the $6 billion of borrowing arrangements are almost completed and that the trend in international payments relations clearly moves in the direction of smaller surpluses and smaller deficits.

As far as my own country is concerned, I may observe that the mixed blessing of ample surplus has by now given way to the comfort of moving around equilibrium. As for the European continent generally, one need only remember that in the years 1959 to 1961 the net increase in official reserves of the six EEC countries and the net loss of reserves of the United States both amounted to more than $6 billion, while in the first six months of this year the net increase in reserves of the Six consisted of a mere $125 million, to be aware of the change in atmosphere. It is true that this movement toward equilibrium in the balance of the Six is not matched by quite as large an improvement in the balance of payments of the United States, but is partly reflected in improvements in the position of the United Kingdom and other countries. Though there is, therefore, no reason yet for complacency, the over-all improvement of the payments situation seems to me undeniable.

This movement toward equilibrium is the result of twofold forces: on the one hand, of direct interventions by the governments, as, for example, the tying of aid and special arrangements with respect to military expenditure by the United States and the prepayment of debt by European governments, but on the other hand, also of more fundamental adaptations, namely, a quite noteworthy stabilization of labor cost per unit in the United States and a somewhat grudgingly accepted, but in the circumstances unavoidable, increase in this same cost-item on the European continent. Thus, market forces and policy measures, slowly but irresistibly, are working toward equilibrium.

Given the reserve situation of the countries involved in these major movements and considering the available resources in the IMF, there is, in my opinion, no reason to get unnerved by the fact that this process of adaptation, before having reached the equilibrium point, will, for the time being, continue to bring some further loss of reserves to the United States. Provided the policies followed by the governments on both sides of the ocean continue to be directed to re-establishing equilibrium, there is no doubt that that goal will be reached long before available reserves should prove to be deficient. But, of course, it is policies that will continue to count.

When reading occasionally some of the more critical comments on current developments, one gets rather the impression that the authors could not be satisfied with anything less than a “foolproof” international payments system, a system that would guarantee that considerations of external equilibrium would never have to interfere with the pursuit of national policy goals. I would like to express the hope that I shall not live to see the day that such a system were introduced. For clearly a foolproof system could well dispense with the services of most of us, and it would just be sad to see this august gathering thus become technologically unemployed.

I do not think, however, that we really have to worry. The fact of the matter is that it is of the essence of an international payments system, based on fixed rates of exchange, that it should not be proof against faulty management, but should force us continually to be on the alert to pursue policies conducive to both internal and external equilibrium.

It is this conviction that leads me to express my support for the stand taken by Mr. Jacobsson, in his opening address, against any idea of altering the present price of gold, or of introducing a system of extensive gold guarantees, by which I mean a system of gold guarantees of a not strictly qualified character.

No matter what the intentions of the authors of such proposals for radical reform may be, such reforms would actually result in relieving monetary authorities for an indeterminate period of time from the discipline of the balance of payments. And I can think of no development that would be more harmful to the true interests of both national and international monetary stability than to create that condition.

I, therefore, want to state my firm conviction that no radical reform of our payments system is presently needed. What we are in need of are national policies that are conducive to international equilibrium. Such policies should be pursued by both deficit countries and surplus countries with courage and consistency, and with the willingness to make some sacrifices for that purpose in the field of whatever national policy aims might be dear to them, be it the protection of specific industrial or agricultural interests, the stability of their cost of living, or the height of their interest rates.

Meanwhile, we certainly should not fail to continue, in the framework of all bodies that are dedicated to international monetary cooperation, and also therefore in the framework of the International Monetary Fund, the study of improved techniques of cooperation and coordination in the field of monetary management, so as ever better to realize that threefold goal of all our endeavors in this field, namely, the establishment and maintenance of conditions conducive to international equilibrium, to general price stability, and to satisfactory growth.

In conclusion, I should like to join my fellow Governors in paying tribute to Mr. Cochran, who, since early 1953, has been the wheel within wheels of this complicated monetary machinery, and who has been responsible, in this important phase of the Fund’s history, for its smooth functioning.

I also wish to associate myself with the appreciation and thanks expressed by earlier speakers to Mr. Southard, whom we have known, since February 1949, as one of the most active members of the Executive Board, and who now has been courageous enough to change his role and will serve the Fund, which he already knows as few of us do, in the capacity of Deputy Managing Director.

Statement by the Governor for the Argentina—Alvaro C. Alsogaray

It is for me a high honor to speak again from this tribune of the International Monetary Fund and the World Bank.

I think that every one of us has the obligation at this meeting to try to make a contribution to the task being carried out by these two institutions, whose prestige is growing day by day throughout the world.

In my particular case, the only way to try to make such a contribution is to refer to concrete experiences which we have had and are still having in Argentina. If these experiences are added to those of other countries, we will obtain an ever more important over-all picture from which it will be possible later to formulate more general rules and conclusions that will perfect our techniques and help us build an increasingly efficient modus operandi.

I do not try to interest everybody in the details of the Argentine problem; fundamentally, we Argentines have to solve this problem ourselves. I merely wish to outline, with the aims already mentioned, the two or three outstanding points of our experience. And these I take the liberty of submitting to this meeting for consideration.

Nothing is more dangerous than the misuse sometimes made, out of inability or for demagogical reasons, of such terms as recession, expansion, stability, development, and others.

I believe that nobody with an awareness of his responsibilities and a social sense can now believe that economic recession is a solution for any problem. In some countries there may be very small minorities who believe that recession is the way to maintain some of the privileges they enjoyed in the past. But those groups have fewer and fewer opportunities of prevailing and, in any case, within the general picture, they are not an important negative factor. Everybody denies them, and there is no danger at all that they may predominate. But, without ignoring them, there is the need to seek also in other factors and other sectors the deeper causes of the Latin American problems, and, in general, the problems of all countries trying to speed up their development.

The idea of economic expansion and development does not require much comment. Contrary to what happens with recession, everybody is agreed on the need for economic expansion and the acceleration of development. The question is how to face this task, how to determine which are the best methods for carrying it out and for establishing the basic conditions for these objectives to be attained. And this is, indeed, a question on which not all of us are in agreement, and about which from time to time there are violent polemics, ideological fights, and—what is even worse—dangerous experiments.

In Argentina we have lived recently through an experiment of this kind. Even today we are discussing the results of such a test, and there are many who still do not want to recognize the truth about it. I would like to make a very brief comment on this experiment, as I mentioned at the start.

Improvident men and ideologists who, incidentally, wielded a great clandestine political influence, posed to us the false dilemma of stability versus development. In April 1961, when, under the direction of the Minister now speaking, we had achieved a firm monetary stability, on the basis of which a perhaps excessive expansion and development were being materialized, the continuity of the process was broken with the argument that we were accomplishing “too much stability and too little development.” A few months later, under the impulse given by the Government itself, and many businessmen favoring inflation and controlled development, from which they always reap advantages, Argentina started an unbridled race toward adventure and a heedless overinvestment, which was justified and introduced under the label of “development policy.” The results are now evident. On very few occasions such as this is it possible to determine with such precision the causes and the errors of a process or a failure. That is why it should be analyzed. Development at all costs, development planned by improvident or ideological technicians, development which dismissed a stable monetary basis and a genuine financing, soon ended in a new monetary devaluation, in a new inflationary impulse, in a new increase in the cost of living, in a financial crisis, and also, finally, in what its defenders would have least desired: the hard obligation and the absolute need, imposed by the facts themselves, of admitting the impossibility of continuing with that supposed rate of development. We have now before us the task of stabilizing our currency, of rebuilding the reserves in the Central Bank, of solving a financial crisis, and of starting afresh on the road toward authentic development.

This experience is another evidence of what is well known to all of you: there can be no development or sound expansion in any economy or country except on the basis of monetary stability and political stability, and with a wise economic and financial policy, which must also be stable over a certain period and should not be changed practically every year. The term “stability” does not mean stabilization of the economy or, as some disdainfully charge, “stabilization of misery.” The word “stability,” in its technical economic sense, means political stability, stability of economic and financial plans, and, fundamentally, monetary stability.

The contraposition of “stability” versus “development” is false. No development is possible except on the basis of stability as we have defined it. Development with inflation is a pseudoscientific myth invented by theoretical planners, and applied by demagogues or politicians who choose the way of the least effort. Controlled inflation is another modern nonsense which it would not be worthwhile to discuss scientifically, were it not for the tremendous harm it causes sometimes when, as frequently happens, there are politicians ready to apply it as an easy solution.

The alleged incompatibility and opposition between stability and development, on the other hand, mean something more than a contraposition between two concepts or two theories. They mean two different manners, different even in their ethical and moral foundations, of facing practical problems in the social field. There is a need for courage and decision and absolute lack of self-interest to solve stability problems. There is, in addition, the need to be honest with oneself and with the social groups toward which the action is directed. And this, in many cases, is difficult to face. On the other hand, in order to follow the easy road of inflation, false development, and fantasies it is only necessary to forsake some moral prerequisites and be carried along by the human pressures of great sectors of society who live in precarious conditions and who demand immediate solutions that require no great effort.

Argentina has just experienced this problem, and knows it well. It knows how to distinguish between development and fantasy. And it is now determined to follow again the road to stability as the only possible solution for the problem of achieving an authentic and durable development. Argentina is not solving its problems on the basis of classical recession and decrease of the national effort. It is deliberately going through the hard period of reaching stability in order later to carry out a bold and energetic development policy.

Few things about the problems of stability and development have impressed me more in recent times than the clear warning given recently by Mr. Per Jacobsson about the danger of recession and the need for adequate international financing and cooperation to make it possible to defend stability and at the same time promote development.

My own experience leads me to coincide fully with this point of view, and, if I could add anything, it would be simply to reaffirm emphatically what has been said by Mr. Jacobsson.

In this I also want to keep to the method I mentioned at the start: to point out concretely one key point and one experience.

At the present time, in the international financial field and, in many cases, even among the political leaders responsible for the conduct of the Western world, there is no clear appreciation of the need and the real urgency of many countries of counting on a timely foreign help to halt inflation, attain stability, and thereby promote development.

It is true that the International Monetary Fund and the World Bank work with commendable efficiency toward the solution of certain specific problems of monetary stability and development projects. In these spheres the action of both institutions has an immeasurable value. But there are no national or international institutions prepared to help solve the problem of the critical moment of halting inflation and the transition to stability.

As a general rule, during this critical period, problems of two types are posed. Some of them, such as the exchange system, the need to face the rise in the cost of living, credit restrictions, limitation of salary increases, etc., can be solved overnight and depend only upon the will and the courage of the political leaders facing up to them. But there are other problems, such as eliminating budget deficits, efficient reorganization or conversion to private enterprise of big State enterprises or services, the completion of public works already started, etc., all of which require time and financial resources. And for this, nobody is ready to lend any help. On the contrary, the opposite tack is taken. The executives in charge of braking inflation and restoring order in their countries are told: You must balance the budget, reorganize enterprises, achieve a greater efficiency, and then we will aid you. The executives are thus given an impossible task, and, besides, are offered something useless which may mean a true irony. Because, what would help and cooperation be needed for, once the problems are solved? How can such problems be solved without that cooperation? At the bottom of all this there is obviously a question of trust and a question of skepticism in view of previous failures. “What is going to be done” is not believed in. Besides, there is the desire to be sure that the resources and the aid will be well used. And then a dangerous generalization is made: the conscientious and responsible statesman is treated on the same level as the demagogue; the same treatment is given to a country that deliberately and successively is managed through inflationary measures and believes foreign aid is an obligation, and to a country that deems that this aid is an emergency question and is tending toward stabilization; the same treatment is given to leaders who are ready to require their peoples to make their own effort in order not to have to resort systematically to foreign help, and to those who promote chaotic conditions so as to demand that help later under the threat that if they do not get it they will ask the communists for it. And this, obviously, does not stimulate the effort of responsible people.

I think that one of the most urgent, most pressing tasks at the present moment is to discuss this problem of overcoming the critical moment between inflation and stability, and to find a method to make the cooperation required for this possible and opportune. I want to emphasize in this respect that since March 1961 we have been analyzing this important question with the Secretary of the Treasury, Mr. Dillon, and that, for the case of Argentina, I have found in him the utmost understanding, besides the will of breaking up old methods and of doing something effective and practical to solve problems which exist today and in these circumstances, and which are not for tomorrow or for other conditions. Also, the officials from the Fund who recently have analyzed with us in Argentina this interesting subject of transition from the inflationary period to that of stability have cooperated in the same way.

The World Bank has also made an important contribution to Argentina in this matter. But I believe that this type of cooperation requires a special basic consideration which would allow it to function at the right time and when it is really needed.

There is one final consideration of a more general nature, the relationship which naturally exists between foreign cooperation and the political, economic, and social bases of the country which is the recipient of such aid.

It is erroneous to believe that it is enough to pour enormous capital or resources into a specific country in order to bring about authentic development promotion and neutralize the danger of political unrest and communist penetration. More important than the amount of these resources is the manner in which they will be utilized. Foreign cooperation can only serve as a stimulating factor added to individual effort brought about by an adequate economic and social philosophy. The latter requires, on the one hand, political stability, and on the other, an effective means of carrying it out. Only by means of effective political economic action of this type can we guarantee the adequate use of resources and set up effective safeguards against the advance of totalitarianism. For this reason it is as important to cooperate with those who follow this road as it is not to cooperate with those who maintain that it is possible to embark on totalitarian adventures or demagogic schemes with resources obtained from abroad. The granting of the latter merely means the financing of failures.

International financial capital and cooperation are significant, but what is really important is the creation of a national conscience which will lead to politically stable governments, with free economies, monetary stability, and authentic development, based on individual effort.

Statement by the Governor for the Tunisia—Hédi Nouira

The Report of the IMF, as in previous years, can but confirm the difficult situation of the underdeveloped countries.

The prices of primary products for the whole of the year 1961 were, on the average, 4 per cent lower than in 1960, or 2 per cent, if year-end levels are compared. Since there was a drop of 6 per cent in each of the two preceding years, it is evident that the problem is constant and acute.

During the same period, the prices of the manufactured products purchased by the underdeveloped countries continued to increase: 1 per cent last year, after even larger increases.

The terms of trade of the underdeveloped countries thus continue to deteriorate. A recent study published by the French Institute of Statistics and Economic Research showed that from 1950 to 1961 this deterioration amounted to 11 per cent, while in the same period the terms of trade of the industrialized countries improved by 8 per cent.

This situation is worsened by another factor: the expansion of international trade favors the industrialized countries. In 1954, the underdeveloped countries accounted for 28.5 per cent of world imports and 28.7 per cent of world exports; in 1961, these proportions had fallen to 24.4 per cent and 23.5 per cent, respectively. The detrimental effect of this development is twofold: On the one hand, the percentages have declined, and, on the other, the percentage of exports has fallen below that of imports.

This is brought out in another way in the Fund’s Report, which shows that the intensification of world trade since the 1958 recession arises essentially from the trade between industrialized countries, which has increased by nearly 50 per cent since 1958, whereas purchases by those countries from the primary producing nations have increased by only 15 per cent. It should be noted, moreover, that the underdeveloped countries are not the only primary producers.

In addition, the introduction of substitute products and the establishment of protective agricultural policies by the industrialized countries usually have an adverse effect on the underdeveloped countries.

In practice, instability of the commodity markets affects the underdeveloped countries’ prospects of development. A country’s industrialization and the execution of basic projects on a schedule fixed by plan, which require years of constant effort, are continually jeopardized by the instability of the funds that should make them possible. This serious imbalance is one of the fundamental difficulties of development for the young countries that tend to attach more and more importance to short-term problems; long-term development depends, in the end, on the solution of these problems.

The long-term trend of the terms of trade between manufactured products and primary products is not therefore of basic importance to the underdeveloped countries.

The latter certainly cannot believe that the multiplication of substitute products is an abnormal factor or that the industrialized countries must forever assist in maintaining the structural rigidities of the underdeveloped countries. Such countries should take a realistic view of their situation and think over their structure over the long term. It is then impossible to defend any resistance to change; on the contrary, it is necessary to adapt to the hard realities of economic life. For such an adaptation to be possible, however, solution of the short-term difficulties must not clash with long-term objectives.

There is such a clash, however, for, in order to develop in an orderly fashion, the underdeveloped countries must be able to have regular revenues. Here, again, they are faced at one and the same time with the problem of the terms of trade and the problem of instability of exports.

The Monetary Fund, of course, has long been concerned with the position of the underdeveloped countries, to which it gives its support to help offset the variability of their foreign revenues, on condition, of course, that there are reasonable certainties of a resumption of exports or a slackening of imports. That, however, is only a very small part of the solution.

The United Nations has also considered the problem. Particular mention should be made of the Crawford report. This report proposes two plans intended to protect the producing countries against any reduction in their revenues from exports below a movable average of receipts of previous years. The two plans differ only in the manner of coverage: in the one case it is insurance; in the other, the countries concerned would acquire drawing rights. While hoping that the first plan may become a reality, it would be more realistic to attempt to use the second, which involves drawing rights.

The reluctance of the authors of the Crawford report to entrust the management of such a system of drawing rights to the Fund is debatable. It is far easier to turn to an existing institution, with its established charter, staff, and policies, than to create a new agency out of thin air. Moreover, this falls exactly within the province of the IMF. The Fund’s participation, moreover, would answer what some may regard as a basic objection, namely, the matter of automatic compensatory financing. This automatic action in no way guarantees that the funds obtained will be used within the framework of a plan of organization or reorganization of the economy of the beneficiary countries.

The assistance of the IMF usually entails a study of the economic situation and the economic policy of the applicant countries. The vulnerability of the balance of payments position of the underdeveloped countries, moreover, is part of the problem of international liquidity and this is always under observation.

The “Ten-Nation Agreement” has of course come about since our last meeting, and it should help to solve future difficulties of reserve currencies through support and collaboration among the industrialized countries. The underdeveloped countries are not unappreciative of the measures intended to help the reserve currency countries to perform their duties.

This, however, should not cause the problems of the underdeveloped countries to be lost sight of or relegated to the background. Under the aegis of the International Monetary Fund, the industrialized countries have been able to agree to come to the aid of whichever currency might be in difficulties. Would it not be advisable for the Monetary Fund to consider, without delay, another parallel agreement whereby these same industrialized countries would declare their willingness to place at the Fund’s disposal for the underdeveloped countries compensatory funds that will make it possible to grant drawing rights as suggested by the Crawford committee?

The work of the United Nations has already cleared the way, so that it should not be difficult to draw up the measures to implement the proposal. It might even be preferable, in order to avoid the reproach that the “Ten-Nation Agreement” is discriminatory, to extend and complete the Agreement in this way, so that it will answer the needs of both the industrialized and the underdeveloped countries at the same time.

May I now associate myself with the warm and friendly words addressed to Mr. Cochran, who is an old friend of Tunisia, and it is therefore with deep regret and not without great emotion that we now see his withdrawal from the Fund to which he has devoted so much of his energy and intelligence. To his successor, Mr. Southard, whose value is unanimously recognized, we would like to wish full success in his new and important function.

Statement by the Governor for the Israel—Levi Eshkol

During the past year’s operation, the Fund’s position as leader and guide in the world monetary exchange system has been enhanced and fortified.

It is generally felt that the economic situation and prospects are at present brighter than a year ago. This is mainly the result of the improvement in the economic situation of the major countries.

I should like to devote my remarks to economic development in one small country. Among the nations which have advanced toward the consolidation of their economic systems, Israel may be included.

On February 9, 1962 Israel carried out a reform in its economic policy. The system of multiple rates based on I £1.80 to the dollar, plus premiums for exports and certain capital transfers, which had developed as a result of the dynamic nature of our development and immigration, was replaced by the introduction of a new unified rate of I £3 to the dollar.

The reform of our monetary system was carried out under particularly difficult conditions. In most other cases, such reforms are made while currency reserves are declining, or when there is a danger of such a decline.

In Israel, for the past few years, there has been a marked increase in the exchange reserves: from export earnings, private and public capital transfers, including personal restitution from West Germany.

When we planned the reform, we anticipated that the new exchange rate would further increase the flow of capital and, therefore, also the rate of increase of our currency reserves. We recognized that this additional inflow, as well as the higher rate in terms of Israeli pounds per dollar, could generate strong inflationary pressures. Another factor, which made the reform particularly difficult, was the increase in the rate of immigration to Israel, which necessitated a considerable rise in government expenditure to provide services, as well as more investments in housing and productive enterprises.

I would also like to point out that the share of foreign trade in the total resources of the economy is, in Israel, as in a number of other small countries, particularly high. For this reason, the devaluation was liable to have a proportionately stronger effect on our economy than in other countries, where foreign trade has a smaller share.

Devaluation was but one point—perhaps the most important—in the introduction of the economic reform which was announced last February. In addition, the Government adopted a number of stabilization measures. One of the major points was to limit gradually the protection of local industries by eliminating import restrictions.

The Government also decided to adopt several measures in the field of monetary, fiscal, and income policies, in order to check inflationary pressures. We enabled holders of government mortgages to repay before maturity, allowing special discounts. We followed a policy of attractive interest rates on short-term as well as on long-term government borrowing. We introduced a compulsory loan at a rate of 12 per cent of the individual income tax payments and added to that a compulsory saving scheme. All of these measures are directed to prevent an inflationary pressure on the economy.

I am rather pleased to point out that we were able to avoid requesting the financial support of the Fund in the form of drawings or stand-by arrangements. Fortunately, the state of our exchange reserves enabled us to rely merely on the moral support of the Fund, which was readily given to us after detailed advance consultations. About seven months have passed since the adoption of these reforms in Israel. This is undoubtedly too short a period to enable us to evaluate their full effect. However, we can already sum up developments in a few areas.

First, the economy continued to grow at a rapid rate. We expect that in 1962 our national product in real terms will increase by 10 per cent or more over last year. We have been able to maintain full employment. Exports grew at a desirable rate, while the rate of increase of imports was slower than in the past. This is especially satisfactory viewed against the background of an increased immigration, which generally tends to decrease exports and increase imports. There was a marked rise in the capital imports from various sources. Foreign currency reserves increased substantially since the adoption of the new policy, and are now reaching a level which is today considered a minimum for a country which has a high import propensity in its economy and a high level of foreign debt.

The establishment of the new exchange rate has necessarily been accompanied by a rise in prices. Fortunately, the price rises have not been excessive, and total about 5 per cent, of which about 3 per cent only may be attributed to the effects of devaluation. This rise corresponds to the projection we had worked out. Thanks to the cooperation of wide sectors of our population, workers, and management, and the general increase in productivity, we were able to avoid much greater price rises.…

We know that there are still many difficulties ahead. We are sure that with the same positive attitude of workers and management we will be able to maintain the present exchange rate, keeping our economy fully employed and increasing its national product.

In concluding my remarks, I should like to express my warm and sincere gratitude for the close cooperation of the management and staff of the Fund, and the hopes that our relationship will continue on this basis in the future.

May I also take this opportunity to take regretful leave of Mr. Cochran, and to extend a cordial welcome to Mr. Southard.

Statement by the Governor for the Peru—Enrique Bellido

I wish first of all to join in the congratulations being expressed to Messrs. Jacobsson and Cochran and the members of the staff on the contents and presentation of the Annual Report now under consideration.

I feel that it is particularly important to mention the part of the Report on the policies of the Fund with regard to financial stability, and the way in which it has cooperated with member countries in supporting realistic exchange rates and maintaining strength and confidence in the monetary system.

The authorities of my country have endeavored at all times to follow sound monetary and exchange policies, considering that currency stability, particularly in the economically less developed countries, is the best way to achieve high levels of real income and employment and encourage development of productive resources. Through strict fulfillment of the agreed stabilization programs, it has been possible to maintain the value of the currency and balance of payments equilibrium, and at the same time to record a substantial increase in the output of goods and services and the volume of trade.

As a result of these policies, it has also been possible to eliminate the certificate system, which involved differential exchange rates, and to terminate the only bilateral payments agreement still in effect, and at the same time to assume the obligations under Article VIII of the Fund Agreement, which decision was undeniably a clear expression of Peru’s firm determination to keep the national currency strong and convertible.

When in mid-July of this year—mainly as a result of psychological reasons derived from internal factors—the exchange market was subjected to strong pressure which was reflected in a temporary loss of reserves by the Central Bank and in liquidity difficulties for the banking system, a statement by the Government of my country on its firm determination not to resort to direct controls or to return to the certificate system, and to maintain currency stability by all the means at its disposal, was enough to restore confidence and more than recover the foreign exchange which had been lost in the emergency. This experience has conclusively established the validity of strictly technical solutions for meeting occasional financial difficulties.

At the same time, measures were taken toward a readjustment of the liquidity of the banking system, and special attention was also given to the fiscal problem, a favorable solution of which is expected to be reached in the remainder of the year.

Although Peru, like other Latin American countries, is feeling the impact of the drop in prices and finding difficulties in marketing many of its exportable products, the increase and diversification of production and the development of new export lines are providing it with an increasing supply of foreign exchange, which is enabling it to cover its increased demand for imports and service payments.

The immediate outlook for the Peruvian economy is therefore encouraging, and it gives me satisfaction to state that there is now general awareness in my country that it is essential, in order to achieve orderly and increasing development, to continue to fulfill the basic principle of maintaining monetary stability under the provisions of Article VIII of the Articles of Agreement of the International Monetary Fund.

It gives me particular pleasure to express our thanks to the Monetary Fund authorities for the full support they have always accorded us.

Statement by the Governor for the Spain—Alberto Ullastres

The year that has elapsed since our meeting in Vienna has witnessed considerable advances in all transactions of the Fund. This is emphasized in the Report of the Executive Directors and Mr. Jacobsson’s speech of Monday.

Concerning Spain, whose stabilization program receives so much attention in the Annual Report, we have shown a strengthening of the trend toward greater integration of our economy with that of the countries of the free world. As evidence of this, it can be stated that the liberalization of foreign trade has reached up to 70 per cent of our total volume of imports. The area to which this liberalization applies has also been extended.

Not less important are the advances shown in the liberalization of current invisibles and capital transfers, both fields in which Spain is today in line with most of the European countries. The new regulations referred to are especially pertinent in the case of foreign capital investment. The peseta has been quoted at all times in the international markets within the limits of the agreed par value, and the prevailing situation of the Spanish economy has determined the decision of the Spanish Government to request negotiations for our eventual membership in the Common Market. In spite of the evolution of our liberalization policy at a perhaps unprecedented speed in the history of the postwar world—it should not be forgotten that in July 1959 all our foreign trade was carried on a bilateral basis and absolutely no payments could be made without special authorization in each particular case—the Spanish reserves have increased up to a figure of $1,038 million on September 1.

Such a pace in the growth of foreign reserves, as well as their gold percentage—$429 million, equivalent to 41.3 per cent—has given grounds for criticism both in Spain and abroad.

Regarding the total figure, I must repeat what I have already said on other occasions: our trade deficit, the imminent initiation of a development program, and the fluctuations of an economy which is still predominantly agricultural, explain the aforementioned level of reserves.

As to the gold percentage, we are also within a prudent range, whether we examine our case—with a national income and a foreign trade so much higher than in 1936, we maintain reserves and a gold percentage lower than at that time—or if we compare it with that of other member countries. The growth ratio recorded in a period of three years should not impress anyone, since Spain started practically at zero.

As a result of all this, the Spanish economy is ready to launch a strong drive for economic expansion, and the Government is also determined to pursue its policy of liberalization.

Our country is, therefore, in a position to play an active role within the monetary system of the free world, and to contribute efficiently, within its possibilities, to the general stability. It is fitting to express again our appreciation to those that made possible, together with the efforts of the people of Spain, the satisfactory reality of today. This includes the International Monetary Fund, the OECD, the United States Government, and the commercial banks of the United States.

Statement by the Governor for the Tanganyika—Paul Bomani

It is a matter of great pride and satisfaction to me that I can come here and speak today for Tanganyika as one of the newest members of the Fund and the Bank. I am very conscious of the honor thus done to my country, and I am also deeply grateful for the good wishes and warm welcome extended to me both formally and informally. May I also take this opportunity of acknowledging the help we have received, in the process of admission, from the staff of the Fund and the Bank; without it, Tanganyika would not have been able to take her place as a full member on this important occasion.

Tanganyika became of age last December when it achieved its independence, and the opportunity we now have to participate in these great international financial institutions is witness of our newly won stature. Let me assure you that we shall do all we can to uphold the aims and practices which have been evolved so successfully over the years. We shall endeavor to play our part and to make our contribution, small though it may be, in these discussions of our common problems. We are well aware that the main responsibility for overcoming our difficulties rests on our own shoulders; but Tanganyika, as I will explain in a minute, has learned the realities of interdependence, and it is for this reason and in this spirit that we are taking our place here today.

Tanganyika is one of the new generation of countries, mainly from Africa, setting out on the road of nationhood. Many of us are starting this journey poorly equipped and with many of the foundations for economic growth incomplete and even barely started. We have limited financial resources of our own, yet the needs of our people are enormous and their standard of living is appallingly low. For example, the annual per capita monetary income in Tanganyika is no more than £ 13, or $ 37. The question of economic development is the concern of every country represented here today, but for the newly emergent countries like my own, it is much more than that; it is a matter of the direst urgency and necessity.

During the past year, we have been grappling with the problems of financing and development; and we have come to realize very quickly that the approach adopted on several vital issues by various countries and institutions from whom we are seeking aid has been conditioned by circumstances and considerations which have little relevance to our own position. We were advised by a Bank survey mission to concentrate on those projects which would bring a quick return, which in nearly every case involves a preponderance of local expenditure; yet we find when we seek aid that it is all too frequently tied to external costs only, and the implication is that we should abandon our carefully considered priorities in favor of larger, more grandiose, but less valuable schemes which do not touch our real needs but suit the established rules of the game.

It seems to me that there is a strong call for a fresh approach to meet the circumstances of countries in the very earliest stages of development, such as apply to my own. The problems may be old and familiar, but, if I may say so, what is required is that they be looked at in a different perspective.

In his address, Mr. Per Jacobsson stressed the interests of economic and monetary cooperation among countries that have historically belonged to the same currency and trading area. Tanganyika is well aware of the value of this advice, because for some 40 years Tanganyika has been part of a Common Market in East Africa, along with our partners, Kenya and Uganda, who, we hope, will not be long in joining us here. We share a common tariff, and several of our important economic services are operated on a common basis; there is freedom of movement for goods and persons between the different countries; and, generally speaking, our fiscal and economic policies are similar and the subject of regular mutual consultation. Another important feature of the East African Common Market is that we share a common currency, which extends also to Zanzibar and Aden.

Until 2 years ago, our currency—the East African shilling—was managed by an old colonial style Currency Board resident in London. Its sole concern and activity was the issue and redemption of East African shillings against sterling. Now the Board is based in East Africa, and is steadily widening the scope of its activities, so that it is performing many of the functions of a central bank. For example, it has extended the scope of monetary expansion through the fiduciary issue to include not only direct subscription to new issues of Treasury bills and local loans, rediscounting Treasury bills, and purchases of government securities in the market, but also crop finance facilities by discounting bills for vital export crops. Again, by altering, for the first time for many years, exchange commissions for issue and redemption, it has shown itself free to deal, as might a central bank, in the exchange market at its discretion; and it has broken new ground in announcing its willingness to open and maintain accounts in its books for the commercial banks in the three East African capitals.

Tanganyika’s monetary arrangements are such that, as an independent state, we have only a partial and minority say in the control of our currency—a handicap which we are very willing to accept as part of the price for preserving the benefits of our Common Market. One result, however, is that any fluctuation in the prices received for our primary product exports has been promptly and vividly reflected in our budgetary position. This is a feature peculiar to our own system, but it is a matter of degree only; for it has been the common experience of most countries reliant upon the sale of primary products and seeking to expand their economies by increasing exports, that their efforts in recent years have been largely negated by falling prices. The lesson for us is unmistakable: the most important basic problems facing these countries is the level of commodity prices and the access of primary products and raw materials to world markets.

I can claim but small knowledge in such weighty matters, but it seems to me that the need to find solutions to these problems is complementary to, and just as urgent as, the maintenance and improvement of international liquidity, on which much of the discussion at this meeting has centered. I question whether it is in the true interests of any of us that the prices of primary products should be depressed to a level which drives countries like my own to the conclusion that they must industrialize at any price, even though it may mean the erection of ever higher barriers to trade—not to mention the balance of payments problems which inevitably seem to follow. I question, too, how it can serve the purpose of world economic growth to perpetuate the many existing restrictions on the import of primary products and raw materials by tariffs and quotas and consumption taxes, when the effect is to reduce the purchasing power of primary producers and their demand for manufactured and industrial imports.

I venture to suggest that a new and vigorous initiative is needed to resolve these problems. It is not enough to wait, as in the case of coffee, until there is a huge unmarketable surplus threatening disaster; nor should we be content with agreements which solely impose limitations on producers and leave untouched the disincentives to consumption in the developed countries. May I, therefore, add my voice to those other speakers who have dwelt on these same issues, in pleading that their importance and urgency be recognized, and in asking for a concentrated attempt to face them just as soon as possible.…

Statement by the Governor for the Paraguay—General César Barrientos

In participating in this, the Seventeenth Annual Meeting of the Governors of the International Monetary Fund, the Republic of Paraguay would like to express its appreciation and gratitude for the technical and financial assistance received from the International Monetary Fund, other international organizations, and the Government of the United States of America.

This meeting of Governors of the International Monetary Fund is an auspicious occasion for making a declaration of our faith in international cooperation as a means for seeking solutions to the increasingly acute problems that beset the economic relations of the nations of the world.

Those who are responsible for government in Latin America are continually faced with problems arising from the instability of prices for primary products on the world markets. It therefore becomes necessary to impose regulatory measures in order to offset negative price trends.

As a means of serving the economic well-being of most of the Latin American countries, Paraguay is an ardent advocate of the very early realization of the principles laid down by President Kennedy in the Plan for the Alliance for Progress.

As a result of technical and financial assistance, the energetic and patriotic measures taken by the Government of my country to maintain political, economic, and social stability, and the efforts made by our people, it has been possible to make fundamental changes in our economic infrastructure.

In August 1957, we adopted the free exchange system, and since that date the value of the guaraní, our national unit of currency, has varied by about 14 per cent, i.e., at an average rate of 2.8 per cent per annum. The rate of exchange with the dollar was maintained without variation from October 1960 until the end of last year. Subsequent variations constitute an increase of 2 per cent. In the period between January and May of last year, the rate of monetary expansion was 7 per cent. In the same period of this year, the rate of increase was only 1 per cent.

From December last to May of this year, the wholesale price index registered an increase of 1 per cent, in comparison with 6 per cent recorded for the previous year, thus indicating a leveling off of prices that, because of its effect on the workers’ cost of living, exercises a stabilizing influence on wages, preventing conflicts between capital and labor.

The rate of growth of savings deposits is a measure of confidence in the national currency; and in May of the present year this was 28 per cent, as against 18 per cent in the same period of last year.

In September 1960, Paraguay proposed to the Fund a plan for repurchasing its currency, for foreign exchange purchases made under the stand-by arrangement for US$4,250,000, and operations that were to be spread out until September 1963. Up to the present, this plan has remained in operation.

In November last, we signed a new agreement for US$5,000,000 for a period of one year. With the approval of the Fund it gave us the right to make drawings within the conditions specified, but it has so far been unnecessary to use these funds, since our international reserves have been sufficient to enable us to meet our external payments regularly. In comparison with December 1961, these reserves have now increased by 43 per cent.

These are the reasons why our operations on the market have proceeded normally.

This year, the external payments position has improved in comparison with 1961 and is closely associated with the trading surplus achieved, since exports represent 83 per cent of foreign exchange receipts. The increase of 8 per cent in receipts from exports and the reduction of imports by 6 per cent resulted in the achievement during the January-May period of this year of a higher trading surplus than that achieved last year. The value of our basic exports increased in the period in question as follows: timber by 43 per cent; quebracho or tannin extract for tanneries by 42 per cent; cotton by 8 per cent; fruit by 53 per cent; and oils by 6 per cent. Exports of beef are maintaining their previous level. The increases recorded are entirely attributable to a greater volume of exports. Harvesting conditions and output trends in four industries associated with external trade justify the prediction that the figures for this year will exceed those of last year.

There has been a 19 per cent increase in bills and coins issued by the Central Bank, due principally to external transactions, the exhaustion of previous deposits by imports of a wide variety of items, and improved credit in the banking sector. The loan portfolio and the investments of the Central Bank are being held within the limits agreed with the International Monetary Fund.

Bank loans to the private sector have increased in the period under review by 11 per cent, whereas the comparable figure for 1961 was 2 per cent.

The orderly procedures governing the national budget are the principal factor in monetary stability. Revenues from taxation during the period between January and August 1961 were ₲ 2,000 million, whereas for the same period of this year they were ₲ 2,460 million. Operating and capital expenditures in both periods were held within the limits imposed by revenues. In 1961, 8 per cent of revenues were obtained from short-term credit operations with the Central Bank. The comparable figure for this year is 5.7 per cent.

On August 31, 1961, the external debt of the National Treasury was equivalent to US$7,470,809. On August 31, 1962, it represented US$6,480,655 as a result of amortization payments made and the regular settlement of the corresponding interest.

The national effort to achieve monetary stability has borne fruit in the sector of public and private investments. From 1954 to the end of 1961, public investments in airports, highways, the merchant fleet, plant for farming and rural industries, waterways, telecommunications, railroads, and harbors, together with capital contributions to the National Development Bank, schools, and health centers, have amounted to US$44,678,171, representing 71 per cent of the cost of the programs being carried out. Of these investments, the funds of the Government itself, without recourse to loans from the national banking system, are equal to 79 per cent of the total amount of financing from external sources.

The Paraguayan Government, with the assistance of international agencies, the United States Government, and from its own resources, will proceed with the plans made for the lengthening and paving of highways, the extension and modernization of harbors for shipping, the installation of a hydroelectric power station, and the settlement of land in the areas affected by the new routes.

Whilst reiterating the appreciation felt by my Government for the valuable assistance it has received, I should like to point to the corresponding benefits that have been obtained in the form of the rise in the social status of the Paraguayan people, the permanent engineering and other works from which they likewise benefit, and the atmosphere of peace and tranquility enjoyed by the whole country.

The private sector has also contributed to economic progress in order to increase its ability to take part in the free trade area agreed with other sister republics of Latin America.

From 1956 to the present, firms have been authorized to combine capital resources, under the procedure in the “Act Concerning the Combining of Capital Resources,” to a total value of US$22,757,792.

Similarly, under the procedure in the “Act Concerning Manufacturing Profits” our industries have, between 1959 and the end of last year, extended and renewed their machinery and plant to the value of ₲ 352 million, using free market currencies.

To conclude this brief survey, which I have endeavored to abridge as much as possible, I am pleased to reaffirm that Paraguay is developing in harmony with the dominant trends in today’s world in the direction of multilateral free trade and exchange freedom, and is prepared to cooperate to the fullest extent in the achievement of the high purposes of the International Monetary Fund.

At the same time I would like to express, on my Government’s behalf, my very sincere gratitude to the Government and people of the United States of America for their hospitality in allowing us to hold this meeting in the beautiful city of Washington, a good augury for the success of our discussions and the continued progress and well-being of the nations represented here.

Statement by the Governor for the United Arab Republic—Abdel Hakim El Rijai

It gives me great pleasure to thank you, Mr. Chairman, for your most interesting and instructive opening address. I wish also to congratulate the Executive Board and the staff of the Fund for their comprehensive Annual Report, to express our appreciation for the illuminating statement of Mr. Jacobsson, the Managing Director, and to extend our warmest welcome to the new Arab country, Kuwait, and to other members who have recently joined our institutions. I am confident that they will make valuable contributions to the work of this assembly.

The Annual Report constitutes a valuable survey of the economic developments during the last year. It outlines the progress made toward the achievement of the objectives of the Fund, namely, economic stability and sound monetary policy.

Under the able guidance and management of Mr. Jacobsson, the Fund has acquired a new lease on life and has become the guardian of monetary discipline and stability. It has adapted itself to the evolution of the international economy. The way in which the Fund has carried out its responsibilities as an independent international organization has gained for it respect and high appreciation all over the world.

It appears from the Annual Report that the last fiscal year was a record in every phase of operational activity, whether with regard to total sales of currency, number of stand-by arrangements agreed, or repurchases by members. More flexibility has been shown with regard to the use of the Fund’s resources and the drawings during the year required, in each case, a waiver of the provision of Article V, Section 3, of the Fund Agreement, which limits a member’s drawings, within any 12 months, to 25 per cent of its quota. Drawings from the Fund are no more to be regarded as an emergency measure. Members’ drawing rights are now considered as part of their reserves.

This extension of the Fund activities, especially under conditions of widespread convertibility and larger movements of capital, required the increase of its resources. In conformity with Article VII of the Fund Agreement, which authorizes the IMF to replenish its holdings of scarce currencies by borrowing, new arrangements were made early in 1962 with ten industrial countries under which the Fund may borrow supplementary resources amounting to the equivalent of $6 billion. The Fund can thus replenish its resources when need arises and be able to “fulfill more effectively its role in the international monetary system.”

The Annual Report refers to the contrast between the situation of the industrial and the raw material producing countries. While trade of industrial countries in 1961 was nearly 50 per cent above the figures of 1958, imports of these countries from the raw material producing countries increased by only 15 per cent. Terms of trade are moving against the primary producing countries because of the instability of world commodity prices. In his opening address, the Chairman pointed out the difficulties encountered by developing countries as a result of the inadequate and fluctuating export receipts.

This question was raised at the Conference on Economic Development Problems held last July in Cairo. The Conference recommended the establishment of a compensatory financing system and the stabilization of international primary commodities markets, within the framework of the United Nations, on a fair and remunerative basis, taking into consideration the prices of manufactured goods. Developed countries are also requested to operate their stock disposal programs without jeopardizing the interests of primary commodities producing countries.

We are confident that the Fund, in cooperation with other international agencies, can provide a suitable solution to this problem. It is gratifying, however, to note that many raw material producing countries were able to use the resources of the Fund and that transactions with these countries in 1961 were larger than in any preceding year. We have been also glad to know that proposals for additional compensatory facilities are now under study by the experts of the IMF and other international institutions.

The problems of developing countries need more attention on the part of international institutions and developed countries. The IMF is requested to examine the measures for a more effective balancing of the external payments positions of developing countries who vest strong hopes in this institution. While implementing their development plans, they are exposed to balance of payments difficulties. The Annual Report referred to the essential conditions for sustained economic growth. They include technical education, adequate external funds on reasonable terms, maximum access to markets of industrial countries, and the adoption of a sound monetary policy. The shortage of external financing constitutes one of the main sources of the difficulties encountered by developing countries. The remedy consists in the increase of funds available to these countries to enable them to maintain a steady and expanding rate of development. The recommendation of the United Nations concerning the allocation of 1 per cent of the total national income of developed countries for financing economic development plans seems very appropriate.

With regard to the access of developing countries to markets of industrial countries, the Cairo Conference on Economic Development recommended the following:

  • (1) Industrial countries are requested to abolish tariffs and other obstacles which affect adversely the exports of developing countries.

  • (2) Regional blocs should not operate in a discriminatory manner; otherwise they would be detrimental to the efforts of developing countries. International trade should expand on the basis of nondiscrimination.

The adoption of these two proposals will be instrumental in ensuring the smooth functioning of the development plans, because financial aid without opportunity for trade will be of little benefit. That is why Mr. Jacobsson urged the industrial nations to contribute to the welfare of developing countries by adopting liberal trade practices, opening their markets to imports from less developed areas.

The Annual Report refers to policies regarding financial stability and has noted with satisfaction the progress toward the implementation of stabilization programs in a number of member countries. The United Arab Republic laid down a comprehensive stabilization program, and late in April 1962 agreed with the Fund on a stand-by arrangement. The program entered into force on May 15 and has been progressing satisfactorily. It aims at the simplification of exchange systems, the elimination of multiple currency practices, the gradual abolishment of restrictions on current payments, the stimulation of exports, and the encouragement of savings.

With the expansion of the activities of the Fund and its recent liberal attitude toward drawings by member countries on its resources, close cooperation between the members of the Fund has made concrete progress and it is expected to have far-reaching effects. As Mr. Jacobsson has rightly stated in his stimulating lecture delivered in Cairo last May, “the problems that exist in the world are not easy and they will be solved by no country in isolation.”

Finally, I should like to pay tribute to the retiring Deputy Managing Director, Mr. Merle Cochran, for his long service in the Fund. I wish him many happy years of useful life.

Statement by the Governor for the Portugal—Rafael Duque

This is the first meeting of the International Monetary Fund I have had the honor to attend as Governor for Portugal.

You will therefore understand if my first words are a tribute to the spirit that inspired the Bretton Woods Agreements and to the men who designed the structure of the International Monetary Fund and defined its high objectives. Also, I would not wish to fail to stress the fact that its doors are open to all the peoples of the world.

The Monetary Fund is now an agency rich in experience, enjoying an international prestige that is fully justified by the acknowledged abilities of its staff and more especially by the wisdom of the policies that have been followed by its directors.

As a result of the prestige it enjoys, an increasing number of new members have joined the Fund, which has today a membership of 82, giving the Fund greater authority to act on behalf of the aspirations of all and placing it in a strong position to assist in determining and carrying out, on a world scale, the measures necessary to achieve monetary equilibrium.

We cannot but congratulate ourselves on the fact that this increase in the Fund’s authority should have taken place at a time when it is increasingly necessary to deal with the new and, in some cases, urgent problems arising from the acceptance of convertibility by a considerable number of industrial countries. Nevertheless, the gradual increase in the number of countries with convertible currencies, whether or not subject to the Article VIII procedure, and the steady process of liberalization of trade, in which we have taken part, have without doubt altered the international financial scene, bringing into being a series of relationships that could not have been foreseen by the experts in 1944 when they drafted the Fund’s Articles of Agreement.

New and sometimes brilliant schemes for possible reforms in our organization have been submitted to world opinion. Although some of these ideas may appear alluring, a realistic analysis of the present position will probably indicate that it would be best to reject such schemes. We should also recognize that the results of the Fund’s activities continue to give satisfaction to the member countries, the few difficulties arising from the Articles of Agreement having been skillfully overcome by the adoption of suitable legal interpretations by the Executive Board.

Portugal thus has complete confidence in the operations of the Monetary Fund, which, by both its traditions and high example, has always proved itself to be equal to the demands made upon it in the sphere of international financial cooperation. But this is not to say that my country is not following with keen interest certain aspects of the Fund’s administrative policies, such as those relating to the accessibility of funds, where it might be possible to adopt more automatic procedures.

I need hardly stress that these observations do not arise from our own relations with the Monetary Fund. My country has not submitted any application for drawing, and the level of our reserves of foreign exchange does not suggest that any recourse to the Fund will be necessary in the near future.

I should not, however, fail to point out that my country is at present at a stage of economic growth at which an intensification of development in the next few years might possibly lead to balance of payments difficulties. If this were to be the case, the Portuguese authorities hope that it will be possible for them to have recourse to the Fund on terms that would stimulate the economic advancement of the country.

Moreover, this problem, if it were to arise, would be considered by the management of the Monetary Fund with a full knowledge of all the facts, as they already have sufficient data to enable them to evaluate my country’s economic situation. A Fund mission was recently in Lisbon, where it had extensive discussions and made contacts with responsible Portuguese authorities and experts, from which it doubtless obtained an objective view of the problems.

I should like to take this opportunity of expressing to the members of the mission, and especially to its chief, how much we appreciated the interest manifested by them and the all-embracing—albeit impartial—nature of their review of the various aspects of my country’s position in the economic, financial, and exchange spheres.

In this instance, as in others, our official relations with the International Monetary Fund have invariably been marked by a spirit of friendly cooperation, equally apparent in the manner in which the problem of the par value of the escudo, recently approved by the Fund, was considered and decided upon. I would therefore like, before concluding, to express my country’s sincere desire to see the continuance of the spirit of understanding and good will, exemplified in the person of the Fund’s Managing Director, Mr. Jacobsson, to whom I am pleased to pay tribute for his exceptional abilities as a leader and who has contributed so much to the consolidation of the international financial structure.

There is a Latin proverb that says of orators, esto brevis et placebis—”be brief and you will please.” I do not think that I have spoken at great length, even if I may have to admit that I have not succeeded in pleasing.

Statement by the Governor for the Yugoslavia—Nikola Miljanic

First of all, I would like to associate myself with the previous speakers who have expressed their gratitude to the Executive Board and staff of the International Monetary Fund for their very interesting and comprehensive Annual Report. I would like particularly to stress how great a pleasure it was for me to listen to the excellent introductory speech of our Managing Director, Mr. Jacobsson.

This year’s Annual Meeting is being held under conditions which indicate a further growth of the world economy, although certain regions show a slower rate than in earlier years. May I be permitted to take this opportunity to point once more to certain problems which are very important, in my opinion, for the future development of the world economy as a whole.

I believe you will agree with me that one should point to the fact that this year’s Annual Report pays much greater attention to the question of the underdeveloped regions than was the case in previous years. In fact, these problems may be characterized as the central problems of the world economy of today. The Fund’s approach to the problems of underdeveloped regions is certainly a very positive one, and I can only express my hope that the Fund will direct its activities toward finding concrete solutions for such problems.

Preparatory work for the creation of a stabilizing mechanism for compensatory financing of primary producing countries, whose balances of payments are under special pressure because of great fluctuations in export commodity prices, is only one in the range of the measures to which the Fund should give top priority and contribute to its speedy realization.

International trade has been developing in the postwar period at a relatively speedy rate. World exports greatly increased during the period from 1953 to 1960. However, to our regret, this increase was not evenly spread over all countries; the increase of exports of primary producing countries was much slower, and therefore the relative share of these countries in world exports diminished. This fact may bear significant influence on future development of economic relations in the world. I am fully aware that great efforts of all of us will be required in order to eliminate gradually this inconsistency. It is, therefore, of utmost importance that the policy of each individual country, as well as the policies of individual regions, be directed toward that aim. A trend aimed at nondiscrimination and the world-wide character of such developments could greatly contribute to the solution of these problems, whilst a policy of discrimination—that has regretfully gained wide application—considerably aggravates them. The integrated industrialized countries ought to find ways and means for the elimination of obstacles in international trade through constructive cooperation with developing countries.

A speedy and harmonious economic development in the world, under the necessary financial and monetary stability, is certainly the basic problem of today. The resolution of the last session of the Economic and Social Council recommending a United Nations Conference on Trade and Development could be classified among those decisions reflecting efforts directed toward such basic aims. I believe that the Fund will actively participate in the work of that Conference.

At the beginning of this year, a decision was taken by the Fund on general arrangements to borrow. In essence, this decision is, among other things, of prime importance. I will not elaborate this question further now, but I would like to express my regret that this action was not of universal character. I believe, however, that the Fund should now devote some thought to the problem of finding ways to improve the existing mechanism which is being applied to other member countries, and especially those which, in their justified wishes for a speedy economic development, are faced with specific difficulties. Although these difficulties are very often connected with problems of long-term financing, they come also very often within the province of the Fund. I think that the Fund could now manifest greater boldness in making its own resources available where needed. At this point, I can only repeat what my predecessor said at last year’s meeting, namely, that one could expect that both conditions and criteria for the use of Fund resources would be adjusted to the changed pattern of membership, and that, in this respect, more attention would be paid to specific balance of payments problems. The time has come when the question of possible revision of these conditions and criteria should find a place in the future activities of the Fund.

Finally, I would like to congratulate the Fund on the top figures reached in the past year in respect to the utilization of its funds. I would also like to express my welcome to the member countries which have recently joined our organization.

At the same time, I would like to join my colleagues in paying tribute to Mr. Cochran for his distinguished service over the past years and to welcome the appointment of Mr. Southard to be the new Deputy Managing Director.

Statement by the Governor for the Iraq—Bakir Al-Dujaili

Mr. Chairman, I would like first to congratulate you on your conduct of our meetings and your valuable statement on the opening of this session. We do believe in the expansion of these organizations and wholeheartedly welcome the growth of their membership. We are glad indeed to see among us this year representatives from the new member countries.

While welcoming the new members, I would like to express my Government’s strong protest against the acceptance of the so-called Government of Kuwait as a member in these international institutions. It is hardly necessary to mention at this meeting that the province of Kuwait constitutes an integral part of Iraqi territory. The admission to membership of an artificial state which is a part of an original member’s territory is a grave error which is bound to undermine the faith and confidence of the world community in the independence and unbiased character of our organizations.

The Report before the Board of Governors has presented the familiar picture: the industrialized countries have increased their production and national income and maintained a steady rate of economic growth, while the progress of the less developed countries has not been satisfactory, with most of them lagging behind.

In spite of the efforts made by the developing countries themselves, and the substantial international, multilateral, and bilateral aid given to them, the average per capita income of 100 underdeveloped countries, with a total population of 1.25 billion, rose from $90 to $100, or 1 per cent annually during the past decade. This is indeed a disappointing result.

If capital investment in the underdeveloped countries could be raised from its present level of $4 billion to $7 billion, the estimated annual per capita income would be doubled before 1990. But by that time, the gap between the standards of living of the peoples of underdeveloped countries and advanced countries will have grown even wider.

In order to assist the less developed countries in their strenuous efforts to develop their own economies, it is necessary to eliminate factors which tend to aggravate the foregoing problem; that is to say, the problem of disparity in development. Foremost among these factors—to which many of my colleagues have already referred at previous meetings—are the various measures which have been adopted by certain industrially advanced countries and the resultant decline in prices of primary commodities. I should like to express here the concern of my country as to the impact of such measures which adversely affect our exports and which have been causing serious deterioration in our terms of trade as well as in our balance of payments. In this connection, I may mention in particular the unilateral and unjust steps taken by the oil companies in reducing oil prices and impeding the steady growth of oil production in my country. The prevailing prices of crude oil in the Middle East are today lower than ever before since 1952. At present, they are 18 per cent below their level in 1957. In comparison, the prices of industrial products have repeatedly and sharply increased during the last few years.

We deem it necessary and urgent that the prices of oil should be so adjusted as to compare fairly with the average comparative prices of industrial products imported by the oil exporting countries. The implementation of our economic development projects is strongly tied to this factor, and I am sure that there are many other countries who face the same problem, and who justly demand that they receive their legitimate share in their own resources rather than be forced to ask for financial aid from other sources.

The new regional economic blocs formed by advanced countries constitute another factor in the hampering of development in other areas. These blocs, and in particular, the European Common Market, would no doubt increase prosperity in industrial Europe but at the expense of developing areas in different parts of the world. They are measures aiming at solving political problems by causing further grave economic problems to the underdeveloped countries. It is the belief of my country that international trade should not be hampered by such discriminatory schemes. To the contrary, it is the duty of the advanced countries to adopt positive and continuous measures to ensure that exports from under-developed areas to their markets are expanded steadily. However necessary foreign loans and grants for their economic development, it is to be recognized that what underdeveloped countries need most is Trade and not Aid.

September 19, 1962.

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