Chapter

Discussion of the Fifteenth Annual Report1

Author(s):
International Monetary Fund. Secretary's Department
Published Date:
November 1960
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Statement by the Governor for Italy—Guido Carli

Once again, the Annual Report of the Executive Directors testifies to the progress toward balance in external payments and the gradual increase in the area of multilateralism and freedom from restrictions which has gone along with it. Discrimination and bilateralism are disappearing from the current scene, and before long perhaps the memory of them will serve to characterize a past era, like the refrain of certain once-popular songs.

However, freedom creates almost as many problems as it solves, and the Annual Report of the Executive Directors, as well as the opening addresses by the Chairman and the Managing Director, have been careful to point out a few major problems that restrictions were intended to suppress and that have come more clearly into the open as a result of the liberation of payments for current, and now also to an increasing extent for capital, transactions.

Under these new conditions, it has become extremely important, for the system to work smoothly, that the former restrictions should be replaced, as the Managing Director aptly remarked, by a code of rules of good monetary and economic behavior. When the rules of the game are still in the making, as they are at the present stage, difficulties are bound to arise. Moreover, owing to the interplay of the large number of factors which operate in a system of open economies, individual countries, even where prompted in their action by a desire to reconcile their domestic needs with those of the international community, will often get results which diverge from those intentions.

Corrective action will have to be applied continuously in the problem areas. The three major ones at present would seem to be the imbalance in the current payments of certain strategic countries; disturbances due to short-term capital movements; and adverse terms of trade and instability of export proceeds for the primary producers.

I think I may say that my country, having advanced toward the solution of some basic structural problems of its own and grown in economic weight, looks upon these problems with a full awareness of the duties to the international community deriving from its new position, and is directing its policies accordingly.

First, it is trying to reduce in various ways the current surplus which it had in 1958 and 1959. The liquidity arising from the external surplus has been left to produce its effects, and interest rates have as a result come down by some 2 per cent in two years. Investment by the public sector has been expanded. Imports for industrial products from the European and the dollar areas have been almost fully freed, and practically all residual discrimination against dollar imports will be eliminated in a few weeks. Liberation of imports of farm products from the dollar area is also being extended to cover most basic items and to avoid significant discrimination. Payments for imports during the first seven months of the current year have increased by 37 per cent over the same period of the previous year, while export earnings expanded by 26 per cent; as a result, the excess of trade payments over receipts has increased from $180 million to $413 million. No significant limitation or discrimination applies to invisible transactions. As shown by the information which has been recently submitted to the Fund, no residual feature in our exchange arrangements now impedes a possible passage to Article VIII, the timing of which is therefore, as far as we are concerned, largely a matter of policy.

In the field of capital movements, we have always encouraged and still look with real favor to foreign long-term investment, and we are ourselves investing abroad considerable amounts through subsidiary companies, export credits, purchase of capital market securities, and otherwise. The Italian Governor for the Bank yesterday submitted the figures of direct and indirect aid which we have extended to underdeveloped countries through these channels. We think that such investment serves to expand trade, to disseminate ideas, to help the countries in process of industrialization, to promote in a general way economic integration, and therefore is part and parcel of that process of spreading prosperity which is essential to the economic and political balance of the world.

With respect to short-term capital movements, we believe a more selective attitude to be in order, and we have been reinforced in this conviction by current developments. In view of the problems which short-term flows of funds were creating for other countries, and even for ourselves by being superimposed on the expansion of liquidity due to the current foreign surplus, we have thought it appropriate to restore to the rest of the world the short-term funds flowing to us, though in a way that would not basically conflict with the development of international banking relations. We have accordingly instructed our banks to balance individually their foreign exchange position with nonresidents. As a result of this move, about $400 million of foreign funds, representing the net indebtedness of Italian banks to foreign residents at the end of November 1959 (when such indebtedness attained its peak), will be repaid and thus returned to the pool of international liquidity by the end of the current year. We have also authorized our banks to finance trade between foreign countries, and a substantial amount of such credits to the benefit of third parties has already been extended.

The third problem area I mentioned was that of the underdeveloped countries. Heroic solutions are sometimes necessary in these countries and we cannot overlook their difficulties. The reduction of raw material prices distributes the benefits of a sustained market unequally, internationally speaking. Since production techniques seem at least for the moment to condemn agricultural and mining production to greater rigidity than manufacturing production, other possibilities of neutralizing at least in part the effect of this situation on relative prices should be studied. There is not much that we can do as an individual country in this respect. However, as members both of world and of regional organizations, we shall consider with sympathy international actions intended to improve the purchasing power of primary producing countries.

Statement by the Governor for the United Kingdom—Selwyn Lloyd

The Annual Report which we have before us shows that the Fund has done another valuable year’s work. One of the most important features of this has been the increasing number of stabilization programs which are being carried out in member countries with the advice of the Fund and supported by its resources. Most of the stand-by arrangements granted in the years 1956-57 have lapsed or been canceled, and a substantial proportion of the large sums drawn by member countries about that time has been repaid. May I digress here for a moment to mention that we have accelerated repayment of our own drawing by £20 million and shall this week repay a further £20 million in advance, leaving only about £30 million outstanding. The sums returned in all these ways are available for further use. In addition, the Fund’s resources were enlarged by the increase in quotas set in train at New Delhi in 1958. Thus, strengthened in resources and in experience of handling temporary disturbances in the equilibrium of world payments, the Fund stands ready to lend the weight of its support to member countries when they need it.

This is not all. Over the last ten years, thanks to the wise creditor policies of the United States, reserves have become better distributed. Taken as a whole, world liquidity has been increased. The world’s payments mechanism also has been improved, particularly since the moves to external convertibility by a number of countries at the end of 1958.

It is not surprising then that the tone of this Annual Report should be one of quiet satisfaction. I hope, however, that I shall not be thought ungracious if I say that helping members through periods of temporary difficulty is only part of the Fund’s task. Even more important perhaps is the task of promoting and preserving, through cooperative action, a state of reasonable equilibrium in world payments while at the same time maintaining a high level of world trade. Temporary disturbances there will be, and the Fund’s resources can and must be used to allow time for member countries to correct these, but where there is a persistent and excessive flow of reserves in one direction the Fund ought to consider what are the fundamental causes and how they can be dealt with.

Of course, if a country starts with extremely low reserves it can run a substantial and persistent over-all surplus in its balance of payments for some time. Similarly, a country with an excess of reserves can run a persistent and substantial over-all deficit. These movements make for the better distribution of world reserves to which I have referred. But if neither of these conditions is present, then a persistent and powerful one-way movement of reserves indicates a state of disequilibrium in international payments which requires corrective action.

In passing, perhaps I should emphasize that I am referring to over-all deficits and surpluses. A surplus on current external account in an industrial country, associated with a compensating flow of capital to less developed countries, is a desirable state of affairs. A deficit on current account in a less developed country, associated with an inflow of capital from industrial countries, is also acceptable.

While we would all agree that the international payments situation is healthier now than in the immediate postwar period, nevertheless there are disquieting features. The Report draws attention to the important problem of imbalance presented by the continuing payments surpluses of some European countries. There has indeed been a strong and persistent flow of reserves into continental Europe. For example, in the eight years to the end of last year, Germany increased her gold and foreign exchange reserves by $4½ billion, Italy by $2 billion, France by just over $1 billion, and the Benelux countries by a little less. The growth of reserves has to a considerable extent taken the form not only of gold but of the reserve currencies, principally U.S. dollars and sterling. This has led to an increase in the short-term liabilities of the United States and the United Kingdom.

That such a massive flow of reserves has been found manageable while world trade has expanded is, of course, a sign of the strength of the international payments system. But the size and persistence of this flow points to something in the nature of a fundamental disequilibrium.

Such a fundamental disequilibrium must ultimately be corrected in one way or another. A country which is persistently in deficit will be bound sooner or later to take corrective action. Conversely, a continuous inflow of reserves into a country which already has sufficient liquid resources, internally and externally, will tend to produce an expansion of credit and should therefore generate corrective pressures. But if these pressures are not allowed to have their effect, there is a danger of countries trying to solve their payments problems by competitive deflation, with all the worldwide stagnation and unemployment which that would involve. It was one of the prime objectives of the Fund Agreement to avoid this outcome.

We cannot hope to solve our problems unless we can identify the causes of them. What are the possible reasons for disequilibrium? May I instance a few? There will be disequilibrium if some countries put unwarranted restrictions on trade or payments. It can also happen if different countries run their economies at very different pressures, or if economies are run at similar pressure but prices and costs move very differently. Again, there may be disequilibrium if current receipts and expenditure across the exchanges are inflated by transactions of a special character, such as defense expenditure abroad. Finally, there may be disequilibrium if capital is being exported, or imported, in amounts widely different from current account surpluses and deficits.

The retention of restrictions on trade and payments after the circumstances which justified them no longer exist has contributed to international disequilibrium in some cases in the past. And there are still some residual restrictions today. But great progress has been made in eliminating barriers to trade and payments, and I do not think that they are now the principal element in the disequilibrium.

Nor do I think that disparities in the pressures at which different countries are trying to run their economies are a major factor. Indeed, we have a superficially almost paradoxical situation in which there are countries with a heavy pressure of demand on resources running the big surpluses, and there are deficit countries showing also deficiencies in domestic demand. This suggests to me that we must look elsewhere for the causes of disequilibrium, namely, to the disparities in movements of costs and prices or to capital movements.

It is indeed likely that if prices and costs move very differently in important trading countries, international disequilibrium will ultimately occur. And we have seen much disparity in price and cost movements in the past. I do not think that anyone has yet discovered any magic solution for the price problem. But I think there is now a much greater realization in all countries of the importance of cost and price stability and greater willingness to make sacrifices to achieve that end. I hope that those are right who think that the price problem will be a smaller cause of trouble in the future than it has been in the past.

On the other hand, it is clear that the outward flow of capital from some countries is not on the scale which their economic resources and the state of their current account would justify. If the persistent creditors of today could take compensating corrective action by further stimulating the outflow of governmental as well as private capital, the needs of the developing countries and the balance of world payments would be better served and the strains minimized. In all this, difficulties are aggravated and further distortion is caused if countries have heavy overseas burdens to bear.

Whatever the reasons for lack of balance, it is not for me either to seek to identify persistent debtors and creditors or to suggest the remedies which should be applied. If any member countries are in doubt on these matters, they will find in Mr. Jacobsson and his able assistants on the Fund staff a wealth of wisdom and experience on which they are, I know, most welcome to draw. In the last resort, however, the responsibility rests with each one of us to examine our own position and policies and ask ourselves whether or not they are contributing to over-all international balance. In this connection, I should like briefly to review the recent record of the United Kingdom.

Internally, we achieved a satisfactory rate of expansion of our economy with very little upward movement in prices. Industrial production in June of this year was about 7 per cent up on June 1959, while the level of costs and prices has changed little. During 1959 and the earlier part of 1960, a very sharp rate of expansion was possible without imposing a strain on resources, because of considerable excess capacity and large productivity increases. From the turn of the year, however, there were signs that strains might shortly occur, and Her Majesty’s Government have taken a series of steps to moderate the expansion in demand. As a result, although economic activity has continued to rise, it has done so at a slower rate, and the pressure of demand appears to be easing.

Turning to restrictions on trade and payments, it will be remembered that by the time of our last Annual Meeting, we in the United Kingdom had abolished most of the restrictions and discrimination which had been maintained on current account transactions since the War. In the past 12 months we have gone further. Only a handful of import restrictions now remain: none of these is imposed for balance of payments reasons.

Meantime, as the Annual Report shows, the Executive Directors have done much useful work in clarifying the issues involved in a move to Article VIII. The decision which they adopted last June will be a very helpful guide to member countries in considering their own position in this matter. For our own part, we shall be ready to consider the question further in consultation with other countries.

Then there is the relationship between current and capital account. Here I think I can claim that in relation to our resources we have done a great deal. In addition to the substantial and continuing outflow of private capital, we have very rapidly stepped up our flow of governmental aid to the less developed areas of the world—from about £80 million in 1957-58 to some £130 million per annum in 1959-60. The figure for the current fiscal year will be higher. We are well aware that the world’s need for development will grow, not diminish, year by year. But here we face again the problem to which I have been referring. My fear is that, if the present disequilibrium persists, we in the United Kingdom, for example, shall be unable to earn a surplus sufficient to meet the rising scale of our aid in addition to our other commitments.

Finally, there is one further question which I should like to raise. It concerns the method of operation of the Fund. Is there a danger of these operations exacerbating the problem of imbalance because of the tendency for members in short-term difficulties to take drawings from the Fund in only a limited range of currencies? Let me explain my point in a little more detail.

The history of past drawings from the Fund shows that these have been concentrated to a very large extent on the U.S. dollar. This is not surprising. Other member countries naturally wish to draw currencies which they can hold as reserves or can use in exchange operations to maintain their rates. But in our view drawings should, so far as possible, be of the currencies of those countries which are in over-all surplus. Undue concentration on the reserve currencies might have unfortunate consequences in the future. For member countries might wish to draw reserve currencies at a time when those currencies were under strain.

I am sure that this subject is not new to the Fund, but I think it would bear further study now when we can look at it not as something imminent, but as something which could become real at some future date and which in common prudence we ought to provide for. We should be glad to cooperate in such a study and should be ready to make some practical suggestions.

May I conclude by emphasizing again my concern at the serious problem of the disequilibrium in world payments which I think confronts us. This calls for clear thinking and corrective action; and we must not assume that this is a temporary problem which will solve itself.

Statement by the Governor for India—Morarji R. Desai

During the discussion on the Annual Report last year, many of us had occasion to recall the general economic progress of most of the Fund members and the growing realization of the objectives of the Fund. It is a matter of great satisfaction indeed that, as evidenced by the excellent Report of the Executive Directors which is before us, this record of progress has been maintained, by and large, over the past 12 months. From Mr. Jacobsson’s inspiring and constructive remarks the other day, we had not only a confirmation of this progress but a number of valuable suggestions for the consolidation of this progress.

The continued revival in economic activity and international trade, the improvement in the reserves position of many members, and the reinforcement of external convertibility by reduction in discrimination are all pointers to a healthier system of trade and payments. The very fact that for a second successive year purchases from the Fund during 1959-60 were substantially less than repurchases bears testimony to the general improvement to which I have referred.

That, despite the progress already made, there is much that still remains to be done for the Fund as well as for its members is, I think, abundantly clear. The recent increase in the resources of the Fund and the improvement in the reserves position of European countries, welcome as they are, have not yet conclusively put to rest misgivings on the part of many members about the adequacy of their international reserves; and for most of the developing countries, including mine at any rate, their present level of international reserves is uncomfortably low. Under these circumstances, the need for deploying the resources of the Fund with alacrity and flexibility in the light of emergent circumstances remains as great as ever.

It is, however, not enough to think merely of meeting these difficulties as and when they arise. We must even more concentrate on possible ways of preventing these difficulties from arising. It is now a known and accepted fact that for many of the Fund members, and particularly for poor countries struggling to achieve a satisfactory rate of development, balance of payments difficulties are an inevitable concomitant of certain basic weaknesses and the efforts to remove them. These difficulties, therefore, cannot be set right merely by fiscal or monetary or exchange policies. Such countries will need to resort to the provisions of Article XIV for a considerable time to come. They will have to continue with restrictions—and here I am making no distinction between restrictions which may or may not fall within the jurisdiction of the Fund—until such time as their economic structure has been strengthened. The question which, therefore, needs to be considered in respect of these continuing restrictions is whether they are of a kind which facilitates and accelerates the restoration of a sound economic structure or whether, as is very often possible, they in effect impede the process.

One of the things which, unfortunately, seems to be happening today is that restrictions imposed by one country in balance of payments difficulties aggravate the problem for others. The widespread use of restrictions by less developed countries very often has the effect of weakening the economies of others in a similar stage and thereby making their over-all position worse rather than better. A certain amount of thought needs to be given by the experts of the Fund to see whether and to what extent damage is being caused by restrictions imposed by one underdeveloped country to the economy of others and in what ways such damage can be minimized and avoided. It is not for me to anticipate the results of such a study. But perhaps it would not be irrelevant, in this connection, to remind ourselves of what my esteemed friend, the Governor for France, M. Baumgartner, said last year, viz., that dissimilar routes often converge in the end and that progress toward the objectives of the Fund has often been spurred by measures which on a narrow legalistic view appear at variance with these objectives. It would be surprising if this observation, which is undoubtedly based on the experience of Europe with mutual liberalization of restrictions, had no relevance to the problems and prospects of countries which are still confronted by basic structural weaknesses.

What is important in the ultimate analysis is the dedication to the common objectives enshrined in the Articles of Agreement of the Fund and the determination to build up the economic strength which alone can guarantee the achievement of these objectives on an enduring basis. The membership of the Fund reflects a rich diversity of economic conditions and social and cultural traditions. And yet, over the years, we have come to use a common language in the discussions of problems of mutual interest. When it comes to matters such as monetary and fiscal policy, or inflation and growth, or the general principles that ought to govern economic relations among nations, the differences of accent among us are far less important than the often unstated but nonetheless firmly held beliefs and codes of conduct. It is this growth in mutual understanding, even more than the general progress of the members of the Fund, which gives reason to hope that the problems that still remain for the members of the Fund and for the Fund in relation with its members will be solved in a truly international and cooperative spirit.

When we speak of the progress toward the objectives of the Fund, it is also well to remember that economic cooperation as embodied in the Articles of Agreement of the Fund is but one part—albeit a vital part—of the total design of international economic cooperation. Cooperation in matters of exchange which fall within the jurisdiction of the Fund cannot be dissociated from progress in international economic cooperation in other areas, such as trade or the provision of finance for economic development. That is why I am particularly gratified to see in the Annual Report many excellent statements regarding the mutual obligations of members of the Fund not only in regard to the pursuit of sound monetary, fiscal, and exchange policies but also with respect to the promotion of rapid economic development among all its members. That the Fund cannot remain indifferent to or a mere passive observer of the wider sphere of international economic cooperation is, I think, generally appreciated. And in this connection I must express my sincere appreciation to Mr. Jacobsson for so cogently adding his voice in support of a broad-based system of economic cooperation among nations, not only at this gathering on Monday, but earlier in July this year at the thirtieth session of the Economic and Social Council and indeed on many other occasions.

While I am still on this general plane of Fund policy and attitudes, I should not fail to pay a tribute to the wise and statesmanlike decision adopted by the Executive Board under the able guidance of Mr. Jacobsson regarding the transition from Article XIV to Article VIII. It is our sincere hope that members will cooperate fully with the Fund, as suggested in this decision, in keeping the Fund informed of their import restrictions. I am very happy also that there is a general consensus of opinion in favor of periodic consultations with Article VIII countries. The nature and scope of these consultations we can well leave to the good sense of members and the wisdom of the Fund’s staff and management. But I think it is only fair to presume that, apart from purely jurisdictional questions, consultations with Article VIII countries will follow the general lines established in Article XIV consultations. Even today, Article XIV consultations range beyond matters within the direct or strict jurisdiction of the Fund; and this is as it should be. If the forthcoming consultations with Article VIII countries are not to be imbued by the same spirit of free and frank discussion of problems of common concern, it will invariably have an impact on the course of consultations with Article XIV countries as well.

Turning to developments in the Indian economy, the year that has just ended has been one of some progress accompanied by continuing stresses and strains. While production, particularly industrial production, has been at a satisfactory level and investment has continued to increase in keeping with our plans, there have been signs of excess demand in the economy resulting in pressure on prices. We have tried over the last two or three years to reduce progressively the extent of deficit financing. In framing our Third Plan also, we have kept in view the need to restrict monetary expansion to the requirements of real expansion in the economy. Resort to bank credit by the public sector has been reduced sharply, but there has been a rather large increase in bank credit to the private sector. The Reserve Bank has tightened considerably its credit policy. It has sought not merely to restrict credit expansion in certain specific fields; it has also tried to limit the total expansion in bank credit. Our major problem is, of course, that of securing a large and continuing increase in the production of food and raw materials. Nevertheless, fiscal and monetary discipline have an important role to play in our situation. There has been considerable additional taxation in India during the Second Plan, and I dare say there will be more of it in the Third Plan. During the current year, our foreign exchange reserves also have been under renewed pressure. This is partly due to seasonal factors and the payments to the Fund; but we consider it imperative to build up our reserves to the extent possible to a more satisfactory level. To this end and to keep prices under control, we intend to use all the fiscal and monetary devices and techniques that are available.

Taking a somewhat longer view of developments in India, we are just completing a decade of planned development of our economy and are about to launch our Third Five Year Plan next April. This is not the occasion to go into the details of the Third Plan, the draft outline of which has already been published. But as we look at the progress we have made over the past decade and survey the tasks that lie ahead, a few things are abundantly clear to us. While we have made considerable progress in expanding the productive base of the economy over the past ten years, we will have to maintain and even accelerate the tempo of development over many years to come if any impression is to be made on the extreme poverty of our people. It is inevitable that in this task we would need the good will and assistance of more fortunately placed countries on a generous scale for many years to come. But simultaneously, it is even more imperative that we deepen and widen our own efforts to increase productivity and savings, to enlarge our export earnings, and to economize on imports. We have no illusions regarding the difficult nature of the task that is still ahead. But we know the stakes are high, and we are determined to live up to our destiny. Above all, we are determined to avoid all illusory and indeed perilous shortcuts, be they the shortcuts of excessive credit creation or of excessive reliance on the continuing good will of our friends abroad.

Statement by the Governor for the United States—Robert B. Anderson

In many ways the past year has been one of continued economic and financial progress. As the Annual Report has stated, world industrial production and trade have increased and there has been broad success in sustaining expanded output and real income within the framework of reasonable price stability. These gains have not been shared by all countries, however, and continued relative weaknesses in the markets for some primary products and foodstuffs have presented serious problems for a number of the less developed countries. Even in these cases, pressures have been eased by sharp recovery in industrial countries in 1959 and continued high levels of economic activity in 1960.

The work of the Fund during the year focused on several matters which are of great interest to the United States. We welcomed the Executive Board’s decision on discriminatory restrictions last October, which recognized that progress toward general convertibility of currencies had very largely eliminated the basis for discriminatory restrictions on payments. In the past two years, we have come much closer to the end of the postwar period which in the field of international finance was characterized by widespread discrimination, especially directed at the dollar area. The Fund deserves a great deal of the credit for the concerted and successful effort which has been made to reduce restrictions and eliminate discrimination. Some discriminatory restrictions still remain, however, and we hope that the Fund and the members will devote attention to rapid completion of the task of doing away with them.

In another important decision foreshadowed at the last Annual Meeting, the Executive Board in June agreed on the guidelines which might be useful to members as they consider undertaking all of the obligations of Article VIII. We can anticipate that during the coming year a number of additional countries will take that action, which will be especially important as a formal evidence of the approach to full convertibility of currencies.

In the past year, Fund members in very large part completed the process of increasing the resources of the Fund, which had its inception in the resolution adopted by this Board at the New Delhi meeting in 1958. Scarcely half a dozen members have not yet consented to quota increases, and some of them are in the process of taking the necessary legislative and administrative action. We may therefore anticipate that very nearly all Fund members will in the end consent to quota increases. This near unanimity of action is another important recognition by members of the great usefulness of the Fund. The increase in resources has put the Fund in a much better position to deal with the exchange shortages which from time to time confront individual countries, and with broader difficulties in the field of foreign exchange.

To my mind, one of the most heartening and important aspects of the work of the Fund is its patient, close, and intensive collaboration with members in efforts to achieve financial stabilization. Countries have long needed an impartial and reliable ally in the struggle against financial instability and the inflation which accompanies it. The Fund has demonstrated that it is such an ally, and we can draw great encouragement from the fact that members from all parts of the world continue to turn to the Fund for support and technical advice. There has been evident and encouraging progress in stabilization during the year, and we have reason for much satisfaction that so many countries—industrial and less developed alike—have participated in these vital efforts to establish and maintain sound and reliable currencies. Substantial completion of the task of dealing with excess internal liquidity inherited from World War II and resulting from inflationary practices, and the advent of much wider convertibility, have helped create the more favorable conditions for success which have emerged in the past few years.

I agree with the general conclusion in the Annual Report that the policies of the Fund relating to the use of its resources continue to be appropriate and beneficial. They comprise a successful merging of two important considerations. On the one hand, members must have assurance that Fund resources are available to them when need arises. On the other hand, the Fund must have assurance that members are taking reasonable and effective steps to deal with the causes of imbalance and to maintain or re-establish internal and external stability. The wide range of members which have drawn on the Fund year by year and the great variety of circumstances under which they have drawn serve as good evidence that Fund resources are fulfilling the purposes for which they have been subscribed.

We have studied with close interest the consideration given in the Annual Report to broad developments in balances of payments and in the levels of reserves. I shall shortly have something to say about what has happened in the United States in this respect during the year. But it may be noted at this point that international liquidity improved during 1959. The increase in Fund resources was, of course, one element in this improvement. Other important aspects were the growing strength of the reserve positions of industrial countries and the continuing relaxation of exchange restrictions, and particularly restrictions on movements of capital. These favorable developments have meant that the free world’s banking system, which plays such an important role in the financing of international trade in goods and services, has been able more effectively to add to international liquidity when it is needed.

During the year, there has been much discussion of the way in which the international financial system is functioning. A number of suggestions have been made for changes which might be made in that system. My own conclusion is that the international system has continued to function efficiently in financing trade and providing increased freedom of movement of short-term funds among a widening group of convertible currencies. This emerging convertibility, together with the renewed vigor of commercial banking institutions in the international field and the strengthening of the Fund resources, has contributed to the flexible and smooth operation of the system. Taken as a whole, the system has been able to finance a growing volume and value of world trade in commodities and services, and to provide stand-by and emergency assistance to countries in need of it. We are not confronted with any immediate need to consider changes in the system as a whole or in the International Monetary Fund.

Less rapid progress has been made in the field of longer-term financing of economic development. In my remarks a year ago, I pointed out that there must be a reorientation of the policies of the earlier postwar period and a new determination by all the industrial countries to face the common obligation to share in the task of providing capital to the less developed parts of the free world. Since that time, the large capital-providing nations have made a step forward in the formation of the Development Assistance Group, the third meeting of which will take place next week, where means and techniques for speeding up the flow of capital to the less developed countries will be under active discussion. However, a number of industrial countries have continued to increase their reserves and certain ones have accumulated substantial gold and foreign exchange holdings. This is particularly true of the Federal Republic of Germany. It therefore becomes even more vital than before for the strong surplus countries to take adequate steps to facilitate the movement of international capital on longer terms to the less developed areas of the world. I believe it is considerably more important to seek ways to deal with this problem than to concern ourselves at this time with proposals for new facilities which may build still larger accumulations of a liquid character.

One fundamental point must be re-emphasized—and on this I believe there is general agreement. The international financial system should and does provide help in times of emergency and assist countries which are striving to deal with their own problems. But I am sure we have all learned that there is an inexorable rule applying to all countries. Regardless of the technical and mechanical aspects of the international financial system, each country is always confronted with the stern necessity of achieving and maintaining reasonable equilibrium in its own balance of payments. Each capital-exporting country—whether it is in over-all surplus or deficit—must achieve reasonable balance over time between its current receipts from abroad and its current expenditures abroad plus the total which it is prepared to lend, invest, and provide through grants. And each capital-importing country must strive for a reasonable equilibrium beween its net current deficit and the amount which it can reasonably expect to obtain from abroad in the form of loans and grants.

I should like again this year to describe briefly the present course of economic and financial events in the United States, and to report on the way our balance of payments appears to be developing, as we approach the end of the third quarter of 1960.

In evaluating the performance of the U.S. economy thus far in 1960, as well as prospects for the future, it is essential to maintain perspective. Excessive optimism colored some forecasts early in the year, and some observers have now altered their opinions and suggest that the economy is trending downward. While judgments of reasonable men can differ, it is my strong view that the outlook for economy activity in this country is favorable, both for the near future and for many years ahead.

Unquestionably, there are some sectors of our economy which give concern. The problem of unemployment is still troublesome and deserves continued attention, especially in those areas which have not shared fully in national gains because of special circumstances. In addition, steel production has continued at a low level relative to our greatly enlarged productive capacity. But, especially considering the fundamental readjustments that have been taking place in the U.S. economy in 1960, it can be said that our free enterprise system has once again demonstrated its great underlying strength and resilience.

In speaking of fundamental readjustments in our economy, I refer to the fact that the economic environment of 1960 is a new environment. After almost 20 years of recurrent inflationary pressures, it is understandable that a free economy would have to undergo some deep-seated adjustments, once appropriate fiscal and monetary policies had struck down both the fear and the fact of inflation. It is indeed heartening that, despite the impact of this adjustment to a new economic environment, total output and the income of individuals have advanced to all-time peaks. Moreover, civilian employment in August established a record for the month, with over a million more persons employed than a year earlier. Industrial production, which has been most directly affected by the adjustments occurring this year, has shown little change. In the aggregate, it is only slightly below its January peak and, when production of iron and steel is excluded, is somewhat above the first quarter level.

The most important single fact leading to the decline in inflationary expectations was the realization, last January, that the $12.4 billion federal deficit of fiscal year 1959 would be replaced by a surplus in fiscal year 1960. This surplus actually totaled $1.1 billion. Thus, the domestic economy is now functioning without the dangerous stimulus of inflationary expectations or fears of shortages. Businessmen can now make plans and calculate costs on the basis of a reasonably stable dollar.

This is precisely what we have been striving for throughout the postwar period. It is precisely what is required if this nation is to achieve the maximum rate of sustainable economic growth without inflation.

As reflected in business attitudes and practices, the major impact of this fundamental readjustment to the decline in inflationary pressures and expectations has been on business spending for inventories—that is, buying of goods for industrial use or resale. In the first quarter of 1960, businesses were accumulating inventories at the near-record annual rate of $11.4 billion. This rapid rate of accumulation was partly the result of resumption of steel output after a long strike and partly the result of expectations of limited supply, rising prices, and vigorous demand in 1960. But, as it became clear in ensuing months that most industrial goods and materials would continue to be readily available at reasonably stable prices, the rate of accumulation began to decrease. The available evidence now indicates that inventories are no longer rising but are perhaps declining slightly. Over-all, therefore, the annual rate of inventory spending has fallen by $11-12 billion. This sharp decline in inventory spending is the key fact in our domestic business picture and accounts for the relative stability of industrial production in 1960, despite a substantial expansion in final demand.

It is highly significant that the recent decrease in inventory spending is even larger than the drop in inventory buying in 1957-58, which was the most important factor depressing spending and output at that time. It is apparent, therefore, that in the past eight months we have experienced another major postwar shift in inventory spending. But in contrast to some of the earlier experiences—notably, 1948-49,1953-54, and 1957-58—the recent inventory adjustment has proceeded smoothly and, of primary importance, has been offset by strong final demand. Even with this major shift in inventory spending, total economy activity, measured by gross national product, has risen in 1960.

The inventory adjustment appears now to be nearing completion. Business spending for new plant and equipment, according to the latest government survey, continues at a high and sustained level. Governmental spending for goods and services, embracing state and local as well as federal outlays, continues to advance. Recent surveys indicate that consumer buying plans were well maintained during the summer and that consumers increasingly regard their financial positions as favorable. As already noted, personal income has continued to rise and, with inflation under control, rising personal income means rising purchasing power for the consumer.

Of considerable importance from a financial standpoint has been the significant easing of monetary policy in recent months, which was appropriate in view of the shift to a budget surplus and the accompanying decline in inflationary pressures. The Federal Reserve authorities have twice reduced the rate of interest on loans to member banks; margin requirements for stock market loans have been lowered; reserve requirements of member banks have been reduced; and, of primary importance, the reserves of the banking system have been supplemented through purchases of government securities.

The results of these monetary actions are clearly discernible. Since May, the privately held money supply, which had been declining, has grown by more than $1 billion, or at an annual rate of about 3 per cent. Time deposits in banks and share accounts in savings and loan associations, which constitute important types of “near-money,” have also been increasing at a substantial rate. Business loans at banks have not grown as much as usual since midyear, largely due to the decline in inventory spending, but banks have used the additional reserves to add significantly to their holdings of government securities and other liquid assets. Interest rates have declined from the peaks of early winter.

The easing of credit and the decline in interest rates are encouraging new long-term bond flotations by state and local governments and business corporations, and the Treasury has succeeded in extending a significant amount of its intermediate-term debt to longer maturity, through an advance refunding. Credit to support residential and other construction is more readily available, at lower interest rates. This in turn has helped sustain the level of housing starts. Construction contract awards have also increased recently. Thus, the outlook for a rising volume of construction is favorable.

These facts, in my judgment, reflect the basic underlying strength of the U.S. economy. The adjustments that our economy has undergone this year provide the base for a long period of sustainable, noninflationary growth. Primarily because of effective attention to our domestic fiscal and monetary policies, we can view the future of our economy with confidence.

Let us now turn to the U.S. balance of payments. You may recall that the U.S. balance of payments showed an over-all deficit of $3.5 billion in 1958 and $3.8 billion in 1959. You may also recall that this very unsatisfactory situation resulted from three main factors. First, our merchandise imports had increased very sharply from about $13 billion per year to more than $15 billion in 1959. Second, our merchandise exports had declined from more than $17 billion in 1956 and $19 billion in 1957 to $16 billion in 1958 and in 1959. Third, three important elements in our balance of payments were large and, in view of our general international responsibilities, were not susceptible to easy adjustment. These three elements were military expenditures overseas, a net outflow of U.S. private capital, and government loans and grants. These have in total ranged about $8 billion in recent years.

What has been happening in 1960? First, our exports at midyear were running at an annual rate of about $20 billion, which was equal to the peak reached in 1957 and up almost one fourth from the level of 1958 and 1959. There has been good progress in expanding our exports, covering a very wide range of commodities and markets. With imports at about the same level as in 1959, our net export surplus is accruing at an annual rate of more than $4 billion, exceeded in the past decade in only 1956 and 1957. But the movements of capital and other nontrade items have left us with an over-all payments deficit which appears to be running this year at an annual rate of something like $3 billion. This is a substantial deficit, even though it represents a reduction from the deficit of $3.8 billion recorded in 1959.

The outflow of gold continued in 1960 and has now reached about $700 million. In the same period, foreign countries increased their total holdings of short-term dollar claims, and the gold flow has generally reflected the normal reserve practices of foreign financial institutions.

During 1960, short-term interest rates have moved sharply and in some cases in opposite directions, notably downward in the United States and upward in the United Kingdom and Germany. We cannot expect that liquid funds would be unresponsive to these changes, and, as I have just mentioned, there has been a substantial outflow of short-term funds from the United States, chiefly to Europe although some of it comprises a U. S. liquid claim on other countries.

We have made real progress toward the continuing and essential objective of reasonable equilibrium in our balance of payments. But we have not reached that objective. As we advance toward it, our aim is to merit continued confidence at home and abroad. We shall do this by resolute adherence to domestic and foreign economic and financial policies which will maintain the dollar at its existing gold parity as a sound and reliable currency. However, I should like to venture a little broader comment. International trade is increasing, and the interdependence of the economic and monetary policies of all nations is becoming ever more apparent. This obliges all of us, as we frame and pursue our policies, to realize that the free countries of the world must have the common objective of maintaining stability and convertible currencies, and must keep ever in mind that the actions of each affect and concern all of the others.

We are taking certain steps, notably in expanding our export insurance facilities and in more intensive display of our products overseas, to encourage our exporters to search more actively for markets. We believe they are doing so with good results. In this connection, we hope and expect that other countries and groups of countries, such as the European Common Market and the European Free Trade Area, will pursue liberal commercial policies with respect to imports from the rest of the world. This is especially needed with respect to agricultural products. The negotiations which have recently started in Geneva will be concerned with the tariffs of the Common Market as well as those of other countries in the GATT, and will provide an opportunity for real progress in that direction. We have high hopes for a successful outcome.

I have so far been talking about the U.S. balance of payments. Last year I mentioned the very large payments surpluses which a number of other industrial countries were recording not only with the United States but also with the less developed countries, and I ventured to say that this did not represent a satisfactory pattern of world payments and could not be expected to persist. I am glad to see that the Annual Report has very properly directed attention to this important imbalance in international payments arising out of the continuing payments surpluses of these industrial countries. This is a most important, indeed a crucial, problem now facing us in world finance. Both the less developed countries and the strong industrial countries have a vital and mutual interest in bringing about a more reasonable equilibrium in the payments relationships between these areas. One important need is an increase in the flow of capital, and particularly of long-term capital, from these countries to the less developed areas, which I have already mentioned. Another form of adjustment of a mutually beneficial character could result from the expansion of imports of goods and services by the surplus countries from the less developed areas and from the United States as well. As one example, consideration could be given to reducing internal taxes on commodities imported from the less developed countries.

We are very acutely aware of the importance of securing for ourselves that freedom of action which is essential if we are to use fiscal and monetary policy flexibly as a major means of dealing with both inflationary and deflationary forces. This is another and very important reason which will impel us over the years through proper policies to maintain a sound balance of payments position and an adequate reserve level. We rely on our large reserves to provide this freedom of action, and we have exercised it during 1960 as we have applied our fiscal and monetary policies. But we can preserve it over the long run only as we succeed in our objective to achieve and maintain a reasonable equilibrium in our balance of payments.

The free world is moving through an epoch of vastly significant economic, social, and political events. In every field—health, technology, transportation, social welfare—new achievements stream from the minds and the labor of men. People who in the past could expect little of life see horizons of which they never dreamed; they are moved by aspirations which they never before dared to have. Out of this has appropriately emerged a surging demand for higher living standards and a drive for the economic development which will make them possible. This drive is pressing on the resources of all countries, because in even the most highly developed there is a demand for improved production facilities, better roads, more schools and hospitals, and more housing.

All of this is of the most intensely practical concern to us, as Treasury officials and as central bankers. We have a vital role to play in the fulfillment of this compelling urge for economic expansion. On the one hand, we must encourage adherence to the time-tested rule that economic and social progress and sound currencies are inseparable—that one cannot exist without the other. On the other, we must demonstrate that our financial and monetary policies and institutions, operating within a free economic system, can contribute to the objectives of economic growth, social progress, and the security of the free world, and thus help meet the great challenges of our time.

Statement by the Governor for Brazil—Sebastião Paes de Almeida

Since our last meeting, my Government has actively pursued its efforts to accelerate the development of basic sectors of the Brazilian economy. In the Western Hemisphere, Operation Pan America, launched by President Kubitschek in 1958, continued to gather momentum, as the awareness of an urge to fight stagnation felt within individual national borders spread throughout the continent. The economic and social program contained in the Final Act just signed at Bogotá and the coming into operation of the Inter-American Bank, with the full support of the American States, is clear evidence of the awakening of a new consciousness among those responsible for the destinies of the peoples of the Americas. The support given by the U.S. Government to these initiatives and the recent personal contribution given them by President Eisenhower are worthy of special praise.

These are indeed encouraging developments. I would like to recall, however, that in a wider field—in spite of them, or, perhaps, because of them—a basic review of principles governing international economic cooperation becomes more and more imperative in order to permit the correction in the relations among peoples of economic imbalances which, in our time, are drawing further and further apart poverty from prosperity.

This was the suggestion I put before you a year ago. I deem it appropriate to bring it up again because I feel that it is through a permanent review of objectives and methods that we shall be able to keep this and other economic organizations abreast of fast-changing conditions in the world. I hope that recent international developments are giving, every day, additional support to this idea. But I would like to revert to some facts related to my country which have a bearing on what I have said before in connection with the position of primary producing countries.

In spite of a vigorous export drive in 1959, which resulted in a volume of coffee exports 40 per cent higher than in 1958, the Brazilian foreign receipts have shown negligible increase. This example illustrates, once more, the nature of the handicaps which afflict primary producing countries. Rigid export earnings at low levels and substantial short-term exchange requirements due to outstanding liabilities, together with the need to preserve minimum levels of imports for keeping national economic activities going and avoiding retrocession, account for the adverse fluctuations of Brazil’s balance of payments.

These have been constant features of our economy since the war, and they were responsible for the introduction in Brazil, during the last 15 years, of quantitative and qualitative restrictions on imports. Accordingly, Brazilian exchange and foreign trade legislation has aimed basically at ensuring the expansion and diversification of exports, at the same time as it sought to discourage imports of nonessential goods or to achieve a reasonable degree of import substitution by local production. Much progress has been made toward the liberalization of trade in Brazil. It should be pointed out that import controls are now being kept primarily through limiting exchange auctions. Importers have free access to the currency available. Internal credit control measures, however, help to hold down speculative demand. As an additional measure against artificial pressure on auctions, exchange availabilities in the hard currency auctions have been of late slightly increased. This step should be viewed as a further move toward the freeing of trade with the elimination of direct control measures.

It should be added that export certificates of all commodities, except coffee, cocoa, and oil, are now sold in the free exchange market. This again confirms the intention of the Brazilian authorities to expand exports and to work toward the stability of the national currency and of internal costs.

It may be well said that those have been the most important steps taken by Brazilian monetary authorities in recent years, with the view of removing restrictions on trade and exchange and of curbing inflation.

It should be noted, however, that such changes could not have been contemplated without prior consideration of payments possibilities. The Brazilian authorities would have been reluctant to promote them had they not held the conviction that the difficulties faced in recent years in obtaining adequate means for a more orderly disposal of short-term exchange commitments were due to a lack of a proper appraisal of the evolution of the Brazilian economy and of its growing potentialities.

I tried, last year, in the course of our fourteenth assembly, to give a few examples of certain problems faced by Brazilian economic policy, in order to illustrate the type of difficulty which in low per capita income areas hinders the implementation of orthodox principles in the exchange and monetary fields. It appeared to me that an organization such as ours should be acquainted with the real conditions obtaining in poor areas, as no treatment can be properly applied prior to an accurate diagnosis of all symptoms or the identification of the disturbing factors requiring correction. In this connection, I mentioned to you the inadequate foreign trade receipts, the levels of which are often adversely affected by the characteristic instability of primary commodity prices. I mentioned also the structural problems of great magnitude which undermine domestic monetary stability.

I would like now to bring to your attention one of our recent experiences which bears rich evidence not only of difficulties met but also of lessons gained. In order to maintain the rhythm of income growth required by Brazil’s high birth rate, the Brazilian economy is making a very substantial savings effort. Such an effort has become heavier in the last years, as long-term foreign financing has become noticeably scarcer. In view of this, it became imperative to resort increasingly to medium-term financing, which, as is well known, is less attractive when applied to the basic and infrastructural sectors of the economy. At this point, the Brazilian economy received the assistance confidently given by private investors who were able to tell the difference between conjunctural balance of payments stringencies and the growing potentialities of the Brazilian economy.

This development, welcome in itself, was followed by another, still more significant, namely, expanded swap operations, particularly in those years when Brazil’s external accounts have shown a more unfavorable situation. At the end of August last, swap operations carried out by the Bank of Brazil reached the US$300 million mark. And the operations which were closed at the beginning for one year’s duration are now made mostly for a period of five years.

This sizable amount of foreign short-term credits and their subsequent transformation into medium-term credits bear evidence that private foreign circles acquired deep confidence in the long-term liquidity of the Brazilian economy. And furthermore, such circles have shown great understanding of the real significance of Brazil’s balance of payments difficulties. No less than one third of the total swap operations have been turned into direct investment, by the investor’s free choice, after a proper appraisal of the ability of the Brazilian internal market to take in such inflow of capital and to ensure to it an adequate remuneration.

Which are the conclusions warranted by such facts? I dare say that at least three conclusions can justifiably be drawn: First, there is no possibility of holding back or holding down a country’s dynamic economy, when its population is firmly resolved to break through the barriers of economic backwardness. Second, in the absence of the traditional foreign assistance, the requirements and the appeal generated by such dynamism bring forth new forms of cooperation, innovating very often in sectors where old forms seemed to be unshakably entrenched. Third, the solution of the more acute external problems by innovating and adjusting old patterns of cooperation tends to lead a nation to believe that the disequilibria resulting from the process of development, very often sharply criticized, do also contain a positive factor, as they, on the one hand, help to attract foreign savings and, on the other, create the need for reformulation of the international patterns of financial cooperation.

The Brazilian authorities are not unaware of the fact that, besides being subject to a slow consolidating process, the new devices impose at the outset a more careful handling than those classically established. They cannot fail to recognize, however, the significance of the efforts made and the determination shown by the people in order to prevent a slowing down of the rhythm of income growth. The weight and significance which foreign financial circles attribute to a large fast-growing market have also become evident to them, in the right measure.

I hope my comments are not going to be construed as meaning that the cooperation of international agencies is losing importance. Far from being so, we sincerely believe that their importance is increasingly more evident. But I think that it would be fair to admit the impossibility of drawing up rigid patterns for the economic policy of less favored areas and of adopting unchangeable prescriptions to discipline financial assistance to those areas.

I believe that no doubt should remain that, as new creative forces are unleashed in those areas, they will expand and diversify the field and forms of international cooperation, requiring therefore a continuing review of accepted methods lest they become obsolescent.

This is why I again urge this organization to undertake a thorough review of the machinery for cooperation which should be carried out through the International Monetary Fund and the International Bank for Reconstruction and Development, so that the assistance they are expected to give to the low per capita income areas may become really effective. I believe that the time is ripe for the revision of the principles and methods applicable by the institutions of Bretton Woods to the long-term financing of the development of such areas. I believe also that no delay should be allowed in the way of a more adequate and prompt assistance to the payment difficulties of member states arising out of the instability of the international markets of primary commodities.

Let us not waste the experience of private investors who, by means of an aggressive realism, have given such a lead in detecting the real possibilities of economies unsatisfactorily appraised by more classical methods.

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

The Executive Directors in their Annual Report, as well as Mr. Jacobsson in his important introductory statement, have pointed with some satisfaction to the development of the international monetary scene in the past year. There is, indeed, ground for satisfaction in the fact that the widespread upswing in economic activity and trade in the world has, in general, not been accompanied by an atmosphere of inflation; and I have read with very great interest that in the judgment of the Fund, as the most qualified observer of international monetary developments, the international payments structure has been strengthened and the general liquidity position of the world improved.

The Executive Directors have discussed and clarified the different questions which are connected with the expected move of a number of member countries to Article VIII of the Fund Agreement. We fully endorse the conclusions expressed in the Executive Board’s decision. Some of us probably thought last year that we would attend this Annual Meeting already as new Article VIII members. Yet, as is true with other irreversible decisions, careful examination of all aspects of the intended step is certainly more important than a gain of a few months. Now, however, as the technical preparatory work has been completed with those countries which are likely to move first, the way is open for the acceptance of the formal obligations of Article VIII by these members in the next few months; and Germany is certainly prepared to take this step.

During the past 18 months, my country has had its full share of the expansion in business activity and trade; to those responsible for German economic and monetary policy, it has, indeed, sometimes seemed that one can have too much of a good thing, that is to say, that the expansion of demand has gone beyond the point where it is still compatible with internal equilibrium. Not only has unemployment completely disappeared, but with more than half a million jobs vacant we now face an acute labor shortage, while order books in most branches of industry are overflowing. It was inevitable that in such a situation of excessive demand the wage-price spiral should have begun to move. In order to prevent the situation from getting out of hand, we had to resort to measures of credit restriction and to increases in interest rates. I should be glad if I could already report the complete success of our restraining measures; we are, however, not yet over the hump. Thus, our situation contrasts with that of other industrial countries where demand and supply are in better equilibrium.

The fact that for the sake of internal equilibrium we had to restrict credit and to increase interest rates has put us in a dilemma in view of our international position. This position is at present characterized by sizable foreign exchange surpluses, a large part of which is not due to the surplus in our current balance of payments but to capital movements induced partly by the higher interest rates and partly by speculative motives. We have made efforts in various ways to discourage short-term capital movements into Germany, and we think that these efforts have been at least partly successful. But there is no doubt that from the external point of view we should rather have lower interest rates, while our internal boom conditions have forced us to adopt a relatively high rate of interest. We hope, however, that we shall soon see some relaxation of the tensions in our economy so that we may be able to bring our interest rates closer to the level appropriate under international considerations, thus discouraging inflows of foreign funds and giving a new impetus to private long-term capital exports.

If we look at our balance of payments on current account, we can see some development toward a better equilibrium. According to present indications, our current surplus in 1960 will not be higher than in 1959 and will be considerably lower than in the years 1957 and 1958. The trade surplus alone is declining also in comparison with 1959, mainly because the big expansion in our internal demand has had its effect on imports of goods and services. Over the past 18 months our commodity imports have, indeed, increased by leaps and bounds. In terms of value, the annual increase was 12 per cent in 1959 and 25 per cent in the first seven months of this year. As already in the preceding years, these increases were much higher than the rate of growth in total domestic demand, thus showing that our liberal import policies have enabled foreign goods to capture a continually increasing share of the German market. Looking back over the past six years, that is to say, over the period from 1954 to 1960, German imports altogether have more than doubled by volume and by value. This has meant an increase from about $4½ billion in 1954 to $10 billion (annual rate) in 1960, and I think that this enormous development of German purchases abroad has been one of the sustaining forces for the expansion of world trade during that period.

We expect that, as in the recent past, our imports will continue to rise faster than exports, thus further reducing our current surplus. We are confident that the short-term money inflows induced by speculative considerations will soon cease altogether and that temporary interest rate differentials will lose in importance. And we hope that in the years to come we can so much increase our capital exports that our over-all balance of payments will develop into a lasting equilibrium. The German Government has rejected the idea of an alteration of the exchange rate, and I should like to make it quite clear today that there is no idea of abandoning this view.

As concerns capital exports to underdeveloped countries, this is, of course, a matter which cannot be judged only in the light of the balance of payments situation of a country at a given moment. The balance of payments position of a country does not necessarily reflect its relative wealth or affluence nor its ability to provide long-term capital for development purposes. Nor can, on the other hand, the needs of the underdeveloped countries for development capital be evaluated only on the basis of existing balance of payments relations. We have here a problem which has to be tackled in the light of general international responsibilities. I may assure you that in my country there is a growing awareness and acceptance of this responsibility. Our Minister of Economics, in his statement at yesterday’s discussion of the Bank’s Annual Report, has explained what steps our Government has taken and is considering taking in order to promote and increase financial help to less developed countries.

Let me conclude by saying that in our monetary policy we try to combine internal and external stability, difficult though this sometimes may seem. We hope that by a policy aiming at continued expansion under stable conditions at home, and at a better equilibrium in our balance of payments through increased imports and more capital exports, we are pursuing a policy that corresponds to the needs of the international economy.

Statement by the Governor for the United Arab Republic—Husni A. Sawwaf

Tribute has been paid to the Fund for the work it has accomplished over the years in the field of exchange stability; for the support it has given to member countries to tide them over temporary balance of payments difficulties or to carry out comprehensive stabilization programs; and for the expert advice tendered during consultations with Governments of member countries for the pursuit of sound fiscal and monetary policies. The enlargement of the Fund’s resources through the increase in quotas from about $9 billion to about $14.5 billion makes us look confidently forward to further progress in promoting international monetary cooperation, fostering economic development, and stimulating world trade.

The quick response of member countries to the quota increase is a clear indication of their appreciation of the constructive role played by the Fund.

The restoration of external convertibility by many developed countries at the end of 1958 proved the success of the Fund’s oft repeated recommendations and inspired other less developed countries to endeavor to achieve greater monetary stability.

It is gratifying to note from the Annual Report, as well as from the address of the Managing Director, that a great deal of progress has been made during the past year in the economic and monetary fields. A high level of investment, a greater volume of production, a conspicuous expansion in foreign trade, and a high degree of price stability have been the prevailing economic phenomena in many countries.

It is equally gratifying that these phenomena characterize also the economy of the United Arab Republic. In its Annual Report, the Fund referred to the fact that the improvements achieved in 1958 in the economic conditions of the Egyptian Region of the U.A.R. was by and large maintained in 1959. The trade deficit was smaller, barter trade was discontinued, and most domestic prices remained stable. Furthermore, the Government took several measures aimed at simplifying the exchange system.

In the Syrian Region, economic conditions were affected by adverse climatic conditions which caused a decline in the production of cereals. Instead of a normal exportable surplus of cereals, the Region had to depend on imports to meet consumption requirements. This caused a balance of payments difficulty, but measures were effectively taken to cope with the situation, including a recourse to Fund resources. I am happy to take this occasion to reiterate our appreciation for the quick and efficient handling of our request by the Fund.

It has become commonplace that developing countries are bound to face balance of payments difficulties. The more rapid the pace of development, the more intense would be these difficulties. But in a country like ours, where the average per capita income is still low and could even become lower with the rapid growth of population, development becomes imperative, whatever the difficulties may be.

Our new Development Plan covers the two Regions of the Republic and aims at doubling national income in ten years. In financing such a vast program, we have planned no recourse to deficit financing. Internal borrowings and budgetary allocations will cover nearly all requirements of domestic financing. A good part of foreign exchange requirements has now been arranged for.

Most of the external payments difficulties of the two Regions have usually resulted from trade gaps. Such gaps were often caused in the Egyptian Region by fluctuations in the world prices of cotton, the Region’s leading export crop. This dependence on the exportation of raw cotton will be minimized through industrialization.

On the other hand, the recurrent trade gaps of the Syrian Region are caused by occasional droughts affecting rain-fed crops. In the struggle against such elements, much stress has been laid on irrigation projects in the Development Plan for the Syrian Region. Industrialization is also given its due place in the Plan.

We are confident that the implementation of the Plan will go a long way to minimize the main sources of our balance of payments difficulties.

The problems arising from the fluctuations in the incomes of raw material producing countries as a result of changes in the prices of their staple exports have been repeatedly stressed in these Annual Meetings. Failure to find an adequate solution puts in jeopardy the development plans of these countries. It is gratifying that the Fund is giving this question its serious consideration. We hope that, in cooperation with other appropriate international organizations and agencies, the Fund will take an active role in bringing about a solution to this problem, so vital for the economic development of less developed countries.

Equally important for the rapid and successful implementation of development plans in less developed countries is the question of securing medium- and long-term capital on easy terms.

Of course, the Fund does not provide capital for development and its role is restricted to short-term financial assistance for balance of payments purposes. Yet I am sure the Fund’s assistance to new and developing countries to achieve stable financial and monetary structures will facilitate securing such long-term capital from international organizations or from government or private sources. The Fund is already doing a great deal in this respect, but further efforts will be fruitful. In this connection I think it is worthwhile for the Fund to examine the recommendation put to the Bank Board of Governors by the Governor for the United Arab Republic. The recommendation calls for a careful study on an international expert level of specific measures designed to contribute toward hastening the pace of economic development. I am confident that the Fund will be able to make a valuable contribution in this regard.

Statement by the Alternate Governor for Japan—Masamichi Yamagiwa

First of all, I wish to join everyone here in congratulating the Fund and its members on the remarkable progress which has been made since the last Annual Meeting toward the Fund’s ideal by the notable acceleration of the freer flow of goods and services in world markets and by the significant elimination of exchange restrictions. I agree with the importance attached to these developments by the Annual Report and by the Managing Director in his splendid address to us.

I am pleased to assure you that my country has also played a part in this international achievement. Since the last Annual Meeting, our Government has given high priority to the elimination of trade and payments restrictions in formulating its economic policy and has kept endeavoring toward the ideal of liberalization. However, as you are aware, my country’s economy is burdened with quite a few difficulties which are not evident in other industrialized countries. Domestically, we still have to support a large number of persons in the low-income groups who are widely seen in agriculture and small-size businesses and industries, and our unemployment problem is by no means easy to overcome with the existence of a great number of either totally unemployed or part-time unemployed. Externally, our country’s geographical location is unfavorable, compared with Western European countries, since we lack adjacent markets with an economic level similar to our own.

I will not try to detail here the steps we have taken to liberalize trade and progress toward convertibility, but the highlights may be worth mentioning. Since last July we have established partial external convertibility of the yen for nonresidents. The Government has drafted a liberalization program and is now steadily implementing it. According to this program, commodity imports and invisible trade are scheduled to be substantially liberalized within three and two years, respectively. Also, in the field of capital transactions, we are prepared to encourage foreign investments in Japan and, on the other hand, to accelerate our credit and investment to the less developed countries. Furthermore, I wish to add that we intend to accelerate this schedule as circumstances permit. Thus, our actions parallel the measures taken by the Western European industrialized countries, but with some time lag because of our special problems.

I wish to take this opportunity to explain some of the unfavorable circumstances surrounding our country. Our commodities are under severe import discriminations by many countries. As many as 13 countries are still invoking Article 35 of GATT and are refusing to enter into normal GATT relationships with Japan. Furthermore, some of the countries which have normal GATT relationships with us are discriminating against the import of our goods. It must be quite apparent that such discriminatory treatment is discouraging to our efforts toward freer trade and payments. It is our sincere wish that friendly cooperation by the Fund and the fellow members will result in an improvement of our international environment so that our efforts toward freer trade and payments will bear fruit at the earliest possible time. In this way we will also create the conditions for increased aid to the less developed countries.

We are pleased to hear in Mr. Jacobsson’s address that quite a number of countries in the free world have eliminated the exchange restrictions so far maintained for balance of payments reasons and are ready and willing to assume formal Article VIII status, thus to make a great stride toward the ideal for which the Fund was established. However, it would be highly regrettable if those countries which assume Article VIII status would still continue import restrictions not through direct exchange restrictions but through trade controls, such as quantitative restrictions. It is quite appropriate that a decision was made so as to enable the Fund to have periodic discussions with those members who assume Article VIII status. I believe everyone joins in hoping that the Fund will be able to advance the liberalization of trade and payments in its true sense through close cooperation and mutual collaboration with GATT without falling to the ground between two stools by technical considerations of legal jurisdictions.

In conclusion, I wish to state my firm belief that, with the outstanding ability and excellent leadership of Mr. Jacobsson, the Fund will successfully create an international economic society which promises prosperity and happiness to all member nations, tiding over whatever difficulties may come in the way, and I also assure you of our willingness and readiness to cooperate with the Fund in this great task.

Statement by the Governor for Iraq—Nadhim Al-Zahawi

We in the Republic of Iraq have noticed with great interest the economic developments which have taken place during the year covered by the Annual Report, especially the steady expansion in the productivity of industrial countries, the upswing in world trade, and the increase in monetary reserves, particularly of the Western European members.

But we have also noticed with much disappointment the continuously unfavorable terms of trade of underdeveloped countries as a result of the continued decline of prices of most raw materials and foodstuffs. This has undoubtedly increased the difficulties of these countries in reconciling the necessity for implementing their economic development programs, the unfavorable balances of payments of most of them, and the inadequacy of their foreign exchange reserves. Some of my colleagues have already, at the Annual Meetings of the Governors of the Fund, made reference to this trend as well as to the necessity for altering the industrial countries’ policies which are designed to keep prices of raw materials at their lowest levels. While adding my voice in support of these colleagues, I must make particular mention of the great indignation prevailing in the Republic of Iraq and in other countries in similar circumstances with regard to the arbitrary and unjustified reduction recently made in oil prices without consulting the producing countries which are directly concerned in this matter and whose vital interests are deeply affected. Such arbitrary fixing of prices of raw materials would not, in the long run, be in the interest of international trade as well as of economic development and reconstruction, and would certainly not help to maintain stability.

There is no doubt that the increase which has taken place in the Fund’s resources will help to remove some of the uneasiness which is becoming serious in the underdeveloped countries as a result of the discouraging prices of raw materials. It will also help to restore to these countries some confidence in their strenuous efforts to carry out their reform projects and to face their balance of payments difficulties. However, this does not mean that the problem of raw material prices should remain unsolved.

It has been a great pleasure for us in the Republic of Iraq to cooperate with the Fund to the utmost limits of our possibilities, and to effect an increase in our quota in spite of the fact that we do not anticipate any problem in meeting our foreign commitments in the foreseeable future.

Moreover, the substantial resources of the Fund have no doubt helped to strengthen the trend toward convertibility which has characterized the past two years and which has been accompanied by the stimulation of international trade, the relaxation of foreign exchange restrictions, and the expansion of multilateral payments. In this connection, I should like to mention that the Republic of Iraq has adopted a monetary and commercial policy in harmony with the Fund’s objectives and principles which aim at the elimination of monetary discrimination, at the expansion of the multilateral system of payments, and at the relaxation of quantitative financial and administrative restrictions on the movement of goods and on international payments.

About 15 months ago we left the sterling area, and since then there have been substantial increases in our gold and foreign exchange reserves. Although fundamental monetary changes of this nature are usually accompanied by a tightening of restrictions on foreign trade and payments, we in Iraq have coordinated import and exchange regulations in such a way as would ensure satisfaction of the requirements of a rapid development of our economy, help to raise the standard of living of the people, and remove any unwarrantable obstacle in the field of foreign payments. We are also moving with long steps in the same direction as that followed by the other countries which have chosen convertibility.

Statement by the Governor for France—Wilfrid Baumgartner

The Annual Report of the Monetary Fund and Mr. Jacobsson’s speech inspired us with confidence. There can be no doubt that in the last few years the operation of the system of international settlements has improved. The clearest evidence of this is supplied by the balance of the Fund’s operations, which in two years’ time has reversed itself. However, the recovery of monetary health by many States does not mean that all problems are solved.

It is remarkable that, among these problems, there is one which we have discussed a great deal in the past, which some people are still talking about, and which, nevertheless, does not seem to me to be very timely—the problem of international liquidity. A necessarily imperfect, but more appropriate, redistribution of the stocks of precious metal, the reconstitution of monetary reserves—at least in the industrial countries—the increase of quotas, and thus of a second line of reserves—all these very important developments lead me to think that the amount of international resources is at present no obstacle to the economic expansion and social progress we all desire.

There can be no question that the redistribution of reserves, in connection with certain capital movements, has created peculiar and sometimes divergent concerns for certain countries. The important point, it seems to me, is not to accentuate these divergencies by the monetary policies pursued by the various member States. These policies are based on national considerations, but must take into account, as far as possible, the international situation. The action on credit and short-term investment should be conducted more or less with a view to the longer-term goals—even if it is necessary to add a little optimism in difficult times, and, conversely, a little pessimism in more propitious periods.

The improvement of each individual monetary situation is not an end in itself for any State. It is only a means of achieving freer, hence more intensive, exchange among all countries in the interests of each of them.

Convinced of the basic worth of this line of thinking, the French Government for several years has made it the guiding principle of its action. Having succeeded, by measures generally recognized as having the dual merit of timeliness and courage, in re-establishing internal equilibrium in its finances and external equilibrium in its trade, France has been able, in less than two years, not only to increase its reserves and repay its debts, by amounts aggregating $2½ billion, but also to liberalize its foreign trade.

By a continuous series of appropriate steps, the quantitative restrictions toward countries of Western Europe and North America and also toward the rest of the world have been lifted to a very large extent. Moreover, aside from the goals we pursue within the framework of the Treaty of Rome, we are in favor of more general reductions of tariffs under adequate conditions of reciprocity.

It is in the common interest of all countries for the regional economic organizations to seek the abolition of obstacles to exchange, as a step toward attaining the goals defined by the world organizations. This policy should make it possible to overcome differences of opinion between certain groups of nations, since, through the development of their relations, it should contribute to the prosperity of all.

Naturally, increased exchange of goods and increased capital investment entail the risk of wider fluctuations in the balance of payments. That is self-evident, as it is also evident that, through the liberalization of economic relations, every State becomes more exposed to the influence of possible measures taken by other States, and of developments in the international economic situation. But that is precisely why each State must rise above its own preoccupations, and the Monetary Fund should continue to enforce the principles governing our institution, as it now successfully does under the guidance of Mr. Jacobsson and his colleagues.

Similarly, the results of this cooperation may appear to benefit chiefly those nations whose industrialization is most advanced. This implies a duty of solidarity of which the representative of France can speak without embarrassment, since my country, I believe, is the one which devotes the highest proportion of its national income to assisting underdeveloped countries. Despite the heavy burden from its other commitments, France intends to persevere along this line. It has supported the creation of the International Development Association under the aegis of the International Bank. But we should not forget that in this field everything cannot be accomplished in a single day, and that the less favored nations will make more rapid progress as they become more conscious of their responsibilities and of the need for honoring their commitments.

When returning to Washington this year, I had anticipated that no great problems would be raised at this meeting. That might suggest that our institution has no worries. But it would be unwise to rest on one’s laurels, and indeed we should not be complacent about our progress, which is necessarily precarious.

In each country, the men who are in charge of public finance and economy know how difficult it is to distinguish between expansion and inflation and between stability and deflation. Our margin of action is, more often than not, a narrow one. Economic and financial policy is the art of properly combining measures to guarantee short-term stability with those to ensure long-term prosperity. Considering the difficulty of practicing this art, it is reassuring to bear in mind how much in thought and action the International Bank and the International Monetary Fund can contribute to our continuing progress.

Statement by the Governor for Peru—Enrique Bellido

First of all, I should like to congratulate Mr. Jacobsson for his excellent review of the recent international economic and financial developments, and the members of the staff who have taken part in the preparation of the Annual Report under our consideration. I should also like to express our thanks for the timely support given to Peru by means of the stabilization agreements and for the technical cooperation of the Monetary Fund.

I shall briefly refer to those sections of the Report dealing with the re-establishment of monetary stability. Insofar as the evolution of the Peruvian economy since the last meeting of the Board of Governors is concerned, I must state that, while at that time Peru was struggling against inflation and balance of payments disequilibrium, today we may say that we have won the battle, setting up the basis for the maintenance and strengthening of confidence in our monetary stability and the establishment of the conditions needed to stimulate the orderly development of the Peruvian economy.

Since mid-1957, until and including the first part of 1959, Peru experienced an economic and financial disequilibrium.

The fall in prices and demand abroad for its primary export commodities brought about a decline in the volume and value of Peruvian exports, which affected economic activity as a whole, through the reduction in foreign exchange receipts and the country’s payment capacity in foreign exchange. This disequilibrium was likewise accentuated and stimulated by inflationary pressures brought about by unbalanced budgets and credit expansion, all of which acted adversely upon the costs of production, price levels, and rate of exchange giving rise to a climate of mistrust and a general weakness in the economy.

The Peruvian balance of payments as from the second half of 1959 shows basic favorable changes. While in the first half of 1959 a heavy of loss of reserves took place owing to inflationary pressures and to the fact that the economic recovery of the United States and European nations belatedly reflected on the internal economy, in the second half of 1959 and through the months running into this year a clear tendency to recovery is apparent, which has permitted Peru to repay in advance the stabilization credits that had been used, to strengthen its international reserves, and to improve the exchange rate of the Peruvian currency.

Among the main factors which in the internal order have undeniably contributed to such recovery, we may point out the firm fiscal policy pursued by the Government during this period which has made it unnecessary to resort to Central Bank financing, and the credit regulations and prescriptions successfully adopted by the monetary authorities. As a result of such measures, the rate of exchange has decreased by 12.3 per cent from mid-1959 to date, price indexes remaining practically stable during the current year.

These levels of stability having been attained, a new stage has been reached where it has been possible to delineate an effective public investment program designed to satisfy, as far as possible, the paramount needs prescribed to raise the living standards of the people, while a rising trend in private investment is also apparent.

We would also like to take this opportunity to express our profound grief at the death of our good friend, Dr. Octavio Paranaguá, who for many years so ably and expertly represented Peru as Executive Director of this institution, and whose competence and integrity earned our sincere affection and appreciation.

Statement by the Governor for Austria—Reinhard Kamitz

Monetary consolidation continued during the course of the past year, and we sincerely hope that it will soon lead to the removal of still existing trade and payments restrictions and of all the different devices of discrimination. I am, therefore, very glad that Mr. Jacobsson in his speech gave a detailed and careful analysis of the problems connected with the transition to Article VIII. I am sure that the eventual move of several member countries to Article VIII will induce other member countries to follow within a reasonable period of time.

I was especially pleased to hear that the Executive Directors have outlined the methods of regular consultations with the Fund as more and more countries assume the obligations of Article VIII. There is great merit in periodic discussions between the Fund and its members, even though no questions arise involving action under Article VIII. In my modest opinion, a forum for the exchange of views on monetary and financial developments is nowadays more urgently needed than ever before. I think we all would be very glad if the Fund would extend its activities; and it would be further strengthened as a center for monetary cooperation.

A close monetary cooperation and, I would dare say, an increasing coordination of financial policies as a whole will prove very useful for overcoming or doing away with balance of payments difficulties. Mr. Jacobsson, in his speech, dealt with some of these problems in greater detail, well aware that there are still others, though of minor importance, which he did not refer to.

There is much talk going on in Europe and elsewhere about the best way to eliminate balance of payments disequilibria. And sometimes you find some inclination to overcome these difficulties by a change of the exchange rate. I will make it short. I do not think that this would be the adequate way to solve these problems. If we once acknowledge the change of exchange rates as an appropriate means of monetary policy, we will certainly have a lot of them in the future. I am sure that such a development would gravely endanger monetary consolidation; it would destroy confidence in the value of currencies, and would therefore be detrimental to saving and the accumulation of capital, and would certainly increase recourse to trade restrictions and discrimination. Furthermore, I don’t think that devaluations or revaluations can affect the basic reasons which brought about the balance of payments disequilibria. Is it not much more appropriate to try to avoid these disequilibria by increased cooperation and coordination? I am, therefore, happy to hear that the Monetary Fund is considering increasing its effectiveness as a center for these purposes.

Let us hope the Fund will be as successful in the future as it has been in the past, and let us contribute as much as we can to the common objectives of the Fund in order to get the highest possible benefit for all of us in return.

Statement by the Governor for Indonesia—Soetikno Slamet

Before presenting to you my observations pertaining to the business of our meeting, may I first of all commend Mr. Jacobsson for his excellent Annual Report and his lucid and wise introductory remarks on Monday morning. I would also like to thank the management and staff for their very valuable work last year, including the consultations which, for example, my country had with the Fund in the early months of 1960. Such consultations always provide an excellent opportunity for discussions on matters of financial and monetary policy, and we therefore consider them as a kind of technical assistance of the highest order.

In your opening address, Mr. Chairman, to which I have listened with increasing admiration and with which I agree to a large extent, you, as well as Mr. Jacobsson in his introductory remarks, dwelt rather lengthily on the matter of stability. Both of you very rightly did so because it is the Fund’s and our concern to deal with this most elusive and difficult problem. Monetary stability, internally as well as externally, is a common goal. It is gratifying to note that such stability has been achieved in large areas of the world. Unfortunately, such stability is not generally shared, and in many countries in process of development the struggle against unbalanced conditions is still on. I do not want to elaborate on the technical weapons to be used in combating internal and external instability, such as a balanced budget, credit control, fiscal measures, savings, etc. We all have to resort to them in due time. Rather, I would like to dwell on the difference in conditions in the developed and less developed countries. This difference causes specific problems in the use and the effectiveness of devices to overcome instability. In my opinion there are three specific differences, of which one is of a noneconomic nature.

Let me start with the last. We are living in a rapidly changing world. In older countries, the philosophy of life is set. Political life goes along an established pattern achieved after many trials and errors. The same applies to the social structure. Of course, conditions in older countries do not preclude the occurrence of convulsions, but on the whole, changes can take place more smoothly. In young and new countries, however, the situation is quite different. The political and social structure of the days before national independence has crumbled, and a new framework has to be established. This search for an adequate political and social structure, for a new and national framework of life, results in many changes of institutions and organizations which necessarily affect the economy of the relevant country.

It is a painful but necessary process, it is an Important cause of economic and monetary instability which cannot be overcome by purely technical means because the source is of a noneconomic nature. For 15 years after independence we, in my country, went through that process. We feel that we now have found a philosophy of life, a political and social structure, which fits our national identity, and that, therefore, we have laid the foundation for more stable conditions. In considering and weighing statistics pertaining to economic and monetary conditions in countries in process of social development, one should never forget the historical process of the birth of a new nation and society.

There are some other differences of a more economic nature. One is related to the fact that the less developed countries are producers of primary goods. The other has a bearing on that great and fundamental process of rapid development which embraces so many countries, so many millions of people, nowadays.

The problem of the instability of the prices of primary products has drawn wide attention, and my delegation for one has repeatedly insisted on a solution in one way or another of this matter. I am glad that the Fund’s staff has devoted study to this problem. Unfortunately, the request to the Fund by the United Nations Commission on International Commodity Trade did not ask for an opinion on the possibility of achieving stability of the export market for primary products. Compensatory action is what has been asked for, and the Fund’s staff, rightly in a way, has pointed to the assistance already rendered by the Fund to countries having balance of payments difficulties. This is an action which is taken ex post, after instability has occurred, and we are still left with the burning question of how to prevent the short-run fluctations of primary products.

To demonstrate the seriousness of this problem, may I refer to page 50 of the Fund’s Annual Report, where we read that the average prices of Brazilian and African coffee were approximately 23 per cent lower in 1959 than in 1958 and the average price of cocoa some 20 per cent lower in 1959 than in the previous year. My own country did not suffer much, if at all, from price fluctuations this time, because, among other things, rubber and tin prices were holding their ground, but a decline of 20 per cent or more elsewhere is serious.

I feel that in the areas affected the classical monetary weapons to combat instability are still inadequate and that it is necessary to embark on some other effort. With all due respect and appreciation for the work of the Fund and its staff already undertaken in this field, I think that our institution could do more. I am not convinced, for example, that the Fund could not contribute to the financing of international buffer stocks, which, as we know, aim at preventing wide price fluctuations. Moreover, I feel that the pool of economic intellect represented by the Fund’s staff could contribute substantially to our search for an adequate solution of the instability of export markets. Ex post solutions are welcome but ex ante ones are better; we have to keep both well in mind.

Rapid development of the less developed countries has become a foremost target not only for themselves but for the world as a whole. Prosperity is one and indivisible, so it was said last Monday, and I fully agree with this. But in judging statistics and figures pertaining to developing countries, one should always bear in mind that the rapidity of economic development caused by the urge of the peoples concerned must necessarily lead to tensions affecting stability. Even more highly developed countries find it difficult to progress under conditions of stability, let alone the less fortunate countries.

I have no intention to plead for tolerance or acceptance of instability in areas such as ours. On the contrary, my country and others in similar positions cherish the same hopes as the Fund for stability; in the course of recent years, for example, we have introduced unpopular fiscal and other measures to combat inflation. My aim is to demonstrate some specific conditions in the less developed countries which hamper the application of stabilization measures. I feel that something more must be done than only recommending the use of the traditional tools. We have to rely not only on domestic measures but on international action as well. The Fund for one will be much more requested for advice and aid by countries in process of development, and I hope and trust that their requests will be duly understood and honored. Another field of necessary international cooperation is that which relates to the so-called regional groupings by some industrialized countries. We have here and elsewhere voiced our concern about some discriminatory aspects of the Common Market which we consider detrimental to the stability of developing countries like ours. So far, practically no effort has been made to bring the producing and consuming countries together in order to try to iron out their difficulties. I do not consider the meetings of the GATT sufficient in this respect, but special discussions could be held under the auspices of the UN or the Fund.

It is generally recognized by now that the development of the economically backward areas is a task of the highest order. Such recognition is a great help, but it has to be followed by further understanding, namely, that conditions in the developing countries are dominated by forces inherent to their growth as nations. It is therefore necessary to add new tools and weapons to the existing arsenal to overcome instability or to maintain stability once achieved. Next to national efforts, much more international contact and action are needed.

For all this it is necessary that we keep our minds flexible and open for new ideas, that unwillingly we do not become dogmatic, only believing in what is already taught and known. We have to bear in mind that human knowledge and skill based on previous experience and analysis are not perfect, and we must always be ready to learn more and better as required by new conditions in an ever-changing world.

Statement by the Governor for Greece—Xenophon Zolotas

In the course of the last few years, three developments have taken place which should certainly influence the activities of the International Monetary Fund. A relative monetary stability has been achieved in all developed countries, and in the absence of radical change in over-all conditions, serious disturbances do not appear likely. The Fund has now at its disposal increased resources which enable it to expand its activities. A number of new independent nations have emerged with rising expectations and serious development problems.

Under these new conditions, special emphasis must be given to the duties of the Fund connected with the balance of payments problems of primary producing countries. The degree of stability achieved in the developed countries and the considerable increase in their reserves have strengthened their monetary systems and correspondingly reduced their dependence on the Fund’s resources. This means that a larger proportion of the Fund’s increased liquidity can now be used to assist less developed countries in their balance of payments difficulties.

These countries depend mainly on the production and export of agricultural and other primary products, and they have been seriously handicapped during the last ten years in their development efforts by both short-term and long-term factors affecting their international transactions.

The short-term aspect of the problem consists in the wide fluctuations from year to year in the volume and price of their exports and in their “external receipts.”

The long-term factors have been, on the one hand, the failure of international demand for primary products to keep pace with the rise in economic activity in industrialized countries and, on the other, the steadily declining trend of the prices of such products after the Korean boom. Even in the recent phase of economic expansion, most of these prices failed to recover. These developments have been given special consideration in various bodies of the UN, the GATT, and the IMF, and are explained mainly as the result of the growing competition from synthetic substitutes or new products, and of the protectionist policies practiced by various industrialized countries with regard to agricultural products. The importance of this long-term problem of primary producing countries becomes all the greater as the number of independent less developed countries increases. It has to be admitted, however, that the long discussions in various forums on the problem of securing a steadily increasing flow of exports from less developed to industrialized countries, which would promote economic development in the former, have not led so far to any constructive conclusions as to the most effective approach to it.

Much attention is given to the need of increasing the flow of capital to the less advanced countries. This should not, however, deflect our attention from the basic importance of the expansion of the exports of less advanced countries. The pace of growth of primary producing countries is closely bound with trends in the external markets for their exports. Their long-term commodity problem is and will be, as also Mr. Jacobsson pointed out in his statement, a crucial part of their more general problem of economic development until they achieve a higher degree of diversification in their productive capacity.

This applies to all primary commodities, but more particularly to agricultural products, with respect to which the commercial and other policies of some highly industrialized countries do not permit the expanding output of less developed countries to find adequate outlets.

The less developed countries must also be given the opportunity to diversify their exports. Encouragement on an international basis to the light industrial products of less advanced countries would also greatly facilitate their way to economic progress. This will entail some readjustments in the more industrialized countries, but these changes are an essential prerequisite for progress everywhere. It is of utmost importance for all concerned to realize that the principle of the international division of labor should be applied with full consideration to the pressing problems of less developed countries. Unless this is done, enduring equilibrium in their balance of payments and the growth of their economies will be difficult, if not impossible, to achieve.

It must be recognized that the long-term aspect of the problem somehow exceeds the sphere of competence of the International Monetary Fund. But the problem of short-term commodity fluctuations, which is of equally crucial importance to less developed countries, is a field in which a major contribution can be achieved by the Fund. Short-term declines in external receipts, among other things, upset the equilibrium of these countries’ balance of payments and force them to reduce substantially their imports of capital equipment and their investment expenditures in general, with obvious unfavorable repercussions on the rate of their economic development. The importance of this problem has not escaped the attention of the Fund, which recently prepared a remarkable study under the title, “Fund Policies and Procedures in Relation to the Compensatory Financing of Commodity Fluctuations.”

The Fund has made it clear that its resources may be used in accordance with its purposes to give assistance to members for the financing of temporary balance of payments deficits on current account for monetary stabilization operations, and this is understood to include assistance in connection with seasonal, cyclical, and emergency fluctuations in the balance of payments.

There has been a demand from various sides that the Fund should adopt an automatic formula in relation to the compensatory financing of commodity fluctuations. This proposal appears at first sight to be an easy solution for the short-term problems of primary producing countries. Its adoption, however, might create serious dangers both for the Fund and for the countries involved.

Neither the long-term nor the short-term primary commodity problems have found yet an adequate solution, although it is generally recognized that the economic development of less developed countries can be more effectively and soundly promoted through securing markets for their exports of primary commodities and light industrial products than through financial assistance in the form of grants and loans.

It is not my intention to indicate here solutions for these major problems. What I have wished to do is to stress the widening of the responsibilities of the Fund, with respect to the trade and balance of payments problems of less developed countries, which goes together with its increased capacity of assistance.

The Fund deserves congratulations because it has directed its attention to this problem at an early stage and has assisted the UN Commission on International Commodity Trade in its work in this respect. It is also our hope that the Fund will not fail to enrich its record of achievements by effectively contributing to the solution of both the short-term and the long-term problems of primary producing countries.

I would like to mention on this occasion that Keynes had already in 1943 made the following interesting proposals on this subject in his famous plan for an International Clearing Union: “The Union might set up an account in favor of international bodies charged with the management of a Commodity Control and might finance stocks of commodities held by such bodies allowing them overdraft facilities on their accounts up to an agreed maximum. By this means the financial problem of buffer stocks and ‘ever normal granaries’ could be effectively attacked.”

Statement by the Governor for Spain—Alberto Ullastres

Again I have the opportunity and the pleasure of addressing the Board of Governors of the International Monetary Fund on behalf of my Government. During these years, the operations of this organization have become more intensive and its prestige has grown throughout the world, as may be noted in the brilliant report of Mr. Jacobsson. I believe that we have good reason for congratulation.

So far as Spain is concerned, I informed the Board last year of the beginning of a stabilization program, for which we received the support of the International Monetary Fund, the OEEC, the U.S. Administration, and private U.S. commercial banks.

After one year, it seems fitting to report briefly on the development of this program and the extent to which its objectives have been achieved, and on the present economic outlook for my country.

Between June 1959 and June 1960, the wholesale price index increased by only ½ of 1 per cent. The cost of living index for the same period rose by less than 1 per cent. Concerning the balance of payments, the situation is as follows: from August 1, 1959 up to now, the balance shows a surplus of over $400 million, the significance of which is more outstanding if it is borne in mind that our balance was showing a deficit throughout the period that preceded the implementation of the program. It should not be thought that this improvement was attained through a restrictive policy in the import field. On the contrary, Spain has established during this time a high decree of liberalization regarding both quantity and quality, extending to more than 50 per cent of our current imports. At the same time, a substantial part of our foreign trade has been placed under a global quota system, and these quotas have also been largely exceeded. Both liberalization and globalization were established on a nondiscriminatory basis.

As a result of the reform and in spite of the decline in economic activity that had been forecast, payments to foreign countries for goods, during the period I refer to, surpassed those of the preceding period. Other items of our payments have shown an increase due to the relaxation of restrictions in the invisibles sector.

All this has been possible because of an impressive increase in exports, which in 1960 will be higher by at least 75 per cent than those of 1959, and also because of receipts for tourism and other items of the balance. This is a consequence of a sounder basis of our foreign trade, greater flexibility and productivity, and a stable rate for the peseta in the international markets, close to the par value agreed with the International Monetary Fund.

The current reserve situation enables us to follow a more liberal policy for our imports; furthermore, our debtor position has improved because of advanced settlements of some consolidated bilateral debts. We have made payment in full of our increased quota in the Fund, instead of taking advantage of the installment scheme. We have not lost, therefore, any opportunity to take action in favor of the highest flexibility in the field of international payments, and our situation now permits us to advance confidently along this way in commercial and financial matters.

Finally, I wish to state that, as an expected consequence of measures that were adopted in July 1959, there was a natural decline in general economic activity. Activity, as I say, declined, and there was a slight increase in unemployment, although slightly less than we had originally expected. But this was the price that we had to pay for stabilization, and the country paid it, convinced, on one hand, that the adoption of the program was unavoidable and, on the other, that the maladjustments and the decrease in production and eventually in employment would be of a transitory nature. In fact, this is what happened, and the figures of the last months, from March on, particularly those of the month of August, show a progressive activity in the Spanish economy.

The contributions of foreign capital to the stabilizing process as a result of the new and encouraging legislation are already significant. The role that the contribution of foreign capital and know-how should play in the next period is, in my opinion, fundamental, regardless of whether it is used as a supplement to the national savings or for introducing a high degree of competition and flexibility in the Spanish economy. The investments that have been made, those that are under consideration, and a great number of inquiries received, prove a true interest on the part of investors and foreign companies. This gives us justification to be optimistic in this field.

These have been the most salient notes of the year which has elapsed since our last meeting, a year in which my country has reaffirmed its policy of international cooperation in a broad sense and has taken the necessary steps for her membership of GATT; a year in which the advances that we have achieved enable us to regard the stabilization phase as concluded. Now the road is open again to national economic development on the firm basis of assured stability.

Statement by the Governor for Argentina—Alvaro Alsogaray

We attach a great deal of importance to the Annual Meetings of the International Monetary Fund, the World Bank, and the International Finance Corporation. They constitute for us an opportunity to review the progress of the work of these organizations and to shape new policies, as well as to enter into personal contact with our fellow Governors and exchange views on the experience of our respective countries. I believe it is very important for each one of us to know the experience of other countries in their pursuit of policies which, although different in some aspects, lead us to the same common goal.

I wish now to take the liberty of stating briefly what we have done in Argentina and where we are now, where we are heading, and how we expect to go about it. In our turn, we will follow attentively what you are expecting to do in your countries and will take advantage of your experience.

As you probably know, from 1945 to 1955 Argentina experienced a dictatorship. Its economic philosophy was based on extreme nationalism and consisted of the irresponsible application of socialistic theories, state ownership of public utilities, governmental control of production, distribution, and trade of all our basic commodities. This was made possible by dictatorial procedures with great corruption and loss of individual liberties, and inevitably led to increased inflation. Argentina’s foreign exchange reserves, which at the end of the War stood at $ 1.6 billion, within ten years were lost and the country became indebted abroad for over $700 million. The country failed to replace essential machinery and equipment and became decapitalized to an incredible extent. Perhaps it is difficult for you to realize the magnitude of the destruction that took place in Argentina through the application of ill-fated national-socialistic policies to our economy. The destruction even surpassed the strictly economic sphere, and gradually it succeeded in developing by governmental propaganda a public mentality disposed to believe in easy solutions based on inflation, to reject international cooperation under the pretext that it meant submission to the imperialistic ambitions of certain countries. International institutions like the Fund and the Bank were supposedly a symbol of such imperialism.

In September 1955, a revolution put an end to this state of affairs. I personally believe that the advent of the revolution prevented us from taking the few last steps needed to cover the short distance between our policies and those of communistic states.

The revolution changed the morality and restored individual and political liberties.

But, unfortunately, it could not introduce the basic fundamental changes required in our social and economic fields. Although it mitigated somewhat certain of the past policies, the nationalistic and socialistic concept largely prevailed and no great progress was made during the two and a half years of the revolutionary government. In fact, we lost these years. In May 1958, the constitutional government of President Frondizi was inaugurated. The inertia of the previous process prevailed during the first few months of his administration and we traveled still along the road to inflation. But after seven months, the country decided to make fundamental changes, that is, to end inflation, to stabilize the currency, to live within its means, and to take decisive measures to make possible the healthy growth of our economy.

On December 29, 1958, Argentina devalued its currency, eliminated controls on imports, allowed internal prices to seek their own levels, limited credit expansion and salary and wage increases, reduced consumption, imported less, and put into effect all necessary measures to insure an effective economic recovery of our free enterprise system.

Naturally, these measures had as an immediate consequence the reduction in the standard of living of a vast sector of our population. Thus, during the first month of 1959 confusion was rife and increasing difficulties developed. It was not until July of 1959, 15 months ago, that we adopted definitely the policies which are now in full operation. Allow me to state briefly the main results so far obtained.

In spite of complete liberalization of all our imports and exports and capital movements, the monetary reserves of the country have increased from $179 million in June 1959 to over $700 million at the present time. Mr. Jacobsson, in his speech, paid special attention to this problem of adequacy of reserves, of which we are very conscious and are now examining very carefully in order adequately to combine stability with development.

Our country used to import annually over $250 million worth of fuel. A new oil policy was adopted which has already reduced our import needs by more than 30 per cent. We have even begun exporting gasoline to Uruguay, and next year Argentina will be self-sufficient in fuels. As a result of the policy of import liberalization and of the reduction of fuel imports and the restrictions on over-all consumption, our trade balance and the balance of payments have been favorable during the last year. However, we must still develop our export trade, and we are taking steps to do so.

We are reducing from year to year our fiscal deficit and have managed for the first time in our history to reduce the number of public employees on the government payrolls, effecting a reduction of more than 65,000 persons. We have succeeded in restoring the market for government securities with which to finance an increasingly larger amount of our government investments, and the rates of interest have been steadily falling.

As a result of the depreciation of the currency, the elimination of subsidies, and the freeing of prices, the cost of living rose almost 80 per cent in the first half of 1959. In the second half, the increase was 15 per cent, and during the first half of this year of 1960, the increase was only 6 per cent. In the present month of September, for the first time in many years, the cost of living declined by 1 per cent. We have therefore succeeded in stabilizing the cost of living without controls, without restrictive laws, and without interfering in the activities of private business and industry, and, instead, have fostered competition and productivity. The dollar rate taken as a point of reference was approximately 30 pesos before the devaluation of 1959 and reached 110 pesos by midyear, with daily fluctuations of over 10 pesos. From August-September 1959 on, we managed to stabilize the currency and terminate speculation, and the peso reached a value of around 83 pesos to the dollar, which has been maintained for over a year. I wish to stress that our peso is free from controls, completely convertible, and that its value is kept at a stable level by market forces. The Central Bank is acting primarily as a buyer, and during the last year our purchases exceeded $330 million, which enabled us to redeem credits and increase reserves.

But perhaps the most fundamental aspect of our experiment lies in having attained these results within the operational framework of democracy. Private investments, either domestic or foreign, are finding in Argentina an increasingly favorable climate because it is realized we conduct these new economic policies with absolute respect for human and political freedom and by holding frank public discussions with the public and with the unions. It is almost a year now since there have been political strikes in Argentina, which is evidence of the progress and increasing responsibility of the union leaders. The country has gone through a hard process of stabilization with the conscientious support of the Argentine workers. Now everything is ready to initiate a great developmental effort to provide the highest possible standard of living for everybody.

For the last two years, the Government has not undertaken new investment. The scanty savings of the country were left untouched so as to give an opportunity for private investments to flourish. The Government has also withdrawn from such fields as electricity, power, and road transportation, allowing private capital to step in. During this process, however, and on account of budgetary policies, the Government has failed to improve investments in fields, such as road building and housing, which require most urgent attention. The Government is planning to increase activity in these fields with the help of foreign savings to the extent that domestic capital is available only for the private sector. This will mean that our foreign borrowing policies will be changed from short-term to long-term, in order to consolidate the stability so far achieved.

Finally, allow me to make some comments based on our past bad experiences and our present success and future hopes. The nationalistic and socialistic pressures were, and are even now, the main danger that we have to face in our country. These pressures act under the strength of slogans always pleasant to our national feelings and easily spread through demagogic propaganda. These slogans represent the easiest way of dragging the economic and social system of a country toward chaos and of opening the doors to communism. Its penetration is insidious and subtle and some factions of our major political parties have at one time or another let themselves be easily carried away by these slogans. Many platforms have included these panaceas, and by doing so they have not been rendering a service to democracy and to freedom. On the contrary, they have been serving in the most effective manner the purpose of communism. Argentina has had a long and bitter experience in these matters, and we see with preoccupation that other countries in Latin America are just beginning to acquire the same experience. We cannot, of course, meddle in their affairs. But we know that in each one of these countries there are leaders and groups capable of undertaking in time the struggle for freedom. It is to them that we wish to transmit the results of our experience. We now know that in the struggle for freedom the economic and social systems within which we live play a major role and are of decisive importance. Thus, we are not endeavoring to discuss whether our countries should be somehow richer or poorer. We are actually struggling for the defense of a way of living based on liberty, freedom, and respect for human dignity.

To attain these objectives, we have a method infinitely superior to that of the communists, but until now we have always been on the defensive and have felt paralyzed because of the development of theories and methods which were considered progressive 50 years ago but which nowadays are incomparably inferior to those which we are capable of applying. Our present difficulty stems from the fact that communism can act without scruples through demagogues whose promises are never fulfilled. And this can be done because, once power is gained, no one can protest against the hoax. We are bound to act with sincerity, asking sacrifices and postponing aspirations, and we are also bound to use, for the public in general, such abstract concepts as currency stabilization, credit management, etc. All of us present here have responsibilities mainly in the economic and financial fields. We are all aware of the formulas and procedures we should apply. But it will be very difficult for us to accomplish our mission if we do not clearly see that our task is also essentially political and that we have to use our imagination, the best methods, and the maximum energy to explain to the man in the street, in our respective countries, that the philosophy of liberty and of international cooperation is infinitely superior to the obscure communistic process which leads to slavery.

To conclude, I wish to stress here that it is the great responsibility of the more developed countries, and of the international agencies whose policies are also based on the philosophy of liberty, to encourage and support in our own countries the actions and policies of those who defend and practice this way of living.

Statement by the Governor for Tunisia—Hédi Nouira

For underdeveloped countries aspiring to rapid economic development, the Fund’s Report has not failed to emphasize what seems to me a fundamental point: it is not so much a recourse to compensatory short-term financing of their payments deficits as establishing structural relations that will guarantee a suitable volume and price level for exports in order that such countries can carry out their development programs without fear of strain in their balance of payments. I am encouraged by the statement in the Fund Report which points out that the responsibility of the more developed countries is not limited to the supply of funds for the financing of development in the world, or to the maintenance of stable conditions for the markets of essential products. Their tariff and their trade policies are also of the utmost importance, and a broader flexibility—which as a result permits a greater aptitude on the part of the underdeveloped countries in making their reimbursements in products—is necessary. Therefore, it is to be hoped that in the course of negotiations for local arrangements in Europe and elsewhere, special attention will be drawn to the restriction of customs barriers, and especially in relation to basic products.

It would be most desirable if this line of thought went beyond a mere academic viewpoint and materialized in actual liberalization and nondiscrimination in trade vis-à-vis countries exporting raw materials. It is not always possible for countries in the process of economic development to join the protected tariff zones of countries proceeding toward economic integration. There are a number of economic and financial conditions which underdeveloped countries cannot accept indiscriminately, and any negotiations that might be undertaken would involve lengthy and delicate discussions. Three quarters of Tunisia’s foreign trade is directed toward the countries of the European Economic Community; our country, therefore, is not indifferent to the tariff changes presently being made by the countries of the Common Market and, even to a lesser extent, to the common external tariff now coming into existence. Tunisia would like the record to show that the “Six” take full cognizance of the wishes expressed by the International Monetary Fund.

It would hinder the achievement of an advanced state of liberalization of world trade should the developed countries regard as discriminatory the temporary restrictive measures adopted by countries in the process of development, in order to protect their nascent industries, and if retaliatory measures were taken against the latter’s exports. The economic growth of an independent country entails certain essential requirements to which most members of the community of nations have been subjected at different times, depending on the degree of industrial development. You will also agree that countries with limited means for international payments attach greater importance to capital goods, to which they want to open their frontiers, than to consumer goods which, if produced internally, will help their own industrial diversification. The balance of trade between groups of countries should, therefore, be achieved within a framework which would be the result of abstract universal considerations to a lesser degree than an expression of needs arising at various stages of progress.

It is through the establishment of sound bases for payments relations between developed and underdeveloped countries that conditions can be achieved for the liberalization of payments by the latter toward the former.

It was the great progress made toward economic reconstruction which, in December 1958, enabled 14 European countries to declare their currencies externally convertible. Discarding the protection of Article XIV, in favor of the provisions of Article VIII, reflects improvement in the monetary situation as a whole. There is no doubt that the provisional period provided for in Article XIV is far from being over for countries suffering from instability of export proceeds. Do you not agree that, rather than being related to the consequences of war, this provisional period should be based on the inadequate structures of underdeveloped countries? In this manner, the Fund would acknowledge what is in fact the undisputed characteristic of each underdeveloped country.

Fluctuations in the payments position of countries which are essentially primary producers are not always in the same direction at the same time; some may, on occasion, have accumulated reserves of foreign exchange for which they have no immediate use, while others do not have adequate reserves to meet exceptional payments. Under these circumstances, would it not be possible to set up a financial agency benefiting from the patronage of the International Monetary Fund, which would use the surplus monetary reserves of certain primary producing countries to meet the short-term needs of other countries with comparable economic structures?

Statement by the Governor for Iceland—Gylfi Gíslason

Iceland in February 1960 embarked upon an economic stabilization program with the financial and technical assistance of the International Monetary Fund. The program is both comprehensive and drastic. A realistic unitary rate of exchange has been established; interest rates have been sharply raised; credit expansion has been checked; great restraint has been applied to public investment and expenditures; imports have to a great extent been liberalized; and, last but not least, the linking of wages to the price index has been abolished. The inevitable temporary curtailment of the standard of living has been counteracted by an expansion of Iceland’s already comprehensive social security system.

Such an effort of economic stabilization is, of course, in agreement with the basic aims of the International Monetary Fund, and for this distinguished audience there is nothing novel in its economic features. It may be more unusual, however, that this program is being carried out by a coalition government of two parties, representing a wide range of political opinion from the liberal right to the social democratic left. These two parties have, in spite of ideological differences, joined hands in order to put an end to inflation and create conditions for sustained economic growth. The urgency of today’s problems is such as to make the adherence to old dogmas of no importance.

The help of the International Monetary Fund, as well as that of the OEEC, has been most important for this program of economic rehabilitation. Without access to the Fund’s resources, as well as to the financial assistance received from the European Fund, execution of the program would not have been possible. Also of great importance has been the technical assistance received from the Fund and the OEEC in the preparation of the program. This is not the first time we have received such assistance from the Fund, and I would not let this opportunity go by without paying tribute to the Fund technicians for their abilities and realistic approach to our problems.

Although the stabilization program has not been completed, I think the indications are that we will succeed, and I hope that other young nations will be able to benefit from our experience. If we do succeed, the credit will to no small extent be that of the International Monetary Fund.

Statement by the Governor for Turkey—Ekrem Alican

There are good reasons to assume that this Annual Meeting of the Fund is convening under more favorable conditions than in any previous year. As a matter of fact, the Fund has never been so close to its goals in the 15 years since its establishment. As we observe from the Annual Report, world trade continued to expand last year, and, what is perhaps more important, this was achieved with much freer methods of payment than before. Exchange systems were further simplified; bilaterialism and discriminatory practices were much reduced. The rise in industrial production, especially in developed countries, followed a course parallel to the expansion of world trade.

On the other hand, however, the share of the developing countries in these favorable changes in the world economy has unfortunately not been the same as that of the industrial countries. These countries continued to strive in furthering economic development on the one hand, while tackling the serious problem of improving their critical reserve positions on the other. The slight betterment attained last year in their over-all balance of payments was possible only at the cost of maintaining, or in some cases even reducing, the already low levels of imports.

During the past year, the International Monetary Fund performed the functions expected of it in meeting the short-term balance of payments difficulties of member countries. The fact that its resources were generally allocated to support stabilization programs, many of which had been prepared in cooperation with the Fund, contributed considerably to the success of these programs.

Turkey is one of the countries which benefited from the experiences and resources of the Fund in preparing such a stabilization program. The Government of Turkey is continuing with determination to implement the program adopted in August 1958 in collaboration with the Fund and OEEC. In fact, the Turkish Government has taken a series of measures in recent months designed to achieve internal stability. Adoption of a new law authorizing the Government to adjust interest rates to changing market conditions; abolition of the law which interrupted the free formation of prices in the market; cancellation of certain appropriations in order to attain a true balance in the budget; reviewing and revising all investment projects under way in order to secure economy and balance in the whole public sector; and the strengthening of selective credit controls may be mentioned in this connection. Lastly, all exchange rates were unified by a decision taken in August 1960. Needless to say, the implementation of a single rate will simplify foreign transactions and help to eliminate certain speculatory expectations.

Before concluding my remarks, I would like to state that our consultations with the Fund have been very useful in taking all these measures, and that we shall be pleased to continue our close relations in the future.

Statement by the Governor for Pakistan—S.A. Hasnie

I have, from the beginning, watched with great interest the important role played by the International Monetary Fund in helping the member countries to improve their economies. The contribution that the Fund has made toward making currencies strong and, in several cases, convertible is undoubtedly of great value. I feel happy that I have been initiated into this distinguished gathering and afforded an opportunity to obtain first-hand knowledge of the Fund’s activities.

The 1960 Report of the Fund makes an excellent survey of the world economic situation and acquaints us with the likely developments in the future. Such a comprehensive document deserves all praise, and I congratulate its authors on the success of their efforts. The Report has been presented against a background of expanding economic activity and world trade. Industrial production is said to have gone up by 10 per cent in 1959, compared to the preceding year, and the value of world trade by 6 per cent, registering a further rise in the early months of the current year. In contrast to this, during 1959 the average level of prices of primary products, except those of rubber and metals, remained more or less at the level of 1958, which was considered to be a recession year for the industrialized countries. An important inference that can be drawn from this Report is that industrial expansion by itself is not sufficient to lend support to the prices of primary products. It is, in fact, likely that a slowing down of the rate of expansion might have an adverse effect on the economy of primary producers. If a downward trend in industrial activity appears in the United States and Europe, the deterioration in the terms of trade, which has become a chronic malady with us, is likely to grow further.

I feel that what we have to contend with today is not just a cyclical problem or a passing imbalance in individual commodity markets, but something more than that. For all I know, we are experiencing the early manifestations of a technological revolution in the use of raw materials by modern industry, the full effect of which we are unable to comprehend at present. If this is correct, it may be necessary to do some rethinking about the principles and procedures which have so far governed the utilization of the Fund’s resources. What I have in mind is this. The Fund has given an assurance that temporary accommodation will be granted to member countries so as to enable them to tide over the difficult period when confronted with temporary payments difficulties arising from export fluctuations. This assurance is evidently based on two assumptions. Firstly, it presupposes that the problem will always be of a temporary character, and, secondly, it will be possible to attain equilibrium by “taking good years with bad.” These assumptions, I am not sure, will hold good in all cases. Apart from natural calamities or other unforeseen developments affecting exports, a situation can arise in which cyclical downswings may occur repeatedly and depress commodity prices while the upswings may remain less frequent and less pronounced. Equally difficult is it to assume that good and bad years will always alternate and neutralize the effects of each other. I feel sure that the criterion of “temporary disequilibrium” contemplated by the Fund, if rigidly followed, will make it difficult for the raw material producing members to avail themselves fully of the Fund’s resources.

There is one other point to which I would like to refer. Broadly speaking, the problem of developing countries is to make their economies broad-based and less susceptible to violent fluctuations. To attain this objective they have got to expand their foreign trade, but here they are sometimes faced with another difficulty. Apprehensions are expressed by the industrially advanced countries that any progress made by a developing country in the export of processed goods will cut into their established markets. The result is that, when a developing country succeeds in entering a secure market abroad, it has to face the criticism that the unregulated influx of goods from the “low-wage” countries invokes an unhealthy competition. In my opinion, to adopt this attitude is to lose sight of the possibility of the new suppliers’ getting only a small share in a growing market. Besides, an approach of this type ignores the fact that there will always remain a wide technological gap between the fully developed and the developing countries, making it almost impossible for the latter to create any real problem. Actually, technological development will help the advanced countries not only in maintaining their present position but also in contributing to the expansion of world trade in the interest of all concerned.

It is only through a continual expansion of the world market that the products of new technology can be increasingly utilized. Further, as the Report points out, the developing countries can provide funds for servicing the debts incurred in the past only if their export earnings continue to rise over the years. We are aware of the efforts that are being made within the framework of GATT to deal with this problem. The Fund, with its persistent pressure on member countries for the removal of restrictions on current payments, is making a parallel effort in the same field. It is encouraging to find in the Report a clear statement of the importance of adjusting tariffs and other policies in the highly developed countries so as to permit export facilities in respect of items which the less developed countries are able to produce. We deeply appreciate this support.

It is true that, so far, Pakistan has been unable to break away completely from import restrictions but, I assure you, this is something we cannot help at present. Our export earnings, despite our efforts, fall far short of our requirements. Nevertheless, we are importing to the maximum extent possible within the limits of our resources on a strictly nondiscriminatory basis, as is evident from the recent pronouncements of Governments’ liberalizing their import policy. It is only because our resources are inadequate that we have to resort to allocations and quotas.

Statement by the Governor for the Philippines—Miguel Cuaderno, Sr.

This year as we review the Report of the Fund’s Executive Board, we are again confronted with the saddening fact that while many industrialized countries are fast achieving strong economic positions many underdeveloped countries continue to be assailed by economic difficulties. As I have stated in our previous meetings, for some of these countries it is no longer the question of whether or not they are observing sound economic policies; rather it is the regrettable fact that, in spite of their strong competitive position, and as has been stated by a number of my colleagues this morning, many prosperous countries continue to maintain discriminatory trade practices which bear heavily on the less developed countries.

If the recent gains toward external convertibility in the industrialized countries are to contribute fully to the realization of the Fund’s objective of complete elimination of exchange restrictions and liberalization of trade, the industrialized countries would have to revise their policies that are prejudicial to the underdeveloped countries.

Every year since our meeting in Mexico City in 1952, I have been calling attention to the highly detrimental effects on the primary producing countries of the discriminatory and restrictive trade policies of the industrial countries. Our Chairman this year, in his opening address, deplored the fact that “international trade in primary products and minerals has been peculiarily subject to barriers and hindrances in the industrial countries that have done a lot of harm to the economic stability of the less developed areas.”

It was unfortunate that the authors of the Fund Agreement did not see fit to vest the Fund with power over the discriminatory trade restrictions of the member countries. They undoubtedly believed that such an important matter could well be left to GATT. It might have been better if the authors of the Fund Agreement had acted differently. In any event, it seems rather peculiar that, although when GATT holds consultations with its member countries it does so not only on tariffs, which are its prime concern, but also on other restrictions, including payments restrictions, the Fund could not act on the discriminatory and restrictive trade practices of its member countries. Trade restrictions and exchange controls are largely interchangeable techniques to achieve the same effect. I submit that, with the achievement by several industrialized countries of free convertibility for current international transactions, there is no longer any justification for their retention of trade restrictions and discrimination.

In our meeting in 1957, for reasons which Latin American countries now emphasize, I expressed deep concern about the establishment of the European Common Market. The possible loss of the important markets in Europe for Latin American coffee was indicated in the issue of Comercio Exterior de México of August 1960, from which I quote the following:

The Ambassadors or Chargés d’Affaires of 15 Latin American coffee-producing countries that are members of the Pan American Coffee Board have drawn up a memorandum regarding France’s position on coffee in Europe. The document reflects the general opinion of Latin American coffee growers and will be presented to the authorities of the European Common Market. Specifically it treats of the situation created by a French movement to convince common market nations that Germany should immediately apply the ad valorem tariff set up by that market to coffee imports, rather than computing import duties on a weight basis, as heretofore. Application of the ad valorem tariff would mean that Latin American coffee would pay more than double the duties chargeable on the “robust” African variety and thus run the risk of losing the German market.

The averaging of tariff rates in a common tariff schedule of the European Community may mean that primary commodities not previously paying any tariff duties upon entry into the countries in the new regional arrangement will now be dutiable.

Another feature of the European Common Market which has been giving us no little concern is that which the Secretariat of the Organization of American States has indicated in its analysis of the possible consequences of European integration for the economies of the Latin American countries. The analysis says:

An acceleration of economic development in the old colonial territories of the Rome Treaty signatories, as a result of preferential tariffs and the establishment of a special investment fund for those areas, will also be unfavorable for Latin America; there is bound to be an increase in the quality and quantity of exports from the areas mentioned that compete with the primary tropical goods marketed by Latin America.

Because of the establishment of the European Common Market, a similar arrangement has come into being in Latin America. It is possible that other areas of the world may be constrained to form their own regional groupings, if only to protect themselves against the existing regional economic arrangements. In that event, instead of international cooperation or international competition, we will have a world of international oligopoly. That would surely be most unfortunate.

I fully agree with the remarks made by our Chairman in his opening address that “It is essential that the more developed countries, having now achieved a satisfactory balance of payments situation themselves, should do everything possible to provide greater opportunities for an expansion of world trade, not only in industrial, but also in primary, products.”

It is gratifying to us of the underdeveloped countries to note at this meeting reassuring statements of deep concern by Governors of the prosperous countries over a revolution which is taking place in the underdeveloped countries—a revolution of rising expectations.

There is one more matter which I would like to mention here. I refer to the new experiment in convertibility which has been adopted by a number of the industrialized countries. Dr. Robert Triffin, who is known to many of my colleagues on the Board of Governors, fears that this experiment faces the same two threats that wrecked a similar experiment some 30 years ago. The first is the difficulty of providing adequate monetary reserves in an expanding world economy. The ratio of the world’s monetary gold stocks to imports has fallen from 110 per cent just before World War II to less than 40 per cent. New gold output and Soviet gold sales have added to monetary gold reserves at a rate of only 1½ per cent a year—compared to an annual gain of 5 per cent to 6 per cent in volume of world trade and manufacturing activity. “It is evident,” says Triffin, “that gold alone could not possibly feed the maintenance of adequate reserve levels in an expanding world economy.” The second, and more immediate, threat results from the first. To palliate the increasing shortage of gold, the world has reconstructed essentially the same gold-exchange system that fell to pieces in 1931. Nations have done this by holding other nations’ currencies—particularly U.S. dollars and British sterling—as international reserves to supplement monetary gold. This makes the world’s monetary system extremely vulnerable. “Large scale conversions of reserves and other liquid assets from one key currency into the other or from both into gold,” says Triffin, “may at any time topple the whole structure, as they did in the early 1930’s.”

I believe that Dr. Triffin’s warning of a possible crisis in the world’s monetary reserves and the various measures that have been suggested to arrest it should be looked into by the Fund authorities.

In concluding my remarks, I am happy to say that, in view of the success achieved with the stabilization program which our Government adopted last year, we were able on April 25 of this year to adopt a program for lifting exchange controls. The results obtained so far lead us to believe that in two years’ time we will be able completely to do away with exchange controls.

Statement by the Governor for Paraguay—General César Barrientos

My first words are of gratitude to the Government of the United States of America for having made it possible for the Fifteenth Meeting of Governors of the International Monetary Fund to be held in this beautiful capital city. My next words are of thanks to the authorities of the International Monetary Fund for the cooperation rendered to Paraguay.

The Government of my country has made a great effort to increase the rate of economic development in a manner compatible with the policy of stabilization and free exchange initiated and reinforced since August 1957 with the technical and financial collaboration of the International Monetary Fund. A new stand-by agreement has been concluded with the International Monetary Fund, on the basis of which concrete policy objectives were established in regard to fiscal and monetary matters, economic development, and public credit. In the field of exchange, once the inflationary movements prevailing up to 1957 had been brought under control, it was possible to reduce the percentage of advance deposits for imports and to allow the exchange rate to respond to the free play of the fundamental forces of supply and demand. In the fiscal field, my country will continue the effort to maintain a balanced budget. We have undertaken to see that the budget for next year does not exceed the level of expenditures for the present year.

The present exchange rate has risen 10.2 per cent in comparison with that which prevailed in August 1957, when the free exchange system was adopted. Since that date, expenditures of the Government have been adjusted to its own revenues. A ceiling has been established on Central Bank loans and investments, which may not exceed the level of August 31, 1960. To continue encouraging economic development, the Government has undertaken to create a special fund from noninflationary sources to be used by the present State Bank for promoting sources of agricultural and livestock production, according to studies made by the Stanford Research Institute.

In order to provide greater incentive for private initiative and facilitate the incorporation of capital, and in accordance with an agreement with the Development Loan Fund, we welcome the establishment of a private development bank which will be allowed to make loans in local currency, with the revaluation clause, up to the amount of the loans it obtains in foreign currency.

It is a pleasure to recognize the valuable contribution of the International Monetary Fund and the credit institutions which made possible the development of my country under a system of stabilization and restraint which has required prodigious sacrifices. We recognize that if foreign collaboration is desired, we must also contribute our own efforts and create conditions which will permit investments to operate in a climate of security.

The Paraguayan public investment program, which began in 1954, totals $45.2 million, of which $35.2 million has been expended thus far. The program covers the construction of the International Airport, highways, purchase of equipment for river dredging, agricultural and livestock development, purchase of 22 units for the National Merchant Fleet, installation and operation of water-supply service, and expansion of the telephone network. For the execution of these programs we have obtained $19.7 million from external sources and $15.4 million from internal sources.

Still pending are other programs which will promote progress and economic integration with neighboring countries. These programs include the connection of highways and the installation of hydroelectric power plants on the border with our sister republic of Brazil, agricultural and livestock development, and enlargement of ports and grain elevators.

Our industries and entrepreneurs have also received the necessary incentive with the incorporation of capital, the protection of the law introduced in 1955, and the strengthened climate of tranquillity in Paraguay. From private sources and with loans obtained from the Export-Import Bank and the Development Loan Fund, 21 private enterprises have been authorized since 1957 to incorporate capital totaling $20.9 million.

Paraguay has vast forest resources, as well as 16 million hectares of land used for livestock, the owners of which expect to rationalize its exploitation by means of the application of new methods and financial assistance. The construction of new roads has made it possible for extensive areas of suitable land to be made available to increase the cultivation of cotton, tobacco, oilseeds, soya, corn, yerba maté, and jute, and for the establishment of farms. Colonization has been started in these areas, but Paraguay does not have adequate financial resources to give the settlers timely and adequate assistance.

The Government, determined to continue the efforts made toward stabilization, will require more external aid capable of assuring the Paraguayan people a standard of living which will compensate them for their efforts. We are convinced, and the agencies for cooperation acquainted with our problems have ascertained, that these people and their Government cannot by themselves push economic development forward with the efficiency and speed required by present circumstances.

In reiterating our gratitude and appreciation to the International Monetary Fund in the name of the Government and the people of Paraguay, I wish to express my best wishes for the increasing success of the mission being fulfilled by the International Monetary Fund, as well as for the happiness and prosperity of all our sister nations here represented.

Statement by the Governor for Iran—Ebrahim Kashani

Iran is an ancient land with a great historical and cultural background, and yet we are a young nation in the fields of modern science, industrial development, and the new technology. We are as well at only an early stage in the struggle to improve the living conditions of our people and to introduce for them generally modern standards of health, education, and other aspects of material well-being. We have the will and the determination to surmount the difficulties met in the struggle toward these ends; what we lack are the means with which to press forward with the speed desired.

Although my country has been considered fortunate in relation to some developing countries in that it enjoys a large income from oil, nevertheless we have also had to turn to outside sources—both of an international and national character—for assistance in the implementation of our aspirations. With this assistance and the overwhelming desire to raise the people’s standard of living, we have been able to make rapid progress in recent years in developing our economy. The development may, perhaps, have been too fast, for it has brought many problems in its wake—problems inherent in a country where the urge to build and create exceeds its available resources.

In recent months, because of the continued and growing impact of development on our payments position and foreign exchange reserves, we have had to review our programs and to impose upon ourselves a measure of restraint and austerity in the form of an Economic Stabilization Program which involves the generation of a fiscal surplus and a substantial curtailment of bank credit expansion. With the adoption of this program, which my Government has undertaken to carry out, I am confident that we shall be able to write off our present adverse payments position within the next two years, without disruption of our over-all economy and without recourse to the confusion and distortions which multiple exchange rates or import and payments restrictions naturally create.

In connection with this stabilization program, I am happy to state that we were fortunate in having at our side the Fund, under the inspiring guidance of Mr. Jacobsson, and in being able to draw freely upon its expert and invaluable technical advice. Judging from our past experience with the Fund, we are confident that we can count on the Fund’s assistance in other ways as well in support of our efforts.

During the years since the war, we have made tremendous efforts to utilize our national resources and to overcome many of the difficulties which nature and our geographical position have presented. Those who visit my country now and who are acquainted with its past know what we have achieved. With the continued help of these international organizations, we shall continue to strive forward. Perhaps we shall succeed in creating for future generations a better world than that in which we find ourselves.

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

The Fund Report, as in the past, conveys a useful survey of the world economic situation and brings to focus important problems, many of which have been already discussed.

It is encouraging to find that the membership in the Fund is increasing and more countries have applied for membership, the formalities of which will no doubt be completed in the near future. Operational activities indicate that, of the total amount of currency purchased, 35.5 per cent was in currencies other than U.S. dollars, which reflects the highest percentage so far transacted in these currencies in any financial year of the Fund. The demand for currencies other than U. S. dollars is being gradually spread out and, in the context of the statements made by some Governors, including the statement made by the Governor for Germany, there is every reason to believe that this trend will increase in the years to come.

With the widespread improvement in the monetary situation following the adoption of external convertibility in 1958, the move to Article VIII by some of these member countries has become a matter of practical importance. The acceptance of obligations under Article VIII will no doubt have significant consequences for the Fund’s financial transactions, particularly in the sense that this enables a wider use of currencies of the members who will take such a step, relieving thereby the pressures which hitherto existed.

It has been suggested in the decision taken by the Executive Directors that “discussions” or meetings between the Fund and the countries assuming obligations under Article VIII would be helpful since such meetings are not mandatory under this condition. However, it may be desirable to make these discussions regular and fairly detailed, particularly for such member countries who, though assuming obligations under Article VIII, may find it necessary to continue to maintain some degree of restriction. Perhaps it should be stated here that one of the most important and most useful responsibilities imposed on the Fund and undertaken mandatorily or otherwise by member countries is the consultations which, while enabling the Fund, in the words of Mr. Per Jacobsson, to provide a forum for exchange of views on monetary and financial developments in the member countries, also in my view assist each member country so consulting to see its own problems more dispassionately and also help member countries to understand the problems of one another, which is as it should be, in this world of infinite variety where the need for international monetary cooperation is so urgent and so pressing.

It must also be pointed out that, under the current definition of restrictions as accepted in Article VIII, there is also the danger, remote or otherwise, whereby governments may not be placing any exchange limitation in the accepted sense but could maintain practices in trade and other activities in a manner that may cause a de facto limitation on the free use of exchange resources. This will certainly take away the advantage of freeing exchange restrictions and also be without any justification in the case of countries not having balance of payments problems or using such measures for the purpose of promoting economic development. It would therefore be reasonable to expect countries moving to Article VIII status to accept, as I have no doubt they will, the obligations in the spirit of the decision.

It is no doubt encouraging to find that during the period under review there has been a slight recovery among some of the primary producing countries, but the problems still facing them are numerous and complex. For instance, even with an improvement in the commodity prices and trade balance, most primary producing countries have to face the burden of heavy payments both on current services and capital account.

In the case of our own economy, for instance, the downturn which began in 1956 has continued into the succeeding years with no signs of any worthwhile improvement. Although the prices for some of our major export commodities improved during the period under discussion and even the terms of trade were better than in the previous years, the current account position in our balance of payments remained extremely unfavorable, leading to a significant decline in our external reserves. This is largely the result of a sizable and persistent deficit in invisible payments and also unduly heavy expenditures on imports which, despite the increase in export receipts, caused an unfavorable balance of trade.

The reasons underlying a continuous decline in reserves have been discussed in detail in our consultations with the Fund. With the return to power of a government having far greater support by the people than has been possible in the recent past, a series of measures, both fiscal and monetary, have been and are being taken to arrest a further drain on our reserves. But I have outlined our problems mainly to illustrate the difficulties facing a country in the process of carrying out a program of economic development, and it serves to underline the importance of maintaining a favorable trade balance sufficient at least to offset the continuous and heavy outgo on invisible and capital payments. For most primary producing countries, inability to secure this minimum would upset their plans of economic development and may even retard their economic growth.

Perhaps I should also refer in this connection to the great degree of instability in prices as far as the products of these countries are concerned. In the absence of achieving tangible and effective results in the sphere of international commodity agreements or schemes relating to buffer stocks, the need for measures for compensating the balance of payments effects of such fluctuations assumes great importance. In these circumstances, it should also be remembered that the responsibility of the more highly developed countries lies in providing opportunities for maintaining more stable market conditions for primary products. “Woolly” and “rubbery” synthetics, and may I say even “cottony” synthetics and long lines of automatic machines with no human operator, have their uses and their usefulness, but in an interdependent world mankind cannot live purely on synthetics and machinery, available in only one part of the world. As you, Mr. Chairman, so aptly stated in your opening statement, the benefits of the high levels of world trade and growing economic strength should be widely shared since prosperity is indivisible.

Turning now very briefly to regional arrangements in Europe, the countries reaching such arrangements should attempt to reduce barriers that will restrict the flow of commodities from the primary producing countries to industrial areas. Greater opportunities should be provided for expansion of world trade not only in industrial but also in primary products.

The Fund has also an important role to play in assisting and stabilizing the process of economic development. There are, of course, two schools of thought, which for purposes of simplicity could be referred to as that which advocates the policy of “live within your means” and the other which advocates “rapid economic progress through conscious management of internal and external policies.” The former, I am afraid, gives little hope for countries that have emerged from colonial status to make up for the years of comparative neglect of the basic resources common in every country, namely, the energy, the skills, the habits, and the indigenous character of its people. It is the path of wisdom, no less in economics than in politics, to use these resources if economic development is to serve its intended purpose and capture the hearts and minds of a people.

May I, with due deference to our Managing Director, Mr. Per Jacobsson, who as in the past gave us this time, too, such an impressive and valuable contribution to the economic thinking of the present time, hope that when he said “It is, of course, preferable to have both wisdom and sufficient reserves,” the type of wisdom I refer to here was also covered.

New members will soon come into our international fraternity. Correspondingly, the responsibility of the International Monetary Fund in assisting, in every way within its powers, the processes of economic development will necessarily increase, but it can be hoped that with the strengthening of the Fund’s resources achieved last year, and steady improvement of the payments situation in general, the Fund’s ability and capacity under its most able Managing Director and its devoted staff to contribute toward the stabilization of these processes would be correspondingly enhanced.

Statement by the Governor of the Bank for the Federal Republic of Germany1Ludwig Erhard

Without intending to deny Germany’s responsibility and obligation to make larger contributions in the field of development aid, I may nevertheless ask that it be remembered that Germany, after a total political, economic, and social collapse and the ensuing currency reform, which led to an annihilation of 93½ per cent of the monetary capital, had first to take care of its own reconstruction. This meant, among other tasks, that of creating employment and living space for 12 million refugees in a widely devastated country. It is only now, after this task has been successfully accomplished, that the German economy can undertake in larger measure to cooperate energetically in the extensive work of development aid. I myself have repeatedly stated that a country like the Federal Republic, to which foreign aid was given in the darkest hour of its history, must in turn respond to the moral command to help poorer peoples. I do not need to stress that not the amount of the German monetary reserves but only Germany’s capacity to raise funds can serve as a yardstick for potential capital exports.

At this moment, concrete plans for raising DM 1 billion for purposes of development aid are being discussed on the part of the private economy, and the Federal Government is at the same time occupied with the task of making very substantial public resources available for this purpose. Further, the capital market must also be mobilized for this task. To prevent any misunderstanding, I should like to point out expressly that the task of development aid and the raising of the necessary funds are recognized in themselves as an obligation, without regard to the prevailing economic situation and the economic needs that arise therefrom. When I speak of conceivable measures of economic policy, perhaps the thought of an appreciation of the deutsche mark suggests itself among them. The Federal Government and the central bank stated several weeks ago that such a measure was not intended. To that I need not add further.

Statement by the Governor of the Fund and the Bank for Ghana1K. A. Gbedemah

I would like to take this opportunity to invite my colleagues to give consideration to the creation of a separate Department of Operations for Africa within both the Fund and the Bank. At present, Africa forms part of the Department of Operations concerned with Europe and Australasia. Until now that may have been expedient, but everyone must agree that, with the increasing number of African members and the growing importance of Africa in the world economy plus the fact that the three Continents of Europe, Australasia, and Africa, as a unit, are too large and diverse to share a common direction effectively, the time has now come—and there are enough valid reasons—for reorganizing that Department. I am sure that the present African members of these institutions, as well as the African States soon to join us, will agree with the view of my delegation that the interest of Africa would be more adequately and effectively catered for by a separate Department of Operations for Africa. It is the hope of the Ghana Government that this point will receive the most serious consideration of the Boards.

Before I conclude my statement, I should like to refer to a matter which to me is of some importance. When you addressed us, Mr. Chairman, you made the following statement, and I quote: “I range myself with those who reject the proposition that man’s Utopia will be achieved by doctrinaire socialist principles and forms of government. It is my firm belief that only in a community life ordered by democratic institutions and functioning under a system of free enterprise can basic freedoms for the individual and higher standards of living be assured. But this is not the occasion for me to debate these issues.”

We agree that these issues should not be debated here; in fact, with all respect, we question if they should have been raised at all. But since they have been raised, we should like to make this brief comment: This is a time when neither doctrinaire socialism nor doctrinaire support of free enterprise is an adequate substitute for the solution to economic problems. We in Ghana are seeking to raise appreciably the living standards of our people in the shortest possible time without exploiting other people in the process. We find that this can best be achieved by a large measure of public ownership and control of our resources. I must emphasize that these are not just temporary or expedient policies as far as we are concerned. They are fully consistent with an African approach to life which was in existence long before the great conflict between doctrinaire socialism and doctrinaire capitalism was ever thought of. This is our program, and no disparagement will deter us in our efforts.

Statement by the Governor of the Fund and the Bank for Morocco1M’Hamed Douiri

Morocco’s relations with the Fund have been close from the outset. Our common concern has been to provide a sound basis for our currency, and I am very happy that Mr. Jacobsson expressed his satisfaction with our monetary policy in the important statement he made yesterday. Indeed, it would not have been easy for us to give a new and official parity to our dirham and at the same time face the hazards of international trade on a basis of external convertibility and nondiscrimination without feeling that we had the Fund’s support. Although we have not had to have recourse to it, we have realized how the assets of the Fund could form a real second line of reserves in case of difficulty. The annual consultations with the Fund will consequently determine the decision to be made in regard to the stand-by agreement which is scheduled to expire next November.

We shall still never consider problems of monetary policy as easy to solve. True, our monetary relations with France, now conducted in full reciprocal independence and in the best spirit of cooperation, convince us that appropriate solutions will always be sought. Generally speaking, large development programs, calling in particular for the effective collaboration of the Bank and the IDA for carrying them out, will one day make claims upon our monetary reserves. The Report of the Fund, like that of the Bank, puts precise emphasis on the interaction of the activities of the Bank and Fund on the balance of payments. In the path which it has chosen, that of growth within the framework of international cooperation, Morocco knows that it will receive a renewed audience from these institutions.

As to its declaration of intention, Morocco has kept its current international payments free and has removed any trace of discrimination, amalgamating all its purchase programs in any convertible currency whatever. However, you will understand that the debate on transition from Article XIV to Article VIII does not yet concern us directly. Once again, the actions of our international organizations are tied together; monetary policy is tied to development policy; the system of full convertibility will be understood when the growth of our economy has transformed its structure.

You stressed, Mr. Chairman, the aid that the highly developed countries can give to countries which are exporters of primary products. If the relative diversification of its economy makes it less strategically vulnerable to the prices of important raw materials, Morocco is nevertheless very much concerned about the additional difficulties encountered here by other countries also facing problems of development. Agreements limited to a few products have solved certain problems; the Fund has promised its aid when balance of payments equilibrium is threatened by fluctuations of too wide a scope. But all that is not equivalent to an appropriate stabilization. If, for its part, Morocco has found in France stable prices for some time for certain products, the general problem still largely remains. True, the Fund cannot by itself solve all the disequilibria of the world, and the efforts of all countries toward cooperation find here ever-open fields of action.

Our institutions will soon welcome new member countries, African for the most part. Morocco is especially happy about this. It hopes that the announced regroupings and the inter-African reorganization will permit this area of the world to benefit more broadly and more effectively from the aid of the Fund and the Bank. At the same time, the responsibilities of all will be increased thereby. At this meeting, at which each State likes to state dispassionately, in the desire to aid each other mutually, the principal sources of economic, financial, and therefore human disequilibrium, the new members will witness an increase in the attention already given to the inseparable demands of development and monetary stability. Our international institutions will encounter from now on the immense social tasks to which our founders at Bretton Woods had a premonition. You concluded, Mr. Chairman, that “prosperity is indivisible.” This awareness increases for Morocco the value of the institutions toward which it will show itself more and more demanding in the name of international cooperation.

Statement by the Governor of the Bank for the United Kingdom of Libya1A. N. Aneizi

We appreciate the fact that our three international financial institutions and the newly established International Development Association will provide the necessary finance for various long-and short-run projects in both the public and the private sectors. In this connection, may we suggest that the International Monetary Fund will, in addition to its quest for economic stability and free trade, pay increasing attention to the problems of economic growth in the less developed countries of the world. As for the underdeveloped parts of the world, economic stability is an important but not essential condition for their existence. They should develop with stability, but with some loss of economic stability if necessary. If, in their policies and activities, the four institutions try hard to complement and supplement each other in relation to the needs of the less developed areas of the world, they will be considerably more effective in the promotion of economic progress. If, on the other hand, each of these institutions tends to emphasize one or two aspects, such as balance of payments or economic stability, to the exclusion of how these questions are related to the over-all problem of economic growth, then there is a real danger that they may fail to accomplish the noble objectives for which they were established. Judging from the past and knowing the wisdom and competence of the management, staff, and Executive Directors, we feel confident that this will not be the outcome. Nevertheless, it is always good to remind ourselves constantly about the complementary functions which these institutions are designed to carry out.

The economic situation in the United Kingdom of Libya in 1960 is characterized by both great problems and bright prospects. The problems can be summarized as those of an underdeveloped country, suddenly faced with extensive oil exploration activities and all the other enterprises associated with oil discovery and production. These factors have raised effective demand in a small but important sector of the economy—the trading sector. Because the economy is underdeveloped, it was unable to produce the needed goods and services to meet the increase in effective demand. The only place where such goods and services could be obtained, in the shortest possible time, was from abroad. But unfortunately this has resulted in an increasing deficit in our visible trade balance. Moreover, with imports freely available and the increasing demand for labor brought about by oil exploration, there has been a considerable movement of people from their time-honored occupation in agriculture into temporary employment with the oil industry and other related projects. In short, oil exploration and discovery have unfortunately, but understandably, diverted people’s attention and energies from agriculture to temporary and unskilled employment. All this means that, although our economy is now receiving a larger income, it is spending this income on imported goods and services for consumption. In other words, we are currently expanding our consumption of goods and services while the income from these investments is still a few years away from us to achieve. We all know that this is a difficult situation for any nation, but especially for an underdeveloped country anxious to increase its productivity. In other words, we are in need of help and accommodation against the income that is in sight but out of reach.

We in Libya are very much aware also of the fact that we have the potentialities for economic growth, and we are determined to formulate the necessary programs and policies designed to utilize effectively the expected oil revenues for the development of our human and physical resources. As an initial step in this direction, we invited the World Bank to survey our resources and outline our needs and problems. I am happy to say that the report of the World Bank Mission has been submitted to my Government, and its findings and recommendations are now the subject of study and discussion. On behalf of my Government, I wish to express our gratitude and appreciation to the Bank and the Mission itself for their very important report. The World Bank report has warned us against complacency in the face of oil revenues and the need to develop our other resources. A new Development Council is now being established with authority to utilize up to 70 per cent of our oil revenue for the planning and financing of development programs. This will undoubtedly provide the broad outline of the Council’s approach in developing fields of activities other than oil during the next five years.

We are revising our legislation and reformulating our policies in such a way as would enable us to discharge our responsibilities in a developing country, with many difficult monetary and fiscal problems. We are interested in stability as well as economic progress which, of course, implies change, and the inflationary pressures all too generally experienced by countries in a position similar to our own are already causing some concern. As in the past, we will always look forward to the technical assistance and advice of our international financial institutions to assist us in tackling these problems. Early this year, we were very pleased to receive the first Fund consultations mission to Libya. We greatly enjoyed the exchange of ideas and stimulating discussion which took place during the consultations.

September 28, 1960.

Delivered in the course of the discussion of the Annual Report of the International Bank for Reconstruction and Development, September 27, 1960.

Delivered in the course of the discussion of the Annual Report of the International Finance Corporation, September 29, 1960.

Delivered in the course of the discussion of the Annual Report of the International Bank for Reconstruction and Development, September 27, 1960.

Delivered at the Closing Joint Session, September 30, 1960.

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