Opening Address by the Chairman of the Board of Governors, the Governor for Peru 1

International Monetary Fund. Secretary's Department
Published Date:
November 1959
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Fernando Berckemeyer

As Chairman, I would like first to thank President Eisenhower for his friendly welcome, and for the invaluable help he has so often given to the cause of improving the world’s economy, and the welfare of its people, through international cooperation. Such efforts are made throughout the year, on our behalf, by the International Bank for Reconstruction and Development and the International Monetary Fund. But as we all know, these institutions could not operate effectively without the guidance and support of their member governments. It is to make this contribution that the Boards of Governors of the Bank and of the Fund have come together for their Fourteenth Joint Annual Meeting. I take great pleasure in greeting the Governors, and in welcoming others, observers and guests, who will share an interest in our discussions.

It seems to me that we are by now entitled to take a good deal of satisfaction in the records of our Bank and Fund. Each has achieved an important place for itself. Each has accomplished results which show the nations of the world presenting a more united front against economic insecurity and want.

About the work of the Bank, there are many things which I could say, but I am sure that all of us would agree that the event of the year which holds the first place in all our minds is the fact that 1959 marks the tenth anniversary of Eugene R. Black’s tenure of office as President of the Bank. There will be many tributes paid at this meeting to the remarkable range of abilities which Mr. Black has brought to the work of the Bank. It is my one advantage, as Chairman, that I may speak first, and with your consent I will refer to this event prior to my other comments.

As President of the Bank it is important to realize that Mr. Black’s principal contributions have been in the realm of ideas, and it is ideas that provide the foundation for correct action now and in the future. The first message which Mr. Black has been able to convey to the world has been the idea that economic development is important in itself and for its own sake. He has consistently opposed the giving of assistance to the less developed countries for short-term motives, such as military strategy or international politics, whose real purpose is to accomplish other ends.

Within this framework of thinking, I would like to mention and take note of the important proposal that the U.S. Governor is to submit to this meeting in connection with the International Development Association. There is every reason to believe that the objectives of the IDA will fulfill a very important gap in the facilities that are required to stimulate economic development. This will not only be in the interest of the less developed countries that need this added impetus, but will also prove beneficial to the more industrialized countries that will make the major contributions in that it will in the long term create a greater demand for their products. As Mr. Black has proclaimed many times, economic development is a difficult task, and I think this proposed Association can help greatly in it.

At first, the more developed countries believed that they could win permanent friendships and alliances by means of financial aid, and the less developed countries, for their part, were happy to receive such assistance, whatever were the motives behind it. Over the years, these illusions have disappeared on both sides. The developed countries now realize that economic growth requires the long-term outlook and all the thoroughgoing techniques of modern development economics. The less developed countries have also come to see that their resources can be wasted it they are not applied with the greatest degree of forethought and the highest standards of execution. Discussions of international financing today are at a much higher level of understanding than they used to be, and I believe that the world owes a great deal of this improvement to the policies sponsored by Mr. Black and the example set by the World Bank.

The second lesson that Mr. Black has taught us is that the field of economic development need not be reserved for idealists. It can also be suitable territory for hardheaded investors. We all know that international investment fell into disrepute between the wars. When Mr. Black took office in 1949, the prevailing view about international investment was still that it was a risky business, too capricious to warrant serious attention from institutional investors.

The Bank’s Fourteenth Annual Report before us shows us how different the position is today and, further, records the numerous activities of the Bank for our consideration, showing a successful year in every respect. Direct assistance to the economic development of the Bank’s member countries has been maintained at a high level, with new loans of more than $700 million approved in the 12 months. The Report also notes the high volume of technical assistance and advice that the Bank has been able to provide, in addition to its lending activities. Both lending and technical assistance were, since its inception, features of the Bank’s work, but no one I think could have foreseen the tremendous extension of these functions over the past ten years.

My own interests, of course, relate most directly to Latin America, and the total of Bank loans in that area alone is close to a billion dollars, even after allowance has been made for a few loan commitments which were canceled or refunded. On the technical assistance side, my part of the world has become familiar with many Bank experts who have assisted us with difficult problems of all kinds, from general fiscal policy down to the design of a power plant or advice on administration. The Bank is now old enough for its member countries to have learnt that this form of Bank assistance is as important to the Bank’s member countries as the finance provided by means of Bank loans, and, I might add, just as spectacular in the results.

But over and above the Bank’s normal functions as a leader and an adviser, we have seen a great broadening of its interests and influence. Taking the last three months as an example, it is astonishing what versatility the Bank has shown. For example, the Bank’s efforts to bring about a successful negotiation of a water treaty between India and Pakistan should bring to a close a dispute which at times seemed to have very serious implications for the whole of Southeast Asia and, perhaps, the world. I think you would wish me to express on your behalf our admiration for the thorough and patient way in which the Bank has handled this important negotiation. To take another example, the Bank took part in a unique lending operation only two weeks ago, when it negotiated a loan for the nuclear power station in Italy.

But I am confident that this audience, consisting as it does of the best qualified persons on the world’s financial scene, will agree with me in the belief that a large measure of the success of the Bank has been in finding and financing worthwhile projects, in some cases projects the value of which the countries themselves were not aware. This has contributed enormously to the great change in outlook in the past few years on international investment, and it is now once more the habit for institutional investors to hold a certain amount of international securities in their portfolios. It is not possible to overemphasize the importance of this change of attitude on the part of private investors in the industrialized countries. It is from them, and from them only, that the bulk of development capital can be obtained. And I know that their judgment is influenced by the sound policies pursued by the Bank as much as by the government guarantees that support its operations. Moreover, this change of view by the private investor has been accompanied by a realization on the part of the less developed countries of their dependence on private investors and of the need to show that money lent for development will not be wastefully used.

Of particular significance has been the great support shown recently by our member countries in subscribing to a doubling of their subscriptions in the capital stock of the Bank after we, as the Board of Governors, had voted overwhelmingly to approve the increase in the Bank’s authorized capital. I understand that whereas the Bank’s subscribed capital prior to this change had amounted to around $9.5 billion, it now stands at nearly $18 billion. I do not know of any better way in which our countries could have shown their confidence in the Bank.

There are so many interesting aspects of the Bank’s work and of the increasing authority that it brings to bear in international affairs, as banker and as international mediator, that any of us could go on for a long time in describing the significance of this aspect or that. I will rather leave it to the representatives of the many governments here to bring out those points of closest interest to them.

On the international scene, as in the private life of an individual, there are various forms of credit available to suit particular needs. An individual, or a nation, may require long-term credit, as for some project of construction. Or the need may be for financial assistance of a shorter term to bridge an unpredicted period of emergency expenses, or temporary decline in earnings. The International Monetary Fund fills such a need for our member countries, as a part of its program to bring about a freer, multilateral, system of payments. The Fund has provided resources to its members to reinforce their reserves in periods of seasonal strain, to help support currencies subject to erratic speculative pressures, and to assist in financial stabilization efforts.

But the Fund’s assistance to its members is not exclusively, and, in some cases, not even principally, financial. We are all familiar with its consultations with members on the removal of restrictions and the simplification of foreign exchange systems. These activities help the members concerned and also benefit other members. I should also refer to the work that the Fund has done in analyzing difficult financial, monetary, and statistical problems.

We have seen a great deal of headway made recently toward the Fund’s objectives, particularly with the adoption of external convertibility by the United Kingdom and Europe, and the work of economic stabilization with which some of us are busy in Latin America. In the months ahead, the Fund will doubtless devote itself increasingly to a consideration of the policies that will be needed to sustain the momentum toward a freer system of international payments.

It is also reassuring to many of us in Latin America, as elsewhere, that the Fund will continue to stand by us as we deal with various payments difficulties rooted in both external and internal problems. The Fund has sometimes favored strong remedies to deal with serious payments problems, but a good doctor will always be concerned that his cure is effective. It is also to the Fund’s credit that it has never been deterred from providing assistance by the seriousness of a country’s plight, asking only that the member in difficulty make a genuine effort of its own. The list of countries helped by the Fund includes some whose difficulties have been serious indeed, but the general experience of collaboration with the Fund has been a fruitful one.

The Fund and its members may count themselves especially fortunate that the services of Per Jacobsson are available during this particular period. He came to his position as Managing Director with a unique background of preparation, which included years of intimate association with European monetary problems and many special assignments during his career with the Bank for International Settlements. Mr. Jacobsson has given the Fund new vitality with his energetic leadership, statesmanship, and technical skill.

As we all know, large drawings and stand-bys were approved by the Fund in 1956 and 1957. Until such time as these drawings could be repaid and these stand-bys could be released, the Fund’s ability to give additional assistance on a massive scale was reduced. Other facts also testified to the prospect that the Fund should have larger resources: for example, the large increase in the value of international trade since Fund quotas were established at Bretton Woods, and the excellent prospects for the continued expansion of world trade following the recovery of the United States and Europe from the recession of 1957-58. This question was discussed at the New Delhi meeting. It is a gratifying recognition of the successful activities of the Fund, and of the important role it had played, that discussion in New Delhi was so uniformly favorable to the proposal to increase the size of the Fund. We are now in the happy position of knowing that the Fund has been busy and active, that its work has been good, and that it can face the future with assets that are more than $4.5 billion larger than they were one year ago.

But few situations are ever wholly favorable. If the ability of the Fund to help its members has been substantially increased by recent developments, the ability of some members to help themselves has been reduced. Reference was made last year to the fact that the terms of trade had shifted sharply in favor of the developed countries. During the recession of 1957-58, the prices of raw materials fell a good deal, while the prices of many manufactured goods fell hardly at all. This shift in the terms of trade was one of the major factors that accounted for the sharp rise in the reserves of European countries in 1958 and which, in turn, helped most of Europe to establish external currency convertibility at the end of 1958. This was a great step forward and it benefited all countries, developed and underdeveloped. But the full benefits of this external convertibility will be realized when Europe, now grown stronger, becomes a larger and larger exporter of capital and, as an importer, admits goods from all parts of the world to its domestic markets without discrimination and without favor.

Even if the United States continues to make funds available to the rest of the world with unparalleled generosity, even if Europe exports capital on a large scale, and even if the Fund acts with the strength and wisdom which we have come to expect, the underdeveloped countries will still be left with large and difficult problems. The level of economic activity has increased, as has the level of international trade, but the terms of trade have not improved significantly. By and large, the gains in the terms of trade that the industrial countries made during the recession, they have so far kept during the present recovery.

The peoples of the underdeveloped countries demand economic growth, but in many cases the cost of economic growth is larger now relative to their resources than it was several years ago. The underdeveloped countries must not fool themselves into thinking that things will automatically get better. The products of our mines, forests, and agriculture face severe competition from science all over the world. Underdeveloped countries no less than developed ones must avoid obsolescence of their technology and their products. Underdeveloped countries must be on the lookout for new products and new industries, and, with all this, must achieve an acceptable rate of economic development and a rising standard of living. The underdeveloped countries must not fall further behind the developed countries—and this is difficult enough with the progress of science and technology—but, instead, they must reduce the gap between them. This requires great effort from the underdeveloped countries, and assistance and understanding from the developed ones.

From time to time one country or another gets into difficulties in trying to accomplish these objectives. Investment programs grow faster than real savings and budgetary deficits occur. Prices increase, imports rise faster than exports, and international reserves fall. Fortunately, a country that tries to deal with its inflation may obtain financial resources from the Fund, to help tide it over its difficult period of adjustment. Clearly, when resources are made available for this purpose, as they have been on many occasions and for many countries, it is not unreasonable that the Fund should expect the country concerned to attack the causes of inflation. In no other way can the Fund be of real help to the country that is in difficulties. On the other hand, I hope the Fund will always consider the situation of every member with sympathy and understanding, recognizing that each member’s problems are to some extent unique.

As an international community, we have made important progress toward our objectives in the Fund. Some of the benefits of that progress are already apparent in the form of stronger national economies, a freer system of international payments, and better conditions for growth and development. I hope this knowledge, that what we have achieved has been worth the effort, will strengthen our determination to continue along this path in the years ahead.

September 28, 1959.

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