Chapter

Discussion of the Thirteenth Annual Report1

Author(s):
International Monetary Fund. Secretary's Department
Published Date:
November 1958
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Statement by the Chairman of the Board of Governors and Governor for Belgium, Hubert Ansiaux

The moment has come to discuss the Annual Report made by the Executive Directors, and I hope that you will excuse me if I open the discussion with some personal comments on a few points which I consider as essential with regard to the evolution of the world economy in recent months, the part played by the Fund against a new economic background and the problems we will have to face or to study in the near future.

An important fact revealed by an analysis of international economic development during the year just past is undoubtedly, as very well stated in the Report, the fact that the fear that the recession in the United States might spread to the rest of the world has not become a reality. The activity of the industrial countries, and in particular of the European countries, has not in fact been seriously affected by the evolution of the American economy, though there has been some autonomous tendency for a slackening of the rate of industrial expansion or even of production in some countries. Without wanting to make a complete analysis of the causes of the resistance that these countries have shown to external pressures resulting from economic changes, I think it may be explained in large part by the relative firmness shown by American demand for imports of finished food products and the upward trend in U.S. imports of manufactures. Another element of support which we should note is the greater degree of economic independence which industrial countries outside the United States have attained as a result of actual progress made in the development and, in Europe, in the integration of their economies. The resistance which the industrial countries have thus shown to the spread of the recession in the dominant economy of the western world is a development which we should note with satisfaction, without, however, falling into the excessive optimism which is leading certain observers to conclude that the danger of an extension of a moderate depression originating in the United States should now be held to be negligible. The position could in fact evolve quite differently if, for example, credit policy in the United States were to lack flexibility or if protectionist tendencies there were to become stronger.

A particular aspect of the world economic situation which should be given our special attention is that, as stated in the Report, the recession in the United States has not given rise to pressures on exchange reserves held outside that country. In fact, American exports, which had expanded temporarily during the first three quarters of 1957, especially as a result of the Suez situation, have declined in the following months more rapidly than have American imports. There has consequently been no question of a crisis of reserves for the rest of the world but rather, since the last quarter of 1957, a resumption of the outward movement of gold and dollars from the United States which had been characteristic of the early 1950’s and had been temporarily interrupted during the first nine months of 1957. Whereas from January to September of last year the rest of the world transferred to the United States reserves valued at $1.5 billion, during the seven months to the end of April 1958 gold and dollars moved in the opposite direction and the United States transferred abroad about $800 million.

If account is taken of the consolidation of the British balance of payments and the mitigation of the German surpluses, the conclusion is that the position of the reserves and the general structure of international payments are clearly more favorable for the world as a whole now than when we met last year.

This being so, it is certainly easier now than it was before to meet temporary fluctuations in balances of payments due to cyclical fluctuations. If this is clear for industrial countries which maintain sound internal policies, it may for certain observers be less apparent in the case of less developed countries. On that point, however, I would like to stress what is so rightly said in the Executive Directors’ Report that, if there is a responsibility primarily for the large industrial countries to prevent and correct excessive cyclical fluctuations, “there will, however, be a better prospect for the success of their efforts if the less developed countries are fully aware that stability cannot be assured to them merely by the efforts of others, and that they cannot be spared the obligation to adapt their own economies to fluctuations between high and low demand.” This, the Report adds, “has special importance for countries whose exports consist mostly of raw materials; it may also apply to exporters of foodstuffs, such as coffee, whose prices may fluctuate widely, even if demand is reasonably stable, in response to the impact of the fluctuations in supply to which these commodities are liable.”

This is specially true for economies which are centered on the production and export of raw materials, the prices of which are now lower than they have been for some years. It is clear that the payments difficulties met by these producing countries cannot be attributed to the effect of cyclical price fluctuations. It must be kept in mind that the weakness of prices, arrested for a time by the Suez crisis, was already apparent, although in less marked degree, during the boom, and that the quotations of many industrial raw materials began to fall in mid-1955.

It becomes more and more obvious that structural factors, of more lasting effect, have contributed to the deterioration of markets; too great an increase in production in relation to present needs, and competition from synthetics, are probably the chief of these structural factors. The decline in export receipts of countries producing raw materials thus poses a complex problem. The real difficulty they have to overcome is to diversify their production instead of developing over and above world needs that of raw materials or commodities which in some cases are already in over-supply. This means that appropriate capital expenditures will have to take place for which adequate long-term capital should be raised on international financial markets. This is the only way by which these countries will be able to benefit from a regular flow of capital expenditures without running the risk of being faced with balance of payments difficulties. For these countries, the existing problem is much more a problem of long-term capital and sound internal equilibrium than a problem of monetary reserves.

These remarks are not without importance because of their effect on the appraisal to be made by the Fund of the extent of the aid it can legitimately grant, or the form in which it will give it.

This leads me to some reflections on the role played by the Fund in the economic climate which has marked the last few months. The operations of the Fund during the fiscal year just ended have been important, although less extensive than during the preceding year, when they rose to an exceptional level. It seems that the recession, while requiring the Fund to play an active part, has not necessitated such extensive assistance as was requested at the top of the boom. In fact, although it is true that the recession has led to an increase in operations with the raw material producing countries that are having difficulties, several of the most important transactions of the year were effected in the desire to cooperate in the stabilization of the monetary position of some countries.

What I think we should note with particular satisfaction is the fact that in its operations the Fund has continued to evolve a concrete and effective policy of utilization of its resources, notably in giving its financial support to programs for monetary stabilizazation. The validity of the principles established by the Fund to organize the use of its resources and the sureness of judgment brought to bear in its operation on the position of member countries have certainly helped to establish the Fund’s authority. It is striking to note that the policy followed by the Fund has not only allowed it to help member countries to draw up realistic stabilization programs but has also assisted these countries to obtain substantial credits, either from governments and other international organizations or on the private market. The joint operations by which certain countries obtained combined aid from the Fund, OEEC, and some governments is a noteworthy development.

It goes without saying that the useful role thus assigned the Fund gives it a great responsibility. It is, therefore, of paramount importance that its resources should be used to promote the implementation of its purposes; it is also important that the Fund faithfully remain in its financing within the limits assigned to it and the rules it has adopted to ensure the concrete application of the principles of the Agreement which govern its activity, excluding any financing of fundamental disequilibriums as well as any financing of long-term capital expenditure.

Member countries have an interest in not pushing the Fund beyond these legitimate limits, especially since they find more effective support in the credit which the Fund can assure them by lending its recognized authority to the support of realistic programs of monetary stabilization.

Obviously it is also in the light of the specialized character of the Fund’s mission that the adequacy of its resources can be usefully and safely examined.

The growing prestige of the Fund is a cause for rejoicing. It allowed it, during the last Meeting of Governors, to offer an effective rostrum for the statements made by several of the most important member countries whose currencies were under speculative pressure at that time. The repercussions of these statements, supported by concrete measures, rapidly put an end to unhealthy speculative trends. There is certainly cause to be pleased with the indirect aid which the Fund has thus been able to give to the efforts of tie governments involved, simply because its international standing has undeniably been strengthened, giving particular significance to what is said in this forum.

There is a less conspicuous but equally effective field in which the Fund has been able to act usefully by sending some of its best experts to certain member countries. I have been struck, in reading the Report, by the expansion of missions for technical assistance and the satisfaction which the requesting governments appear to have derived from the aid lent by staff members of the Fund.

The growing and increasingly effective part played by the Fund would not have been possible without parallel progress in the growth of the institution. International collaboration does not consist solely of principles and financing; its true base is an understanding between men. In this regard, the annual consultations, direct contacts between us and with Fund experts, are building an inconspicuous but firm foundation. It may not be amiss to mention as well the role of the Executive Directors, who make it possible to compare the interests and practical problems of member countries and thus to promote the development of the Fund’s policy on the real basis of conciliation of interests acceptable to all. This role is made possible only by easy and frequent contact with the countries which appointed or elected them.

Finally, I believe we can be glad that the complex means of action available to the Fund are placed under the coordinating leadership of the inspiring personality of Mr. Jacobsson; we can also be pleased to see him assisted by a man of such experience and ability as the Deputy Managing Director and a staff whose competence is well established.

The Fund is in good hands, and I think that events prove that the structure given it was, in general, well conceived and has been justified by experience.

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

Our distinguished Managing Director has read a thoughtful statement of the problems of the Fund in its relation to the economies of its members. His great experience and gift for expression have enabled him to draw our attention vividly and with clear economic insight to the central questions to which we should all give our very best efforts.

The Annual Report of the Fund, which we are considering today, is worthy of its predecessors, in its comprehensive and balanced analysis of changes in the world economy. Each year these Reports have added to our understanding of the financial relations and the trade and payments problems of the members of the Free World. The Report records the work which the Fund has done in advising its members on exchange policies and related monetary issues, and describes progress toward the agreed objective of freer trade and payments arrangements under conditions of exchange stability.

We of the U.S. delegation are exceedingly glad to have, as members of our delegation, two distinguished U.S. Senators, Senator J. W. Fulbright and Senator A. Willis Robertson, who have the major responsibility for legislation in international financial matters.

Prior to our last Annual Meeting there was a feeling of uncertainty about the course of foreign exchange rates. New and large balance of payments problems had emerged in several countries. Effective use of the Fund’s resources by the members during this period gave the world reassurance that there were means of assisting member countries in temporary balance of payments difficulties even when their deficits had become rather large. There had also been a disturbing amount of speculation in currencies and a shifting of international balances. Vigorous statements at the last Annual Meeting by the Governors for the United Kingdom and the Federal Republic of Germany, and by the Managing Director, against the background of earlier governmental action, set at rest much of the speculation in the exchange markets.

We meet here at New Delhi in a different atmosphere from the one which dominated our preceding meeting. The Fund Report has called attention to the generally strong international financial position of the industrial members of our two institutions. At the same time it recognizes that the year 1957-58 has brought with it a number of problems for many of the countries that depend upon the production of food and raw materials for their international earnings. This is, of course, related to three major factors: first, the over-all trend of world trade; second, the rate of expansion in production of particular commodities; and, finally, the pressure of demand for imports in the less developed countries.

Insofar as developments in the United States affect the level of world trade, the present outlook appears to us to be encouraging. In fact, during the past year our imports continued at a high level and our exports fell off quite decidedly. Thus, in fact, during this period the United States absorbed some of the impact of the leveling off in world trade in its own export accounts, and acted as a sustaining factor on world trade as a whole through the maintenance of a high level of imports. The encouraging factors in our domestic economic situation, and the growing competition of other countries in world markets, lead us to anticipate a strengthening of the world trade and payments situation. It may be noted that, in recent years, the upward trend of increased official holdings of gold and dollar balances has continued. In addition, there were sizable private balances which are used in the settlement of international accounts.

In the past two years we have had temporary balance of payments difficulties in the industrial countries, and more recently similar problems among the less industrialized nations. It is in the light of these problems that certain suggestions have been put before this body by my Government. I refer to the proposal which we have made, that the Executive Directors of the Fund promptly consider the question of enlarging its resources through an increase in quotas.1

In the last two fiscal years, drawings on the Fund have amounted to $1.8 billion, and in addition at the end of this period there were outstanding stand-by commitments of $884 million. As we look ahead to the next decade, the resources available to the Fund to help countries to meet temporary swings in their balances of payments may well be inadequate. In the light of our experience in recent years, we feel that practical means to provide an additional cushion of this character deserves the most prompt attention. This would afford an additional measure of confidence and thus help sustain world production and trade. A strengthened Monetary Fund would also give encouragement to the efforts which member countries are making to maintain or to achieve convertibility.

If the Governors find themselves receptive to the suggestions that we have made, the Executive Board would, of course, consider a number of points. In addition to the more obvious questions, such as the amount of the increase in the quotas and the form of payment, it would be well for the Board to consider ways in which more effective utilization can be made of the currencies of industrialized countries other than the United States.

We have been happy to note that drawings have recently been made in some currencies other than U.S. dollars. To the extent that the Fund makes effective use of other currencies, its ability to play its sustaining role in world trade should be enhanced.

We have reason to be proud of the work of the Fund, especially during the last two years. In addition to its financial assistance, the Fund has courageously and devotedly undertaken to help its members deal with the difficult financial problems of internal inflation and exchange management. We look forward to a continuation of its patient and reliable guidance in this extremely important and rewarding field.

Statement by the Governor for India—Morarji R. Desai

It gives me great pleasure to welcome you all here in New Delhi on behalf of the Government of India and on my own behalf. I wish particularly to extend my welcome to the new members who have just joined the Fund or are attending this meeting for the first time. The Fund and the Bank are two most important agencies for international cooperation which have emerged in the postwar world. They have played a constructive and progressive role to which, may I say, there is no parallel. The Bretton Woods twins have made history, and we wish a similar career of usefulness to the International Finance Corporation.

I hope you will find in New Delhi a congenial atmosphere for your deliberations. I do not know if our arrangements for your stay and deliberations here are up to your expectations. But I do hope you will not find us wanting in friendliness and warmth of heart. New Delhi is, in a sense, new. And yet it links up with much that is ancient and even prehistoric. In this sense, it is typical of this country, where there is a great deal that is new and full of promise for the future, and yet the new is but a continuation of the old, so that the resultant is a complex, the true significance of which it is possible to miss at first sight. But it is a challenging complex, both for the people of the country and for those like you who bring to bear on national problems the perspective of an international setting.

May I now express my appreciation of the Annual Report that has been placed before us and of the excellent analysis it contains of recent monetary trends and of the problems confronting us in the immediate future. I would also like to congratulate the Managing Director, Mr. Jacobsson, on the constructive and thought-provoking address he gave yesterday. It was during his visit to this country in February last that I came to know Mr. Jacobsson personally, and I was struck by his deep interest in problems of economic development and in the ways and means of ensuring that it proceeds along sound lines. His address on this occasion reflects the same constructive approach and sympathetic understanding. Few visitors to this country can escape the psychological impact of the very different conditions prevailing here as compared to those in the West with which they are more familiar. So too, few of us here can, or would wish to, escape the impact of your thinking on economic and financial problems. These problems cannot be isolated from the institutional set-up in which they occur, and a great deal of care and caution is necessary while applying to an underdeveloped and insufficiently integrated economy the concepts of analysis and policy which have been found serviceable in rather different conditions. Nevertheless, the problems of monetary policy, investment, and balance of payments have a certain similarity everywhere, and there is so much to gain by the pooling and comparing of experience in these fields which an institution like the Fund so ably fosters. We in India are happy that this meeting of the Fund, the Bank, and the IFC is being held on our soil. It is our sincere hope that the distinguished delegates, who individually and collectively play an important role in world financial affairs, will carry away a better picture of the great tasks this country has taken upon itself and the earnestness and diligence with which it is trying to see them through.

The Annual Report has reviewed in some detail the change in the economic climate in 1957-58. During that period, the worldwide boom in investment gave place to a recessionary situation which called for fresh adjustments on the part of all members of the Fund. The Fund has played a truly crucial part in facilitating these adjustments. In 1957, as the Report points out, the rest of the world would have lost some $1.4 million of gold and dollars from its official reserves as a result of its deficit with the United States. It was because of the substantial assistance from the Fund amounting to $890 million, together with the contribution of current gold production and Soviet sales, that the rest of the world was able to avoid a decline in its official reserves of gold and dollars. In fact, as the Report itself points out, there was a small net addition to these reserves in that year. The Fund has thus made a notable contribution to the maintenance of economic and financial stability. It is particularly gratifying in this context that, whenever necessary, the Fund has been acting in concert with other financial agencies so as to ensure the maximum benefit to the recipient country from such assistance as the Fund itself can offer. While it is understood and appreciated that the special function of the Fund is to assist member countries in tiding over their temporary balance of payments difficulties, it is noteworthy that the Fund has not confined its interest merely to short-term problems; it has, under the direction of Mr. Jacobsson, viewed the financial and monetary problems of member countries in their wider perspective. This is good augury for the future.

The emergence of recessionary conditions has weakened markedly the payments position of the primary producing countries and has put their development programs in jeopardy. While the prices of their exports have declined sharply, they do not get a corresponding advantage in respect of their imports, with the result that the terms of trade have moved heavily against them. The long-term answer to this problem is, of course, a diversification of the economies of primary producing countries, but this immediately raises the question of how they are to raise the resources required for the purpose. While it is not the function of the Fund to provide the long-term resources required for development, the Fund cannot remain indifferent to this basic problem confronting the primary producing countries. I, therefore, wish to record my appreciation of the increasingly active role the Fund has played in assisting member countries in recent years and, especially, of the flexibility and imaginativeness it has brought to bear on its operations. The Fund has been acting as an expert counsellor to member countries in regard to their fiscal and monetary policies, and I am sure you will all agree with me when I say that we appreciate the Fund’s role in this regard no less than its direct financial assistance.

I should be pardoned if I dwell for a moment on the problem of development as we see it here. While the industrially advanced countries are, naturally, more concerned about cyclical fluctuations, we, in the underdeveloped parts of the world, are preoccupied with the problems of development. The cyclical ups and downs affect us too, but we have, in addition, the more basic problem of inadequacy of savings relative to our needs. We, too, need economic and financial stability no less than those countries which have already advanced industrially. But the keynote of our policy has to be economic and social progress, and we must take special care to avoid stagnation while we seek stability and equilibrium. The living standards in India, and indeed over large parts of the world, in Asia, in Africa, and in Latin America, are very low, and the disparity between the levels of living in these parts and in the industrially advanced countries is growing. To raise these standards, to lift these economies from their existing grooves and to place them on the road to progress, is a task which calls for steady endeavor nationally. But it also requires international action to buttress and strengthen these national efforts at various points. I am inclined to think that the Fund, too, has a part to play in this respect, although its primary concern is with short-term or temporary balance of payments difficulties.

It is now generally recognized that most underdeveloped countries, because of the low level of their national income, have to depend on large amounts of foreign capital for long periods in order to be able to carry out worthwhile plans of development. This dependence on outside sources for a significant proportion of their capital requirements constitutes a serious, but nonetheless unavoidable, weakness of the development program of most underdeveloped countries. It exposes them to payments difficulties, because of certain inevitable time lags or other obstacles to a continuous inflow of foreign capital. Such payments difficulties are sometimes aggravated by fluctuations in exports, and also in imports, especially where food is an important element in the import trade. These are some of the teething troubles of a developing economy and, unless such an economy receives the necessary short-term assistance to overcome them, the whole program of development may come to a sudden halt, resulting in serious losses and dislocation. I should think it is within the legitimate functions of the Fund to provide short-term assistance for meeting situations of this kind. It is, of course, the duty of the Fund to satisfy itself about the soundness of the economic policies being followed in the countries concerned, and we are happy that the Fund keeps itself fully in touch with the monetary, fiscal, and balance of payments developments in the member countries. The Fund has certainly to maintain the revolving character of its resources, and its assistance has, therefore, to be on a short-term basis. The record of the repurchases by members has been an excellent one, and this should justify the Fund’s making its due contribution to the somewhat wider problems I have just mentioned. My point, briefly, is that the bridging over of short-term difficulties in underdeveloped economies has to be viewed as part and parcel of the larger problem of strengthening them all round.

I should like, in this context, to dwell for a moment on our approach to the question of the pace and pattern of development. The Annual Report mentions some of the difficulties we have encountered in trying to implement the Second Five Year Plan. The Plan we set out to implement was, in itself, a modest one. It aimed at an increase of national income by 25 per cent and an increase in investment from about 7 per cent of national income to some 11 per cent. Neither the increase in national income nor the level of investment proposed could be regarded as high in relation to the magnitude and urgency of our needs; and, in regard to employment, the Plan promised no more than an avoidance of any further increase in unemployment and underemployment. The pattern of development we have envisaged has reference to the longer-term objective of promoting a more balanced economic structure and of absorbing an increasing proportion of the growing labor force into industry and allied activities rather than in agriculture. The outlays proposed in the Plan had a large foreign exchange component because of the emphasis placed on industrialization, mining, and transport. Other factors, like the persistent shortage of food, have added to our foreign exchange requirements. We have, in view of these developments, taken a series of measures to increase exports and to secure more external assistance. Simultaneously, we have imposed tight restrictions on imports. We are also readjusting the size of the Plan in the light of the present situation.

We agree entirely with the Fund approach in this matter of adapting economic policies and adjusting investment outlays to the needs of the emerging situation. The keeping down of inflationary pressures and the safeguarding of the internal and external value of the currency are basic to sound development. At the same time, development is itself a primary desideratum, and its pursuit can be sacrificed only at peril—economic, social, and political. The urgency of development in the underdeveloped countries of the world, I need hardly stress, has to be the starting point of all progressive policies—national and international. There have been upward pressures on our price level from time to time. Some of them are related to the shortfalls in food production, and some to the stringent import policy we have been following in view of the balance of payments situation. On the whole, however, the price level in India has shown a fair degree of stability, and the situation we have at present is certainly not one of any marked or general excess of demand over supply.

A developing country has, of course, to rely primarily on its own internal resources. Every effort has, therefore, to be made to mobilize them fully. With this end in view, we in India have raised taxation; the yield from additional taxation by the Centre and the States over the five-year period is expected to be about $2 billion. For the Second Plan period as a whole, we expect public revenues to be about 50 per cent higher than for the First Plan period. The response to our internal borrowing programs, including small savings, is improving, and we propose to exercise the greatest care in regard to deficit financing. There is, of course, a limit to the possible step-up in domestic savings in a country in which the bulk of the people have very little margin above the needs of subsistence. This highlights the importance of a steady and substantial flow of external resources into these economies.

International economic cooperation has grown markedly in recent years, and the Fund has played a very important role in this sphere. It is vital that it should continue to play this role and, in fact, to play it even more effectively. In this connection, I welcome the attention which the problem of international liquidity has been receiving of late. The inadequacy of the Fund’s resources to meet the claims likely to be made on them and the ways and means of augmenting the Fund’s resources have been discussed widely in recent months, and it is gratifying that the President of the United States has taken the initiative to suggest prompt consideration of this question. I think there will be general agreement that an increase in Fund quotas is urgently called for. We, on our part, fully endorse the proposal for study of this whole question which the Governor for the United States has made in his resolution. While the objective of the proposal is to strengthen the common international reserves, this should be achieved in a manner which does not put excessive strain on the position of countries with unduly low reserves. I trust that this as well as other related problems will receive careful consideration by the Executive Directors.

Before I conclude, I should like to say a word of appreciation of the valuable work done during the year by the Executive Board and the staff. Their work and responsibilities have increased and will increase further if, as we hope, the Fund is provided with additional resources. The Managing Director of the Fund, its Executive Board, and the staff have together established a tradition of work which gives us confidence that the Fund has in front of it a career of increasing utility and service.

Statement by the Governor for Italy—Giuseppe Medici

I wish to take this opportunity to extend a warm welcome to the new members that have joined us recently and I am looking forward to a constructive association in the spirit of international cooperation.

I would like to express my deep appreciation for the highly informative Report of the Executive Directors. It is gratifying to note the clarity of vision and the convincing interpretation of the recent economic events pervading this important document which I consider as a basic contribution to the understanding of world economic development.

One of the most striking features of the year ended April 30 is certainly the increase in the number of member countries using Fund resources, to the unprecedented figure of 21 for a total amount of $666 million. As was noted yesterday by Dr. Jacobs-son, some of the Fund’s resources were used by countries in seasonal difficulties; however, the main action of the Fund was applied to meet balance of payments disequilibria requiring corrective policy action.

The above figures therefore are indicative of the persistent imbalance of international payments as well as of the extent to which a remedy to it was found through our organizaton. Though very often the remedy is not by itself of a nature to cure the disease, it certainly allows countries in difficulty to adopt policies which need time to be fully effective. Besides, the remedy limits the spread of the disease, since it avoids drastic reduction of imports on the side of the countries in trouble.

In the final analysis, Fund assistance can operate only as a relieving factor while action is being taken, whether domestically or internationally, to strike at the root causes of the difficulty. As a matter of fact, government responsibility in this respect cannot be denied; however, in the selection of proper policies to restore equilibrium, the Fund has accomplished a work of basic importance; ability, tact, and understanding have been prominent elements of the success attained by the Fund in this field of action. I am thinking of technical assistance, of consultation with member countries to follow the most suitable courses to restore equilibrium. In my opinion, this action is of the essence of our organization; without it, the Fund would not be anything but a mere supplier of money.

In this connection, I may be allowed to mention the further substantial progress made in Italy during the past year toward the removal of exchange controls and the full implementation of a multilateral payments system.

Through recent experience of the disposition of the Fund to extend its assistance when certain reasonable conditions are fulfilled, member countries have increasingly come to consider the Fund’s resources as being virtually a second line of reserves.

The reasons I have recalled lead me to support the proposal made of a study concerning the increase of the Fund quotas and of the Bank capital. I am of the opinion that one of the proper ways to attack the problem of international liquidity is to increase the resources of international financial agencies, both world-wide and regional, as foreign trade expands. It is my feeling that the continuing development of the world economy requires greater and greater responsibility of the Fund’s management and members.

I can assure you that the Italian Government is aware of the increasing importance of international economic collaboration and will accordingly participate in this effort.

Statement by the Governor for the United Kingdom—Derick Heathcoat Amory

I have come to these meetings almost directly from the Commonwealth Trade and Economic Conference in Canada. My friend and colleague, Mr. Donald Fleming, the Finance Minister of Canada, presided over these meetings, and I think that he will tell us something about them. I need only say, therefore, that we discussed many things most usefully; and as a Commonwealth, we reaffirmed our faith in the policy of the maximum freeing of trade and payments—a policy which we feel gives us all the best chance to attain that steady and sustainable economic expansion on which our future depends.

At our meeting in Canada we were greatly encouraged by the exchange of letters, dated 26th August, 1958, between President Eisenhower and Mr. Secretary Anderson, the U.S. Governor of the Fund and Bank. Since the war the United States has taken many notable initiatives in the field of foreign economic policy, and I think that these letters will take their place among them. For we will all surely wholeheartedly agree with the President in his views that the well-being of the free world depends not only on the economic and financial health of the industrialized nations of Europe, North America, and elsewhere, but also on the economic growth and progress of nations in the less developed areas of the world; and that there is a vital and expanding role for the Fund and Bank to play in the future.

The President of the United States has seen the problems and the role of our two institutions on the world scale. And surely he is right. He has done more. By putting the problems simply and in their right context, he has helped not only the experts but the ordinary people to understand the real purpose and aims of these two institutions. And it is so important that they should be properly understood.

They are not, as some people suppose, remote, mysterious, and severe bodies. They form, in fact, essential and irreplaceable elements in the whole process by which we are seeking to meet the major politico-economic problem we face—steady economic advancement under the democratic way of life.

To succeed in this, we must all produce more and trade more with each other. Production and trade are the two pillars on which we must build our future, and over the years both must expand. To this process the Fund and Bank are essential. The Fund through its financial help, its consultations and advice seeks to ensure that money is a help not a hindrance to trade; the Bank supports the sound development of a country’s resources on which further production and trade can be built.

All this is in itself a great deal. But it is not by any means all. I have spoken of interdependence, and there is no doubt that in the economic field our two institutions are the most notable examples of free world cooperation to common ends and for the common good.

In them members pool their contributions; through them members provide help where and when it is needed. And whenever help is given, it is on a basis which has a proper regard for national rights and obligations and which seeks always to help the recipient to attain a position of financial and economic strength. My country has good reason to be grateful for the help it received in 1956; and, during the last year, we have seen Mr. Jacobsson and Mr. Black take most important and beneficial initiatives in the case of France and India.

It is against this background that I look at the tasks of the future. I must tell you that in my short time as Chancellor of the Exchequer in the United Kingdom I have asked myself three simple questions: How much does the Free World owe to those who, in the depths of war, had the vision to set up these institutions? How indeed should we have managed had these institutions not existed? And finally, and most important, are we in our turn living up to the standard of foresight which our predecessors set? The answers to the first two questions are clear; the answer to the third will emerge from our work at this Meeting.

We shall in fact not live up to these standards unless we can manage our affairs properly in two sectors: First, each of us individually has the responsibility for the proper conduct of our own internal economies. Secondly, we have a collective responsibility for the proper functioning of our mutual arrangements with each other. It is here that we have to examine the future role of the institutions we are now discussing—the Fund and the Bank.

Under the first head I shall of course speak only of the U.K. economy and sterling. We have a particular responsibility as managers of a major international currency. I can report that both the U.K. economy and sterling are in a much healthier state than when we met last year. In fact, as you may know, I have recently been able to relax on both our internal and external policies—the most recent action being the removal of many restrictions on dollar imports announced at Montreal. We shall continue the process—internally and externally—as our position allows.

I do not want to go into detail—nor do I want to imply that we have no problems ahead. But I do want to underline one point: the measures which we took in September of last year have worked a transformation in our position, without the high unemployment and major loss of production which some feared, and with—and this is most important—a continued high level of investment both at home and overseas.

We have been greatly assisted by the terms of trade, but they alone would not have brought about the improvement. All this has helped sterling to play its full role and to meet the many calls made upon it without endangering its stability.

We in the United Kingdom find it helpful to distinguish between three distinct roles filled by our currency. First, it is our own currency, and therefore its strength or weakness overseas is greatly influenced by our own policy and action at home and by our overseas trade and investment. Second, it is an international currency used for the finance of much of the world’s trade and as a universal medium for the holding of short-term funds. As such, its position is enormously influenced by the factor of confidence, which involves its holders’ making judgments about not only its absolute but also its relative strength compared with gold and other currencies. Third, sterling is the reserve currency of the other countries of the sterling area. As such, too, its position is deeply affected by the balance of payments situations of the other sterling area countries.

Sterling, therefore, can come under pressure in three logically distinguishable but practically inseparable ways. And in fact, it has suffered pressures of each kind in the past four years. It may be helpful to consider how, despite this, it is now so much stronger.

Our trading position lapsed into a serious decline in 1955, primarily because of a rather sudden development of the pressure of domestic demand. We dealt with this with some vigor and persistence and in the three subsequent years have earned rising current surpluses. At the present time we are running a large current surplus. Part of this, a large part, is perhaps less a tribute to our efforts than a reflection of the difficulties of others in a period of recession. But certainly not all can be discounted in this way, and we perhaps can claim credit both for the achievements of our exporters in developing new markets and for the restraint on the domestic economy which has helped to make these achievements possible and has eliminated one type of danger to the world standing of sterling.

Then, not only in 1955, but also in 1956 and in 1957, we suffered severely from a persistent and at times an acute weakening of foreign confidence in sterling. The history of these episodes is familiar, and I will not rehearse it. Some of the strain was due to genuine fears, in the United Kingdom as well as elsewhere, that the level of costs, if not the level of demand also, was getting out of hand. Though some of these fears may have been exaggerated, they had their effect and they called for strenuous measures by the Government. Those we took last September on the eve of our last Meeting, and I believe they will prove to have marked a decisive turning point.

The anxiety felt by world opinion about our domestic monetary position was accentuated by the weakness of our reserves, and by speculation about exchange rates.

It has been in dealing with those aspects of the position, which were fundamentally related to the question of international liquidity, that the Fund has twice played a notable part. The drawing we made in 1956, and the stand-by arranged at the same time, were vital contributions. Not less important was the opportunity given by our Meeting last year for the statements by Mr. Jacobs-son, by the representative of Germany, and by my own predecessor. These, I believe, taught the world the invaluable lesson that the Fund and its members were actively and effectively concerned with the maintenance of a stable system of world payments. The discussions, and the help we also received in various ways from the United States at that period, were a vital supplement to our own actions in restoring sterling.

During the year since our meeting in September 1957, our gold and dollar reserves in the United Kingdom have risen by £453 million, though part of this derived from special borrowing; and sterling is coming through the seasonally adverse period of the year with success. This has occurred over a period in which the third of the possible strains on sterling I mentioned above has been felt—a strain from the running down of their sterling reserves by the other countries of the sterling area.

While the United Kingdom’s trading position benefits from the fall in the prices of primary commodities associated with a recession, the export earnings of other sterling area countries that are mainly primary producers tend to suffer. Under the impact of the recession in world trade and the continued, and, in some cases, accelerating process of economic development, their aggregate balances, as we measure them, fell in the twelve months ended last June by over £300 million, the equivalent of, say, $850 million.

Some of this massive decline was of course reflected in the United Kingdom’s own trading position and, as such, placed no direct strain on sterling. But some involved drawings upon the United Kingdom’s reserves, or at least a falling away in the normal transfers which form part of the multilateral structure of our payments. Although the United Kingdom’s external position has been strengthened by this discharge of liabilities, the liquidity of those countries which previously held the balances has been reduced. Of the position of the United Kingdom I can therefore give an encouraging account.

I do not discount the tasks which lie ahead, but I am sure we are now much better equipped to play our part as a dynamic element in an expanding world. We shall continue to make the strength of our currency our first concern. Thus, sterling will remain a sound support for the flow of international trade, and we can look, we hope, to our own productive growth to make a considerable contribution to the expansion of the world market.

In all this, the help given us by the Fund has been an important contribution. There will be questions about this, which we shall wish to discuss with the Fund later in the year, concerning the timing and arrangements for the repayment of our drawing and the question of the renewal of our stand-by.

This strengthening of sterling has enabled us to make substantial further progress in the removal of discrimination in trade and has brought us still nearer to the convertibility of the pound, which is our objective. When we judge that the necessary conditions have been achieved and we can do so without risk, we shall move forward.

The strengthening to which I have referred also enables me to say that the United Kingdom will welcome drawings of sterling by other members of the Fund. These have in fact already started. The Fund was meant to work in terms of many currencies, and I am sure that the usefulness of the Fund will be increased if drawings of sterling as of other non-dollar currencies become more usual.

I turn now to this second part of the field—namely, our mutual arrangements with each other and, in particular, the future role of the Fund and the Bank. The importance of international cooperation has been borne in on me very vividly during the last few months, during which I have spent much time in discussions with my friends and colleagues in other countries.

As I said earlier, I have just come from the Commonwealth Trade and Economic Conference in Montreal. There are many things that we in the Commonwealth can do to help ourselves, but there are some things too that we can do to help others, and I should like to emphasize that we do not seek our objective of a prosperous and expanding Commonwealth through any narrow economic exclusiveness. As our communiqué made clear, we are determined to work in no inward-looking spirit toward a multilateral trade and payments system over the widest possible area.

Earlier this year I presided over the discussions of the OEEC in Paris. The OEEC has done an enormous amount for the economic health of Europe, and thus of the world, in the last ten years, and it is appropriate in this gathering to refer to the success of the European Payments Union.

These regional groups, provided they are liberal and outward-looking, have a most important part to play in helping to develop peaceful prosperity. But they cannot do it alone; the Bank and the Fund, which work on a world-wide basis, are an essential part of the international financial mechanism.

It is right to say, I think, that the performance of the Fund in recent years has fully justified the hopes and expectations of its founders. Since 1956 there has been a succession of strains in international payments, some of which I have already mentioned—the Suez crisis, the wave of speculation in European currencies in the summer of last year, the recession in the United States, the sharp fall in the prices of many primary commodities, and, most recently, the renewed tension in the Middle East. The earlier strains were successfully surmounted, and we are coming through the more recent ones. A great deal of credit for this success is due to the Fund.

There is no need for me to refer to its operations in detail; they are set out with admirable clarity in the Report we have before us. But I should like to emphasize very strongly that the success of these operations depended on the ability of the Fund to provide its reinforcement at the key points both quickly and in substantial quantity. This was possible because of the state of the Fund’s reserves at the time. This record has demonstrated the immense importance to us all of a properly functioning Fund. This does not seem to me to be a matter of debate, but of established fact.

What we need now to consider is whether we can be confident that the present resources of the Fund are adequate to enable it to function in the next decade as it has done, to such good purpose, in the last. I have no hesitation myself in concluding that we cannot.

I fully support the statements in the letter of the President of the United States to Mr. Anderson in August last that the Fund’s “present resources do not appear adequate to the task,” and that “prompt consideration be given to the advisability of a general increase in the quotas assigned to the member governments,” and in the concluding words of the staff study, International Reserves and Liquidity, “It is doubtful whether, in the circumstances of the world today, with world trade generally expanding in volume and value, the Fund’s resources are sufficient to enable it fully to perform its duties under the Articles of Agreement.”

I do not think in these matters, so vital to the whole future, we are justified in taking risks. Yet this is what we are doing. We have been working on a narrow margin. What would have happened had the calls on the Fund’s resources over the last twelve months been as large as they were in the preceding years?

That such calls were not made resulted, I think, mainly from the fact that the large outflow of dollars from the United States was resumed, contrary to what many people thought would happen during a recession in the United States. We all have reason to be very grateful for this continuing outflow. But we cannot conduct our affairs on the assumption that events will always turn out in this way. Moreover, and this is very important, let us remember that the future we want to create is one of expansion, which means higher levels of production and trade and payments throughout the world. I believe that we can achieve that objective. But let us be under no doubt that, with the best will in the world and the wisest national policies, there will nevertheless be periods of strain and imbalance when substantial and timely reinforcement will be needed if our hopes are not to be defeated.

I fully agree that to meet these strains during the next few years an increase in the Fund’s resources is needed. This should in my opinion take the form of an all-round increase of 50 per cent in the general level of quotas. In one or two exceptional instances there may be a case for a larger increase, and this should be examined.

As a normal rule, such an increase in quotas would be accompanied by a payment in gold of 25 per cent of the increase; and, in our own case, this is certainly what we would expect to pay. But this and a number of other questions arising from the proposals to increase quotas will need discussions by the Executive Board.

Finally, I want to emphasize the time factor. We have little time to put these increases in resources into effect, and there are many matters for the Executive Board to consider before they can present us with a detailed scheme. We must ask them to push ahead with all speed. We need a decision by the end of the year, so that legislation can be prepared and passed early in 1959.

Our objective, I hope, will be that the Fund will be working with its increased resources by the time we meet next September. We could then look back on the preceding year with satisfaction and to the future with confidence.

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

This is the first time that I have had the honor to participate as Governor for Germany in the Annual Meeting of the International Monetary Fund. However, for a long time I have followed its activities with interest and sympathy, and I would like to say that for very many years I have enjoyed a close personal friendship with our eminent Managing Director, Mr. Jacobsson.

I am very happy that my first immediate contact with the Fund should take place in India. India is a country which appears to us venerable for its age-old culture, and it is also a country which fascinates us by the daring experiment it is undertaking in endeavoring to catch up with Western industrial and engineering progress. Also, India is a country in which both the International Monetary Fund and the International Bank for Reconstruction and Development have invested considerable funds. In my view it will be of great advantage to all of us to obtain an impression on the spot of the problems facing this great country, which is at the same time one of our principal customers.

One of the main problems we are called upon to deal with in this year’s Annual Meeting bears upon the question whether we should increase the means at the disposal of the Fund for its operations and, if so, in what way. From the very first I would like to say that I consider the suggestion put forward by the Governor for the United States concerning a possible increase in the Fund’s quotas to be a very useful one. I support his motion that the Executive Board should be entrusted with the further study of this question and to work out detailed proposals for an eventual raising of membership quotas.

Should such proposals materialize, I hope that all the members, or at least a great majority of them, will be prepared to adopt such a suggestion. Furthermore, I would deem it to be desirable that the Executive Board in its suggestion should provide for all countries raising their membership quotas to pay a certain portion of such increase into the Fund in gold. This would be an act of solidarity which, in view of the Fund’s rules for quasi-automatic drawings within the gold tranche, even countries with a less strong foreign exchange position can be expected to perform.

If there is to be a reform of the Fund, it might be useful for the Executive Board in its deliberations to consider also another matter. It is a fact that certain currencies which are not yet formally convertible according to the Fund rules, but which, however, are de facto fully usable all over the world, are being drawn in the Fund more and more frequently. This applies, for instance, to the deutsche mark. According to the existing rules, such drawings can, however, not be repaid to the Fund in the currency originally drawn, but only in gold or formally convertible currencies, which in practice means in dollars. I think this does not correspond to the realities of the situation. I believe the Executive Board should seek ways to make it possible in such cases to repay a drawing to the Fund in the currency originally drawn, even if this currency is not yet fully convertible according to Fund rules.

If we are ready on the German side to consider a general increase in Fund quotas under certain conditions, we do not do so because we believe that an increase in the Fund’s resources is a very pressing need, the fulfillment of which can no longer be put off. I, for my part, do not believe that the Fund, even if it had had more resources in past years, could or should have lent to good purpose much more of them than it actually has lent on the basis of its present resources. Nor is it very likely that the Fund will be seriously hampered in the immediate future by any lack of means.

Moreover, one has the feeling today that our main worry in the near future will not—as was widely believed six months ago—be a general spreading of the recession all over the world and a worldwide dollar shortage, but that we might rather have to fear a recrudescence of creeping inflation. If this should turn out to be true, then the Fund, in my view, has even more reason to be cautious and selective in its lending policy in order not to promote these inflationary trends and thus to help erode the real value of existing international liquidity resources.

The fact that I am nevertheless in favor of discussing a possible increase in the Fund’s resources is due to my belief that such an increase could be a second line of defense and an instrument to strengthen confidence. The experiences of the past few years have shown that there can be quite unexpected international strains and disturbances when the Fund can play a very useful role as a sort of “international fire brigade,” provided it has enough resources at its disposal. The Fund has shown that it is not ready to cover indiscriminately any balance of payments gaps, to the extent that these were the self-inflicted consequences of inflationary policy. On the contrary, it has tried to go to the real roots of the balance of payments disequilibria, and to tie its lendings to programs for the elimination thereof. In this way the Fund has become an important factor in the fight against the inflationary tendencies of our time.

I do not believe that raising the Fund’s resources would help the international economy very much if they were used under less strict rules and if they were abused to support unrealistic programs or unrealistic exchange rates. I am, on the contrary, of the opinion that a strong increase in the Fund’s resources would be justified only if provision were made that the Fund would in future use its means primarily with a view to promoting sound internal economic policies. I trust we all concur in the view that increasing the Fund’s resources with the result of an inflationary credit expansion on a world-wide basis would not be a sound policy. I would suggest that the Executive Board, if it comes to the conclusion that a general increase in membership quotas is advisable, should also examine the principles governing access to the Fund’s resources in order to make sure that the new means really yield a maximum of benefit for the borrowing countries as well as for the whole international economic and financial order.

In my view, it would mean misjudging the present international payments situation to believe that an increase in so-called international liquidity in a quantitative sense would deliver us from all evil. The international economic setback in the autumn of 1957 certainly did not have its origins in a sudden shortage of international liquidity in this quantitative sense. I am equally convinced that a renewed expansion in world economy does not depend on an increase in international currency reserves. Moreover, no amount of increased international liquidity can dispense a country from the necessity of bringing its internal economy into balance and of keeping it there. In this respect again there is no substitute for sound internal economic policy and monetary discipline. A continuing fundamental disequilibrium in the balance of payments, as we have learnt through experience, causes currency reserves, be they even very substantial, to melt away quickly.

It is a special merit of the study of the Fund’s staff, International Reserves and Liquidity, to have reminded us that the concept of “international liquidity” has many facets, and that a country’s need of liquid reserves cannot be calculated mathematically from a statistical relationship, but depends very much “on the country’s own inherent balance and its readiness to take corrective measures.” Before the first World War, currency reserves of far less amount—also in comparison with the volume of trade—than today proved adequate, because there was confidence in the currencies and because a large part of the temporary fluctuations in the balances of payments was absorbed through a well-functioning international credit mechanism. “International liquidity” is, therefore, no concept measurable in terms of statistics, but depends largely on the degree of confidence in currencies and the general currency system. What matters is to restore international confidence in currencies, and that means primarily to restore internal equilibrium and counteract inflation.

This part of the Fund’s work is, I think, by far the most important. The Fund’s success will be measured in future times not by the volume of its lendings, but by the degree of monetary order which it has helped to establish.

In the Annual Report of the Executive Directors, we read on page 55 that of all the surplus countries only the United States and the Federal Republic of Germany are large enough for their policies to have a substantial effect on the payments problems of other countries. I am afraid that this may somewhat exaggerate the importance of my country for the international economy.

Be that as it may, you may be sure that we are fully conscious in our economic policy of the responsibility which our country may have for international economic equilibrium. I trust that economic policy and economic development in Germany over the past few years have contributed to stabilize the international economy. Germany has in recent times often been referred to as a “bulwark against inflation.” This we certainly try to be, for we have experienced the terrible consequences of destructive inflation twice in one generation. Our economy, especially during the last 12 months when world-wide recession seemed to be imminent, proved to be quite a firm support for international trade. Although in our case, too, a certain slowing down in business activity took place—not too surprising after 8 years of almost uninterrupted upward movement—we nevertheless managed to avoid a real setback in the economy. Production, employment, income, and demand have all still increased somewhat as compared with a year ago and are still showing a moderate upward movement. Our imports in the first half of 1958 were in volume about 5 per cent higher than during the same period last year, although the value of imports due to price reductions was slightly lower. At a time when imports of many other industrial countries receded in some measure, this seems to me to be a remarkable contribution toward supporting world markets.

We have also made progress in the field of capital transactions, in the direction of a better integration of Germany into the international payments system. Owing to the unusual conditions prevailing in postwar times, German interest rates for many years by far exceeded the international level. Over the last 12 months it was found possible to reduce interest rates in Germany by nearly 2½ per cent, thus approaching those in other comparable countries. Because of this, the prospects for normal capital exports from Germany to countries requiring capital have improved. Although capital investment in Germany itself is still very attractive, since the beginning of 1958 we have had a surplus of capital exports over capital imports.

It is often heard today that in our time the classical international credit mechanism and international capital market relations on a private basis no longer have any chance to function properly. I do not share this opinion. In my own country, during the whole period of reconstruction, we trusted in a free market economy and in private initiative, and this trust has been amply rewarded. I am equally confident that international trade and capital relations will benefit as well, if we endeavor to remove the many obstacles which today stand in the way of private initiative.

I realize, of course, that conditions in the different countries vary, but on the basis of the experience we have had in my country I adhere to the orthodox belief that private initiative and sound currency are superior to any other system.

Statement by the Governor for Japan—Eisaku Sato

This is the first Annual Meeting held here in Asia. Attending the meeting for the first time, I greatly appreciate this opportunity of observing the widespread agreement on the effectiveness of the Fund and also the necessity of increasing its resources. The operations of the Fund during the past year clearly demonstrated how successfully its objective could be achieved by extending timely and adequate assistance to member countries so that their temporary balance of payments difficulties could be ameliorated.

In this connection, I wish, with great pleasure, to pay my highest compliments to Mr. Per Jacobsson for his distinguished services as Managing Director of the Fund.

Speaking of the recent experience of my country which was referred to by Mr. Jacobsson in his yesterday’s address, I must emphasize that the timely assistance of the Fund was a great encouragement to my Government in carrying out its tight money policy to overcome the balance of payments difficulties. Since then, my country’s balance of international payments has been very quickly improved so that we are now in a position to repurchase voluntarily the whole of $125 million by the end of this year. One half of the sum was repurchased last month. Needless to say, this quick improvement of my country’s payments position was mainly due to the prompt and appropriate assistance given by the Fund as well as the effective domestic financial measures taken by the Japanese authorities concerned.

The Fund’s ability to provide timely and adequate assistance to member countries greatly depends upon its having adequate resources, especially if an emergency arises, as at the time of the Suez events. Moreover, with world trade greatly expanded both in volume and in value as today, it will be most desirable that the Fund’s resources be increased sufficiently to perform it duties under the Articles of Agreement. Of course, any such increase of the Fund’s resources should not create an easygoing expectancy of assistance. From this standpoint it is my opinion that the resources of the Fund should be enlarged through increases in quotas.

In this respect, I should like to point out that the present quotas of member countries do not necessarily reflect the real state of things which member countries are in. If the quotas of member countries were adjusted to reflect the actual economic conditions of countries concerned, the Fund would be better utilized.

At the Annual Meeting last year, my country referred to the necessity of increasing the resources of the Fund, stating that in such event Japan would be willing and ready to cooperate with the Fund. It is indeed gratifying to observe that, in the course of one year, many member countries have come to emphasize the necessity of enlarging the Fund’s resources through increases in quotas. I hope that during the sessions of this Annual Meeting some steps toward the materialization of increases in quotas will be taken.

Before concluding, I wish to express my sincere hope that world prosperity and trade expansion will be further promoted through the mutual understanding and confidence among member countries and by further cooperation to achieve the objectives of the Fund.

Statement by the Governor for Canada—Donald M. Fleming

In considering what contribution I might best make to the present general discussion, it seemed to me that I might appropriately focus my remarks on the Commonwealth Trade and Economic Conference which concluded its deliberations some ten days ago. That Conference was summoned on the initiative of the Prime Minister of Canada. It was held in Montreal, and I was greatly honored to be elected Chairman. For that reason, it may be fitting for me to give my colleagues on this Board some account of what took place there. The conclusions adopted by the Conference were unanimous. I have placed in the hands of the Fund Secretariat a copy of the Report which was issued at the end of our proceedings, and they will no doubt be making it available to all delegations who wish to examine it.

In thinking of a Commonwealth Trade and Economic Conference, perhaps your thoughts go back to the Ottawa Conference of 1932; and you may ask yourselves whether the purpose of the 1958 gathering was to attempt to organize the Commonwealth along lines which would seek to develop trade and economic relations within the Commonwealth at the expense of trade and economic relations with the rest of the world. The fact is that the Commonwealth Conference in Montreal this year was in many ways very different in its nature and purposes from the Imperial Economic Conference of 1932, and I know that many of you will be interested in these differences.

To begin with, the Commonwealth of 1958 is very different from the Commonwealth of 1932. This is a statement that needs no emphasis here in India or indeed elsewhere in South-East Asia. For the Commonwealth now includes as independent members many countries in addition to the United Kingdom, Canada, Australia, New Zealand, and South Africa, all of which attended the 1932 Conference. It also includes our host, India, and Pakistan, Ceylon, the Federation of Malaya, Ghana, and the Federation of Rhodesia and Nyasaland. And in addition to the representatives of the 11 independent countries I have enumerated, there were present at Montreal the representatives of Nigeria, the West Indies Federation, Sierra Leone, Kenya, Uganda, and Tanganyika, some of which will shortly be attaining full independence within the Commonwealth.

I have deliberately mentioned all these countries in order to emphasize the diversity of their interests and the variety in their degrees of economic development. It is surely natural that, in our Conference of 1958, we should have paid close attention to questions of economic development. It is also natural that our interest in trade and in commodity problems should have been broad, expansive, and world-wide in its approach, rather than narrow or restrictive.

Not only is the Commonwealth of 1958 very different from that of 1932, but so is the general economic environment. In 1932 we were in the midst of the most severe world-wide depression of modern times; the situation was extreme, and strong measures had to be taken to meet it. But today, in the second half of 1958, we stand at the end of a decade of unparalleled economic expansion, in which almost all of us have shared in some degree. Moreover, it seems clear that the U.S. economy, which was a cause for some serious doubts and misgivings last winter, is now once more well set on the path of expansion.

And this leads me to remark on another very important difference between 1932 and 1958; I refer to the foreign economic policies of the United States. One of the main reasons why the Commonwealth was able to adopt new policies and a new outlook in 1958 lay in the fact that the United States itself had abandoned its policy of economic isolationism of the early nineteen thirties.

Thus, the Commonwealth Conference of 1958 was in no way and in no sense isolationist. Commonwealth countries know that their economic interests lie in general world expansion. The accepted theme of the Conference was “an expanding Commonwealth in an expanding world.” And in my closing remarks as Chairman I was happy to be able to say: “We have helped each other, and in so doing have helped ourselves. We have hurt no other nation. We have been an outward-looking Conference.”

Turning from the general nature and purposes of the recent Commonwealth Conference, I propose to say something more specific concerning the results of our work in Montreal. It is convenient to summarize them under the main headings of trade, finance, commodity problems and agriculture, and, lastly, development.

On trade, the Conference reached the firm conclusion that Commonwealth countries should continue to work toward a multilateral trade and payments system over the widest possible area. The Conference took stock of the progress made toward freer trade and payments. While some members have been obliged to maintain or even intensify restrictions (largely because of the recent contraction in world trade and fall in commodity prices), others have continued to reduce discrimination against the dollar area. During the Conference itself, some important new measures of liberalization of dollar imports were announced by the United Kingdom. The benefits of this progress are not confined to the Commonwealth but will be shared with other nations.

At the same time, without resort to action which would be in conflict with their belief in the interdependence of the whole trading world, or which would be inconsistent with accepted international obligations, Commonwealth Governments desire to foster intra-Commonwealth trade on a basis of mutual advantage and reaffirmed the importance of the role that Commonwealth preferences have played and continue to play in this connection.

The Conference examined the effect of various current developments on the trading position of Commonwealth members. In particular, it gave consideration to the effects of the European Economic Community and the proposed Free Trade Area. It reached the conclusion that an outward-looking Free Trade Area in which trade would be increased rather than merely rechan-neled would contribute to the objective of an expanding world economy. It expressed the hope that closer economic association in Europe would not be permitted to result in a contraction of trading opportunities for outside countries or an extension of protection. The conference also exchanged views on various aspects of the new situation created by the more active participation of a number of the Sino-Soviet group of countries in world markets.

In the discussion of financial matters, the Conference recognized the importance of a strong pound sterling to the stability and progress of the countries of the sterling area and indeed to the whole world trading community. It was therefore pleased to note the increasing strength recently displayed by sterling. The objective of the Commonwealth is that sterling should be made fully convertible as soon as the necessary conditions have been achieved. The final decision on the timing of convertibility is obviously that of the United Kingdom, which would, however, take into account the interests of the Commonwealth as a whole.

The Commonwealth also has as its objective that trade discrimination should continue to be progressively removed, and the Montreal meeting was pleased to note the progress already made, and received with particular satisfaction the announcement made by the United Kingdom of further significant steps in that direction.

The Montreal meeting discussed the adequacy of the resources of the International Monetary Fund, which forms an important part of our deliberations here at New Delhi. The initiative taken by President Eisenhower, looking to consideration of a substantial increase in the resources of the Fund, was warmly endorsed and the Commonwealth countries agreed in principle to give their full support to this initiative at this meeting. May I say, on behalf of Canada, that we regard the idea of increasing the Fund resources as a very timely one, and we shall be prepared to give our warm support to a general increase in Fund quotas of at least 50 per cent of the present quotas.

Turning now to commodity problems and agriculture, the Conference examined the unstabilizing economic effects of wide fluctuations in many commodity prices and the impact of protectionism in various forms. There was agreement on the urgent need for remedial action to bring about more assured conditions for commodity trade and relief from the difficulties now facing low-cost producers of agricultural and mineral products.

These are obviously fields in which the cooperation of all the important producing and consuming countries is required. Commonwealth countries, for their part, will be prepared to participate in an examination of the situation, on a commodity-by-commodity basis, with a view to arriving in appropriate cases at an understanding as to how we may best attempt to moderate short-term price fluctuations consistently with a recognition of long-term trends in supply and demand.

As regards agricultural protectionism, the Montreal meeting recognized that almost every country wishes to afford a certain amount of protection to its own producers. It agreed, however, on the need to limit and progressively reduce the effective protection given to basic agricultural commodities and minerals where this tends to discourage domestic consumption or cause difficulties for low-cost production elsewhere. The Conference agreed, moreover, that it would be desirable to give urgent consideration to the means of making the General Agreement on Tariffs and Trade a more effective instrument for dealing with these problems.

I come now to the important matter of development. I think I can best summarize the approach of the Conference to this matter by quoting the introductory paragraph of the Report dealing with this subject:

The Conference agreed that development is vital not only to the economic expansion of the Commonwealth but to the whole structure of relationships within the Commonwealth, and to the maintenance of democratic institutions. It recognized that rates of economic growth in the Commonwealth vary widely and that the Commonwealth has a collective responsibility to do what it can to promote development in the less developed areas. This is a human and moral responsibility which the members of the Commonwealth share with other countries and the ultimate object of which is to help raise living standards and provide a better life for the peoples of the underdeveloped countries.

It was recognized that, while the main burden in carrying forward economic development programs is being shouldered by the underdeveloped countries themselves, they will continue to have to rely on the help of other friendly countries and international institutions. One important way in which help can be given is to provide opportunities for the underdeveloped countries to expand their trade on a stable basis, thereby increasing their export earnings and the prospects of attracting external capital. Another way lies in the extension of technical assistance, of which a great deal is being provided by some Commonwealth countries to others; indeed some of them are both givers and receivers. And the Conference went beyond the field of technical training, to survey broader educational matters, feeling that while science and technology are very necessary in the modern world they are not enough. In this spirit, a new system of exchanges of students and teachers is being initiated within the Commonwealth.

Even with this, and even with the utmost that the underdeveloped countries can do to mobilize their own savings for capital investment, there remains a gap which can be filled only by external capital if development is to proceed at anything like an adequate pace. The Conference underlined the role which private investment has played and can continue to play in promoting economic development and the need for countries seeking private capital to create conditions calculated to attract them. The Conference recognized the important part played by the United Kingdom in providing capital to the sterling Commonwealth countries since the war. At the Conference itself announcements were made of further financial facilities to be provided by the United Kingdom and of a substantial increase in Canada’s contribution to economic development of less developed areas through the Colombo Plan and in other ways. The Conference also recognized that the needs of underdeveloped countries for capital cannot be fully met from within the Commonwealth and that they must continue to look also to other countries and to international institutions, especially the International Bank, for development finance.

The Conference gave very full recognition to the important part the International Bank has played in encouraging and financing economic development. Here too the Conference noted the helpful announcement made by the U.S. Government regarding consideration of an increase in the Bank’s resources. It warmly endorsed this proposal, and Commonwealth countries agreed to support it at the present meeting.

In this connection, on behalf of the Canadian Government, I should like to re-emphasize our very active and continuing interest in the Bank as an instrument for aiding underdeveloped countries. While development is proceeding rapidly in Canada, and she is the largest net importer of capital in the world, we do not contemplate turning to the Bank for assistance. Nevertheless, we have been glad to release the full 18 per cent of our initial capital subscription, and the Bank has placed several issues of securities in Canada. In addition, several Canadian banks and other financial institutions have participated directly in the financing of projects receiving financial support from the World Bank.

I have not attempted in these remarks to cover all aspects of the Commonwealth Trade and Economic Conference. I have touched on only the main features, but I hope I have said sufficient about what took place to justify the observation that the Montreal objectives are ones which we at this meeting of the Fund and Bank all hold in common. If we can grapple with our problems in the spirit of understanding, good will, and mutual accommodation which characterized the meeting at Montreal, I have every confidence that we shall continue to move toward economic strength and solidarity which the Fund and the Bank have done so much to assist.

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

It is with great interest that I have heard the statement, made by the Governor for the United States, in support of the resolution submitted by him to the Board of Governors, and also the plea for an increase in the Fund’s resources implied in the thoughtful and comprehensive statement made by the Managing Director of the Fund, Mr. Per Jacobsson. It is in connection with these statements that I should like to say a few words.

The resolution now before us asks that the Executive Directors promptly consider the question of enlarging the resources of the Fund through increases in the quotas and that, if having taken regard to views expressed by the Governors and considering all other aspects of the matter, they find that action to carry out such increases would be desirable, they submit an appropriate proposal to the Board of Governors for action.

This resolution I can fully endorse. This is not because I am already now of the opinion that an increase in the Fund’s resources is unconditionally desirable, but because I agree that a serious study of the problem of the Fund’s resources is, in the present conditions, wholly justified.

Much has been heard, of late, of a supposed lack of international liquidity that might be overcome by an increase in the quotas of the International Monetary Fund. The excellent study, International Reserves and Liquidity, by the staff of the Fund does not support this thesis. The mass of international liquidity, available in the form of gold and short-term claims in key currencies, does not compare unfavorably with periods in the past during which no particular scarcity of liquidity was being felt.

The study to be undertaken of the desirability of the increase in the Fund’s resources cannot therefore be based on the general notion of a lack of international liquidity. It should aim at an analysis of the functions of the International Monetary Fund and at the question whether the means now available to the Fund are or are not adequate to fulfill those functions.

As I see it, the main functions of the International Monetary Fund in the world of international finance are very much akin to the functions of central banks in the national sphere. Central banks have to be the guardians of monetary stability, but they also have the function of lenders of last resort. So it is to a certain extent with the International Monetary Fund.

These two functions, however, are sometimes contradictory. As a guardian of monetary stability, the International Monetary Fund has, within the limits of its jurisdiction and powers, to prevail upon its members to abstain from both inflationary and deflationary policies. In doing so, it has to rely mainly upon moral suasion.

While admitting that the Fund has done its very best to perform this task, one cannot deny that actual developments have not been quite satisfactory. We all know that the world has gone, since the war, through a period of protracted deterioration of the purchasing power of its main monetary units. Such inflationary development cannot continue without endangering both the financial and social structures of our economies. Under these circumstances, one can note with satisfaction that the increased demand for the Fund’s resources in the last two years has strengthened the potential influence of the Fund on the monetary policies of member countries.

In its function as lender of last resort the Fund may be faced, and actually has been faced, with demands of a very different character. Without endeavoring to be exhaustive, I should like to mention three typical cases.

Firstly, there is the demand of such countries that have consistently followed equilibrium policies, but that nevertheless may be faced with fluctuations in their balance of payments, e.g., of a seasonal or cyclical character, that exceed the scope of their reserves. The provision of temporary facilities to such members does not create serious problems for the Fund.

Secondly, there is the demand of such countries whose balance of payments difficulties have been caused by internal policies leading to a total expenditure on consumption and investment exceeding available resources. The Fund’s intervention in such cases may be highly beneficial in averting a financial crisis or preventing a recourse to quantitative restrictions. It cannot be denied, however, that it also serves to consolidate the inflationary financing that was the cause of disequilibrium and may even facilitate the continuation of such financing. An ample use of the Fund’s resources for such purposes might definitely endanger the Fund’s function as a guardian of monetary stability.

Finally, there is the possible demand for the Fund’s resources from those countries that perform to a smaller or larger degree the function of international banker and which as such are the debtors of the international liquidities held by others. Such countries may be faced with losses of reserves that have nothing to do with over-expenditure, but are caused only by a withdrawal of funds by their creditors for no other reason than that such creditors presently prefer to hold other forms of international liquidity. By way of example of such loss of reserves, I may add that the drawing on the Fund by the Netherlands in September 1957 was smaller than the change in the net foreign position of the commercial banks, which was caused mainly by a withdrawal of funds by foreign depositors during the period of currency speculation then prevailing. It is especially in this case of a shift in the form in which international liquidities are being held that the possibility of recourse to the Fund’s resources may be highly beneficial and may entail no inflationary dangers whatever.

It would seem to me, Mr. Chairman, that the Executive Directors, when studying the question of the desirability of enlarging the resources of the Fund, should give attention to the demands that might be made on the Fund for the different purposes just mentioned. Such a study might well lead to the conclusion that an increase in the Fund’s resources would not be necessary for all the purposes mentioned but might be deemed desirable for a special contingency. If that be the case it seems to me that proper attention should be given to the ways and means of preventing resources held available for one purpose from being meanwhile spent in another direction.

Statement by the Alternate Governor for Belgium—Maurice Williot

I shall limit myself to expressing my agreement with the Resolution presented by the U.S. Governor. In this respect I would like simply to say that I concur with the statement made by the Governor for the Netherlands.

Statement by the Governor for the Union of South Africa—J. F. Naude

As pointed out in the Fund’s Annual Report, the past 15 months have been a period of considerable difficulty for many of the Fund’s members, particularly the primary producing countries. It is not improbable, moreover, that the worst has not yet been experienced, since the demand for imported goods by those members whose export earnings have declined may continue to decrease, with inevitable repercussions upon the more industrialized countries in particular. Signs of this, in fact, are not wanting.

In these circumstances, it has been most fortunate that the Fund has liberalized its policies to such an extent that it has been able to make an important and effective contribution toward meeting members’ balance of payments difficulties during recent periods of strain, and many countries, including South Africa, have had reason to be grateful for the Fund’s existence. This development has added considerably to the Fund’s stature, and has no doubt also lent support to the view that a substantial increase in the Fund’s resources would make a worthwhile contribution to international liquidity.

Should such an increase in the Fund’s resources be agreed upon, it should nevertheless be borne in mind that the major benefit will lie in the greater assistance which the Fund can render when liquidity crises threaten or have actually developed and not in its contribution to an effective and reasonably permanent solution of the liquidity problem which faces the great majority of member nations today. Measures of this kind do not increase global liquidity but, in a sense, merely redistribute it.

An increase in the Fund’s resources, moreover, will entail—immediately or in due course—a call on members’ own gold and convertible currency reserves and, in consequence, a decline in their own liquidity.

These remarks must not be construed as criticism, on our part, of the proposal to increase the Fund’s resources, but merely as indicating some of its limitations. In fact, subject to certain conditions, we would welcome such an increase as providing a supplementary source of strength, on a temporary basis, when circumstances become critical. We do not believe, however, that this measure, even in conjunction with the other measures proposed by the United States, will be sufficient to deal with the fundamental problem of securing an effective and lasting increase in the liquidity of the world as a whole, as well as of individual countries, which is so essential a factor in preventing the development of serious crises.

These points need stressing, because we fear that the recent staff study, International Reserves and Liquidity, might encourage the belief that the problem of liquidity would be solved by an increase in the resources of the Fund.

This is not the place to criticize the study in detail, but I cannot omit expressing South Africa’s disappointment that it not only fails to deal with the arguments advanced by South Africa in support of its request for an investigation, but also makes no reference to the views expressed by other prominent supporters of the case for a higher price of gold. In fact, the study overlooks some of the most important aspects of the liquidity problem. For example, it attempts to measure liquidity with an unrealistic definition of reserves which includes foreign exchange assets but ignores the fact that these assets in one country’s balance sheet are but the counterpart of the short-term liabilities in the balance sheets of the countries whose currencies are so held. If liabilities could thus be ignored, the liquidity problem could be easily solved by the mutual extension of credit between member countries either through bilateral arrangements or by channeling the credits through the Fund.

Unfortunately, such a simple procedure will not, in the long run, solve the problem, as no country, however strong, could ignore the liabilities involved in the holding of its currency by other countries. Nor can we close our eyes, as the authors of the study seem to have done, to the fact that the claims on a particular country do not arise solely from imports but also from capital and other financial transactions. The value of the conclusions arrived at by the study—by ignoring or underestimating the importance of these factors in assessing the adequacy of reserves—is largely negated.

It is true that at certain points the authors have admitted that short-term liabilities cannot be completely ignored, but they discounted possible dangers from this source by assuming that the liquidity of member countries with a creditor status is so much more than adequate that they can afford to underwrite completely, and on a lasting basis, the liquidity of the rest of the member countries.

Some of the figures relating to liquidity in the United States, as quoted in the study, hardly justify such an optimistic conclusion, unless one is prepared to subscribe to the authors’ two basic contentions: firstly, that the environment in which a monetary mechanism operates is of greater importance than the level of the available reserves; and, secondly, that in the present environment, the United States could continue to increase its liabilities notwithstanding the fact that the “free” gold held in excess of its reserve requirements covered only 74 per cent of the foreign-held dollar balances in 1957. In this connection, it must be noted that this percentage cover has fallen continuously from 163 per cent 10 years earlier and no less than 453 per cent 20 years ago. Furthermore, while the United States might, for some time, be able to extend credit while losing gold, this applies to very few other countries, and in this respect one need only refer to the recent history of such an important currency as sterling.

Apart from the fact that the environment can suddenly change in these days of political and economic uncertainty, the great majority of countries are only too well aware that, as a practical matter, an adequate level of owned reserves is a fundamental factor in creating a healthy environment in which the monetary mechanism can operate in such a manner as to encourage that confidence in currencies which facilitates the removal of restrictions and the equilibrating movement of capital.

We are not only disappointed with the study’s failure to deal with fundamental issues, but we are also worried about the role which the authors appear to envisage for the Fund in the management of the monetary affairs of its members. The emphasis is laid not on the need to strengthen the reserves of member countries, but on the desirability of increasing the Fund’s resources, thereby facilitating the achievement of the objective of enabling the Fund to exercise over its members the discipline which the gold standard is supposed to have enforced before World War I. We believe in international cooperation, and we recognize the need for a measure of international discipline. But we also believe that the final responsibility for keeping its house in order should continue to rest with each individual country. This object cannot be achieved without adequate reserves.

In conclusion, I wish to reiterate that while the reallocation of liquidity by means of an expansion of the Fund’s resources could be of great assistance to individual members under certain circumstances, it does not increase global liquidity. We, therefore, feel convinced that the problem of international liquidity will remain with us until the level of owned reserves in relation to the claims on them is sufficient to maintain confidence under such adverse conditions as can reasonably be expected to arise, including the persistent decline in the purchasing power of reserves through the rising trend of world prices. This objective, moreover, must be possible of achievement without recourse to exchange and other controls. We see no practicable method of securing this except through a substantial increase in the monetary value of the world’s gold reserves, in the attainment of which, quite obviously, an appropriate increase in the world price of gold is indispensable.

Now, may I, in conclusion, say that whilst I may have been rather critical of the staff study—and especially of the conclusions at which the authors arrived—I found it very heartening when I read in the preamble or foreword by our good friend, Mr. Per Jacobsson, that “it does not necessarily represent the views of the Executive Directors.” This gives me new hope and encouragement to carry on the good fight.

Statement by the Governor for Australia—Sir Arthur Fadden

Once again, we must congratulate the Managing Director and the Executive Directors of the Fund on their Annual Report. It is a lucid and well-balanced Report, and it maintains the high standard we have come to expect at these Annual Meetings.

And I am sure that all the Finance Ministers present here today appreciate the choice of New Delhi as a location for this year’s Meeting. We have spent a good deal of time at Annual Meetings in the past discussing the problems of developing economies. Here we have an opportunity to examine a developing economy at close quarters. India has embarked on a courageous program. It has had its share of troubles. But it has also had a great measure of success. We all hope that the progress achieved in India so far will be continued. No one wishes this more sincerely than Australia.

Indeed, when the Prime Minister was speaking yesterday I was reminded of words used in April last by Mr. Martin, the distinguished Chairman of the Federal Reserve Board and member of the U.S. delegation to this Meeting. In evidence before a Senate committee, Mr. Martin put into words—simple yet profound—a thought I have always tried to keep before me. He said “in discussing economic problems we should never forget that what we are really dealing with are human problems—human problems of a very important kind. In combatting inflation and deflation, what we are really doing is combatting human misery that springs from economic causes.”

This is the sixth occasion on which I have attended a Fund Annual Meeting as the Australian Governor. Unfortunately, it must be my last. During this period, I have seen the Fund develop from an institution which was at times a little hesitant—a little uncertain of itself—into one of considerable maturity. Nowadays it is more confident, its policies are more flexible, and its operations have expanded.

My Government is prepared to give wholehearted support to the proposal that the possibility of an increase in Fund resources be examined. And it is prepared to give careful consideration to any detailed scheme for developing Fund resources which may eventually be put forward. However, I feel bound to say my personal reaction is one of disappointment that the proposal put before us is restricted to an increase in quotas. I can well understand the reasoning behind this. On the other hand, an increase in resources could be achieved in various other ways, and I would have preferred to see the Executive Directors requested to study the question in its widest setting so that all member governments could have the matter fully set out for their consideration. We must remember that, to the extent members are required to use scarce gold and foreign exchange to meet part of the cost of increased quotas, they are being asked to put outside their immediate control a part of their national assets. The Executive Directors of the Fund must recognize that an expanded Fund means increased responsibility to guard the interests of member countries, and it scarcely needs to be said that they should be especially watchful of the rights and interests of the weaker countries.

There are, of course, additional ways of assisting international liquidity, and while we are prepared to support the general case for an increase in international credit, we do not see this as disposing of the case for an increase in the price of gold. In this, I notice we do not have the support of the Fund staff.

While I appreciate the effort which has been put into their study entitled International Reserves and Liquidity, I must say, with all due respect, that my Government cannot accept some of the arguments in the paper nor the conclusions derived from these arguments. I do not think that this is the time to embark on a detailed criticism of the staff paper, and yet the matter cannot be left where it stands. My Government will continue, both inside the Fund and outside, to press the case for an increase in the price of gold.

However, we are not always in disagreement with the Fund. Indeed for the most part, the contrary is true. I commend to you, for example, the part played by the Fund in the resurgence of sterling. This has been referred to both in the Annual Report and in the Managing Director’s remarks, and I will not refer to it again in detail. The Fund can well be proud of the part it played, as can the U.K. Government. The fact that the United Kingdom was prepared to go through with severe monetary discipline provides a salutary lesson to other members. Both the Fund and the United Kingdom are to be congratulated.

I also commend to you that part of the Executive Directors’ Report which deals with the position of the nonindustrial countries. I have referred to this matter a number of times in the past. I know you are familiar with it, and I feel bound to raise the matter again only because the position continues to deteriorate and because this is my last opportunity anyway to address this select group on a most important matter.

If there is one basic weakness in the economic fabric of the world today, it is to be found in the different trading experience of the industrial and nonindustrial countries. I have stressed in the past, and continue to emphasize now, that difficulties of the primary producing countries in the world today cannot be dismissed as the result of a failure to maintain internal balance; nor can they be dismissed as merely a consequence of overambitious development programs. It must surely be recognized that an important factor contributing to the difficulties of primary producing countries is that, in some respects, they are suffering the consequences of excessive protection in the industrialized countries.

The industrialized countries should provide a natural market for the exports of the primary producers. Instead, we find them imposing quota restrictions (and tariffs) on imports of primary products and raw materials, subsidizing home production, and subsidizing exports. The prices of primary products and raw materials have fallen. In 1957, the Annual Report says, the average world market prices for primary products declined for most of the year. Meanwhile, the prices of industrial products continued to rise, and the terms of trade, as well as the balance of trade, of the primary producing countries deteriorated. Finally, their international reserves declined. At the end of 1954, the official reserves of the nonindustrial countries amounted to 39 per cent of imports. By the end of 1957, this ratio had fallen to 29 per cent. If this trend continues, the nonindustrial countries will have to restrict their purchases from one another and from the industrial countries.

This is not a pleasant prospect. But it is not within the power of the primary producing countries alone to correct the situation. Certainly they can restrain the forces of inflation at home. Certainly they can ensure that their development programs are soundly based. But having done these things, there is little they can do if their markets abroad are being whittled away by all manner of protective devices.

I believe that it is a responsibility of institutions like the Fund, which should take an over-all view of world trade and payments, to emphasize the seriousness of the situation. Countries which maintain restrictions on international payments are required to consult annually with the Fund. In most cases, as matters stand at the moment, the restrictions are clearly justifiable and the Fund is, by and large, bound to recognize this. But we are not getting to the heart of the matter—and we will not do so unless pressure can be brought to bear on the industrial countries, either in the Fund or in other international institutions, to remove every unjustifiable protective practice.

It should also be borne in mind that the primary producing countries of the world are, for the most part, the underdeveloped countries. It is currently the fashion to spend a good deal of time at international gatherings discussing what can be done through international aid to assist the underdeveloped countries. It does not seem to be fully appreciated that even minor improvements in the prices of raw materials and even minor reductions in barriers to trade in those products would benefit the underdeveloped countries far more than is feasible through international financial aid. Some improvement in raw material prices, and a reduction in barriers to trade in those products, would be of tremendous value to the whole world and would do much to alleviate the human misery of which I have spoken and of which we are all extremely conscious. I commend this thought to you in this my last address at a Fund Annual Meeting.

Statement by the Governor for Greece—Xenophon Zolotas

The Executive Board and the staff have presented again, as in former years, a brilliant report, and Mr. Jacobsson has made a statement full of fruitful ideas and constructive suggestions. I associate myself with the previous speakers in expressing my warm congratulations to them. I would also like to commend the staff for their interesting study on international reserves and liquidity.

The problem of international liquidity has been given new emphasis in recent months, and specific proposals have been made by the U.S. and other delegations for increasing the resources of the International Monetary Fund. International liquidity as measured by the ratio of the official gold and dollar reserves to the value of imports declined from 82 per cent in 1948 and 65 per cent in 1954 to 51 per cent in 1957. But the movement of this ratio is not a sufficient indication. The distribution of reserves and the internal and external equilibrium of the various countries, as well as the satisfactory working of the international credit mechanism, are of great importance.

More specifically, it is widely appreciated that the disturbance of the internal equilibrium of the various countries constitutes a major cause of persistent balance of payments disequilibria, whose size and frequency make necessary a smaller or greater international liquidity. In the postwar period, internal disequilibrium continued in many countries and was in varying degree reflected in inflations which were responsible for the prolongation and acuteness of the balance of payments disequilibria.

Inflations were not only more pronounced before 1952 than in the period since then, but they also displayed wider divergencies in intensity. Since 1952, the degree of inflation has been reduced in almost every country, and the differences among the countries have been substantially narrowed. It may be noted, for example, that the average increase in prices for 26 countries was 4.0 per cent per year from 1952 to 1957, against 10.4 per cent per year from 1946 to 1952; moreover, the mean deviation of the rates of increase for the 26 countries was 2.8 in the 1952-57 period, compared with 6.3 in the previous period. To the extent that the pace of inflation in the various countries has become more or less uniform, the evil of inflation is a lesser one in its balance of payments aspects. This is of particular importance for international equilibrium since, even under continuing inflationary pressures in the various countries, there is still a possibility of balance of payments equilibrium with no major disturbances. It is precisely this possibility which strengthens substantially the international liquidity and secures an improved foundation for freer trade and payments.

I fear, however, that, despite the solemn pronouncements and recommendations, inflationary pressures may continue in various countries. It would therefore seem to be of great significance for the maintenance of balance of payments equilibria and the smooth working of the international payments mechanism if we could at least check those over-inflationary situations which tend to exceed what one might call the unavoidable minimum of inflation as it appears in a large number of countries. Success in this respect alone could substantially contribute to the greater effectiveness of the existing international liquidity.

At the same time, it is also important to increase international liquidity by raising the amount of available liquid resources, as has been proposed for many years by the management of the Fund, as well as by various member countries. Such an increase surely would effect a desirable strengthening of the powers of the International Monetary Fund. I believe, however, that since we are now considering concrete decisions on these proposals, we should seek to provide an increase in international liquidity which will secure the necessary effectiveness and the powers to make the Fund truly an International Reserve Bank for Central Banks. The uniform increase of quotas would contribute to this goal but could not decisively solve the problem. The increase would be more effective, for example, if it were accompanied by a readjustment in quotas in relation to the size of the external trade of each country. This would give the Fund more abundant resources and also permit greater recourse to the Fund whenever necessary.

But even such measures would not be adequate for securing the desired flexibility to the Fund. I therefore wish to come back to the proposal which I made last year, namely, that in addition to the proposed increase of quotas, the Fund should be empowered to contract stand-by arrangements with Central Banks or Treasuries of surplus countries, with the possibility of extending corresponding stand-by credits to the deficit countries. Such a plan could raise the resources of the Fund substantially, while at the same time creating a more normal as well as a current mechanism of adjustment between the payments of surplus and deficit countries. The intervention of the Fund would constitute a guarantee for the creditor countries that the additional resources made available would not be lost and that the resources would be effectively used by the deficit countries for the re-establishment of equilibrium. As at present, credits extended by the Fund in excess of 25 per cent of each country’s quota would always be conditional upon the adoption of supporting corrective measures and sound monetary and fiscal policies. Of course, adoption of this proposal should be associated with the raising of the Fund’s credit lines to member countries beyond the limits under its present regulations.

A substantial increase of international liquidity is not only of particular importance to the industrialized countries, but also of major concern to the less developed countries, especially those suffering from large permanent underemployment of their agricultural population. The impact of a fluctuation in world economic activity is very serious for these countries. It slows down or discontinues their efforts to support an accelerated growth and affects their attempts to enforce an adequate policy of monetary stability. The successful combination of internal and external equilibrium with their requirements of economic development is a problem of far-reaching repercussions of an economic and political character which has to be solved. To these less developed countries a steady growth of international demand and the stability of prices of certain basic commodities and services, as well as the maintenance of adequate international liquidity, is of a pressing concern.

In a world in which the international credit mechanism does not work satisfactorily, especially in periods of increased difficulties in international payments, the proposed arrangements would set a sound basis for the proper increase in international liquidity and the achievement of the Fund’s basic objectives of multilateralism in trade and payments. I suggest that the moment has come when we must seriously consider how we can make the Fund a true International Reserve Bank for Central Banks.

Statement by the Governor for Chile—Felipe Herrera

Allow me first to congratulate the directors, management, and staff of the International Monetary Fund for the Annual Report on the Fund’s activities for the fiscal year ended April 30; it is indeed an enlightening document on the international economic situation and on the Fund’s tasks during this period.

As a representative of a country which has been seriously affected by the depressive effects of the world economic situation upon the metal markets, I wish to stress the Report’s references to this problem. On page 44, it is stated: “The commodities whose prices declined most sharply from 1956 to 1957 were some of the nonferrous metals, especially copper.” This reference is made in connection with the difficult situation of Chile’s main export, copper, whose price dropped sharply in the New York market from an average of 40 cents per pound in 1957 to 26.5 cents per pound at this moment.

In facing this emergency, my country has been assisted by international financial cooperation. The Fund has been the cornerstone of a stand-by agreement, in which U.S. Government agencies and private banks have participated. This arrangement has alleviated, in some degree, the drastic reduction of foreign exchange receipts, thus making the situation less severe in face of the needs for essential imports and the servicing of our external obligations. Furthermore, the agreement has made possible the maintenance of a flexible foreign exchange system.

However, we do not believe that a developing economy, such as ours, should rely indefinitely upon this type of financing in order to balance its external accounts. As a way out of these difficulties, a restrictive readjustment of the internal economy is often recommended. This solution, although advisable on technical grounds, implies serious practical difficulties in its implementation, when the depressive impact of international trade affects too drastically the total level of income of the country, as in the case of Chile at present. In this respect we must consider the pressures which the process of economic development itself places upon the balance of payments and the fiscal situation. The monetary authorities here gathered know the difficulties implied in a further lowering of already diminished levels of consumption and investment. Our experience in Chile shows us that under such circumstances it is the level of investment—whether from external or internal sources—which is the first to be affected. Thus the possibilities of further growth, particularly in order to diversify our production and exports, are seriously hampered.

It is for all these reasons that my country is deeply interested in all efforts that may lead to achieve basic conditions for international economic stability. We are as much concerned as the more advanced countries themselves in their success in combating recessionary tendencies. Furthermore, we attribute the greatest importance to all international efforts aiming at more stable raw material markets. We also welcome the U.S. Government’s proposal for an increase in the Fund’s resources, and it is our hope that these increased resources will be particularly applied to strengthen the position of primary producers.

We realize that such steps would be always insufficient unless complemented by sound domestic policies. Chile, in spite of the external difficulties which it is facing, has continued and will continue its program for internal economic stabilization. The understanding and assistance of the Fund for this task have heightened the prestige and moral influence of the institution among us. Our experience, however, shows the advisability of considering at all times, in the financial arrangements between the Fund and the country, the changing circumstances, both of internal and external character, as well as the institutional factors that may affect the implementation of economic policies.

Finally, I wish to mention the references in the Fund’s Annual Report and in the Exchange Restrictions Report on the progress reached toward multilateralism. I would like to record, as a contribution of Latin American countries in these achievements, the efforts of a group of central banks—especially those that have among them a large number of bilateral agreements—to set up a regional system of multilateral settlements. We are sure that the Fund fully appreciates the constructive nature of those steps, and we hope to receive the cooperation of the institution in these endeavors.

In closing my remarks, I would like to congratulate very warmly Mr. Jacobsson for his opening address in which he stressed in such clear and realistic terms the difficulties faced by the underdeveloped countries at this time.

Statement by the Governor for Turkey—Hasan Polatkan

During the Opening Session yesterday and this morning, I have followed with great attention the address delivered by the Honorable Mr. Nehru, the address by the Chairman, the annual address by the Managing Director of the Fund, Mr. Jacobsson, and the annual address by the President of the Bank, Mr. Black. These addresses and the speeches of my fellow Governors mostly dealt with the subject of underdeveloped countries. During last year’s Meeting, the Turkish delegation particularly touched upon the same matter, emphasizing the increasing gap between developed and underdeveloped countries, and suggested that this be made a subject of a special study. Considering the importance of the matter, I will now quote two passages of my last year’s statement.

“The attainment of record levels in world production, as compared to previous periods, the relative rise in the standard of living in almost all of the countries, and the various kinds of aid given to, and investments made in, the less developed countries have not been adequate for coping with the ever-widening gap which exists between developed and less developed countries. The trends indicate to us that in the future this difference between the potentials for development will continue to increase. The results of researches being undertaken in the developed countries, which are rich in know-how and experience, increased productivity being made possible by modern methods, and the stimulation created by consumers’ needs, which are so prolific in developed countries, strengthen the trend of widening the gap.”

The fact that the subject is being dealt with more extensively during the present Meeting gives us especial satisfaction and enables us to look to the future with greater confidence. Let us hope that this confidence is not unfounded. The issue of underdeveloped countries today indeed constitutes a major problem. The world will be able to attain real peace and security to the extent that this problem is solved and equilibrium, which now is taking an adverse turn for the underdeveloped countries, is established.

It is known to us all that much has been said and written so far on the matters related to the problems of underdeveloped countries. I may even say that a literature has been formed on the subject. Based upon our short observation, we may say that India, whose hospitality we are now enjoying, provides a good example of what should be done and what can be done in this regard.

We, the Turkish delegation, inspired by what has been put forward during these Meetings, believe in the fact that the problem has two aspects and that the matter should be dealt with taking these two jointly. One of these relates to the underdeveloped countries themselves and the other to economically developed countries and to international institutions.

First of all, it is a fact that the underdeveloped countries themselves must prepare the conditions necessary for their development. In this respect, pursuance of a sound and healthy economic and fiscal policy, facilitating the growth of savings and accumulation of capital alongside of encouraging the flow of foreign capital, is essential. But even when all these have been done, it is evident that these countries, which have remained underdeveloped for various reasons and face a rapid growth of population, would not be able to make the necessary investments and fill the existing and even increasing gap. It is for this reason that adequate foreign assistance becomes essential for a speedy exploitation of their natural resources and rendering their human power productive.

Here we arrive at the second aspect of the problem, the duty to help that falls on the developed countries and the international bodies. Indeed the underdeveloped countries, while trying to cope with their problems, are looking forward for understanding and help to the developed elements of the human community. It is in the light of this fact that the Turkish delegation welcomes the efforts aimed at increasing the quotas of the Fund and capital of the Bank and at creating an institution to complement the activities of the latter and supports them fully.

After these general remarks, I will now venture to ask your kind permission to draw your attention briefly to the example provided by Turkey. As was pointed out in the statement of the honorable Managing Director of the Fund, we have introduced a program of stabilization in our country. This program is aimed at elimination of inflationary factors through maintaining a complete balance in the budget and in the State economic enterprises and through reinforcing credit controls. Necessary steps were also taken to eliminate the disparity between internal and external prices, and the exchange system has accordingly been reformed. Through the healthy atmosphere provided by this stabilization program, the conditions for foreign investments have become more favorable in Turkey.

Although I do not want to abuse your indulgence and go into the details of the program and of the measures established, I cannot refrain from briefly touching upon a certain point. That is the understanding and help extended to us by the OEEC countries, the U.S. Government, and the International Monetary Fund in providing the foreign assistance necessary for the implementation of the program which is now being carried out carefully by my Government. I may say that this has provided a good example for the cooperation among developed countries, international institutions, and an underdeveloped country exerting great efforts in the field of economic development.

Before concluding, I consider it a pleasant duty to express my thanks to Mr. Jacobsson, to Mr. Cochran, and to their competent staff, who have always shown great understanding of our problems and who have acted with a spirit of cooperation.

Statement by the Governor for Thailand—Prince Viwat

I appreciate the due emphasis made in the Report upon the difficulties of combining development with stability in those countries which are now called less developed. The Report observes rightly that fluctuations in the prices of primary products, which are sometimes very violent, have for many years presented serious problems. And it is at this point that I should like to add that, in the case of some primary products, there are also fluctuations in the volume of production, which can also be very violent. The production of rice, for instance, has to depend upon the vicissitudes of the weather. The difficulties of my country are therefore all the greater, in that she is liable to suffer, not only from fluctuations in the price of her products, but also from fluctuations in the volume of her production. I hasten to support the suggestion that the question of stabilization of prices be studied.

A country which, like mine, is under such a double handicap is liable to be faced with payments difficulties through no fault of its own. Such a country should perforce be able to rely upon the Fund’s resources as a real second line of defense.

Thailand’s quota was determined over ten years ago. Today it is far from being commensurate with her economic position. Although she has been so fortunate as to have had no need of the Fund’s resources up to date, she nevertheless wishes to be assured that in the Fund she has an organization that can really be relied upon in case of emergency.

I therefore welcome the U.S. proposal that quotas should be revised; and I venture to submit that, when they come to be revised, such revision, at least in the case of a country which has an inadequate quota, should be based upon the principle of providing a more adequate second line of defense.

Statement by the Governor for the Dominican Republic—Juan A. Morales

The activities carried on by the Fund with a view to maintaining the internal monetary stability of all its members during the fiscal year just ended undoubtedly merit the sincere thanks of all countries attending this Thirteenth Annual Meeting. However, notwithstanding the sound policy pursued by the Fund, it must be recognized that the economic recession affecting some important industrial centers and the difficulties encountered by international trade in recent months, particularly those affecting the countries in process of development, necessitate the adoption of energetic and effective measures which will contribute to a real development of those countries.

The large demands for capital which have arisen recently are due principally to the major expansion of industry, agriculture, power, ports, and communications, which has been required to maintain the production rate of the economically more advanced countries and the development of the underdeveloped countries. In the latter countries, logically, the urgent need of capital is as important as, or perhaps more important than, in the highly industrialized countries where the continuous pressure of that demand is due to more complex causes.

In the less developed countries, these exigencies become more acute, in view of the urgent need and the volume of investments required to raise the present low standard of living of these peoples and the unpostponable demands of their growing populations.

The level of savings of some of these countries has increased considerably in the postwar period, but, even so, it has been insufficient to meet the broad capital demands; hence, the capital supply has been unable to finance the unusual demand for new investments. Thus, more energetic and effective measures must be adopted which, by broadening the credit facilities, will permit prompt solution of the problems affecting the economies of these countries.

In trade, the majority of the Latin American countries have attempted to find a partial solution to this problem. These countries, which have been characterized by what has come to be called an export economy, have been looking anxiously toward the North American market, which last year absorbed 61 per cent of total Latin American exports and supplied 64 per cent of its imports, because of the economic recession on that market. So, since the North American dollar occupies a high percentage of the composition of the Latin American international reserves, the fear arising is logical, in view of the fall in the prices of raw materials on that market and the possibility that the shrinking of the purchasing power of that monetary unit may cause a perceptible deterioration in its relative value in international trade.

Having taken this into consideration, several Latin American countries have drawn up flexible development programs. The governments of these countries, taking into consideration these factors of instability affecting their national economies, are attaining an accelerated rate of development, pursuing realistic goals through coordinated programs in the preparation of which, we repeat, they have not lost sight of the variability of relative values in international trade and the equilibrium of their balance of payments. In this regard we must remember that, expressed in dollars, the price index of the terms of trade of Latin America with the United States dropped 16 per cent in 1957.

In this realm of ideas, it is fair to admit that stability—internal and external—continued to be a prime objective of all member countries of the Fund, which attempted to eliminate inflationary risks, through a coordinated and effective fiscal and credit policy.

Notwithstanding the fact that it is one of the countries of the dollar area which has suffered the consequences of the economic phenomena affecting the so-called underdeveloped countries, the Dominican Republic, thanks to the national development policy pursued by Generalissimo Dr. Rafael L. Trujillo Molina, has been able to maintain the rate of growth which places it among the privileged countries which now enjoy a stable, properly guaranteed economy. Thus, its exports, which amounted to only $124.6 million in 1956, rose to $161.0 million in 1957, while its imports for the same period increased by $11.0 million. This increase in commercial exchange has resulted in a favorable balance of $18.0 million on current account of our balance of payments, which produced an increase in our international reserves.

On the national scale, the Dominican economy continued its accelerated upward rate, as shown by the considerable increase of gross national product or expenditures which in 1957 rose 13.25 per cent over the previous year. The currency also maintained its purchasing power with a stability which revealed an absence of alarming inflationary manifestations, as can easily be ascertained by comparing the movement of media of payments and the circulating media, which did not show important fluctuations in the 1956-57 period. On the other hand, the indices of prices, of nominal salaries, and of cost of living maintained a rate of moderate variation consistent with the position of the national economy described above.

The large government investments again constituted a powerful incentive to private industry in 1957. These investments have been concentrated in broad public works programs embracing highways, ports, airports, and other projects of equal importance intended for the development of the economy in its various social aspects.

For these reasons the Dominican Republic optimistically trusts that all the countries will join forces in a common ideal of international collaboration which will surely have the warmest support from the international institutions which, like the Monetary Fund and the Bank for Reconstruction and Development, work for the improvement of the standard of living, the raising of employment levels, and the development of the productive resources of all their member countries.

Statement by the Alternate Governor for the Philippines—Eduardo Z. Romualdez

It has become almost an annual ritual to recite the achievements of the Fund and to express gratification at the Fund’s significant contribution to human progress and international stability. In a postwar world characterized by dynamic economic and technological change, efforts to widen the scope and improve this contribution in keeping with actual exigencies must constantly be made. Hence, the prevailing attitudes and policies of the Fund would seem to require searching reorientation and review.

Activities of the Fund in its advisory role and during its Annual Meetings have laid much emphasis on the responsibilities of deficit countries, mostly the underdeveloped nations, for the maintenance of international monetary equilibrium and on the prescription of orthodox monetary remedies found highly effective in developed countries. In contrast, possibly not enough has been done about the greater responsibility of the surplus or highly developed countries to contribute to international monetary stability and initiate a return to unhampered exchange convertibility and multilateral free trade, nor intensive efforts shown to seek new approaches for the solution of the economic problems of underdeveloped areas. Indeed, most advice to the underdeveloped countries and the pressures exerted upon them are commonly rationalized in terms of an economic theory founded upon assumptions of conditions obtaining in a fully industrialized economy unrealistic so far as underdeveloped countries are concerned.

We must bear in mind that it is the highly developed countries, or those that have completed their basic economic equipment, that can well afford to maintain their external accounts in balance and do away with exchange restrictions, tariffs, and other discriminatory trade practices. On the other hand, it is the underdeveloped countries, grappling with serious internal problems of development, that can least afford to do these things.

It must be stressed that current equilibrium in a country’s balance of payments is seldom possible when that country is pursuing a faster rate of reconstruction, investment, and economic growth than can be achieved on the basis of its domestic savings alone. And this circumstance is an almost universal one among the underdeveloped countries of the world. In seeking development with stability, underdeveloped countries have to work on an over-all framework of policies entirely different from those in developed countries making classical remedies not altogether appropriate to underdeveloped areas.

Take the case of my country, the Philippines. Our dollar shortage, or balance of payments problems, originated as an accident of the war, when the economy was so devastated that our major exports of sugar, copra, and fibers had to wage an uphill battle for recovery to prewar levels, while our imports were bloated abnormally by the intense public demand for consumer goods which had been frustrated during the war years. Since then, the dollar shortage has persisted partly as a result of social amelioration but primarily as a consequence of economic development. In this sense, our balance of payments problem may be considered as the natural effect of deliberately planned and necessary policies to uplift living standards and at the same time provide an agro-industrial base for economic expansion and ultimate self-sufficiency. I say ultimate, because realization of that goal is not yet within our grasp. However, without the development efforts which we have exerted and are continuing to exert, self-sufficiency would be practically impossible to attain.

Should we then consider our dollar shortage and balance of payments disequilibrium as economic evils per se, which are to be corrected at any cost? Indeed we may yet achieve a balance between receipts and disbursements as desired by the Fund by curtailing demand through a drastic reduction of our investments. But at what price? At the price of halting our economic development program and of retrogressing to stagnation. We would have to sacrifice our development objectives and at the same time tolerate severe dislocation in our internal economy—rising prices due to commodity shortages as imports are drastically cut, depressed living standards, unemployment that follows closure of our budding industrial plants, international debasement of the peso, and continued dependence of our growing population on foreign trade for their economic well-being. Our stability would be one of “poverty, unemployment and backwardness.” While reasonable financial stability is necessary for development, mere stability without progress will not satisfy the great awakening of our people for better living.

The Fund has in the past laid much stress on internationalism, perhaps without adequate regard to national interests and aspirations, especially on the part of the awakening nations of Asia and Africa. These underdeveloped lands are at present engaged in an all-out struggle to uplift their people from a centuries-old morass of socio-economic poverty. They are striving to amass all the resources at their disposal toward this end—particularly the foreign exchange resources with which to purchase the tools of development.

Yet, as a matter of record, it is the restrictive trade policies of highly developed nations that inhibit many underdeveloped countries from expanding critically needed foreign exchange earnings through export. And whenever inflationary dislocations occur in the monetary systems of the highly developed countries, these disturbances are readily transmitted to underdeveloped economies, which depend on imports for their supply of essential manufactures, in the absence of an industrial system of their own. Inflation and shortage of capital and foreign exchange have been the perennial stumbling blocks to the economic progress of underdeveloped countries.

The concern of the International Monetary Fund in past years has apparently been focused on the problem of current international stability, whereas the postwar situation has found many countries in difficulty due to the deep-seated structural deficiencies, whose solution would lie in a grown-out process of development to change the economic pattern. During this process of development, “we must have growth that does not endanger stability and we must have stability that does not throttle growth.” The Fund would not be very useful to them if it were not in a position to provide them with financial assistance commensurate to their needs. Any temporary disequilibrium or imbalance in underdeveloped areas could be corrected essentially in terms of enlarging resources by accentuating productivity rather than curtailing investments. This, however, would imply that internal resources of underdeveloped countries have to be supplemented by an inflow of capital from surplus countries through international organizations like the Fund and the Bank.

The current situation points to the urgent need of underdeveloped economies for a new approach to their specific problems and for a more substantial and aggressive international financing than now exists. The Fund’s Articles of Agreement, the limited resources at the Fund’s disposal, and the predilections of the Fund for viewing the problems of underdeveloped areas from the narrow political interests of the advanced countries are primary factors inhibiting adequate and proper Fund assistance to underdeveloped countries which would make possible the positive contribution of said countries to the objective of international stability in the long run. But more than mere expanded resources or the creation of new agencies, the need of the moment is for the heart and the mind of those entrusted to execute the Fund’s procedures and policies to be more responsive to urgent legitimate requirements. Determined efforts to remedy the situation are a matter of collective responsibility.

Statement by the Governor for Pakistan—Abdul Qadir

It is a pleasure to join in appreciation of the excellent Report prepared by the Fund. In many ways this Report provides a perspective not merely for the operations of the Fund but for its sister institutions as well. It is encouraging to observe the increasing range and variety of the Fund’s activities during the year. Although the total value of transactions at $666 million is less than that of the year preceding, in a sense the transactions completed this year represent a larger accomplishment. As many as 21 members purchased currencies from the Fund, or entered into or extended stand-by arrangements, as against 16 members during 1956-57. The wide geographical distribution of transacting members also indicates the spread of the Fund’s activities. The admission of 7 new members during the year, to which we extend a most hearty welcome, is again a measure of the value attached by countries to the objectives for which the Fund stands. Finally, the increasing number of members which have taken the initiative in seeking the Fund’s advice and its technical services reflects the confidence which the Fund has increasingly commanded in the counsels of its members.

It seems to me that we are now reaching a stage where the very success of the Fund may demand some changes in capital structure and in operating procedures. At the end of the year under report, total uncommitted gold and dollar resources were reduced to roughly $1.4 billion. This is not a substantial amount, considering the large demands which have been made in the past on the Fund and its increasing willingness to meet these demands, in a large measure through a flexible use of the waiver provisions. It is, therefore, heartening to take note of the initiative of the distinguished Governor for the United States for a general increase of quotas.

While the object underlying an increase in quotas is commendable, the requirement of depositing a portion of the increase in gold or U.S. dollars with the Fund may prove too burdensome in the straitened circumstances of many countries which it is precisely designed to assist through an increase in quotas. Therefore, if any general increase in quotas is to be approved, we shall be deeply appreciative if some arrangements can simultaneously be worked out, either through a general formula or through special dispensations, whereby the main responsibility for providing the additional resources of the Fund falls on countries which are in a position to provide additional funds.

Our payments difficulties, as the Fund’s Report implicitly recognizes, are not entirely of our own making. The Report has noted the decline in average world market prices for primary products during the year. It has rightly attributed the faster decline after mid-1957 to the recession in advanced countries, among other reasons. It is estimated that the average terms of trade of the primary producing countries may have declined by another 2 per cent in 1957 in addition to the 5 per cent decline in 1956. The Report also notes the fact that surplus disposal programs carried out by advanced countries would “affect adversely the current and prospective foreign exchange earnings of other countries.”

Pakistan provides an unfortunate illustration of these trends. Our terms of trade have been under pressure and at the end of March 1958 stood at 58.8 (1948-49 = 100), the lowest level since the country came into existence. Our export earnings have declined steadily from $406.9 million in 1955-56 to $357.2 million in 1956-57 and $321.0 million in 1957-58. This represents an annual rate of decline of $42.8 million per annum on the average of the last two years.

The adverse implications of this decline in foreign exchange receipts must be evident. The development programs undertaken by us in recent years have inevitably depended to a substantial extent on imports of capital goods and industrial accessories. The scale of these programs has not been overambitious. We have aimed at modest targets. Beyond offsetting the decline in per capita incomes due to growing population, we have sought to raise these incomes by minimum magnitudes in order to provide a margin of hope for our poverty-stricken people. It is tragic that the decline in foreign exchange receipts has forced us to curtail these programs. At the same time, with a view to curbing inflationary pressures, we have endeavored to increase tax proceeds substantially, as recognized in the Fund Report.

An increase in the resources available to the Fund may be of indirect assistance in reducing external pressures on development programs as a decline in export earnings due to recessionist conditions elsewhere can be treated as legitimate ground for short-term assistance. To the extent that movements in international commodity prices are traceable to swings in industrial activity, there is a self-reversing element involved. Rather than force poor countries to cut their development programs, some means should be found of giving them short-term assistance through the Fund to permit them to tide over the cyclical movement in their export earnings, as well as to help sustain the level of activity in advanced countries. In this manner alone will an increase in international liquidity help the poorer countries to move to that stage of economic viability which is a prerequisite for achievement of multilateral trading and multi-convertible currency objectives for which the Fund stands.

More important still, we consider that some basic solution to a fall in commodity prices and to a continuously adverse movement of terms of trade must be found. It will be appreciated that, unless some such solution is forthcoming, the developmental efforts of many less developed countries will produce little results in terms of an increase in the per capita income. It is obvious enough that the resulting frustration, while holding tragic prospects for the great mass of people in the underdeveloped countries, is equally against the interest of the free world as a whole. We believe that something needs to be done in the near future and that the advanced countries, while feeling satisfied over an improvement in their balance of payments position, would not be unmindful of the chain effects of a fall in the purchasing power of the primary producing countries. We feel that there is adequate scope for a steady improvement in the living standard of the advanced countries. At the same time, there is also considerable scope for a cooperative and concerted effort being made to raise the standard of living in the less developed countries. Aside from foreign aid, for which we are grateful to the donating countries, a key to the solution of this problem lies in the stabilization of commodity prices. We appreciate the recognition given to some aspects of this question by the Fund, and we believe that in view of its repercussions on the payments position of many member countries the Fund staff is in the best position to undertake a comprehensive study of the problem. We earnestly hope that the Fund will study the problem, including the question of buffer stocks, and recommend practical measures for concerted international action.

Statement by the Alternate Governor for Ceylon—Sir Arthur Ranasinha

I have been impressed by the lucid analysis of the economic climate of the world made by the Executive Directors in their Annual Report for 1957-58. It is gratifying to note that they recognize that every economy in the world today has to grapple with the problem of creating conditions favorable to a satisfactory rate of economic growth and to the maintenance of stable prices and high employment. It is particularly reassuring to me, coming as I do from a primary producing country, that the Report has observed that, when the prices of the main exports of primary producing countries show a persistent downward trend, their economies are subjected to severe strains, the effects of which could extend also to other countries, depressing world demand and world trade to a greater extent.

I am glad that Mr. Jacobsson in his address has carried this thought somewhat further, and has concluded that a thorough examination of the problems of the prices of primary products may yet result in some positive solution compatible with the working of an effective market system. I feel sure that all of us who hail from primary producing countries are buoyed up with the hope of such a solution. I for one believe that, unless the grave problem of the sharp fall in world commodity prices and the consequent difficulties confronting primary producers is faced fairly and squarely, other partial remedies, such as increasing the resources of the Fund in order to promote international liquidity, will not by themselves be able to restore the health of the world’s economy.

I do not want to be misunderstood as lacking a sense of proper appreciation of the problem of liquidity. I consider that this problem may reach even larger proportions in the future as the development programs of the underdeveloped countries, now in train, are set in motion. It is clear that the Fund with its depleted resources will be unable to help members on the same massive scale as it has in the past two years. And here I should like to pay my own personal tribute to Mr. Jacobsson’s bold leadership which has undoubtedly saved the world from an economic catastrophe.

But the question remains, what should be done to augment the resources of the Fund so that it could meet any future exchange crisis of serious magnitude? I recall that Mr. Jacobsson had remarked that pressure on the Fund’s resources could be considerably eased if member countries could be persuaded that currencies which possessed a high degree of transferability, like the pound sterling, the German mark, and the Dutch florin, are almost as useful as the dollar. But apart from this, it has been suggested that there should be a general increase of quotas.

On this matter, our view is that any general increase in quotas should also adjust existing disparities in regard to the actual economic position and the needs of member countries. We believe that, having regard to present day conditions, a percentage over-all increase in existing quotas is likely to perpetuate a position that may have been sound in 1946 when these were fixed, but would be quite unrealistic in the context of world trade today, and would give certain countries a voting strength quite disproportionate to their importance in the economic world of today.

Nevertheless, we appreciate that a general increase in quotas would give the Fund greater flexibility of action, provide it with additional gold resources, and assure members of support within a wider range of normal drawings. But so far as primary producers are concerned, it has indeed been stated by the Managing Director that most of the Fund’s financial assistance has gone to Latin American countries. Particularly in the case of countries with relatively small quotas, the procedure by which financial assistance is rendered does not seem adequate to meet their needs when their economies are strained through declines in the export prices of their main products while they are engaged in a program of expansion. Drawings within the gold tranche in the first instance to the extent of the first 25 per cent of the quota and drawing up to the next 25 per cent on evidence of their reasonable efforts to solve their own problems are not likely to render any significant assistance when they happen to be in distress. On the other hand, some such device as a release of an adequate and reasonable sum on the basis of their creditworthiness and the responsibility and soundness of their programs, something on the analogy of the device of the “borrowing capacity” assigned by some legislatures to corporations on their revenues, might perhaps be considered.

We, in Ceylon, have not hitherto felt the need for approaching the Fund for assistance, partly because we have been fortunate enough to receive most generous aid from a large number of friendly countries abroad and partly because we had so adjusted our fiscal policies that balance of payments difficulties were not experienced. We continue to follow what we believe to be sound fiscal and monetary policies. We have built up substantial reserves in good times. We do not like inflation, though we may believe in a permissive degree of inflation in a developing economy. We desire to avoid controls. But we also have to look to the dire need to keep up the rate of our economic growth in a measure at least corresponding to the rate of growth of our population. And in seeking to fulfill this need, we may experience bad weather in the future for a time. We shall have recourse to the haven of the Fund for anchorage with the confident hope that we shall be sheltered from the storm.

Statement by the Governor for Ghana—K. A. Gbedemah

We wish to thank Shri Pandit Nehru for his thought-provoking speech at the opening of the Conference. Our country feels itself akin to his in many respects, and we feel that all he said about the difficulties and problems of Asia in general, and of India in particular, could well be repeated word for word for Africa. As he said yesterday, our countries of Asia and Africa, which have for many decades been regarded as backward, now look forward to financial help and other forms of aid from international institutions, such as those which are meeting here today, to assist us in our struggles to better our lot. As emphasized, however, success will depend very largely on our own efforts and hard work, and we in Ghana are keenly aware of this.

A large part of the Report of the Fund is devoted to what is perhaps the most important theme of our time—how to ensure continuing economic expansion throughout the world whilst avoiding the disruptive effects of severe cyclical fluctuations.

There are many words of wisdom in the Report, but three points in particular have impressed me as being worthy of emphasis. They are, firstly, the invidious effect of a fall in demand by the industrialized countries for the products of the primary producers. This leads automatically not only to a decrease in the earning power of the less developed territories but inevitably also to a reduction of imports by the primary producers from their more advanced trading partners, thus completing the vicious circle to the detriment of all concerned; secondly, the fact that whilst it is in the interests, and is the primary responsibility, of the more advanced countries to take measures to prevent excessive fluctuations, the less developed countries likewise have a responsibility to adapt their policies to changing conditions; and thirdly, the necessity of building up and maintaining in all countries an adequate level of foreign exchange reserves. These are simple truths, but, as the Report points out, they tend sometimes to be ignored. It is vital that they should not be, and I, therefore, make no apology for reiterating them.

Each country has to adapt its policies to the circumstances peculiar to itself. So have we in Ghana. We still continue to count our blessings in the high prices we receive for our cocoa in the world markets. As I said last year, owing to these favorable prices, we have managed to build up adequate reserves which serve as a cushion for bad times. Having a one-crop economy, these reserves are indeed absolutely vital to us, dependent as we are on cocoa for roughly two thirds of our export income. This deliberate policy which we have pursued now for some years enables us to maintain reasonably stable economic conditions at home, and, as a result, despite two consecutive years of balance of payments deficits we have been able to maintain steady progress and to keep our economy on an even keel.

It is our firm intention to continue this conservative policy, for as a primary producing country we are particularly vulnerable to the vicissitudes of foreign trade and, together with all other nations, have a vested interest in an expanding volume of international exchanges. It is of great importance to us, therefore, that we ourselves and the more highly industrialized trading nations should have adequate reserves, both actual and potential. In other words, we are vitally interested in seeing that the state of international liquidity is sufficient to support the present level of world trade. We have, therefore, been greatly encouraged by the timely initiative of the President of the United States in suggesting that the quotas of all member countries of the International Monetary Fund should be increased. At the appropriate time, the resolution which will be placed before us with this object in view will have our full support.

At last year’s Meeting in Washington, I mentioned that our new central bank, the Bank of Ghana, had been recently established and that in due course it would issue our new national currency. In mid-July of this year, the public in Ghana were invited to exchange their old West African currency for the new Bank of Ghana notes and coin. Both the old and the new currency have legal tender status at present. Within two weeks of the start of this exchange operation, which I should emphasize has been on a completely voluntary basis, not far short of 30 per cent of the old money had been exchanged, and as of now Bank of Ghana currency accounts for roughly 60 per cent of the total currency circulation. My Government has been greatly encouraged by this result, which is practical evidence of the confidence of our people in our new currency and central bank.

The Ghana pound is backed entirely by and is at parity with sterling, but there is provision in our central bank’s statutes for a limited fiduciary issue. In this matter, too, our policy will err on the side of conservatism, for we are acutely conscious of the need to maintain confidence—both at home and abroad—in our currency and indeed in our over-all financial and economic policies. Thus, the fiduciary element of the currency backing will be introduced only after need to utilize it arises and, once introduced, will be increased at no greater speed than is compatible with the maintenance of confidence. It is our intention to make use of our central bank’s powers to hold Ghana Government securities as partial backing for the currency to help principally in the long, difficult, but important task of establishing an internal securities market.

Statement by the Governor for Israel—Levi Eshkol

The delegation of Israel warmly welcomes the proposal to increase the resources of the Fund as well as those of the Bank. This proposal is clear evidence of the growing awareness of the economic solidarity of the world. The strengthening of the Fund’s resources will undoubtedly further increase its capabilities to lead the member countries toward sound development on the basis of monetary stability.

It is our hope that, in studying the details of this proposal, the Executive Directors will not only consider a general increase in quotas, but will also explore possibilities to revise individual quotas. During the period of the Fund’s existence, important yet disproportionate changes have taken place in the volume of the national product, the size of foreign trade, and various other indicators by which quotas are determined. Therefore, a revision of individual quotas, though admittedly difficult, might be called for.

Like many other countries, Israel was allowed last year to draw upon the Fund’s resources, in connection with temporary exchange difficulties. The drawing of 50 per cent of our quota has strengthened our reserves and helped us in our efforts to achieve economic consolidation. The task of absorption of immigrants through rapid development lays upon us a heavy strain. Yet, measures have been taken to stabilize the currency by monetary and fiscal policies, as well as to liberalize imports gradually. It is our intention to strengthen those efforts in the future. We are looking forward to the guidance and assistance of the Fund, as well as the help of friends in various countries to accomplish this task.

Statement by the Alternate Governor for Brazil—Jose Garrido Torres

I wish to refer to the proposition made by the U.S. and other delegations with the view to raising the quotas in the Fund and the capital of the Bank so that these two agencies might be better equipped to perform their very important roles for the well-being of mankind.

If the proposed goal is a desirable international economic integration, it should be clear by now that we cannot pursue this objective through principles, methods, and forms of international action such as those which have been in practice since the last war. This note of warning was sounded by my Government at the time of the 24th Session of the UN Economic and Social Council, when the Brazilian delegate asked: “What will happen in the economic and social world of the future if we leave things as they are; if we avoid, impelled by habits and the easy satisfaction with what has been attained, however little, to revise the foundations of our thinking on international economic and social cooperation, collaboration and coordination?” It was then pointed out that the consequences of this lack of action would certainly fall mainly upon the industrially advanced countries, for to them belongs the greater share of power. Moreover, equality of opportunity for the underdeveloped nations depends in no small measure on the adjustments that the economically advanced countries are able to implement in their own policies.

We have maintained in the past, and we beg to reiterate now, that those principles, methods, and forms of international action could stand revising in the light of the needs of backward areas and of the way the world economy has been evolving. Let us not insist on the illusions of an international division of labor such as existed in the past. We must have the courage to face present-day conditions and admit frankly that international relations cannot be fostered through the observance of the same pattern for well developed and less developed countries. To repeat another concept from the statement already cited: “Governments and peoples of the advanced countries should be educated to the idea that the coexistence, in international economic and social ethics, of two sets of weights and measures, one for the rich countries and another for the poor ones, is not in the least unjust or unfair. Part of this work of persuasion, of this catechesis, has already found its way into GATT where it was accepted that juridical equality does not necessarily mean economic equality.” In other words, there can be no equality between unequals.

We feel gratified that this struggle in which less developed countries have been engaged since the end of the last conflict—and Brazil has done its part—has begun to bear the first promising fruits. From the initial meetings of the ECOSOC, an agency devised to bring about the generous expectations of the Atlantic Charter, to this day, we have come a long and arduous way. The point we have reached may possibly be best illustrated by the success that has so far been met by the movement known today as the Pan American Operation, which sprang from a timely initiative of President Juscelino Kubitschek. Taking its raison d’être from the condition of underdevelopment prevailing throughout Latin America, the decision to overcome such a condition through concerted action in the New World constitutes indeed a significant indication of the understanding that is at last dawning in the minds and wills of a community of free nations—a community of nations that has learned the true meaning of coexistence through political and juridical formulas which, to be increasingly effective, must rely on strong economic bonds.

This, put briefly, is why we have advocated a revision of the principles, methods, and forms of international financing. And this is why we are glad to see the first indications of acceptance of such a point of view. One of the principles we have insisted upon is that fluctuations in exchange proceeds from exports of primary products should be automatically counteracted by compensatory capital flows.

Problems of appropriate levels of international reserves and the need for currently imported capital goods have been discussed thoroughly by economists without much practical result so far. We all agree that the less developed the country, the less diversified its exports and/or the larger the proportion of its imports of an essential nature, the greater will be its need for substantial exchange reserves. But that is of little help for underdeveloped countries in the process of economic growth. To accumulate foreign exchange reserves is, for a backward country, the same as to invest abroad when the need is for stimulating foreign investment at home.

On a broader scale, a re-examination of the role played by the International Monetary Fund is imperative. Its resources are now clearly inadequate; since the establishment of the Fund the value of world trade has more than doubled, while the resources at its disposal suffered but minor variations. The recent slump of raw material prices is likely to aggravate balance of payments problems of many semi-industrialized and nonindustrialized areas, putting additional pressure on the Fund’s resources.

In addition to an expansion of the global resources of the Fund, consideration might be given immediately to methods for increasing the flexibility of its operations and thereby assisting the primary producing countries facing temporary illiquidity. Underdeveloped countries have favored plans for improving international arrangements which reduce their needs for greater reserves, have criticized the volume of the Fund resources, and consider them inadequate to meet most emergency situations. Drawing rights of countries exporting more than the equivalent of $1 billion a year have been kept down to less than $50 million.

It seems to us that primary goods exporting countries, being subject to wide price fluctuations, will not be well served if their quotas are not adequately raised. On the other hand, many countries might not have enough gold to cover a prompt subscription commensurate with their needs. The solution for their problem of balance of payments short-term assistance could be of two kinds.

In the first place, instead of preserving the present modus operandi, a country should be allowed to complete its gold quota proportionately to the increase in its own primary reserves. There would be no fixed timing for the quota fulfillment. But the faster the accumulation of reserves, the greater would consequently be the drawing rights at the Fund. Drawing rights could be limited to the ceiling of a country’s actual reserves until at least 50 per cent of the increased gold quota had been completed, and this it should be permitted to do with the payment of a fixed commission to the Fund. However, if the gold quota had been more than 50 per cent covered, it would allow drawings without reduction of the reserves held with the Fund. Thus, in case of emergency, it would be possible for a country to avail itself of twice the amount of its reserves in gold and foreign exchange held with the Fund if it agrees to supply the data asked by the Fund even at the time the first quota is drawn. No deduction would occur in the reserves held with the Fund. Should the borrowing country, however, prefer not to surrender the above-mentioned data, we would then have a mere loan when the interest rate charged could be raised even as high as 4 per cent.

On the other hand, when the imbalance is due to a temporary slack in demand for a country’s products or to an oversupply situation, it could perhaps be corrected by making use of commodity surpluses. As to this hypothesis, we would like to advance the following scheme for consideration:

(1) Countries applying for drawings against the International Monetary Fund would be allowed to offer commodity stocks in lieu of national currency; (2) the Fund would have the option of accepting the commodity collateral or abiding by its present rules, depending on whether or not a satisfactory agreement is reached with the applicant country on production, price, and disposal policies for surplus commodities.

The arguments against such a procedure are twofold: (a) the countries might feel tempted to unload their burdensome surpluses on the Fund without taking steps to promote consumption or curb overproduction; (b) the evaluation of the stocks might present difficulties, since the country holding the stocks might wish to have them priced at levels which exceeded the long-run equilibrium price.

While those problems exist, adequate precautions can be taken to make the system operational. It would be, as it were, a compromise between the national buffer stock idea, which requires heavy unproductive investment by primary producers, and international buffer stocks, which spread the burden of stockpiling but present numerous operational difficulties.

To meet the objections raised above, the following precautionary procedures might be adopted:

  • (a) The drawing against commodity collateral could not exceed by more than 50 per cent the total permissible drawing or quota, although yearly drawings within that limit could be made entirely with commodity collateral;

  • (b) The price to be used for valuation of the stocks would be either (i) a long-run average of world prices encompassing surplus and scarcity periods, or (ii) current prices with a margin of discount so as to avoid a valuation in excess of the expected long-run average price;

  • (c) The Fund would have the right (i) to dispose of the commodity stock at the end of the repurchase period, if the international market has improved, but giving first the option to the drawer to repurchase the stocks by repayment to the Fund in gold or dollars, and (ii) to require repurchase of the stocks in case of amelioration of the reserve position of the drawer;

  • (d) The Fund might make its acceptance of the commodity collateral system dependent on reaching an agreement with the applicant country on suitable production, price, and disposal policies.

One more word should be said in connection with the problem of increasing international liquidity.

The notable recent expansion of intra-European trade, though originating basically in the high rate of investment and industrial expansion, owes much to the establishment of financial mechanisms such as the EPU. Trade was facilitated because a much greater volume of exchange could be conducted with smaller reserves.

Consideration should be given to the establishment of similar mechanisms to assist semi-industrialized and nonindustrialized areas in the development of intraregional trade. Such schemes present considerable technical difficulties, because usually trade within the underdeveloped regions is small and has been conducted mostly on a strictly bilateral basis. But serious attempts should, nevertheless, deserve the cooperation and assistance of the Fund, such as the promising start that has been made in South America by countries trading in inconvertible currency. With ECLA’s technical help, the implantation of a multilateral payments system that would permit at least a partial clearing of balances within the area is being carefully considered. A further step in this direction is expected as a result of the meeting of central banks to take place in Rio de Janeiro next month. Important in itself, it has its importance increased by the circumstance that it may become an indispensable stepping-stone to the goal of economic integration in southern Latin America. The idea that our development must rely on a geographical basis, broader than national markets, is rapidly gaining ground. Such a basis could provide better conditions for rapid economic growth in our region of the world and represents a significant contribution to international trade expansion.

Statement by the Alternate Governor for Yugoslavia—Nikola Miljanic

In this Meeting we are undoubtedly discussing very important problems concerning the International Monetary Fund. If we take the importance of these problems as a measure, then this is one of the most important annual meetings of the Fund since its creation. The results of the Fund’s earlier work as well as the present problems of this institution have been ably set out in the Annual Report and in the address of Mr. Jacobsson. The activity of the Fund has become an important factor in the field of international liquidity, especially by the mobilization of resources which were made available to member countries to help them to overcome their current difficulties. This has been especially apparent in the course of the last two years. We do appreciate this activity of the Fund. Though this activity was very considerable, it is still not sufficient, however, to satisfy in full the present level of world trade and problems of international reserves.

Regarding the above, we quite well understand the motives for the initiative to increase the resources of the Fund. It seems to us that it may enable the Fund to become even a more important and more efficient factor in solving the problems of keeping up the necessary level of international reserves and liquidity. This would at the same time help member nations in finding solutions for their respective difficulties. Particularly, we expect that this may enable the Fund to adopt a more flexible policy, especially, we think, in the Fund’s relations with underdeveloped member countries and their specific difficulties in this field. These countries have, at the same time, problems of short-term difficulties in their payments position, as well as that of a long-lasting lack of the capital that is so necessary for their development. In this connection, the Fund certainly should have more understanding for them.

Meanwhile, it seems rather important to us to emphasize the fact that serious difficulties may arise with a number of countries when the time comes to put into practice the decision about the increase of respective quotas. Member countries with strained reserves may find themselves in a difficult situation if the increased quotas have to be subscribed in a rather short time. Therefore, we hope that these elements also will not be overlooked when the problem is considered.

So our delegation considers that the increasing of quotas, having in mind all the above-mentioned problems, would enable the Fund to become a more efficient factor in the field of international trade, payments, and liquidity.

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

I would like to say a few words on Paraguay’s financial and economic development policy which, I believe, will be of interest to other undeveloped countries. Until very recently, Paraguay followed a policy of development at any cost based largely on inflationary financing by the Central Bank. The results were a decade of probably one of the most severe inflations of the modern world, with no positive economic results. Production was at a standstill, and domestic and international trade was stifled by direct economic controls and a complicated system of multiple exchange rates.

The failure of this policy and realization of the social, political, and economic damage of living in a constant state of crisis led the Government of Paraguay to follow the example of certain European countries, which have successfully applied a policy of economic stability and free economy. This policy was initiated in the beginning of 1956 and followed in August 1957 by the establishment of a fluctuating exchange system free of quantitative restrictions.

The results of the new policy have been gratifying. After a long history of inflation, Paraguay is just completing a year of exchange and internal price stability. This stability, in conjunction with the restoration of a free economy, has inspired business confidence, and economic development which we had sought in vain is now becoming a reality. Private Paraguayan capital which sought refuge abroad is returning to the country. Foreign capital, both private and official, is beginning to flow into the country. In spite of adverse terms of trade, Paraguay with the new policy has been able to increase its imports for economic development purposes.

One of the more difficult tasks which the Government of Paraguay has had to face in implementing its new economic policy has been that of convincing labor that massive wage adjustments not based on increases in productivity are self-defeating. The Government recently successfully withstood pressure for another round of massive wage increases. I believe it is fair to state that Paraguayan labor today has confidence that the sacrifices imposed by stabilization will in the long run result in a real improvement in the standard of living.

While encouraged by the initial success of the stabilization policy, Paraguay realizes that much still remains to be done in raising the level of production, consolidating its balance of payments position, and re-establishing an appropriate level of international reserves. However, in this effort, Paraguay cannot stand alone. It also needs cooperation from all the countries of the Free World. The growing contribution of foreign capital is essential to develop the immense natural resources the country possesses, as well as obtaining credits adequate to cover its needs in the lines in which private international capital shows no interest, despite the favorable prospects offered by economic stability and the assurances and guarantees for the free development of private enterprise.

On behalf of the Government of Paraguay, I wish to express our deep gratitude to all those who have cooperated with us in our endeavors. The technical and financial assistance of the International Monetary Fund, the World Bank, and the U.S. Government has played, and is continuing to play, an important role in the economic development of our country. In view of the constructive role which both the Fund and the Bank have played, Paraguay takes great pleasure in supporting in principle the proposal of the Government of the United States for increases in the resources of these institutions.

Statement by the Governor for the United States1Robert B. Anderson

In view of some of the comments which have been made with respect to the price of gold, I should make clear that my Government firmly adheres to the position that the price of gold in U.S. dollars should remain unchanged. The assured interchangeability of gold and dollars at $35 per ounce for the settlement of international accounts is a basic element of strength in the international financial structure. Moreover, we believe the excellent study prepared by the staff of the International Monetary Fund correctly emphasizes that attention should be focused upon the adequacy of resources to meet temporary imbalances of individual countries, rather than upon the subject of the price of gold.

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