Selected Addresses Delivered During the Opening Joint Session1
- International Monetary Fund. Secretary's Department
- Published Date:
- November 1957
Address by the Governor for Mexico—Rodrigo Gomez
The Mexican Delegation wishes to extend, as in past Meetings, its warmest congratulations both to the Fund and to the Bank for their excellent Annual Reports. This year, the Fund is entitled to additional well-deserved praise because of the very important help extended to many members during the past 12 months.
The activities of the Fund since our last Meeting are a direct result of the growing understanding of the exchange problems of its members on the part of its Managing and Executive Directors. These activities provide the best answer to those who, in the past, have questioned the Fund’s usefulness. I want, accordingly, to express my satisfaction with the work of the Fund. This is also a good opportunity to emphasize how much we appreciate the work of the Fund’s staff, which is steadily becoming better acquainted with the monetary problems of all the countries.
We all know, and it has been pointed out again and again, that the quotas of some members are very small in relation to their trade, and that those of primary producing countries are particularly small on account of the sharp fluctuations to which their trade is subject. The Fund has never denied this situation. Several of its annual reports and, in particular, this one in its chapter on “Price Developments and Export Earnings of Primary Producers,”2 have highlighted the fluctuations in the prices of primary goods, caused not only by normal changes in international supply and demand, but at times, unfortunately, also by national foreign trade policies. The recurrence of such fluctuations is a possibility that cannot be dismissed lightly.
The Articles of Agreement state that one of the purposes of the Fund is to give confidence to its members. The Fund wants its members to look to the future, secure in the knowledge that its resources will be available to them. It has been the great virtue of stand-by arrangements to increase such confidence. As far as Mexico is concerned we have in the past benefited as much from stand-by arrangements as from actual drawings on the Fund.
Stand-by arrangements, however, are not of much help when the sum that can be drawn is very small. The stand-by arrangements so far granted, and also the actual drawings, are limited by the inadequacy of present quotas in absolute terms. These quotas are reduced even further in relative size by the manifold increase in the value of international trade which has occurred during the past 12 years.
Adjustments were recently made only in the case of quotas of not more than $15 million. But because of this very low limit, many countries did not benefit from the measure. So long as the Fund is not prepared to apply waivers going beyond the present quotas, it is imperative to adjust the quotas of those countries which desire and need a larger quota.
Perhaps some fears arise from the fact that larger quotas may mean increased pressure on the gold and dollar holdings of the Fund. We feel that these fears may be justified only if the Fund is unable to further encourage purchases of currencies other than U.S. dollars. It would not be difficult to achieve a wider utilization of other currencies than the dollar in drawings on the Fund. In fact, when the Articles of Agreement were drafted, it was a common idea that in due time the Fund’s operations were to be truly multilateral; thus some other currencies should perhaps now be used. Many countries may find it appropriate for the Fund to make sales of their currencies. Such sales could automatically increase the drawing rights on the Fund of the member whose currency is sold; therefore, the total international liquidity of that member would not be impaired.
The International Bank for Reconstruction and Development has already opened new paths in operating with 18 currencies in addition to the U.S. dollar. These operations arise not only from successful sales of bonds in different markets, but also from releases of the 18 per cent capital subscriptions. In the fiscal year 1957, the amount disbursed by the Bank in other currencies almost equaled the amount disbursed in U.S. dollars. This is indeed an important achievement.
Certainly the Fund can also make further progress toward multi-lateral use of other currencies it holds in addition to the U.S. dollar. This development would constitute a very important step toward greater multilateralization of world payments and trade. Many member countries could certainly be induced by the Fund to purchase, with equal protection, other convertible currencies instead of dollars.
Mexico would consider any increase in its drawing rights on the Fund, resulting from the use by the Fund of Mexican pesos, as practically equivalent to foreign exchange. The principle of use of other currencies is very important. Although the use by the Fund of Mexican pesos, in itself, would not make any significant contribution to the Fund’s lending capacity, taken together with other currencies, the total of such additional resources could be substantial. …
Address by the Governor for China—Chia-Kan Yen
… I wish to congratulate the Executive Directors and the management in directing its course through a year of great activity. In assisting members to tide over payments difficulties, to stabilize monetary value and to restore confidence in currency, the Fund has carried out, to a very full extent, its flexible policy with respect to the use of its resources by members. Income from the recent operations, incidentally, has all but wiped out its accumulated deficits.
Although the Fund’s possession of gold and U.S. dollars is still substantial, its resources are far from limitless. So, its liquid assets must be put into the most efficient use. My Delegation supports the Fund’s principle governing the use of its resources beyond the first credit tranche for which the member concerned must present well-balanced and adequate programs leading to enduring stability of their currencies and substantial progress toward convertibility. This principle, of course, does not conflict with the usual liberal treatment given to the uses of the gold tranche and even up to the first credit tranche, and the more substantial uses for those members with very small quotas.
We are happy to observe that the Fund has maintained active and close relations with many of its members in the extension of technical assistance. These efforts of the Fund have secured a much wider recognition and a more effective use of domestic financial policy as a means of correcting balance of payments disequilibrium. We hope that this aspect of the Fund’s work will be further intensified.
We also note that the inflationary pressure generated from the boom conditions of the past two years has endangered the internal and external equilibria of several member countries. We are facing a new crucial test today in the question of how to maintain general monetary stability and to further multilateral world trade. It is our earnest hope that a suitable solution will be worked out by all concerned in the not too distant future and it goes without saying that the responsibility in finding such a solution should be shared both by the deficit and surplus countries alike. Insofar as the instrumentality of the Fund is invoked in this important undertaking, we are ready to pledge our cooperation and support.
Address by the Governor for the United States—Robert B. Anderson
First, I should like to associate myself with the welcome that our country has expressed through President Eisenhower and to extend my own welcome to my fellow Governors and members of their Delegations. This is the first time that I have represented the United States on the Board of Governors, and I anticipate an interesting and rewarding week of association with them.
This has been a very active year for both the Bank and the Fund, and my Government is gratified that these institutions have continued to serve the free world so well. It is a pleasure to have Mr. Jacobsson sitting with us as Managing Director of the Fund after his long and distinguished career in economics and finance. Our Government is also pleased to welcome to membership four new members who are sitting with us for the first time—Ghana, Ireland, Saudi Arabia, and the Sudan. At this Meeting we shall also participate in reviewing the First Annual Report of the International Finance Corporation, which has now made initial investments which bode well for the future of this new institution.
I approach this international part of my duties as Secretary of the Treasury with enthusiasm. Much of my business experience has been in the international field and my association with the Department of Defense of the United States gave me a vivid awareness of the great range of problems which concern all of us. …
We can all take pride in the effectiveness with which the Fund has effectively demonstrated during the past year its usefulness as a revolving source of short-term assistance to smooth out temporary disturbances in the world payments situation. During this most active fiscal year of its existence, the Fund acted decisively and expended or committed a very large amount of its resources. We can only speculate as to the position in which we might now find ourselves if the Fund had not been in existence and had not been able to act as it did. We believe, however, that the active and vigorous course the Fund pursued has been an important factor in maintaining the momentum of world trade and prosperity during the past year. Through the breathing space and the reassurance in the short-run provided by the Fund, the opportunity has been given to effect the necessary longer-term adjustments, without a relapse into throttling restrictions on international financial and trading transactions. The Fund will need to reconstitute its resources, through repayment of the recent drawings, in convertible currencies, as it did in the years before 1956. In this way, its revolving character will be maintained, and it can meet new situations if and when they arise again.
At the same time, the Fund has continued its steadfast efforts to promote stronger financial structures and improve exchange systems through its technical advice and consultations and its financial participation in stabilization programs. Increasingly, the Fund provides advice to its members on various aspects of financial problems such as central banking, money markets, and public finance, as well as the complexities of exchange policies per se. In all of its consultations with members and in the technical advice it gives to members, the Fund emphasizes the essential character of financial stability. It is a good and proper thing that the policies of our two institutions in the use of their resources are keyed to the progress which members make in arriving at economic and financial stability, both in their economies and in their external transactions.
Although we can look back upon the previous year and take a great deal of satisfaction in the expansion of production, world trade and world investment, we cannot ignore problems and difficulties which remain before us. One matter of continuing concern to us is the effect of inflationary pressures upon our economies. Most of us are heads or senior officials of treasuries and central banks and our institutions bear a heavy share of responsibility for the strength of the currencies of our countries, the solvency of our governments, and the soundness of our financial systems.
Inflationary pressures, as President Eisenhower stated and as the Chairman reiterated, are, as of now, world-wide. Nearly everywhere costs and prices are rising and demands for capital press heavily on the supply of savings. We are all agreed that these inflationary pressures must be resisted. Of necessity, many difficult and troublesome decisions must be made if we are successfully to encourage enduring values. In the United States, though the rate of inflation has been less than in many countries, we are exerting our continued efforts to deal with the situation. Our cooperative action as members of the Bank and the Fund can mutually reinforce our individual efforts in the continuing vigil we must keep to attain economic growth along with and based on sound money.
For this reason this morning, I want to emphasize the interdependence of all of us upon the success of each of us in maintaining prosperity based on money of enduring value and all that this means in better, fuller lives for our people. Every Governor at this Meeting is concerned with maintaining a sound currency for his country’s economy. There is no other successful basis for durable, lasting economic growth in any country.
The costs of inflation are heavy and the benefits of stability are great. Inflation destroys existing savings and discourages new savings. Money markets become unstable; many businessmen, large and small, find it difficult to borrow; real estate becomes the favorite investment; and income distribution becomes more uneven and more inequitable. Such economic growth as occurs is frequently poorly balanced so that resources are wasted in half-completed or otherwise inoperative projects.
In the United States, our progress in achieving the objectives of a sound currency and an expanding economy has given us both satisfaction and concern. In this country—as in most of yours—we have had great prosperity during the past year. Our prosperity, however, has been accompanied by some rising prices. These price advances indicate, among other things, that we have been trying to invest more than we have actually saved out of our earnings.
Even though we feel that we are gaining in the battle of inflation in the United States, we cannot relax our efforts for one moment. As new ideas appear, we must consider them soberly. As new facts appear, we must analyze them carefully. We must take every precaution to assure that we are doing everything that is humanly possible to keep inflation down and to keep America growing and strong.
We believe that economic growth can march hand in hand with soundness in monetary values. In my view, this must be the objective of our separate national efforts to meet the problems that will constantly confront us.
A basic goal of the nations represented in these Meetings is the development of mutually beneficial trade among the free nations of the world. This expansion of trade is not to be had merely for the asking. It can be based only on competitive conditions of price and supply.
We believe that one of the most important things that the United States can do to further world trade is to maintain the American economy at a high level with production expanding, while at the same time avoiding inflation. Our expanding production will require larger imports which will be beneficial to the economies of other countries, which, in turn, can buy our exports.
None of us thinks of trade as an end in itself. Trade is important both for economic reasons and mutual understanding. The ultimate objective is to improve the lives of people and their standards of living. This is why we must all follow policies directed toward maintaining our own stability and our own prosperity, which will be beneficial in the long run for all the free peoples of the world.
The year that has passed since our last Annual Meeting has been marked by a sharp expansion in world trade. The expansion in world trade has not been evenly distributed throughout the trading countries, partly because of the differing intensity of inflationary pressures among the various countries. As a result, substantial deficits in payments positions have developed in some areas, while others have recorded significant increases in their international reserves. The credit facilities of the Fund have been called upon to enable some members to gain time to adjust their international accounts. It is noteworthy that these adjustments continue for the most part to be pursued by broad measures of fiscal, monetary, and economic policies that are designed to strengthen the fundamental position of the currency and the economy, rather than through measures which restrict world trade and isolate a country’s economy. This, we are convinced, is in the right course.
We are living in a world subject to many changes in the currents of international payments. Recent developments in our own international accounts represent a decided change from the position which prevailed during the six months October 1956 through March 1957. Considerable attention has been drawn to the fact that during that six-month period the transactions of the United States with the rest of the world resulted in losses of about one-half billion dollars in the gold and dollar position of the rest of the world. Let us remember that in the six years beginning with 1950, and through the first three quarters of 1956, U.S. international transactions had been marked by continuous gains of gold and dollar assets by the rest of the world, amounting in all to nearly $13 billion. Preliminary figures for the second quarter of 1957 show a sharp change from the first quarter results, and a return to the earlier situation in which the world was gaining dollars. Our exports of goods and services continued to exceed our imports by about the same margin as in the first quarter. There was, however, a very large increase in private U.S. capital investment abroad. The result of this record movement of private U.S. capital and the rest of our international transactions in this quarter was that the rest of the world gained from us almost $200 million in gold and dollar assets.
As the President stated, we are all fully aware and recognize the importance of a helping hand, particularly to underdeveloped countries, although, I am sure, that we all agree that in normal circumstances the well-being of any nation depends primarily on a sound domestic economy. If this economy is to grow at a steady rate, it must provide the conditions in which capital can be invested to finance the construction of plant and equipment, power and tools, and all the thousands of other things which make for production and jobs, and the advancing productivity out of which compensation can be paid without inflation. Both domestic accumulation of capital and foreign investment can be encouraged by sound fiscal policies which give the investor assurance that his capital will be preserved and that it can earn income for him.
In the making of our economic decisions, each of our countries in the long run should strive for the maximum expansion of its productive capacity through the investment of its own savings. As conditions become more attractive, private investment would be expected to provide international financing with less dependence on the budgets of any of the countries of the free world. The burdens of our respective taxpayers and the consequent restraints upon each of our budgetary outlays constantly remind us that there do exist limitations upon our several abilities to meet government expenditures in the domestic and the international fields.
It is well for us to remember that credit can be generated by various means which could impose undesirable consequences, but true capital must be saved by the hard process of sound planning and careful expenditures.
All these things go hand in hand. The well-being of the peoples of the world is dependent upon the development of sound economies in the individual countries. In this effort, the nations of the world are interdependent, for the accumulation of capital, the flow of investment, and the expansion of trade are matters of common concern. Furthermore, the attainment of the maximum results and benefits requires the concerted efforts of the governments of the various countries and these institutions which are meeting here today. As we have seen, at the base of it all must be a pursuit in each of our nations of those monetary and fiscal policies which will result in healthy, stable, and growing economies. Only then can we secure for our peoples more and more of the better things of life.
Joint Session No. 1, September 23, 1957.
Twelfth Annual Report, pages 17-20.