Opening Address by the Chairman of the Boards of Governors1, Antonio Carrillo Flores
- International Monetary Fund. Secretary's Department
- Published Date:
- November 1956
May I say at the outset that it is a great pleasure to welcome you here today. I wish, first of all, to express my country’s appreciation for the honor bestowed upon Mexico when it was elected to preside this year over the Boards of Governors of the International Monetary Fund and the International Bank for Reconstruction and Development. I welcome the members of both Boards of Governors, their Alternates and advisors and also our many distinguished observers and guests. On behalf of my fellow Governors, I would like to add a special word of greeting to the representatives of our new members, Argentina and Viet-Nam. To our host Government, the United States of America, I wish to express our warm thanks for its customary generous hospitality. I am sure that all of us look forward to exchanging views and ideas which will prove useful in the discharge of our responsibilities, each in his own country. We shall renew old acquaintances and form new ones, thus taking this opportunity to discuss in the friendly atmosphere of this great nation’s capital some of the numerous problems of international financial cooperation.
We are concerned primarily with the work of the International Monetary Fund and the International Bank for Reconstruction and Development. It is our purpose to review their recent achievements and progress and to exchange views in the light of the current situation throughout the world. We have entrusted broad responsibilities to these two institutions created under the inspiration of a noble purpose: to increase effectively such international economic cooperation as will contribute to make fruitful, within a framework of justice, order, and friendship, the efforts which each of our countries is making to increase its general standard of living.
The Annual Meetings of the Fund and the Bank make a twofold contribution toward that high purpose. First, they enable our Executive Boards and managements to gain a better understanding of the thinking of member governments. And secondly, we Governors are able to renew our personal contacts and draw fresh impressions from one another and from our Fund and Bank managements on policies designed to advance the objectives of our two institutions.
More than a decade has passed since the Fund and the Bank were established—sufficient time to test the strength and vitality of these two leading international organizations. The principles embodied in the two founding Agreements remain valid and workable, despite the difficulties which had to be overcome. At the same time, experience has shown that these institutions, born out of agreements reached by countries with different backgrounds, can put these principles fully into practice only when they are adapted to the various political, social, and economic conditions prevailing in different areas of the world. The Fund and the Bank have learned to take their members as they are. As a result, we have observed an increasing capacity on the part of the Fund and the Bank to conduct their business with flexibility and realism, bringing in turn greater and greater activity and effectiveness.
Recent years have shown a marked improvement in the world economy. Almost everywhere, production and productivity are higher, while international trade and investment flow with more freedom and in greater volume. The world has recovered substantially from its heavy dependence upon emergency programs of foreign aid. Consequently, standards of living are rising, though we must admit not as rapidly nor as universally as we would like. A few countries have progressed rapidly, but the great majority have advanced slowly. The headway made by the more developed countries over the less developed countries has become more pronounced. In Mexico the percentage gain has been satisfactory, owing mainly to the prevailing atmosphere of fruitful work brought about by the political, economic, and social reform which we call the Mexican Revolution. We started, however, from a low level, and the majority of our people do not yet enjoy an income sufficient to afford them the necessities and amenities of life which present-day civilization should give to mankind.
In the developed economies of the United States, Western Europe, and the British Commonwealth, 500 million people produce each year goods and services valued at more than $700 billion while in a group of less developed economies, 1,200 million people produce only $150 billion. In other words, the per capita production in the industrialized nations is more than 10 times greater than in the nonindustrialized nations.
In 1955, world trade reached $82 billion, 150 per cent of the highest prewar level. This figure is gratifying. Yet, it is discouraging that purchases of primary products by industrialized countries from supplying nations increased by only one third of the gain in trade between industrialized countries. This situation has deep significance if we consider the point brought out in the Fund’s Report that any decrease in the rate of world-wide growth will reduce prices and markets for primary goods. Hence, we should not take for granted that, because there is a high level of world production and employment, all countries will share equally in the prosperity. Fundamentally, it is essential to attain a fairer distribution of the benefits of trade among producing countries. Mexico believes that, for the world as a whole, mere expansion cannot, and should not, be the goal; we must all strive in both the domestic and international fields so that the primary producing countries may share more in the world’s economic growth.
Many countries continue to be vulnerable to the evil effects of price fluctuations in their main exports. Countries that produce primary products are necessarily concerned at the accumulation of surpluses in various parts of the world. Since world demand for primary goods is fairly rigid, the more developed countries would make a great contribution to world-wide prosperity and well-being if they would dispose of their surpluses of such products in a manner which would not impair the less developed countries’ access to world markets. After all, the less developed countries have, with great effort, been increasing their exportable output. In the last analysis, the highly industrialized countries would profit, because the less developed countries spend their earnings from exports of primary goods on the purchase of capital and consumer goods, the production of which requires highly skilled and highly paid labor.
Many of both the industrial and nonindustrial countries are entering a new era of monetary stability. However, inflationary pressures continue and are a constant source of worry. We must emphasize the continued need for following sound monetary and fiscal policies.
Much has been accomplished with the aid of the Fund in improving the international exchange system. Undoubtedly, we have made progress on the road to multilateral trade and exchange convertibility. The gradual liberation of sterling, the deutsche mark, and other European currencies has taken place, supported by flexible monetary policies. In the Far East, Japan has given a remarkable demonstration of the value of a firm monetary policy designed to stabilize international payments. Among our Latin American members, there has been a general and healthy trend toward more realistic foreign exchange structures, and less reliance on restrictions and multiple rates. In the field of my own personal experience, I may point out that in my country, with the help of a prudent fiscal and monetary policy, there has been a satisfactory period of expanding national income and increasing investment, while, at the same time, our foreign exchange and gold reserves have risen to the highest mark in our history.
In many of these efforts, the Fund has played an active advisory role. Despite the adverse conditions of past years, the Fund has continued to strive for freer foreign exchange practices in international transactions. Its efforts have begun to bear fruit, and it can be gratified with the remarkable liberalization which has taken place in international payments. I am confident that we shall see further progress in this field—progress which will be made easier by our greater use of the Fund’s facilities for consultation and technical advice.
As a result of study and experience, the Fund’s policies have been adapted to bringing its resources to bear in a wide variety of payments problems. We have seen this demonstrated in the last few months in the Fund’s arrangements with Burma, Chile, and Peru. Our further progress toward a multilateral payments system may well bring additional occasions for operations of the Fund that will promote this effort.
It is also gratifying to note that some members have recently taken steps to obtain quotas in the Fund that are larger and more adequate to their expanding economies. The Fund has demonstrated confidence in the economies of its member countries, as shown by its financial transactions. And these countries, in turn, have demonstrated that they are worthy of this confidence. They have already repaid more than $1 billion in gold and U.S. dollars of the $1.3 billion they obtained through their transactions with the Fund. We may well feel confident that the resources of the Fund are now available, under more flexible terms and in greater amounts, for the purpose of overcoming problems of foreign exchange among member countries.
I should like at this point to turn to the Bank. It was the Bank’s good fortune to have its initial years coincide with the advent of a growing conviction among nations that economic development had to be actively promoted—an opportunity and a challenge which have been accepted by the Bank and so competently handled that the Bank has become an outstanding institution. The Bank’s operations already constitute one of the strongest pillars of international cooperation.
During its 10 years of activity, the Bank has developed new techniques of cooperation. It has employed, in international development loans, large capital resources which would otherwise not have been so used. It has spread knowledge and techniques of the best ways of preparing and executing programs of economic improvement. The Bank has participated in approximately 500 projects in 42 countries and has lent almost $2.75 billion in various currencies. During the past year of operations which we are reviewing, the Bank maintained the rapid pace of the preceding year. It granted more loans, and it lent almost as much money as in the fiscal year 1954–55. It continued its success in interesting private investors in its loans, notwithstanding money market conditions well known to all of us. Furthermore, it has steadily increased its uses of currencies other than the U.S. dollar.
At our Annual Meetings, we have frequently heard from the President of the Bank of the importance of the availability to the Bank of the 18 per cent capital subscriptions of its member countries. Some encouraging progress has been made; but we are far from the maximum support that member countries can extend within the possibilities of their economies. Mexico’s 18 per cent subscription amounts to the equivalent of $11.7 million, of which Mexico has already released a certain amount. As a further measure of support to the Bank, I wish to announce that my Government has decided to release the whole of the remaining 18 per cent, chiefly in order to facilitate lending operations with our sister republics of Central America. While two thirds at least, therefore, is to be used for disbursement to borrowers making payment for Mexican goods and services, one third may be used for purchases in any country. With this action goes our hope that in the near future there will be a greater liberation of funds by other member countries, to the extent that their balances of payments may permit.
Foreign financial cooperation is an important complement to domestic resources. While it may bring great benefits, it must be remembered that true national prosperity everywhere can result only from the work and effort of the people of each country. In Mexico, for example, loans from the Bank have aided in doubling the capacity for generating electric power. The Bank’s three loans to Mexico for this purpose, totalling $80 million, have contributed toward financing the generating of 800,000 kilowatts. The further loan of $61 million granted to the Pacific Railroad—the largest single loan so far granted in Latin America—is now financing the expenses in foreign currency of the rehabilitation of this railway which serves Mexico’s northwest. Because of this, and of government investments in irrigation and the hard work of its people, economic development in that area in the last few years has been extraordinary.
As the representative of a country in the process of development, I recall that at Bretton Woods all nations were agreed that the primary task of the Bank was to channel resources toward reconstruction and development in those fields where private capital alone was unable to do the job. Mexico knows that balanced economic development at a rapid rate, and the consequent higher standard of living, depend largely upon providing private capital with favorable opportunities for investment in conformity with our laws and our institutions. In my country, this policy has recently been emphasized by the Chief of State.
Private capital alone, however, is not sufficient. There are tasks which it cannot accomplish. Experience shows that private investment is encouraged more where public investment has already provided certain facilities such as public utilities, irrigation works, ports, and highways. In other words, a proper public investment, far from reducing the inducement for private investment, really provides bigger and better opportunities. I want to assure my friends in the Bank that in Mexico there is no dilemma between private and public investment. They follow parallel roads, and both are contributing—as demonstrated by the facts—toward increasing productivity and a higher standard of living. In the final analysis, these are the best guarantees of freedom and democracy.
Obviously, the financing of public investment must be made by each country with its own resources. However, we believe that if a country demonstrates its ability to assume new obligations, the Bank should respond by showing greater flexibility in its financing. The Bank has had no defaults in its loans and has been successful in recovering its money. It should, therefore, consider not only the immediate requirements of exchange for the direct purchase of foreign equipment, materials, and services, but also the indirect foreign exchange needs induced by domestic currency expenditures related to development projects and programs.
The Bank’s task is to complement insufficient savings, and this insufficiency is independent of the particular currency in which it is expressed. For this reason, the Finance Ministers of the 21 members of the Organization of American States who met at Rio de Janeiro in November 1954 made a recommendation to the Bank that, in justifiable cases, it should accept applications for financing not only foreign exchange needs, but also expenses incurred in local currency. Private banks in the United States and Europe are making this type of loan, and their experience has been satisfactory. I am certain that the International Bank would fare likewise.
We share the Bank’s concern over medium-term loans granted by suppliers who work under increasing competition in the capital goods market. The magnitude of obligations incurred in foreign currency, both for short and medium terms, reduces the capacity to assume long-term obligations, which are the most appropriate for large-scale development projects. Yet, it is only fair to concede that some countries have accepted such credits because of the increasingly favorable conditions on which they are offered and because it was the only way, at the time, to finance projects which were urgently needed. The remedy is to be found in more flexible forms of operation and in larger credits.
I wish to make clear that, when I speak of flexibility, I am not advocating abandonment of the principles which the Bank must uphold if it is to serve and protect the public which, throughout the world, has entrusted its savings to the Bank. Mexico has invested a modest, but, nevertheless, important portion of its reserves in the World Bank’s capital and bonds and, like other investors, wants the Bank to make sound loans.
Perhaps the most characteristic fact of our times is that economic development almost overnight has become the goal and ambition of millions of people. The needs which this desire creates are immense; they are urgent everywhere, and they cannot be postponed. The Bank cannot meet all needs, but it can do, as it has already done, a great deal. Yet, neither the Bank nor its members can pause for self-congratulation or rest on past achievements. In numerous countries, the task of economic development has barely begun.
The efficient operation of the Fund and the Bank has been due to a great extent to the character and ability of Mr. Eugene R. Black, President of the Bank, and of Mr. Ivar Rooth, Managing Director of the Fund. I am certain that many Governors, from their year-round dealings with the heads of our institutions, are keenly aware of the extent to which the success of the Fund and the Bank is due to their leadership. The Governors join me in extending to them our sincere and cordial congratulations.
As a closing remark, I wish to urge that, as we all discuss our common problems, we bring to bear a genuinely enlightened approach which, while taking into account our domestic interests and aspirations, recognizes that in part our true national interests lie in effective international accomplishment. Let us listen with close attention and with good will to what each has to say. In this assembly of 60 nations, it is inevitable that not everyone can be satisfied. Nevertheless, unanimously and in all fairness, we must concede that the progress achieved has been great. We all have a right to expect even greater progress in the future.
Delivered at the Opening Joint Session, Session No. 1, September 24, 1956.