Chapter

Presentation of Third Annual Report3

Author(s):
International Monetary Fund. Secretary's Department
Published Date:
November 1948
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By Mr. Camille Gutt

Chairman of the Executive Board of the International Monetary Fund

Mr. Chairman and Gentlemen, the Annual Report of the Executive Directors of the International Monetary Fund, which is now before you, gives the views of the Executive Board on the international payments problems which confront nearly all countries.

If there was any widespread feeling of optimism that postwar economic problems could be solved without great and new sacrifices, the experience of the past few years should be enough to dissipate it. Our danger today is rather that countries will fall into a fateful pessimism. There is no reason for assuming that, because these problems are difficult, they cannot be solved. In fact, as the report points out, very considerable progress has been made in building up production. The investment that is now going on in all parts of the world offers promise that the expansion of production will continue. We have good reason to expect that the time will come when countries will be able to provide for their needs with their own output. We have good reason to hope that the time will come when international payments can be balanced in a satisfactory manner by exports and international investment, without further reducing already depleted monetary reserves or depending on continued grants. All this will take time, of course, but it can be done.

The basic job of placing each country in a position to restore its international payments is one for which the government of each country has the primary responsibility. That government alone can take the measures to expand its output and to place production on an efficient basis. That government alone can put its domestic finances in order, and thus prevent a chronic dependence on excessive imports or a chronic difficulty in supplying adequate exports. This is the job that each government can and must do for itself. No one else can do it. I know from discussions with our members that they realize this.

There is another side to the problem. International payments are an international responsibility. If the whole world economy is disordered, it will be impossible for some countries to restore their payments in a way that will assure them a tolerable level of imports. This international responsibility, in which all countries share, has been generally recognized. It has been recognized in a concrete way by the aid that the Western Hemisphere countries have given to other regions of the world. It has been recognized by the aid that the European countries have given to each other and to some countries overseas. In truth, there are few countries which have not, directly or indirectly, put at the disposal of those with whom they trade, at one time or another, the facilities within their capacity, however modest. This has made it possible to continue essential trade while steps are being taken to restore a balanced world economy.

Inevitably, because the need for aid has required the provision of very large resources, this is the phase of international cooperation which has hitherto been, and for some years will continue to be, the most important. But we must not forget that there is another form of international responsibility which has been recognized through the institutions that have been set up to deal with the problems of a world economy. The International Monetary Fund is one of these institutions. It is particularly concerned with the problem of international payments, monetary reserves, and exchange policy. It has been established as a permanent institution, because these are continuing international problems that will require continued cooperation.

In carrying out its international responsibility, the Fund can succeed only to the extent that its members genuinely believe in international cooperation and agree, without reservation, to submit their exchange problems to international jurisdiction. Each country has to realize how intimately its well-being is related to the successful operation of the Fund. The more this concept becomes part of the basic policy of every member government, the more effective an institution the Fund will be.

This is the fact which you, Gentlemen—the financial leaders of your countries—must stress to your governments and to your peoples. They must be aware at all times of the absolute necessity for a coordinated international effort to surmount our economic difficulties. Separately, indifferent to the effect of their foreign exchange policies on each other, their prospects would appear to be very poor indeed. Only together may they hope to make rapid progress in measuring the forces arrayed against them and overcoming them.

The experience of the past few years has shown that the Fund is not subject to the will of any one country. It is a genuinely international institution. It has no other purpose than to work with and through its members in establishing a world economy in which all countries can have a chance to place their international payments in order. The achievement of this purpose depends largely upon the willingness of our members to work wholeheartedly with each other through the Fund. I emphasize this necessity because I believe the time has come when international cooperation should be a more active concept; because I believe that the Fund can better help its members if the work of the Fund brings them into more continuous and even closer relationship with each other, and with the Fund, in dealing with their exchange and payments problems.

The various measures that have been taken in the past year to meet the critical payments situation, particularly the inauguration of the European Recovery Program, will give our members an opportunity to work out their problems without the serious handicap that would be imposed upon them by a sharp reduction of essential imports of food, raw materials and equipment. These measures do not obviate the need for the nations to work together. They intensify it. The problems our members will face on international payments, on monetary reserves, and on exchange policies will become increasingly important. The best way to meet these problems is through self-help and mutual aid, by intensification of the collaboration of all countries through the Fund and through the other international institutions.

I should like to take this opportunity to comment on two misconceptions which have to some extent found their way into public opinion. A number of criticisms have been directed against the Fund. The happy side of this situation is that, in general, they contradict each other.

It has been said in some quarters that the policy of the Fund is unrealistic, that it tries to impose rigid par values not in keeping with the actual position of the countries concerned. In other quarters, on the contrary, the view is expressed that the Fund has been remiss in its duty because it has sponsored exchange practices contrary to its avowed aim of exchange stability. To the first criticism, there is ample reply in the Fund’s Annual Report. I would refer particularly to the beginning of the second part devoted to an examination of the concept of exchange stability versus exchange rigidity. Therefore, I shall not elaborate upon it. But I should like to answer the second one.

I have stressed that there has to be full cooperation between the members and the Fund. And I must also stress that full cooperation means cooperation that runs in both directions. When a member seeks the advice of the Fund, the Fund cannot limit itself to giving this advice on a “take it or leave it” basis, irrespective of consequences or reactions. It may well happen that the member country concerned may find it impossible to follow the Fund’s advice. Ought the Fund at that juncture adopt an attitude of aloofness and condemn any solution other than the one it has advocated? We have never thought so. We have always been ready to examine the considerations put forward by the member, since we have always been eager to take into account the realities and the practicalities of the situation. And sometimes, recognizing these practical considerations, we have not objected, in the end, to solutions which did not constitute the immediate application of the policy we had recommended.

Did this mean that we were acting illogically? That we were sponsoring a system in contradiction with the very principle which we were set up to promote? Not in the least. It meant, first, that the road to exchange stability is sometimes a long and hard one; second, that, without losing sight of the ultimate goal to be reached, we realize that in given cases it is materially or psychologically possible to reach it by successive stages only. Thirdly, it meant that, when what we thought to be the best plan had been rejected as impossible of immediate accomplishment, we preferred to have a country choose a second best scheme rather than do nothing and thus worsen its predicament.

This is, I think, a realistic attitude, in keeping with our duty both to our members and to the spirit of the Fund Agreement. People seem often to forget that, even at the Bret ton Woods Conference in 1944, it was evident that provision would have to be made for a postwar transitional period during which certain leeway in applying the Fund’s principles should be allowed. Hence, Article XIV of the Fund Agreement, which permits members to apply temporarily certain measures of exchange restriction. Of course, in their foreign exchange policy, these members must have continuous regard to the purposes of the Fund; but they can use the leeway thus given them in this very difficult time.

Our members are assured that in their dealings with the Fund they can expect a practical approach to their problems. They know that no attempt will be made to fit them into a standardized mold, unsuited to their economies. They realize that the way of the Fund in dealing with a member is to look at the member’s situation from the member’s point of view, and to provide such advice and such assistance of a practical kind as will enable it to work out its own problems. The essential duty of the Fund is to see that the measures taken by a member, first, are suitable to its problems, and, second, that they will not inflict damage on the economy of other countries.

Another general misconception with which I should like to deal relates to the usefulness of the Fund. There, too, opinions are varied and contradictory, according to people and to countries. Some argue that the Fund was not intended to function in a period of profound disequilibria such as the one in which we are living. For some others the Fund, although equipped with the necessary powers, has seemed too cumbersome to be efficient.

Again, I think such conceptions are belied by reality. As to the period in which we are living, to my mind it has in some respects exceeded, in some other respects disappointed, the hopes which were entertained at the time of the Bretton Woods Conference. It has certainly exceeded them from the material point of view. I think that, had we been told at Bretton Woods that four years after the cessation of hostilities, despite the immense and incredibly thorough destruction of wealth and human lives which had taken place throughout the world during the live preceding years, the world’s material recovery would have reached the stage described in the first part of the Fund’s third annual report, we should hardly have believed it. In other fields events have not measured up to our expectations. The completion of recovery is being delayed by a number of political difficulties, some internal, most of them international, which have manifested themselves since the end of the war, which still remain unsolved, and which weigh heavily upon us.

Are these reasons why the Fund should do nothing? As long as two years ago, in the letter transmitting to you the Fund’s first annual report, I said “No”—that the Fund must move, even in difficult times. Since then, the Fund has continuously been acting in its dual capacity of monetary advisor and financial aide. It has been in close touch with most of its members, either through its Executive Directors, or through its staff or its Managing Director. It has studied their problems and has provided technical assistance when asked. It has sold over $633 million of foreign exchange. It has adjusted its policy to changing circumstances and new facts, amongst which the European Recovery Program stands as a major factor.

In the light of what the Fund has done, I do not think it fair to say that it has proved a cumbersome machine. It has been aware of the problems of its members. In many instances it has called the attention of members to the necessity of meeting these problems. It has given prompt consideration, and thorough consideration, to the exchange policy proposals of its members. On all exchange transactions, it has acted with dispatch. No normal request for exchange has had to wait more than the three working days provided for by our regulations. When some exceptional case arose, the discussions took place at once and were pursued until we came to a conclusion.

There are always, of course, some people who feel that, because the present critical situation in international payments could not be avoided, the Fund, as well as other international institutions, has failed in its task. By such an illogical test everything, everywhere, would stand condemned today. The Fund could not prevent some difficult problems from arising. The Fund alone could not solve them. But this is far from saying that the Fund, and other international institutions, have been unequal to their task. The Fund, although it can not itself meet the entire payments problem, has a job to do. I believe that considering the limitations purposely set by the Charter of the Fund to its activities, considering the difficult circumstances in which this activity was started, the Fund has done this job and done it efficiently.

People often recall the famed words of William III of Orange: “Hope is not necessary to undertake, nor success to persevere.” I would not apply those words to the Fund. We undertook our task because we earnestly hoped to fulfill it. And we shall persevere because, all things considered, without either undue pride or false modesty, we think that we have thus far succeeded.

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