Consolidation of policies designed to widen the Bank’s contribution to development, notably in agriculture, industry, and education, and further development of policies to help to alleviate the mounting debt-servicing burden on many of its member countries—these were the major themes to which speaker after speaker returned at the Bank-IDA-IFC Annual Meetings. Particular attention was given to the 50 per cent increase in the Bank’s contribution to IDA this year and to the development of measures to coordinate aid programs and to help stimulate the flow of private capital to less developed countries. Some member countries, including Ethiopia, Luxembourg, Nepal, Sierra Leone, Somalia, and Sweden, made the visit of their Governors to Washington the occasion for signing the Bank’s Convention on the Settlement of Investment Disputes, helping to bring this part of the Bank’s newly evolving policies closer to realization.
In his annual address, the President of the three institutions, Mr. Woods, emphasized the widening spectrum of the Bank’s lending. For the third year out of the last four, the Bank Group’s total lending had again exceeded $1 billion. While the financing of transportation and electric power continued to be the main business, commitments for agriculture, industry, and education had increased, as also had expenditures for advisory and technical assistance activities. The volume of business was expected to continue to rise, partly as a result of the work being done to identify and promote the preparation of new projects for Bank and IDA financing and also because activity in agriculture and education was increasing under the cooperative arrangements with FAO and UNESCO. Mr. Woods warned, however, that no amount of external assistance could substitute for a greater and more effective effort by the underdeveloped countries in mobilizing and allocating their own internal resources. It was this effort which fundamentally determined the rate of growth and the future of international development assistance. The Chairman of the Annual Meetings, the Honorable Yilma Deressa, Finance Minister and Governor for Ethiopia, said that the Bank Group was becoming increasingly flexible and better equipped to accelerate the pace of development, adding that he believed that the programs in agriculture and education would have beneficial effects far beyond the Bank’s immediate lending program.
Agriculture and Education
Mr. Woods said that “nearly all the low-income countries must redouble their efforts to overcome the lag in agricultural productivity—literally the most vital, yet at the same time generally the most feeble, of the economic sections in the underdeveloped world.”
Mr. Thomas Mann, U.S. Under Secretary of State for Economic Affairs and Alternate Governor for the Bank and the Fund, pointing out that it was more difficult to increase agricultural production than to build a factory, stressed the value of the Bank’s policy of promoting local development banks to provide the kind of credit facilities that were indispensable for agricultural development. “It was just such small credit facilities,” he said, “which spurred the agricultural revolution in some European countries and the United States toward the end of the nineteenth and the beginning of the twentieth centuries.”
Mr. J. S. Gichuru, Minister of Finance and Governor for Kenya, welcomed particularly the Bank’s recent agreement to undertake the formation of an experimental Agricultural Development Service in Eastern Africa, one of whose aims would be to conserve the scarce skills and expertise of expatriate agricultural officers, following the transformation of local civil services.
Speaking for the Latin American member countries, Mr. Celso Pastor, Peruvian Ambassador to the United States and Governor for Peru, urged the Bank, when evaluating projects relating to agriculture and stockbreeding, to make as much use as possible of the technical and financial capacity of the countries of the region and to reinforce this with technical assistance as necessary. The Bank’s policies concerning vocational training were applauded by the Latin American nations, who wanted them extended to enable developing countries to achieve greater flexibility in meeting the demands for highly trained manpower.
Mr. D. W. A. Barker, New Zealand Secretary to the Treasury and Bank Governor, said that in New Zealand’s experience, investments in agriculture must continue to have a high priority in the development of any primary producing country.
Other speakers who welcomed the Bank’s initiative and stressed the value for the future of its links with FAO and UNESCO included Mr. Abdullah Yaftali, Governor for Afghanistan, Mr. U. B. Wanninayake, Governor for Ceylon, and Mr. D. B. Sangster, Governor for Jamaica.
Mr. Woods announced that nearly all action had been completed on the amendment of the Bank and IFC charters to enable IFC to borrow from the Bank amounts up to four times its unimpaired subscribed capital and surplus. When the amendments became effective, as they were expected to be at an early date, the Bank would be able to lend about $400 million to IFC, and Mr. Woods issued an invitation to industrial entrepreneurs “to note the possibilities that IFC’s resources will then present.”
Mr. Mohammad Shoaib, Minister of Finance and Governor for Pakistan, the scene of IFC’s largest operations in 1964-65, emphasized the vital importance to developing nations of achieving some trade in manufactured goods as well as raw materials, since the capacity of the world to absorb the latter was not unlimited.
Chief Festus Sam Okotie-Eboh, Federal Finance Minister and Governor for Nigeria, expressed the hope that IFC’s expanded activities would lead to increased investments in Africa. He pointed out the importance of Bank and IFC help to developing countries in their efforts to intensify their comparative advantages in production and trade.
Mr. A. N. L. Wina, Minister of Finance and Governor for Zambia, the Bank Group’s newest member, urged the Bank and IFC to take a sympathetic view of the development of industries and industrial communications that might be established in different regions of the African continent, as a result of agreements between countries for harmonizing their industrial plans. Other speakers, including Mr. Albert Payao, Fund Governor for the Central African Republic, stressed the problems of nations with a shortage of indigenous investors. They urged the Bank Group to adopt a flexible policy toward state-owned development finance companies and industrial enterprises.
Mr. Woods also reported that the second major project for encouraging private international investment, the Bank-sponsored Convention on the Settlement of Investment Disputes, was moving toward adoption. In less than six months since its submission for approval, the Convention had been signed by more than 20 governments of Europe, Africa, Asia, and the Western Hemisphere. He urged governments to quicken action toward ratification. The Bank had also begun studies on another proposal, submitted by the OECD, for a multilateral system to insure foreign investments in developing countries against noncommercial risks. Speakers who looked forward to the stimulus of a freer and more substantial flow of private capital to the developing countries as a result of this proposal included Mr. Ching-Yu Chen, Governor for China, and Mr. Victor Kanga, Fund Governor for Cameroon.
IDA Replenishment and Debt Servicing Problems
The Governors unanimously approved the Bank Executive Directors’ recommendation to transfer $75 million to IDA from the Bank’s net income. They also approved a resolution calling upon the Executive Directors of the Association to formulate proposals to replenish IDA funds, as an initial step toward the second replenishment by donor governments.
The debt-servicing problem, which formed the background to these resolutions, continued as in previous years to preoccupy most speakers from the developing countries. In his annual address, Mr. Woods drew attention to the fact that the outstanding international debt of the developing countries had risen more than threefold between 1956 and 1964 to an estimated $33 billion. Moreover, because of rising interest rates and accumulations of short-term debts, the cost of servicing this debt had risen over four times, to an annual total of $3.5 billion by 1964.
“On present form, amortization, interest and dividends are offsetting the actual gross flow to the developing countries from all sources by half, and will continue to offset it at an accelerating rate,” said Mr. Woods. “In short, to go on doing what we are doing will, in the not too long run, amount, on balance, to doing nothing at all.... Given the financial facts of life in the underdeveloped countries,” he added, “a general easing of terms is clearly indicated if we are to avoid disaster in the future.”
He emphasized that he was referring to the disastrous consequences of defaults on international obligations, which, if they occurred, would be incalculably harmful to the international flow of capital. He also made it clear that the future required massive and coordinated efforts by both the developing and the developed countries, and that improving performance by the former would continue to be one of the prerequisites for accelerating economic development.
Mr. James Callaghan, Chancellor of the Exchequer and Governor of the Fund for the United Kingdom, said that, in adopting a new policy of giving loans on interest-free terms in appropriate cases, the United Kingdom had been “greatly encouraged by the example and experience of IDA.”
Mr. Giscard d’Estaing, Minister of Finance and Economic Affairs and Governor of the Bank for France, calling for an “effort of imagination” to end the stagnation of financial aid, urged that some future resources should be earmarked for price supports and the stockpiling of primary products.
Among the speakers from the floor who urged a greater effort on behalf of IDA was Governor David Horowitz of Israel, the author of the “Horowitz Proposal” which deals with the same problem of the need for increasing concessionary aid to the developing countries (see Finance and Development, Vol. II (1965), pp. 167-74). In a maiden speech for Malawi, Governor J. Z. U. Tembo, the Minister of Finance, said that it was heartening to see that the percentage of IDA credits to Africa was now increasing. Some of the African members, including Governor François Aplogan of Dahomey and Fund Governor Edouard Ebouka-Babackas of Congo (Brazzaville), also praised the Bank’s initiative in establishing regional offices to advise in the preparation of projects, for either the Bank or IDA financing.
A number of speakers pointed to the difficulties that led many less developed countries to resort to short-term borrowing and suppliers’ credits. Mr. Woods reported that the Bank was undertaking a study of the problems of suppliers’ credits at the request of UNCTAD; it hoped to be able to suggest ways in which previous undesirable practices might be eliminated without impairing the use of private credit facilities for financing the international exchange of goods and services.
Pointing out that export earnings financed four times as many imports for development as investment and foreign assistance, Mr. Woods said that uncertain export prospects were a dominant difficulty for the developing countries. Abrupt and wide fluctuations in commodity prices had caused the export income of many less developed countries to vary by as much as 15 per cent in a year, while some had experienced shortfalls twice as great.
The Bank was joining in two initiatives to help mitigate this problem. One was a joint study with the FAO and International Coffee Organization of the needs and prospects of the coffee producing countries for diversification into other lines of production which would give greater stability and strength to their economies. Coffee, a major source of export earnings of about a dozen countries in Latin America and Africa, exhibited some of the worst features of the commodity problem. Among those who welcomed the Bank’s enterprise were Ghana’s Finance Minister and Governor, Mr. K. Amo-ako-Atta, who cited also the severe drop in cocoa prices, the Governor for Panama, Mr. Carlos Velarde, and, on behalf of the Latin American countries, the Governor for Peru.
The second initiative stemmed from a proposal put forward by the U.K. and Swedish Delegations at the 1964 meeting of UNCTAD. This aimed at defending development programs from the dangers of disruption caused by unexpected shortages in export earnings, by the provision of supplementary resources under certain agreed conditions. A staff study was almost completed.
Mr. Woods said that the predicament of the debtor countries called for a continuing country-by-country review of existing debt and careful consideration of the ways to handle it. Moreover, the replenishment of IDA was closely related to the broader issue of ensuring that all aid, from whatever source, was deployed to provide the maximum developmental return. This required full cooperation and understanding between donor and recipient countries, and one of the primary tasks of the World Bank Group would be to facilitate this collaboration.
Consultative groups for this purpose had already been formed for six member countries and further groups were foreseen for the future, and, Mr. Woods added, “It is our aim over the course of time to bring into this consultative system perhaps a score of developing countries comprising the recipients of much the largest share of international development finance.”
The World Bank Group, in addition to cooperating closely with the Fund, would work with other organizations such as the Inter-American Committee of the Alliance for Progress, the Inter-American Development Bank, and future regional organizations in Africa and Asia. The Governors who supported this approach included Governor Vondeling of the Netherlands and Mr. S. Bhoothalingam, Head of the Delegation of India.
The Chairman of the Meeting, Mr. Deressa, emphasized the need for “appropriate and timely policies” to meet present-day needs and, in his closing address to the Governors, Mr. Woods again stated his belief in the usefulness of consultative groups for coordinating and improving the quality of aid and his confidence that, with good will and cooperation on both sides, they could be made to “serve development well.”