Journal Issue

Views and Comments

International Monetary Fund. External Relations Dept.
Published Date:
June 1970
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Excerpts from an address by Robert S. McNamara, President, World Bank Group, to the Columbia University Conference on International Economic Development in New York on February 20, 1970.

“In setting the objectives, planning the programs, and measuring the progress of development in the seventies, we must look to more than gross measures of economic growth. What we require are relevant ‘development indicators’ that go beyond the measure of growth in total output and provide practical yardsticks of change in the other economic, social, and moral dimensions of the modernizing process. To limit our attention to expanding GNP, even though it be from 5 per cent per year to 6 or 7 per cent, can only lead to greater political, social, and economic disequilibrium. However important an increase in GNP may be as a necessary condition of development, it is not a sufficient condition.

“This is not to say that the Pearson Commission and Tinbergen Committee target of reaching a 6 per cent annual growth rate of GNP for the developing world in the seventies is not both feasible and necessary.

“It is feasible if those of us in the wealthier world will complement the growing savings of the developing countries by moving toward the development assistance objectives endorsed by both these distinguished groups. And it is necessary, if the broader objectives of development are to be met.

“But if we achieve the ‘quantity’ goals and neglect the ‘quality’ goals of development, we will have failed. It is as simple as that. We will have failed.

“The Second Development Decade gives us the opportunity to establish and pursue ‘quality’ goals of development with new insights, new strategies, and new emphases.

“With that in mind, I would like to put before you one or two points on the possible role of the World Bank in this new task of seeking quality in the process of development. As a bank we are naturally committed to the continuance and expansion of our role of mobilizing capital and using it for growth of the productive capacity of the developing nations. We plan during the five years 1969-73 to increase our lending by 100 per cent over the level of the previous five years. The very great advances in the developing countries’ skills and infrastructure over the last decade have broadened the opportunities for productive investment, and we are determined at the Bank to take full advantage of them.

“But—and I repeat the point—we cannot content ourselves with the mere quantity of our operations if they are not adding to the genuine quality of man’s life on the planet. And if our investments are to meet this wider goal, I frankly admit that we and other investors need to add to the patterns of analysis a new dimension of social concern.

“This concern must, of course, be as rigorous, factual, and informed as any of our other economic analyses and forecasts.

“We do not want simply to say that rising unemployment is a ‘bad thing’ and something must be done about it. We want to know its scale, its causes, its impact, and the range of policies and options which are open to governments, international agencies, and the private sector to deal with it.

“We do not want simply to sense that the ‘green revolution’ requires a comparable social revolution in the organization and education of the small farmer. We want to know what evidence or working models are available on methods of cooperative enterprise, of decentralized credit systems, of smaller-scale technology, and of price and market guarantees.

“We do not want simply to deplore overrapid urbanization in the primary cities. We want the most accurate and careful studies of internal migration, town formation, decentralized urbanism, and regional balance.

“These issues are fully as urgent as the proper exchange rates or optimal mixes of the factors of production. The only trouble is that we do not know enough about them. I would go further and say that, up to a point, we do not even know how to think about them. Just as the censuses of the 1950’s helped to alert us to the scale of the population explosion, the urban and employment crises of the sixties are alerting us to the scale of social displacement and general uprootedness of populations which are exploding not only in numbers but in movement as well. But we are still only picking up the distress signals. We still do not know how to act.

“We should be frank about this. As we enter the seventies, in field after field, we have more questions than answers. Our urgent need is for new instruments of research and analysis with which to dispel our ignorance of the social dimensions of economic change and help us formulate a more comprehensive strategy for the decade ahead.

“We in the World Bank cannot, of course, alone and from our own resources, provide all the new information and expertise demanded by the scale of our ignorance. But we can stimulate and be part of a wider effort of research and education, and we can help draw together new resources for the formulation of wise development policies. We propose to seek the cooperation of universities, foundations, research units, other international institutions, and experienced administrators for that purpose.

“Further, to provide a solid foundation for consultation and action by both developed and developing nations, in the whole field of development strategy and administration of aid, we plan a new and expanded program of Country Economic Missions. These will be regularly scheduled, thoroughly staffed, comprehensive missions whose mandate will be to assist the member government to draw up an over-all development strategy which will include every major sector of the economy and every relevant aspect of the nation’s social framework.

“One significant innovation in these missions is that the team itself will include representatives from the UNDP, who will play a central role in working out a preinvestment program, so that future development financing may be on a firmer foundation. Where appropriate, the team will include agricultural specialists from FAO, educational specialists from Unesco, medical officers from WHO, and employment experts from ILO, as well as other competent consultants in specialized sectors.

“Our own Bank staff on the mission will be looking into not only the traditional problems of economic growth but the other facets of development as well: questions of population increase, urbanization, land reform, income distribution, public health, environmental preservation, and all the related issues. Once the mission is completed, we will promptly produce for use by all of the parties concerned a thorough Economic Report which will serve as a profile of the country’s progress, and of its over-all development plan.

“In our larger member countries—those containing 80 per cent of the population of the developing world—we will undertake these new Economic Missions annually; in other member countries, every two or three years. The essential point is that they will be comprehensive in scope, regular in schedule, and will form the basis for strategic rather than merely tactical development financing.

“Perhaps one of the most wasteful mistakes that both developing countries and aid agencies can make is to proceed on a random project-by-project basis, rather than first to establish an over-all development strategy, and then select projects that mutually support and interlock with one another within that over-all plan. Our new program for Country Economic Reports is designed to provide a foundation for such a strategy.”

Excerpts from an address by Pierre-Paul Schweitzer, the Managing Director of the International Monetary Fund, on the occasion of the 20th Anniversary of the Central Bank of Costa Rica, San José, March 5,1970.

“In SDR’s we now have, for the first time, a pool of deliberately created international reserve assets. This means that the size of this pool will be determined by rational collective judgments of the world’s reserve needs, in such a way that it will enable the international adjustment mechanism to function as smoothly as possible. It is unquestionably a major step forward in international financial relations.

“But the new asset, unlike the institution we are honoring today, is only in its infancy. There is a long road ahead to be traveled. We cannot yet foresee what fundamental changes in international financial relations are likely to grow out of the creation of SDR’s. No doubt new problems will arise, and the full potential of this new reserve asset will only be realized over a period of years. All this calls for the fullest possible international cooperation and I am sure of every-body’s support for the Fund in this endeavour.

“Of course there are those who have expressed doubts about SDR’s. They point out that the larger part of the allocations will go to the industrial countries, and imply that the usefulness of SDR’s for the developing countries is severely limited. It is certainly true that 19 countries with an annual per capita income of $1,000 or more received over 70 per cent of the SDR’s distributed two months ago. But I could point out that the countries of Latin America, for example, will receive, over three years, SDR’s amounting to approximately $1 billion, and that this is the equivalent of nearly 25 per cent of their present gross reserves. Indeed, for the 85 low income countries participating in the scheme, the first allocation of SDR’s raised gross international reserves by more than 7 per cent, whereas for the 19 high income countries, the corresponding increase was only about 4 1/2 per cent.

“On the other hand, SDR’s were not designed as a mechanism for an international redistribution of income, even though there were many who argued that they should be linked directly to development aid. SDR’s were intended to provide appropriate international reserve ease and therefore their distribution according to quotas was a rational way to achieve this objective.

“The value of SDR’s cannot be measured solely by the contribution they make to individual countries’ reserves. If their only effect was to increase statistical totals, and the world economy proceeded with no visible improvement, I for one would be very disappointed. For the intention in creating the asset was to produce qualitative changes, not solely quantitative ones. It is my fervent hope that the effect of removing the threat of reserve stringency will be a major improvement in the international monetary system. Countries should now be able to achieve a decisive liberalization of their trade policy, and make substantial progress toward meeting the aid targets set for the second development decade, where before they were often constrained by inadequate reserves. It should no longer be necessary for countries to adopt measures detrimental to the developing world in the face of temporary balance of payments difficulties. Seen in this light, it seems appropriate that the bulk of SDR’s should go to the industrial countries, for it is these countries which have the most to contribute to the better health of the international monetary system.”

Excerpts from an address delivered by Mr. Rodrigo Gomez, Director General, Bank of Mexico, at the 36th Annual Convention of the Mexican Bankers’ Association, Guadalajara, Mexico, on March 12, 1970.

“Advances in international monetary cooperation—a relatively new facet of the financial world—have been significant over the past years. The fact that Mexico is one of the developing countries having a more active participation in cooperative efforts of international monetary cooperation-modest though it may be—prompts me to examine briefly some of the basic characteristics in the development of this phenomenon.

“The axis of monetary cooperation among the world’s nations is doubtless the International Monetary Fund (IMF). Established in 1945 to deal with financial problems of the postwar era, it has developed along with the changes occurring in the world of finance until now it consists of what we might call a cooperative of central banks. The Fund has assets of $21.3 billion—an amount soon to reach $28.9 billion, after recent increases in quotas are taken into account. These resources are utilized in helping member countries to solve temporary balance of payments problems.

“The work of its highly skilled technical personnel has extended the idea that an environment of financial discipline can be one of the best ways to achieve balanced growth and a real rise in the world’s standard of living.

“As the complexity and dimensions of financial problems increase, closer cooperation among nations becomes more essential. With this in mind, the General Arrangements to Borrow—among others—appeared in the early sixties, formed by the Group of Ten and Switzerland. At the same time, there has been a considerable expansion in the reciprocal credit agreements existing between the U. S. Federal Reserve System and other central banks.

“These mechanisms are extremely agile and rapid; to date, they have lent substantial and timely support to various countries who have suffered temporary imbalances in their balance of payments position. Thus, they have become a front line of defense against maladjustments in exchange markets.

“Mexico has participated in this network of reciprocal agreements since 1967, and, through them, in general efforts of international cooperation, in the amount of $130 million. And since much earlier (1941), we have had a monetary stabilization agreement with the U.S. Treasury; the current amount is for $100 million.

“Only a few weeks ago, the central banks of the European Economic Community signed a new reciprocal monetary agreement, strengthening existing arrangements. The agreement makes it possible to obtain short-term credits in swap operations and, under certain conditions, up to an amount of $2 billion. Funds come from a common pool consisting of pledges of credit from member countries. It is interesting to point out that in Latin America, the Agreement of Santo Domingo, signed in September 1969 by central banks of LAFTA countries and the Dominican Republic, has features and objectives similar to the above.

“As can be seen, progress in international monetary cooperation has been of significance. Funds made available through these different agreements represent more than $40 billion, including current IMF quotas—approximately one half of the value of the world’s total reserves.

“Notwithstanding, these agreements, which essentially imply a more efficient use of existing international liquidity, are not sufficient to meet the expansion in trade and the world economy, whose rate of growth has been much higher than that of reserves. In order to avoid disparities of a more serious nature, which would provoke a possible rash of restrictive practices, steps were taken to establish a supplementary mechanism which would represent a truly transcendental advance in the field of economic cooperation, and a real addition to existing liquidity. We totally agree with the Managing Director of the IMF, Pierre-Paul Schweitzer, when he declared a few months ago that we have witnessed ‘one of the great steps forward in the evolution of the world economy’.

“On January 1 of this year, the initial allocation of special drawing rights (SDR’s) was made, and the world now has a new reserve asset. In accordance with the resolution adopted by the IMF Board of Governors in September 1969, the first allocation of SDR’s over a three-year period will be of $9.5 billion ($3.5 billion during the first year, and $3 billion during each of the two following years). Mexico has already received $45,360,000; in 1971 as well as in 1972 we will receive $40 million more. In 1972, after examining world liquidity needs, allocations will be set for another period.

“The true greatness of this measure will not be fully evident for some years to come. This, however, is the first time in the history of man that a new reserve has been created collectively, deliberately and in accordance with the needs of world trade and economy.

“Despite their having a gold guarantee, SDR’s are based fundamentally on the trust of the international financial community—that is, they are clearly a fiduciary asset. This is indeed a long way from that moment in which, having passed the barter stage, money was represented by a curious assortment of goods.

“In the Aztec capital of ‘Tenochtitlan’ different commodities were used as money: gold dust packed in the quills of certain birds; semi-precious stones—’chalchihuites’; pieces of woven material; and cocoa beans. These objects were called ‘Tlacouhalloni’—meaning things with which things were bought. And it is said that in the language used by the natives of this land of Jalisco, articles of value were referred to as ‘tapatios’*—also used to indicate a means of payment composed of three units.

“As time passed, those ‘things with which things were bought’ were substituted by precious metals—mainly gold and silver. The growth of transactions, however, has exceeded the availability of metals, and so these are gradually replaced by money of less metallic backing but of a higher fiduciary content—that is, trust.

“At present, the parity of all currencies is expressed in ratio to other currencies and the monetary use of gold has been confined exclusively to central banks. Gold, however, will continue to be the basis of the international monetary system in the future.

“The introduction of the new reserve asset can best be interpreted as being essentially fiduciary and international. SDR’s give the holder the right to exchange them for convertible currencies, in order to meet justifiable balance of payments needs, automatically and unconditionally. Their use will be exclusively among monetary authorities and they will earn a moderate rate of interest.

“There is no doubt that the mechanism can be of direct or indirect benefit to participants, but it also implies responsibilities—especially for those nations strong in their foreign exchange or balance of payments position.

“The IMF has declared the Mexican peso among the eight convertible currencies; the others are the U.S. dollar, the pound, the German mark, the lira, the Belgian franc, the French franc, and the Dutch florin—all of which are apt for use in the new mechanism. The Bank of Mexico has already taken part in support operations to other countries with SDR’s, and during the first quarter of 1970 it is estimated that our participation in pesos will reach an equivalent of $5 million. Not only has this consolidated our credit position in the IMF with immediately available funds but it also has reaffirmed Mexico’s financial prestige abroad.”

Excerpts from a speech by Frank A. Southard, Jr., the Deputy Managing Director of the International Monetary Fund, at the 36th General Meeting of the Mexican Bankers’ Association, Guadalajara, on March 12, 1970.

“The vigorous policies of monetary restraint now being pursued in most industrial countries could result in some slowing down in the growth of world trade from its exceptionally high rate in the recent past. This, and the expected strengthening of the current account balances of several major industrial countries to which I have referred, could lead in 1970 to some weakening in the current account positions of primary producing countries. However, there are several mitigating factors. For one thing, the improvement in the current accounts of industrial countries, and in world payments equilibrium, should give greater assurance of the maintenance of a reasonable level of capital flows and aid to the developing countries. Second, the developing countries have added substantially to their international reserves in the last three years, the addition being estimated at $1 billion for 1969 alone. Latin America has had its share of this accretion. Third, the increase in Fund quotas recently approved by the Governors will add significantly to the conditional liquidity available to developed and developing countries alike. Fourth, the allocation of special drawing rights means an assured growth in the reserves of all participating countries…. SDR’s are the first attempt in history at a deliberate and rational creation of international reserves. The greater international reserve ease provided by this medium will benefit the developing countries both directly and indirectly. The allocations they receive will strengthen their own reserve positions and thereby permit steadier economic development efforts. Perhaps even more important is the expectation that the industrial countries, by the assurance of more adequate reserves, will gain more leeway in the maintenance of a high level of economic activity, which is obviously of great importance to the developing countries.”

This same name is used today to refer to inhabitants of the State of Jalisco.

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