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Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
September 1970
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Excerpts from a speech by Irving S. Friedman, the Economic Adviser to the President of the World Bank, delivered at the European Regional Conference on Educational Assistance to Developing Areas in Cologne, Germany, on May 4, 1970.

“The Bank tries to look at a country’s education and training system in the widest sense and to evaluate the role of the system in promoting overall development. This review, we feel, should be based on the realization that each part of the system comprises a building block of a complete education pyramid. The purpose of each block is chiefly to prepare the student for a place in society rather than to prepare him for a place in the next stage of the education system. But a free and smooth flow of students within the educational system should also be possible.

“An education review, we believe, should start with the existing aims and objectives of the education system and of its external productivity. Are the aims relevant to economic and social demands of the society? To the prospective over-all development?

“The second step in the review comprises an analysis in depth of the formal and nonformal education content and structure. How does the content meet the objectives as they are defined or should be defined? What is the correlation between the content and the demands of society and the labor market? How does the educational profile of the society compare with the school’s educational profile?

“Next comes an analysis of the technology of the education system. And here we use the word technology in its broadest sense to include teaching methods, management, and staffing. Also in this context, a discussion of alternative technologies to improve the system is important.

“The fourth step in the analysis should deal with programing and physical planning of the education system. To what extent have education and training objectives, structure, curricula, technology, population distribution, urbanization, transportation means, over-all economy, and financial constraints been considered in the physical planning and location of schools, or other education and training institutions? Is the utilization of staff, space, and materials optimal? Have school designs been systematically studied?

“The most vital phase of our analytical model is an investigation of the costs and financing of the system and its internal efficiency. Education represents both investment and consumption and in both respects it should be exposed to intra as well as to inter sectoral priority reviews. For instance, teachers’ salaries form 80 to 90 per cent of recurrent costs. Yet in many countries, teachers’ salaries are too low and the individual salaries of teachers are likely to rise markedly. At the same time, the percentage of salaries in the total educational budget frequently needs to be reduced. Efforts to reduce that percentage might be discussed in this stage of analyzing costs and financing of the system. Also, the cost analysis should give cost ranges, indicate the sensitivity of such estimates to changes in inputs, and, as far as possible, provide alternative costing solutions for the improvements or changes which may have been discussed previously in the review.

“Finally comes the proposal for an action program. If a sector mission has done a thorough job of analyzing the education system and the direction in which it is moving, the groundwork is then prepared to examine alternative ways of removing weaknesses and to propose realistic strategies for future development.

“Obviously if such strategy is to have any real significance it must mean something more than a fine collection of pious generalities. The strategy must be selective and unified, not merely a hodgepodge of everyone’s favorite education recipes. It must be sharply focused upon those major goals and critical problems which many nations have in common; it cannot attempt to embrace every special concern and interest. No educational strategy can please all, particularly not all those engaged in education. It must reject the views of some and change at least some traditional and cherished habits of thought and action.

“Ideally, what should emerge is a balanced educational blueprint, one that is synchronized with broader national development goals and with specific plans and targets of related sectors. This is what modern development strategy is all about.”

Excerpts from a speech by Pierre-Paul Schweitzer, Managing Director of the International Monetary Fund, at the International Financial Conference in Geneva on May 19, 1970.

“Looking back at the 1960’s, we can say that the international monetary system has been through something of an ordeal by fire. It survived that ordeal and has emerged with improved foundations. If we consider the international monetary system not only as a structure, but also, as I believe we must, as the way in which that structure is used, it is quite evident that we do not have the same system now that we had five, let alone ten, years ago. This adaptation reflects a number of forces—evolutionary change through the pressure of circumstances, as well as structural growth, through the creation of new facilities. The 1960’s saw their full share of both types of change in the international monetary field. Probably the most important development of all, and in a sense the basis of all the other changes, was the more active recognition by countries of their common responsibility to maintain a due balance in the international monetary system and to ensure, by collective and deliberate action, that the system is kept supplied with a proper level of international liquidity.

“The gradual acceptance of these principles was reflected in a wide range of specific actions which I will not detail; let me only mention the introduction of special drawing rights, the two important quota reviews in the Fund, the compensatory finance facility, and the new arrangements for gold to which I shall refer presently. I should cite also the adaptations in the policy attitudes of major countries on questions such as their international responsibility for the consequences of their domestic policies, and on the appropriate scope for exchange rate changes ….

“Aided by all these developments, the international monetary system got off to a good start in the 1970’s. But what are the prospects of this improvement being maintained? I take as my starting point a cursory review of the troubles of the 1960’s-for few are so sanguine as to believe that, even with the aid of our latest innovations, the lessons of these recent difficulties are of merely academic interest.

“Speaking generally, one may identify two broad elements in the past currency disturbances. First, there were poor policies and unforeseeable disturbances which created disequilibria as well as delays in taking steps to correct such disequilibria. The resulting deficits or surpluses then had to be financed with reserves or credits, or suppressed through controls and restrictions on the flow of trade and payments. Second, the international monetary system as a whole was no longer supplied with an adequate inflow of reserves from the traditional sources. …

“In many instances—I would say, in most instances—the delays that have been experienced in correcting external imbalances reflect a delay in taking action that is needed to bring the domestic economy into balance. Where a troublesome disequilibrium in the balance of payments originates in an excess of domestic spending, timely action taken to remove that excess, through fiscal and monetary policies, should dispose of both the internal and external aspects of the imbalance. However, delays in applying appropriate domestic correctives are likely to aggravate the external disequilibrium. This may in some cases, build up to a point at which it can no longer effectively be dealt with by domestic financial policy alone. In other instances, payments disequilibria may arise as a result of disturbances that cannot be attributed to inadequacies in domestic financial policies: countries may be thrown into deficit—or into inappropriately large surplus-by unexpected developments in foreign markets or in domestic productivity. It has become well recognized that restoration of payments equilibrium in such circumstances may call for an adjustment in the exchange rate; though it will usually also be necessary to take accompanying measures to adjust domestic expenditures so as to assist the economy to respond to the change in the exchange rate in the intended way.

“The experience of recent years has emphasized that once the need for exchange rate adjustment has become clear, delay in taking action may involve heavy costs. These costs are most obviously apparent in the disruptions caused by foreign exchange speculation. A less visible but often more serious cost may be incurred through misallocation of resources in the economy concerned. There will be a tendency toward undue concentration on the domestic market in countries with overvalued currencies, and toward undue emphasis on external markets in those with undervalued currencies. Such misdirections of economic activity may become increasingly embedded in the economy, and correspondingly more difficult to correct.

“Of course, the desirability of avoiding undue delays in necessary adjustments in exchange rates must not obscure the importance of avoiding inappropriate exchange adjustments where other correctives are more suitable…. A change in par value is appropriate only when a national economy becomes fundamentally out of line with the economies of its trading partners and it is not a step to be taken when beneficial results from other measures can be expected.

“There remains the question whether some new technical devices or new approaches might help to improve the mechanism of exchange rate adjustment, while continuing to provide the necessary safeguards. This question, as you know, is currently being studied by the Fund, and you will not expect me to anticipate the conclusions of that study….

“Certain modifications in the application of the basic principles of the Bretton Woods system, or in what may be regarded as essentially technical arrangements, may be consistent with the essential features of the system, or may even help promote its underlying purposes. At the same time, ways also have to be considered to ensure that any new provision allowing for increased flexibility in appropriate cases does not weaken the existing safeguards against abuse….

“The defense of an exchange parity may stiffen the resolve of a deficit country to take the action necessary to counter domestic inflationary forces that are at the root of its difficulties. But attempts to defend the parity through trade or payments restrictions will tend to worsen the internal imbalance and will merely suppress, without correcting, the external imbalance. And when countries experience large surpluses due to inflationary tendencies in the rest of the world, defense of the existing parity may amount to acceptance of imported inflation,…

“Failure to bring U.S. inflation under control imparted a serious inflationary impetus to the world economy at large. In recent months, we have witnessed an upsurge of cost inflation on virtually a global scale. The recrudescence and intensification of generalized inflationary pressures in the past few years represents a serious setback, and poses a major challenge for economic management. It is becoming increasingly clear that no country intent on restoring or maintaining financial stability can afford to dispense with any instrument which can properly serve that end. In this context, I would not exclude incomes policy. This is not to ignore the well-known limitations of incomes policy, above all if used in isolation from fiscal and monetary measures which must continue to play the main part in any effective policy of economic restraint.

“In view of these various problems in the international economy, it would be naive to hope that the improvements in the international monetary system recently undertaken and currently being considered could by themselves assure the continuance of currency calm. Clearly, the course of the international monetary system in the future, as in the past, will depend on the appropriateness of the policies adopted and the success with which they are implemented.”

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