Journal Issue

Views and Comments

International Monetary Fund. External Relations Dept.
Published Date:
June 1972
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  • ▪ McNamara and Schweitzer at UNCTAD III

Excerpts from an address by Robert S. McNamara, President of the World Bank Group, to the Third United Nations Conference on Trade and Development in Santiago, Chile on April 14,1972

“The state of development in most of the developing world today is unacceptable. The improvement of the individual lives of the great masses of people is, in the end, what development is all about. What are we to say of a world in which hundreds of millions of people are not only poor in statistical terms, but are faced with day-to-day deprivations that degrade human dignity to levels which no statistics can adequately describe?

  • A developing world in which children under age five account for only 20 per cent of the population, but for more than 60 per cent of the deaths.

  • A developing world in which two thirds of the children who have escaped death will live on, restricted in their growth by malnutrition-a malnutrition that can stunt both bodies and minds alike.

  • A developing world in which there are 100 million more adult illiterates than there were 20 years ago.

  • A developing world, in short, in which death and disease are rampant, education and employment scarce, squalor and stagnation common, and opportunity and the realization of personal potential drastically limited.

* * *

“A recent study of income distribution patterns in more than 40 developing countries estimates that at the beginning of the First Development Decade the average share in the national income of the richest 20 per cent of the people was 56 per cent— but the share of the poorest 60 per cent of the people was only 26 per cent. Preliminary indications are that this severely distorted income distribution is not only continuing, but in many countries may be growing worse. The poor are sharing only to a very limited extent in the benefits of growth.

* * *

“We should stop thinking of massive poverty in a developing country as simply a symptom of underdevelopment—and begin, rather, to think of it as a condition that must be attacked within the framework of the nation’s overall development program.

“If developing countries themselves do not adopt the policies to deal with this problem, there is little that international institutions and other external sources of aid can do to help the poorest 40 per cent of their peoples— those 40 per cent who suffer the greatest deprivations, and who are in the most desperate need.

UNCTAD III building in Santiago was constructed in less than a year by the Chilean Government for the meeting.

* * *

“I feel obliged to conclude that the total flows of Official Development Assistance (ODA) for the first half of the decade are likely to average out at approximately, 35 per cent of gross national product (GNP), only half of the Second Development Decade target.

* * *

“In order to raise the current ODA flows of, 35 per cent to the targeted, 7 per cent, the developed countries would need to devote only about 1.5 per cent of the amount by which they themselves will grow richer during the decade.

“The remaining 98.5 per cent of their incremental income will provide them with sufficient funds to meet their domestic priorities. Granted these facts, are we to say seriously that these wealthy countries cannot reach the ODA target of, 7 per cent of their combined GNPs? It is manifestly not a case of their being unable to afford it. Nor, in my view, are the reasons for the serious shortfall in ODA the lack of generosity of the peoples of the developed world, or their indifference to justice. It is much more a matter of ignorance.

* * *

“It is said that in wealthy countries the case for foreign assistance has no constituency. I do not believe that is true. What I do believe is that the constituency in most of the countries must be better informed, better mobilized, and better motivated. In the end, that is a matter of leadership.

* * *

“The ODA deficit will penalize the poorest countries the most. It is unlikely that they will be able to reach the growth target. Their need for ODA is the greatest, and if it stagnates at its present level, they will feel the effects the most severely.

“But for even those developing countries which are somewhat better off, a deficiency in ODA will force them to seek external finance from less desirable sources—particularly sources demanding high rates of interest or early repayment.

* * *

“If ODA flows level off at substantially less than the target for the decade, mounting debt problems for the developing world are inevitable.

* * *

“It is clear that the developing countries’ most imperative need is to greatly expand their export earnings. How can this be done? Can it be done at all? It can. But only by difficult economic adjustments, broad policy changes, and astute political leadership in the rich and poor countries alike.

* * *

“It is a political fact of life that the developed countries must adopt realistic adjustment policies to cushion the impact of import competition by retraining, relocation, and refinancing. Few have done so to date. Until they do, labor and management opposition to trade liberalization will be great— and justly so.

“In sum, what we should all be seeking in development trade policies—both agricultural and industrial—is closer approximation to the principle of true comparative advantage. The basis for it exists in both the developed and the developing countries, but both must be prepared to modify inward-looking policies in order to achieve it. Only in an environment of more liberal international trade can the efforts of international and national aid agencies to improve the conditions of life in the developing world be fully effective.

* * *

“Our clear duty for the remainder of this decade is to face up to mass poverty for what it really is, determine its dimensions, locate its whereabouts, set a limit beneath which we will not accept its continuance, and make our first priority a threshold of human dignity and decency which is achievable within a generation.”

Excerpts from an address by Pierre-Paul Schweitzer, Managing Director of the International Monetary Fund, to the Third United Nations Conference on Trade and Development in Santiago, Chile, on April 25, 1972

The Fund’s rules of conduct.

“It is sometimes argued that the rules of conduct in currency and payments relations that are suitable for developed countries are not appropriate for developing countries. I do not agree with this view, for I have no doubt that the interests of the two groups of countries coincide on most matters concerning economic growth and stability. Each has problems that are unique to its economic situation, but this only means that the code of conduct that should govern the system should be capable of flexible application so as to accommodate these special problems and needs. Within the framework of the present Articles, the Fund has evolved policies and practices which have proved responsive to the interests of all groups and indeed to the circumstances of each particular member. The Fund’s attitude toward exchange practices and restrictions and its policies on the use of its resources, including the compensatory and buffer stock financing facilities, are examples of the way in which it has been able to meet the needs of developing and developed countries equally well. I strongly believe that we should continue to preserve a universal code applying to all countries in a manner that takes full cognizance of their special circumstances.

* * *

The link between SDRs and development

“Much thought has to be given to the further development of the SDR facility. An aspect of SDRs that will certainly be examined is that of a link between SDRs and development financing. The Fund has been studying this question in response to the desires of many Governors at the last two Annual Meetings. This study will now have to be set in the context of the larger role that SDRs may play as the growing element in international reserves and the principal source of international liquidity in years to come. The report by the UNCTAD Secretariat on the international monetary situation has set forth arguments in favor of the link. The Fund’s study will take that report into account as well as the many suggestions that have been made on the subject at this Conference and at the recent meeting in Caracas. What we must consider is how best to evolve this new instrument so as to ensure its position as a major—and ultimately the major-reserve asset. This means that we must carefully consider what collateral uses of SDRs can be compatible with the efficient functioning of the international monetary system. The various forms of link between SDRs and development finance that have been suggested need to be examined from the point of view of their effect on the quantity and quality of development aid, and on the working of the SDR mechanism. I should also add that some of the proposals now being made for the reform of the international monetary system may give rise to still other possibilities of transferring resources for development, all of which will receive our full attention.

* * *

Adequacy of quotas

“The UNCTAD Secretariat report that I just mentioned also touches on two other important subjects on which I would like to comment briefly. One is the size of the quotas of developing countries in the Fund. I agree that developing countries have a particular need to rely on the resources of the Fund in view of the variability in their trade, and their difficult access to alternative sources of international finance. Indeed, in view of these considerations, special upward adjustments have been made in the past in the quotas of developing countries. Countries that are in the lower range of development (‘hard core’ least developed countries) have a share in total Fund quotas well over three times greater than their share in world exports. But our work in this area has not stopped. The Fund is now engaged in a review of the methods by which quotas have been computed in the past to ensure that, in future, quotas of members adequately reflect their economic circumstances. An increase in the share of developing countries in total Fund quotas would, of course, not only broaden their access to conditional liquidity in the Fund but also increase their share in SDR allocation, as long as the latter continues to be based on Fund quotas as required by the Articles of Agreement.

* * *

The proposed Committee of Governors

“The other subject noted in the UNCTAD report is the important one of decision-making. It is clearly appropriate, as was emphasized in the Governors’ resolution at the Annual Meeting, that the re-examination and reform of the international monetary system should be carried out in the Fund. While the Articles provide that decisions of the Executive Directors can be taken by weighted voting, in practice the Fund operates by consensus and its decisions reflect the views of Executive Directors representing all 120 members of the Fund. However, reform of the monetary system entails so many complex policy problems that from time to time it may be desirable that major issues be discussed at the highest financial and political levels. It is this consideration that has led the Fund to give active thought to the creation of a Committee of the Board of Governors, selected of a basis comparable to that of the Executive Board. Clearly, its size would have to be a compromise between the widest possible membership and the compactness necessary for fruitful negotiations. This and many other questions are yet to be settled. But if an agreement on the creation of such a committee can be reached, it would, in my view, greatly facilitate the negotiation of major issues that may arise in connection with the reform as it would give full weight to the interests of all members of the Fund. I am gratified by the strong and unanimous support that this idea received at the meeting of the Group of 24 at Caracas earlier this month.”

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