The central topic of this year’s Bank Group Annual Meeting was clear months ahead. It was the Chairman, Henri Konan Bédié, Minister of Economy and Finance for Ivory Coast, who in his opening speech struck a theme that recurred throughout the Meetings: the “global economic storm of the past year” had meant that “many of the developing countries have experienced crisis conditions or have seen their prospects of progress seriously impaired.” Never “in the lifetime of the Fund and the Bank,” said Governor Hans Apel, Minister of Finance for the Federal Republic of Germany, “has inflation posed a more universal threat to the world’s economic and social system. We are, indeed, beginning to realize that inflation endangers the well-being of mankind.”
Yet the prevailing mood was not entirely one of gloom, as some commentators have said. Many Governors agreed with the Chairman that “continuing deterioration of the situation is not inevitable … I would even say that our present difficulties bear the fertile seeds of their own solution, and that obstacles to the development of the Third World may be removed: it is when everything is changing, when everything is in question, that the possibilities for action are the greatest.”
The dividing line between “the Bank Group Meeting” and “the Fund Meeting” was this year thinner than ever. It has long been the case that many matters of international economic or monetary impact, traditionally seen as the province of the Fund, have specific relevance to the developing world, while many questions of development policy, seen as the scope of speeches on Bank Group matters, have a wider monetary impact of concern to the Fund. This year, however, the dominant position of recent economic events—of inflation and worldwide payments imbalances, linked to price changes and supply problems for food grains and fertilizers, primary commodities, including oil, and manufactured goods—meant that the major part of most speeches dealt with problems of crucial importance to both the Bank and the Fund. Speakers were concerned that the combined effects of these factors, and of individual countries’ efforts to correct them, would lead to an economic slowdown and to a reduction of trade that would be disastrous for the developing world.
It was against this background of joint concern that one major event of the Meetings took place: the parallel decision of the Boards of Governors to establish the “Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries.” (The proposal to establish such a body arose from an initiative of a group of developing countries at the Nairobi Meetings.) This Committee, otherwise known as the Development Committee, is discussed later in this article. By this act, Governors of developed and developing countries alike demonstrated their belief that substantial action was urgently needed to ease the plight of the developing world.
Poorest countries and official development assistance
The urgency of finding ways to increase the transfer of resources to the developing world was seen by many speakers as intensified by recent events. As the President of the Bank, Mr. Robert S. McNamara, emphasized, it was the poorest developing nations which had suffered most. The low income countries, he said, containing one billion people, “find themselves caught in a web of external economic forces largely beyond their control. They can do little to influence the current disequilibrium, nor did they precipitate its underlying causes. And yet they have become the principal victims, and are faced with the severest penalties.”
Canadian Minister of Finance John Turner warned that world inflation and the related crises could lead to “a prolonged period of slow and inefficient growth and high unemployment . . . [and] a contraction in the flow of real resources to countries in dire need of them.” He referred to “. . . the crisis to which many developing countries have been brought … the real growth of the poorest of these countries is being reduced to zero or worse. In human terms, this means untold suffering. It means deprivation, despair, and starvation.”
Speaking for the African Group, Sidi Ould Cheikh Abdallahi, Minister of Planning and Industrial Development for Mauritania, put the position starkly: “For the drought-stricken countries in Africa, the increase in oil prices came at a time when their economies were near collapse as a result of a severe and prolonged drought. While they are unable to take advantage of the high commodity prices, their food import requirements have increased drastically. And at a time when their foreign exchange earning capacity has been sharply reduced, they are faced with ever-rising prices of imported materials. . .” He made a special appeal to “all well-off nations to rededicate themselves to providing the necessary and urgent assistance to the needy countries.”
The immediate prospects for aid appeared uncertain. Mr. McNamara referred to the effects of inflation on projected flows of official development assistance (ODA), pointing out that in relation to GNP in the donor nations, ODA was scarcely 40 per cent of the 0.7 per cent target of the UN Second Development Decade. Despite a 62 per cent increase in the money value of ODA between 1970 and 1974, the effects of inflation had been such that in real terms the 1970 level was “just barely” maintained. “The most important single step the developed nations could take to assist the one billion people of the poorest countries would be to recognize that the effects of inflation alone require—and will continue to require—major increases in the appropriated money values of official development assistance.”
There was, however, a widespread awareness on the part of Governors representing the varied countries that, in the words of Governor F. D. Crean of Australia, “it remains true that the case for aid from developed to developing countries is probably stronger now than it ever was. In fact, of course, the aid effort of developed countries as a group has fallen away in real terms. Efforts should be made to reverse this trend. Equally, the aid efforts of the oil exporting countries will be particularly important in the period ahead.”
Many Governors added their voices to the call for a renewed dedication to aid on the part of the industrialized world. Mohamed Ahmed Al-Gunaid, Minister of Finance of the Yemen Arab Republic, put it bluntly: “The industrialized countries should not use the so-called energy crisis as a pretext to curtail their development assistance to the less developed countries.” U. K. Chancellor of the Exchequer Denis Healey noted that if ways could be found of cooperative recycling of oil surpluses, so reducing the anxieties of the wealthier oil consuming countries about their oil deficits, these countries might find it easier to increase their aid to the poor.
International Development Association
There was widespread appreciation of the actions taken by governments to ensure that the Fourth Replenishment of IDA, agreed at Nairobi the previous year, should become effective, and that funds were made available to permit the Association to continue operations without interruption. U.S. Secretary of the Treasury, William Simon, announced that “a U.S. contribution of $1.5 billion to the Fourth IDA Replenishment has been authorized by Congress, and we are working with our congressional leaders to find a way to complete our ratification at the earliest possible date.” In order for the Replenishment to become effective, ratification is needed by a minimum number of countries, notifying the Association of subscriptions and contributions totaling at least $3.5 billion. The U.S. notification, when received, will bring the total above that minimum.
A significant new group of countries has become financially able to join those extending development assistance on a major scale.
World Bank capital
Governor Simon noted that “a significant new group of countries has become financially able to join those extending development assistance on a major scale. We would welcome an increase in their World Bank capital. . . .” The Bank’s capital was last increased significantly in 1970. “Rapid inflation in recent years,” the African Governors pointed out, “has continued to erode the value of the paid-in capital of the Bank. In view of the necessary increase both in Bank borrowing and lending in the near future, there will be need to strengthen the Bank’s financial position.” They, therefore, called on members to open discussions on increasing their capital subscriptions. “We also call on countries to be willing substantially to increase their proportion of capital subscription to the Bank without decreasing the share of LDCs in the Bank’s activities.”
The voting power of a member country in the Bank depends on the size of its capital subscription. Very few issues are ever brought to a vote in the Bank Board or by its Governors, and the influence which an Executive Director has on Bank policies has to do far less with the number of votes he can cast than with his personal capacity and experience. Voting power is nevertheless important, especially in determining the composition of the Board of Executive Directors itself. Governor Hushang Ansary of Iran stated that the share of the less developed countries in the Bank “is now patently unjust, reflecting neither the importance nor the needs of the least developed countries. . . . The particular case of oil exporting countries is of immediate and compelling significance in this regard.” The importance of the decisions which both the Bank and the Fund will be called on to make in the future make it imperative that the “organs of the two institutions,” as Antonio Barrera de Irimo, Deputy Prime Minister and Minister of Finance of Spain, put it, reflect “the present relative weight of the various countries.” The Governors for Belgium and Germany were among those supporting an increase in the capital shares and voting rights of oil exporting countries in the Bank; in his closing speech, Mr. McNamara said he fully agreed with this view.
Many Governors congratulated the Bank for its efforts to channel funds from the oil producing countries to other developing countries: during the past few months, Mr. McNamara stated, the Bank had received commitments from OPEC countries totaling $2 billion. The Bank was asked to redouble these efforts. Governors welcomed the fact that the OPEC countries were also beginning to help meet the capital needs of developing countries directly, including ODA contributions in some cases at a substantially higher percentage of GNP than those of the industrialized countries.
Governors hoped that the OPEC countries would themselves invest directly in other developing countries. Sambwa Pida Nbagui, Governor of the Banque du Zaïre, suggested investment by OPEC countries in such development projects “devised and put into operation with the participation of industrial countries.” Masayoshi Ohira, Minister of Finance of Japan, strongly supported the Bank Group’s policy of extending technical assistance for joint projects of this nature.
Burden of debt
While inflation has reduced the burden, in real terms, of servicing the existing debt of developing countries, this effect will be more than offset for many developing countries by the need to finance increasing deficits caused by their increased import costs and by increased interest rates. Noting that the current deficit of the non-oil producing developing countries might be $20 billion in 1974, “a crushing addition to their present outstanding foreign liabilities,” the Governor for Zaïre asked that new formulas be sought for help in this field. The Head of the Delegation for Afghanistan, Abdullah Malikyar, noted that debt servicing already took up one third of his country’s foreign exchange earnings. There was need, he believed, for debt rescheduling “on a realistic basis.”
The effects of inflation and the rapid shifts in terms of trade made the position of primary producers a subject of particular importance at the Meetings. The Chairman, in his opening speech, drew attention to the fact that while the prices of certain primary products had recently been favorable to them, the terms of trade were now moving against most primary producers. The time had come, he said, “for the political leaders of the world to realize that a global agreement between the primary producing countries and the industrial countries is not only necessary, but is required by international justice. An appropriate equilibrium must be established between the prices of the primary commodities produced by many poverty-stricken countries, and the prices which the same economically weak countries must pay to import the manufactured goods they need for their development.” On behalf of the Governors for Latin America and the Philippines, Jaime Moncayo Garcia, Minister of Finance of Ecuador, said that developed economies “can no longer continue to obtain raw materials at unfairly low prices. . . . Among other effects, these attitudes have led those economies into consumption patterns in which resources in short supply are wasted or squandered. . . .” Mr. Malikyar, of Afghanistan, however, hoped that “less destabilizing means” would be found for “the realization of equitable prices for other primary commodities than had been the case for oil.” Governor Simon stated his belief that “cooperative, market-oriented solutions to materials problems will be most equitable and beneficial to all nations.”
Several Governors voiced their concern that, in view of the danger of an economic slowdown, developed countries might restrict their imports of developing countries’ manufactures. Minister of Finance Hans Apel, drawing attention to this danger, stated that the Federal Republic of Germany would continue to keep its markets open to the products of developing countries. “Trade is still better than aid,” he said.
The SDR link
For a number of years many countries, including the majority of the developing world, have been urging that there be a link established between the creation of international liquidity by the IMF and the transfer of resources to the developing world. This so-called “SDR/aid link” was one of the subjects under consideration by the Committee of Twenty of the Fund (see previous article), although that Committee was unable to reach agreement on a definite recommendation. In view of the urgency of increasing the flow of resources to the developing world, many Governors agreed with the Governor for France, Jean-Pierre Fourcade, in reaffirming support for the establishment of a link between aid and the creation of liquidity. Sidi Ould Cheikh Abdallahi expressed the African Governors’ “solemn affirmation” that “we cannot endorse an international monetary system . . . which would not attend to the transfer of real resources to the developing countries, and especially to the establishment of a link. . . .” There was a reiterated demand that the Development Committee give urgent attention to the above question: “We asked for the link and we got a Committee,” said N. M. Perera, Minister of Finance of Sri Lanka.
The Development Committee
With these urgent needs in mind, Governors welcomed the creation of the Development Committee, which was one of the final recommendations of Ministers of the Committee on Reform of the International Monetary System and Related Issues (Committee of Twenty). It arose from the desire of the developing world, as expressed by the Group of 24, to ensure that any reform of the international monetary system have as a corollary a substantial increase in the flow of resources to the developing world. The Ministers recommended that the Development Committee give urgent attention to the problems of the developing countries most seriously affected by exceptional balance of payments difficulties in the current situation. The Committee’s 20 members, most of whom are Ministers of Finance or Commerce, are nominated by the countries and groups of countries which appoint or elect Executive Directors in the Bank and the Fund. The Managing Director of the Fund and the President of the Bank participate in its work.
The success of the Development Committee and the Fund Interim Committee, as Mr. Turner of Canada warned, would depend on governments. “If we regard them as important, as worthy of occupying a position of high priority in our own individual sets of priorities, then these new structures will have a chance of being successful.” The Governor for Mauritius among others, urged that the Development Committee’s studies not be lengthy ones “and that some concrete action be taken during the very first year of its operation.” “What is most urgently needed now is the political will of the countries …to transfer sufficient resources,” emphasized Tajuddin Ahmad, Minister for Finance of Bangladesh.
The Development Committee held two preliminary meetings during the Annual Meetings. Mr. Henri Konan Bédié, Governor of the Bank and the Fund for Ivory Coast, was elected Chairman, and Mr. Henry Costanzo of the United States, then Executive Vice-President of the Inter-American Development Bank, was elected Executive Secretary. It was agreed that the immediate focus of the Committee’s work would be an analysis of the situation of the “most seriously affected” developing countries, and the least developed, and of measures to adjust to the new outlook for international commodity prices. The Committee is expected to meet again in January 1975. As Mr. McNamara said, “the formation of the Committee offers a new and welcome opportunity to focus the attention of the world’s governments on the progress, or lack of progress of the developing nations, as well as the progress, or lack of progress of the richer countries in meeting their responsibility to support development in those nations.”
In view of the drastic situation of the poorest developing countries, there was widespread approval of recent changes in the Bank’s policy designed to concentrate its efforts on those in greatest need. The Bank should, Governors agreed, concentrate on the poorest and least developed countries, on the poorest 40 per cent of the population of those countries, and on development of the rural areas where so many of the poor live. British Chancellor Denis Healey paid tribute “to the dedication with which Mr. McNamara has compelled the wealthier among us to face problems it is all too easy and tempting to ignore. . . . Those of us who are more fortunately placed should recognize that the stability of the world in which we live will be seriously endangered if we fail to take practical steps” to deal with these problems. “I, therefore, welcome the emphasis laid in the future lending program for the IBRD and IDA on these [least developed] countries.”.
Governor Emilio Colombo said Italy had given its “full support to the five-year program proposed by Mr. McNamara which envisages directing soft-term lending mostly toward the least developed countries and giving special attention to the agricultural sector.” The Latin American and Philippine Group of Governors were also among those who supported the proposed program, which envisaged an increase to a total of $36 billion in Bank Group operations for the five years 1974-1978. They also expressed support for continuing to plan Bank operations over a five-year period, saying this “would permit a timely search for the financial resources needed.” The Governor for Malaysia, Deputy Prime Minister Datuk Hussein Onn stated his conviction that “unless we are prepared to be bold enough to commit our resources ahead, the objectives of our endeavors cannot be expected to inspire the necessary creativity to bring out the best in man in his efforts to better himself.”
Without rural development there can be no sound or substantial basis for a nation to develop. If the rural areas remain in poverty, development is illusory.
Food, agricultural and rural development
With food shortages and famine affecting many parts of the world, and with a growing world awareness of the facts of rural poverty, it was heartening that the related questions of food production and agricultural and more general rural development formed a major subject of Governors’ speeches. Here the keynote was set by the Chairman’s statement that “without rural development there can be no sound or substantial basis for a nation to develop. If the rural areas remain in poverty, development is illusory.” He reminded the Meetings that “even before the shortages of the past two years, the Food and Agriculture Organization estimated that more than 400 million people in the developing world did not have enough to eat. … In many places . . . this situation worsened dramatically with the droughts of 1972 and 1973.” For millions upon millions in the developing world, he said, droughts, fertilizer shortages and rising food and energy costs brought “the basic agonizing fact of hunger and destitution.”
Mr. McNamara discussed with Governors the Bank’s objective, set out at Nairobi in 1973, of increasing production on the 100 million small farms in the developing world “so that by 1985 their output would be growing by 5 per cent per year.” It was, he said, clearly an ambitious goal, but one the achievement of which was made more urgent by the continuing food shortage in the developing world. There was already evidence, from Bank projects, that the goal could be realized. The Bank had in the past year assisted in financing 51 rural development projects, involving total investments of almost $2 billion and expected to benefit at least 12 million people directly. He stressed that for progress to be possible, countries would need to adopt policies including “commitment to effective land reform, assurance of adequate credit at reasonable cost, and reassessment of pricing, taxation and subsidy policies which discriminate against the rural areas.”
Commending the Bank for its efforts in the rural sector, and to aid the poorer 40 per cent, the Governors of the African Group expressed the view that, while vital in raising incomes and keeping people from leaving the countryside, rural development projects would not necessarily have high economic rates of return as traditionally measured. (Actually, in the Bank’s experience, the economic rate of return on such projects, if properly measured, can be high.)
Bank Group Annual Meeting
The report in this issue of Finance and Development on the Bank Annual Meeting is greatly condensed, touching only upon a small portion of the speeches and proceedings.
A more complete record. Summary Proceedings, will be published by the Bank in January in English, and in February in French and Spanish and will be available free on request from
■ Publications Office, World Bank, 1818 H Street, N.W., Washington, D.C. 20433, U.S.A.
■ World Bank, 66, Avenue d’léna, 75116 Paris, France
José López Portillo, Secretary of Finance and Public Credit of Mexico, told Governors of the integrated rural development programs his Government was applying, with Bank help, aimed at providing productive investment in low income rural areas, with associated facilities and social infrastructure. They form, he said, probably the “most complex and comprehensive project on which the Bank Group has ever worked.”
The Bank was also commended for lending for other types of projects of direct social benefit. The international institutions were urged by E. W. Barrow, Prime Minister of Barbados, speaking on behalf of the Commonwealth Caribbean countries, to work with the peoples of the developing world “to provide more jobs, more school places, better health facilities, more houses, and a . . . diversified production structure. . .” Yong Hwan Kim, Minister of Finance of Korea, referred to the Bank Group’s work “in deepening and refining the ways of helping developing countries and in pioneering new fields of operation, including nutrition and rural development. . . .”
The need of developing countries for assistance in developing and in exploiting their natural resources was underlined. The Commonwealth Caribbean Governors suggested that the Bank could help directly by lending for such projects and for the necessary infrastructure, by “assisting developing countries in negotiating the best possible terms in their exploitation, and by invoking the powers provided in the Articles … to guarantee market loans” raised by the borrowing country for projects of this nature.
Governor Simon of the United States urged the Bank to strengthen its commitment to the principle of financing projects only in a setting of appropriate economic policies by the borrowing country. Several speakers shared the views of the African Governors in calling for “a critical re-evaluation of Bank policies.” Sidi Ould Cheikh Abdallahi urged that special policies be adopted to deal with the problems of the least developed countries. “Such policy changes could include the financing of a high percentage … of the total cost of projects, greater recourse to program as opposed to project loans, a review of procurement procedures, a review of international competitive bidding to ensure that whenever feasible a developing country would execute a project financed by the Bank, a wider use of advance and revolving funds to speed up disbursement. . . .” The Latin American and Philippine Governors urged the Bank to “continue to make important changes, both in its financing policies and in its mechanisms and forms of decision making, so as to adapt them to the new international economic conditions.” Prime Minister Barrow of Barbados stated that “the views and practices of the recipient countries cannot be lightly ignored.” Speaking on the basis of his own experience, he said that the Bank had developed “its own theology.” He urged the Bank to adapt its policies and programs to meet the specific circumstances of its members.
Local cost financing and local industries
A frequently requested change in policy was for the Bank to increase the financing of local cost expenditure. Yugoslavian Federal Secretary for Finance, Momcilo Cemović, commented that this would be “an additional and very useful support to those countries endeavoring to secure their economic growth under circumstances of internal financial discipline and liberalization of foreign trade.” Governor Yong Hwan Kim of Korea asked that local cost and program financing be available where appropriate, on a routine basis. Mr. Barrow pointed out that program lending was needed by small developing countries, since their projects were necessarily small, “but they all add up to a development program which has meaning to our population.”
Other changes urged on the Bank included a review of its commitment charge policies (“in view,” stated the Governor for Malaysia, “of the cumbersome and time-consuming procedure” for disbursement), the provision of a “third window” making loans on terms between those of Bank loans and IDA credits, and project conditions which would allow all borrowers to give protection to local contractors and which would permit governments to subsidize interest rates to sub-borrowers.
Private industry and development
Noting that IFC had now invested more than $1 billion in projects in developing countries, the Chairman stated that in 1974 it had intensified its efforts in promoting projects in poorer member countries. Constraints on the international money markets had particularly affected the availability of funds for the developing countries: as an international institution belonging both to developed and to developing countries, IFC could, he said, play a uniquely useful role in devising financial patterns which were in the best interests of lenders, borrowers, investors and host countries. Governor Sidi Ould Cheikh Abdallahi, however, referred to the low level of IFC investments in Africa in FY 1974: “I cannot overstress the fact that Africa needs IFC now, and not in 10 or 20 years from now. Private investors from the world over are active in Africa. Governments and indigenous investors are eager to enter into partnership with foreign investors. There is wide scope for IFC if it is willing to be of assistance to Africa.”
Governor Simon reminded Governors of the need for development policies that would utilize effectively “the private capital and technology that is available internationally on a commercial basis.” Governor Perera of Sri Lanka, however, struck a warning note on the growing dependency of developing countries on transnational corporations, which had “increasingly become the vehicle for industrial development, providing both the cash and the know-how.” The implications of this, he said, “for the concentration and abuse of economic power, the character of the industrial development that has resulted, and its impact on life styles in the Third World, have been the subject of intense concern in the United Nations and other forums.”
It had been, as Mr. McNamara said, “a somber, but at the same time inspiring meeting. Perhaps the most important thing it has demonstrated is the very wide recognition that assistance by the affluent to the less favored and really poor of the world is not only a moral imperative; it is an essential condition for domestic tranquility and material progress for all in our irremediably interdependent world.” The message of the Meetings, said Mr. Konan Bédié, was very clear. “International aid has fallen in real terms. If we are to achieve stability and growth, we must reverse this trend, we must stabilize the terms of trade for the developing countries, and we must close the resource gap to permit development to proceed on a just and equitable basis, all of which demands concrete action on our part.”