Abstract

To all Governors, Alternates, Advisers, Observers, and guests, a cordial welcome to these Annual Meetings of the International Monetary Fund and the International Bank for Reconstruction and Development and of the Bank’s affiliates, the International Finance Corporation and the International Development Association, and of the International Centre for the Settlement of Investment Disputes.

To all Governors, Alternates, Advisers, Observers, and guests, a cordial welcome to these Annual Meetings of the International Monetary Fund and the International Bank for Reconstruction and Development and of the Bank’s affiliates, the International Finance Corporation and the International Development Association, and of the International Centre for the Settlement of Investment Disputes.

I am greatly honored to have the privilege and pleasure of presiding over these meetings and of thanking the President of the United States for his gracious message of welcome. I know I am speaking on behalf of everyone attending these meetings when I say how appreciative we are of the friendly hospitality which the Government and people of the United States are once again extending to us.

I wish to extend a special greeting to the Governors and Alternates for Botswana, Lesotho, and Mauritius, which have become members of the Fund and Bank during the past year, and for Malta, which has joined the Fund. Membership in the Fund and Bank now totals 111 and 110, respectively. I am pleased to note at the same time that Botswana, Indonesia, Lesotho, and Mauritius have become members of IDA, increasing the membership to 102, and that Yugoslavia, Uruguay, Singapore, and Mauritius have joined IFC, Mauritius becoming the latest and ninetieth member. I also welcome the observer from the People’s Republic of Southern Yemen, which has applied for membership in both the Fund and Bank. We are pleased that Swaziland, too, has made application to join the institutions.

I do not intend this morning to dwell upon the operations of our organizations, which the various Annual Reports record in ample detail. I should like, however, to comment on a few events which appear to deserve emphasis.

At the outset, I should like to pay tribute to the heads of these important international organizations.

I wish to say how pleased I, myself, and I am sure all those who are in any way connected with international finance, feel at the reappointment of Mr. Schweitzer to a second term as Managing Director of the Fund. His calm and penetrating judgment has been an inspiration through the many crises and difficult decisions of the past five years, and the Fund is to be congratulated on its good fortune in continuing to enjoy his leadership.

The selection of Mr. McNamara to lead the World Bank Group of institutions may signify a turning point in development more profound than is readily apparent. He has a reputation for administrative efficiency and drive, which he will now bring to bear on development finance. He is a true “generalist.” Perhaps his unanimous selection by the Executive Directors reflects a realization that development is a universal process of many dimensions, of which the financial is only one. This is an important point, I believe, and I shall refer to it again when I consider the affairs of the World Bank and its affiliates in more specific terms. Meanwhile, I wish merely to assure Mr. McNamara that we welcome his acceptance of this new responsibility and are glad to meet with him on the occasion of the first Annual Meeting he is attending.

To his great credit, it was Mr. Woods who said at the time of Mr. McNamara’s selection that the presidency of the World Bank now required a broader view than a banker might be expected to bring to it. Mr. Woods himself, of course, had already gone a long way to show how broad a view at least one banker could take. His principal new departures serve to illustrate the validity of this point. Under his direction, the Bank and IDA recognized the relationship between education and development, and greatly deepened and broadened their concern with agriculture and industry. On behalf of the Bank and IDA, Mr. Woods accepted a more active leadership role in the coordination of development assistance and, realizing the needs of the developing world and of the “new” countries which joined the Bank during his terms of office, he advocated an expansion of IDA resources and worked unstintingly for the second replenishment. We wish for George Woods a long and full life.

Before turning to matters with which the Fund and Bank are specifically concerned, I should mention the work of the two institutions on the stabilization of prices of primary products. Last year, when the Resolutions on that subject were put before the Annual Meetings in Rio de Janeiro, I and many other Governors stressed the importance and urgency of the problem. Developments since then have certainly not made the need for solutions any less pressing. I believe the analytical work of the Fund and Bank staffs during the past year provides a valuable springboard for the task of formulating recommendations. I do not underestimate the complexities of that task, but I trust that early agreement will be reached on possible constructive action by the Fund and Bank in this field.

Dramatic words would not be out of place in describing the past year for the Fund. From the point of view of both the financial support and the technical assistance provided to member countries, it has been a record year. At the same time, while there has been a series of crises of confidence in the international monetary system, the adoption by the Board of Governors of the Proposed Amendment of the Articles of Agreement in May this year represented the culmination of a prolonged period of exceptionally demanding study and consultation within the Fund. The double burden of a heavy load of, if I may dare to so describe it, “routine” work and of a succession of special problems has imposed severe strains on the Executive Directors, management, and staff of the Fund. I am sure all Governors would wish me to pay tribute on their behalf to the efficiency and fortitude with which that pressure has been borne.

A few moments ago I had the temerity to use the word “routine.” The range and intensity of the activities described in the Fund’s Annual Report demonstrate how inadequate that word is. During the past fiscal year Article VIII or Article XIV consultations were completed with 67 member countries, 32 stand-by arrangements were approved, 3 countries accepted the obligations of Article VIII, and 6 increases in quotas were approved. The number of financial transactions was greater than in any previous year, and by the end of June 1968 outstanding drawings had risen by $1.1 billion, to $5.7 billion. Staff members visited 100 countries to conduct consultations and provide advice on banking and fiscal problems, exchange policies and the operation of exchange systems, and the development of balance of payments and financial statistics. In addition to the increased level of technical assistance furnished directly by representatives from the Fund, 60 other experts, the provision of whose services had been arranged by the Fund, were on assignments in 30 countries, mostly for periods of at least six months, at the close of the fiscal year. At the same time, the courses provided by the IMF Institute have been expanded, and the list of international and regional organizations with which the Fund has maintained close relations has continued to grow.

Turning to the “nonroutine” developments, you have all been keenly aware that the international monetary system has been passing through a period of uncertainty. The alarums and excursions of the past year have had repercussions on the economies of virtually every country represented here. There are many profound lessons for the future in those events. One of the most significant has been the underlining of the need to improve the functioning of the process of payments adjustment. Inevitably, the aspects of that process which attract most attention are those relating to the interaction of developments among the major industrial countries. But 1967 demonstrated yet again that the impact of the tendency in those countries to delay appropriate action and to adopt too narrowly conceived policies is at least as great on the developing economies. The Fund Report has brought sharply into focus how the slowdown in the industrial countries led to a deceleration of export earnings in less developed areas; this, together with a relative weakening of aid flows, has meant that, despite a general improvement in agricultural output, development efforts were in many cases impeded. At the present time, we are particularly concerned about the possible impact on commodity prices of corrective measures being taken by the United States and the United Kingdom. It can only be hoped that expansion in the surplus countries will offset the dampening effect of these measures on world demand.

While efforts continue to be made to translate the sympathy widely expressed for the payments problems of the poorer nations into meaningful international action to ease their burdens, the results of such efforts hitherto have fallen far short of needs. It is hard not to draw comparisons between those efforts and the resources that are mobilized to assist some of the richer countries in countering disequilibrating forces. In his opening address last year, my predecessor as Chairman of the Board of Governors of the World Bank Group eloquently expounded the pitfalls of putting too much stress on aggregate growth rates as a measure of development success. But the widening gap between the national products of the rich and poor countries is nonetheless a valid indicator of the need for more strenuous action on a broad front. It is to be hoped that the current of world opinion may soon begin to flow more strongly in favor of such actions, despite the recent slowdown in aid commitments and the persistence of constraints upon the access of primary products to major markets and the disappointing results of the second session of UNCTAD. I hope that the attempts now being made will improve the framework for continuing the balanced expansion of trade and increase the willingness of all sectors of the world economy to cooperate more closely in the pursuit of mutually beneficial policies.

I have already referred to the work being done on commodity stabilization. It augurs well for the outcome of that work that the Proposed Amendment to the Articles of Agreement was approved overwhelmingly by the Board of Governors of the Fund in May and that already 17 countries have taken the action necessary to enable them to accept the Amendment, while in others, procedures are well advanced. On the one hand, the modifications to be made to the existing Articles demonstrate the Fund’s capacity to evolve in step with changing circumstances; on the other hand, the establishment of the special drawing rights scheme illustrates its ability to introduce a completely new element into the international monetary system. The facility will involve for the first time the deliberate creation of an international fiduciary asset in amounts which will ensure the orderly growth of the global supply of reserves. To reach agreement on such a major advance in the evolution of the international monetary system has involved reconciling a formidable range of diverse interests. And yet the end product not only protects those interests, it also provides a workable and flexible mechanism for resolving the dauntingly complex issues which will be involved in determining the appropriate rate of asset creation. The principle of universal, nondiscriminatory participation by all Fund members is safeguarded, and the concept that surplus as well as deficit countries must contribute to the elimination of payments disequilibria is enshrined in many provisions. The strong emphasis given to ensuring that there is “broad support” for any proposal to allocate or cancel special drawing rights may raise in some minds the questions of whether reserves will in fact be created in sufficient amounts to meet the future global needs of the international monetary system. Similarly, the very high voting majorities required for many areas of action may cause misgivings about the decisiveness with which the scheme can be operated. But effective functioning will not be possible unless there is a general consensus at each stage in the decision-making process. It will be up to all the member countries to ensure that the consensus which emerges is a fair and equitable one. This requires a spirit of compromise on the part of both debtor and creditor countries, and a willingness to appreciate the points of view of other countries. I am sure that the task of achieving an equitable compromise will be rendered considerably easier, if there is general recognition of the fact that, in the changing world we live in, a country which is in a strong creditor position today may find itself in a few years in a debtor position, while the reverse may happen to a debtor country.

I am, however, very hopeful that the required degree of international cooperation will be forthcoming. The fact that such a large majority of the votes cast by Governors was in favor of the Proposed Amendment certainly seems to signal that all countries appreciate the need for cooperation. I am sure that many countries had some reservation or other about the Proposed Amendment. Speaking for my own country, I can say that we were not quite in favor of some of the proposed amendments to the existing Articles, and would have preferred different arrangements for the special drawing rights scheme to enable the developing countries to benefit more directly from the creation of international liquidity, but in the interests of cooperation, we chose to vote in favor of the Amendment as a whole.

Another event in which it was possible to discern the advance of international cooperation was the devaluation of sterling and 14 other member currencies in November. Although many of the tremors which have since been experienced in the payments system can perhaps be traced back to that first disturbance, the initial shock wave was significantly less widespread in its impact than had been the case in 1949. The orderly manner in which the operation was carried through without any changes in the exchange rates of the other major industrial countries was a gratifying illustration of the extent to which financial cooperation has developed. Particularly impressive was the ability of the Fund to provide member countries with immediate advice on how they might react. That advice undoubtedly made a major contribution to the fact that relatively few other countries found it necessary to alter their exchange rates; these relatively fewer offsetting devaluations meant that statistically speaking, and especially when measured in terms of the country distribution of exports, the 1967 devaluations were more effective than those of 1949.

Whether the hopeful signs for the future are in the ascendancy is perhaps debatable. By no means have all the sources of doubt and uncertainty been removed. The elimination of the U.S. and U.K. balance of payments deficits, to which their Governments are committed, is of crucial importance. The ominous tendency which has recently been emerging in some countries toward a build-up in protectionist sentiment and toward preferential systems of a narrow type must also be reversed. The conclusion of the Kennedy Round negotiations reaffirmed the broad trend toward trade liberalization and should facilitate the adjustment process. However, the major concessions negotiated were principally of benefit to the developed countries. Especially as far as the developing countries are concerned, nontariff barriers remain formidable, and threats of new quota restrictions and retaliatory action cannot be entirely dismissed as only journalistic license.

Another problem which has been looming on the horizon is the adequacy of the Fund’s resources. The present level of usable assets can scarcely be regarded as providing a comfortable margin over potential calls. If the outcome of the studies on commodity prices involves a proposal for the provision of additional financial assistance to member countries, the position would become decidedly uncomfortable. The progressive reduction in the Fund’s holdings of the currencies of the major surplus countries has only been partially offset by the broadening of the range of currencies used in drawings. However, the availability of the Fund’s gold holdings and of borrowings under the General Arrangements to Borrow will continue to provide invaluable supplements to the stock of usable member currencies, and I am confident that additional reinforcement of the Fund’s liquidity will prove possible in the period ahead.

When we turn our attention to the World Bank Group of organizations and the problems of development which are its concern, we see a panorama filled with promise but clouded by uncertainty. Much of the promise is rooted in past accomplishment, and it rests on the hope that momentum already achieved will be sustained and increased. But will it be?

One effect of the population explosion has been a vast distortion of the familiar pattern of age distribution. The world is suddenly very young. Events in the last year in many countries demonstrate that the moderating influence of age and experience is everywhere diluted by impatient idealism. The resulting imbalance between generations is creating a new force that may soon be dominant.

This is no less true in our field of development than in the realm of moral values, ideology, and politics. We can only hope, but cannot assume, that the new idealism will strengthen the world’s commitment to development, leading to a comprehensive and integrated international development policy. If it does, I have no doubt that we will see a new surge of growth in the developing countries which in time will give a more hopeful cast to world affairs. If it does not, the economic and political consequences for both the developed and developing world may be tragic.

Unfortunately, neither the magnitude nor the significance of what has already been accomplished is widely known. If we seek a broadly based commitment, perhaps one of our first responsibilities is to try more vigorously to fill the void of information and understanding about the background, problems, achievements, and requirements of development.

We all know that the flow of aid must be increased in order to accelerate the forward thrust of growth. At the same time, one must not overlook the fact that the total flow of development resources has risen by more than 80 per cent in the last 12 years. With temporary deviations, the increase has averaged more than $400 million a year.

We also know that the average terms of assistance for many countries must be improved in order to prevent future aid from devouring itself. Statistics on 54 countries, given in the Bank’s Annual Report, show that in 1966 at least 6 were paying more than 15 per cent of their export earnings to service external official debt, and that for all developing countries taken together the ratio was more than 9 per cent. In fact, 13 countries in 1966 paid out in debt service more than half of the grants and loans they obtained from all sources. A few have actually been paying out more than they have been receiving. All this underscores the need for more development finance on concessionary terms, and makes especially distressing the delay—which we earnestly hope will be only temporary—in completing the second replenishment of IDA.

Nevertheless, the pressing need for more development finance on better terms should not blind us to the fact that nearly two thirds of all development capital from abroad in the last 12 years has been advanced by the governments of industrialized countries from public funds, and that as recently as 1966 the concessionary element in new external public debt incurred by developing countries amounted to nearly two thirds of the total. Nor should the shortcomings of aid, as we know the problem technically, prevent us from appreciating the fact that generosity on such a scale is an unprecedented phenomenon.

In the industrialized countries, there is urgent need for better understanding of what has actually been accomplished, the nature of the problems that confront the developing countries, and what these countries have done to help themselves. Instead, we constantly hear of public disenchantment with development assistance, on the widespread assumption that achievement has not justified the cost.

The facts are quite different. In the 12 years through 1967, the developing countries imported over $400 billion worth of goods and services, chiefly from the countries which have given development aid. Of that amount, nearly three fourths has been earned by the developing countries through exports, chiefly to the same countries. The balance of some $100 billion has been financed by the industrialized countries through grants, loans, suppliers’ credits, and private investments. Although the grant element in this financing has been considerable, it is also true that the bulk of it has been advanced on commercial terms.

A large part of these imports, together with domestic resources of labor and materials, has been employed to build or improve an infrastructure of facilities which people in other areas take for granted: irrigation, power, communications and urban water systems, roads and railways, schools and colleges, basic industries, and other public services of all kinds. Although with many exceptions and qualifications, the most essential facilities have now been constructed. Growth in the future can be faster if the momentum is maintained, since much of the indispensable foundation in most countries has been built. And if those who have given aid were well enough informed to take the pride they deserve in what their aid has achieved, I am sure that we would not have to be concerned about their continued interest.

We are now in a period when their unhesitating support, rooted in understanding, could be crucial. Thanks to a whole train of developments, most of which are summarized in Part Two of the Bank’s Annual Report, large parts of the developing world, especially in the heavily populated lands of Asia, confront an unparalleled opportunity. I refer to the “Agricultural Revolution in Asia.” With adequate effort and assistance, well coordinated and administered, many countries have the clear possibility of overcoming the most intractable problem in the whole field of economic development: the lagging growth of agricultural production.

The opportunity is especially bright in my own country of Ceylon, where in the past the average annual increase in rice production was relatively modest in the context of population growth, with the result that we were forced to use a substantial proportion of our scarce foreign exchange for rice imports. Now, however, the progress made in the last two years or so, in the use of the new strains of rice seed, proper application of fertilizers and other essential inputs, the opening of new areas through irrigation, an adequate program of training and technical assistance, effective incentives and administration at all levels has placed self-sufficiency within reach in the 1970’s. The degree of opportunity varies from country to country, but it is quite clear that all of Asia can, in the foreseeable future, become self-sufficient in foodgrains if these conditions are fulfilled. The question is whether the necessary conditions will be met.

The countries of Asia recognize the opportunity and are determined to seize it. Several are already carrying out highly effective pilot programs which demonstrate the possibilities for expanded production of both rice and wheat. The farmers in these areas have shown that they are quite prepared to be progressive when they share in the benefits.

But pilot programs do not make an agricultural revolution. Only the potential is at hand. To realize it requires unflagging determination on the part of the countries concerned and, equally important, assistance on a broad front that is adequate, effective, and sustained.

Many of the countries of Asia are also making efforts to curb the rate of population growth. This problem can be illustrated by reference to the situation in Ceylon. Our birth rate is 33 per 1,000, but our death rate—thanks to highly successful public health measures—has been reduced to only 9 per 1,000. If the resulting rate of population growth were to continue unchecked, our total population would rise by more than a fifth in the next eight years, and by the end of this century it would more than double. In our situation, such growth without a corresponding expansion in production could be disastrous. I am glad to state here that in Ceylon there is an increasing awareness among the people of the magnitude of this problem and that the people by and large are showing signs of an increasing willingness to take the necessary steps to meet it.

I have referred to the situation in my own country only for illustrative purposes. In varying degrees and different ways, the same challenges and opportunities confront most of the countries of the developing world.

The problems of agricultural production and population growth, the dilemma of limited resources confronted simultaneously by demands for administrative and technical skills on the one hand and universal education on the other, the need for better ways to mobilize and allocate resources at every level—all these and other thorny aspects of development require the coordinated application of the widest range of knowledge and experience. The World Bank Group of organizations are expanding their resources to assist in meeting these challenges and in realizing these opportunities.

But beyond this, we must formulate adequate and realistic goals for a “second development decade.” I welcome the forward-looking policies being evolved by the World Bank as well as the preparatory work for a “second development decade” being undertaken by the United Nations. I welcome also the initiative of the World Bank and other organizations to determine the basis for a global strategy of development for which we must win early acceptance.

Mr. Schweitzer and Mr. McNamara now have the task of building on the impressive records of the Fund and Bank during the last two decades. A considerable store of knowledge and experience has been accumulated, and member countries have come to understand as never before the benefits of mutual support in all fields. But this is undoubtedly one of the most trying periods since the organizations were founded, and continued dynamic leadership is called for to exploit the great opportunities which lie ahead.

1

Delivered at the Opening Joint Session, September 30, 1968.