Abstract

… Allow me to congratulate Mr. Schweitzer on his well-deserved reappointment as Managing Director of the Fund.

Statement by the Governor of the Fund and Bank for South Africa—Nicolaos Diederichs

… Allow me to congratulate Mr. Schweitzer on his well-deserved reappointment as Managing Director of the Fund.

It gives me great pleasure also to welcome the new members of our organizations, and particularly our neighbors Botswana, Lesotho, and Mauritius. I hope that they will soon be joined by our other newly independent neighbor, Swaziland.

As Mr. Schweitzer has said in his characteristically wide-ranging and penetrating statement, the past year has been marked by some profound shocks to our world monetary system, and also by an encouraging degree of international collaboration in mitigating the effects of these shocks. While my country has some reservations, to which I shall presently refer, both on the remedies proposed and the methods by which these remedies were evolved, this does not lessen my belief in the virtue of responsible international collaboration in efforts to solve the financial problems with which the world is faced.

Before dealing with these wider issues, however, I wish to refer briefly to the request, which my country made to the Fund some months ago, to purchase currencies which we desired to obtain against the sale of a certain quantity of gold. The Managing Director of the Fund has placed on record his own and the Fund staff’s belief that the Fund is obliged in terms of its Articles to comply with this request—a belief which is shared by my country and, I think, by many others also. Here I want only to associate myself with the view expressed by the Governor for France that, in dealing with this request, the Fund should be permitted to act in accordance with the law as embodied in its Articles of Agreement and without regard to extraneous considerations. Any other course would surely place the whole basis of international financial cooperation in jeopardy, since such cooperation cannot be lasting if there is no assurance that agreements will be honored.

I should like to turn now to the arrangements which were announced in the so-called Washington communiqué of March 17th, which resulted in the establishment of what has come to be known as the two-tier system. These arrangements are naturally of great importance to my country as a gold producer, as well as to other gold producing nations. They are, however, of much wider significance, since they may affect the whole basis of our international financial structure, and are thus of concern to all of us here today. It is therefore a matter of surprise and regret to me that the new arrangements were arrived at by agreement within a small group without any consultation with my country or with other countries vitally affected. Such a procedure can hardly be regarded as an exercise in truly international collaboration.

Although the Washington communiqué was not free from ambiguity, there has been an attempt to interpret it as implying the creation of a “two-circuit” system for gold. This would entail a complete sealing off of the existing stock of monetary gold from other gold, and would therefore encompass much more than merely allowing the private market price for gold to rise above the official price.

This device is now being presented by some as a major step in the evolution of the international monetary system and as an important part of the “solution” of the present international monetary problems. In reality, the introduction of the two-tier system was an emergency retreat to a new line of defense after the gold pool arrangements had broken down completely in March this year in the face of the manifest impossibility of any longer satisfying the private demand for gold which existed and which will continue to exist, as long as the free market price is artificially held down. Moreover, the two-tier system as such, while it checks the drain on monetary gold, certainly provides no solution to the chief international monetary problem of the day, namely, the lack of confidence in the main reserve currencies.

In their hearts most observers know that this problem stems fundamentally from the persistent balance of payments deficits of the key currency countries and is a consequence neither of South Africa’s gold sale policies nor, basically, of the actions of gold and currency “speculators.” While it is true that speculation may at times have an unsettling effect upon the international monetary system, I do not think that it behooves us, the monetary authorities of this world, to blame the speculators for our troubles. The unvarnished truth is that it was our inability to put our own houses in order and to inspire confidence in our currencies which provided the climate in which speculation could flourish. The crisis of March 1968 was not a gold crisis, but a currency crisis. The real solution to our problems must therefore be sought in correcting the balance of payments deficits of the key currency countries and not in “gimmicks” for gold marketing.

By “correcting” the balance of payments deficits I mean more than simply treating the symptoms by means of direct and sometimes discriminating restrictions on trade and capital movements. I mean the taking of steps by countries to curb inflationary tendencies in their economies and, in general, to ensure that they live within their means. Until this has been achieved, there cannot be any question of a real balance of payments equilibrium having been restored.

The two-tier system has, as I said, at least the virtue that it checks the drain on monetary gold. But to the extent that the system in its extreme form, i.e., the two-circuit system, seeks to prevent the entry of newly mined gold into monetary reserves, it not only provides no basic solution to the world’s monetary problems but, I submit, tends to aggravate them. Do we really believe that the present stock of monetary gold is sufficient and should now be sealed off hermetically? Surely some continuing increase in official gold reserves would be more conducive to international monetary stability than a scheme which expressly attempts to make such an increase impossible. It is worth recalling that the whole philosophy of the Articles of Agreement, as well as the Fund’s policy since its inception, are directed toward the channeling of gold into monetary reserves. The Fund has, in fact, impressed upon members that a “sound gold and exchange policy … continues to require that to the maximum extent practicable, gold should be held in official reserves rather than go into private hoards.” The two-circuit system would involve a complete volte-face.

The question is: what does the two-circuit scheme imply for the future? Unless the balance of payments deficits of the main reserve currency countries can be genuinely eliminated, this system must lead to a further decline in the relative gold component of total reserves and an increase in the currency component. Countries which, like South Africa, prefer to hold the major portion of their reserves in gold would be forced to distort the composition of their reserves increasingly against their wishes. Can we really bring ourselves to believe that in this world in which we live such a development would promote genuine exchange stability? In my view, it would have the opposite effect. Furthermore, many countries do not wish to increase the relative currency component of their reserves and thereby increase their dependence, economic and political, on the key currency countries.

In general, I would submit that nothing which seeks to discredit gold or to reduce its role as an unconditionally acceptable means of international payment can possibly add to confidence and monetary stability. I was therefore pleased to hear the Managing Director state categorically that “… it is important at this stage to do nothing to undermine, and to do whatever is possible to strengthen, the traditional reserve components. The new [SDR] facility is intended, when the need arises, to supplement, not to supplant, gold and foreign exchange. This is no more than common sense. Gold is a traditional means of international settlement and a point of reference for the values of national currencies. The value of special drawing rights is guaranteed in terms of a weight of gold. More than one half of all monetary reserves consists of gold, and it continues to be the basic element in the world monetary system.”

It is well known that South Africa attaches such importance to restoring the gold component of international liquidity that it believes in the need for a revaluation of all currencies in terms of gold, i.e., a rise in the price of gold. I do not intend to repeat, on this occasion, the arguments for such an increase. I wish to make it clear, however, that the arguments which I have adduced against the two-circuit system in its extreme form are not dependent upon the arguments for a higher gold price. There are many who do not favor a higher gold price at this stage but who nevertheless feel deeply concerned at the implications of the two-circuit system.

Furthermore, I want to emphasize again that we favor an orderly increase in the price of gold rather than an increase arising from an international financial collapse. Although we have warned on previous occasions that undue delay in raising the price of gold could result in a breakdown of the international financial system, it is not, and never has been, our policy to undermine the existing system in the hope that out of the resulting chaos a higher gold price might emerge. I want to give the assurance today that we shall continue to act responsibly in this regard.

This brings us to the question: what is the proper and responsible gold sales policy for South Africa under the new two-price system (as distinct from the rigorous two-circuit system)? First, it must be said that since the institution of the two-tier system in March the whole question of gold marketing has been obscured by a cloud of uncertainty. There were divergent interpretations and reinterpretations of what had been agreed upon at the Washington meeting and it was by no means clear how the new arrangements were to be reconciled with the policies and practices of the Fund and with its Articles of Agreement. In these circumstances, and given also the large surplus in its balance of payments, South Africa’s sales of gold have been limited. Despite recent relaxations of exchange and import controls, our balance of payments remains strong, and it is therefore still not necessary for us to contemplate further gold sales for some time to come.

This does not mean, however, that it has ever been our policy to withhold all our newly mined gold from the free market with a view to increasing the gold premium on the theory that this would unsettle the present monetary system. Under the two-price system, we would normally in our own interests sell a portion of our gold output on the free market as and when our balance of payments requires it. But in our view it is neither reasonable nor in the interests of world monetary stability to expect South Africa under all conditions to sell all its newly mined gold on the free market.

Nevertheless, having said that, I wish to reiterate that, in regard to the question of gold, my country stands ready to make its contribution and to confer with interested parties with a view to solving the difficult questions with which the world’s monetary authorities are confronted.

The matters which I have discussed may seem technical, abstruse and of little concern to the ordinary man. But we as Governors of the Fund and Bank know that monetary stability is vitally important to the well-being of all our peoples, and in any study of further improvements to the international monetary system, as suggested by the Governor for the United States, my country will be ready to play its part.

Statement by the Governor of the Fund for Yugoslavia—Kiro Gligorov

Let me, at the outset, join my colleagues in expressing my welcome to Mr. McNamara as President of the Bank. I wish him every success in his far from easy duty. I also congratulate Mr. Schweitzer on his reappointment.

During the past fiscal year many unfavorable developments in the world trade and payments position occurred, affecting especially those countries which make up the great majority of membership of the Fund and Bank. All these developments are expertly dealt with in the excellent Annual Report of the Fund. For this reason I do not consider it necessary to repeat them here. However, I do think it useful to mention the consequences of such developments on the world monetary system, which in the past year has gone through a very difficult phase. This is precisely what demonstrates once more how many risks and how many elements of uncertainty are involved in the existing world monetary system. World liquidity alone is not such a cause for worry at present. It will—we hope—successfully be dealt with by the special drawing rights scheme. What is perhaps more difficult is how to cope with adverse effects which may at any time result from the functioning of the mechanism of the existing monetary system.

It is, therefore, necessary to find ways to make the world monetary system no longer—or at least not to such an extent—dependent on the balance of payments position of one, or a few, of the world reserve currency countries. The present-day world is expecting more stability in international payments; such stability is necessary if we are to achieve a steady economic growth in the world. I think, therefore, I need not especially stress that the responsibility of reserve currency countries is of international interest. In addition, we have to reflect on ways by which the international community could offset the effect of devaluation of reserve currencies and of those other currencies by means of which the greatest part of international trade is conducted. The devaluation of such currencies and the measures which accompany them cause disturbances both in the world trade and in the balance of payments of other countries. Disturbances in the world trade and in the flow of capital further aggravate the existing gap between the developed and developing countries. I am sure you will agree with me that our basic task consists in narrowing as much as possible that gap. Because of this, it is necessary to consider thoroughly whether the existing monetary system should be supplemented by some additional instruments in order to reinstate confidence in it.

The second problem in front of us is the stabilization of prices of primary products, especially of agricultural products. We have read with great interest the exhaustive analytical section of the study, Part I, prepared by the Bank and Fund staffs. I must express my regret that the second part of the Bank-Fund study is not available for discussion at this year’s Annual Meetings. As this work goes forward, I wish to point out that the second part should also deal with relations between any possible future mechanism for commodity price stabilization on one side and the mechanism of compensatory and supplementary financing on the other. I am of the opinion that all these instruments will have to be implemented, as they supplement each other. I would suggest also that a range of possible institutional arrangements be considered; one of these would be the possibility of the creation of a joint subsidiary of the Fund and the Bank. Such an agency should be entrusted with the task of applying any future mechanism both to the problem of stabilizing prices of primary products and of eliminating unfavorable consequences on export earnings due to unforeseen causes. Since lasting improvement in prices and earnings of primary producers is not possible without a reallocation of resources in the developing countries through a systematic international policy of diversification of production, the functions of price stabilization at remunerative levels, of supply management, and of diversification must be closely integrated.

The third problem connected with the problem of exports of primary products is the increasingly widespread obstacles to trade in the present world, having direct unfavorable consequences on the balance of payments of countries exporting these products. I have in mind the agrarian protectionism which is a phenomenon also closely associated with the existence of inward-looking groupings.

At this juncture there is no need to enumerate all the consequences of the agrarian protectionism—they are too well known. I may only say that such a policy is having an increasingly adverse effect on international trade relations. Moreover, such a policy is also a direct negation of the principle of international division of labor. Foreign trade in my country is adversely affected to a considerable degree by such policies. We are not alone; moreover, while we can, sometimes at a high cost, offset some of the adverse effects through expansion of industrial exports, thanks to the present stage of our industrial development, many of the developing countries are less fortunate and therefore less in a position to do so. I am afraid that many efforts for the stabilization of prices of primary products may prove futile in the presence of agrarian protectionism of such intensity.

A high degree of protection embodied in the system of some of the integrated regions, with the use of levies and other protective measures of unpredictable magnitude, has resulted, not rarely, in a situation where our producers of certain important commodities, especially of agricultural products, have been unable, after deducting import levies, to cover their production costs. Under such conditions, it is rather difficult to grasp how the developing countries can implement the recommended liberalization policy of foreign trade and follow the advice, otherwise sound, that trade expansion should be the prime source of foreign exchange.

I would like now to turn specifically to the issues of international investment financing. …

When speaking of the profits of our organizations, it would perhaps be also feasible to channel a part of the profit of the Fund to long-term development ends. …

To conclude, the enlargement of activities of the Fund and the Bank by introducing additional facilities in the policy and practice of these institutions—taking into account specific conditions under which the greatest number of countries are developing—is being imposed by the necessities of the present world, which is today too sharply divided between the rich and the poor. This gap between the “haves” and “have-nots” is very often the source of widespread international misunderstanding which leads to the need for material sacrifices largely exceeding those which would be necessary for narrowing the gap; this is by itself implies many dangerous situations which all of us would like to see discontinued.

Statement by the Governor of the Fund and Bank for The Gambia—S. M. Dibba

I am grateful for the opportunity to make a statement at this session. I should like to thank most warmly the Government of the United States for the tremendous hospitality extended to delegates during these meetings. I wish also to thank the staffs of the Fund and Bank for the excellent arrangements made for our meetings.

We salute the continuation of the affairs of the Fund in the capable hands of Mr. Schweitzer. My Government has already welcomed the scheme for special drawing rights and will take urgent steps in the immediate future to signify and deposit its formal acceptance of the scheme. …

We have been glad to receive Part I of the Fund and Bank study on the stabilization of commodity prices and are grateful to the staffs of these organizations for preparing this report. We note that further work has already been done on Part II.

In my country the terms of trade have deteriorated progressively during the past 15 years. To us, the problem of stabilizing prices of primary products at a remunerative level is vitally important. I realize that the problem is an intricate one, but wish to express the strong hope that early and satisfactory agreement will be reached on the matter by the Fund and the Bank. I wish to add that if there is anything the developing countries can do themselves, in advance of the completion of the joint study, we should all be glad to have your guidance. We are anxious to cooperate in this great task.

We cannot provide sufficient savings for the achievement of a reasonable rate of economic growth. We fully realize that the basic responsibility for our development rests with us, but the achievement of this goal depends to a large extent on external financial and technical assistance. …

We are heartened by the sympathy shown for developing countries by the Governors for the United States and the United Kingdom and by the realism and constructive words of the Governor for Germany.

Mr. Chairman, I thank you in conclusion for your own speech and for the opportunity to address this distinguished gathering.

Statement by the Governor of the Bank for Afghanistan—M. E. Ziyaie

I am very grateful for having the privilege of participating for the first time in these Annual Meetings. It is a particular pleasure for me to meet the distinguished Governors representing so many countries. While the interests of our countries are varied, we have been drawn together in a common endeavor for the fulfillment of the hopes and aspirations of our people. I also want to take this opportunity to express my appreciation for the warm hospitality of the Government of the United States.

I should like to join other distinguished Governors in welcoming the countries that have joined our organizations during the past year.

May I also express my pleasure in knowing that Mr. Schweitzer will continue as Managing Director of the Fund for another term. He has served the Fund well. In the past 5 years the Fund has demonstrated imaginative leadership in dealing with international monetary issues as set forth in its Articles some 24 years ago. Under his capable leadership and with the dedicated work of the staff, the Fund will continue to be the vigorous and constructive institution that we have all expected it to be. The Fund’s ability to meet the unusual challenges of the past year is particularly noteworthy. …

This year the Bank and the Fund have completed 22 years of service. Looking over the entire balance sheet of efforts and accomplishments, it seems to me that the past year, while beset with difficult problems for both organizations, nevertheless demonstrated again that with international cooperation unique achievements can be obtained. The concerted efforts and commitments of countries under the General Arrangements to Borrow and the Fund’s resources on the eve of the devaluation of the pound sterling, the approval by the majority of member countries of the special drawing rights system, the special contributions of certain countries to strengthen IDA resources, the adoption of the two-tier system for gold are but a few of the developments of the past year that demonstrate the importance of international cooperation in meeting the problems that interest us all.

It is gratifying to note the growth in the number of member countries of the Fund in the last 22 years. Also important has been the growth in the resources of the Fund over these years. It is a source of confidence that the Fund has developed into an organization that can with coordinated contributions of members meet the challenges of maintenance of international monetary stability. The Fund deserves our enthusiastic congratulations.

The Annual Reports of the organizations before us reveal that these operations have grown in coverage as well as in volume and depth. The summary of the past year contained in the Fund and the Bank Annual Reports presents an excellent description of difficulties and of progress. While not wishing to repeat the discussions, we should take notice of the grave confrontations witnessed during the year that threatened the basis of our international monetary structure.

The devaluation of one of the major reserve currencies and the consequent devaluation of fourteen other currencies presented the Fund with a task unprecedented since 1949. Despite apprehension among monetary authorities, the Fund’s use of resources and counsel proved to be a source of strength and a force for orderly adjustment. Agreements not to supply gold from monetary reserves to the gold markets, as a temporary measure, to allow a free market price to fluctuate in accordance with forces of supply and demand, and to adhere to the joint communiqué of March 1968, are important contributions to the effective functioning of the international monetary system. We support the continuation of efforts for the maintenance of the established official price of gold. It is very important that the Fund exercise all its authority in this significant area to avoid recurrence of the conditions of the 1930’s. We agree with the Managing Director’s statement that work on the establishment of the special drawing rights facility should proceed on schedule to supplement the reserve assets that are required now more than ever before in the history of international monetary developments.

The inadequacy of international liquidity is felt not only with regard to the gold situation but more seriously by the developing nations. The recent restrictions on movement of capital and the diminishing size and more stringent conditions of bilateral loans to the developing countries are making the development efforts of many countries most difficult. Any international scheme that creates new reserves should by necessity favor developing nations. Afghanistan has voted for the special drawing rights and welcomes the scheme. However, it should be pointed out that under this scheme countries with larger quotas get the larger portion of the reserves created, while those with smaller quotas get smaller portions. We believe reserves created under SDR’s should not be apportioned among members rigidly on the basis of quotas, but that some system should be agreed upon whereby the developing members of the Fund have a larger share of the newly created reserve than under the quota formula. The task is to build up an international system of payments that will better accomplish the objectives of full employment and rising levels of income for all members of the international community and will give special support to the developing countries.

Discussions of the international payments situation cannot be separated from observation of the conditions of imbalance in external accounts of primary producing countries. Few countries in the early stages of industrialization, including Afghanistan, can have much hope, despite their best efforts, of building up and maintaining an essential level of foreign exchange reserves except at the cost of postponing needed investment, which slows the economic growth rate. The export earnings of developing countries are heavily dependent on prices and trading opportunities prevailing in world commodity markets. Adverse long-term price trends and recent further falling of prices for some primary products have created considerable balance of payments pressures. In Afghanistan severe winters have prevented increases in agricultural production, limiting exports and necessitating added imports. But the price decline in international markets has also been a factor beyond the control of the country. The average price of karakul lambskins which amounted to $8.91 per skin in 1963 was only $7.82 in 1967. More recently, the average price for the three auctions held in 1968 has been around $6 per skin. If such trends continue for all of 1968 the country will lose one third of the foreign exchange earnings from this important export commodity.

The recent studies on the problem of stabilization of prices of primary products, as suggested by Executive Directors of the Fund and Bank, deserve particular attention. We are pleased to see for the first time this important matter on the agenda of the Annual Meetings. We are appreciative of the Fund’s reasonably liberal policy with regard to requests for accommodation from countries that have had adverse conditions in terms of trade. This year Afghanistan joined the list of a few countries drawing on the Fund’s compensatory financing facility. While such facilities are extremely helpful to remedy short-term problems, the need is pressing for adoption of price stabilization techniques and of international agreements designed to increase export market opportunities for the primary producing countries as a long-term solution. The recent studies in this direction demand more attention, and we suggest that the Fund-Bank studies, along with the discussions of the past UNCTAD Conferences, provide the bases for resolutions in this regard which can be adopted during this meeting.

We note with pleasure that the Fund has adopted some changes and has under consideration other amendments to the twenty Articles of the Fund Agreement. We support the changes to make gold tranche purchases legally automatic, and to greatly facilitate purchases under credit tranche arrangements. Although the Fund’s approach to repurchases, which represents a change in concept of monetary reserves from net of currency liabilities to a gross concept, deserves support, the problem will still remain difficult particularly for the primary producing countries. We suggest that reserve calculations should take into consideration not only the most recent position of the country but the calculation of reserve should be on an average basis during the entire period of currency purchase. This we believe will remove irregularities and short-term changes and be more representative of the reserve position of the member countries. …

In this same vein the vital training contribution being made by the Economic Development and the IMF Institutes should not be overlooked. We would like to see the training facilities expanded so that more qualified candidates can benefit from the services of the Institutes.

While there are reasons to be appreciative of the achievements of our organizations, there still remain the solutions of many problems basic to the maximum effectiveness of these institutions in their relations with the developing countries. …

In conclusion, may I express my appreciation for your patience and interest. We sincerely hope that a year from now we will gather to witness even greater improvements in the work of our organizations and that we may report more significant progress toward efforts to fulfill more of the needs and aspirations of the people we are trying to serve.

Statement by the Governor of the Fund for Congo (Brazzaville)—Edouard Ebouka-Babackas

I have the formidable honor of expressing to this distinguished assembly not only my country’s concerns but also those of the member countries of the Central African Customs and Economic Union, an agency of economic and financial cooperation with which the Fund and Bank are well acquainted. First, I should like to welcome to our meetings the Governors of the States that have just joined the Bretton Woods institutions and to assure them of our active support in seeking appropriate solutions to hasten the countries’ progress toward development. I should also like to perform the agreeable task of thanking the authorities of this country for the hospitality extended to us.

I should also like to join the others who have already had the opportunity of expressing their hearty congratulations to Mr. Schweitzer on his reappointment as Managing Director of the International Monetary Fund. …

The facts of the problems with which we have been faced since gaining independence were described at length last year in Rio. The growth of our economies and the consequent rise in the living standards of our peoples are in fact directly tied to the solution of these problems. In this regard, it was on a moderately optimistic note that we parted after our last Annual Meeting. In fact, after the Algiers Charter was adopted, the so-called Group of 77 was entitled to place some hope on the outcome of the second session of the United Nations Conference on Trade and Development which was held in New Delhi early this year. Moreover, in unanimously adopting the draft Resolution on stabilization of commodity prices, the Board of Governors of the Fund recognized the importance of this problem and undertook, in collaboration with the Bank, to seek solutions for it. Knowing the prodigious imagination that our institutions are capable of applying to the solution of other problems much more complex and of entirely different scope, the matter appeared to us to be in good hands.

I propose, therefore, to draw up the balance sheet for this year of discussions and studies. Like all balance sheets, it has a liabilities side and an assets side: I shall list our disappointments under liabilities and our hopes under assets.

The Fund’s Report confirms that most of the primary producing countries have suffered from the weakness of the demand from the industrialized countries; at the same time, a downward trend in economic assistance to developing countries was observed and the deterioration of the terms of trade became more severe. Under the impact of these factors, the developing countries have shown a slowdown—indeed, a real decline—in growth. That is the situation.

As for the remedies, we must acknowledge that the New Delhi Conference, which some have called a “fair of illusions,” did not come up to our expectations. In fact the confrontations of viewpoint crystalized about the fundamental problems that are ours: the stabilization of commodity prices, especially of those commodities that provide our countries with most of their export earnings; the granting of tariff preferences by developed countries to commodity imports from the underdeveloped world; and the strengthening and reorganization of international assistance to development. That is why, concerning that Conference, there has generally been talk of stalemate, bitter disillusion, and even frustration over the meager results achieved. Among these, I shall mention in particular the undertaking subscribed in principle by the industrialized countries which agreed to raise the amount of their aid to 1 per cent, and no more, of their gross national product, and the relatively favorable prospects for the cocoa and sugar stabilization agreements; for other products, the outcome is unfortunately less certain and more distant.

With regard to the activities of the Fund and Bank for the benefit of our countries during the last fiscal year, we have learned with great interest of the studies undertaken pursuant to the Rio Resolution on commodities. The positive fact that has emerged from these preliminary studies is, on the one hand, the recognition of international action in this area and, on the other, the contribution that could be made by the Bank and the Fund toward the creation and operation of buffer stocks of certain raw materials.

We now hope that the diagnostic stage will be quickly put behind us with the translation into reality of the various stabilization techniques that have been submitted for our consideration. Indeed, the economic situation of the underdeveloped countries in general and that of the countries of the Central African Customs and Economic Union in particular require that all efforts be mobilized in the shortest possible time to revalue, within the framework of commodity arrangements for this purpose, the prices of the commodities that have the influence with which you are familiar on the harmonious development of these countries. In order to strengthen the financial resources made available to the Bank, it would be highly desirable for those member countries that may participate in the Fund’s profits to give proof of their wish to participate in development finance by allocating their share to IDA.

It remains understood that this noble gesture of the recipient countries, which we earnestly call for, in no way rules out obligations contracted or to be contracted by them in replenishing IDA’s resources. …

Statement by the Alternate Governor of the Bank for Israel—Jacob Arnon

I would first like to join all those who expressed their deep appreciation to the Fund’s Managing Director and its Executive Directors and staff for their untiring and successful efforts throughout this year in addressing themselves to the world-wide emergency which arose in the international monetary system.

We hope that the acceptance of the proposal for the special drawing rights facility will have a stabilizing effect on the international monetary system, thereby contributing to its smoother functioning and helping to meet the world-wide necessity for reserve growth as international trade expands.

We feel there is need for speedy action to be taken in order to correct some of the temporary imbalances, which have gravely affected the welfare of people all around the world. A mitigation of the impact of these imbalances—which is exactly what is expected of the proposed amendments—will enable a smoother economic development, thereby avoiding suffering by the populations of many countries.

I am pleased to announce that the Israeli Government has executed all the necessary legal procedures enabling us to accept and approve the Fund’s legal steps regarding the special drawing rights.

We feel that the solution to the problem of how much new reserves are to be created should be determined only in the light of the development of world trade and its relation to the amounts of world currency reserves available. If other arguments would be allowed to enter our considerations, normal development of international trade might be endangered.

We consider it preferable to decide in the first stage only upon a more conservative, smaller increase and to add to this amount, if necessary, afterwards, rather than to start with a larger amount, which will be much more difficult to contract later, if necessary. Let us be aware that, by the suggested new reserves, a new international purchasing power is created—which, if excessive, could be found to be detrimental to a healthy development of world trade.

We believe it is vital for these reforms to be introduced into the general system during a period of relative stability, when the problem of the total amount of world reserves could be resolved suitably and the exact nature of the required mechanism may be tested and run in properly. Waiting for a major international emergency to arise in order to implement these measures would, undoubtedly, cause the solution to be oriented toward solving also the short-term crisis—thereby diminishing the favorable conditions which exist today for introducing the new facility.

There are, however, a few reservations regarding the proposed measures which I feel should be discussed. Since, according to the existing drafts, the new reserves will be allocated among the Fund members in proportion to the amount of their present quotas, the proposed allocation will, in effect, perpetuate and even reinforce the existing allocation. As these are based mainly on the country’s national income and foreign trade and were determined in 1964, two important facts should be considered:

(1) Countries enjoying a high rate of economic development and expanding foreign trade have already observed their quota allocations to be lagging behind their economic growth. Should additional reserves be allocated on the basis of the existing quota, the existing distribution will be perpetuated. Therefore, I should like to suggest that before the new reserves are to be added, a review of existing quotas of individual countries should be made in order to restore their necessary internal equilibrium.

(2) As we have stated at some previous meetings, the proposed measures are an opportunity to alleviate also some of the special difficulties that the developing countries encounter with regard to the subject of their foreign exchange reserves. I need not describe at length here the pressing need for developing countries to raise considerably, in a short span of time, the standard of living of their populations.

The high rate of economic growth required to obtain or even to merely approach these objectives calls by itself for an increased share of international liquidity in addition to the considerable funds for capital imports which these countries can only partly finance from their export proceeds. In addition to this, it should be remembered that the foreign exchange earnings of most of these countries depend upon exports of primary products, making them more vulnerable to seasonal and annual fluctuations due to uncertainties regarding crop yields and price levels, some of which suffer too from long-term deterioration of the terms of trade.

In addition, those countries have to devote an increasing share of their foreign exchange earnings to foreign debt servicing, a rigid element in the foreign exchange outlays. Consequently, any cyclical or temporary unexpected contractions in the export earnings destroy the already delicate balance between current outlays and capital import financing. Furthermore, due to the fixed element of debt servicing, its ability to maintain the level of its necessary capital imports is seriously aggravated. But any contraction in these imports, however temporary, affects detrimentally the existing standard of living and the possibility of future economic development and take-off.

I wish to stress that I do not consider the new reserves as a possible replacement of capital imports to these countries. They are rather a supplementary, though a necessary, measure to enable governments to overcome the temporary setbacks in the balances of trade without having to revert to the restrictive measures. In this way, paying the heavy price of slowing down their economic development can be avoided.

Allow me to make a suggestion of a possible compromise solution for allocating the additional amount of international currency among the members of the Fund. I am thinking along the lines of the principle of the existing voting regulations where the quota principle is amended—in our case by adding 300 votes to each country regardless of its quota. This device—which undoubtedly increases the importance of the smaller countries—demonstrates that it is possible to find compromise solutions which can be accepted by the world community. In our case, the total amount of reserves to be created should be allocated partly as an equal sum to all members and partly in relation to their existing or revised quota.

Israel could perhaps serve as an illuminating example of the difficulties a developing country can encounter when the need to develop rapidly clashes with the necessity to maintain a strong foreign currency position.

In 1965-67 we had to initiate policies which resulted in diminishing the previously increasing deficit in our foreign exchange account. The price we had to pay for this was the immolation of our rapid economic growth during that period, as an economic slowdown prevailed. Our gross national product increased at an average annual rate of 3 per cent, as compared to 10 per cent during the previous decade. Other negative by-products were the appearance of unemployment—a phenomenon almost unknown in the ten previous years in the Israeli economy—and a substantial decrease in investments.

The improvement in the balance of payments enabled the Israeli economy toward the end of 1967, and even more so in 1968, to take off again from a stronger position in the balance of payments and reserves. An increase of 13 per cent in the GNP is expected in 1968, accompanied by an absorption of the unemployment and a speeding up of the rate of capital formation.

However, as the Israeli economy has to rely rather heavily on imports of raw materials and sophisticated capital goods, this takeoff might reintroduce the pressure on the balance of payments—in spite of a significant rise in exports.

The recent developments in the international currency relations have imprinted their effects on the Israeli economy as well. In November 1967, after consultations with the Fund and in cooperation with the Fund staff, Israel readjusted the rate of exchange of its currency to the change in the value of the British pound, as a substantial part of our export earnings are received in that currency.

Allow me here a remark with respect to the proposal of the Executive Directors to distribute to members an amount of more than $37 million. It seems to us, especially after hearing in our meetings how difficult it appears to be to mobilize funds for IDA, that a more adequate purpose could have been found for the funds available for distribution.

The various monetary crises which took place during the year and their repercussions on the international liquidity and the world capital markets, on one hand, and the effects of the necessary precautionary measures implemented by various countries and especially by the suppliers of international currencies, on the other, are bound to affect adversely the world trade, the international liquidity, and the capital interflows. I would venture to say that their long-run effects on the developing countries are even more considerable than with regard to the developed countries, and so are their detrimental effects on these countries’ economic growth.

It is imperative, therefore, that the attempt to extend the international reserves system should be implemented with no further delays. But, in the process, let us attempt not only to remedy the weaknesses of the past by improving the world financial system but also to pay heed to and avert dangers of the future, by amending the proposals so as to alleviate the increasing burden of the availability of foreign exchange reserves on the developing countries by an adequate allocation of these new reserves.

Statement by the Governor of the Fund and Bank for China—Kuo-Hwa Yu

I wish to associate myself with other Governors in expressing our thanks to you, Mr. Chairman, and to the management and the staff of the Bank and Fund for the efficient handling of the 1968 Annual Meetings. On behalf of my delegation, I wish to thank the host country, the United States of America, for its most generous hospitality and excellent facilities placed at our disposal. It is also my pleasure to extend our warm welcome to all the new member countries which have joined the Fund and the Bank Group since the last Annual Meetings in Rio. …

With regard to foreign trade, I was deeply impressed by President Johnson’s statement last Monday that the developing countries should endeavor vigorously to diversify their export products and to expand export markets. He said further that the industrialized countries should have the responsibility to maintain an open and growing economy. My Government has made great strides in expanding its international trade since the beginning of the 1960’s, and the planned target of our exports for 1968 is US$800 million. But we are now much more concerned over the increasing obstacles to trade expansion, which some of the industrialized countries are taking in the form of higher tariffs and more restrictive quotas. High tariff rates have hindered the developing countries from exporting primary commodities as well as processed goods. Quantitative restriction on imports is another main trade barrier which impedes the international trade and economic development of developing countries. Therefore, to maintain an open and growing economy by industrialized countries would be a prerequisite condition to assist developing countries. …

I now turn to say a few words about the business of the Fund. On behalf of my delegation, I extend my hearty congratulations to Mr. Schweitzer on his reappointment and my best wishes for his continued success. The achievements of the International Monetary Fund are indeed a source of satisfaction. The past year was quite an eventful one. Once again, the spirit of cooperation, mutual assistance, and understanding has prevailed in the realm of international finance. An increasing amount of the Fund’s resources has been made available to about one third of its members in a year of turbulent monetary developments. The large amount of credit granted by the Fund after devaluation of the pound sterling signifies once again the important role that the Fund plays in helping member countries to solve their payments problems. I am also glad that more use has been made of the liberalized compensatory financing facility.

I would like to join my fellow Governors in expressing our appreciation to the management, the staff, and the Executive Board for having completed the preparation of the Proposed Amendment of the Articles of Agreement as requested at our last Annual Meeting. We welcome the plan for the creation of special drawing rights as embodied in the amended Articles. With discretion and care, the Fund will be able to augment international reserves to meet the needs of the world economy. Gradually, growth in reserve assets will be less dependent on the accumulation of reserve currencies, which is linked to payments deficits of the countries concerned and the availability of gold as official reserves.

Turning to the stabilization of prices of primary commodities, I must first of all thank the staffs of both the Fund and Bank for their comprehensive study of the subject. We realize that this question is of the utmost importance to developing countries, including my own. This problem has been a matter of concern since shortly after World War II. Much time has been devoted by many agencies to finding a possible solution. Whereas the problem is somewhat mitigated through diversification in some countries, it remains a serious one for many developing countries. I am therefore happy to voice my agreement to the request that both the Bank and the Fund should continue their study of this problem and look for possible ways within the powers of their Articles of Agreement in which they can render assistance. However, in view of the fact that this economic illness has been a chronic one, a reasonable length of time should be provided to the staffs and Executive Boards in order to produce a thorough and useful study. The facility for compensatory financing of export shortfalls provided by the Fund is a clear indication of our efforts in this direction.

Statement by the Governor of the Fund for Nigeria—C. N. Isong

I would like to join the previous speakers in welcoming the new members to the Fund and Bank and to wish them well. We are also pleased that the tenure of office of the Managing Director, Mr. Schweitzer, has been renewed, and that a renowned public figure like Mr. McNamara has been appointed the new President of the World Bank. A combination of Mr. Schweitzer and Mr. McNamara should represent a new watershed in the operations of the Fund and the Bank and the relations of these institutions with all member states, especially the developing countries. There is already strong evidence that this hope is justified.

It is not my intention to dwell on the operations of the Fund and the World Bank Group, as these have been amply covered in the various Annual Reports. I would, however, like to comment on some of the major events of the past year. As already noted, the past year was a trying one for the international payments system. It is to the credit of all concerned, especially those belonging to the OECD, that a complete breakdown of the system was averted. The new arrangement for transactions in gold, initially greeted with skepticism, appears to be fulfilling the role that it was meant to play—a temporary measure until the next stage in the evolution of the international payments system, the activation of the special drawing rights, is reached. The various actions which have been taken by the reserve currency countries to improve their payments positions, although certainly not always in the best interest of some of the developing countries, have been welcomed by most others. In this connection, it is hoped that the devaluation of sterling in November 1967, coupled with the various stabilization measures taken by the Government of the United Kingdom and the recently announced Basle credit, will prove adequate for the recovery and strengthening of sterling. What is really significant in the task of maintaining the stability of the international payments system has been the recognition that a threat to any major currency is a threat to all currencies. The willingness to rally in support of a threatened currency represents an important milestone in international monetary cooperation. Regarding the special drawing rights, it had been hoped that by this year’s Annual Meetings the majority required for the scheme to become operational would have been achieved. Let us still hope that member states will respond positively to the call of the Managing Director that members expedite action to ratify the Amendment before another major upheaval develops to threaten the international payments system.

Developing member states have a vital interest in what happens to the international payments system. In a period of planned development, and dependent as they are on primary exports and development assistance for their economic progress, stable international economic conditions are required for the expansion of export receipts and the flow of developmental assistance. A continuous and steady growth in the developed economies should result in a steady and expanding demand for primary products. If conditions of instability in the international financial order are permitted, the whole world suffers, and not least the developing states.

The Annual Report of the Fund has shown that there has in recent years been a progressive rise in the level of exchange transactions between the Fund and its members. The drawings of the primary exporting members arising from decisions on the Compensatory Financing of Export Fluctuations have also been expanding progressively. In the aggregate, the rising level of drawings reflects first the absolute growth of world trade and the inadequacy or maldistribution of international reserves. Second, especially for the developing states, it demonstrates the diminishing value of the exports of the primary exporting states, compared with their requirements for foreign exchange to finance developmental and other forms of imports. And yet there is no sign that the terms of trade of the primary exporters will ever improve. The inexorable advance in technology and scientific research constantly brings out new products in the form of synthetics which, in some cases, are progressively superior to and cheaper to manufacture than natural commodities. This is increasingly evident in the case of rubber and fibers, where synthetics are gradually replacing natural products in the respective industries. It goes without saying that in the face of advanced technology and science developing countries are becoming less and less competitive.

For a number of years now Nigeria and other less developed countries have tried to draw attention to these developments and their adverse effects on the development efforts of the developing countries. It is evident that the developing countries cannot, and would not wish to, stop the advances in science and technology. But until they also become active participants in these spheres, the adverse effects of such advances on the economic development efforts of the less developed countries must be countered through international compensatory actions in the stabilization of world prices of primary products. The developed countries would also have to come to terms with the fact that industrialization is the only means of achieving economic progress in the less developed countries. In this respect they should be more ready to extend assistance to further the development of manufacturing industries so that at least some of the local raw materials may be utilized domestically. They should also be more responsive to the resolutions of UNCTAD, which have repeatedly called upon them to open their markets for manufactured exports of the developing countries, and to reduce tariffs against processed primary exports. Schemes which do not add to the debt burden of these countries are called for. That is why it is especially important that the current joint Fund-Bank studies on the stabilization of prices of primary products, which should find a realistic solution to offset permanently the diminution of export receipts of primary exporting countries arising from declines in world prices of their exports, should be completed with a minimum delay. Nigeria, from its experience at the conferences on cocoa price stabilization, recognizes the difficulties which attend efforts in the direction of international price stabilization. But if the growing gap in economic well-being between the rich and the poor is to be narrowed, a positive action is imperative. It is gratifying to note that the Managing Director is convinced that it is possible for the Fund to make some contribution toward this end.

There is yet another possibility for active Fund involvement in the developmental process in the less developed member states. We and many other developing member states have in the past proposed that the Fund should allocate annually a portion of its annual net income to the International Development Association in the same manner as the Bank does. In this way, IDA would be in a position to extend more nonconventional loans to needy members. It is our opinion that this kind of assistance has plausible balance of payments implications, and, in a very direct way, represents a kind of supplementary finance to counter falls in export receipts. We have noted with concern that this year the Fund is proposing to share part of its annual net income among some of its members. While it may be legally impossible for it to transfer part of this net income to IDA, we believe that the prospective recipients of such income can, at this time, voluntarily surrender their share to that body. In future, however, legal means should be found whereby the Fund can transfer from time to time a substantial part of its annual net income to IDA.

It is not my desire to go into the balance of payments difficulties of Nigeria specifically. Our problems in this sphere are partly a result of internal difficulties and partly a result of the general conditions of the world economy. To the extent that the general international problems are tackled and solved, to that extent will most of Nigeria’s own specific problems receive solutions. We believe that the Fund is well placed to assist in finding remedies for these developmental problems in addition to the performance of its traditional functions which lie in the area of balance of payments. …

I would like to conclude my statement by referring briefly to conditions in my country. As you are fully aware, Nigeria has been compelled for more than a year now to fight a civil war in order to maintain its sovereignty and national integrity. The war has led to serious dislocations in some sectors of the economy and a general retardation of its growth rate. The rate of inflow of new investment has slowed down. The disruption of the transport system has also complicated the problem of internal communication and hence production. Mineral production, especially petroleum, which imparted a high per cent contribution to the rate of growth of GDP before mid-1966 has fallen drastically.

Although it was inevitable that some degree of difficulty should result from the civil war, it can be said that Nigeria has managed its economy in the direction that strengthened its sovereignty. Whatever else the war has done, it has revealed to us more than ever before the basic strength of the economy. Because of this we have been able to keep our head above the sea of economic difficulties, despite internal and external developments which have increased these problems. With the end of the civil war in sight, plans are being readied to embark on the task of postwar reconstruction. For us this will be, perhaps, the most challenging period in our history. We estimate the cost of rehabilitation and restoration of basic infrastructure in the country at about $280 million in the public sector. About 50 to 60 per cent of this expenditure will take the form of offshore cost which Nigeria will have to earn in foreign exchange within the next two to three years.

This is a staggering sum, but we are determined to return the economy to a peacetime footing as early as possible so that a normal rate of production and export may be resumed. Nigeria’s exports exceeded $670 million in 1967, and this was after a substantial decline in the export of crude petroleum. With the expected resumption of petroleum production, export of petroleum by 1971 is estimated to rise about fourfold over the 1968 level, and over sevenfold by 1975. Even if our other exports remain at the 1967 level, Nigeria’s estimated export should reach about $1,510 million by 1975. This should have a healthy effect on the country’s balance of payments. We also believe that with the cessation of hostilities and the restoration of confidence in the country, increased foreign assistance toward our development will strengthen the domestic efforts. Nigeria is confident of achieving improved economic performance in the postwar years.

Statement by the Governor of the Fund and Bank for Uganda—L. Kalule-Settala

I would like to begin with a word or two of thanks. First to the President of the United States of America for his address to this year’s Annual Meetings in which he touched upon the major monetary and economic problems facing the world community. I wish also to thank you, Mr. Chairman, for your address to us on Monday at the commencement of our proceedings for this year.

Like fellow Governors who have already addressed these meetings, I would like to congratulate Mr. Pierre-Paul Schweitzer on his reappointment for a second term of office as Managing Director of the Fund. We are fortunate to be able to have a continuation of the very able leadership of Mr. Schweitzer in the Fund. …

Uganda Economy

I would now like to say a few words about the performance of the Uganda economy during the past year.

During 1967, Uganda’s export earnings increased by 17 per cent over 1966. This was wholly accounted for by a very sharp increase in exports to our East African Common Market partners. The increase in export earnings would have been even higher if our overseas exports had not fallen by 2 per cent as a result of adverse weather conditions which affected the cotton crop for the year. Another factor which unfavorably affected overseas export performance was the continued lack of a satisfactory rate of growth in demand for our major exports—coffee, cotton, copper, and tea. This lack of growth in demand for our products stems mainly from the fact that some of the major industrialized countries which provide markets for our exports continue to follow deflationary policies aimed at moving from deficit to balanced positions.

On the import side, there was a decrease of 5 per cent in 1967, compared with the previous year. This was the result of the monetary and fiscal measures which we took in the 1967 budget. Imports of consumer goods fell by 29 per cent while imports of producer capital goods rose by 23 per cent. This is an indication that our fiscal and monetary measures hit the right targets in that consumer goods imports were effectively reduced, while at the same time the way was left open for a rapid increase in the importation of capital goods which are necessary for our economic development program.

We continued our efforts to diversify the agricultural base and reduce our dependence on cotton and coffee through the expansion of crops, such as sugar, tea, and tobacco, and expanding the livestock industry. Thus, by controlling our consumption, we are generating sufficient foreign exchange savings with which to buy the needed capital goods for our investment program. …

Stabilization of Primary Commodity Prices

In his address to this meeting on Monday, Mr. Schweitzer referred to the draft Resolution before us concerning Part I of the study on the stabilization of the prices of primary products. While noting the progress so far made and the intentions of the Executive Directors in the Fund and the Bank Group in this matter, I would like to stress the urgency for an early completion of Part II of the study so that early action can be taken to derive effective and satisfactory solutions to the primary commodities prices, problem. I stress and urge early action in this matter because of my firm belief that the problem of unstable prices of primary commodities is the root cause of the inability of the developing countries to generate sufficient resources for their economic development. A few facts in this connection amply illustrate my point. First, the share of developed countries in world trade has risen from two thirds in 1950 to almost four fifths in 1967; that of developing countries has fallen from one third to one fifth in the same years. Second, since 1955, the terms of trade of developing countries have worsened by over 10 percentage points, while those of developed countries have improved by the same number of points. Third, while exports of manufactured goods have grown at reasonably fast rates, the rates in respect of primary commodities have been most unsatisfactory. The real solution, therefore, must lie in the provision of stable and expanding markets for primary products. Financial aid should be supplementary to this real solution.

Adjustment Process

I would like to touch upon another aspect of developing countries’ problems. This is in regard to some of the fiscal, monetary, and other balance of payments measures that have been taken by some of the major industrialized countries, especially the United Kingdom and the United States. While we accept the fact that these measures are necessary to bring back some stability to the international payments system, we feel strongly that the side effects of such measures on the developing countries should be fully taken into account. These measures are likely to lead to reduced export earnings by the developing countries; they are also likely to lead to restrictions in transfers of capital and the reduction in aid programs of certain donor countries; and they are also likely to lead to a reduction in the quality of aid currently being given through higher interest rates, shorter repayment periods, and a tendency to more tying of aid to exports of donor countries. It is important in these circumstances that efforts of major trading nations to correct balance of payments disequilibria should not worsen the already unsatisfactory position of the developing world. It is my view that the problems of developing countries resulting from side effects of the adjustment process in the developed countries’ payments positions deserve particular attention in this and other international forums, as the developing countries are the least equipped to bear any further shocks than those they are already bearing.

* * *

… As regards the Fund’s net income, I support the Executive Directors’ recommendation, subject to the amendment circulated by the African Group of countries.

Statement by the Alternate Governor of the Fund for the Syrian Arab Republic—Adrian Farra

It gives me pleasure to start by thanking the management of the Bank and the Fund for their valuable 1968 Annual Reports and for their joint study of the problem of stabilization of prices of primary products. I would like also to thank in particular the Executive Directors of the Fund for their Report containing the Proposed Amendment to the Articles of Agreement.

I would like, however, to make the following comments related to the afore-mentioned reports and study.

The Board of Governors of the Fund has already adopted the amendments to the Articles of Agreement and it is expected that the special drawing rights facility will be in operation by the middle of 1969. As the Governor for the Syrian Arab Republic stated in last year’s Annual Meeting, the introduction of this facility constitutes a major reform of the international monetary system, since it means that international reserves will be created as a result of the deliberate action of the member countries, and not simply as a result of changes in gold production or a deficit in the balance of payments of reserve currency countries. Thus, the international community as represented in the Fund would be able to create reserves deliberately in a manner that would satisfy the growing requirements of world trade.

Having said this, I would like to add that, since special drawing rights would be distributed in proportion to members’ quotas in the IMF, it is obvious that the benefit to the developing countries from the facility will be very limited. In view of these countries’ growing need for reserves, a need which is intensified by the instability in commodity prices, and also of the fact that the special drawing rights will be inequitably distributed, I would like to reiterate what all the developing countries have advocated during the second session of UNCTAD. First, that member governments of the Fund should consider at an early date the establishment of a link between the creation of special drawing rights and the provision of external development finance to developing countries. One of the forms that such a link may take is for the developed market economies to contribute to IDA a proportion of their share in the special drawing rights distributed to them. Second, that member governments in the Fund should give positive responses to applications from developing countries for special increases in their quotas. This would enable them to benefit more from the special drawing rights facility and the other facilities of the Fund.

While on the subject of the Fund’s facilities, I would like to dwell for a little while on the compensatory facility. There is no doubt that the introduction of this facility in February 1963 constituted a partial response to the demand of developing countries for a mechanism that would compensate them for short-term adverse movements in their export proceeds. The liberalization of this facility in September 1966 and its enlargement from 25 per cent to 50 per cent of members’ quotas with the provision, however, that drawings under it cannot normally, exceed 25 per cent in any twelve-month period. This liberalization and enlargement was also made in response to demands made by the developing countries during the first session of UNCTAD in 1964.

It is to be noted that after its liberalization in 1966 much more use was made of this facility, partly as a result of its liberalization and partly as a result of the adverse trend in commodity prices during the fiscal year 1967/68. Thus during this latter year total drawings on the facility amounted to $220 million, as compared with drawings totaling $87 million made between February 1963 and September 1966. I would like to point out, however, that drawings on the facility would probably have been larger had the full limit of the facility been made immediately available. This is probably so because a number of the countries that availed themselves of it experienced shortfalls in their export earnings that were bigger than 25 per cent of their quotas.

We believe that there is a need to improve this facility and thus render it more useful to developing countries. This could be done in accordance with the following recommendations, most of which were put forward by the developing countries during the second session of UNCTAD:

(1) Drawings under the facility should be made immediately available up to 50 per cent of member countries’ quotas and such drawings should not be subject to any conditions.

(2) In determining the amount of compensation the Fund should as far as possible take into account the changes in the terms of trade of the country concerned. Because what is more important in compensatory financing is not the maintenance of a steady flow of monetary receipts from exports in accordance with their medium-term trend but the maintenance of a steady flow of real imports.

(3) The repurchase liability in respect of outstanding drawings on the facility should not arise within five years after the drawings and thereafter should fall due only in the years in which the countries’ exports exceed the estimated trend value and should not exceed 50 per cent of the export excess.

(4) The liability of the drawing country in respect of the interest charges on the outstanding compensatory drawings should be calculated separately from that in respect of ordinary drawings and should not attract the normal progressive interest provisions of the Fund.

It is well known that the efforts of the developing countries to increase their growth rates are hampered by two main problems pertaining to their foreign trade: namely, a short-term one and a long-term one. The short-term problem takes the form of short-term declines in their export earnings owing either to declines in their international prices or to reductions in the volume of exports consequent upon unforeseen circumstances, such as droughts, floods, and the like. The long-term problem is the slow growth in their exports and the deterioration in their terms of trade. This slow growth in exports is manifested in the fact that the share of the developing countries in total world exports declined from 27 per cent in 1953 to only 19.3 per cent in 1966. Moreover, the deterioration in their terms of trade amounted to 13 per cent between 1954 and 1966 which entailed a considerable loss in the purchasing power of their exports in terms of their imports. Thus, the report of UNCTAD II states that “taking as a base for estimation the average export and import prices ruling in the years 1953-57, the average annual magnitude of this loss has been put at nearly US$2.2 billion, or an appreciable proportion—roughly one fifth—of the annual net capital flow into developing countries from all sources.”

May I add here that, taking the years 1952-54 as a base, only as a result of the adverse movements of its cotton prices, my country has suffered a loss of $260 million during the period 1952-67.

The reasons for the long-term slow growth in the exports of developing countries and the deterioration in their terms of trade are familiar and are competently analyzed in the joint study of the Fund and the Bank. Therefore, I see no need to rehearse them. What I would like to stress here, however, is that the afore-mentioned two problems affecting the trade of developing countries disrupt their development efforts, and that their loss in purchasing power is one of the most unjust realities of international trade relations.

We believe it is high time that the international community adopt concordant measures that would help in solving the aforementioned trade problems of developing countries. For a long time these countries have been advocating in the United Nations and related bodies the establishment of international buffer stocks within the framework of commodity agreements in order to stabilize commodity prices. The results were disappointing. Moreover they have been urging, with dismal results, the developed countries to take measures that would ensure freer access to their markets for the exports of developing countries. There is no doubt that such measures, together with measures that should be taken by the developing countries themselves to diversify their exports and ensure trade expansion and economic cooperation among themselves, would help to improve the long-term prospects for their exports.

The Resolutions adopted last year in the Rio Meeting invite the Fund and the Bank to study the problem of stabilization of prices of primary products. These Resolutions may be viewed as an attempt by the developing countries and some developed ones to expedite the process toward achieving some kind of stability for the prices of primary products.

The first part of the study is before us and is valuable. It contains a general and analytical survey of the problem. But what would be of more interest is the second part which is expected to contain the possible measures that might be taken by the Fund and the Bank in the field of commodity stabilization. We expect, however, that the measures to be recommended by the Bank staff will be more oriented toward improving the long-term export performance of developing countries, while those to be recommended by the Fund staff will be concerned with the problem of stabilization as such.

I would like to comment briefly on the financial assistance that is now and may be provided by the Fund as a contribution toward commodity stabilization.

There is no doubt that the compensatory finance facility of the Fund performs a useful stabilization function in the sense that it offsets to a large extent the impact on foreign exchange receipts of short-term declines in exports. In other words, it tends to stabilize export availabilities. But it should be stated that compensatory financing is no substitute for a system of stabilization of primary commodity prices. On the contrary the one tends to reinforce the other. For the compensatory finance facility does not offset the loss in foreign exchange resulting from a fall in commodity prices since the credit advanced under the facility has to be repaid, while a system of stabilization of commodity prices does not stabilize export availabilities if the cause of the disturbance is the decline in the volume of exports due to factors largely outside the control of the country concerned.

Part I of the study concludes that the buffer stock technique to stabilize, within limits, the international prices of certain commodities is economically feasible; consequently, we hope that Part II of the Fund staff study would contain recommendations concerning the financing of approved stocks. We are fully aware that financing might not be the main stumbling block in the conclusion of commodity agreements. Nevertheless, some agreements require outside financing and might not be negotiable without such financing. I would like, however, to make the following suggestions regarding the Fund financing of buffer stocks, hoping that they will be taken into consideration in the second part of the study. First, we believe that the Fund should introduce a new facility for buffer stock financing in addition to the existing facilities. And, second, the Fund should be prepared to finance directly the commodity agency, and the conditions applicable to such financing should be liberal in character even if this requires the amendment of the Fund Articles, including the Proposed Amendment itself.

Even if a solution is found to the afore-mentioned trade problems of the developing countries, they will still be in need of external development finance in order to achieve the modest rate of growth envisaged in the United Nations Development Decade. …

1

October 3, 1968.