Before we begin our discussion on the Annual Report, allow me to express the keen appreciation—which I think all the assembly share—for the lucid, frank and stimulating address of the new Managing Director, Mr. Pierre-Paul Schweitzer.

Statement by the Chairman of the Board of Governors of the Fund, the Governor for Italy—Emilio Colombo

Before we begin our discussion on the Annual Report, allow me to express the keen appreciation—which I think all the assembly share—for the lucid, frank and stimulating address of the new Managing Director, Mr. Pierre-Paul Schweitzer.

The noble words he has used to commemorate his predecessor, the late Per Jacobsson, found an echo in our own feelings. Our memories of his active and creative personality cannot, of course, be limited to verbal homage, however proper.

The work of Per Jacobsson to strengthen the Fund, to increase its operative means considerably through borrowing arrangements, and to create new facilities in favor of primary producing countries, shows us a path along which further useful steps may be taken.

At the same time, let us remember that the last anxieties of our late Managing Director were caused by the possibility of periods of slackness or stagnation, detrimental to the continuity of an adequate rhythm of economic development.

The inflationary pressures which have once more been outlined in some industrial countries should not make us forget that responsible action to contain them must be coupled with care not to weaken or stop economic growth, and yet avoid obtaining this result at the cost of a loss of confidence in the monetary stability.

If they so act, industrial countries will not only work to their own benefit, but also to the benefit of developing countries. In turn, the latter will do well to study carefully the penetrating investigation which the Annual Report of the Fund devotes to finding the best ways to promote development: an investigation which has had to dwell, once again, on the harm inflationary tendencies can do to the process of development.

This basic need to hold back inflation, and yet not lose sight of the undesirable effects of stagnation or periods of stunted growth, gives special interest to the intention, expressed by the Fund in the Report, to examine the attempts several countries are now making to establish an incomes policy, designed for the very purpose of maintaining monetary stability.

There is no need for me to stress the attention aroused by the considerations, set out both in the Annual Report of the Fund and in the address Mr. Schweitzer has given us today, about the problems of international liquidity. I will only remark that all that may be said on this subject—and no doubt there is much to say—will benefit if we bear in mind that the contingent problems of re-equilibrium of balances of payment should not be confused with the long-period problems arising from the relation between the increase in the rhythm of world trade and the increase of international means of payment. Furthermore, the understandable and legitimate desire to improve the international monetary system does not imply putting its present soundness and effectiveness in doubt; these are out of the question, particularly in the light of recent experiences and of the proofs countries have given of their willingness to cooperate.

Truly the existing system has proved itself able to ensure that temporary imbalances in payments, both for current items and for capital movements, can be faced without forcing the countries concerned to subject their economies to measures that would provoke sharp interruptions to their internal processes of economic expansion.

To conclude, may I express satisfaction for the growing attention the Fund’s Report pays to relations with other international organizations operating in the same fields as ours do, or in connected ones: from the Development Assistance Committee of the Organization for Economic Cooperation and Development, to the European Economic Community, to regional agreements to create customs or economic unions.

The account given of the activities of these different organizations is not free from some apprehensions, which—whether justified or not—only go to prove the need to intensify a better knowledge that may eliminate, as far as possible, misunderstandings or preconceived notions. The movement that led to the formation of regional agreements has an indisputable historical bearing, and is destined to last. Therefore, there is every advantage in working with good will to avoid such agreements becoming substantially forms of enlarged bilateralism, and to make them aim at general expansion and common progress.

It is in this wider context, in my view, that we must consider the requirements the Fund is called on to meet in the near and in the less immediate future: requirements on which our attention is focused by the very events which have marked the commendable activity of our organization in the past year.

This valid work leads me to hope that I may express, in your name as well as my own, warm thanks to the Executive Directors and to the Deputy Managing Director, who, in their respective tasks, have contributed to the significant achievements that mark even the difficult conditions of the last year.

I should also like to repeat that the work of the Fund, on the very important plane of consultations and technical assistance, is made possible by the ability and loyalty of the staff, to whom I am happy to convey the general appreciation of this assembly.

Statement by the Governor for El Salvador—Francisco Aquino h.

I speak on behalf of the five member countries of the Central American Treaty on Economic Integration: Guatemala, Honduras, Nicaragua, Costa Rica, and El Salvador.

“Our lives are the rivers that run to the sea that is death. …” So goes an old Spanish verse.

Per Jacobsson’s life was a great and abundant river for all of us who had the good fortune to associate with him, and especially so for those of us who knew him in the fullness of his years, the best of which he spent in the International Monetary Fund. Central America wishes, in these words, to pay tribute to his distinguished memory.

Up to now, it has been very difficult for the Central American countries to achieve lasting equilibrium in their balance of payments, despite the fact that they have generally pursued conservative fiscal and credit policies. For many long years, prices in Central America’s trade with the rest of the world have been unfavorable; the flow of private capital to our region has declined; and the growth of our exports has been slow and irregular. Moreover, we cannot ignore a certain tendency toward a flight of local capital, which is a matter of concern to our authorities and constitutes an additional obstacle to economic development.

Notwithstanding the persistence of the unfavorable factors that I have just mentioned, Central America’s payments position improved somewhat during the past year. This improvement was due solely to the increase in the volume of exports. Our countries’ own efforts were thus rewarded, for the first time in many years, with an increase in foreign exchange receipts, enabling the central banks to accumulate some reserves. Receipts of private capital were somewhat smaller than in previous years and the increase in official loans and grants—a welcome one, indeed—was not sufficient to offset the decrease in those receipts.

In view of the sharp fluctuations in the foreign trade receipts of the developing countries, we Central American countries are greatly pleased and expectant over the source of additional credit that the Monetary Fund is offering through the establishment of a system of compensatory financing. We also consider it wise to permit the selective increase in the quotas of the small countries, in order to provide them with a secondary and more convenient line of reserves, with which they can more effectively protect themselves against any type of balance of payments contingency.

This system of compensatory financing, though a modest one, is a decisive and practical step toward coping with short-term problems, and we are certain that, should adverse trends in the terms of trade recur, the Fund would be in a position to apply the system flexibly and, if necessary, to expand and strengthen it.

Now, if the problem confronting our countries is the gradual and constant deterioration in the terms of trade, the system of compensatory financing will be no more than a palliative, and we must look for solutions of a more permanent nature, as, for example:

  • (a) Achieving greater cooperation between the industrial countries and the countries that produce raw materials, in order to draw up effective long-term price stabilization agreements. On this point, the recent World Coffee Agreement is one step in the right direction.

  • (b) Obtaining greater access to the markets of the industrial countries for our export products; and

  • (c) Increasing the flow of private and official capital and of technical assistance from the industrial countries to our countries.

We believe that several of the European countries are now in a position to collaborate more fully than before in our economic development process. We cordially invite them to consider these suggestions, especially in the context of our regional market.

Central America is engaged in a serious effort to achieve economic integration. As recognized in the Punta del Este Charter, these efforts create additional needs for financing for economic development. The World Bank has taken some steps to assist in this process, such as the studies for a regional plan of telecommunications. We venture to hope that this line of action will continue, and that the Bank will not ignore but, on the contrary, openly and decisively support our regional instrument for the financing of the integrated development, the Central American Bank for Economic Integration.

We Central Americans wish, on this occasion, to express profound satisfaction over the changes in the World Bank’s credit and technical assistance policy proposed by President Woods. We feel that the expansion of the Bank’s activities to agriculture, industry and education, and the new types and conditions for loans, are the beginning of a more liberal policy that, little by little, will consider new fields of investment and new kinds of credit for infrastructure and social development projects. We believe that, when Central America has development plans on a local and regional level—which will soon be the case—the emphasis should be placed on the content of each project within the context of the general development and integration plan. We are certain that President Woods’ suggestions will receive the support of all of the Governors, particularly those from the industrial countries, since this new policy is warmly received by the Governors of the developing countries.

There is another suggestion before the Board of Executive Directors of the Bank, to which the Central American Governors also wish to give full support. That is the one referring to finding an appropriate formula for assuring the financing of local currency costs of projects. The formula suggested by one of the Executive Directors, to the effect that the Bank might guarantee local bond issues, is entirely feasible and acceptable to us. We trust that the authorities of the Bank and Fund will give priority to this matter and propose an effective solution.

We entertain the hope that the proposed increases in the funds of the International Development Association, already accepted in principle, will soon become a reality, as credits from that source are not so heavy a burden on our balances of payments as those obtained from conventional sources.

In reference to the problem of international liquidity we wish first of all to report to the Governors on our own regional efforts at monetary cooperation. In October 1961, the Central American Clearing House began operations with the adherence of three central banks. At that time, the total trade between our five countries amounted to $22 million. At present, all five central banks of the Isthmus are members, and the transactions through the Clearing House cover nearly 90 per cent of the internal trade of the region, which has grown to $56 million a year.

That is how the compensation system has not only facilitated intraregional trade, but has implicitly created a single currency in Central America, with different symbols equivalent to the parities declared to the Monetary Fund; it has integrated the local banking systems into a relationship more intimate than that of mere correspondence; and the continuous contact of the central banks in the discussions of the problems of the Clearing House has provided a favorable atmosphere in which to coordinate monetary, exchange and credit policies which, in the process of integration, is the next step—a logical and very significant one for the Central American countries.

I should mention that the usefulness of the Clearing House has spread beyond the borders of Central America. Recently the central banks that are members of the Clearing House signed a compensation and reciprocal credit agreement with the Banco de Mexico, S.A., which, by using the Clearing House facilities, will make it possible to pay in local currency for transactions between Mexico and Central America. This agreement has the special merit of being the first that Central America has signed, as an economic unit, with a country outside the area. The experience that we gain from it will be very useful in future.

In the part of the Monetary Fund’s Annual Report that deals with the insufficiency of liquidity to meet the requirements of international trade, we learn that the problem today is not acute, especially if we consider the normal credit available through the Fund, the special credit agreements of the members of the so-called Paris Club, and the bilateral arrangements between the principal central banks of the world. Nevertheless, certain factors are a matter of concern within the system of international payments, such as the persistent disequilibrium in the balance of payments of the United States of America, the effects of which are felt even in the execution of the Alliance for Progress program. That is why the Central Americans feel that these problems require the constant attention and consideration of this distinguished body, both in quantitative and in qualitative aspects. To that end we are warmly supporting the suggestion of the Managing Director, Mr. Schweitzer, that, in the coming year, the Monetary Fund should develop and intensify its studies of the problem of international liquidity, the functioning of the monetary system at the international level and the real role that the Fund can play in this field. I believe that the Governors will agree with us that the Monetary Fund, as a central agency of the international monetary mechanism, is called upon to play a preponderant role in such studies.

I cannot conclude without welcoming, on behalf of Central America, the new executives of the Monetary Fund and the World Bank, Mr. Pierre-Paul Schweitzer, Mr. Frank A. Southard, and Mr. George D. Woods. To them we extend our best wishes for long and fruitful labor in the field of international financial cooperation.

Statement by the Governor for Ethiopia—Yawand-Wossen Mangasha

Since our last Annual Meeting, the Fund has lost a distinguished international civil servant of world-wide reputation. I am sure that all of us here are extremely indebted to the late Mr. Per Jacobsson for the many years of dedicated service which he has given to all our countries. Those of us who were privileged to meet and discuss some of our problems with him will never forget his great intellectual capacity and personal dynamism.

At this time, I would like to take the opportunity to welcome the new Managing Director of the Fund, and to congratulate our Executive Directors for having made such a wise choice in the person of Mr. Pierre-Paul Schweitzer. The name of Schweitzer is not new. It is well known to all of us in Africa. We know that the experience, training, and dedication which he brings with him to his new work will not only benefit the day-to-day administration of the Fund, but also its ever-changing and multiple task of improving the variety of services rendered to the member countries. Let me also welcome here the 20 new countries who have become members of our organization this year.

The admirable Report on the activities of the Fund which has been placed before us is very clear on a number of points.

While the affluent industrial society is busily engaged in the “Great Chicken War,” we in the developing countries are still laboring with the hope—many times with little success—of realizing at least some of the pressing primary needs of our respective peoples. The limited success of our combined effort can, among other things, be attributed to the great limitation of resources at our disposal. In many of our countries the deficiency of resources is beginning to become more material than human.

The reported balance of payments improvement of the developing countries as a whole during the past year is, in a sense, strictly marginal. These temporary improvements will not enable us to carry out and bring into fruition the various development programs which most of our respective countries have started. Even if we were to use our temporary drawing rights in the Fund, as well as the increased amount which might be made available to us under the new compensatory financing facility, the amount of funds available would still fall short of our minimum requirement for development.

The same could be said here, as in the case of the balance of payments, of the slight improvement in the terms of trade of the developing primary producing countries. Compared to the long-term deficit which has accumulated since the early years of the 1950’s, the improvement is almost nonexistent. Furthermore, as price changes of primary produce come about more suddenly than in the case of manufactured commodities and services, the developing countries cannot now relax by thinking that even the slight improvement of the last year will continue to be maintained. In this era of tremendous technological changes and multiple innovations in the field of synthetics, primary producing countries cannot afford to take anything for granted. The indications are that these improvements in the terms of trade are temporary at best and of very short duration.

It is very encouraging to note that recently some efforts are being made to reduce various forms of trade barriers with the hope of strengthening our economic ties on a world-wide basis. The Ministerial meeting which was held in Geneva last May under the auspices of GATT has made certain valuable suggestions; and the summit conference of independent African States has welcomed the forthcoming world Conference on Trade and Development.

But all the same, the negative, inward-looking aspects of the Common Market arrangements are still of particular concern to a developing country like mine, which does not belong to any economic grouping. As a participant in international conferences, we have repeatedly pointed out that the sectional protective arrangements of the Common Market are injurious to world trade expansion in general and to the interest of developing countries in particular. The danger of this economic arrangement, with its strong political overtones, is now beginning to be of concern to some even in the United States of America. This anxiety is not only in the limited area of tariff practices, but also in the wider fields of free decision making, which is a vital part of a freely oriented enterprise society. The apparatus of the Common Market may well, in the years to come, conflict with well-accepted business objectives and practices. Certain Common Market practices may well become the means by which excessive governmental control and direction can be brought about on the economy of the full and associate members.

My reason for mentioning this is not to bring about misunderstanding among those of us who believe in different forms of economic orientation, or to belittle the importance of the Common Market arrangement to the political solidarity of Europe. My only objective here is to show that, in this era of economic interdependence, the Common Market is being confronted with many new problems which were not, and could not be, fully anticipated at the time of the signature of the Rome Treaty. The solution to these must be sought not only in the limited interest of the club. The effect of certain decisions on the much wider interest of the world trading community must be fully appreciated. In short, the decisions of the Common Market must be forward and outward looking.

The arrangements of the Common Market are not the only impediments affecting the free flow of trade. While our collective effort here is directed toward the elimination of the common miseries of man in order to uplift his spirit, it is a well-known fact that, in Africa, for example, certain countries, because of their absurd doctrine of race and segregation practices, have made it very difficult for other countries in Africa to trade with them freely. The continuation of these oppressive measures might well force us here, depending on steps taken in the United Nations, to expel a member from this international organization. It is, in a way, very sad that a country which has a built-in discrimination of this kind in its economic and political machinery has in the past been helped financially by international institutions! We hope that unless the malpractices which I have mentioned are eliminated, assistance by international financial organizations will be discontinued.

The Fund has again stated in its Report that monetary stability is necessary for orderly economic growth. In Ethiopia we have always been believers in this principle. As an example, the increase of our money supply from 1953 to 1963 has on the average amounted to only 5 per cent per year. This increase lies within the available increase of goods and services.

But in this age of all-round expectation, we realize that no developing country can maintain stable prices unless the economic policies of the industrialized countries are favorable. The developed countries must coordinate their policies and continue to exert greater efforts, firstly, in stimulating a more abundant and more constant flow of capital with particular emphasis on direct productive investments. Secondly, they must open up their home markets, and remove discriminatory tariff barriers on the products of the developing countries. Thirdly, the industrialized countries must embark upon a policy of stabilizing the price of primary products of the developing countries.

On our side, we must attempt to create more favorable conditions at home, not only to accelerate the inward flow of capital, but also to make possible the easy transfer of the multiple technical and managerial skills of the industrialized countries.

If these efforts are not intensified, the less developed countries will find it extremely difficult to maintain stable prices. Under the pressure of public opinion, which is often impatient, these countries will be compelled to start spending policies of an inflationary character which are not compatible with the orderly growth of the world economy.

In concluding, let me just say a few words about liquidity. The various aspects of the problem have been discussed at length in the past and will no doubt continue to be discussed here again, and even more in the future.

As recently as last year some of us could not admit that a connection existed between the balance of payments deficit of the United States and the wider issues of international liquidity. But within the space of one year we are now starting to think otherwise.

Let me make it here absolutely clear that we are not against any exploratory discussion. We welcome the studies suggested by the Managing Director and any other research which is likely to improve the present machinery of world payments. The answer to this problem might even be found in the revision, or complete abandonment, of the now existing connection in the United States between gold and money supply. It is indeed proper that difficulties in this and in other areas should be anticipated and a proper machinery to deal with them devised.

In this connection it is once again very reassuring to note the determination of the United States Government to maintain the relationship of gold to dollar at the rate of $35 per ounce. Those who make the final decisions in the alteration of one system of international liquidity in favor of another must, however, be reminded of their great moral responsibility. They must constantly keep in mind the result of their action on those countries who keep their meager reserves in dollars, sterling, or other similar currencies. The possible decline in value of these reserves by one scheme or another should perhaps be guaranteed fully by those countries in whose currencies the various reserves are kept. In the absence of such assurances the developing countries in particular will find themselves in a state of added insecurity. As the result, the outflow of gold in certain countries might be further accelerated. …

Statement by the Governor for the United States—Douglas Dillon

At the outset of my remarks, I ask you to join with me in paying tribute to our late great colleague and good friend, Per Jacobsson. Firmly dedicated throughout his long and distinguished career to the cause of financial stability, he guided the International Monetary Fund with a deep understanding of the needs and realities of his times. The responsibilities of Managing Director have now passed into the capable hands of Pierre-Paul Schweitzer. His willingness to assume these duties provides us with fresh assurance that the Fund, building on its current strength and influence at the center of the international monetary system, will successfully meet the fresh challenges that lie ahead.

It is also a pleasure to welcome to the Fund family an unusually large number of new members, bringing our group to more than 100. The election of a nineteenth Executive Director, who will cast the votes of a group of the many new African members, is symbolic of the increasing usefulness of the Fund to the emerging nations.

I am sure that each of these new members will profit from the important assistance the Fund can render to their further development, through its expanding program of technical assistance in the areas of central banking and fiscal practices and policies, through its regular consultations, and by providing timely financial support for well-conceived stabilization programs. In addition, the new compensatory financing facilities announced last March mark an important and constructive advance in the services available to members heavily dependent upon exports of primary commodities.

These activities in support of balanced, dynamic growth are, of course, complemented by those of the Fund’s companion Bretton Woods institution, the World Bank and its affiliates, now under the able direction of George Woods. I should mention particularly at this year’s Meeting the work of the International Development Association, whose activities in so short a span of time offer so much promise for the future. Action by the Part I countries on the proposals for increasing its resources will mark another milestone in the work to which it is dedicated and in which we are all joined together.

The successive Annual Reports of the International Monetary Fund have expertly traced the evolution of our international monetary system since World War II. They have also made clear that new problems have a way of emerging as older ones are solved. The Report for 1963 is no exception. In particular, it deals at some length with the adequacy of existing arrangements for providing international liquidity during the coming years. The authors point out that liquidity is not simply a matter of the aggregate of official holdings of gold or foreign exchange, and they review the progress made in recent years—in considerable part under the auspices of the Fund itself—in supplementing these resources with international credit. But the Report also recognizes that the needs of nations for assured means of financing balance of payments deficits—either by drawing upon a stock of liquid assets or by means of borrowing—can be expected to increase over time. At the same time, as the deficit in the balance of payments of the United States is narrowed and closed, that deficit will no longer contribute to the liquidity of other nations in the manner and magnitude of the last few years.

The Fund’s Report has now been supplemented by the thoughtful and important statement of its new Managing Director. Mr. Schweitzer indicated that the Fund expects to study the problem of international liquidity and has expressed the Fund’s readiness to cooperate with others in such a study. He points out that studies of this problem are timely even though there is at present no sign of any shortage in international liquidity. He has also given us his view that the Fund should be at the center of whatever strengthening of the international monetary system may prove to be desirable. The United States finds itself in general agreement with all of these thoughts.

But in discussing this matter, I would like to make one point crystal clear: The United States does not view possible improvements in the methods of supplying international liquidity as relieving it of the compelling and immediate task of reducing its own payments deficit. Indeed, it is largely the prospect of the elimination of the United States payments deficit that makes it necessary and advisable to undertake these studies.

Nor can the provision of appropriate facilities for international liquidity relieve nations of their joint responsibilities for effective and timely action to eliminate such imbalances in trade and payments as may arise in the future. In a world of fixed exchange rates and convertible currencies, deficits and surpluses emerge from a wide variety of causes, both domestic and international. The necessity to make cash outlays for defense and aid, shifts in the basic pattern of demand for internationally traded goods, the development of new products, resources, and production techniques (and developments in capital markets) can be just as important as changes in average price levels and aggregate demand within countries.

The adjustments necessary to correct these deficits and surpluses take time if they are to proceed in an orderly fashion, without damaging consequences for either domestic growth and stability or the free flow of trade among nations. That is why, as part of the adjustment process, a country experiencing deficits needs reserves to draw upon, or credit that it can rely upon. That is also why a country receiving the counterpart in surpluses needs assets of assured value, in amounts and forms that will not disrupt its own economy. But in the last analysis, without effective adjustments by both deficit and surplus countries, no amount of liquidity will enable us to achieve the mutual benefits of a closely integrated world economy within a framework of steady growth accompanied by monetary stability.

The challenge implicit in this situation is clear. Side by side with our studies of possible liquidity needs, we must consciously seek out means of improving the process of international adjustment itself, while preserving our separate abilities to meet our respective domestic needs.

This is a large order, but one that is well within our capacities. Much has been learned from the experience of recent years. We have come to recognize that in shaping domestic policies and choosing from the various tools available for use, their varying impact upon our external accounts, and upon those of our trading partners, must be taken fully into account. There is greater awareness of the need to identify and eliminate those market rigidities that inhibit the process of adjustment. And we are learning that new techniques can be developed for assisting the process of adjustment that are consistent with domestic goals and competitive markets.

Much of this can be illustrated by analysis of the position of the United States, faced as we are with the twin tasks of achieving more rapid growth at home while simultaneously closing the troublesome gap in our balance of payments. And many of the lessons of this experience, I believe, will prove sooner or later to be more generally applicable to the problems of international adjustment.

Business activity in the United States has continued to expand over the past year at a fairly steady pace. Total output has now reached a rate of over $585 billion a year—in real terms more than 13 per cent above the level of early 1961.

Measured against other peacetime expansions of the past 40 years, this performance has been encouraging. All but one of these recovery periods have now been equaled or exceeded in terms of percentage increase in output, and that single exception took place only after the steep declines in production during the early 1930’s. Prices of manufactured goods have remained virtually unchanged during the current expansion, extending the period of stability that has existed since 1958. However, unemployment is still excessive. And we are not fully utilizing our available savings or our existing productive plant capacity. True, investment activity has risen in response to increases in demand and to measures introduced a year ago to liberalize the tax treatment of depreciation and provide an investment tax credit. But new investment still remains below the levels required to support a full employment economy and to assure the position of our industry among the leaders in technological progress.

At the same time, our over-all balance of payments has responded slowly to the series of measures we have undertaken since 1961. The over-all deficit was reduced to $2.2 billion in 1962, from $3.9 billion in 1960 and $2.4 billion in 1961. But the deficit grew markedly larger during the first half of 1963.

When this situation first became apparent, we made a thoroughgoing review of our entire balance of payments program, which culminated in a series of decisions announced by the President on July 18. Resulting programs now under way will, by the end of next year, bring a reduction of $1 billion in the annual rate of dollar expenditures abroad for defense, aid and other government programs. Savings of similar magnitude are also expected on capital account as a result of the proposed Interest Equalization Tax and the firmer structure of short-term interest rates accompanying the recent one-half per cent increase in the Federal Reserve discount rate. We can already see indications that the deterioration in our accounts during the first half of the year is being arrested.

These new actions will complement and reinforce the longer-run measures we have been taking to achieve both external balance and more rapid domestic growth. Basic to our strategy for achieving these twin goals is a broad program of individual and corporate tax reduction totaling $11 billion, which, after passage by our House of Representatives last week, is now before our Senate. It will provide an impetus to the domestic economy in a manner consistent with our international position. It will give increased flexibility to our monetary authorities in meeting balance of payments requirements. The added incentives for use of capital in the United States will enhance the relative attractiveness of investment here for Americans and foreigners alike. At the same time, the increased productivity associated with rising investment, together with greater incentives to develop and market new products and to apply more rapidly the fruits of our vast research capabilities, will reinforce the efforts we are making to increase our exports.

Our ability to expand production—which is implicit in our current unemployment, in our rapidly growing labor force, and in our margin of underutilized industrial capacity—provides protection against upward price pressures as the stimulus from the tax program takes hold. Meanwhile, we are continuing successfully to finance our budgetary deficit outside the banking system. For instance, in the year that ended August 31, the latest date for which figures are available, the combined holdings of government debt in the hands of our Federal Reserve and commercial banks declined by more than $1½ billion. We have also made further progress in improving the maturity structure of our marketable debt. As a result of our latest advance refunding, the average life of that debt exceeded 5½ years for the first time since 1956. We are not faced, therefore, with the kind of excessive liquidity that could fuel inflationary developments as our economy moves toward fuller employment.

Perhaps most significant of all in terms of the outlook for prices, our manufacturing labor costs per unit of output have declined over the past 3 years—the first time since World War II that this basic measure of our competitive strength has improved for so long a period, or during a time of substantial recovery. And the rate of wage increases in our manufacturing industry is holding within the range of past and anticipated productivity increases.

In this way we are encouraging basic corrective forces in terms of costs and prices that should provide a firm base for improving our trading position, thus contributing to the orderly adjustment of our entire balance of payments. Highly tentative, but nonetheless encouraging, signs of an improvement in our international competitive position are developing. But it is clear that the contribution that exports can make to over-all balance will be heavily dependent upon the adjustment policies of other nations as well. By this I do not, of course, mean to suggest that surplus nations have a responsibility to inflate, any more than it would be consistent with our internal needs to force deflation. Nor, in our particular situation, would it be reasonable to look only—or primarily—to increases in our commercial trade balance as the solution for our payments problem.

But opportunities do exist for surplus nations, in instances where inflationary pressures are evident, to serve the interests both of their own domestic stability and of external balance by reducing or eliminating barriers to imports, including those from the United States. In the search for effective adjustment mechanisms within the context of a convertible currency system, this kind of action, it seems to me, can become, for surplus countries, a modern substitute for the inflationary price adjustments that we must all do everything we can to avoid.

A basic factor in our own deficit position has been the heavy burden we carry for the defense of the free world and for assisting the development of less favored nations. This burden, in a wider context, is an inescapable part of the kind of world we live in. But we are also learning that methods of handling these government outpayments, and more appropriate distribution of their balance of payments impact, can also contribute to the adjustment process without subverting their essential purpose.

Important savings have already been made in this area, reducing net outflows under our defense and aid programs from $3.8 billion in 1960 to $3.0 billion in 1962. A large portion of this improvement can be traced to the recognition by some European countries of their growing capacity to assume a greater share of the foreign exchange costs of the common defense. As a result, the drain on our payments from maintaining our troops in Germany and Italy is now virtually fully offset by their purchase of military equipment and supplies from the United States—equipment which, because of the size and flexibility of our defense industry, can be produced more rapidly and more economically in the United States than in their own countries. Thus these arrangements have simultaneously strengthened the free world’s military and economic defenses.

In addition, we have adopted a policy of providing the great bulk of our economic aid to developing countries in the form of goods and services, so that it can be brought within the limits of our capacity without impairing its effectiveness. When current commitments are fully reflected in actual disbursements, only some 10 per cent of the aid from our various foreign assistance programs will be provided in the form of dollars. At the same time, I believe that we must guard against any tendency to make the “tying” of aid into a subtle new form of protection for home industries. Rather, the logic of our efforts to expand multilateral trade and promote international efficiency through competition among the producers of all nations demands that it be used as a temporary device, reserved for periods of balance of payments strains.

With forces of adjustment under way in both our government and our commercial trade accounts, the most pressing problem in terms of our balance of payments has been the recent acceleration in the outflow of long-term capital. The net outflow of such capital during the first half of this year reached an annual rate of $3.8 billion. This was fully $1.3 billion higher than the already substantial figure for 1962 and nearly double the rate maintained over the years 1959-61. While some of this recent increase stemmed from direct investment, a flood of new foreign borrowings totaling nearly $1 billion in only six months was the major factor. This is considerably more than three times the volume we have been accustomed to.

It is entirely consistent with restoration of full equilibrium in international payments that the United States, with its capacity to generate large savings, continue to supply reasonable amounts of capital to aid the development of other nations. But it is perfectly clear that maintenance of outflows at the recent pace, far from being a constructive force in world payments, would soon put intolerable strains on the international monetary system as a whole.

As our program of tax reduction takes hold and there are stronger incentives to employ a larger portion of our savings at home, normal market forces will work strongly in the direction of reducing this outflow of long-term capital to more tolerable levels. But the experience of the past year makes clear that we cannot rely on these longer-term forces of adjustment to meet our immediate problems. Nor is it feasible to speed the process of adjustment by artificial attempts to force our entire structure of long-term interest rates sharply and suddenly higher. If possible at all in the face of the huge supply of savings flowing into our markets, this course of action would require so drastic a tightening of credit as to seriously jeopardize the prospects for domestic expansion.

In this situation, we have recommended enactment of a temporary Interest Equalization Tax which will have the effect of raising the costs of portfolio capital in our market by 1 per cent for borrowers in the developed countries abroad. This will bring these costs into a rough alignment with those in most other industrialized countries. The purpose is quite simple—to speed the essential redirection of capital flows in a manner comparable to an equivalent, but presently impracticable, rise in our entire structure of interest rates.

We view this tax solely as a necessary—but temporary—expedient to meet a specific situation that has arisen in large part out of a structural imbalance in the capital markets of the free world. Borrowers from deficit and surplus countries alike converge upon the New York market, not only because of our lower structure of long-term interest rates—since equivalent or lower rates can be found in at least two other countries—but because it is still the only source for international capital in whatever size and form desired, freely available to any borrower able to meet the normal market test of creditworthiness, and offering highly efficient distribution facilities with low issuing costs. In contrast, potential alternative markets are in most cases subject to official controls or have difficulty in supplying the needed funds in the volume required. And, with few exceptions, they are characterized by high and rigid rate structures. In the face of this situation, we must temporarily help to redirect the demands pressing on our market through a tax that will increase the costs of long-term borrowing here by foreigners.

The impediments to the development of more adequate European capital markets are currently under close and continuing study within the Organization for Economic Cooperation and Development, and progress is beginning to be visible. As efforts to improve European capital markets come to fruition and the remaining controls and restrictions are eliminated—and as our own domestic demands for capital put increased pressures upon our supply of savings—there is every reason to believe that the need for extraordinary action of the kind we are now taking will be eliminated.

When the Fund was established, there was great apprehension that sudden and massive short-term capital movements might again become a disruptive influence as they had in the disturbed climate of the 1930’s. Gratifying progress has been made in developing sturdy defenses against such threats to our convertible currency system through the concerted cooperative efforts of the industrialized countries. A chain of new facilities for coping with such pressures is now in place and tested, and there are grounds for confidence that the processes of adjustment can be shielded from perverse speculative flows in the future.

With the restoration of convertibility, however, it has become apparent that a sizable volume of capital is ready to move from country to country in response to relatively small shifts in interest rates. Thus, the stability of exchange rates and freedom of markets toward which we have all worked in the postwar period carries with it the implication that short-term interest rates in the major trading countries must inevitably be kept reasonably well in line with each other.

Both problems and opportunities are implicit in these circumstances. Domestic objectives will sometimes limit the practicable range of fluctuation in interest rates that can be undertaken for facilitating balance of payments adjustment. But, since the margin between rate relationships that attract or repel short-term funds is likely to be relatively narrow, it will usually be feasible to encourage small changes in short-term rates in the interest of speeding restoration of international equilibrium without disturbing the domestic economy.

Most promising of all in terms of facilitating the adjustment process is the increasingly close and continuous consultation on these matters that has developed in the forums provided by this institution, by the Organization for Economic Cooperation and Development, and by the Bank for International Settlements. This has been particularly evident in the area of short-term capital flows and interest rates. But we are also coming to understand that this same kind of consultation and cooperation is essential in other areas as well. We know that any adjustment demands offsetting changes in the position of deficit and surplus nations. We also know, in the last analysis, that these adjustments must take place, for no workable international monetary system will allow a nation to continue to run a deficit—or for that matter a surplus—for an indefinite period.

The critical question is how the adjustments are to be made. Balance can be—and too often in the past has been—forced by measures that endanger domestic stability or the prospects for growing trade. Those alternatives are not open to us today if the bright promise of all that has been accomplished since Bretton Woods is to be fulfilled. Nor can the industrialized countries afford to undermine the defenses of freedom or to withdraw their support of the developing nations.

The only realistic solution is to find effective ways for reconciling the requirements of a convertible currency system based on fixed exchange rates with the freedom of each nation to pursue domestic growth and stability. No methods will work instantaneously, and one prerequisite to their proper functioning is the availability of adequate liquidity—in the form of international reserves or ready access to credit. The studies now being launched provide fresh assurance that these liquidity needs will be met effectively in the more distant future, just as they are being met effectively today.

But adequate liquidity will not make our machinery of adjustment work automatically, nor can its development be safely put off until emergencies arise. Instead, its effective use will require governments of all nations with a stake in a liberal trading order to work together continuously in many areas: in developing a mix of domestic policies appropriate to external circumstances, in adjusting trade policies, in sharing the burdens of aid and defense, in providing long-term capital, and in eliminating rigidities and inefficiencies in their economies that impede and distort the adjustment process. That willingness, I believe, is now being demonstrated more fully than at any time in the past. This is the real source of my confidence, not only that the United States will restore balance in its own accounts—for we intend to carry out that responsibility in any event—but also that a true equilibrium can be restored within a framework of expanding trade, flourishing growth, and monetary stability.

Statement by the Governor for Japan—Kakuei Tanaka

First of all, I wish to extend a hearty welcome to our new Managing Director, Mr. Schweitzer. Our grief at the sudden passing of Mr. Jacobsson, to whom we were greatly indebted, all the more enhances our wishes for a successful future for the Fund, guided by the new Managing Director. I earnestly hope, together with you, that the ideal of a stable and developing international monetary system, to which Mr. Jacobsson devoted his life, may be fostered and realized through future activities of the Fund. We are confident that Mr. Schweitzer will be a worthy successor to Mr. Jacobsson.

Next, I wish to describe briefly recent developments in our economy. In 1961, we faced a critical situation in our balance of payments. We undertook to overcome it through appropriate fiscal and monetary measures at home, and with the help of emergency loans from U.S. commercial banks and the Export-Import Bank of Washington in combination with a stand-by credit from the Fund. Our efforts have been successful. We are aware of the difficulties of harmonizing the objectives of satisfactory growth and satisfactory balance of payments position, but we are confident that it can be done successfully. In 1962, the year of readjustments following the boom, we were still able to expand our gross national product by as much as 6 per cent in real terms. It is our expectation that in the current year our economy will continue to grow steadily at a higher rate than last year.

In recent years, Japan has been moving forward step by step in the liberalization of trade and payments and has taken a more active role in aid to the developing countries, which I consider to be a key program of the world today. Moreover, it is our intention in the near future to accept the obligations of Article VIII and contribute further toward international cooperation on monetary matters. Free interchange of capital, technology, goods and services among nations of the free world through mutual understanding and cooperation will, I am convinced, not only promote harmonious growth of the world economy as a whole but will surely benefit all the nations individually, including our own. That is why I am an advocate of liberalization and international monetary cooperation in spite of many difficulties and handicaps facing us abroad and at home since the war. Economic interdependence and solidarity among nations have become closer than ever, so that today the economic policies of one country will greatly affect for better or for worse the economies of other countries and will in turn expose them to various repercussions. In this respect, I might add that we look forward to a successful meeting of the United Nations Trade and Development Conference and we support across-the-board tariff reduction for the advancement of the welfare of all nations, the developing as well as the industrialized.

The Annual Report of the Fund gives us, once again, a very lucid and comprehensive picture of the world economic situation and problems of stability and growth facing all of us. Recent trends in the world economy show that efforts are being directed to greater growth and higher levels of development. There is still some apprehension of stagnation, or even recession, depending on what kind of policies are followed by the leading nations. In this connection, suggestions have been made in various quarters for increasing international liquidity and for reforming the international monetary system. I would like to underline the importance of all interested countries collaborating on these problems in a spirit of cooperation. Japan is prepared to participate in any international effort to review them, and we would expect that the Fund with its wealth of experience would take an active role in this review under the leadership of its new Managing Director, Mr. Schweitzer. I would like to stress, however, that our preoccupation with these problems should not mean giving less attention to the pressing problems of developing countries.

In concluding, I wish to emphasize that every effort should be made by the Fund and by its members to ensure that in the years to come we will continue to make progress. We must all cooperate to avoid retrogression and backsliding that, in the end, can undermine the structure of multilateral trade and payments, without which the economy of the free world cannot prosper and grow in harmony.

Statement by the Governor of the Bank for France—Valéry Giscard d’Estaing

International cooperation in the monetary and financial fields, to which our meetings are dedicated, a few months ago lost one of its most eminent promoters, Mr. Jacobsson, whose passing was deeply mourned by all of us. He devoted his intelligence, his insight and his human qualities to that cause. I should like, personally and on behalf of the French Government, to join in the tribute rightly paid to him. My country does not forget that a few years ago he brought competence and understanding in considering its monetary and financial difficulties.

The problems which we must solve are becoming ever more complex; they require that the men heading our institutions should have a high sense of their international responsibilities. It is indeed gratifying that Mr. Woods, who is taking part in our deliberations for the first time, is now the President of the International Bank. This is also why I am pleased to greet here my friend, Mr. Schweitzer; his intellectual ability and talent will, I know, be devoted unstintingly to the achievement of the aims of the Monetary Fund.

Our Meeting this year is attended by a larger number of representatives from friendly countries which recently attained independence; this is gratifying, and I wish to emphasize the great importance that France attaches to the strengthening of the links between the countries here represented.

Looking backward on the past twenty years one takes stock of the progress achieved through international solidarity. Sizable obstacles to economic development and to safeguarding the international monetary equilibrium nevertheless still remain. Further steps will be necessary in the years ahead.

My Government has already played a large part in the efforts to find new solutions to international economic problems; it will go on in that direction. It also wishes that approaches toward improving our methods of cooperation be made in a lucid manner. The decisions to be taken must involve a fair share of boldness and generosity as well as of wisdom and realism, without which there can be no lasting progress in international relations.

Mr. Chairman, in accordance with your invitation, I shall not refer to the policies that deal with the International Bank. I should like, however, these particular messages to be included in the proceedings.

In this spirit, I shall touch briefly on matters concerning the policies of the International Bank and its affiliated institutions. I shall then review the questions relative to the International Monetary Fund.

The International Bank has for the past fifteen years proved to be a fruitful institution. It has brought into being new agencies designed to supplement its task. It has collected each year increasing resources for the benefit of the developing countries. But this very vitality has given rise to the problems of growth which Mr. Woods has so clearly analyzed.

The increase of the funds available to the Bank is in itself gratifying, since it reflects the strength of its credit. France, by the way, has contributed to this liquidity through the recent redemption of the last maturities outstanding of the 1947 loan, which were to be repaid by 1977. The recent slowing down of the rate of loan commitments therefore does not arise from a shortage of funds. Nor should it be attributed to the strict standards of selection applied by the Bank to the projects submitted to it; the Bank must remain attached to the basic principle of financing only profitable projects, and one cannot say that there is any lack of such projects in the developing countries. The conventional terms of its loans should not be blamed either; were the Bank to stop using periods of repayment adapted to the rate of economic depreciation of the projects and were it to decide to depart from conventional interest rates, the very elements of its success would be threatened. There could, however, be various ways of enabling the Bank to carry on activities commensurate with its means.

The Bank might broaden the range of projects that it will agree to finance, as, for example, in the field of manufacturing industries and agriculture, without going so far as to finance undertakings outside the economic field and for which other forms of assistance would be appropriate. It might also intensify the efforts already made in the field of preinvestment or technical assistance. Lastly, there must above all be close coordination between the Bank and the International Development Association. The continuation of the large and excessively uniform discrepancy between the lending terms of the two institutions might indeed tend to cause a relative coolness toward Bank loans and an excess of applications for assistance addressed to the Association.

At the last Annual Meeting we discussed the difficulties arising out of the premature exhaustion of the Association’s initial capital. The present situation is obviously better, since the total amount of new contributions pledged by the industrialized countries will enable increasing the granting of loans on special conditions to a satisfactory level. In its future policy, however, the Association will have to heed the lessons learned from the crisis that threatened it. That crisis was due to the fact that the rate of commitments to borrowing countries had since the previous year exceeded the rate of actual payment of the member countries’ contributions. So unorthodox a practice would necessarily expose the Association to the risk of curtailing its activity. Now, while sufficient additional funds have finally been gathered, it has been done only thanks to a large increase in the contributions of the industrialized countries.

As a counterpart to this effort it would be advisable for the credits granted henceforth to remain within the limits of the available resources. This limitation does not mean that the annual volume of IDA’s commitments should be limited strictly to the total of the national contributions; it would, in fact, be possible to increase the available funds by building a sort of “bridge” between the resources of the Association and some of the Bank’s assets. But the main effort required of the Association will be to adapt its activity to the means at its disposal; it will have to choose carefully those cases in which it will be most generous.

In a more general way, the action of the Bank and the Association should fit harmoniously into the coordination of assistance of various forms and sources that has been successfully developed for some years. We should be satisfied with the work done in this direction within the Bank itself. The efforts in which the Bank has participated along with the main capital exporting countries in the Development Assistance Committee of the OECD have also contributed to strengthening the effectiveness of the aid granted to other countries.

I think, in fact, that financial development assistance can reach its goal only if all those who participate in it, work in ever closer unity. Only then can the application of financial techniques take on its true significance in view of the economic and human purposes that they are expected to serve.

In the last 15 years the scope of coordinated development policies has become progressively wider; in turn, attaining equilibrium in the international payments now raises more than mere problems of financial technique.

For this reason I should like this year to devote the remaining part of my statement to the functioning of the international monetary system.

A brief summing up shows that this is the 459th speech devoted to this question in this forum; one hesitates therefore to touch again upon a matter that has been dealt with at such length already. I venture, however, to overcome this hesitation, and shall do so for the following reasons:

1. The evolution of the basic data of the world monetary problem has been such, in the course of this year, as to give rise to a clearer awareness of its importance and of the interests at stake.

2. Since this problem has been widely debated throughout the world, we would fail to give due respect to the international institutions, if we were to satisfy ourselves with an academic approach. It should always be our rule to make these institutions the place where this problem should be stated in clear, and, if possible, constructive terms.

Awareness of the international monetary problem has centered around the question of the volume of liquidity. As recently pointed out in an excellent study, this approach to the problem reflects a certain amount of confusion. I shall merely concur with the two following conclusions:

The first one, in line with the conclusions of the Report of the International Monetary Fund, is that there is at the present time no over-all shortage of world liquidity.

The second one, in agreement with the views recently and courageously expressed by authorized American sources, is that a possible increase in liquidity will not discharge the major deficit countries from the obligation to re-establish, as soon as possible, the balance of their external accounts.

Therefore, concern over the monetary problem seems to me, today, to be related less to the volume of liquidity than to the various questions raised by the functioning of the international monetary system.

Why are these questions being raised more and more often? Probably because of the criticism to which recent developments have given rise. But before spelling out these objections, I think we should first recall their merits. One must indeed stress the fact that the present world monetary system has made it possible to restore convertibility of the main currencies, a result which, between 1945 and 1950, appeared unattainable. This system then provided credit mechanisms to cope with the crises, both severe and temporary, which affected certain currencies.

I wish to emphasize that these results have been secured while maintaining a relatively high level of employment in the world, an outstanding contrast to the situation that prevailed in years when the world monetary system was based on different principles.

I stress these facts because I do not want us to give in to this kind of intellectual nomadism by virtue of which one tries to escape from an existing system as soon as weaknesses become apparent in it, while forgetting the substantial benefits that it has brought, and the perils which it has helped avoid.

In any case, however, the manner in which the world monetary system has been operating for the past few years seems to me to call for criticism on three main points: the lack of corrective mechanisms—the lack of reciprocity in the granting of the assistance—the uneven sharing of risks between lenders, depending on the various types of assistance which they grant.

1. The present situation, whereby central banks accumulate holdings of the currencies of other countries, does not include any automatic machinery for a prompt return to equilibrium. The creditor country which accumulates foreign exchange congratulates itself on the increase in its holdings, while overlooking some of the unsound aspects of these gains. The deficit country tends to attach insufficient importance to the increase in foreign holdings of its currency, all the more so since, at the outset, losses of gold represent only a small part of its deficit. Owing to the very form they take, the credits extended remain invisible for too long, and corrective measures may be taken too late.

The inflationary effect resulting in the creditor country from a lasting surplus in the balance of payments is matched in the debtor country by that which comes from the use that foreign central banks make of their holdings in its currency. For, in their legitimate desire to earn interest on these holdings, they normally invest them on the markets. Without overrating the size of this phenomenon in relation to the evolution of the money supply, one must admit that it tends to offset one of the automatic corrective mechanisms.

2. The holding of reserve currencies by the foreign central banks brings benefits which might not be reciprocated, to the extent that—should the balance of payments be reversed—the reserve currency countries might not accumulate so readily the currencies of their new debtor. To say the least, full reciprocity is not achieved.

3. Within the monetary system itself, certain countries maintain a policy of keeping their reserves in gold, and of holding foreign currency only to the minimum extent required by current transactions. Other countries, the list of which varies, hold large amounts of foreign currencies, at times as much as half their total reserves. This situation certainly does not reflect an equitable distribution of the burdens of international monetary cooperation.

How far some of these imperfections derive from basic deficiencies in the system, and to what extent they arise from distortions that developed in practice, is a question that ought not to be evaded. I do not intend to decide it now. Yet, it seems clear to me that in financing deficits that have proved to be of a lasting nature, there has been too much recourse to short-term lending facilities provided by the system, instead of reliance on means of assistance more appropriate in nature and in duration.

This concern would become still more serious if the volume of liquidity were to increase, either because lasting deficits of some debtor countries were met in the same manner, or because, should an increase in international liquidity be deemed advisable, such an increase were expected from existing mechanisms.

I believe, therefore, that our discussions should lead us to two conclusions, one of which is outside, but the other one clearly inside, our competence.

The first conclusion is to take note of the firm intention expressed by both our colleague, Mr. Douglas Dillon, in his statement, and by President Kennedy, in his opening address, regarding the restoration of the balance of payments of the United States by way of measures taken in this country. Even if, as President Kennedy mentioned, some of those measures might give rise to problems for some of our countries, this, I believe, should not prevent our organization from supporting such steps. The attainment, within an appropriate period, of the balance in the external payments of the United States is indeed the precondition for our reaching decisions which do fall within our competence.

These decisions would result in making a thorough examination of the problems raised by the functioning of the international monetary system, particularly on the assumption that the development of world trade might require increasing liquidity. If such should be the case, we should also make our judgment on the nature of this liquidity and on the methods used for providing it. Thus an answer could be brought to the question which I took the liberty to raise, and to any others that may arise in the course of our studies.

I think that these studies should be undertaken as soon as possible, and that they should lead to positive conclusions on three essential points: the existence of an automatic adjustment machinery, reciprocity of the benefits granted, and the equality of the risks assumed.

These studies will no doubt lead us to clarify our policies as regards the three means of international settlement that may supplement payments in gold: transactions between central banks; credits granted on a more durable basis within international monetary organizations; and last, what might, in the final analysis, take the form of long-term loans.

I have taken the liberty frankly to state my remarks about the functioning of the international monetary system because, in my view, the most tangible proof of our spirit of cooperation is for us to set forth as openly as possible the thoughts which come to our minds after 18 years of useful and creative work by the monetary institutions so wisely set up at Bretton Woods.

To the success and development of these institutions in a world in which stability constantly requires renewed imagination and effort, the French Government is ready to lend its support.

Statement by the Governor for the United Kingdom—Reginald Maudling

None of us assembled here today can approach our work, at this Eighteenth Meeting of the Fund, without a deep sense of loss at the death of Per Jacobsson. Indeed, it scarcely seems possible that we should be present at a Fund Annual Meeting without him, so much had these meetings come to center round his wise and genial personality. Many men, many nations, and many talents must go to the making and molding of a great international institution such as the IMF, but Per Jacobsson’s contribution was unique. We shall miss him as a fine administrator, as a distinguished economist, and as an outstanding architect of international cooperation; but above all, we shall miss him as a great and kindly man, and as a friend.

We can, however, take consolation in the fact that his responsibilities have now passed into the hands of a truly worthy successor. Mr. Schweitzer’s brilliant attainments and distinguished career make him eminently suited to the great task which he has undertaken, and we know that in his capable hands the Fund can be sure of a continuation of its high prestige and of its traditions of wise and distinguished leadership. We wish him, wholeheartedly, a long and happy and successful stay with the Fund, and in welcoming him amongst us, I want to assure him, on behalf of my Government, of our fullest and most sincere cooperation.

The United Kingdom and the Fund

Turning for a moment to our own position, I am glad to be able to say that recently economic conditions in the United Kingdom have been buoyant. And the indications are that the balance of payments will continue in a healthy state. But even so, the level of reserves against liabilities is still relatively low, and our external position could be affected by confidence movements, or by temporary trade imbalance while expansion builds up. I would therefore like to take this opportunity of expressing the gratitude of my Government to the Board of the Fund for its understanding and cooperative attitude toward the United Kingdom’s request for the renewal of its stand-by agreement. The ready availability of a drawing under this stand-by will provide a safeguard against temporary disturbances; and the existence of the agreement will in itself act as a factor making for confidence in sterling, and so for stability in international payments.

The Liquidity Question

At last year’s meeting I referred to the problems of international liquidity, and I should like to do so again this year. I do not think any apology is necessary for this, as it is the function of the IMF to contribute to world economic expansion. We have all of us, through our membership of the Fund and the GATT, chosen the course of freedom in trade and payments. Our task is to ensure that the financial basis for this system is adequate. In the words of the Fund Annual Report:

International liquidity should be sufficient to allow these countries [that is, the industrial countries] to take the expansionary steps needed for the benefits of their own economies, as well as to assure continued expansion of the world economy.

I mean by liquidity, stocks of gold and other internationally accepted means of payment, including particularly the dollar, the pound sterling, and readily available credit either obtained through the Fund or arranged bilaterally. In considering whether existing liquidity is adequate for its task we must, of course, consider not only the total quantity but also its distribution and the policies adopted by member countries in using their individual resources.

Turning to the practical problems, I would like first to eliminate two matters that are sometimes confused with them. First, we are not discussing the actual means of financing international trade. As has often been pointed out, this is done through commercial channels. We are dealing with the problems arising for governments when the operations of the market threaten the strength of their reserves and the position of their currency. Secondly, the problems of the provision of development capital and of long-term trends in international growth are essentially ones for the Bank and its affiliated institutions rather than for the Fund, which is concerned more with short-term movements.

The primary purpose of international liquidity is to give time for individual countries to make adjustments in their balance of payments without sharp changes in the volume of imports or in the growth of domestic demand. But at the same time the availability of liquid resources should not be such as to promote, or encourage countries to tolerate, the continuance of basically unsound domestic or international positions in the guise of temporary fluctuations. The basic dilemma is clear. If adequate resources are not available automatically or nearly automatically, their usefulness in times of trouble may be problematic; but to the extent to which they are automatically available, they may present a temptation to refrain from the necessary corrections of policy. This, I believe, lies at the core of our problems.

Situations Calling for Support

There are basically three types of situations in which a country may need access to substantial liquid assets. They are

  • (i) short-term speculation against the currency;

  • (ii) serious fluctuations in short-term balance of payments experience—whether on current or capital account—arising from external influences, such as abrupt changes in the terms of trade or substantial capital movements; and

  • (iii) the initial phase of a domestic expansion accompanied by substantial restocking of materials.

Such a clear distinction is, of course, to some extent unnatural. The various situations can coexist or merge into one another; but they are distinct elements and to some extent should be met from different sources.

Short-term speculation may best be met by such schemes as the Basle arrangements, the gold pool, and by swap arrangements, with the Fund resources also available.

Fluctuations in the balance of payments resulting from temporary deterioration in the terms of trade are particularly suitable for recourse to the Fund. I therefore welcome the introduction by the Fund of the Compensatory Financing Scheme which should be of help to certain primary producers. But it is important here to emphasize once again that for many producers the main problem may often be one of long-term relative price levels, which cannot be tackled by the Compensatory Financing Scheme.

I would like to stress the need for adequate liquidity to allow the financing of a high and rising level of world trade, on which the future prosperity of developing countries depends. I had the advantage of discussing these matters with my Commonwealth colleagues in London last week. At our Conference we reviewed the preparations being made for the Kennedy Round, and other steps which are being taken in the GATT, to reduce or eliminate barriers to international trade in primary products, agricultural commodities, and manufactures. In the words of the communiqué we issued, we “emphasized the importance of these negotiations for the trade of developing countries, and recognized that special efforts must be made to reduce barriers to their exports of manufactures as well as of primary products and to foster their capacity to contribute to the growth of world trade.”

Returning now to the third and last of my three situations, the initial cost of restocking for expansion is also a suitable candidate on the analogy of the use of bank finance for expanding stock in trade.

But none of these forms of support should be used to finance an unsound domestic situation. The test of what is sound or unsound is of course very difficult. To what extent does a current deficit stem from excessive pressure of demand and rising costs and prices in a given country? To what extent does an outflow of capital reflect short-term speculation or long-term influences? It is important to be clear on the tests that should be applied in either case.

The Present Situation

It is clear that in the present situation we are concerned with two simultaneous problems, which are separate but are interlinked: the sufficiency of world liquidity and the United States deficit. I ventured to say at last year’s meeting that there is a fundamental difficulty about the present system, namely, that the reserve currencies are short-term liabilities of the United States and the United Kingdom—one nation’s reserves is another nation’s debt. I said:

If the amounts of such currencies held as reserve assets increase too much there will inevitably be some doubt as to whether any further extension of these holdings would be prudent and practicable.

The current availability of liquid reserves has been for several years sustained by the outflow of U.S. dollars. We can see more clearly now that this creates problems not only for the United States but also, in some cases, for surplus countries, who feel that their current accruals are such as to cause problems for internal monetary management. While this leads us to give what help we can to the United States in dealing with the problem of their deficit, we must recognize the truth of President Kennedy’s statement when he said in July:

One of the reasons that new resources of liquidity may well be needed is that, as we close our payments gap, we will cut down our provision of dollars to the rest of the world.

It has been said that if the United States got back into balance and subsequently started to earn a surplus, they could avoid creating problems for the rest of the world by purchasing and holding other currencies. This is true as a short-term expedient; but the real question is what alternative sources of liquidity will be available as the need for them is felt, and as the United States progressively reduces the scale on which it is adding to the world’s reserves.

Distribution of Resources

In considering world liquidity needs, we must, as I have said, be concerned with the total, with its distribution, and with the use of available reserves. I would agree with the Fund Report that the total at present available is large, but I would certainly echo also their cautionary words: “But if a substantial proportion of it is, for one reason or another, considered to be available ‘for emergency use only,’ then the risk is correspondingly increased, not only of slowing down the world economy but also of being unable smoothly to deal with emergencies.” This, I suggest, applies not only to national holdings of gold and foreign exchange, but also with equal strength to national drawing rights in the Fund.

It is rather an irony of the present distribution of liquid reserves that while there are some countries who could do with more, there are others who feel that they have or are likely to have too much, not only from the external point of view but also from its effect on their domestic economies. I must say that I cannot help feeling that this is a dilemma that should be capable of solution. Speaking as an individual I see no difficulty in disposing of excessive cash, either by spending it or lending it. There are inhibitions affecting both these processes where nations are concerned. But I would suggest that we should bend a good deal of effort to getting these overcome and, in particular, to seeing whether by stimulation of capital markets and growth of long-term lending, a more economical use could not be made through better distribution of the available total of world liquidity.

U.S. Action on the Deficit

I turn finally to the future. First the United States deficit. I should like for my part to say that I warmly support the general means whereby the United States Government is tackling this problem. It must be recognized, however, that whatever method it adopts may easily have painful results for someone. I am sure the United States administration will lend an attentive ear to individual countries that are seriously affected by its measures. But if a country, like an individual, has a deficit, the only way to solve it is to earn more, spend less, or lend less.

The United States has been making great progress in the expansion of its export trade and it is well to remember that its current balance still shows a very healthy surplus. I am sure we must all continue to adhere to the GATT declaration not to stimulate our exports by artificial means such as subsidies. Equally, we welcome the attitude of the United States in attempting to solve the balance of payments problem by an expansion of the domestic economy rather than by restraint on its imports. Direct restrictions on United States imports would have a serious effect on world trade, as indeed would policies designed to solve the problem by holding back the expansion of the United States domestic economy.

The remaining moves open to the United States, therefore, can only be reducing overseas government spending or reducing overseas lending. I think we would all regret seeing a sharp cutback in United States aid to developing countries, whether by grant or loan. It is therefore in the realm of private capital movements, long-term and short-term, that it seems most necessary to find a solution; and this, as I understand it, is how the United States is going about things.

The more successful it is, the sooner will come the time when the world will be faced with the problem of how to find alternative sources of expanding liquidity.

Studies and Action

I strongly support, therefore, the suggestion that this problem should be studied; and I consider that it should be studied as a matter of urgency. There are many possibilities: I mentioned one last year—a Mutual Currency Account. Others would be increases of Fund quotas and more flexibility in the use of the Fund resources. These possibilities are not exhaustive or mutually exclusive. All should be considered.

What matters more than methods is the results, and it is important to ensure that we do not spend so long looking for the ideal solution that we fail to make progress on improvements that can be achieved in the meantime. I should like to propose that we make it clear that, in our view, the studies of the problem should proceed at a pace which will enable definite practical decisions to be taken at our meeting in Tokyo a year from now.

Statement by the Governor for Australia—Harold Holt

Our numbers are notably greater than when we last met. This is evidence itself of the widening recognition throughout the world of the importance of the work of the four institutions represented here. Because increased membership is one of the symptoms of healthy growth, we can take satisfaction from it, and I join in offering a warm welcome to those countries attending these meetings for the first time.

This growth presents its own problems when our enlarged membership must confine discussion within the tight limits of the conference timetable. We reluctantly accept the tyranny of the clock and hope to convey briefly thoughts which would justify much greater elaboration.

But even the discipline of the timetable must permit room for some personal tributes. I gladly join with other Governors in welcoming Mr. Schweitzer and Mr. George Woods, who have taken over the leadership of the Fund and the Bank since our last Annual Meeting. They have the formidable task of following two truly great men whose contribution to world economic development is historic. We are confident they will add their own significant stamp to the work of these institutions. We were deeply saddened by the loss during the year of a warm friend and wise counsellor in Per Jacobsson. We have fittingly recorded a tribute to him, but it will be in the continuing value of the work of the International Monetary Fund he served with such distinction that the lasting monument to his economic statesmanship will be found.

The great common objective of our four institutions, each within its own charter, is to foster and promote sound economic growth in the world at large. It is the special task of the Fund to ensure that this economic progress is not frustrated by exchange and payments problems through the absence of appropriate world institutional arrangements. We all wish to share, of course, in the expansion of world trade, and it is obvious enough that we need adequate means of payment to be available to finance that trade. Those of us who hold most of our international reserves in the form of convertible currency have a very special interest in the continued strength and convertibility of those currencies.

The question of international liquidity concerns us all however large or small we may be. We commend the Fund for its decision to develop and intensify its studies of international liquidity problems and the functioning of the international monetary system. There is, of course, room for other studies by more limited groups of countries, but since all countries have a direct and vital interest in the matter, they want to feel that there is opportunity for expressing their views and having those views considered. That is why so many of us believe that the Fund should continue to exercise a leadership in this field and why, in our judgment, decisions finally adopted should be decisions taken by the Fund after due process. If it should be found desirable or necessary at some future time to expand the level of world liquidity, then I would agree with what Mr. Schweitzer has put to us. It has always been a major purpose of the Fund to provide supplemental international liquidity. I firmly believe that the Fund is the forum where final decisions should be taken, and that the Fund is the instrument through which the major part of any required expansion can most suitably be implemented.

Important though this question of international liquidity undoubtedly is, I hope it will not exercise so much fascination for us at this year’s conference as to distract our attention from the continuing imbalance which persists in the world’s trading and economic affairs. Last year the problems implicit in this imbalance were widely discussed. Those members who represent the primary producing countries (and many of these can be classed as underdeveloped countries) took encouragement from the recognition given by spokesmen for the major industrialized countries to the need for far-reaching action to strengthen the situation of the primary producers. It seemed to be generally agreed that the goal should be that of greater production at reasonably remunerative prices, associated with the orderly marketing of basic international commodities. We recognized that action along these lines is fundamental to any program of improvement in living standards and a more stable and contented world. Last year we saw an enthusiasm for these objectives which I hope will not languish long before we have reached positive and satisfactory solutions.

It is in this general area that the largest part of the answer to the world’s economic problems is to be found. We must not delude ourselves that measures of aid can provide a satisfactory and full answer, however generous and useful these may be. Indeed, there can even be some danger in the concentration of our attention on the work of the aid institutions—a danger that we may lose our sense of perspective and come to rely more heavily upon these sources of assistance than their inherent strength would warrant.

Let me illustrate my point by a reference to the IDA. In its short life, this institution has done a remarkably good job. Its initial supply of funds is, in consequence, rapidly becoming depleted, and it has been found necessary to conduct a replenishment exercise. It was no easy matter, we know, to reach the target of $750 million of additional resources. These are to be available at a rate of $250 million a year over a three-year period. My own country is glad to have reached a sufficient maturity in our development to be a contributor to the funds of IDA.

Perhaps these sums sound impressive. But I can speak with some authority on the capital needs of a rapidly developing country, for Australia can be so described.

Our own need for funds for developmental expenditure is very great, and for the bulk of it we are increasingly compelled to rely on local sources. To put the matter in broad perspective, the Commonwealth and State Governments and their subsidiaries will in the current fiscal year be spending about $1.5 billion on capital works of one kind or another. The greater part of this will be borrowed, mainly in our own local market, but a substantial part will necessarily have to be provided from taxation revenues. This is merely in the “public” field. In addition, the need for private investment capital is very heavy, and in this we shall be assisted by a very considerable private capital inflow. The point I wish to make is that the more effectively the underdeveloped countries proceed with their task of development, the more massive will their capital requirements become. How are these needs to be met? There can be no single answer and we must look to the contributions that can be made from all possible directions. Unfortunately there are many shortcomings in present-day arrangements. The action recently taken by the United States administration to discourage other countries from tapping the New York capital market has pointed up the inadequacy for modern needs of the international capital markets as they are at present organized. New York was until quite recently the only international capital source where availability and conditions were freely determined by the market itself, and even in this center of great financial strength the amounts available to external borrowers were not great in relation to needs.

I strongly urge that a study be made by the Bank and the Fund of ways and means to expand, diversify and strengthen the international capital markets. Even at best the Bank and IDA will never be able to supply more than a fraction of the world’s capital needs. Strong capital markets established at various centers of financial strength around the world would provide to creditworthy borrowers far more than governments find themselves able to provide through these institutions. There is some danger, I believe, in building hopes too high as to what can be provided through the Bank and IDA. The latest replenishment exercise itself demonstrates the difficulty of raising even the comparatively modest total sought. Experience in my own country demonstrates that, given the right climate and conditions, a large part of development finance can be secured from private sources. Mr. George Woods spoke a wealth of sense when he urged developing countries to examine their attitude to overseas investment. No other source is likely to be able to supply capital on the scale required, nor the skill, the industrial know-how and the valuable trained management which usually accompanies that investment. My country can offer its own very favorable experience as an encouragement to others. The growth of population, the diversification of industry, the substantial improvement in living standards, and the added national strength which has come to Australia over the past 15 years owe much to the very considerable private investment, totaling well over $2 billion, which has flowed to Australia from various sources through that period. I apologize if this sounds a little smug; it certainly does not proceed from complacency. I readily recognize that some forms of development capital carry with them their own problems and their own problems for the future, but I put our own example forward as that of a rapidly developing country which can, by the study it invites, perhaps illuminate the path of others still in the earlier stages of their development.

In summary, what I have tried to say is this: by all means let our institutions go steadily forward with their own programs, but let us take a realistic view of their necessary limitations. Never let us forget that it will be through a more effective and more just world trading order that the most valuable contribution to the world’s economic problems can be made. Let us recognize, too, that aid, however substantial, can never provide more than a fraction of the capital which will be available to the country that offers a welcome to private investment and assures it of secure foundations. Each of us can do much to help ourselves. The underdeveloped countries have a right to look to those more highly developed and more prosperous for assistance in raising their own standards, but if they are to profit most by that assistance they will not ignore the contribution they can make themselves by the realism of their attitudes and their policies. It is in the opportunity these discussions provide to each of us to throw some light on the road ahead that we can travel more safely and contentedly together.

Statement by the Alternate Governor for India—P. C. Bhattacharyya

I wish to add my tribute to the many that have already been paid to the late Per Jacobsson, whose friendly and enlivening presence none of us can fail to miss at this meeting. It is not easy to find words that would express adequately the deep affection and regard in which we have held Per Jacobsson.

I wish to extend a cordial welcome to the new Managing Director, Mr. Pierre-Paul Schweitzer. I have no doubt that he will bring to bear on the tasks ahead the great insight and experience he has acquired during his distinguished service in France and abroad. On behalf of my Government and myself, I offer him our best wishes.

I must not fail also to say a word of appreciation to Mr. Southard for the excellent way in which he discharged his duties as Acting Managing Director since Dr. Jacobsson’s demise.

The Fund has had another very active year, both in terms of financial transactions and otherwise. Its budgetary position is sound, and its membership has increased to over one hundred and will increase further. The range and variety of problems to be dealt with by the Fund is bound to increase as its membership expands. I am glad the Fund is equipping itself for this purpose. In the field of central banking, monetary policies and techniques, and foreign exchange, the Fund has special competence and responsibility, and I welcome the proposal to build up panels of highly trained and experienced personnel drawn from different countries, as and when required. The setting up of a fiscal affairs group with similar objectives is also a move in the right direction, although one must recognize this is a particularly tricky field.

The completion of the Fund’s borrowing arrangements with the ten industrialized countries has added a sizable quantum to the resources the Fund can mobilize in defense of the international payments system. The major central banks of the world have also shown increased readiness to cooperate in safeguarding the stability of this system. I am greatly impressed with the delineation in this year’s Annual Report of the wide spectrum of the existing liquidity arrangements. It has been suggested that if all these arrangements are regarded as readily utilizable, one need not fear any serious shortage of liquidity in the very near future. Yet, the assumption may at times be questionable, and hence the judgment based on it.

The Managing Director, Mr. Schweitzer, has given us in his excellent address this morning a comprehensive review of Fund policies and of the emerging trends in the world’s payments situation. He has outlined also his own broad approach to the problems that lie ahead. I was particularly pleased to hear Mr. Schweitzer’s exposition of the problems facing the less developed countries. This is not a marginal problem; it is the major problem of our times. It involves effort by the less developed countries themselves and also positive and sustained action internationally in a variety of forums and through a number of institutions, of which the International Monetary Fund is certainly one. The balance of payments problems of the less developed countries are, I am afraid, going to be with us for quite some time, and it will be essential for the Fund, and for other agencies, to be on the lookout for effective ways, maybe new ways, of dealing with them.

Recent events have shown more and more that the two main reserve currencies of the world cannot continue to bear without additional institutional support the burdens and strains that might fall on them in the coming years. The United Kingdom has had three successive stand-by arrangements with the Fund. With the stand-by of $500 million in favor of the United States in July this year, the two great reserve currency countries are, so to say, “in the Fund” at the same time. This development marks a new phase in international payments relationships, and will involve a redefinition and adaptation of the Fund’s role. It is important that all member countries, big and small, feel free, under appropriate conditions, to take recourse to the Fund. A member country’s drawing rights with the Fund are meant to be used even as a country’s directly held foreign exchange reserves have to be used—in appropriate conditions and with a view to sustaining the corrective processes initiated.

I welcome the desire and determination all round to find a practical solution to the problem of world liquidity. I take it this covers its aggregative as well as its distributional aspect. The dangers of insufficient world liquidity for the industrially advanced countries are well known. The dangers to the developing countries, I should like to stress, are no less real. The fear of loss of reserves or of inadequacy of reserves to take care of all possible contingencies is certainly a factor that retards the expansion of economic aid to developing countries at rates that could be regarded as adequate to the needs of the situation. I welcome wholeheartedly the stress in Mr. Schweitzer’s address on careful and purposeful studies on this subject and the ways and means of securing further advance.

An increase in world liquidity will call for special effort and cooperation on the part of the highly industrialized countries. But it is a problem that concerns all countries, including the less developed ones. These latter are vitally interested in the maintenance of conditions which will permit steady pursuit by the industrialized countries of liberal policies in respect of trade, capital flows, and economic assistance to developing countries. I was glad to see in the Fund’s Report and in Mr. Schweitzer’s address a great deal of stress on these aspects of the payments problem, vis-à-vis, especially, the underdeveloped world. Not more liquidity alone, but a simultaneous enlargement of capital flows to developing countries and of opportunities for them to expand their exports, offer promise of a satisfactory outcome.

Last year the Governor for the United Kingdom put forward a possible line of approach. Other suggestions have been made from time to time. One could think in terms of another general increase in Fund quotas. In this connection, a second look at the present provisions regarding gold subscriptions might be appropriate. Thought might be given to rearrangement and liberalization of the Fund’s lending policies in the various “tranches” as hitherto defined. In my view, the time has come for introducing more flexibility in the time limit for repurchases. A one-year extension of the present limit, for example, should be of value to developing countries while it would not impair the revolving character of the Fund’s resources.

To conclude, the essential point is that on a long view the international payments system has to go beyond temporary arrangements for mutual support; it has to have adequate institutional backing. It must also take into account the needs of the developing countries. The problem is undoubtedly complex and the implication of the various possible lines of action will need close and careful study. The problems we have been discussing are of world-wide interest. They will, undoubtedly, be explored in many forums. A special responsibility attaches to the Fund as a representative of the world community to make its maximum contribution to the finding of the right answers. Considering the steady enlargement of the Fund’s scope and role so far and the competence and confidence this institution commands, the appropriate focal point for further action to safeguard and strengthen the international payments system has, clearly, to be the International Monetary Fund.

Statement by the Governor for Liberia—Charles Dunbar Sherman

During the course of the past year, my Government has applied to the Fund for technical assistance in preparing a rescheduling of our external debt and the extension of stand-by credit. This stand-by arrangement, as well as many negotiations incidental thereto, have constituted the primary concern and preoccupying activity of the Liberian Treasury. If we take into consideration the sustained depression in commodity prices, as well as the tight money situation in the world resulting from the deliberate policies of many of the developed countries, it would have been an almost impossible task for us to meet our external debt obligations without such help.

I am also fully convinced that without the assistance of the Fund any voluntary program of self-discipline or austerity, no matter how carefully conceived and scrupulously executed, would not have been accorded the same degree of acceptance among our creditors as actually did occur because of the prestigious and familiar presence of the Fund. For this assistance my Government is most grateful, and I here tender and record our formal thanks and appreciation.

Last year it was a great privilege to join my distinguished colleagues, in this very room, in paying high tribute to Mr. Eugene Black on the eve of his retirement as President of the Bank. I am once again in concert with those who preceded me in acknowledging our immense and profound regrets at the passing, since our last meeting, of Mr. Per Jacobsson, Managing Director of the Fund. Few men have come to such eminence with greater experience and capacity; and fewer still are the men who have devoted such untiring energy in the excellent discharge of such heavy responsibilities with dignity, credit and precision, balanced by warmth, sincerity and sympathy. Beyond this, many of the diverse activities, and indeed the attitude of the Fund for the past few years, are in a rather broad measure a reflection of the depth of perception and personality of Mr. Jacobsson.

May I take this opportunity to welcome Mr. Schweitzer as Managing Director of the Fund, and Mr. Woods as President of the Bank. In their speeches they have certainly exhibited the breadth of vision and statesmanship necessary to assure a successful and advancing future for these two institutions.

Mr. Chairman, you will recall that at our meeting a year ago the Report of the President of the Bank, as well as that of the Managing Director of the Fund, dealt intensively and extensively with the momentous squeeze which was choking the life out of the economy of the developing countries.

Since then this situation has worsened. Like the stone thrown up in the air by the little tailor in the Arabian Nights fable, the prices of what we buy never return to earth—they continue to spiral upward; but the prices of our raw materials, the commodities we sell, continue to plunge with an unerring, disastrous downward thrust. Quantitatively, and in practical terms, this means that the already poor taxpayers of the developing countries are subsidizing the breakfast tables, automobiles, and other essentials of the rich taxpayers of the developed countries to an extent which far outweighs any assistance the taxpayers of the developed countries are called upon to make in the form of grants or subsidies to the developing countries. Long-term credit, so far, has been either unavailable or inadequate to meet the basic necessities and legitimate demands of the people of Africa. This is particularly evident when we consider the absence of almost every required need, such as hospitals, schools, public buildings, roads, and other amenities.

What gives cause for most serious consideration is the realization that some experts appear to expect an eventual adjustment of this imbalance. We think there is at present no regulatory mechanism which will institute or assure automatic correctives. In fact, the direction and posture of many major national fiscal policies create the impression that inflation is considered the number one problem of the whole world. If we take into account the realities of the situation of the underdeveloped countries, and add to their burdens the constriction of credit and restriction of investment capital, one is indeed alarmed at the potential consequences of such a dilemma.

I believe that it is necessary to recognize the fact that, despite the admirable and desirable political conception of humanity as one world, the principles of economics most clearly applicable to developing economies demand a formulation which takes into account visible and valid experiences rather than dependence upon theoretical rationalizations.

Forty years ago the science of astronomy was often compelled to explain certain behavioristic patterns of the then-known planets as aberrations from the norm. It sought to explain away the sometimes erratic in terms of cleverly balanced exceptions to the basic laws of gravitation. A few years later the planet Pluto was discovered, and the sources of the trouble necessitated the broadening of certain hypotheses. Since that time, observed erratic movements have sent astronomers scurrying to their telescopes to try and discover the sources of the new attraction.

In the same way it was for a long time apparent to students of economics that certain strictures and rigidities which monopolies introduced in the free market did not necessarily destroy competition, as it should have done in keeping with traditional conceptions. Thus the classicists were constrained to explain these deviations by various highly sophisticated devices. It was not until a comprehensively and unequivocally developed theory of monopolistic competition was advanced that many experts openly agreed that indeed there was in the market a new permanent phenomenon which required proper classification, despite the fact that its legal status may yet be the subject of fuzzy thinking.

I believe that it is urgently incumbent upon the Monetary Fund, as well as other agencies concerned with international stability and the evolution of a dynamic equilibrium in the world economy, to undertake, as early as possible, a comprehensive study which would indicate the areas where there are significant new factors to be recognized in the general application of long-accepted principles to developing economies. For instance, a major pressing question to be answered is whether the net effect of limited inflation in an economically developed (or in some ways overdeveloped) country is the same as in a country where natural resources are mostly unemployed and human resources woefully underemployed.

I am convinced that if this decade of development is to witness the ushering in of an era in which self-propelling economic projects are launched and maintained in viable, self-sustaining motion, then we must commence now to evolve new principles. We must recognize the fact that world prosperity can be achieved only to the extent that more and more untapped and unused resources are effectively and efficiently brought into the streams of world productivity. We must consider long-range capital and savings in terms of total investment requirements, which cannot always be expected to respond to evanescent political whims. While recognizing that economic and political stability provides the best environment for growth, we must ensure that safeguards against inflation do not interfere with or inhibit efforts which at best move slowly and painfully forward in bridging the gap that now exists between the standards of living of the industrialized and the underdeveloped countries.

In countries like Liberia, where the subsistence sector is large, some increase in the money supply is a normal accompaniment of monetization and the growth of commerce.

We in the underdeveloped countries, of course, realize that not all, or even the major, burden should fall on the richer countries. We recognize that our countries have to make the utmost efforts to maintain economic and political stability and to generate as much internal savings as possible. Nevertheless, it is axiomatic that these savings are not enough and have to be supplemented by attracting an external flow of capital.

The charter of a Development Bank was recently signed in Africa in the hope that such an institution would assist in the provision of development capital. Capital exporting countries and many international financial institutions have expressed a sympathetic interest in this scheme. But unless and until this and similar undertakings unlock additional resources, over and above those which may be substituted or redirected from one category to another, the competence of the Bank will be tautly limited. In fact, its presence could be even negative, insofar as it may provide a postponing buffer between the sharp reaction which would, under present circumstances, be immediately felt in the developing countries if credit institutions in the highly industrialized countries pursue policies of gradual total disengagement, self-sufficiency, and external credit retrenchment.

I do not by any means suggest that the dearth of long-term private or public capital could be caused solely by the unwavering single-eyed pursuit of inflation, the ubiquitous femme fatale of economic stability.

Consequently, I think it would be necessary to include in such a study an examination of the other principal causes which retard economic progress in the developing countries. In connection with the conciliatory mechanism now under review, the International Monetary Fund and World Bank could jointly undertake discussions with member governments, with a view to establishing under the world convention provisions covering sequestrations, confiscations, condemnations, and other more blatant nationalistic devices which have created one of the most serious deterrents to the availability and expansion of development capital. If an appropriate organism is set up for this purpose, it will assist many nations in the creation of the climate conducive to private capital investment and the acceptance of certain international standards, which provide mutually agreeable guarantees. However, to be realistic it might also be necessary to delineate the time limits, acceptable procedures, and other conditions for repayment of investment nationalized by any signatory government, in instances where their actions are based on previously accepted exceptions to such a convention.

Similarly, there are other major steps which could be taken to enhance and assure more accelerated growth of the developing countries. Expansion of their world trade would improve the well-being of all of us who dwell on this earth. Therefore, whatever may be our immediate tasks here, no matter how cleverly we may dispose of the immediate problems which we face, ultimate success will depend on our ability to keep in proper focus these long-range objectives and lasting goals.

Statement by the Governor for Canada—Walter L. Gordon

My first words must be a tribute to the memory of Per Jacobsson, the former Managing Director of the Fund. Under his wise guidance the Fund took advantage of its opportunities, enlarged its activities, and added to its prestige. To his able and distinguished successor, Mr. Pierre-Paul Schweitzer, I extend congratulations and good wishes for success in the discharge of his new and important responsibilities.

The past year has been marked by a great increase, in many countries, of interest in the workings of the world monetary system. Our Executive Directors have devoted a chapter of their Annual Report to this subject and our Managing Director has directed special attention to it in his most interesting statement this morning.

Many people would agree that the workings of the world monetary system could be improved. It will be more difficult to get agreement on the specific improvements that are required, or on how urgently they are needed. We welcome the proposal of the Managing Director that continuing and intensified studies along these fines should be pursued in the Fund.

Such studies will no doubt be addressed, in part, to the question of how our international institutions, notably the Fund itself, could and should work, and how we, its members, can make better use of whatever facilities it may offer, now or in the future. The need for additional reserves and for enlarged reserve facilities will be lessened, and the danger of future instability based on excessive creation of liquidity will be minimized, if members of the Fund, particularly the leading members, conduct their affairs with due regard for each others’ problems, and if they make full use of the reserve facilities that are already available. It is, of course, also essential that their domestic policies should be of a character which contributes to the achievement of international balance.

I would like now to comment briefly on recent reserve and exchange developments in Canada. In recent years, Canada has been running a large current account deficit in her transactions with the rest of the world, which has been covered by net imports of capital. These imports of capital have come largely, although not entirely, from the United States. The amounts we have borrowed from the United States have been appreciably less than we need to pay our bills there. We have paid the balance out of the surpluses we earn with overseas countries, the capital we import from them, and out of our current gold production.

In view of the pressure on the United States dollar in recent years, it has been a source of some satisfaction to know that, notwithstanding our large capital imports from the United States, Canada has been a source of strength rather than weakness to the balance of payments of the United States and to the U.S. dollar. A very high proportion of the total United States surplus on goods and services arises from transactions with Canada.

While there are circumstances in which it is appropriate for a country like Canada to rely substantially on foreign savings, such circumstances have not been present in recent years. Under present circumstances, the proper policy for Canada is clearly to reduce her over-all current account deficit and her drawings on the pool of capital available in the United States and elsewhere. In the past few years our current account deficit has, in fact, been substantially reduced. The Canadian Government is determined to press on in this direction by constructive steps which avoid severe distortions or disruptions in our own affairs or in those of our trading partners. We do not aim at balance with one particular country or one particular area but at improving our balance with the world as a whole.

If we are to make progress in a steady manner, we must, of course, for the time being import sufficient capital from abroad to cover our current deficits. Our vulnerability to fluctuations in the flows of capital has been thrown into sharp relief on two occasions in the past two years.

During the first half of 1962, the net inflow of capital into Canada dried up and our exchange reserves fell sharply to dangerously low levels, and Canada was faced with a serious exchange crisis. To defend the new fixed exchange rate massive support was obtained from the Fund and from central banks and other institutions abroad.

The crisis came to a head in June 1962. By January 1963 we had repaid all our emergency borrowings except our Fund drawing, and we stopped increasing our reserves. The subsequent steadiness of our reserves reflected, at least in part, the financial policies that were being pursued in Canada. At the time of the crisis there was a sharp increase in Canadian interest rates. But by June of this year, the spreads between our rates and those abroad had fallen substantially, and interest rate differentials provided little inducement for Canadians to look abroad for capital.

The second recent occasion which highlighted our continued reliance on the inflow of foreign capital occurred in July of this year, when the President of the United States delivered his balance of payments message to Congress. The objective of that message—the strengthening of the U.S. dollar—was something on which all agree. But the proposal for an interest equalization tax immediately produced a very severe reaction in Canadian financial markets. We were faced by the prospect of another sharp reduction in the inflow of capital needed to cover our current account obligations, most of which occur as a result of our transactions with the United States.

Our markets rightly assumed that, considering the unemployment situation in Canada, the Government would not attempt to increase long-term interest rates by the 1 per cent necessary in order to maintain the inflow of capital from the United States. They also realized that capital in the amounts needed to cover our over-all current account deficit, which was still running at an annual rate of some $600 million, was simply not available elsewhere. Thus, with our current international deficit once more apparently uncovered, the foreign exchange market reacted violently—more violently, indeed, than on any single day during the crisis of 1962.

Over the ensuing weekend, we were able to explain the situation to Secretary Dillon and his associates in Washington much in the terms I have just outlined. On behalf of the Canadian Government, I want to express to him once again my appreciation for the prompt and decisive action which was announced that weekend. The partial exemption for Canada from the proposed tax sufficed to stop the disorder in our markets. However, while the legislation is before Congress, the uncertainties of the situation result in a virtually complete closure of the New York market as far as foreign issues are concerned.

As I have indicated, during the first half of 1963 we imported only enough capital to pay our current bills, and our exchange reserves remained steady. I think it is fair to say that we have kept in mind the interests of others, not merely in regard to the total of our reserves, but also in regard to their composition. I believe that, by any standard of international comparision, our behavior has been good.

When improvements come to be made in the structure of the international monetary system, we should build on a well-laid and well-tried foundation. I would expect this foundation to be the Fund itself. Whatever is to be done must be done on a world-wide basis, and within the framework of multilateral procedures and arrangements such as only the Fund can provide. Bilateral assistance, as we ourselves have found, can be most helpful; but it should support, not supplant, multilateral arrangements.

There is, indeed, a challenge here for all of us, and most of all, perhaps, for the new Managing Director. I am confident that, in the future as in the past, the Fund will take full advantage of its opportunities.

Statement by the Governor for Congo (Leopoldville)—Albert Ndele

It is an honor for me to speak to you today on behalf of one of the most recent members of the Monetary Fund and of the International Bank, and to bring to the countries here represented greetings and best wishes for prosperity from the Congolese Government and people.

I most heartily thank the staff of the Fund and of the Bank, who made it possible for the Congo to take part in this year’s meeting as a member of the two institutions.

Since achieving independence, the Congo has been faced, not only with the economic problems common to all developing countries, but also with problems that have on several occasions threatened the political unity of the country. The difficulties that the Congo until very recently experienced in this field are at the root of the deterioration of the financial position and of the crisis in the balance of payments. This situation requires a considerable effort to ensure economic stabilization, and my Government is resolved to undertake it immediately.

We are, however, aware that the Congo will not be able to emerge quickly from its difficulties without the support and assistance of international institutions, such as the Monetary Fund and the World Bank. Even before independence, the Congo had received financial aid from the International Bank. Since independence, the Monetary Fund has constantly provided us with technical assistance in the monetary and financial field. We have thus been able to acquire a very special appreciation of the objectivity that the two institutions exhibit in pursuing their policies. The search for appropriate solutions in the financial and monetary field has not, however, caused us to lose sight of the essential problem that the Congo, like most of the countries that have recently attained independence, must face—that is, the problem of economic growth, industrialization and the training of managerial staff.

With this in mind, the Congolese Government has decided to adopt a five-year development plan to guide our action over the coming years.

The Congo’s immense natural resources permit us to look toward the future with optimism, but their development requires large capital investment, which domestic savings alone could not provide. Concerned with attracting foreign capital for this purpose, we have begun to draw up an investment code that should offer foreign investors the legitimate guarantees that they are entitled to expect.

Before closing, I should like to extend to Mr. Schweitzer, the new Managing Director, the best wishes of the Congolese Delegation for success, and to assure him of our support in his new position.

Statement by the Alternate Governor for the Federal Republic of Germany—Ludger Westrick

I want to join all those that have expressed their deep sadness and regret at the fact that Per Jacobsson, due to his tragic and premature passing away, cannot be among us. Thus, we can pay him only posthumously the well-deserved praise and tribute for his outstanding work for the Fund and for the international monetary order. His sudden death was a great shock and grief to me personally, as to all his friends, of whom he had so many in this gathering.

We must, of course, be grateful for the fact that we have found so quickly a successor to Mr. Jacobsson in the person of Mr. Pierre-Paul Schweitzer, and I have no doubt that he will successfully take over the reins at the Fund, which Per Jacobsson so suddenly and unexpectedly had to lay down. We wish Mr. Schweitzer the very best success in his difficult job.

* * *

You may remember that Per Jacobsson, in his speech at the last annual meeting, laid great stress on the “much better balance” that had been attained in the international payments situation, and on certain basic developments which seemed to point to the restoration of a more enduring international equilibrium. In looking at the present situation in the foreign payments field, it might seem at first glance that since the autumn of 1962 we have made very little further progress towards that goal.

Now it has already been pointed out by some of the previous speakers that the trouble has resided mainly in the field of international capital movements, which have, in some instances, developed in a way which—to say the least—was not conducive to a better international equilibrium. We fully understand that the United States Government has, under the pressure of some of these developments, felt compelled to undertake and to propose some measures in order to bring about more appropriate interest rate relationships in the international sphere, and we wish these measures a quick success.

In my own country, we also have recently seen some developments in the international capital field which have not contributed to a better external equilibrium, but have rather led us away from it. In the year 1962, Germany had a moderate external deficit on current account and a near-balance in long-term capital movements, so that its basic over-all balance was in deficit; this contributed, under the circumstances, toward a better international equilibrium and towards a redistribution of international reserves. In the course of 1963 up to now, German foreign trade has further expanded on the export and import side, and in the last few months there has been a particularly strong upturn in our exports; but, nevertheless, Germany has had also in 1963 a small deficit on current account. At the same time, however, we have had a rather sizable net inflow of capital since the beginning of 1963, so that in contrast to last year, our over-all basic balance is at present in surplus again.

This change in our external capital balance cannot easily be explained by changes in interest rate relationships, as these were not much different from the year before, and as our monetary authorities have, out of consideration for the international payments equilibrium, deliberately refrained from letting occasional pressure on our resources be reflected in higher interest rates. If we try to appraise the experiences of the last few years in the field of international capital movements, we cannot avoid the conclusion that there are still structural discrepancies and maladjustments between many countries, and that it may take some time until they can be reduced to such an extent as to allow the free flow of capital to play its full beneficial role in the world economy.

* * *

In worrying over the still existing imbalances in the capital field, we should, however, not overlook the fact that international cost and price relationships and international transactions on current account have in fact made some further progress towards a better international equilibrium. It is particularly noteworthy that the six countries of the European Common Market, whose combined surplus on current account had already in 1962 declined by over a billion dollars from its former high in 1961, have experienced a further deterioration in their trade transactions with third countries in the course of this year, and thus have come nearer to an equilibrium in their current account vis-à-vis the outside world. It is, of course, very regrettable that in some instances this development was due to, or at least accompanied by, inflationary pressures in European countries. But on the other hand, and in a more general way, it is noteworthy that the strong upward movement in imports in a number of continental European countries has proved to be one of the main supports for an enlarged world trade both in the last and in the current year, and we welcome it, especially since this has also been to the benefit of less developed countries. Thus the process of adjustment toward a better international equilibrium has, up to now, been achieved not through contraction, but, on the contrary, through ever higher levels of world trade. This experience, and in addition, the general movement of prices in a number of countries, certainly do not point to a general lack of international liquidity at the present moment.

* * *

Let me add here a few words on the adequacy of our international monetary system. In looking at the past, I would say that, considering the difficult adjustment problems posed by a number of important structural shifts and distortions in the international economy over the last ten years, the present international monetary system comes out relatively well, and certainly better than some of its critics would have it; it has, after all, permitted a liberalization of trade and payments and, at the same time, an expansion in world trade which is without precedent in history. I would also stress that the supports and defenses which have been built into the monetary system over the last few years have strengthened it greatly, so that we may expect it to deal successfully with future problems as well.

On the other hand, I would not deny the possibility that at some future time our system may get under pressure and may experience some difficulties, for instance because of its present dependence on some key currencies to supply an important part of the growth of national currency reserves. I think it therefore wise to study this and related problems, as a precautionary measure. Let me, however, add some provisos here. First, I should like to emphasize that we cannot afford to let such studies of the international monetary system drift apart in separate directions; if we want to achieve convincing results, such a study will have to be made in a well-coordinated way by a joining of forces of the best brains we can get both from the staff of the Fund and from experts in our own countries.

Second, I should like to warn against the illusion that, as if by some purely technical reform, one could solve in an automatic or painless way the adjustment problems which are due either to structural distortions or to policy discrepancies between the member countries of our international system. We should not waste our time by chasing such a will-o’-the-wisp. As long as there are dynamic shifts between the member countries of our system, and as long as we are not able to achieve a complete coordination of national policies, there will always arise balance of payments problems; and these balance of payments problems will usually not disappear by themselves, but only through deliberate, often unpalatable, policy measures on the part of the countries concerned.

Third, I want to stress that any improvements that might be thought out for our international monetary system—and there is always room for improvements—should not be concentrated only on the question how best to finance balance of payments deficits, but also on the even more important question of how to provide sufficient incentives for curing them. The main problem, it seems to me, will be to strike the right balance between providing, on the one hand, the international liquidity needed for an expanding world economy and, on the other hand, safeguarding an adequate degree of balance of payments discipline. Only in this way can we hope to maintain not only expansion but also stability in our international economic system; and to preserve expansion together with stability is certainly the foremost goal of our great institution.

Statement by the Governor for Greece—Xenophon Zolotas

I wish to pay tribute to the memory of Per Jacobsson and stress our deep appreciation of his outstanding contributions to world solidarity and welfare. The personality and wise leadership of Per Jacobsson have established a fine tradition and constitute a valuable source of inspiration in the successful continuation of the activities of the Fund. In his place as Managing Director, we welcome his able successor, Mr. Pierre-Paul Schweitzer, to whom we extend our warm congratulations and best wishes in his important new duties.

The Annual Report and the stimulating address of Mr. Schweitzer provide us again with a most informative survey of the good work accomplished by the Fund in the course of the past year and offer a masterly appraisal of recent developments on the international monetary scene. Substantial progress has been achieved both with respect to expanding world production and trade and towards a greater measure of equilibrium in international payments.

The relative improvement in the value of exports of the primary producing countries is certainly an encouraging sign. This, however, hardly reduces the necessity of effective support to the economies of most of these countries which find their development efforts hampered by serious balance of payments difficulties. The new facility established this year by the Fund to extend its support to the balances of payments of countries exporting primary products is an important step toward the development of effective methods of compensatory financing. The crucial interdependence between sustainable and adequate rates of growth and internal and external monetary equilibrium necessitates the pursuance of sound economic policies by developing countries. It is equally important, however, to expand the flow of financial resources to countries at an earlier stage of growth, and to improve the effectiveness and the terms on which economic assistance is offered. As pointed out in the Annual Report, the activities of old and new international institutions engaged directly in the aid effort, as well as the increasing share of the Fund’s work devoted to the less developed countries, reflect the growing awareness of the paramount and pressing necessity to promote economic development.

I would like to add that in the long run the proper functioning of the international monetary system, among other things, depends significantly on the ability and willingness of the industrialized countries as a whole to maintain an adequate flow of long-term capital to the developing nations of the world.

Cost and price developments among industrial nations, as well as changes in basic trading positions, have continued in the direction of removing previously existing disparities vis-à-vis the key currency countries, and tend to facilitate equilibrating adjustments in international transactions. The maintenance of a substantial degree of price stability in the United States compares favorably with developments in continental Europe and elsewhere, and justifies the confidence we expressed last year in the competitive strength of the American economy and in the sound basis of the U.S. dollar. The reason why the American balance of payments did not show any marked change reflecting the above developments should not be sought in unfavorable disparities in cost and price structures, but rather in the one-sided incidence of burdens and responsibilities under our present financial set-up. Excessive recourse to the American capital market, primarily by the industrialized countries, has been one of the major factors underlying the deficit in the American balance of payments.

As a matter of fact, in the last two years the annual outflow of long-term capital alone accounts for more than the corresponding over-all deficit in the U.S. balance of payments. The still existing restrictions on capital exports in several industrial countries and, more significantly, the organizational and institutional shortcomings of capital markets outside the U.S., impose on her, in addition to the responsibilities of a reserve center, the task of satisfying capital requirements in the rest of the world, including the highly developed countries. This situation is incompatible with the smooth functioning of the gold exchange standard, which requires some measure of correspondence in the availability and freedom of movement of capital among major trading countries. The resulting strains from this lopsided operation of the international financial mechanism are being accentuated by the movement of short-term funds, partly in response to interest rate differentials. Under these conditions one can hardly deny the necessity for the industrial countries of Europe to liberalize and develop their capital markets in accordance with the over-all potential of their economies. This, however, is likely to be a gradually evolving process, leaving the main burden of the task at present to the United States. The resistance of the latter to the easy solution of direct capital controls should be generally appreciated.

The adopting of such measures would constitute a backward step in the liberalization of international transactions, obstructing the interplay of market forces and disturbing the state of confidence. Instead, the U.S. authorities have relied on a host of measures aiming at reconciling the requirements of internal and external equilibrium. This is a welcome step in the direction of providing sufficient flexibility and independence to interest rate and tax policies in confronting divergent developments in the domestic and external sectors of an economy. Furthermore, the efforts of the U.S. to balance her international accounts and, more significantly, the prospects for an accelerated expansion of the U.S. economy provide a sound basis for optimism with respect to the American balance of payments.

The general climate of optimism and confidence has also been fostered by the continued manifestation of effective international monetary cooperation. The coming into effect of the “General Arrangements to Borrow,” the expansion of bilateral short- and medium-term credit lines, the successful operation of the London “gold pool,” all constitute important steps in the right direction. Particularly, the development of “swap” credit facilities and the issue of special certificates and bonds denominated in the creditor’s currency include more than the germ of a guaranteed multicurrency infrastructure, which I have considered, for some years now, an essential prerequisite for the evolution toward a reinforced gold exchange standard.

Under these conditions there does not appear to be sufficient reason to retain any previously justifiable sense of urgency. On the other hand, may I repeat that it would be most timely and appropriate to undertake the study and implementation of reform when it appears less urgently required, rather than postpone it till the time of pressure, when it may be overdue and less effective. I have not parted with my earlier conviction of the usefulness of systematic anticipatory preparation to face the needs and problems of the future in an effective manner, which cannot be always secured through a piecemeal approach to the relevant issues. It is very encouraging that the authorities of the reserve centers, as well as other responsible circles, recognize more and more the desirability of study and discussion of the problems of the international payments mechanism. I would like, therefore, to take this opportunity to elaborate somewhat on certain ideas and suggestions I sketched in my statement last year.

The complex set of problems connected with the international payments mechanism has usually been referred to in terms of the adequacy of international liquidity. It is actually much more than that: as the Annual Report points out, continuous attention should be paid to the size, distribution, quality, composition, stability, availability and, we may add, appropriate and judicious utilization of reserves. The buffer role of reserves should never be misconceived as including the support and perpetuation of conditions of fundamental disequilibria, and should anything but minimize the importance of monetary discipline. As I have repeatedly emphasized, the expansion of liquidity is no panacea for balance of payments problems, and the provision of reserves to the world economy should not fall to either one side or the other of the narrow path of progress between deflation and inflation.

We have to admit the difficulties of measuring and defining the optimum level and rate of expansion of international liquidity. Such factors as the volume, regularity, and freedom of international transactions, as well as the domestic liquidity of national economies, have to be taken into account in assessing the adequacy of the extended range of outright and conditional reserves. One may argue about the present amplitude of the current level of international liquidity. It is also debatable whether the relationship between growing world trade and future liquidity requirements is one of direct proportionality. One can hardly deny, however, that the maintenance of free and expanding transactions among growing economies will require a rate of increase in international liquidity substantially exceeding the additions to the stock of monetary gold. The ever-present possibility of inflation should not lead us to the other extreme of denying to our economies the necessary leeway to face temporary disturbances without having to resort to unwarrantedly drastic measures. The growth, rational independence and flexibility of national economies and, consequently, the progress and equilibrium of the world economy depend significantly on the availability, stability and optimal distribution of international liquidity. The core of the problem, therefore, is whether, in a world of volatile developments and psychological tensions, these liquidity requirements can be sufficiently and soundly met through mounting deficits of the reserve centers and through the willingness of other countries to hold ever-increasing amounts of key currency balances. Any effort to reform the international monetary system should aim at its basic weakness in order to continue to provide for adequate liquidity without creating a question of confidence, and vice versa.

There is a tendency, however, to overshadow the basic issue and postpone its systematic treatment by relating it to the problem of the deficit in the American balance of payments. This is certainly an important problem, but we should not lose sight of the fact that its elimination would entail a simultaneous reduction in the supply of international reserves. As a matter of fact, it would be misleading for any country to let the current status of its balance of payments guide its appraisal of the necessity to reinforce the international monetary system. Experience has shown that creditor and debtor positions are rapidly interchangeable, and no surplus or deficit should be considered as permanent.

In order to satisfy the conditions of feasibility and workability, I believe that reform measures should (a) operate on a voluntary basis, (b) require no major institutional rearrangements, (c) center around the Fund, the efficient organization and wide experience of which would be readily available to provide a solid multilateral foundation for such initiatives. As the Managing Director pointed out in his opening address, the Fund will be found to be the most suitable instrument to carry out the task of improving our present financial set-up. Parting with tradition and tested methods is neither expedient nor desirable when evolutionary adaptation suffices to meet the needs of the future.

Last year I submitted to you for consideration an earlier proposal of mine which was designed to satisfy the above requirements. I emphasized then the need, which is presently increasingly recognized, of proceeding to establish a multicurrency standard in which the responsibility of supplying international liquidity and defending the stability of the system would be shared among the major trading countries. Parallel to that, I have stressed my old conviction of the necessity to guarantee on a coordinated, multilateral basis the gold value of key currencies held as official reserves. The third component of my proposal referred to the desirability of devising methods to differentiate interest rate and tax policies between the internal and external sectors of an economy.

In my statement of last year I suggested a way in which the Fund could contribute effectively to the implementation of the above complementary policy measures. It may be useful to consider now more systematically the means of creating, through the Fund, a guaranteed multicurrency infrastructure to provide for adequate liquidity and counteract destabilizing movements in international payments.

The Fund should be authorized to accept from the monetary authorities of all member countries interest-bearing reserve deposits in convertible currencies, other than their own.

Member countries would act on a completely voluntary basis in depositing their reserve balances with the Fund. These deposits would be freely usable by the owner countries and would, of course, automatically carry the gold-value guarantee which is analogous to the established practice in the transactions of the Fund. The absence of any compulsion is thus a distinguishing feature ensuring flexibility in the system.

The Fund, in turn, would redeposit or invest the reserve balances acquired in this manner in special deposit accounts or bonds and certificates of major trading countries, which will thus gradually develop into reserve centers. The Fund should carry its redepositing activities in a way compatible with the maintenance of monetary discipline and designed to counteract temporary unsettling occurrences in the international payments system.

The countries to act as reserve centers should consent to receive, and provide a gold-value guarantee on, the interest-earning deposits and related investments of the Fund.

The operations of the scheme would be conducted outside the quotas and would be effectively controlled and directed by the authorities of the present and future reserve centers, somewhat along the lines of the “General Arrangements to Borrow.”

Under this system the Fund acts as an intermediary and is not empowered to become an independent source of supply of liquidity. The expansion of reserves is obtained through surpluses in the balances of payments of member countries as long as the countries concerned do not convert them into gold but decide to deposit them with the Fund, which in turn deposits the acquired balances with the reserve centers. The Fund will have the capacity to counteract balance of payments deficits of reserve centers by moving its deposits from surplus to deficit countries. In doing so, however, it will have to examine carefully whether a deficit is the result of fundamental disequilibrium.

One could argue that the system might cause an excessive expansion of liquidity which could possibly lead to inflation. This remote danger, however, can be effectively prevented by the Fund, whenever necessary, through a partial clearing of its accounts with the reserve centers. The power to decide in this respect would rest with the authorities of reserve centers which, as previously mentioned, will be the controlling authority of the proposed system.

This modest scheme, which hardly departs from established practices and requires neither the creation of supranational authorities nor the imposition of compulsory arrangements, appears, on closer examination, quite capable of dealing effectively and durably with the short- as well as the long-term aspects of the liquidity problem.

With respect to the quality and stability of reserves, the provision of the gold-value guarantee by the Fund should actually transform key currencies to “near gold.” To maintain an opposite view, one would have, in fact, to question the creditworthiness of the international community as a whole.

With respect to the problem of the adequacy of future liquidity levels, I need not discuss here the details of the manner in which a multicurrency standard can increase the supply of liquidity without any serious strains for the reserve centers. The possibility of a massive conversion of reserve deposits with the present reserve centers into deposits with the Fund can be easily taken care of by some initial regulation of the maximum rate of such conversion. I believe, furthermore, that substantial amounts of gold will gradually move to the reserve centers in exchange for guaranteed deposits, and also as a result of the reduction in private gold hoardings, following the improvement in the state of confidence.

I would not venture a definite opinion on whether the plan which I propose could be implemented in all of its aspects within the present framework of the Fund’s Articles of Agreement, or whether it would be necessary to amend these Articles in certain respects. My hope is that the proposed arrangements could be worked out without having to resort to amendments. Through a liberal and flexible application of its Articles of Agreement, the Fund has been able in the past to evolve and implement useful new procedures and techniques which, without doubt, have served its purposes and the interests of its members. I may perhaps refer, by way of example, to the development of the technique of stand-by arrangements, the policy of the currencies to be used in purchases and repurchases, or the recently adopted policy on compensatory financing of export fluctuations. With special reference to the aspect of the proposed arrangements relating to the authority of the Fund to invest reserve deposits in member countries, I may refer to the Fund’s investment program under which the Fund has—although admittedly to a limited extent and only for specified purposes—invested a part of its assets in securities of one of its members with the consent of such member. All this suggests that the Fund will not be lacking in ingenuity and flexibility in evolving ways for the implementation of any new arrangements for the strengthening of the international monetary system whose adoption might be found desirable.

In this statement I have elaborated on the proposals which I submitted in last year’s meeting, in the belief that along those lines practical solutions can be devised which will lead towards a substantial improvement of the present international monetary system, while maintaining its essential institutional elements. In this spirit I heartily welcome and support the establishment of a committee to study and submit specific practical proposals for the necessary reforms of the international monetary system. In doing so, I wish to stress the importance which we should all attach to the active participation of the International Monetary Fund, which, with its valuable experience, its distinguished staff and its balanced sense of the problems on a world-wide scale, can make a notable contribution to this important task.

Statement by the Governor for the Netherlands—M. W. Holtrop

Having been associated with our late Managing Director as a member of the Board of the Bank for International Settlements for the whole period of the after-war years, I feel I should not address this meeting without first joining you in the tribute you paid to Per Jacobsson’s memory. His was a life largely dedicated to the pursuit of sound international finance and sound money. He devoted himself to this task with indomitable energy, never-failing good humor, and a vast knowledge of the theory and history of money and finance. I am sure that those who had the privilege of knowing him well will ever be conscious of the imprint his unique personality made upon their minds.

To our new Managing Director, who has so courageously accepted the burden of succeeding an eminent predecessor, I want to extend my very best wishes for a successful term of office, in which he can be sure of the continued sympathy and support of the Netherlands for the purposes and the principles of the IMF.

The Executive Directors in their Annual Report have given a great deal of attention this year to the problems of international reserves and liquidity. I have read their well-balanced observations with great appreciation, and I particularly want to associate myself with their conclusion that, if the available forms of liquidity are properly being made use of, lack of liquidity is unlikely, in the foreseeable future, to present a bar to the adoption of desirable policies. The Managing Director, in his opening address, has likewise touched upon this subject and has expressed himself in the same vein. He has also promised us that, in the coming year, the Fund will develop and intensify its studies regarding international liquidity, the functioning of the international monetary system, and the effective role of the Fund in this field.

It is particularly with this intention for further study that I want to express my sympathy. International liquidity has of late become so much of a subject of public controversy, upon which such a variety of highly contradictory opinions are being held and propagated, that one often is reminded of the saying that “money has made even more people mad than love.” Under these circumstances there is great need for authoritative answers to a great number of questions. I am happy that a body like the Fund will give concentrated attention to this subject. By way of contribution to such a study, I should like to make two observations.

In the first instance, it seems to me that there exists a tendency in the discussion of the international liquidity problem to distinguish insufficiently between the demand for liquidity to hold, which is the demand for reserves, and the demand for liquidity to spend, which is the demand for monetary credit. The problem of the adequacy of the supply of international liquidity, as originally and correctly posed by the academicians, referred to the question whether the current production of gold, increased by the current additions to fiduciary reserves, would be sufficient to satisfy the total demand for desired reserves. If not, deflationary consequences might result from a general struggle to increase reserves by forcing balance of payments surpluses.

Quite a different thing, however, is the demand for liquidity to spend—that is, the demand for credit by countries that find themselves in a payments deficit and whose available reserves are inadequate. Providing credit, in such a case, out of monetary resources may for many reasons be justified. It is exactly for this purpose that the Fund was created. It always means, however, that such credit will increase the reserves of other countries. If these additions to their reserves should tend to exceed the desired increment, this would mean an oversupply of international liquidity. Such an oversupply will just as likely lead to an inflationary situation in the world as a whole, as a shortage of reserves might lead to a deflationary one. The demand for reserves to spend, that is, the demand for international monetary credit, however justifiable it may seem, can therefore never be taken as a measure of the admissible supply of international liquidity to meet the demand for reserves to hold.

My second point is that in considering the scope for a possible increase in the supply of international liquidity by the creation of additional reserves, we must ever be conscious of the fact that in our international payments system, in which central banks make their national currencies freely available at fixed rates of exchange against any reserve media offered to them, the possession of reserves represents the power to obtain resources from other countries without an actual quid pro quo. Using reserves to cover a balance of payments deficit, resulting from an excess of imports over exports, means withdrawing real resources from other countries without giving them real resources in return. Using reserves to cover an excess of capital exports, means obtaining property rights, or claims expressed in money, without offering anything tangible as a counterpart. What the recipient economy actually gets is only the money its own monetary authority issues in exchange for the reserve media ceded by the deficit country. The ultimate beneficiary of this money has to seek actual value by the catch-as-catch-can of the market place, where—except for the availability of unused resources—no additional offer will be available to satisfy the additional demand. On a country-to-country basis the only compensation lies in the transfer from one monetary authority to the other of an equivalent amount of reserve media, which will become, however, of actual value only if and when the payments situation reverses itself.

This power to withdraw resources from one another, while beneficial in leveling out the international flow of goods, must, of course, have its limits. In our present payments system limits have been found in conferring the quality of exchange reserve only to

  • (a) gold and foreign exchange holdings, duly earned by countries by way of their balance of payments surpluses, that is, by the surplus of services previously rendered to the international community over services received; and

  • (b) monetary credits, bilaterally or multilaterally given under strict conditions of repayment and often also of behavior, or given—as in the case of the credits to the key currencies—in the form of deposits and money-market investments.

Restraining thus the access to reserves has served to make sure their careful use.

Should the studies of the Fund, as well may be, lead to considering the advantages and disadvantages of widening the possibilities of the creation of fiduciary international liquidity, it will be well to keep in mind that any newly created exchange holding, and any monetary credit given, potentially will represent a draft on the real resources of other countries and, therefore, merits to be husbanded with great care.

Statement by the Governor for Malaysia—Tan Siew Sin

On behalf of the Government of Malaysia, I wish to express our deep sorrow at the loss of Mr. Per Jacobsson, the former Managing Director and Chairman of the Board of Executive Directors of the Fund. His death has deprived us of a good friend and adviser who had to guide the Fund through its most difficult years and whose contribution in the field of international finance will long be remembered.

I would also like to take this opportunity to welcome his successor, Mr. Pierre-Paul Schweitzer, who has come to us after a long and distinguished career in the service of his country and who is well known as an eminent internationalist. I have no doubt that the wealth of experience and knowledge which he will bring to bear on the operations of the Fund for the welfare and advancement of its members will benefit us all greatly, and we can look forward to a period of increased international monetary and financial cooperation. It is, therefore, my sincere hope that his term of office will be both a long and a fruitful one.

To Mr. George D. Woods, who took over the direction of the World Bank earlier this year, we would like to extend a very warm welcome and sincere good wishes for a successful tenure of office, with which goes our hope that under his direction the World Bank and its affiliates, the International Finance Corporation and the International Development Association, will exert an even greater impact on the development of the less developed countries than it has been able to do in the past.

I speak today as the representative of a new nation, Malaysia, which was born on September 16 last, consisting of the eleven States of the former Federation of Malaya and the States of Singapore, Sabah and Sarawak. Malaysia unites approximately 10 million people in an area of about 129,000 square miles. It is likely that Malaysia’s internal and external financial position may be put to considerable strain in the next few years, due primarily to large increases in development expenditure, especially in the comparatively less developed new States of Sabah and Sarawak.

However, potentially, Malaysia offers great scope for the development of its agricultural and mineral resources and a larger market than that offered by the former Federation of Malaya in the field of industrial development, particularly when our plans for the establishment of a common market for the whole Malaysian region comes to fruition. We are confident, therefore, that in the long run the economic prospects of Malaysia, with its more diversified resources, will be greatly enhanced. Indeed this was one of the decisive factors which, in our view, justified the creation of this new and wider federation of states in South East Asia and which, it is our hope, will contribute toward peace and stability in our part of the world.

The Malaysian economy is a typical and well-known example of the economy of a developing country in any part of the world today. It is largely dependent on the export of a few primary products. In our case, rubber and tin accounted for from 75 per cent to 80 per cent of the former Federation’s total export earnings, the actual percentage depending on their respective price levels at any given time, so that any serious drop in these earnings affects every facet of the nation’s economy and social well-being. Thanks to a farsighted replanting program launched and subsidized by the Government some years ago for this industry, production of natural rubber rose from 637,000 tons in 1955 to 750,000 tons in 1962. The value of this rubber, however, declined from M$1,584 million to M$1,368 million during the same period. In other words, while production increased by about 18 per cent its value decreased by 14 per cent. In the industrialized world, an increase in production is usually accompanied by a corresponding rise in national income. In the case of developing countries, even a substantial increase in productivity is sometimes unable to offset a decline in the prices of its main export commodities, and in the case of Malaya the margin is not small either. In this context, I am confining my remarks to the former Federation because consolidated figures are not available for the new Federation, which came into being only a short while ago.

We have pursued prudent financial and economic policies, regularly accumulating, except in exceptionally bad years, budget surpluses on current account, and sometimes on over-all account also. At one stage, in fact, the former Federation had actually increased its reserves by about M$400 million since independence. The recently joined States of Malaysia are roughly in the same position and are in an equally sound financial position. The cost of living has not risen for the past 10 years. It stood at 107 in 1951 and in 1961 it stood at 96, using an index of 100 for 1958. I should add that these figures were obtained from a publication entitled International Financial Statistics issued by the IMF. It has pursued extremely liberal financial and economic policies. Import restrictions on economic grounds are unknown and it allows completely free capital transfers within the sterling area itself, and, in practice, places no restrictions on remittances of profits and dividends and returns of capital without. It is perhaps true to say that it is the only country in the Commonwealth, apart from the United Kingdom itself, which has been able to pursue such a policy. Hitherto it has known no balance of payments difficulties.

Malaysia has a population density of 77 per square mile; in other words, it is relatively empty judged by the standards of over-populated Asia. Its foreign exchange reserves total nearly US$1,300 million, the equivalent of one year’s imports, of which about US$640 million consist of government holdings. The total external public debt amounts to about US$230 million, which is not large, considering the size of its external reserves. In spite of all these advantages, its position is extremely vulnerable because of its heavy dependence on mainly one export commodity, viz., rubber, where a drop of one Malaysian cent results in a reduction of M$16 million in export income in one year for the former Federation alone.

It has been said that the only solution to such a situation is to industrialize as rapidly as possible and otherwise diversify the economy. This is easier said than done. Capital for industrial development is not wanting in Malaysia. This applies not only to foreign capital, which regards the Malaysian climate as an attractive one in almost every respect; it also applies to domestic capital, as evidenced by the fact that public equity issues have been subscribed many times over in every case, sometimes by as much as twenty-five times. Even so, it is clear that the effect of industrialization will not be significant for at least another generation, and this experience is not confined to Malaysia alone. I hope my distinguished colleague from Australia will forgive me if I cite his country as an example, but I believe that Australia, which has had massive doses of investment capital injected into it during the postwar years—I believe the total is of the order of well over £ 1,000 million—still suffers from a severe drop in the price of wool; and many of us have not even reached the stage of development which Australia has now reached. In fact, I do not think that Australia is even regarded as a developing country.

It will, therefore, be seen that, for the time being at least, developing countries will have to rely on primary products as their main source of financial sustenance. I have already shown that Malaya (and now Malaysia) can be regarded as almost a model developing country. In the fields of finance and economics, it has done everything it should do and has not done anything which it should not do. In one respect it has gone one better than even some industrialized countries. It has managed to achieve growth without inflation. In spite of all these, it is today feeling the adverse effects of a sharp drop in the price of rubber, and this has happened even though tin and iron ore, its next two most important export commodities, are fetching reasonable prices and the rate of production of one has been well maintained while that of the other has expanded considerably.

Now, what is the basic reason for this state of affairs? The basic reason is that while the prices of manufactured goods continue to rise, the long-term trend in the prices of primary products, on the whole, is either downward or stationary; and the industrialized countries produce almost all the manufactured goods while the developing countries produce the primary products in the main. This means that the developing countries have to produce an ever-increasing volume of primary products in order to buy the same, or sometimes even a smaller, volume of manufactured goods from the industrialized countries. Or, to put it in another way, developing countries have to run pretty fast in order merely to stand still. So long as this situation continues such countries will always need aid and such aid will never be enough.

We submit, therefore, that any solution which fails to achieve fair prices for primary products in relation to those for manufactured goods will only be a palliative. It will be a treatment of symptoms only—and not a very satisfactory treatment, either—rather than lead to a cure of the disease. We agree that the task is immense, and while it is easy to state the problem, it is not so easy to find the cure.

We have in the past proposed the creation of commodity price stabilization schemes. We recognize that this proposal faces many difficulties, but so far no one has thought of anything better, except for the compensatory financing scheme originally advocated by a United Nations body and now accepted by the Fund. In this connection, we feel that this proposal can create as many problems as it solves, because it could involve borrowing on the part of a developing country as a means of financing a current account deficit. If such deficit arose as a result of rising expenditures on social services, one does not need to be an economic genius to realize that this would be the beginning of the slippery path downhill. We, therefore, think that the principle of compensatory financing could be dangerous, as you will encourage developing countries to spend when they should be cutting back expenditure, and to borrow without any hope of paying back. It will encourage them to live in a fool’s paradise, thereby merely postponing the day of reckoning without solving the central problem.

We cannot believe that human ingenuity is unable to devise a scheme to ensure such a mundane achievement as fair prices for primary products, if there is a will to do so on the part of the industrialized countries, when we can today circle the globe in 1½ hours and may yet reach the moon. It might be possible, for example, to fix quotas for production and consumption by international agreement; or where natural products have to compete with synthetic substitutes, as in the case of rubber, it might be possible to determine production and consumption ratios as between the two on a world-wide basis. In any case, nothing less than a radical approach on these or similar lines will suffice if the problem of assisting developing countries to achieve self-sustaining growth on a firm and enduring basis is to become a reality in the foreseeable future.

We cannot afford to tinker with a grave and complex problem of this magnitude, because time is not on our side. The central political problem of our age is whether it is possible to achieve a satisfactory rate of material progress without the loss of those spiritual values for which men have fought and died throughout that harrowing catalogue of human misery which we call history. There is a school of thought which contends that the price of progress must be paid in the surrender of all liberty to an all-powerful government, where citizens exist for the good of the state rather than the reverse. The other school of thought believes that material progress can coexist side by side with freedom. In this titanic and classic struggle for the hearts and minds of 20th century man, the teeming millions of Asia and Africa may hold the decisive balance of advantage. How they tip the scales in favor of one or the other will depend on whether they can be convinced that it is possible to combine freedom with progress; and in this context let us also remember that after centuries of authoritarianism and colonialism, terms like democracy and political freedom are comparative newcomers to Asian and African vocabularies. In this context also, the ultimate choice may yet lie with the industrialized countries, because they have it in their power to convince and to achieve with the enormous resources at their disposal. Those of us who believe that, if human history has taught us anything, it has taught us that the soul of man is indestructible, hope that the industrialized countries of the Western world will act with wisdom and resolution before it is too late.

Statement by the Governor for Israel—Pinhas Sapir

May I first express the profound sense of loss caused by the passing of Per Jacobsson, Managing Director of the Fund and Chairman of the Executive Board. His charming personality and brilliant mind were always an inspiration. We shall remember the outstanding contribution he made to the work of the Fund and to the cause of international cooperation.

I should like to take this opportunity to congratulate his successor, Mr. Pierre-Paul Schweitzer, on his appointment to this extremely important position and wish him success in all the tasks which lie ahead.

We welcome especially the Governors of the new member states who, together with the members of longer standing, share the responsibility for the future of international monetary relations.

During the last annual discussion, my predecessor, Mr. Levi Eshkol, now Prime Minister of Israel, described the first results of the reform in our economic policy, which was carried out early in 1962 after detailed advance consultations with the Fund. We continued this year to stabilize and consolidate our economy. The rapid growth which has been characteristic of Israel since the establishment of the State continued in 1962 and during the first half of 1963. Employment last year increased even more rapidly than the labor force, which itself grew by 4i per cent. Unemployment reached its lowest level since 1948.

Devaluation, by rendering imports more expensive, was expected to bring about a general rise in the price level, especially in a small and developing country such as Israel where the propensity to import is high. Although devaluation amounted to 66 per cent, prices increased in 1962 by only 10 per cent. The total increase in the consumer price index in 1963 will amount to 3 per cent. This favorable development is to be attributed to the various monetary and fiscal measures introduced by the Government to curb the inflationary pressures, caused, to a major extent, on the demand side by the continued strong capital inflow and on the cost side by devaluation itself and cost of living allowances paid to wage earners. In pursuing this policy the authorities could count on the cooperation of both unions and management; the first consented to a freezing of basic wage rates, whereas the latter agreed to absorb the rise in labor costs resulting from the payment of cost of living allowances.

In 1962 the trade deficit still continued to grow, though at a much slower rate than in 1961, and that in spite of a 20 per cent increase in our exports. The results achieved since the beginning of the present year are more encouraging. Exports have increased by some 25 per cent, whereas imports remained generally stable compared with last year. We have succeeded in financing our considerable import surplus, and have even increased our foreign exchange holdings, thanks to the net receipts on capital account. But some of the present sources of our capital imports are about to dry up, and if we are to maintain a high level of employment and production—a necessary condition for the absorption of the continuous flow of immigrants—we shall have to finance an increasing proportion of our imports with our export proceeds.

Let us proceed to more general problems. Political independence was granted to countries which lived for extended periods under inequitable conditions which are known to everybody. These countries have to be assisted in building their economies, in achieving also economic independence. In this way some of the injustice committed toward colonial areas can be undone. Such course of action will not only help developing countries, it will enrich the whole free world. It is not enough to advise countries to raise their production, to diversify their industry and increase their exports. Obstacles are continuously being put in the way of realizing such a course. Instead of this, conditions should be created not only to build new industries, but also to enable them to sell their production freely in international trade.

This is why Israel, like other developing countries, is so deeply concerned about the growing tendency to institute preferential tariffs within various regional economic groupings. This trend is likely to jeopardize much of the efforts undertaken by developing countries to attract foreign investment to industries producing for export. The products of such newly created industries are facing rising trade barriers. Such a situation will increase and complicate the payments problem of developing member countries, and may in the end put a heavy strain on the resources of the Fund.

We, therefore, greatly welcome the U.S. initiative for the new rounds of international trade negotiations. These negotiations, we hope, will lead to a major reduction of tariffs and to a progressive removal of nontariff trade barriers, while giving consideration to the special problems of developing countries. This, we believe, is a necessary condition—though by no means the only one—for expanding the diversified exports of many developing countries.

The expansion of foreign trade, and especially of imports, which normally accompanies the development effort of these countries, raises another important problem, namely, that of the international payments liquidity. For the imbalances likely to appear in their international payments might attain higher figures than in the past. In fact, the last Annual Report of the Fund points out that ever since 1953 the reserves of the less developed countries have fluctuated around their present level, while their trade has expanded by about 40 per cent.

The decision of the Fund to create a new compensatory financing facility for countries affected by shortfalls in receipts for exports is a step in the right direction. Yet, the problem of the adequacy of international liquidity deserves, in our view, further exploration, and we think that new proposals for strengthening the international payments mechanism should be devised.

We think that two measures should be taken. In the first place, Fund quotas and drawing facilities of developing countries should be revised more frequently, taking into account the growth of their GNP and the extent of their foreign trade. This can be done within the framework of existing regulations. The second measure, which will necessitate new decisions, must be concerned with ways and means to increase international liquidity without being dependent on key currencies.

It is common knowledge that the amount of gold existing in the world today is not increasing fast enough to keep pace with the growing world trade. In any case, the relation between the gold supply and the growth of trade is completely coincidental.

We support the idea that the IMF should study, without delay, the possibilities of creating additional means of payment under international control related closely to development of world trade. We are very well aware of the grave difficulties inherent in such a proposal. We firmly believe that such new approach can be taken only at a time of relative strength and stability in the world economy. We submit that this is the time to study such proposals and to bring concrete plans to the next meeting of this body.

Statement by the Governor for Algeria—Bachir Boumaza

Representing as I do a country that has newly joined, I shall confine myself to saying a few words to express my pleasure at the admission of Algeria to membership in the International Monetary Fund, the International Bank for Reconstruction and Development, and the International Development Association, and to thank those institutions for having welcomed my country as a member.

The fact that we have joined these organizations demonstrates our faith in international cooperation, and also expresses our resolve to make that cooperation a guiding principle and constant factor in our policy.

It is for this reason that, from the first few months of independence, while simultaneously building up her internal institutions, Algeria has been anxious to join the international bodies. The fact that our National Assembly voted, on the same day, both in support of our joining those organizations and in favor of the adoption of our Constitution, provides an illustration of that double concern on our part.

I should like, however, to say how difficult the economic position of our country has been, and still remains, in consequence of the accumulation of ruins resulting from the war, the displacement of populations, the dislocation of economic and administrative structures, the blocking of financial channels, and the abandonment of business undertakings.

Faced with economic and social upheavals on such a scale, the State has had to undertake direct intervention in order to avert the paralysis that was threatening the very life of the nation.

At the outset, we relied on our own efforts; while simultaneously bringing into play all the resources of the country, we imposed a policy of strict austerity on the living standards of the nation.

We are, however, fully aware that all our efforts, and all the means available to us, will not alone suffice to solve all the problems confronting our country.

The burdens arising from the double task of reconstructing our economy and developing our economic potential make it necessary for us to appeal for foreign assistance on terms and conditions that match the position in which Algeria finds herself.

In this connection, I feel obliged to emphasize the importance we attach to the need for extending the assistance with which the IBRD and IDA are providing the developing countries, and also to the need for adapting it to the specific problems facing these countries, whose resources are limited.

In view of the foregoing, we were pleased to note the fresh proposals put forward by the President, Mr. Woods, who clearly showed that the Bank intends to act henceforth with this object in view.

When this promising initiative takes practical shape, I am convinced that it will not fail to bear fruit, and in the near future, for those countries which are still suffering from the anachronistic disease of underdevelopment.

So far as Algeria is concerned, she intends to play a full and honorable part in the carrying out of this inspiring task of international cooperation.

I could not end this statement without extending congratulations to Mr. Schweitzer, the new Managing Director of the Fund, and to express our best wishes to him in his new post.

Statement by the Governor for Afghanistan—Abdullah Malikyar

My great pleasure in finding myself again among my distinguished colleagues is sadly lessened by the absence of Mr. Per Jacobsson. We all miss the man who gave such forceful leadership to the Fund during its most active period so far. His energy and strong faith in international cooperation inspired all of us. We shall never forget him or forget his work.

We are fortunate to welcome Mr. Schweitzer. He comes to the Fund after a distinguished career. He will give us and the Fund staff, I am sure, the sound advice and leadership that we shall need in the years ahead. I most cordially welcome Mr. Schweitzer and congratulate the Fund on securing him as the new Managing Director.

I would like to take this opportunity to extend a cordial welcome to the new members. I greet their distinguished representatives who meet here with us for the first time.

I very much appreciate the most interesting address of the Chairman. I wish to thank the new Managing Director for an inspiring opening address.

My thanks go also to the Executive Board and to the staff for the excellent Annual Report which they have put before us. Year after year the Report has grown in stature and coverage. Its treatment is more and more in the right direction. It has become one of the most objective summings up of the year’s international economic developments. In particular, I note with great interest the treatment of the payments problems of the developing countries. It is gratifying to read of the great role that the Fund has played and intends to continue playing in helping to meet these problems.

The Fund is to be congratulated on the new formula designed to assist countries in difficulties because of price fluctuations of their products. However, the new procedure adopted in May 1963 regarding calculating reserves and assessing repurchase obligations would seem to require a reconsideration by the Executive Board.

I welcome the invitation the Report extends to members to make more frequent use of the Fund’s resources and the suggestion not to use them “for emergency only.” However, recent developments have shown that the resources of the Fund need to be strengthened if it is to fulfill its true role in providing for steadily growing international payments. This is why the ideas put forward by various experts deserve careful and sympathetic consideration. We look forward to the next Annual Meeting, when concrete suggestions for action will be submitted.

Technical assistance to members is another rapidly expanding and highly appreciated aspect of the Fund’s work. It would be still more beneficial if a staff exchange system could be worked out. Under the proposed system, economists from the Fund’s staff work for a year or two in the developing countries. At the same time, suitable candidates from the countries which are now under-represented should be given a greater opportunity to join the staff of this institution.

While the present training program is very useful indeed, it would seem appropriate if the duration of the present training period is reconsidered. Thought might be given to the possibility of having one course for one year for participants from developing countries and another for six months for participants from developed countries. The distinction is made because the needs of the two groups are clearly different.

The exchange, monetary, and fiscal reform which the Royal Government of Afghanistan carried out last March was no easy task for my country. Self-discipline and restraint were necessary. The success which we are fortunate to register to date has in no small measure been due to the sound advice and the financial assistance we have received from the Fund. Our new exchange system has begun to stimulate exports. The new system, together with budgetary discipline, has helped to contain our imports. We believe that we are well on the way to averting the threat of inflation, and towards carrying out rapid and sustainable economic development. We expect that our policies, assuring domestic and external balance, will more than ever encourage our friends abroad to increase their assistance.

Afghanistan is delighted to accept its share as a member in carrying out its duty towards a more prosperous and peaceful world, in which the Fund has so great a part to play. I join other speakers in wishing the Fund further success in the years to come.

Statement by the Governor for the Philippines—Andres V. Castillo

As we convene again in this fair capital city of the United States of America, to review and evaluate the operations of the Fund, I am pleased to note the growing prosperity and economic progress prevailing in this country and other industrial countries of the free world. The Report of the Fund for 1963 indicates that economic activity here and in the industrial countries of Europe increased last year, which, in turn, induced an expansion in world trade. It also reveals that wage increases, higher income, and full employment are inevitably linked to the pattern of economic growth in those countries.

All these developments would indeed be heartwarming were it not for the existence of accompanying distortions which threaten the orderly process of growth in the world economic order. And I need not underscore the fact that any economic distortion or structural disequilibrium among industrial countries has a real and oftentimes regressive effect on the development efforts of developing countries. This is the reason why we, who come from developing countries, view the current situation with particular concern.

The hopes of developing countries for long-term growth and progress lie mainly in their ability to strengthen their exports, to gradually diversify them, and to proceed with the difficult task of building up industrial facilities through which they can economically manufacture many of the finished consumer and producer goods they need. Should they succeed in this, they will be able to find a more lasting solution to their balance of payments difficulties. I would like to see a substantial increase in nondiscriminatory trade between developing countries on the one hand and industrial countries on the other, but there are of course a number of difficulties. Perhaps we should explore ways of inducing countries belonging to the Common Market to overlook mere regional interests, if that is possible, by according to nonmember developing countries the same special preferences accorded to associated overseas members. I anticipate the possibility, moreover, that the United States may limit the application of her trade expansion policy (under the 1962 Trade Expansion Act) to the membership of GATT. I sincerely hope that this eventuality will not arise, since many less developed countries that would be benefited by increased trade with the United States are not members of GATT.

In the quest for a solution to the problems of developing countries, the United States can provide valuable assistance and support, depending on the type and orientation of her policies, particularly in this period of adjustment. The general direction of recent policies and measures taken by the United States, however, aims at increasing her trade surplus and reducing her capital outflows. This seems to be only partially logical, in view of the fact that the United States deficit is mainly attributable to the increase in capital outflows and not to any disequilibrium in her commodity trade.

There seems to be a prevailing tendency on the part of the United States and other industrial countries to maintain a certain degree of trade restriction on their imports. I need not overemphasize the fact that this practice is inimical to orderly world trade and payments, particularly as they affect the developing countries. As a result, in order to remedy the situation, the developing countries are forced to restrict their foreign purchases through exchange restrictions and other devices, stimulate their exports through subsidies, or decrease imports and increase exports through devaluation of their currencies. These compulsory measures become deterrents to the growth of world trade through free competition and the smooth functioning of the system of international payments. While it is fortunate that many developing countries have already eased up on trade and exchange restrictions due to improvements in their payments position, there is still room for greater progress in the direction of nondiscriminatory trade, provided the industrial countries take some initiative in eliminating harmful trade practices against developing countries.

The dilemma faced by developing countries is that whenever they expand their traditional exports, they are faced with a softening in foreign demand and a deterioration in terms of trade; while, on the other hand, if they try to increase their exports of non-traditional items such as manufactured goods, they are faced with trade restrictions. Consequently, I believe that it is about time that industrial countries, who are really desirous of helping their less developed neighbors participate in increased world trade, seriously consider a proposal which was suggested during the 19th Session of ECAFE held in Manila last March for unilaterally extending preferential treatment to exports of developing countries. This preferential treatment would extend only to certain commodities, both primary products and manufactured goods, whose growth in the export market the less developed countries are principally interested in.

The next sensitive area to be affected by adjustment measures in the United States, and which is also tied up with U.S. trade policy, is the flow of American capital to other countries, particularly to developing countries. In the face of unfavorable balance of payments developments, the United States has taken steps to hold down the outflow of capital from her borders. The first of such measures was the hiking of domestic interest rates, which is designed to encourage the investment of domestic capital in the United States rather than in foreign countries. This was followed by recommendations, contained in a message of the President of the United States to Congress, to impose a special excise tax on purchases of foreign securities and to observe restraint in federal military and economic aid expenditures abroad.

The proposed excise tax on the purchase of foreign securities is described as a special and temporary levy, designed to be effective until 1965. It exempts from the tax direct investments and loans that mature in less than three years. It is also sought to be applied to a specified number of countries which are arbitrarily classified as developed countries. Consequently, some countries which have not yet reached the desired level of development, and which are in need of long-term development financing, may be included in the list of nonexempt countries. The significance of foreign assistance to developing countries cannot be overemphasized in view of the drastic shift in recent years of United States aid from Western Europe to the Near East, South Asia, and Latin America. According to studies made by the AID, this shift was also accompanied by a basic change in the type and nature of assistance extended by the United States. While the proportion of U.S. military aid to total aid has leveled off, the share of economic aid has been increasing. In terms of economic aid, moreover, the emphasis has been on loans rather than on grants. Thus, the contribution of loans to total economic aid increased from 6 per cent, on average, for the fiscal years 1953-55 to 54 per cent for the fiscal year 1963.

Undoubtedly, the billions of dollars which the United States spends in terms of economic aid could contribute to the accelerated development of the less developed countries. However, I believe that what developing countries really need are long-term development loans which they can use to industrialize their economies. Moreover, loans should be in the form of capital funds and not in goods, and should not be hamstrung with conditions which tend to lessen their effectiveness. I also suggest that if the United States and other industrial countries really want to see a diminishing dependence of developing countries on foreign assistance, they should liberalize their trade policies vis-à-vis developing countries along the lines I have previously indicated. The adoption of such a policy would enable the developing countries to market the increased production generated by these loans, thereby increasing their earnings, which can be used to repay the loans.

In conclusion, I would like to pay tribute to a friend whose absence here today is felt by all of us. Under the leadership of Mr. Per Jacobsson, the Fund assumed an even greater role in influencing the orderly pace of progress among its members. To all of us, his passing is an irreparable loss, but I am sure that we shall always cherish his memory and the achievements which he left us. I associate myself with the other Governors in welcoming the worthy and equally brilliant successor, Mr. Pierre-Paul Schweitzer, and in wishing him all success in his most trying and difficult job.

Statement by the Governor for Somalia—Abdi Aden Mohamed

In speaking at this Meeting I should like first to be allowed to express once more, this time on behalf of the Republic of Somalia, our feelings of sincere regret on the death of Mr. Per Jacobsson, the illustrious scholar who made such an outstanding contribution towards increasing international collaboration in the monetary and currency field, as well as our most sincere good wishes to Mr. Pierre-Paul Schweitzer, his worthy successor. We trust that he will continue successfully with the work of administration, particularly at the present time, when the always difficult problems of stability and international liquidity render necessary, and clearly outline, the fundamental role of the International Monetary Fund in the process of economic development that is of especial concern to our country.

May I mention, in addition, what an important event the recent recognition of the parity of the Somali shilling by the Fund has been for us. I therefore consider it only right and proper to underline the importance of this happy result of the maintenance of the parity of our currency for more than 13 years, and also to express our feelings of gratitude towards the Italian Government—whose distinguished representative is this year presiding over our Meeting—which was responsible for the stability of the currency in Somalia from 1950 until June 1960. Likewise I wish to express our special appreciation of the work of the Bank of Italy—as represented by its distinguished Governor, Dr. Guido Carli—which, in the period prior to our independence, was responsible for that currency, and which still makes available to us the valuable services of some of its officials.

Somalia is conscious of its position as a country on the threshold of economic development and, in its capacity as a member country both of the Fund and of the other affiliated organizations, has the greatest reason for pursuing a monetary and currency policy which is simultaneously an integral part and a reflection of the policy common to all member countries. The aim of the latter monetary and currency policy is our aim too, for we are of the opinion that an individual national monetary system would have no meaning outside the framework of the hoped-for world monetary system.

In this spirit I wish to repeat, on behalf of my Government also, our thanks to the management of the Fund for having promptly acceded to the request of our Prime Minister for advice regarding the means of gradually removing restrictions. The special mission that has recently visited Somalia for this purpose has supplied us with useful and interesting suggestions for achieving greater freedom in our foreign trade and currency system, as well as for achieving a greater degree of unification of the various systems that still exist in the two Regions which, as at July 1, 1960, constituted the Republic of Somalia. In addressing this Meeting of Governors, I am therefore particularly happy to be able to confirm Somalia’s pledge to continue along this road.

In listening to the presentation of the eighteenth Report, submitted by Mr. Pierre-Paul Schweitzer, it became clear that the proposals put forward and the practices followed by the Fund during the past year deserve our full approval, and give reason for the greatest confidence on our part in the matter of future actions and assistance. The fact that Somalia belongs, as I have said, to that group of countries which stand to benefit most from one monetary system and from the cooperation of the more industrialized countries with the remaining ones, leads me to point out with sincere satisfaction how the restrictions in the field of international financial relations have recently been lessened. In drawing attention to this success, which is due before all else to the unremitting and vigilant work of the International Monetary Fund, and to the joint interest therein displayed by the member countries, it is well to bear in mind that the results achieved do not exhaust the tasks before us. In a world that is in constant evolution there still remain problems the solution of which is urgent and cannot be postponed, and, before congratulating ourselves, it seems to me that we should all undertake to contribute to their solution, in order to be able one day—which we all trust will not be too long delayed—to record in connection with those problems the successful results that we are examining in other sectors.

The increase in the number of associated countries is at the same time a sign of the achievement of independence, on an ever-increasing scale, by territories formerly dependent, and also of the importance which the new States attach to the work of this great international monetary assembly. The Republic of Somalia extends its good wishes to the new member countries, and is particularly mindful of the increase in the number of African countries which have joined, for it is certain that this link will prove to be a further fundamental stage in the process reinforcing the solidarity and unity of our continent.

In conclusion, I wish to point out that the greatest possible expansion of world trade on the basis of a more equitable ratio of international exchange, that will enable the raw material producing countries, acting on their own, to achieve equilibrium in their balance of payments, should be the aim of our future actions, and it is my firm conviction that that aim is, and must be made, a possible one.

Statement by the Governor for Yugoslavia—Nikola Miljanić

I would like first of all to associate myself with the other speakers and to express my deep sorrow for the sudden loss of Managing Director Per Jacobsson. His devotion to work and his great ability invested in the Fund and its objectives will always remain in our memories.

May I take this opportunity to welcome the newly appointed Managing Director, Mr. Schweitzer, and to wish him all the success in his new post, the functions of which are important to all of us. I assure him that we will always be ready to extend our full support.

The Fund concludes, with this present Annual Meeting, another year of useful and fruitful work. The volume of its activities during the past financial year was slightly in decline compared to the preceding year. I am, however, inclined to believe that this fact is not attributable to the policy of the Fund but to present independent economic developments. Such a course in the Fund’s activities might be an indication that the world monetary situation is gradually improving. This relates, however, to industrially developed countries only: the greatest number of such countries have been showing for the past few years further stabilization of their internal and external finances. Even where this has not been the case, we sincerely hope that the near future will show a much better balance. Furthermore, the improvement in the world’s political climate which is now taking place will, in my view, have a favorable influence in further stabilization in the monetary and financial fields.

If we look to the other side of developments, however, we would find a different picture. It is stimulating to read the Fund’s statement that the greater part of its present activities were devoted to the problems of the developing countries. It is encouraging to us to find that the Fund Annual Report stresses these problems more and more, as they represent indeed the very core of over-all relations prevailing in the world today. However, much is still to be done in the solution of such problems. Countries or regions concerned are expecting much more from us for accelerating their economic development. And the number of such countries is increasing in the Fund family. It is clear to us that the Fund is but one of the places for considering the enormous number of problems, and of such complexity, connected with the development of less developed regions, and that the sphere of activities of the Fund is rather limited in this respect. It is also understandable to me that the Fund cannot always agree with individual measures and steps taken by developing countries in pursuing their justified intentions to raise their economies to a higher level. But I consider that it would be appropriate to re-examine the question of the possibility of applying, under all circumstances and at any time, the same code of behavior for all member countries. It is indeed a great question whether what are called in the Report “expedient measures” can always and in all circumstances be replaced by alternative measures, as it appears to be suggested in the present Annual Report.

Perhaps the very persistence of “expedient” measures in a large number of the developing countries over such a long period indicates that something may be fundamentally wrong which imposes serious limitations on the application of policies otherwise deemed desirable. In this respect, I welcome the Fund’s intention to develop and intensify its study regarding international liquidity, the functioning of the international monetary system, as has been indicated by Mr. Schweitzer this morning, and I do hope that the problem mentioned above will find its place in this study as well.

I am sure that we will all agree that a great responsibility lies on industrially advanced countries to adjust their policy in such a way as to assist and facilitate the progress of the developing areas. I would especially like to stress that in the field of foreign trade policy economically advanced regions may do much more in order to raise to a higher level the foreign trade of the less developed countries. The future economic growth of these countries depends to a very large extent on appropriate solutions of their foreign trade problems. I do not wish to elaborate on all the obstacles hampering the smooth development of foreign trade, since they are well known. I believe that the forthcoming World Conference on Trade and Development will yield good results, and I expect that the Fund will, with its active cooperation, greatly contribute to such aims. The decision of the Fund on compensatory financing, which I welcome, represents a small part only of what has to be done and what can be done in this field.

Finally, may I express to the Managing Director of the Fund, Mr. Schweitzer, and to the Deputy Managing Director, Mr. Southard, and to the Executive Directors and the staff of the Fund my Government’s deep appreciation for the quick action in rendering assistance to my country struck by the catastrophic earthquake in Skoplje. This disaster caused not only great loss of life and human suffering but also brought considerable material damage to my country and added the additional burden of reconstruction. This might disturb our balance of payments and the relative stability of the economy achieved with such great effort in the past. In alleviating the negative consequences of this disaster the Fund’s assistance was invaluable. In the Fund we have met with a full understanding of these newly arisen problems of ours.

Statement by the Governor for Sweden—Per Åsbrink

May I first say a few words to the memory of Dr. Per Jacobsson. His career and prominent position as an international economist, ending with a seven-year term as Managing Director of the International Monetary Fund, are well known. As his countryman, I cannot deny feeling a certain pride that Mr. Jacobsson was allowed to serve for so many years in the international economic field and that over the years he received much acknowledgement and appreciation of what he did. For those who had the privilege of knowing him personally, I think that his outstanding personality will long be retained in their minds. His good advice was most helpful and his criticism from time to time of the conduct of economic affairs, a criticism from which he did not, of course, spare his home country, was inspiring.

Mr. Jacobsson entered the Fund as Managing Director at the beginning of an era of increased importance of the Fund. Without doubt his strong will and force and daring character, coupled with an eminent knowledge of world economic problems, contributed very much to making the Fund what it is today. I think that Mr. Jacobsson himself looked upon his service with the Fund with extreme gratitude and felt it to be a logical end of his career.

Permit me also to say a word of welcome to the new Managing Director, Mr. Schweitzer, whose appointment meets with all my appreciation. I wish him every success in the difficult tasks that lie ahead.

While I have the floor I should like to say a few words about international liquidity. This is a question that has been extensively discussed during and around our last two annual meetings. In Washington last September Per Jacobsson did much to analyze the nature and scope of the problem. Differences of opinion seem, however, too great, and the problem too important, for discussion to abate at this stage. I am, therefore, glad that Mr. Schweitzer has told us that the Monetary Fund will continue to examine the problem of international liquidity. I also welcome the prospects that this problem—or the international payments system—will be the subject of other coordinated and thorough studies.

We are in the fortunate position of already having an international payments system that is continuously being improved—the record in that respect of the last two years is impressive—and that is already sufficiently flexible to smooth out even considerable imbalances. I then assume as a hard fact that the often pressing payments problems of developing countries must be solved in another context than that of catering for international liquidity. I am tempted to say that the foremost aim of the planned examination should be to lay the ground for an outlook on these matters as universal as possible. This will, I presume, be a time-consuming process.

We have already covered quite some distance on the road to more or less universal agreement. Some partial problems have been solved. To mention just a few: Per Jacobsson and others have reminded us that day-to-day transactions in world trade are not financed out of official foreign exchange reserves. The ratio between official foreign exchange reserves and imports, which formerly was such a popular measuring device, may thus in future studies be considered to be of only moderate importance. It is also recognized, I believe, that international monetary cooperation can easily solve some temporary disturbances where flows of funds are likely to reverse themselves, whereas more definite losses of foreign assets may require elaborate techniques for international cooperation. There is also wide acceptance of the view that fixed exchange rates and the present gold price form the basis of the existing and future payments arrangements.

Even if unanimity or a satisfactory measure of unanimity has been reached about the problems mentioned and several others, there certainly remains a sufficient number to make the planned examination both difficult and time-absorbing. Some of the remaining problems have been touched upon in statements made during this meeting. I should like to suggest, however, that on one point the examination will devote particular interest to the possibilities of deepening our knowledge. The reason is that I have been somewhat worried by a tendency recently in the international discussion to argue that such part of newly mined gold and gold sold by third countries as is acquired by various official buyers should be distributed among them in an orderly way. If this is intended to mean that in any case the main industrial countries should have about the same ratio of gold in their official foreign assets, I must confess that at least at my present stage of thinking I see some risk in the envisaged procedure. I doubt that in the long run we can very well have a system where one portion of official foreign assets consists of, so to speak, an A-l asset that has to be rationed, whereas the rest of the reserves has to be filled up by what can easily be felt to be second-rate assets.

To avoid such an unwelcome development it is no doubt important that currencies serving as reserve currencies preserve their attractiveness as such. I can, however, well imagine that it would also be prudent to economize with gold, which is now serving several purposes in addition to its industrial and artistic uses, besides being a universally accepted means of payment for official settlements. What first of all strikes the eye is that in a few countries gold is still mandatory as legal cover for currency circulation, and sometimes for other liabilities. Even if the magic of gold is difficult to uproot, there are no doubt today not too many who would seriously maintain that gold has some mysterious quality that increases the value of a currency. Nowadays we should be ready to bring about a streamlining of the legislation of various countries in order to get rid of remaining provisions about mandatory gold cover.

I also believe that the time is ripe to make a really vigorous effort to counteract private hoarding of gold. Available sources, e.g., the Annual Reports of the BIS and of our own Monetary Fund, as well as recent information from the country which is the biggest supplier of newly mined gold, indicate that gold production at present shows record figures. So does private hoarding of gold. The informal cooperation of certain central banks as regards transactions in gold has no doubt achieved valuable results in some respects. Insofar as discouragement of private hoarding is concerned, this cooperation seems, however, to have had very little result. The fact that considerable quantities of gold are used for such a purpose must, however, be considered so unsatisfactory that new means and ways to get a real hold on private gold hoarding should be discussed.

One way might be to consider to what extent the organized dealing in gold is to be at the gold hoarders’ disposal. If the price of gold were determined by the demand for industrial and artistic purposes only, it would certainly be considerably lower than now. The present high price of gold depends on the demand of the monetary authorities for gold and, above all, on the willingness of the U.S. Treasury to buy and sell gold in transactions with foreign governments and central banks at a price around $35 a fine ounce. It seems by no means self-evident that private hoarders should indirectly have the privilege of getting that price whenever it pleases them to dispose of their hoards. One technical means of arranging this could be that the U.S. Treasury decide to reserve its full purchasing price for gold that has been newly mined or else acquired in a satisfactory manner, i.e., does not originate (after a stated deadline) from private hoards. Should such a measure have stronger effects than would be desirable, it would certainly be easy to modify them in an appropriate way.

Statement by the Governor for Viet-Nam—Nguyen Luong

First of all we should like to join in the Resolution of the Board of Governors in expressing our deep sorrow at the death of Mr. Per Jacobsson, who in his lifetime made a generous contribution to the Fund’s activities and to the cause of international cooperation. We should also like to extend our warm welcome to the delegations of new members and our sincere congratulations to Mr. Pierre-Paul Schweitzer, the new Managing Director of the Fund.

We congratulate the Directors of the Fund for the excellent Report they have presented to us. As always, the Report is a document of great analytical value, setting forth concisely the trends of world economic and financial development. The Fund has, on the whole, once again made an exceptional contribution to the balanced operation of the international monetary system and demonstrated its ability to adapt to new circumstances.

The Report of the Monetary Fund dwells on the adverse effects of inflation on economic growth. Its analysis is certainly a most valuable contribution to the policy of the developing nations. Viet-Nam, convinced of the value of monetary stability, is very mindful of the lesson drawn by the Fund from its experiences with inflation. Thus, in spite of a very large military budget, which the Vietnamese people must maintain in order to combat the communist danger, the Vietnamese Government has always endeavored to contain inflation. And, despite the exigencies of a wartime economy, Viet-Nam did not hesitate to simplify the structure of the exchange system; it introduced a monetary reform at the beginning of 1962, the effects of which have already been felt.

Viet-Nam also knows, however, for this is from its own experience, that “monetary stability, however essential it may be in itself, is not enough to ensure harmonious growth,” and that appropriate fiscal and economic measures are indispensable. My Government believes that it has already adopted these measures: a tax system that bears heavily on assets seeking a haven and promotes productivity; substantial incentives offered to private investment, a guarantee to foreign investors. We have just carried out these important measures in spite of our military defense efforts because we know that rapid liberation from underdevelopment is an essential factor in overcoming subversion. However, all of these factors are still insufficient, for there are some problems that go beyond the narrow scope of one nation and are, rather, common to the entire world. Here I venture to place my faith in this great world organization, which alone can find an adequate solution to these problems by crystallizing the various efforts to establish truly efficient international cooperation.

Foremost among these problems we place the one arising from the deterioration of the terms of trade of primary products. It is futile to ask our farmers to try harder to increase production if their efforts are immediately nibbled away by the drop in price of their labor.

Moreover, need I recall the fact that the introduction of substitute products and the institution of protectionist agricultural policies on the part of the industrialized countries generally work to the detriment of the underdeveloped countries? On a practical basis, the instability of the commodities markets affects the Third World’s possibilities of development. The industrialization of a country and the execution of infrastructure projects at a rate that is dependent on a schedule fixed by a plan and which, moreover, demand constant efforts over several years, are continually compromised by the instability of the resources that should make them possible. This serious imbalance is one of the basic difficulties of development in our countries.

It is reassuring to note that these problems are attracting more and more attention from international organizations such as the UN and the GATT. The International Monetary Fund has also introduced measures intended to offset export fluctuations. These measures are a laudable attempt, but their compensating effect, however considerable and beneficial it may be, cannot have full weight in the actual position of the underdeveloped countries: lean years following each other in constant succession, social instability and the subversive activities arising from it and which are in essence one of the evils of a transitional stage of growth—all of these factors explain why there are no real compensating effects.

Thus the strengthening of our balance of payments, the reconstitution of monetary reserves, the attraction of foreign capital, are beyond the scope of our national policies. The only coalition strong enough to deal with these problems would be that formed by the industrialized countries, the poorer countries and the Fund and the Bank, imbued with a deeper concept of international cooperation.

It rests with the new Managing Director and his new team to make this coalition, now so greatly expanded, succeed, and on behalf of my Government I most sincerely wish them success, so that the immense hopes that so many underdeveloped countries, including Viet-Nam, have placed in them may become a reality.

Statement by the Governor for New Zealand—H. R. Lake

First may I express my Government’s deep regret at the loss of the wise and dynamic leadership of Mr. Per Jacobsson, who did so much to extend the influence and usefulness of the Fund, with great benefit to international financial stability.

We welcome the new Managing Director, Mr. Schweitzer, and assure him of our continued support of the principles of the Fund Agreement, and of our determination to press for further liberalization of world trade and payments.

New Zealand has a vital interest in the expansion of world trade—more than a quarter of our national income comes from export earnings. It is natural, therefore, that we are concerned lest any deficiency in international liquidity should lead to a contraction of world trade, or that the measures adopted by major industrial countries to reduce deficits in their external accounts should have a similar result. We appreciate the need for such countries to overcome their balance of payments problems, but it is inevitable that a significant reduction in the balance of payments deficit of a major trading nation, by measures designed to reduce payments in foreign exchange, will entail a corresponding deterioration in the external accounts of other countries.

To the extent that this adverse movement affects only those countries which are at present in surplus or have adequate reserves, the effect on world trade need not be damaging. However, such a result would be highly fortuitous. In fact, countries unable to afford any significant fall in capital inflow and in exchange earnings are likely to be affected.

The countries so affected will in turn take measures to reduce demand for foreign exchange, which will in their turn affect adversely other trading partners. There would be a danger of a cumulative contraction of world trade and of falling commodity prices, which could have serious consequences for the economies of primary producing countries, which tend always to be first and more severely affected by such recessions.

We would hope that the major industrial countries, in seeking to solve their balance of payments problems, will search for ways which will lead to better balance at a higher level of trade and payments rather than at a lower level. In particular, we welcome the Managing Director’s statement this morning that the Fund will itself in the coming months develop and intensify its studies regarding international liquidity.

Attempts to achieve balance by restraining capital flows and curtailing expenditure of foreign exchange could well push world trade and payments into a dangerous downward trend, particularly at a time when the pace of economic growth in some countries has already decreased. If a check to world economic growth is to be avoided, a better international balance in trade and payments should be sought, wherever possible, through expansionary solutions rather than through restrictive measures which might prove to be destructive of international prosperity. Here I would draw attention to paragraph (v) of Article I of the Fund Agreement. In seeking such solutions, the surplus countries might well be called on to make significant contributions.

The records of each year’s activities in the Annual Reports of the Fund show how the Fund has over the years developed improved techniques for assisting its member countries, thereby carrying out one of the main purposes of the Fund, as set out in its Articles of Agreement, namely, “to give confidence to members by making the Fund’s resources available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity.”

In this field, my Government welcomed the creation this year of the new facility to extend the Fund’s support to member countries suffering from fluctuations in receipts from exports of primary products. The New Zealand economy has been gravely affected in the past by sharp falls in world prices of our main exports, 95 per cent of which are agricultural products. While it is the policy of my Government to encourage diversification of production for export by fostering economic manufacturing industries, it seems that primary produce will nevertheless continue to comprise the bulk of our exports in the foreseeable future.

There is no doubt that sudden reductions of export income render most difficult the operations of plans for steady economic growth. Assistance of the kind now available from the Fund will be most helpful, therefore, particularly since exporters of primary products are, in general, the less developed countries of the world.

Statement by the Alternate Governor for Ireland—Maurice Moynihan

I wish first to associate the Irish delegation with the expressions of sympathy and sorrow occasioned by the death of Mr. Per Jacobsson. His loss is particularly felt in Ireland, where he had many friends and admirers since the years he spent with us as a member of our prewar Banking Commission. I should also like to join in welcoming Mr. Schweitzer and wishing him success in his onerous duties.

The informal arrangements of various kinds made during the year by treasuries and central banks to protect the currencies of the industrialized countries against short-term speculative movements are a useful addition to the armory of weapons now available to defend these currencies. Equally important, the arrangements constitute a substantial achievement in the mechanics of international monetary cooperation.

Nevertheless, we join with those who feel that there is need for continuing thought and action to ensure that the payments arrangements provided on a multilateral basis by the Fund remain adequate for the world’s needs. We agree fully with the statement in the Fund’s Report that available liquidity is large if liquidity of all kinds, including access to the Fund’s resources, is freely used to deal with temporary swings in a country’s balance of payments. The psychological factor, however, is very important; if countries believe that present liquidity is not sufficient, or only barely sufficient, the effect tends to be the same as if this were, indeed, the position.

In its discussion of ways to foster growth in the less advanced countries, the Fund Report aptly remarks that the most important contribution that can be made by the industrial countries is to maintain a high level of economic activity and employment. The less developed countries cannot hope to make the progress they desire unless the industrial nations, who constitute their principal markets and are the source of so large a part of their development capital, are making full use of their productive capacity. Unfortunately, the risk of balance of payments repercussions is one of the factors which have inhibited the carrying out of maximum growth and employment policies in some of the major industrial countries.

We in Ireland, therefore, support the Fund’s statement that international liquidity should be sufficient to allow the industrial countries to take the expansionary steps needed for the benefit of their own economies, as well as to assure continued expansion of the world economy. We are glad to note that the Fund intends to keep developments in this field under constant review in order to anticipate the problems that might arise.

Statement by the Governor for Spain—Alberto Ullastres

Let me first pay homage to Per Jacobsson, the Managing Director and Chairman of the Executive Board of the International Monetary Fund, who is no longer among us. His human qualities surpassed even his technical knowledge, which enabled him so competently to manage the Fund. We in Spain have had occasion to admire both of these attributes in our frequent contacts, on the occasion of our admission to membership in the International Monetary Fund in 1958, and in preparing and carrying out the Stabilization Program of 1959.

We may, with good reason, expect the present Managing Director, Mr. Pierre-Paul Schweitzer, to take effective action in order that the Fund may continue to be an important factor in maintaining international economic equilibrium. The statement that he made in his speech to this Board, to the effect that the International Monetary Fund will continue to adapt its action to the needs of the moment, and that it will be open to such reforms as the development of trade and international payments may make advisable, is, in my judgment, of great importance. Even though the situation now and in future may require thorough study as the importance of the problem demands, there is every indication that the road lies in the direction of multilateral action in which the International Monetary Fund will play the principal role. Its experience with the action taken in recent years to increase its resources will be very useful for outlining its future line of action.

Referring now to the Annual Report presented by the Executive Board, I wish to express my satisfaction over the attention it devotes to the problems of economic development, which is an immediate and vital requirement for most of the countries here represented, and a valid theme of our times as well, in the sphere of international economy. It is on this point that I must express my desire that all member countries will take the Fund’s advice and put it into practice.

The developing countries must, of course, move toward liberalization of trade and payments as their individual situations permit. Nevertheless, quantitative restrictions and other remaining barriers to the importation of certain products, particularly agricultural products, may interfere with this policy. It would not, of course, be reasonable to require the underdeveloped countries to relax restrictions on imports, which are often made at abnormally low prices, and consequently seriously jeopardize their domestic industries, when they themselves are encountering difficulties, often irremediable difficulties, in marketing their export products. On this I wish to draw your attention to the peculiar, and certainly quite uncomfortable, position in which some countries—my own among them—are placed as a result of the proliferation of economic associations of regional scope, which, while extending reciprocal preferential treatment to member countries, indirectly discriminate against exports from third countries, thus worsening the latter’s competitive position.

It is therefore the responsibility of the industrialized countries also—and theirs more than the others—constantly to maintain liberal trade policies that will stimulate the progress of the neediest countries of the world, and to avoid creating additional difficulties for the economies of the comparatively less developed countries. This responsibility places upon the industrialized countries an obligation not to fight the inflationary pressures that they might occasionally experience with measures that could affect their imports, particularly that portion of their imports which comes from developing countries.

Now I should like to say a word on the evolution of the Spanish economy in the year that has elapsed since our last meeting. It has been marked by considerable advances in the liberalization of external trade and payments, and by a growing interest on the part of foreign private capital that has been reflected in a substantial increase in foreign investments in Spain.

The high rate of economic activity in connection with the process of gradual liberalization has resulted in an increase of 31.8 per cent in imports, in the first eight months of 1963, over the corresponding period of last year. It is appropriate to mention that in 1962 imports were 44 per cent higher than in 1961. This huge increase in Spanish imports is the consequence of a high rate of productive investment, the situation of full employment now prevailing in our economy, and the changes in the structure of, and the substantial increase in, consumption.

The value of the peseta on the international markets has remained stable, and the International Monetary Fund has been utilizing our currency, I should say normally, in operations with other member countries.

The Four Year Development Plan prepared by the Government will go into effect in Spain in January 1964. The Plan assumes that our economic policy will continue along the same lines, in that the economic system will function essentially on the basis of private enterprise, and will gradually be opened to foreign competition. It also anticipates that effective action will be taken to stimulate the necessary modifications in the productive structures, which will, we hope, be reflected in greater internal flexibility, in better use of material and human resources, and in an increase and diversification of exports. Government action will be directed, with growing intensity, toward investments that will generate external economies and social capital. Lastly, the Development Plan aspires to a substantial increase in the national income and a better distribution of that income in the coming years. To achieve both objectives without endangering economic stability, the Plan includes flexible and appropriate policy measures and the new instrument of income policy judiciously applied.

Statement by the Governor for the United Arab Republic—Abdel Hakim El Rifai

I wish, first of all, to pay tribute to the memory of Mr. Per Jacobsson, the former Managing Director and Chairman of the Executive Board of the IMF. Under his leadership, the Fund adapted its policy to changing circumstances and played a more effective role in the international monetary system. The impressive progress of the activities and resources of the IMF, in recent years, bears witness to this fact. The use of the Fund’s resources has been facilitated to a great extent, and it was made clear that drawing rights in the Fund can be considered as part of the reserves of member countries. He showed great sympathy for the cause of developing countries and was fully aware of their problems and their aspirations. We shall always remember his efforts for the promotion of international cooperation in the economic and financial fields.

I should like also to extend our cordial welcome to the new Managing Director, Mr. Pierre-Paul Schweitzer. On behalf of our delegation, I wish him the greatest success.

The Annual Report provides an excellent survey of the international economic and monetary situation during the past year. It is for me a pleasant duty to compliment the Executive Board and the staff on this important document.

It appears from the Report that the year under review was one of general expansion both with regard to industrial production and world trade. However, some countries were adversely affected by the fall in the prices of certain commodities.

The Fund continued its liberal attitude toward requests for drawing by member countries. Its transactions showed great activity, although they were below the record level of the preceding year. The General Arrangements to Borrow, concluded in 1962 with ten industrial countries, under which the Fund can borrow supplementary resources up to $6 billion, came into effect on October 24, 1962.

The Report of the Executive Directors points out that the existing world liquidity seems to be adequate in the foreseeable future. However, should enlargement of liquidity become necessary, the best way would be “to concentrate on the adaptation or enlargement of the existing multilateral facilities through the Fund” instead of seeking to establish alternative facilities outside. I should like to endorse this point of view, and am happy to have heard a similar attitude expressed by Mr. Schweitzer.

This year’s Annual Report gives more attention than before to the question of developing countries. It is gratifying to read that “the problems of the less developed countries occupy the Fund more than those of the industrial countries, and much thought has been given to the manner in which the Fund can most effectively render assistance to them.”

Reserves of developing countries continued to be inadequate in recent years. These countries continue to encounter many difficulties as a result of the weakness of their export markets, the use of available resources for development and the shortage of external financing. Moreover, they are generally exporters of primary products and suffer from inadequate and fluctuating receipts.

The instability in export receipts of primary producing countries has been actively discussed by the experts of the United Nations and of the Organization of American States. Impressive proposals have been made with a view to mitigating the impact of export fluctuations on the economies of developing countries. At the request of the United Nations Commission on International Commodity Trade, the Fund prepared, in February 1963, a report on “Compensatory Financing of Export Fluctuations.” This report contains the decision of the Fund to create a new additional drawing right which will not normally exceed 25 per cent of the member’s quota. Moreover, the decision refers to the possibility of adjusting the quotas of some primary producing countries in the light of fluctuations in export proceeds and other relevant criteria.

Although the new facility is limited in scope, we are confident that the Fund will continue its liberal policy and will authorize, in exceptional circumstances, larger drawings in the light of abnormal needs of the member according to any suitable criteria. The text of the decision is flexible and the reference to the fact that drawings “will not normally exceed 25 per cent of the quota” implies the possibility of larger drawings, where needed and justified.

The instability in export earnings has also its long-term aspects. Primary producing countries are suffering from the deterioration of their terms of trade as a result of the disparity between prices of raw materials and prices of manufactured goods. These long-term aspects of the problem can be solved by the adoption of more appropriate commercial policies on the part of industrial countries, the conclusion of commodity agreements, and the increase of funds available to less developed countries.

It is the common interest of the international community to ensure an adequate rate of growth in the economies of developing countries. We hope that the international institutions will examine the necessary measures to extend more assistance to countries in process of development. The responsibility for improving economic conditions in less developed regions must be assumed by the international community as a whole. The Charter of the United Nations is significant in this respect. Article 55 of the Charter stipulates that the United Nations shall promote “higher standards of living, full employment and conditions of economic and social progress and development.” It is in this spirit that the General Assembly of the United Nations, in its Resolution of December 19, 1961, designated the current decade as the United Nations Development Decade and urged members to adopt measures that would stimulate the flow of capital to developing countries on satisfactory terms.

It gives us satisfaction that problems of developing countries have received increasing attention on the part of international institutions. We welcome the Resolution of the United Nations for convening a Conference on Trade and Development in March 1964.

I referred in my statement last year to the stand-by arrangement under which the United Arab Republic was authorized to draw to the equivalent of $42.5 million over a period of one year. The U.A.R. Government outlined at the same time the policy measures to be taken in support of a comprehensive stabilization program which involved a reform of the exchange system. A unified and realistic rate of exchange was successfully adopted and maintained. Multiple currency practices were eliminated. Another important development during the year 1962-63 has been the provisional accession of the United Arab Republic to the General Agreement on Tariffs and Trade in November 1962.

Finally, I should like to express our sincere welcome to the members who have recently joined our institutions. I am sure that their cooperation will contribute to the success of our deliberations.

Statement by the Governor for South Africa—T. E. Dönges

May I first join my voice with those who have paid tribute to the late Per Jacobsson. To me his most outstanding quality was his generosity of spirit. A man of many talents, he gave of them all unsparingly to the organizations which he served and to the world. In this it could truly be said of him:

“… For his bounty,

There was no winter in ’t; an autumn ’twas

That grew the more by reaping.”

May I also join in the welcome to our new Managing Director, Mr. Schweitzer. We hope his association with the Fund and its member countries will be a very happy and successful one. I would assure him that, as in the past, my country will gladly cooperate with him and with the Fund to promote economic stability and progress.

The Annual Report of the Executive Directors contains this year, as in other years, a penetrating analysis of international monetary conditions. It is therefore significant that the opening chapter in this section of the Report should bear the title “International Reserves and Liquidity.” I am glad to see that this subject has been placed in the forefront—where it rightly belongs.

There are two sentences in this portion of the Report on which I wish to comment. The first is the statement that “International liquidity should be sufficient to allow these countries [i.e., the industrial countries] to take the expansionary steps needed for the benefits of their own economies, as well as to assure continued expansion of the world economy.” It is not quite clear whether this is intended as a statement of what is desirable, i.e., of what should be, or as a statement of fact, i.e., of what is. But in any case, I wish to make two points. The first is the familiar one that, as the United States succeeds in correcting its balance of payments deficit, so the major source of additional international liquidity in recent years will tend to dry up, unless special measures are taken to counteract this tendency. Secondly, in international liquidity, just as in the internal liquidity of a national banking system, we require not merely a bare sufficiency; we need at least a reasonable margin so as to cover unforeseen contingencies and still maintain confidence.

The second sentence on which I wish to comment is the following: “The quantitative and qualitative adequacy of the international liquidity structure requires continued close attention.” I wish to draw especial attention to the word “qualitative.” The major part of the increase in international reserves in recent years has taken the form of an increase in foreign currency holdings: in other words, the gold component of international reserves has not increased proportionately. This, I believe, is a process which can be continued only at grave risk to confidence in our international monetary mechanism.

At previous meetings and elsewhere, I have argued that a simultaneous, uniform, and substantial change in the par values of all currencies in terms of gold would be of great benefit to the key currency countries, the industrial countries and the developing countries, and would provide the essential firm base for the international monetary system or for any new monetary mechanism which may be evolved. I do not intend to repeat these arguments today.

What I do wish to emphasize very briefly, however, is that such a revaluation of currencies in terms of gold is not, as has been said, a “radical” proposal. On the contrary, it is essentially a conservative proposal, specifically envisaged by the Fund’s Articles of Agreement, and designed to give greater weight to the traditional role of gold in international payments rather than to experiment with new, untried, and perhaps over-ambitious mechanisms.

There are three main forms in which international liquidity may be increased. The first is through an increase, actual or potential, in the supply of foreign exchange, i.e., dollars, sterling, and perhaps certain other currencies. The second is the creation of a new international currency, i.e., claims against some international monetary organization or “world central bank.” The third is an increase in gold reserves, through an upward revaluation of gold in terms of all currencies. I would suggest that only in the case of this third method can we be really sure that the delicate structure of international financial confidence will not be impaired.

The important role of gold in the international payments mechanism is given expression throughout the Fund’s Articles of Agreement. Moreover, as I have often pointed out before, the Articles make specific provision for a uniform change in par values. This provision (i.e., Article IV, Section 7) was not included by accident; the South African delegate at Bretton Woods made a comprehensive statement on this section, pointing out that this approach was “the only one which offered a hope for an orderly change of the relationship between gold and currencies in the future.” No delegation expressed disagreement with this statement. The United States representative did indeed say—quite rightly—that such a change should not be lightly made, but this in itself shows that the Bretton Woods Conference did contemplate such a change at the appropriate time.

We welcome the intention of the Fund to intensify its studies regarding international liquidity, the functioning of the international monetary system and the effective role of the Fund in this field. We propose to avail ourselves of the general invitation of the Managing Director to cooperate in this field by placing at the disposal of the Fund a more comprehensive exposition of our views regarding the place of gold in the international financial system, with special regard to the provisions of Article IV, Section 7.

Statement by the Governor for Paraguay—General César Barrientos

We attend this meeting of Governors of the International Monetary Fund, still somewhat upset over the death of Per Jacobsson, who, in his high office as Managing Director, devoted his ability, his best efforts, and his best intentions to benefiting the free peoples of the world.

We wish great success to his worthy successor, Mr. Pierre-Paul Schweitzer, as the head of this important international financial institution.

We wish to express our satisfaction over the growing importance and influence of this great institution.

The admission of a large number of new member countries during the year 1962 widens to universal size the field of action of this institution that regulates the monetary system. Today, the International Monetary Fund has about 100 member countries, which voluntarily adhere to rules and procedures that will assure greater regularity and order in international trade relations among the peoples of the globe.

If we consider that the free world has gained more tranquility since the crisis of last October, we can be really confident, for the first time in many years, of a splendid resurgence of peace, expressed in fruitful work and cooperation among the nations, and, moreover, we can be sure that the Monetary Fund’s authority will attain the ultimate universality that was in the minds of the founders of the United Nations in signing the historic pact in the city of San Francisco in 1945, which was also a time of full confidence in the peaceful development of all nations.

The figures on transactions during the past year are a clear indication of the immense importance of the Monetary Fund’s role.

The large total of repurchases by member countries, and the greater availability of stand-by agreements for the contracting countries, are also an excellent indication of an encouraging trend toward greater normalization of monetary and commercial relations between countries.

A strengthening of the economy of the industrial powers has, at least, been accompanied by a slowing down of the tragic fall in the prices of raw materials.

We learn from the Fund’s documents that a substantial part of that institution’s attention has been given to measures to help the less developed countries; among these provisions, special mention should be made of the recent decision, made in the course of the year, to create a new form of compensatory financing, up to the limit of 25 per cent of each member’s quota, to make assistance to countries with deficits in their export receipts more flexible.

Considering the fact mentioned in the Fund’s Report, that a relative stabilization in the terms of trade has started among the areas of less developed countries, which slightly benefits the Latin American countries, we take the liberty of suggesting that there is need for a regional approach to economic development programs for the Western Hemisphere. On behalf of the Delegation of Paraguay, we therefore express the desire for coordinated action by the Alliance for Progress and other international agencies in order to create greater flexibility in the accomplishment of their purposes.

We who bear the responsibility of government in the Latin American countries cannot ignore the justified apprehension of our peoples that they will be left behind in economic development.

The obvious need for preferential consideration of the Latin American problems is made clear in the Fund’s Report, in the fact that some 15 out of a total of 21 nonindustrialized countries that have sought financial assistance from the Fund in the past year were in the Western Hemisphere.

Having evidence, therefore, that the authorities of the Monetary Fund are giving preferential attention to the problems of Latin America, we believe that the Monetary Fund deserves express recognition for its keen understanding of the situation.

I should like to mention that the economic problems of Latin America are also those of Paraguay, aggravated by structural situations and geographic determinisms that have placed my country far from maritime transportation facilities and given it less access to the world markets.

Despite these disadvantages, the Government and the people of Paraguay are expending unusually great efforts to overcome these adverse conditions and, to achieve these purposes, undertook projects from 1954 to 1963 that have been radically changing the face of the entire country.

The works already carried out or in process include a program for general improvement of transportation, construction of modern highways clear across the country from border to border, and the acquisition of vessels of increasingly larger tonnage, both for river and for ocean shipping. An efficient agrarian reform and innumerable education and public health projects complete the panorama of changes that have been taking place in my country, to lay the foundations for greater participation in international trade and for closer ties of economic cooperation with the countries of all the continents.

These works of progress, which in the past decade have gone far beyond the accomplishments of the half century that preceded it, are being carried out without recourse to inflationary procedures, in an atmosphere of absolute economic freedom that ensures the full development of free enterprise.

The external value of our currency has been maintained without modification, and statistics show very little fluctuation in the cost of living and the volume of currency in circulation.

Even more outstanding is the new Paraguayan tendency to generate capital through domestic savings. In this regard, I am pleased to point out that, in the past ten years, savings deposits in the banking system increased from ₲ 46.3 million in 1954 to ₲ 941.1 million in June 1963, which is equivalent to a sensational increase of 2,033 per cent in ten years—this is a categorical demonstration of the public’s confidence in the Government and in the climate of peace and tranquility prevailing throughout the Republic.

In the matter of international trade, 1962 brought some relief of the pressure on the currency arising from the deficit on the balance of trade in previous years, a deficit that last year was decreased to a relatively tolerable proportion.

The rectification of the adverse development in our balance of trade is the chief concern of the Paraguayan Government, which is doing its utmost to solve this problem.

Even though, during the past year, it has not sought the Fund’s assistance to the same extent as in previous years, I have the satisfaction of stating that Paraguay considers the Fund’s assistance to be of the greatest utility and importance, and I publicly offer our thanks for the always valuable cooperation received.

In repeating these ideas, I extend sincere wishes for the success of the discussions of this meeting, and also for the happiness and prosperity of the friendly nations here represented.

Statement by the Governor for Congo (Brazzaville)—Edouard Babackas

Congo (Brazzaville) is taking part in our discussions for the first time as a full member; last year it had the opportunity of following them in the capacity of an observer. We are happy and proud to be here again, with so many of our African brothers and so many friends from all parts of the world.

As you know, my country is still underdeveloped, and we shall have to make great efforts to provide the conditions that are essential to its development. Our geographical position makes it quite natural that we should seek international cooperation, and this we are constantly striving to develop with our neighbors, in the interests of all concerned. With the Central African Republic and the Republics of Gabon and Chad, we belong to the Equatorial Customs Union, which maintains close economic ties with the Federal Republic of Cameroon and thus forms, in Central Africa, an area that is favorable to foreign investment.

It is gratifying to us to see today so many countries engaged in attempting to solve the economic problems which they have in common, and to note that the least privileged countries are given priority in the work we are doing. We are hoping that the international conference on world trade, which is to be held in 1964, will make specific proposals for dealing with the problem of fluctuations in the prices of primary products, because, unless such a solution is found, no amount of assistance to underdeveloped countries, in whatever form it may be provided, will be of the slightest use. The question will not be one of improving the machinery of world trade merely to reinforce the inequalities that are to be ascribed to the colonial system. It is our firm belief that the organization of the market for raw materials will call for a new conception of the relations that should prevail between nations, and also for a new exchange structure.

We know, however, that stabilization of the prices of basic products, although a necessary precondition of development, is not sufficient on its own, and we must not lose sight of the fact that the development of the underdeveloped countries on peaceful lines raises the problem of their industrialization, this being a problem which the highly industrialized countries ought to make an effective contribution toward solving. It is our conviction that world financial and monetary institutions will be playing their full historic role only when, and to the extent that, the machinery at their disposal has been adapted as required to expedite, in an effective manner, the growth of the developing countries. The suggestions made by Mr. Woods in the speech that he made in opening our meeting gave us grounds for comfort, and we thank him for having, from the moment when he took office, devoted so much time and imagination to trying to solve, as they arise, all kinds of difficulties, not only in the financial sphere, that prevent the rapid and balanced development of States like our own.

We therefore look forward with confidence to the beneficial results of the activities in which the Fund and the Bank will be engaging in the near future.

We are not forgetting that two exceptional people, Mr. Jacobsson and Mr. Black, prepared the way for these activities and made them possible, and we are sure that Mr. Woods and Mr. Schweitzer will be able, thanks both to the example set by their predecessors and to their own outstanding ability, to continue the activities of our organizations and, when the time comes, adapt those activities to new conditions.

Statement by the Governor for Central African Republic—Charles Bornou

I feel that it is an honor for me to speak on behalf of the Central African Republic at this large meeting, which brings together all the member countries mindful of their own economic and social development.

At the meeting of Governors held in Washington in 1962, the Delegation of the Central African Republic attended as observers; today that Delegation is representing a full member.

I should therefore like to begin by paying our respects to the memory of Mr. Per Jacobsson, and to recall his outstanding qualities and high professional attainments, which enabled him to bring to a successful conclusion the heavy tasks confronting him.

I should also like to offer my congratulations to Mr. Pierre-Paul Schweitzer, his worthy successor. It is the hope of my country that he will follow the example of his illustrious predecessor in providing all the States represented here with the effective help they need to enable them to deal with their currency problems.

I followed with great interest the speeches that were delivered at the opening of this meeting, and I join the delegates of the other States in thanking you warmly. For the benefit of those who do not know this, or are only slightly aware of it, let me say that the Central African Republic is a young independent State, situated in the heart of Africa and having as its neighbors the Federal Republic of Cameroon, the Republic of Chad, the Republic of Congo (Brazzaville), the Republic of Congo (Leopoldville), and the Republic of the Sudan (Khartoum).

This is a vast territory, possessing resources of a most varied nature, chiefly cotton, coffee, and diamonds. The main features of its economy, therefore, consist of agricultural products; although I should draw attention to the fact that the processing of local products represents for us the beginning of industrialization.

As regards means of communication and transport, the Central African Republic has to contend with serious difficulties, owing to its geographical position. In point of fact, both the removal of products exported and the import of goods for the home market are thwarted by the precarious nature of the means of transport and the complications involved in gaining access to the sea.

The building of permanent roads gives rise to serious problems in a country where the rains destroy, within a short time, highways that have been laid out with much labor. As to the waterways, their usefulness is limited, depending upon the season, because of the rapids and of the drop in the level of the water during dry periods.

These obstacles, the disastrous effects of which on the national economy are obvious, have not prevented the development of relations between the Central African Republic and the outside world. In fact, from the time it gained its independence, this young State began to establish international contacts, identifying itself, at first, with Africa within the framework of regional organizations, such as the Equatorial Africa Monetary and Customs Union, and then by continuing its policy of cooperation at the level of the African continent.

I should like at this point to recall the links that have long bound my country to France, and, in particular, the terms of the agreements on cooperation concluded with her at the time of our becoming a sovereign State. It is my duty to point out also that the Central African Republic is in association with the European Economic Community, as was confirmed recently by the signature of the Yaoundé Agreement.

Finally, my country has freely chosen to join the International Monetary Fund, and also the World Bank and its affiliates, with the object of facilitating its economic expansion and the maintenance of its balance of payments.

I have already felt obliged to mention the obstacles which act as a powerful brake on the economic development of my country, and I now revert to them. Indeed, I was particularly interested in the remarks made by Mr. Woods in the course of his first speech as the new President of the Bank. Like him, we are profoundly convinced that it is in the interest of the international organizations to diversify and adapt some of their assistance procedures, so as to meet the needs of the least developed countries in expanding their economies.

In our country, as in other countries with whom we are on friendly terms, or which are our neighbors, we think that the development of agriculture should be given a more important place, and that the terms of loans for certain basic investments, in particular those for the provision of basic services in connection with highways and railroads, should be made more flexible, as regards both their duration and rate of interest. We also think that there is sound reason for allotting a special place in the activities of the Bank to everything connected with education and the training of key personnel, as well as to the assistance provided by the international organizations in the matter of the preliminary studies concerning our main projects or investment programs.

Everything we have just said will show with what interest, what confidence and with what hope, particularly as regards our country, we shall share in the life of our organizations. Furthermore, and in conclusion, I shall take the liberty of expressing the hope that, in view of the great number of member States that normally use the French language, this latter will be accorded a more prominent place in our work, even being accepted as a working language.

Statement by the Governor for Indonesia—Soetikno Slamet

On behalf of my delegation, I would like to associate myself with those who have paid tribute to the memory of the late Mr. Per Jacobsson. I think that I cannot do better than by telling you about my last meeting with him a short time before he passed away. He was then discussing in his very lively way a subject dear to him and to the Fund, namely, the problem of achieving monetary stability, this time in Indonesia, with a view to promoting economic growth and balanced development. We will always remember him as a staunch advocate for sound monetary and economic policy, for avoiding both inflation and deflation for the benefit of a strong and healthy economy. His ideals will remain the ideals of the Fund and its members, as we have learned from Per Jacobsson’s successor, Mr. Schweitzer, to whom I should like to extend my warmest welcome to his important position. We are looking forward to fruitful and beneficial contacts and cooperation with him.

May I also extend my best wishes to Mr. Southard in his position as Deputy Managing Director. He is an experienced hand in the Fund in another capacity, and I am sure that we will all benefit from his experience and judgment.

In the year under review, the Fund reached an important decision last February. I am referring to the possibility of its members having access to a new kind of drawing under the system of compensatory financing. The records of the Fund will show that my country has always pleaded for international action with respect to the well-known phenomenon of short-run fluctuations of the prices of primary products. We would have preferred some bolder device but we are grateful that at long last something has materialized. It was a timely decision because the price of an important commodity like rubber, for example, had gone down rather sharply after a period of moderate stability. I hope that the Fund will continue its study concerning the instability of export markets of some commodities and in due course present to us an even better machinery. …

I should like to restrict myself to these brief remarks but I cannot end before expressing my deep appreciation of the understanding and cooperation we always have had from the Fund. Our contacts have been most cordial, and we have benefited from relationships with both management and staff. …

Statement by the Governor for Turkey—Ekrem Alican

It is a privilege and honor for me to participate again this year with this distinguished gathering as a representative of my country.

Without doubt our hearts are full of sorrow for the absence of Mr. Per Jacobsson, and I would like to express the deep regret felt in my country for the sudden passing away of this very noble and very able Managing Director of the Fund. With his death, not only has the economic world lost a great leader, but also the member countries of the Fund have been deprived of a champion of free world trade and sound monetary policies.

I would like to welcome and congratulate Mr. Schweitzer to his new assignment, which we are confident he will perform with the same competence and proficiency as his predecessors.

We also extend our thanks to Mr. Southard, who carried out with competence the difficult task of managing the Fund until the assignment of Mr. Schweitzer.

My Government, which follows a stable economic development policy with the cooperation and assistance of the Fund, is closely in touch with this international institution. It gives us pleasure and satisfaction to observe that the Fund has continued to make strides toward the accomplishment of its main objectives, namely, furthering the international monetary cooperation and expansion of free international trade. Concrete examples of this achievement can easily be found in the Annual Report we have before us.

We heartily welcome the strengthening of the Fund’s resources by the General Arrangements to Borrow through the participation of ten industrialized countries. We are confident that facilities created by these arrangements will give the Fund more flexibility in providing assistance to member countries.

We also welcome the recently adopted system of financing export fluctuations which may be created by temporary shortfalls in receipts from exports. As Mr. Schweitzer pointed out, primary producing countries will benefit greatly from this new drawing facility. This new system will also help to increase the international liquidity which, in turn, will result in greater international trade, thereby benefiting the less developed countries.

However, it should not be forgotten that although the primary producing countries enjoyed stable prices for their exports during the last year, contrary to previous years, the basic problems of these countries continued to exist. As a matter of fact, these countries are still faced with the tremendous task of materializing their economic development while maintaining sound monetary and fiscal policies.

As it has so many times in past years, the Fund has again supplied short-term fiscal assistance and technical advice to less developed members to support their efforts in achieving economic stability, the most important basis for development.

Turkey is a country making great efforts for economic stability and has succeeded in the implementation of a program designed for this purpose. Furthermore, she worked out and put into effect a five year plan to realize her economic development. I would like to add here that the Consortium for aid to the Turkish plan, sponsored by OECD and participated in by friendly nations and institutions, has been and is being a substantial support for our development efforts. We happily see that the Fund is also doing its utmost to assist the Turkish economy.

I would like to express once more our appreciation to this international institution for its invaluable efforts in achieving monetary stability and planned economic development in my country.

In conclusion, I would like to avail myself of this opportunity to welcome heartily the members of those new nations which joined the Fund during the past year.

Statement by the Alternate Governor for Ceylon—D. W. Rajapatirana

At the outset I wish to support the warm tributes paid to the work of the late Per Jacobsson and join with others to welcome his successor, Mr. Pierre-Paul Schweitzer, who, in his first statement at these annual meetings as Managing Director, has given us a glimpse of his wide vision and deep interest in the affairs of all our member countries. May I also take the opportunity to say how warmly we welcome the forward-looking statement made by Mr. George D. Woods, President of the World Bank and its affiliates, and await with interest to see its implementation.

We have again the privilege of visiting this beautiful city, Washington, renewing our friendships and acquaintances with our colleagues and with the Fund staff who, if I may say so here and now, have quietly and efficiently gone about their duties, in the year that has passed, to ensure, within the limits of their authority and under the direction of the Board of Executive Directors, a better world monetary order. Whether that monetary order is in perfect shape, nay even in acceptable or satisfactory shape, is often questioned at these annual meetings, sometimes resolved, and at other times put off for consideration on another day.

The present character and structure of the Fund may be said to stem largely from the Inaugural Meeting at Savannah in March 1946. Much water has flowed under the Potomac bridge in Washington since then; many member countries, particularly the industrial countries, have seen their economies advance from strength to strength; some have even achieved miracles in their growth rates. Economic affluence is now a fact of life not only in the United States, which gave currency to this term, but also in Great Britain, in Western Germany, in France, in Italy, and, in eastern regions, in Japan, among other countries.

Yet the faint distant signs of disquiet are beginning to be felt in a number of these very countries. The remedies are, however, better understood perhaps, and the tools are better perfected to deal with these situations. But there still remains the great doubt whether the remedies that are to be adopted by these affluent countries can be such as to favor an advance forward throughout the whole world economy. Certainly the new monetary cooperation, largely among central banks—a feature which will go down as unique in future annals—and, for the time being, the presence of sufficient reserves, as well as the present liquidity of these reserves, has allayed disquietude by rising from stagnation to vigorous growth in recent times. That seems to be the position in regard to the industrial and more affluent countries. It is natural in these circumstances that these countries should turn to question from their viewpoint the world monetary order to meet the new situations that are likely to arise.

What is the position of the far greater part of humanity, as in the case of the less developed member countries of the IMF? Disparities in economic growth in the two classes of our members are widening and not narrowing, despite the fact that in recent years the problems of the developed and the underdeveloped have been the main preoccupation of contemporary economic and social conferences. A hundred well-known economists met at Rio de Janeiro in January 1963 and raised doubts as to whether financial stringency, as generally advocated by those in the “monetarist” school, is the cure for all inflationary situations. The ever-present vicious circle of low per capita income, low savings, low capital investment, low rate of growth cannot very easily be resolved. But the low prices in general of the primary products of these poor countries, compared to the advancing prices for most of the industrial goods of the affluent countries, are making the position still more difficult. This position is now becoming, not a short-term feature to be resolved by short-term measures, but possibly a feature that requires more fundamental action which will benefit both the industrial countries and the less developed countries in the expansion of their trade and consequently their income.

Statistics show that, between 1950 and 1960, the volume of exports of the less developed countries increased by some 52 per cent while their importing power increased by no more than 44 per cent. Taking account of population growth, the increase in importing power per capita was hardly 15 per cent. If export receipts of oil are excluded, the figures would be much worse. We heard, during our current discussion, the position of one commodity which is very important to the member country concerned and to a number of others. The commodity was rubber; it was shown that while in that country export production of that commodity increased by 18 per cent, the export value decreased by 14 per cent. The Governor for that country, Malaysia, on the other hand, adopted in these circumstances the characteristic expression: that these countries have to run in order to stand still. I would, however, go further and say that in standing still we run the danger of falling backwards. The Fund has not been slow to note this position, for it says:

… many of the less developed countries live, in a sense, from hand to mouth in their international transactions … their reserves are often so low that even allowing for their potential for drawing on the Fund and other sources of credit, they cannot afford to run large deficits even temporarily, as major industrial countries generally can. Disequilibria in their international transactions are therefore much more often reflected in depreciation of their currencies or changes in trade and other restrictions.…

Working in a democratic society as most of our countries do, no Finance Minister can avoid a pragmatic approach to the problems thus arising from the very lack of rapid economic growth. A remedy he can see is one which can be accomplished only through a profound social transformation leading to the mobilization of available human and material resources for the benefit of society as a whole.

It is very gratifying to note that our new Managing Director of the Fund has stated in his speech:

… it is vital that ways be found to improve the exchange earnings of the less developed countries, on which they depend to finance both their growing import demands and the service of their growing foreign debt.

I would go further and say—using a characteristic expression of Professor Charles Kindleberger—that enlightened self-interest would require that the affluent countries find the solution to this complex problem, not at some distant time, but right now at the beginning of what has been termed, by the United Nations, the “Development Decade.”

In the desire, quite rightly, to evolve a better monetary order and to conduct studies to that end as foreshadowed and reflected upon in many of the speeches at the present discussions, let us not forget the crying need of the day to provide meaningful assistance to the solutions of the problem of the less developed countries. Let not the problems of these less developed member countries be allowed to fall by the wayside, either by insistence on orthodox solutions which are not practicable, or in the search for a better monetary order by the affluent members.

If the problems of the less developed countries do fall by the wayside, there would be no meaning to the resolution of the United Nations—and the Fund is an agency of the United Nations—to term this period, the “Development Decade.” Therefore, let us hope that both the affluent and the nonaffluent, together with the Fund and the World Bank, all march forward in a common endeavor to achieve for all humanity a happier world on this planet of ours, the earth, which incidentally should not be forgotten in the quest for a world outside.

Statement by the Governor for Libya—Khalil Bennani

My Delegation regards the Annual Meeting of our Board of Governors as an important opportunity to review significant developments in the international economy and to evaluate the role played by our international institutions in promoting the progress of national and international economic activities. We are very pleased to note that the membership of our organization has grown substantially during the year under review. On behalf of my Delegation I wish to extend a hearty welcome to all member countries who have joined our cooperative efforts since our last Annual Meeting.

We feel with deep regret and sorrow the absence of Mr. Per Jacobsson from our gathering. His sudden death last May was a great blow to us all who have come to regard him as a great source of knowledge and wisdom on international finance and international cooperation. I am certain that his able leadership in the management of the International Monetary Fund and his intellectual contribution to our Annual Meetings, will occupy a prominent place in the history of our organizations.

In looking to the future, my Delegation welcomes the election of Mr. George D. Woods, as President of the Bank and its affiliated organizations. We also note with pleasure the selection of Mr. Pierre-Paul Schweitzer for the post of Managing Director of the Fund. May we wish them success in their efforts to continue the wise policy and dedicated leadership, which were so amply demonstrated by their outstanding predecessors, Mr. Eugene Black and the late Per Jacobsson.

The last Annual Reports of our four international institutions demonstrate once again that genuine and wide international cooperation is the primary prerequisite for sustained world economic progress and financial stability. The increased cooperation on monetary matters among several industrial countries and the greater role played by the International Monetary Fund in the field of international payments have given us reasons for more optimism with regard to the stability of the international money markets and the adequacy of world reserves. The recent creation of the so-called “gold pool” for stabilizing the price of gold, the credit arrangements among central banks in the industrial countries, and the progress made in making the necessary adjustments in the balance of payments positions of the major capital exporting countries represent remarkable achievements, which give rise to greater confidence in the strength of the major reserve currencies. The Fund’s General Arrangements to Borrow, which came into effect in October of last year, should strengthen its ability to counteract international payment disturbances. All these important developments have strengthened the ability of the international financial system to offset and restrain speculative pressures against any major currency. This, in itself, is a source of great comfort to all countries whose reserves are largely composed of these major currencies.

It is indeed heartening to note that the last Annual Report of the Fund gives a clear recognition and constructive discussion of the major problems confronting the less developed countries. Those of us who have in the past urged the Fund to take a more active part in finding adequate solutions to the problems of the less developed countries can take comfort from the contents of this year’s Annual Report, which lays special stress on the problems of sustained economic growth and the payments problems of the less developed countries. We sincerely welcome this significant and much-needed change in the attitude of the Fund toward the problems of economic growth in the less developed countries. Thus, in discussing the problems of raising the exports of the less developed countries, the Annual Report of the Fund states, on page 72, that “The scope for useful action on the part of the less developed countries to promote their exports lies primarily in the diversification of exports, particularly in the development of new lines of semimanufactured and manufactured products for export, and in the reduction of the need for imports by the production of import substitutes.” This is a remarkable departure from the old doctrine of strict specialization and the principle of comparative advantage in international trade which have, until recently, characterized the attitude of the Fund in dealing with the problems of the less developed countries.

As the Annual Report of the Fund indicates, the chief problems confronting the less developed countries are still connected with inflationary tendencies, instability of exports, limited access to world-wide markets for their exports, deteriorating terms of trade, shortage of investment capital, and insufficient technical knowledge and managerial skills. These are not new problems, but it is significant to note that our international organizations can play a vital role in finding new solutions to old problems. The creation of compensatory financing of export fluctuations, approved by the Executive Board of the Fund last February, marks a significant step in the evaluation of the role of the Fund in extending badly needed assistance to the less developed countries. A further expansion of the Fund’s training program and other forms of technical assistance to the less developed countries would undoubtedly be welcomed by all members concerned. …

I shall conclude my statement with a short review of the major economic and monetary changes which have taken place in my country since our last annual meeting. Undoubtedly, the most important change, affecting the long-term development of our economy, was the amendment of our Constitution which unified our form of Government by eliminating the federal system. Now that the authority for economic and financial policies is centralized, the ability of government to guide and promote genuine economic development is strengthened more practically.

The old Development Council has also been reorganized by the establishment of a National Planning Commission, consisting of several members of the Cabinet and chaired by the Prime Minister. The technical functions of the old Development Council have been taken over by a new Ministry of Planning and Development.

In the monetary field we adopted a significant change early this year by amending our basic banking legislation in such a way as to give the Bank of Libya the full authority normally given to a central bank. The necessary administrative and technical organization is now being established. The objective is to enable the Bank of Libya to make use of all appropriate central banking techniques which will assist the Government in the implementation of sound economic development plans and the maintenance of internal financial stability.

We are pleased that the petroleum sector of our economy has now developed to a point where exports are at a level of about 400,000 barrels per day. It is expected that the future development of oil exports should give us the necessary financial means with which to develop our manpower and natural resources. A comprehensive Five-Year Development Plan was approved by Parliament only a few months ago. The Plan calls for an over-all expenditure on development amounting to £L 169 million, which is the equivalent of $473 million.

The largest expenditures in the Plan will be made on the development of agriculture, communications, education, health, and social welfare. The Government is also keenly interested in the promotion of local industries and, for this purpose, our industrial development organization was established last December.

We fully recognize, on the other hand, that oil can only give us some of the means with which to develop, but not development itself. In order to achieve the objectives of our Development Plan, we hope to gain in equal measure a variety of skills and administrative organizations. We also realize that these skills cannot be developed overnight and that considerable external assistance will be required. In this connection, we shall expect much from the technical resources of the Bank and its affiliates as well as the Fund. Our participation in these institutions has always been based on the premise that they represent an example of international cooperation with regard to the channeling of the world’s financial and technical resources where they are needed most and where they can give the greatest possible return. Let us all hope that this remarkable example of international cooperation will grow in strength and spread to other areas of international relations.

Statement by the Governor for Brazil—C. A. Carvalho Pinto

I am particularly pleased to be present at this Annual Meeting of the Boards of Governors of the International Monetary Fund and the International Bank for Reconstruction and Development and its affiliates, in view of the prospects which are now being opened to member countries for solving their internal and external problems on better terms, perhaps, than those conceived at Bretton Woods. The presence, for the first time, of the new directors of the institutions assembled here assumes added importance for that reason. And on this occasion, when new directions are being suggested for achieving our common objectives of economic development within a context of social stability, we must express our gratitude to all those who, in the difficult years since the last war, have worked on the arduous task of improving the operation of our organizations.

I must, however, express my deep sorrow at the absence of Per Jacobsson, whom we all miss deeply. He symbolized the thinking peculiar to the statesmen of his native Sweden. He was a true internationalist, and his lofty ideals and unequaled intellectual capacity were clearly evident in the performance of his high functions at the International Monetary Fund.

We are also convinced of the incalculable significance for the Fund and its members, particularly the developing countries, of Mr. Pierre-Paul Schweitzer’s appointment to this important executive post. The professional skill he has demonstrated in handling difficult problems assures the Fund’s team of excellent technicians of decisive and adept leadership in the solution of the problems they encounter in the area of their work.

Keen expectation also attaches to the administration of Mr. Woods, in view of the long career he has devoted largely to commercial and financial problems. The accurate analysis he presented in his opening speech shows an uncommon depth and identification with the problems of the developing countries, and the measures he outlines bring new hope that the World Bank will play a more active part in channeling long-term capital to those countries.

Features of Underdevelopment

Among the most characteristic features of our time is the awareness that now exists of the problems of underdevelopment. The so-called underdeveloped areas now realize the limitations confronting them in breaking the vicious circles created by low per capita income. They are also aware of the difficulties facing them in respect to their relatively unfavorable position in the world setting.

However, a more systematic investigation of the conditions peculiar to each underdeveloped area has been lacking. The thematic treatment of underdevelopment is undeniably contributing to substantial progress toward the understanding of the problems relative to the backward areas and, in particular, facilitating a better understanding and analysis of the widening gap between per capita income levels of these areas taken together and those of the developed areas as a whole. But, on the other hand, this treatment has also contributed to the neglect of acute problems peculiar to each of these still unsatisfactorily developed countries.

A better knowledge is needed of the facets of underdevelopment, which is characterized by permanent exchange difficulties, inflation, and external depreciation of the currency, and socially by inevitable conflict with the established order, along with the ensuing zeal for emancipation on the part of the affected populations.

The national economy in developing countries generally has a dualistic character: a rural structure, with underemployment of the active population in primary production, and an urban economy in which the population is principally engaged in secondary and tertiary activities and which finds it difficult to absorb migrations from the rural sector.

On this structure of production is superimposed that of foreign trade in which exports are made up almost entirely of agricultural and mineral products originating in domestic nonurban activity. The exchange receipts obtained from these exports are subject not only to the known short-term fluctuations of the commodity markets but also, in the medium and long run, to low levels and an inadequate increase of external demand and to deterioration of the terms of trade. As President João Goulart of Brazil emphasized in a recent speech before the Congress of Uruguay last April, underdeveloped nations such as Brazil would in the long run have to export more and more—because of lower and lower prices—to obtain the resources essential for purchasing production goods and manufactures at increasingly higher prices.

Subjected to political pressure by the clamor of just demands for higher standards of living, the governments of the underdeveloped countries are tackling the urgent problem—as did the Brazilian Government—of adapting the legal and social institutions and the entire infrastructure of the country to a process of real economic and social development intended, in the last analysis, to decrease the disparities in income levels, both internally and externally.

The process of economic expansion of underdeveloped countries has in itself a tendency to generate inflationary pressures. The normal aspiration of the masses of the people to improve their standard of consumption as rapidly as possible, fully aware of Keynes’ warning that “in the long run we are all dead”; the ostentation of the wealthy classes; and the imitation of the pattern of consumption of the advanced countries—all these cause the inflationary impetus to germinate and develop, as the demand for goods and services tends to increase more rapidly than the possible expansion of supply.

Without intending to exhaust the list of factors which make the economy of an underdeveloped country vulnerable to inflation, I must mention just one more that is of singular importance for the countries which, although included in this category, have already achieved a certain degree of industrial development. This factor is represented by the efforts of import substitution to which these countries resort in the face of difficulties in expanding their purchasing power abroad. The intensification of urban activities which this substitution involves is not supported by an increase in production of foodstuffs and raw materials in rural activities. In addition, the process is carried out, or at least begun, under the Government’s protection, either through customs barriers or exchange and import restrictions, or through the granting of credit for the formation of a large proportion of the working or fixed capital of the enterprises. New inflationary pressures are thus generated. This stage of industrialization and the need to overcome it—since it arises, in the last analysis, from the fact that the export of primary products cannot possibly provide the economic development which is politically demanded—serves to aggravate even more the problems inherent in the task, already difficult in itself, of forestalling or reducing the rate of inflation.

Brazil’s Position in Relation to the IMF

A rapid glance at some fundamental aspects of the problems of Brazil will facilitate study of the relations of the underdeveloped countries with the Fund, in view of the similarities shown by such countries. I must remind you, at the outset, of the vast dimensions of my country. The long distances and the existence of large unpopulated areas require massive investment to promote the economic use of the territory. The Brazilian population is increasing at a rate exceeding 3 per cent per year; this increase of more than 2 million persons per year requires new basic investments for subsistence purposes, such as investments for the production of foodstuffs and in housing, education, health, not to mention the need to create close to one million jobs annually.

Moreover, the economic setting of Brazil is characterized by substantial regional imbalances, which are at times difficult to correct, since incomes frequently depend on the export of one or two primary products.

Once the point is accepted that underdeveloped countries are inflation-prone, largely as a result of their export structure and the primary product market instability, the Fund should take into account the nature of the causes responsible for the disequilibria in the balance of payments of those countries which seek Fund assistance. Accordingly, the Fund should establish selective criteria for the use of its resources by nonindustrialized countries, without necessarily relating the assistance with stabilization programs.

It should be noted also that the marked progress of the secondary sector of our economy in the last thirty years has not had the expansionary effect on the agricultural sector that might be expected. This is due to the rigidity of the agrarian structure and the insufficient levels of capitalization and technology in agriculture, it being no secret that obstacles in any country are difficult to remove in a short time, in view of the resistance formed throughout the socioeconomic structure. It is not my intention, to be sure, to present the economic and financial situation of my country in detail at this meeting. I wish merely by bringing out these conditions and circumstances to offer a true picture of the efforts of various other underdeveloped regions, for a better adjustment and greater assurance in the implementation of Fund policies toward the achievement of its objectives.

And in this connection it can be noted that the International Monetary Fund has made substantial progress in recent years. Greater flexibility has already been shown in the consideration of problems of balance of payments disequilibria. The Fund’s resources have been increased. It has enlarged its experience in the treatment of balance of payments problems of underdeveloped countries. Its relations with various member countries, including underdeveloped countries, have become routine matters rather than emergency actions, as was the case up to a few years ago. Further, in February of this year, the Fund established what has come to be known as the “fifth credit tranche”—a special mechanism of which my own country recently availed itself to attenuate difficulties arising from the sharp fall in the prices of its principal export products.

Another aspect related to the arrangements of the Fund with its members is noteworthy, i.e., the well-known influence that it has on the lending attitude of other international organizations and financial agencies of creditor countries; any difficulty in implementing a stabilization program along the lines prescribed by the Fund may discourage financial assistance from abroad. This may bring about serious problems to the developing countries, as has already happened in the past.

In this respect it is just to mention the attitude of the Inter-American Development Bank, which has contributed significantly to the progress of Latin America. The greater flexibility in the use of the resources of the Fund and Bank suggested by Messrs. Schweitzer and Woods may reduce the possibility of the problem mentioned above and bring about better conditions to the bilateral relations between each of those institutions and their members, and promote a growing international cooperation.

Brazil and Compensatory Financing

Consideration of the influence of the export and import system on economic development, especially its financial aspects, leads us to a study of the proposals of the United Nations and the Organization of American States with respect to compensatory financing of shortfalls in export earnings from primary commodities, as well as the establishment by the Fund of the so-called “fifth credit tranche” for the same purpose.

As we know, seasonal or short-term instability of export earnings of primary producing countries may be approached from two angles: that of fluctuations from a long-term trend or that of fluctuations from the level reached in the immediately preceding years.

The first approach has not been given much attention by the groups established to study the problem and, as far as I know, there are only a few paragraphs on the matter in the documents and reports of the Commission on International Commodity Trade of the Economic and Social Council of the United Nations, and in the statements of the Brazilian Delegation at the Fourth Meeting of Governors of the Inter-American Development Bank.

The second approach has been considered with the objective of establishing machinery for the international compensatory financing of the export shortfalls of primary producing countries. The efforts to solve this problem are based on intergovernmental commodity agreements and arrangements, or various methods of compensatory financing of fluctuations of export receipts from such commodities. Some of them are already in operation, such as the establishment of foreign currency reserves, drawings on the Fund, and loans granted by official and private credit institutions of the industrial countries.

The glaring deficiencies of the existing instruments for international compensatory financing have also led to the investigation of other solutions. Two proposals are especially noteworthy—that of the United Nations and that of the Organization of American States. These proposals were evaluated by the UN Commission on International Commodity Trade at its last three annual meetings. Although this Commission sees advantages and disadvantages in both of them, it did not approve them.

Both schemes having been rejected, the problem of the instability of export earnings of the underdeveloped countries probably would have remained permanently unchanged if the International Monetary Fund had not created certain facilities for compensatory financing last February through its Executive Board, and thus increased its ability to assist primary exporting countries.

The Fund found that it was possible to render this assistance, in addition to normal access to the credit tranches, if the shortfall in export receipts was of a temporary nature and largely attributable to circumstances beyond the control of the requesting country, and if the requesting country continued cooperating with the Fund in an effort to find appropriate solutions to its balance of payments problems.

I wish to place on record the favorable attitude of the Brazilian Government to that decision, since it was, as I pointed out before, a constructive step in meeting the needs of underdeveloped countries arising from short-term fluctuations in their export earnings. At the same time, I must also record my conviction that these new measures, although very helpful, are still inadequate. They make no contribution toward decreasing or eliminating the causes of instability when it is measured in terms of fluctuations from a declining trend in the level of export receipts from primary products. This view, incidentally, was expressed by the Brazilian Delegation at the 11th Meeting of the Commission on International Commodity Trade, held in New York last May.

The Problem of International Liquidity and the International Monetary System

I wish to conclude with some observations on the present international monetary system. The criticism which has been directed at this system for a number of years is being renewed in the presence of the cumulative balance of payments disequilibrium of the two countries whose currencies form the basis of the present structure—the dollar and the pound sterling.

As the risks inherent in the system were becoming more obvious, these disequilibria also operated to bring about a disproportionate increase in international means of payment as a whole. Thus, in the short run, the problem of international liquidity might be relegated to second place; this would not be the case in respect to the long run as the adequacy of the international monetary system assumes greater relative importance, and we note with satisfaction that it was one of the focal points of President Kennedy’s speech in opening this Meeting.

In working out a new charter to govern international exchanges—which is considered necessary—we must consider not only the experience acquired in the postwar period but also the possibility of observing in the international sphere the change which has taken place internally in the very concept of money.

However, control of the expansive trend of national incomes under a more flexible system of control of international liquidity, which militated against the Keynes plan in the discussions which preceded Bretton Woods, involves difficulties. It can be asserted, nevertheless, that the transformation of the International Monetary Fund into an international credit organization, on conditions which would provide credits to countries in temporary balance of payments difficulties, would perhaps be a recommendable course. It is clear that pressure on the external sector arising from creation of income over and above national spending capacity ought to be neutralized by internal measures, and the balance should be absorbed by a change in the exchange rate, all in consonance with the prevailing political and social order.

The ideas just expressed could represent a step forward in the rational utilization of the resources which the economy has always made available to the framers of an international monetary policy. Thus, when it is suggested that a study group be formed to examine the interrelated problems of the international monetary system and international liquidity, I hope that the above considerations will help to place in a more suitable perspective the economic problems of the external sectors of the countries which now hold international reserves and of the countries which are not yet industrialized.

We understand that an analysis of economic problems should examine facts in terms of goods and services, i.e., it should remove the monetary “veil” which sometimes produces unmistakable distortions. The objective of all the countries represented here should be to ensure increasing levels of income and employment, not only for developing countries but also for those which are already developed, thereby guaranteeing a stable basis for expanded international trade.

We must not, to be sure, become prisoners of our own creations. We must reason on the basis of the recognition that national and international monetary institutions cannot function efficiently or achieve their own purposes if international equilibrium is to be achieved at the unfair price of a decline in incomes in member countries, arising from lower prices for their primary products or reduced activity in the industrial and services sectors.

I have the honor to express to this Meeting the desire of the Brazilian Government to cooperate with the International Monetary Fund and the International Bank for Reconstruction and Development and its affiliates in the efforts to find solutions to world economic problems, and in the implementation of those solutions which are found to be most appropriate.

I have attempted to show this desire for cooperation by submitting to the Governors and the Directors of the Fund and Bank certain specific subjects and problems peculiar to the nations which are struggling to increase their standard of living, bearing in mind the widespread opportunities for international economic cooperation, and firmly convinced of the extraordinary scope for action which economic and financial institutions may have in this field.

In closing my remarks, I wish to rejoice with the organizers and the participants in this meeting at the convincing evidence presented that, on the basis of increasing understanding of mutual problems, horizons are widening for broader international understanding in the interests of peace, harmony and prosperity among nations.

Statement by the Temporary Alternate Governor for Pakistan—Syed Amjad Ali

May I on behalf of my delegation, extend a very hearty welcome to the new members which have joined the International Monetary Fund and the International Bank and its affiliates.

I would also like to join the Governors who have welcomed the appointment of Mr. Schweitzer as the Managing Director of the Fund and to say that we are gratified to know from him that the policies and practices of the Fund are not static; they have been modified and adapted and can be further modified to enable the Fund to play an effective role.

Those of us who have been associated with international organizations have learnt to be patient, as advocated by the President of the United States last Monday. We have seen how slowly move the wheels of international action. Allow me to mention a few instances.

In 1952 a group headed by Mr. Nelson Rockefeller recommended in their report “Partners in Progress,” among other things, the creation of buffer stocks to reduce high fluctuations in commodity prices. At the meeting of the ECOSOC that year, the desirability of financing by the Fund of the buffer stock scheme was put to the Managing Director of the Fund by me from the chair, as this would help the less developed countries in reducing the possibility of their getting into balance of payments difficulties. The Managing Director placed the suggestion before the Board for its consideration, but it was rejected, as it was ruled that the charter of the Fund did not visualize the financing of such transactions. After 11 years, the Fund has agreed to give special consideration to the commodity export problem of the developing countries. This special consideration—compensatory financing—is a hesitating, faltering half-step which may help some countries, but still leaves the basic problem unsolved and unresolved. The Fund’s action comes into play after the horses are stolen. We want the Fund to avert the theft instead of lending us money to buy new horses.

In the same year 1952, as President of the Economic and Social Council, I tried to persuade Mr. Trygve Lie to initiate action for the holding of a world trade conference. The Secretary-General considered the time inappropriate to think of such a conference, as the Korean war was still on. I pointed out that it would take at least two years to prepare fully for such an important conference, as without adequate preparation it might meet the same fate as the first world trade conference called by Prime Minister Ramsay MacDonald in 1933.1 am glad that the United Nations Conference on Trade and Development will meet in 1964. We look forward to its deliberations and wish that the developed countries will take the two-pronged action mentioned by the Managing Director of the Fund in his speech of Tuesday. It is essential that they allow simpler manufactures of the developing countries to move freely, so as to enable them to repay the loans they are borrowing for their development. It is only by buying more that they can hope to be repaid.

The developing countries for years to come would only be able to manufacture simple things. And even in these if there were continued competition from developed countries, what chance is there for them to increase their exports? I would like to mention only one item which developing countries develop as soon as they lose their tails, namely, cotton textiles. In the year 1961 the total world import of cotton textiles was 5,610 million square yards. Out of this, the developing countries only supplied 1,234 million square yards and the balance came from the developed countries. So even in simple manufactures like cotton textiles the developing countries are way behind and have to fight every inch against restrictions, quotas, and competition. Here I would like to digress for a moment to highlight “Operation Restrictions.” In the good old days, people indulged in cockfights with great enthusiasm. They walked miles and miles with their champion roosters to stage a fight which at times generated so much heat that it left a few with broken heads. In our present-day civilized and sophisticated world, we only indulge in wordy brawls when our dead chickens fight the dead chickens of another country. Such are the marvels of our scientific age, that we manage to wage wars, not mere fights, with lifeless birds.

The second required action is in regard to the maintenance of a fair price level for primary commodities. How important this is would be evident from a figure which I will quote, and which was mentioned by the former Executive Secretary of the Economic Commission for Latin America during his visit last month to Karachi. Dr. Prebisch stated that a computation was made in regard to the terms of trade of Latin American countries from 1955 to 1960. In these five years Latin America lost $7.1 billion due to adverse terms of trade. In this same period the total inflow of capital of all kinds was $7.8 billion. If the terms had not been unfavorable, Latin America would have had $7.1 billion of its own and another $7.8 billion which came as loans and equity. It is needless to stress how different would have been the picture of the economies of these countries with $14.9 billion against the actual figure of $0.7 billion. So, the developing countries must be assured of fair prices for their commodities, otherwise they will continue to lose on what is theirs and also lose on what is not theirs.

The third illustration of delayed action was the coming into being of other international finance institutions besides the Bank and the Fund. As early as 1950, a resolution was sponsored by me in the Economic Committee of the United Nations to investigate the necessity of a UN fund to finance projects in the underdeveloped countries. Since then have come into being the IFC, the UN Special Fund, and the IDA. No one is more happy than my country at the establishment, working, and operations of these three much-needed and useful institutions. The IFC, with its recent amendments, perhaps could be able to raise the necessary funds, but the Special Fund and the IDA will require much larger resources than they have in sight at present. The Secretary-General of the United Nations and the President of the Bank are doing their best to augment the present resources of these two institutions, but the well-to-do countries have their own budgetary problems.

May I, in this context, refer to the eloquent speech by the President of the United States delivered to the General Assembly last month. The President offered collaboration with the Soviet Union in going to the moon. It is readily understood why great nations would undergo vast expenditures of billions of dollars to reach the moon when one is out to beat the other in this race. When there is to be no competition in this sphere but, I hope, collaboration, then it cannot be appreciated why such colossal sums should be spent to gratify man’s age-old wish of reaching the moon. After all, it is an eerie, cold, desolate, and dead planet. Why not utilize the same money on the living—the millions and millions who just barely live in poverty and squalor? Give them the benefits of our age, make them happy, educated, and healthy. The moon will be there for a long time. Why not wait till these millions could also contribute their pennies and have the satisfaction of participating in the age-old wish of reaching the moon?.…

Statement by the Governor for Trinidad and Tobago—A. N. R. Robinson

I wish to express on behalf of my Government our pride and gratification on having achieved membership of the Fund and the Bank only a few days before the annual general meetings. Our pleasure has unfortunately been somewhat dissipated by the sad news, which we have been receiving during the past few days, of damage done by a most unusual hurricane in our homeland. This emphasizes the variety of situations which confront countries such as ours.

We are fully aware that we have achieved membership at a momentous period in the life of the Bank and the Fund.

Even prior to achieving membership of both institutions we were impressed by the quality and the sympathetic understanding of the members of the staff with whom we have had the pleasure to come in contact, and I wish to place on record the prompt and willing assistance we have at all times received, which alone made it possible for us to participate in these proceedings.

Trinidad and Tobago is a small country of less than one million people, highly dependent on trade, and sustained largely by the export earnings of petroleum and petroleum products. Within recent times we have developed a fairly rapidly growing manufacturing sector, stimulated by a wide range of fiscal incentives and a steady inflow of private capital.

Our growing diversification has been matched by the increasing diversity of our problems, which make it difficult for us to fit into the usual categories of the developed and the underdeveloped. I think that, perhaps, the most appropriate phrase is “less developed,” even though this is not without objection. We find ourselves, on the one hand, endeavoring to maintain the prices and traditional markets of our primary products and, on the other, striving in the face of restrictions and subsidized competition to expand the market for our manufactured goods. The largest, most modern, and, until recently, the fastest growing sector of our economy, petroleum, has by far the lowest ratio of labor to capital employed. Because of the large proportion of our labor force employed in agriculture, and the need to develop our manufacturing sector, we have a particular interest in the stabilization of prices of agricultural products and an increase in the volume of world trade.

It is in this context that we have prepared our second Five-Year Plan, designed to achieve further structural changes in our economy; and this Plan, like many others of its kind, could be seriously jeopardized by restrictions or restraint on the movement of capital from the major capital markets, if alternative sources of financing are not opened up.

We have been impressed by the awareness of the Fund and the Bank of these problems, and welcomed the content and scope of the addresses by Mr. Woods and Mr. Schweitzer earlier this week.

Within a few days my country will have the honor of being host to missions from both the Fund and the Bank, and I pledge the full support of my Government to both institutions in their efforts to promote stability and growth, which are so essential to economic progress.

Mr. Chairman, I would like to wish yourself, Mr. Woods, Mr. Schweitzer and Mr. Southard a very successful term of office.

Statement by the Governor for Mauritania—Sidi Mohamed Deyine

In my first appearance before this meeting on behalf of Mauritania, it is not my intention to impose a long speech upon you, particularly as my country is a member of the West African Monetary Union, whose President, Mr. Bertin Borna, has, with his customary competence, already discussed the various problems.

I feel it my duty, however, to thank all those who have helped us so quickly to complete the various formalities for admission, and to extend very special thanks to the permanent staffs of the International Monetary Fund, the International Bank for Reconstruction and Development, and the International Development Association, and to congratulate Mr. Woods and Mr. Schweitzer and wish them great success in the discharge of their new and heavy responsibilities.

We are proud to be able to take our seat in these institutions that are making so effective a contribution to the development of international cooperation. Our affiliation with these three institutions is another evidence of our national sovereignty, and of our desire to play a part in all endeavors to improve relations and understanding between peoples. We also hope, of course, to receive the benefit of invaluable assistance in our campaign for economic independence and an improved standard of living for our fellow countrymen.

Everyone is aware of the obstacles that nature has heaped in our path. The greatest of these is the lack of water that makes a large part of our country almost a desert, and restricts the cultivable area to a narrow strip of land in the southern part of the country. We have many reasons, however, to expect our economy to grow quickly. Our land contains very large mineral deposits. By tapping the veins of water lying deep in the earth we will be able to extend the farming and stock raising areas. Some of the most abundant fishing banks in the world lie off the coast of Mauritania, and we are establishing a fishing industry.

We have come a long way since independence three years ago. Our entire central government, formerly housed in Saint Louis, Senegal, has been moved to Nouakchott, in our own territory, where we are trying to build a modern capital.

I am happy to say that the Mauritanian Iron Mines Company, which received a $66 million loan from the World Bank, has been exporting, in the past few months, Mauritanian iron ore to places throughout the world. Within a short time, I am certain that ships will also be carrying L’Inchiri copper from the wharf at Nouakchott.

It is already plain that as a result of this development of our mineral wealth, Mauritania’s balance of trade, which still shows a large deficit, will be in equilibrium by 1965. It will probably show a surplus by 1966.

The Government of the Islamic Republic of Mauritania has spared no effort to create conditions favorable to the country’s economic growth. It has drawn up an investment code offering reliable guarantees to foreign capital. It has committed itself to a policy of austerity and administrative reform that has enabled it to absorb the budget deficit. The Legislature has adopted a Four-Year Economic and Social Development Plan for 1963 to 1966. This plan is a program of basic studies and infrastructural works that will enable us to gain a more complete knowledge of the country’s natural potential, and provide it with essential basic facilities: roads, ports, telecommunications, hospitals, schools. It provides for an over-all volume of investment of more than 27 billion CFA francs, or $110 million. This would mean an increase of 47 per cent in gross domestic product—a remarkable rate of 10 per cent a year.

The plan would be futile and illusory, however, if we had not the minimum capital it requires. That is why we place such high hopes on the assistance that the international financial institutions can give us. We are gratified in this regard by Mr. Woods’ announcement of the more flexible policy to be followed by the World Bank.

We, on our part, will do everything in our power to collaborate to the utmost in the great task of development entrusted to us, fully conscious of the solidarity of all men, and knowing that on the success of this undertaking the peace of the world depends.

Statement by the Alternate Governor for the Sudan—Abdel Rahim Mirghani

I wish to associate myself and my country and stress our heartfelt sorrow and deep sense of loss at Per Jacobsson’s death. The outstanding and vital role he played in the search and progress toward economic and financial stability will always be deeply appreciated and remembered. I would also like to heartily congratulate the new Managing Director and to wish him every success in his onerous responsibilities. I am confident that with his broad talents and wide experience he will greatly contribute to the further development of the Fund and the initiation of new policy horizons.

I would also like to extend a warm welcome to the Governors of the 20 member countries which have joined the Fund since the last Annual Meeting.

As usual, the Annual Report is an outstanding, lucid, and informative document. The Report states that in the past five years the reserves of many of the less developed countries continued to be inadequate. This is a reflection of the numerous persistent difficulties confronting these countries, the weakness of their export markets, the urge to use all available resources for development, the shortage and slow inflow of foreign capital, and in some cases the inadequacy of monetary or exchange rate policies.

In many respects, the opposite holds true for the Sudan during the same period. Our reserves remained adequate for quite a number of years, appropriate monetary policies were pursued, and we were able to embark on a comprehensive plan of economic development by means of appreciable savings and an increasing inflow of foreign capital. However, the low level of the prices of our exports of primary commodities, and the fact that it is not always possible to secure foreign capital at the right time, had their strains and stresses. Nevertheless, it is not our intention to use a significant portion of our reserves for permanent financing of development investments. In other words, it is the intention to use them, if need be, in conjunction with drawings from the Fund, to tide over short-term periods of shortfalls in the foreign exchange earnings derived from our main agricultural commodities.

In this connection, it is gratifying that the Fund has created a new facility, the compensatory financing of export fluctuations, which will no doubt help its primary producing member countries. It seems to us that the amount of a compensatory drawing should have been more than what is now stipulated, but we are sure that the Fund will keep this matter under review and, in the light of experience, if necessary, as we think, adjust it to the appropriate level.

On the other hand, it remains deplorable that so large a portion of national reserves are and have to remain so tied up for this purpose of counteracting the impact of fluctuations in the export earnings of primary commodities. However, it is perhaps more serious and frustrating that many member countries have also to reckon with unfavorable long-term price trends for their main export commodities. In fact, but for this awkward phenomenon, they could have planned for a considerably larger investment program and their requirements of foreign capital might conceivably be reduced.

Of course, I fully realize that fundamental structural factors on both the demand and supply sides are at the root of this long-term downward trend in the prices of primary commodities. It is equally important that artificial impediments to the export of these commodities also play a leading role. For instance, several tropical products face indirect taxes and restrictions in the industrialized countries. At the same time, the growing manufacturing industries of the developing countries are also faced with similar restrictions. These two problems, together with the downward trend of prices, are real obstacles to development. But it seems to me that in all three fields the industrialized countries can, without any undue hardships or dislocations to their economies, do much to alleviate the difficulties.

It is therefore encouraging to observe that the speeches in this annual discussion show a growing grave concern for these fundamental problems. I am confident that the Fund will also do its utmost to help ease the situation, so that investments aiming at the promotion and diversification of the exports of the less developed member countries can confidently move forward and gain in profitability.

The problem of international liquidity has been elaborately and very ably dealt with by various honorable speakers during this annual discussion. However, it seems to me that this matter has been discussed almost solely against the background of the situation of the industrialized countries. I fully support the proposed study of international liquidity, but would like to observe that no meaningful study is likely to emerge unless the requirements of the developing countries in this respect are taken into consideration. One can conceive of the possibility, and perhaps the advisability, of devising some links between any measures to deal with the liquidity problem and the needs of developing countries for international credit. It is for this reason, as well as for its accumulated experience, competence, and over-all outlook, that we think it extremely important that the Fund should be actively associated with this proposed study.

Finally, I would like to extend a warm welcome to the Governors of the 20 new member countries who have joined the Fund since the last annual meeting.


October 1 and October 3, 1963.