Abstract

At the opening of this Annual Meeting, I wish, first of all, to express on your behalf the deep appreciation we all feel for the generous hospitality of the Government of the United States of America and for the heart-warming greeting of President Eisenhower. And I wish, also, to express our thanks for the friendly welcome that has been extended to all of us, the Governors, our Alternates and advisers, and to our distinguished observers and guests. In turn, speaking for you, I welcome with great pleasure Mr. Per Jacobsson, the new Managing Director of the Fund, and the representatives of our new members, Ghana, Ireland, Saudi Arabia, and the Sudan.

At the opening of this Annual Meeting, I wish, first of all, to express on your behalf the deep appreciation we all feel for the generous hospitality of the Government of the United States of America and for the heart-warming greeting of President Eisenhower. And I wish, also, to express our thanks for the friendly welcome that has been extended to all of us, the Governors, our Alternates and advisers, and to our distinguished observers and guests. In turn, speaking for you, I welcome with great pleasure Mr. Per Jacobsson, the new Managing Director of the Fund, and the representatives of our new members, Ghana, Ireland, Saudi Arabia, and the Sudan.

I know that it is not in recognition of personal merit that you have chosen me to preside over the Annual Meeting of the Boards of Governors. Instead, you have given recognition to my country and its devotion to international cooperation. It is for this reason that I convey to you the profound gratitude of the Republic of the Philippines for the honor bestowed on her when you elected me to be the Chairman of the Boards of Governors of the International Bank for Reconstruction and Development and the International Monetary Fund. And now, I should like to take advantage of the traditional privilege of the Chairman to express his views on matters of concern to the 64 countries which are members of our two outstanding international financial institutions.

During the past 12 months, the unsettling political events in some parts of the world have threatened to aggravate the worldwide inflationary conditions over which many of us felt deeply concerned even as we met here last year. The common problem in most countries was the mounting pressure on prices and balance of payments in the course of their economic expansion which compelled them to make difficult internal adjustments. It is gratifying to note that, in spite of a continued proliferation of policies of restraint, no large-scale attempts at tighter quantitative restrictions on trade and exchange were resorted to. Many member countries utilized the resources of the International Monetary Fund to tide them over their short-term balance of payments difficulties.

Led by the United Kingdom and the Scandinavian countries, many industrial countries adopted monetary and fiscal policies of restraint during 1956. Although these measures did help to repress excessive buoyancy and to relieve accompanying strains on prices as well as on the balance of payments, by early 1957 new inflationary pressures had again emerged, rendering uncertain the outlook for prices, production and trade in the industrial countries.

It is unfortunate that economic disturbances that are often triggered by tensions and investment uncertainties among the industrial nations are often translated into the most violent developments for the countries that are underdeveloped. With few exceptions, the rate of capital formation in underdeveloped countries continues to be influenced largely by the demand for primary products which these countries produce for the industrial markets of the world. The volume of trade in these primary products has fallen in relation to total world trade, with prices exhibiting very little change. On the other hand, prices of the capital equipment and manufactured consumer goods imported by the underdeveloped countries have shown continuous increases as a result of the cost-price inflation prevailing in the manufacturing countries.

It is reported by the Fund that, while in 1956 there was in general little change in the average export prices of primary producers, the export prices of industrial countries rose by about 4 per cent; that the value of the exports of industrial countries increased from 1955 to 1956 much more than that of nonindustrial countries; and that the value of exports from industrial to nonindustrial countries rose much more than that of exports in the opposite direction. The Fund reports also that the export prices of manufacturing countries and the increase in transportation costs produced a deterioration in the terms of trade of primary producing countries which probably amounted to some 4-5 per cent, although there were considerable differences in the changes in the terms of trade of various industrial countries. The squeeze resulting from the deterioration in their terms of trade has made it extremely difficult for underdeveloped countries to pursue their goal of a more viable pattern in their economies.

As a matter of record, it has become almost an annual ritual for the Fund to report that significant economic progress has taken place in many countries. But any news of major improvements in the economic position of underdeveloped countries is exceptional indeed. Yet, these are the very countries where economic development at an increasing pace is vitally necessary if the ever-growing gap in living standards between the developed and the underdeveloped countries is to narrow in the interests of external equilibrium and world peace.

The underdeveloped countries are facing a serious dilemma. They must either allow themselves to fall behind in the procession of economic progress or be content to live from one balance of payments crisis to another. The only way out is to achieve the momentum that is indispensable to development. This means a rate of investment that will support adequate growth and an economic pattern that provides both internal flexibility and the strength to adjust to the changing structure of world demand.

But we all know that such an economic pattern requires great resources to finance development. Where domestic savings are small and where the foreign exchange reserves at a country’s call are enough only for its trade and payments, the provision of additional resources for basic development needs involves great sacrifices in consumption and even in less urgent investment. In the attempt to secure the additional resources through the creation of credit, which underdeveloped countries unfortunately feel impelled to do, they risk the stability of the price and monetary structure itself. The greater availability of capital from abroad would, of course, facilitate development. It would not, however, obviate the need for sound financial policies in the underdeveloped countries.

Even as we are gathered here, many underdeveloped countries find themselves in dire straits. With foreign exchange reserves already depressed to dangerously low levels, their ability to grapple with the economic ills that plague their very existence and to reach a stable and balanced economic structure looks anything but hopeful. Yet, as President Black of the Bank said recently, “Let us make no mistake. Economic development in these countries today is not just a process; it is also an idea—a rallying cry for more and more millions who are aroused against their traditional poverty.”

It is true that some of the countries facing the problems of development today have not followed the soundest or most adequate monetary and fiscal policies that are within their ability to follow. The present predicament of some underdeveloped countries clearly demonstrates the tremendous strains on limited resources of too rapid a pace of development by methods that induce inflationary fevers. Neither have some of them fully exploited the production potentials that lie within their grasp in the form of fertile land, forests, mineral resources, and their large reservoirs of untapped labor.

Whatever their own mistakes have been, there remain many factors over which they have no control and which bear heavily on them in the pursuit of their economic goals. These factors, external to these countries, are often the root causes of internal difficulties. I may mention as one of these factors the trade policies of the industrial nations. As has been pointed out on more than one occasion by the Fund, the protectionist trade policies of the highly developed countries “continue to embarrass other countries, especially those which are underdeveloped.” There is need of a more understanding trade policy with respect to the underdeveloped countries, especially by those countries which have shown great magnanimity in extending aid to them.

It is clear that the solution to the problem of economic development does not lie solely in the pursuit by individual countries of domestic monetary and fiscal policies to keep external accounts in balance. The solution to the problem of development with stability is the collective responsibility of both developed and underdeveloped countries.

While we still have these unsolved trade problems, the establishment of a common market has been proposed by six leading industrial countries of Western Europe. This event is being looked upon with some concern by countries outside continental Europe. The raw material producing countries should feel particularly concerned about the preferential position which may be given to the overseas territories of the common market nations, since these territories are to some extent their competitors. By and large, it would seem that the common market would work at cross purposes with the Fund’s main objective, since it might “revert to a strict balancing of payments within its own narrow limits and thus to a merely regional, though somewhat expanded, bilateralism.” It could easily become an instrument for perpetuating restrictions and dis-criminations against countries outside its orbit.

These regional or group policies need to be reconciled, it seems, with the Fund’s policies for the re-establishment of a fully multi-lateral world trading system. Unless the protectionist sentiments which still run high among some of the metropolitan countries are done away with, the underdeveloped countries will be driven to perpetuate the use of trade and exchange controls to maintain their payments position and to enable them to develop their economies. I am convinced that a multilateral trading system, buying and selling in the best markets, is in the interest of the underdeveloped as well as the developed countries. But the underdeveloped countries cannot trade on such a basis if there are restrictions and discriminations against their exports in the great industrial countries.

As urged by the Fund 1957 Annual Report, “countries in a strong surplus position, whilst applying such anti-inflationary policies as are appropriate to their circumstances, should seek not to apply them in such a way as to make it more difficult for other countries to correct their positions. They should, accordingly, pay special attention to the contribution which they can make to the removal of both their own difficulties and those of other countries through such measures as the reduction of trade barriers and the encouragement of capital exports.”

I would venture to suggest that accelerated measures be taken to place payments restrictions on a nondiscriminatory basis, especially in the case of countries which belong to preferential tariff systems or regional common markets. Twelve years after the end of World War II we find that the world’s key currencies, those that are most widely used in international payments, are still not freely convertible in terms of one another. Worse yet, there is the ever-present possibility that distinctions by currency area may be employed to reinforce tariff preferences and differential tariff rates. It is time, it seems, that decisive steps were taken to end the increasingly unjustifiable discriminations by regions and by currency areas.

I am confident that we can look to the Fund for constructive leadership in securing a well-balanced world, maintaining trade at a high level without discrimination on the basis of countries or currencies. I know, of course, that a multilateral system of world payments cannot be introduced overnight. Countries must, of course, have sufficiently realistic exchange rates not to upset trade relations; but equally, if not more, important is the need for measures in the field of fiscal and credit policies to ensure internal stability, without which equilibrium in the external field is impossible.

Both the World Bank and the Fund have gone a long way in rendering assistance to their member countries. Under President Black, the needs of the underdeveloped countries have become the paramount concern of the Bank. I am glad to note the progress which has attended the efforts of President Black in obtaining the free use of the Bank’s 18 per cent capital, and my Government extends its full support to his efforts. I am able to announce that the Government of the Republic of the Philippines has decided to release the whole of its 18 per cent capital subscription, equivalent to $2.7 million, in five equal annual installments. This release will be made available in dollars and will therefore be of maximum usefulness to the Bank.

The Economic Development Institute which the Bank started in 1956 is proving to be of great benefit to the underdeveloped countries. It is a unique opportunity, indeed, that this Institute offers to those who are sent to it by the underdeveloped countries. A broad perspective of the problems of economic development is acquired, and the effectiveness in carrying out new responsibilities generally improves.

Under Mr. Jacobsson and Mr. Cochran the Fund has become the trusted friend and adviser of all countries. It has been a never-failing source of counsel on monetary and exchange problems and policies. Its timely financial assistance has been most helpful, in a concrete way, to many member countries during these troubled times.

While existing institutions can be of assistance in the industrialization of the underdeveloped countries, they will not be able to meet what many of these countries urgently need. Facilities such as schools, hospitals, housing, waterworks, etc., represent a kind of social overhead which the underdeveloped countries need before other types of economic activity can begin to move forward rapidly. These countries are unable to secure loans from any foreign or international financial institution on account of the fact that these projects are largely nonself-liquidating. Only an institution authorized to make grants-in-aid and acting through international channels could meet the requirements of such countries.

It is encouraging to learn that the $300 million Development Loan Fund sponsored by President Eisenhower has been approved by the United States Congress. This plan offers some relief for the intense capital needs of the underdeveloped countries in their struggle for development in a world characterized by capital scarcity.

In concluding my statement, may I plead as I have always done in previous Annual Meetings for a more sympathetic understanding of the problems of the underdeveloped countries. All these years, we have reiterated our faith in the Bank and the Fund, which have focused attention on such problems and have suggested means for solving them. We are aware that without these institutions we would have been tragically handicapped in our efforts to deal with the problem of economic development in an environment of financial stability. Year after year, we have seen their operations grow in magnitude and widen in scope. We are confident that their accomplishments in the future will be even greater than they have been in the past. We expect of them the foresight and boldness that our dynamic world requires. Let us not hesitate to ask of them the service that we need, being equally prepared to give them the cooperation they require. It is through such intimate collaboration that we shall succeed in meeting the difficult problems of an expanding world in whose prosperity all nations, developed and underdeveloped, must share.

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Delivered at the Opening Ceremonies, Joint Session No. 1, September 23, 1957.