I thank the President of the Republic of Brazil for his most gracious remarks. It seems fitting that our first Annual Meeting in the Southern Hemisphere should be here in Brazil, which is the largest country in this part of the world and one of the founding members of the Bank and the Fund. I am certain that I speak for all in thanking the President of Brazil, and the Government and the people of Brazil and of this city of extraordinary beauty for their generous hospitality. In particular, our thanks are due to those who have made available to us this striking Museum of Modern Art, and who have in the past year and a half, with great energy and imagination, adapted it so well to the needs of our meetings.
Speaking for myself, as well as for my colleague as chairman, Governor Brofoss, I extend a most cordial welcome to all Governors, Alternates, Advisers, and guests. I wish especially to welcome the Governors for Indonesia and The Gambia, whose representatives have signed documents of membership since our last meeting, and to the observers from Botswana, which has applied for membership.
You have before you the Annual Reports of the World Bank Group and the Fund. In a few moments I shall call on Mr. Woods and Mr. Schweitzer, whose annual addresses are eagerly awaited. Before doing so, however, I should like to make a few introductory observations on the problems we confront in finance and development.
For several years, our major preoccupations have been essentially the same. On the side of finance, our attention has primarily been focused on the intricate problems of world liquidity and the functioning of the international monetary system. In the realm of development, the core of our concern has been the inadequacy of financial resources. These are still the overriding issues before us. Their successful resolution is essential to the achievement of our twin objectives: the maintenance of international financial stability in an atmosphere conducive to high levels of employment and growth and a marked rise in the living standards of developing countries. No doubt the attention of the world is focused on our meetings this year, and there certainly is a feeling of hope that the clouds of uncertainty which have for some years surrounded these questions are at last dissipating.
A recitation of what the Bank Group and the Fund have been able to achieve despite the handicaps of the continuing uncertainty affords a glimpse of the potential of these institutions. I should like to highlight a few points which seem to be particularly relevant to our discussions.
When the Annual Reports of the World Bank Group are examined in the context of the entire development effort, one gains three quite distinct impressions. First, one is struck by the magnitude of the world’s accomplishments in the last fifteen years or so and by the promise this holds for the future. Second, the record of the last few years reflects a remarkable intensification and broadening of the effort to come to grips with development in all its dimensions. Third, yet at the same time, one is impressed by the critical—even dangerous—nature of the debt service problem we confront at this moment, and by the inadequacy of development resources. I should like to speak on these three points.
Once again in its Annual Report, the Bank has made an important contribution to the assessment of development progress and prospects. It summarizes the varied growth experience of the developing countries against the background of world economic conditions, the inadequacy of development resources, the rising debt service burden, and obstacles to a satisfactory increase in export earnings. This is an extremely useful analysis, but I believe it deserves a footnote to make clear that today’s aggregate rates of growth in agricultural, industrial, and gross national production are not an adequate measure of the development effort already made. While they do reflect results so far obtained from earlier investments, the full benefit of a significant proportion of total postwar development expenditure will not swell the growth rate of gross national product for some time to come.
This point may have a bearing on the degree of public impatience with regard to the results of development assistance which can be witnessed in many industrial countries. Perhaps our own preoccupation with aggregate rates of growth has encouraged the public to look upon them as a kind of official index of development success. We should take pains to make it accepted that they alone cannot serve such a purpose in a satisfactory way at this stage in the development effort. In many developing countries, rapid economic growth can be generated only after far-reaching structural changes have been brought about. This is inevitably a long process, and in many parts of the world we have some distance to go before the investments necessary to these changes can be expected to pay off.
Although purposeful measures to create a more favorable basis for economic growth in underdeveloped parts of the world date further back, one may say that the international development effort as we think of it today really began to gather momentum only about fifteen years ago. To illustrate, of the $8.6 billion the Bank and IDA had disbursed for development purposes through last June 30, less than 4½ per cent had been paid out by mid-1952. Of the remainder, more than three quarters have been disbursed in the last decade, and, of this, more than 60 per cent in the last five years. I have not analyzed disbursements from all sources in the same way, but if high proportions of the total have been spent in such relatively short spans of time we can hardly expect to see the bulk of these investments fully reflected so soon in the growth of GNP.
A few examples should make this point clear. Education probably takes the longest time to pay off economically, but is a fundamental development necessity. The developing countries have made massive investments for this purpose. It must be relevant to any realistic assessment of development achievement that the number of children in school more than doubled between 1952 and 1963 in Latin America and South Asia, as reported by UNESCO, while it tripled in Africa. Surely this increase can be expected to add much more to future economic growth than has so far been reflected in the GNP of developing countries.
A lag between investment and realized benefits is inevitable in all development, though the time span involved varies widely. Water will begin to flow to the fields from a Bank-financed irrigation project, for example, only from three to five years after the loan is approved. Some increase in production may result during the following year, and afterwards output should rise gradually. Experience has shown, however, that an irrigation project’s full contribution to growth cannot be expected until ten or more years after the water becomes available. On this basis, less than 12 per cent of the approximately $660 million the Bank and IDA have committed for irrigation projects has had sufficient time to generate its full benefit; projects representing nearly 90 per cent of the Bank Group’s investment for this purpose will reach their potential of productivity only gradually between now and 1982.
In the case of so-called infrastructure projects for electric power, transportation, telecommunications, and urban water supply, these investments also are often made to anticipate and lead demand rather than respond to it. Thus, in these sectors as well, there is often a lag between project completion and full capacity utilization. Such projects have accounted for two thirds of the $11.6 billion the Bank and IDA have committed for development, and a significant part of that amount has not yet been disbursed.
Investments for industry entail the shortest lag between construction and the realization of benefits, since they are normally made in more direct response to demand. Yet the infrastructure and skills resulting from the more slowly maturing investments are both a prerequisite and a powerful stimulus to most industrial growth. They also contribute greatly to the higher and more immediate returns on industrial investments. It is interesting to note that industrial production in the developing countries has been growing at an average annual rate of more than 7 per cent during the last six years. Despite the fact that this growth starts from a very small base, it may be at least one happy augury for the future.
Agriculture is still the great laggard. Some of the crucial facts reported by the Bank are those concerning the failure of agricultural output, and especially of food production in the developing countries, to keep abreast of the increase in population. Total farm production in these countries actually declined last year, and in per capita terms it fell almost 5 per cent over the two years 1965 and 1966. In food production, the decline per capita has been even more severe.
These facts add a grim and powerful endorsement to the initiative, taken by Mr. Woods nearly five years ago, to engage the World Bank Group more fully in the basic, highly complex, and difficult task of agricultural development. They argue strongly in favor of the emphasis which the Bank and IFC have been giving to the achievement of a massive, early increase in fertilizer production and use. While there was a disappointing drop in the amount of funds the Bank Group actually committed for agricultural development during the fiscal year ended June 30, 1967, one IDA credit and four Bank loans have been approved since then, bringing the total of funds committed for agricultural lending during the first nine months of calendar year 1967 to $194 million, a much higher rate than for any previous period. We are assured that the number and diversity of suitable projects are increasing. At the end of the fiscal year, 28 projects had either reached the stage of loan negotiation or were being appraised, and an additional 35 projects were under preparation. This compares with 19 projects for which funds have been committed over the last two fiscal years.
There have been equally important developments during the past year in the Bank Group’s assistance to industry. A first line of credit for IFC has been made available by the Bank, under the new authority recently approved by the members of the Bank and IFC. The Corporation’s total commitments reached more than $220 million, well over twice the amount of its capital. The Bank made its first loan to a government-owned industrial enterprise—an enterprise with experienced and efficient management.
Education is another difficult field into which the Bank Group has been led by Mr. Woods. Here also, steady and encouraging progress is being made, although, as already described, investment in education probably takes the longest time to pay off. Bank and IDA lending for education is increasing at a rapid rate, but still totals only $142 million. It may probably never be significant in terms of money in relation to total lending, but looms substantial in terms of over-all assistance to education by external agencies. However, there is reason to believe that the Bank’s interest and activity in this field may have considerable impact in helping countries obtain greater long-range development benefit from their education budgets.
Within the broad framework of technical assistance, the Bank has acquired much new experience with the manifold problems of aid coordination, both through the formal coordinating groups that it has organized for 11 recipient countries and through flexible, ad hoc arrangements to deal with special problems as they arise.
One important contribution the Bank has made in recent years has been through its studies of problems that are crucial to the growth of developing countries. Major efforts in this direction have been the staff studies carried out at the request of UNCTAD. Those concerning suppliers’ credits and shortfalls in export earnings of developing countries are of particular interest. Many of us also share the interest of our hosts in the study, now under way in conjunction with FAO and the International Coffee Organization, concerning the world coffee problem and its impact on many developing countries. And we all join in commending the Bank and OECD on the new and expanded system of debt reporting which they have worked out, and which came into effect on the first of this year.
This leads me to a main point, the serious nature of the debt service problem and the inadequacy of resources. In some countries the debt service emergency might perhaps to some extent have been avoided by more skillful management. Much of the difficulty, however, results from causes beyond the control of the developing countries concerned but well within the control of those in a position to encourage and help economic development, if they could only concert their policies with that end in view.
The seriousness of this predicament has been summarized with stark clarity in the Bank’s Annual Report and has also been treated in the Fund’s Report. The facts make it obvious that the inescapable arithmetic of debt service burdens will delay the development process in country after country unless the world community represented in this room finds it possible to agree on an acceptable solution. Cooperation between the Bank and Fund in coping with debt problems has been gratifying, but further steps are needed to assure a satisfactory development.
This situation underlines the necessity of giving the highest priority to the task of providing sufficient funds for the branch of the World Bank Group which has been created with the specific purpose to grant loans on lenient terms, viz., IDA. It is of paramount importance to enable this institution to fulfill its function. It is a most efficient instrument for long-term cheap and untied lending.
Mr. Woods will undoubtedly have something further to report on his efforts to obtain agreement on a new and larger replenishment of IDA’s resources. We should feel it as a great encouragement if Governors of the principal industrialized countries could give us hope for further, broader, and more closely harmonized policies for liberal aid in all its forms.
A new feature in the field of the World Bank Group activities, which I will take this opportunity to welcome, is the creation of the International Centre for Settlement of Investment Disputes, which has now come into operation. The first annual meeting of the Administrative Council of the Centre will be held here today. The creation of this facility for international conciliation and arbitration in investment disputes marks an important step in the cooperation between member countries for the promotion of economic development by private international investments.
Turning now more specifically to the activities of the Fund, I would like to note, as one measure of the Fund’s accomplishments, certain aspects of its recent operations.
Drawings from the Fund in the past fiscal year again exceeded $1 billion, causing outstanding drawings to rise to over $5 billion. In this process the currencies of four member countries, namely those of Brazil—our host—and Malaysia, Venezuela, and my own country, Norway, were used for the first time. Since our last Annual Meetings, Bolivia, Denmark, Guyana, and—I am pleased to note—also Norway, assumed the obligations of Sections 2, 3, and 4 of Article VIII.
The fiscal year saw Fund quotas rise by $1.5 billion as a result of the general quota increases which were authorized in 1965. Support of its resources continued under the General Arrangements to Borrow, which were renewed during the year. The Fund did not have recourse to these Arrangements during the year, but it is interesting to note that the Fund borrowed directly from Italy. This is the first such bilateral arrangement in Fund history. It seems to me that Italy has thereby set an example which, if adopted by other creditor countries, may prove to be of great importance for the adjustment process.
Another initiative—demonstrating once more the flexibility which has characterized the policies of the Fund—was the liberalization of the compensatory financing facility. Subsequent to this extension of policy have come the five compensatory drawings described in the Report, plus two later drawings, a total of four more than had occurred in the three years previously. This indicates that increased use of the facility may be anticipated, particularly during the present economic pause in the industrial world, with its expected depressant effects on the export receipts of the developing countries.
Equally deserving of attention have been the strong and successful efforts of the Fund to provide assistance in technical fields relating to monetary and exchange policies, central banking, fiscal management, and financial statistics. Much of this technical cooperation takes place within the framework of its regular annual consultations procedure or through similar staff discussions with members, but in a number of areas the Fund has developed specific technical services to assist members. Experts provided by the Fund, both from within the staff and recruited from outside, are actively engaged in counseling the newer central banks and in advising on budgetary and tax operations. Moreover, the Fund has continued to be active in trying to alleviate the excessive burden of indebtedness facing some of its less developed members and has actively collaborated with the Bank to help creditor countries consider the debt problem of particular countries. These technical assistance activities, including the training provided by the IMF Institute, reflect the Fund’s efforts to help countries to increase the vital supply of skilled and experienced civil servants, especially in newer members which have joined the Fund since independence.
The question of pressures that may generate recession brings me to another general issue, to which I would now like to turn, and to which we all must give our careful attention during these next few days. I refer to the problems of liquidity and the functioning of the international monetary system, which are so important to the world’s financial community and, indeed, to the world as a whole.
The Fund has given much time and attention to these questions over the years, and Governors will recall that at our last Annual Meeting in Washington it was agreed that informal joint meetings between Executive Directors and the Deputies of the Group of Ten might be helpful. In the four such meetings that have taken place, and in the other contacts relating to them, there has been a most valuable exchange of views contributing to the clarification of many problems. A useful contact has also been established between the Fund and UNCTAD.
The result of these various activities seems to be that we are now closer to the end of the uncertainties of the past years. I am eagerly awaiting Mr. Schweitzer’s comments on these events, and I wish to pay tribute to him, to the Executive Directors, to the Fund’s staff, and to the Deputies of the Group of Ten for the excellent work done during this period.
As a result of these various efforts, the Fund Governors have on their agenda the “Establishment of a Facility Based on Special Drawing Rights in the Fund and Modifications in the Rules and Practices of the Fund.” Later this week, they will be asked to approve a Resolution which requests the Executive Directors to proceed with their work on these matters and submit to them appropriate amendments to the Articles of Agreement and the By-Laws. Our predecessors, the Founding Fathers, at Bretton Woods were wise in establishing an institution so organized that it could repeatedly respond to challenges then unforeseen, and we must aim to be as effective as they were. Reform, to be reform, should be directed toward the Fund’s continuation as the vigorous and universally recognized center for international monetary collaboration.
In summing up, I believe that we have only started to see the full possibilities of the world-wide effort which began with the establishment of the Bank and the Fund at Bretton Woods. We have at our hands instruments that give us great opportunities to pave the way for still further and uninterrupted economic growth, and thereby lay the foundations for increased well-being and social justice all over the world. And we are all particularly aware that the struggle to realize national potentialities and to facilitate economic self-determination touches every aspect of the hopes and expectations of the peoples of the developing countries. Despite the difficulties, I am confident that we shall proceed toward these goals, which affect the dignity and self-respect of a major proportion of mankind.
Delivered at the Opening Joint Session, September 25, 1967. Mr. Kåre Willoch, Governor of the Bank, IFC, and IDA for Norway, and Mr. Erik Brofoss, Governor of the Fund for Norway, acted as Chairmen of the Annual Meetings. Mr. Willoch presided at the Opening Joint Session on September 25, at the Second Joint Session on September 26, and at the Bank, IFC, and IDA Session on September 27, 1967. Mr. Brofoss, Chairman of the Board of Governors of the Fund, presided at the Fund Session on September 28 and at the Closing Joint Session on September 29, 1967.