., I

t' INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Public Disclosure Authorized

SIXTH ANNUAL MEETING OF THE BOARD OF GOVERNORS Public Disclosure Authorized

WASHINGTON, D. C.

SEPTEMBER 10-14, 1951

SUMMARY

Public Disclosure Authorized PROCEEDINGS Public Disclosure Authorized

NOVEMBER 30, 1951 CONTENTS PAGE Address by the President of the United States, Harry S. Truman, September 10, 195L____ _ 1 Address by Douglas C. Abbott, Chairman of the Boards of Governors of the Bank and Fund, at the Opening Session of the Joint Boards of Governors, September 10, 195L_____ 2 Address by Eugene R. Black, President of the Bank, in Presenting the Sixth Annual Report of the Bank to the Board of Governors, September 10, 195L______5 Committee Reports: Joint Procedures Committee Report No. 1 _____ ------______- -______11 Annex I -Agenda --- ______-______13 Annex II -Committee on Finance and Organization______13 Annex III -Committee on Finance and Organization-Terms of Reference 14 Annex IV -Informal Discussion-Subject of Discussion______14 Annex VIn 1_Provisional Schedule ______15 Annex IX -Provisions Relating to the Conduct of the Meeting______16 Report No. 2______--______17 Report of Committee on Finance and Organization______18 Report on Marketing Activities of the Bank: Statement by the Director of Marketing of the Bank to the Committee on Finance and Organization, September 13, 195L______21 Resolutions adopted by the Board of Governors between Fifth and Sixth Annual Meetings: No. 61-Terms and Conditions on which Burma shall be Admitted to Membership in the Bank ---- ______------____ ------______23 No. 62-Terms and Conditions on which Sweden shall be Admitted to Membership in the Bank ----- ______------______24 Resolutions adopted by the Board of Governors at Six Annual Meeting: No. 63-Financial Statements and Budget______26 No. 64-United Nations Assembly Resolution 377 (V) entitled "Uniting for Peace"____ 26 No. 65-Place and Date of Seventh Annual Meeting______26 No. 66-0fficers of Board of Governors for 1951-52______26 No. 67-Composition of Procedures Committee for 1951-52______26 Draft Resolution Submitted by the Governor for Czechoslovakia to the Board of Governors of the Bank at the Sixth Annual Meeting______27 Summaries of Statements of Officers of the Bank at Informal Discussion of Sixth Annual Meeting ____ -______------______28 Decisions of the Executive Directors Interpreting Articles of Agreement of the Bank______42 Accredited Members of Delegations at Sixth Annual Meeting______44 Observers ______------______------______49 Executive Directors and Alternate Executive Directors______50 Officers of the Board of Governors and Procedures Committee for 1951-52______51

1 Annexes V-VII related to business of the Fund. INTRODUCTORY NOTE

The Sixth Annual Meeting of the Board of Governors of the International Bank for Reconstruction and Development was held in Washington, D. C., from September 10 to September 14, 1951. The Honorable Douglas C. Abbott, Minister of Finance of Canada and Chairman of the Board of Governors of the Bank, presided.

The Board of Governors considered and took action on reports submitted by the Executive Directors, and on matters raised during the Meeting. The Board met in Committee meetings and in five plenary sessions, two of which were joint sessions with the Board of Governors of the International Monetary Fund. In addition, there was an Informal Discussion between the Board and senior officers of the Bank for the purpose of exchanging views on the administration of Bank loans.

M. M. MENDELS Secretary INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

Washington, D.C. November 30, 1951 ADDRESS BY THE PRESIDENT OF THE UNITED STATES, HARRY S. TRUMAN, SEPTEMBER 10, 1951

I am very happy to welcome you to Wash­ strictions on trade and exchange which are ington again. A great deal has happened not actually needed to further the program since your last meeting here in 1949. The of mutual defense. free nations of the world have joined to­ The International Bank has now been in gether in a great cooperative effort to pro­ existence for more than five years. Last year, tect themselves against aggression. I am in spite of international tension and uncer­ sorry to say much of our energy must now tainty, it loaned almost twice as much money be given to the task of building up military as it had the year before. Virtually all these defenses for the free world. loans were made to economically undeveloped Nevertheless, the tasks of the Interna­ countries. They are loans which will help tional Bank and the International Monetary to make these countries stronger and more Fund are as important as they ever were. prosperous. World peace and security are not merely I am glad to see that nearly half the money matters of military strength. It is just as loaned by the Bank for development pur­ necessary and just as important to have a poses has been loaned for the expansion of firm economic foundation on which the struc­ electric power production. Cheap electric ture of peace can rest. power is one of the greatest needs of many The two institutions that are meeting here of the under-developed countries. It will do today were created in recognition of that wonders in opening up new opportunities for factor. They were started even before the their people. end of World War II and, in fact, before the The Bank has also made major loans for United Nations was organized in San Fran­ such basic improvements as new roads, rail­ cisco. But these financial institutions are roads, the construction of port facilities, the part and parcel of the same great effort as increasing of agricultural production, and the United Nations-the effort to obtain the expansion of telephone and telegraph peace in the world. They are responsible for lines. Such projects as these are the founda­ an essential part of the work that many coun­ tion stones of a long-range program of eco­ tries must do to secure the peace and to make nomic development. the world a better place in which to live. I hope that the Bank will continue to go The major purpose of the International ahead with projects of this kind. Monetary Fund is to help the growth of a The defense program of the free nations vigorous system of world trade. In carrying will create some difficulties; there will be out this purpose the Fund tries to reduce shortages of certain capital goods. But we restrictions on foreign exchange that stifle must not slacken our efforts to create new world trade. No job, obviously, will be more sources of wealth and thereby to bring about difficult because of the special economic prob­ lems created by the defense programs of the higher standards of living in the economi­ free nations. But all of us now recognize cally under-developed areas. The cause of the principle that each member country has a freedom to which we are dedicated will not legitimate interest and vital interest in the permit us to fall behind in this effort. exchange rates and policies of every other The economic resources of the free na­ member country. tions taken together are sufficient to provide I am sure, therefore, that none of the both military security and economic prog­ countries which are members of the Fund ress. As we move forward with our defense will use the present difficulties to justify re- effort we should also do everything possible [ 1 ] to increase the prosperity and raise the liv­ objectives are to secure peace and to create ing standards of the free nations. We should better lives for all the peoples of the world. remember that this is one of the greatest Our faith is that free men working together positive goals of the United Nations. can attain these objectives. We have not joined together for purely de­ I sincerely hope that you have a success­ fense purposes. We are not an association ful meeting and make great advances in the for preserving things as they are. Our great year ahead.

• • •

ADDRESS BY DOUGLAS C. ABBOTT, CHAIRMAN OF THE BOARDS OF GOVERNORS OF THE BANK AND FUND AT THE OPENING SESSION OF THE JOINT BOARDS OF GOVERNORS, SEPTEMBER 10, 1951

The opportunity of presiding at this Sixth It might be appropriate at this point to Annual Meeting of the Boards of Governors refer to the handsome contribution which of the International Monetary Fund and the Sweden has already made to the Fund in the International Bank for Reconstruction and person of Mr. Ivar Rooth who has been se­ Development affords me great pleasure in­ lected by the Executive Board as Managing deed. As Chairman, I have the privilege of Director of the Fund. Mr. Rooth has earned extending a personal greeting to our dis­ an outstanding reputation during his twenty tinguished Governors, Alternate Governors years as Governor of the Central Bank of and advisers, the representatives of other Sweden and is recognized as an authority in international organizations and to our matters of international finance. We may be honoured guests. Pleasant recollections of fully confident that Mr. Rooth and Mr. Eu­ previous meetings encourage us to look for­ gene Black will maintain an able administra­ ward to a friendly and productive inter­ tion of the two institutions in the year ahead. change of views, in this hospitable city of I should like to take this opportunity of Washington, and we shall endeavour to shape expressing our gratitude to Mr. Camille Gutt our deliberations so as to contribute to the for his endeavours on behalf of the Fund effective operation of our two institutions from its very inception. It is our deep regret and to the well-being of the countries we that Mr. Gutt has decided to relinquish the represent. burdens of his office as Chairman of the Ex­ At the outset I would like to comment with ecutive Board and Managing Director of the satisfaction on the continuing increase in Fund. His wise guidance, his balanced judg­ the membership of the Fund and Bank. This ment and his experienced understanding of is tangible evidence of the enduring value of the problems of the Fund's members have all the principles and purposes originally con­ contributed to the successful nursing of our ceived at Bretton Woods. With the recent institution during its first years of infancy. welcome addition of Sweden to our ranks, we All of you, I am certain, join me in express­ are now an even fifty members. It is the firm ing to Mr. Gutt our warmest appreciation intention of the Boards of Governors to de­ for his untiring labours on behalf of the velop the Bank and Fund as instruments of Fund. international co-operation which will wel­ In reviewing the year that lies behind us, come all those who wish to support their ob­ certain outstanding features are prominent jectives and benefit from their activities. in our minds. At the meeting in Paris last [2] September, many Governors expressed con­ N ow more than ever before do we feel the cern over the prospect that inflationary im­ need for effective international consultation pulses resulting from the hostilities in Korea and mutual help. The Fund is concerned with would jeopardize the progress that had al­ monetary stabilization and convertibility, but ready been achieved in restoring a measure exchange rates, exchange reserves and prac­ of monetary equilibrium throughout the tices are but aspects of a larger closely inte­ world. The mounting expenditures on de­ grated mechanism. At Bretton Woods it was fence would have to be superimposed on anticipated that in helping to achieve ex­ economies which, in many cases, were al­ change stability and liberal exchange prac­ ready sorely pressed. In addition to the tices the Fund would render its greatest direct effects of expanding defence expendi­ service to member countries in their quest tures, it was apparent that prices were being for economic well-being. The basic compo­ forced up by buying in anticipation of im­ nent in the Fund's philosophy was therefore pending shortages. the concept of reciprocity: the Fund is bound The developments of the past year have to assist its members. And members are shown that the concern expressed at the last bound to strive to attain and maintain the meeting was fully justified and they under­ basic principles of the Fund. line the vital necessity for governments to Governors will have observed that the take effective measures to deal with the Fund engaged in only one fresh exchange problem. It is equally essential that the peo­ transaction during the past year. At the last ples of our countries should understand that annual meeting, and at other times, certain the problem is not one for which there is any Governors have expressed their concern at easy trick solution, but rather that it is one the failure of the Fund to place its resources which will require the concerted efforts and more effectively at the disposal of its mem­ forbearance of all elements in the commu­ bers. The thought has been expressed that nity if it is to be solved. the Fund may have safeguarded its resources The task of controlling inflation is difficult with unnecessary rigidity and caution, and but by no means hopeless. Many member perhaps deprived members of support to countries have already taken some significant which they felt entitled. The view has also steps to offset in one way or another the in­ been put forward that the effectiveness of the flationary consequences of post-Korea de­ Fund as an operating institution would be velopments. These measures naturally vary enhanced if its members were encouraged to from country to country in accordance with turn to it for assistance from time to time for the circumstances and social philosophy of appropriate purposes. each, and it would not be appropriate to The questions involved in the use of the urge a uniform course for all member coun­ Fund's resources are numerous and compli­ tries. It does appear, however, that a reso­ cated and they have been discussed at length lute approach to the control of inflation must in the various Annual Reports of the Execu­ recognize that we are not confronted by a tive Directors. If some members feel that short-period emergency which can be dealt the Fund has been less forthcoming in this with by patch-work methods. There is likely respect than they may have wished, there to be a continuous pressure on our resources may also be some justification for the feel­ as the defence needs compete with the normal ing, which seems to be reflected in the Re­ claims of consumption and investment. It is port of the Executive Board on Exchange therefore of the highest importance that the Restrictions, that in certain cases members efforts to cope with the situation should not have not moved as rapidly toward achieving consist merely of symptomatic treatment but the aims of the Fund, through the elimina­ that they should deal with the root causes of tion of exchange restrictions and discrimina­ inflation. It is imperative that our efforts tions, as their circumstances would have per­ should not be temporary improvisations; mitted. rather must they be of a character that can Governors will have noted with satisfac­ endure as long as the need for them con­ tion the recent decision of the Executive tinues. Board which is directed towards ensuring [3] that in the present world monetary situation ment in certain of the highly industrialized the Fund's resources will be made available coun,tries it seems likely that the supplies of to give confidence to members in undertaking some types of capital goods will be more practical programs of action to help achieve limited in the year ahead than in the past. I the purposes of the Fund. I should like to am sure that all will agree that it is more express the hope that opportunities will arise than ever necessary in these circumstances for collaboration between the Fund and for the countries desiring to move forward members along these lines. with their own development to make sure The prevalence during the past fiscal year that they are making the fullest and most of a sellers' market for raw materials had effective use of their own resources. advantageous effects on the balance of pay­ The record of the Bank's activities during ments of many of our members. This has the past years shows a continued emphasis provided them with the possibility of con­ on four major fields of development-power, sidering with greater courage the relaxation transportation, telecommunications, and ag­ of exchange restrictions and simplification of riculture. Most of the loans have been ex­ multiple rate structures. It is to be hoped tended to the governments of member coun­ that developments in the exchange position tries for the provision of utilities which are of members will enable these efforts to be essentially public in nature. However, the continued and intensified-not only for the Bank has also demonstrated its capacity to sake of the furtherance of the Fund's ob­ assist in those tasks that fall within the jectives but also on account of the relief sphere of private enterprise. The world will from inflationary pressures which could be watch with interest the activities of the achieved through an easing of restrictions financial institutions recently established and discriminations. with the assistance of the Bank in Turkey, Turning now to the Bank's activities, it is Ethiopia, and Mexico for the purpose of ex­ interesting to note that in this past year, in tending medium and long-term credits to spite of hostilities in Korea, and the improve­ private business. ment that took place in the balance of pay­ To all of us who are concerned with eco­ ments of many nations, the Bank extended a nomic development it is deeply gratifying to considerable volume of credit: loans were observe the growing awareness of the need authorized to 11 countries in an aggregate for assistance-both technical and financial amount of $300 million. When these Boards -to the under-developed countries. In the met a year ago it was by no means clear that past year a series of reports have emphasized world events would permit a full-scale con­ this need. But here and there a tendency tinuation of investment for development. persists to simplify the problems of develop­ The growing emphasis on defence did not ment, to think only in terms of money re­ appear to provide the best of climates for quirements and to neglect the manifold diffi­ healthy investment by the Bank. And yet culties inherent in the whole process of put­ during the past year, at least some of our ting money and materials and skills to work apprehensions have been laid to rest. The effectively. increasing demand for raw materials is im­ In his address presenting the Report of proving the ability of primary producers to the Executive Directors of the Bank last service new loans. N or have defence prep­ year, Mr. Black outlined the steps which in arations as yet interfered as seriously as was his opinion the under-developed nations must anticipated with the supply of capital goods take to translate external financial assistance needed for development projects. Western into the concrete substance of development, Europe has fortunately recovered and in and he expressed the view that the Bank some respects surpassed its pre-war capacity could play a significant role in this process. to produce capital goods and to an increasing The approach which he outlined was an extent can playa part in supplying the under­ eminently practical one. It recognized that developed countries. At the same time in the process of development was many-sided view of the increasing demands of rearma- and that concentration on one aspect-for [4 ] example, excessive pushing of grandiose in­ but also in the securities markets of the dustrial projects and neglect of improvement United Kingdom and of Switzerland. in agricultural methods-was highly unde­ I have also been particularly pleased to sirable. It recognized that technical assist­ note in recent decisions of the Bank a grow­ ance and improvements in education, public ing emphasis upon the development of in­ health, and public administration were an formal contacts with its members. I feel essential part of any well-rounded program. that for both the Bank and the Fund it is I believe that this common-sense, grass­ more than ever before essential that members roots approach to the problem of economic should be encouraged to feel that they can development is to an increasing extent being with complete assurance discuss the most recognized as the one which will produce the intimate of their monetary and economic most effective results. I believe it is fair to problems. The reciprocal faith and confi­ say that as the Bank has developed its ac­ dence that such discreet and friendly con­ tacts will engender can do much to achieve tivities and its thinking along these lines, its the aims and purposes for which these insti­ authority has grown and its capacity to help tutions have been created. its members increased. We cannot overstress the need for mutual Private investors are continuing to show aid, for mutual confidence and for co-opera­ confidence in the operations of the Bank. tive effort. It is only by a steady recognition Sales of Bank bonds, from which funds are of these basic truths that we can pass through derived for loans to members, have this year the maze of conflict and find ourselves on taken place not only in the United States, the path towards better living-both na­ where the Bank's credit is well established, tionally and internationally.

• • •

ADDRESS BY EUGENE R. BLACK, PRESIDENT OF THE BANK, IN PRESENTING THE SIXTH ANNUAL REPORT OF THE BANK TO THE BOARD OF GOVERNORS, SEPTEMBER 10, 1951

When we met in Paris a year ago, the Let me put this achievement against the world was just beginning to measure the im­ background of previous fiscal years. Our plications of new and grave international first loans for projects in the less developed tension. I said at that time that unless the countries were made in 1948; in that year, worst should happen, the International Bank we made two development loans totaling 16 must and would carryon its work at an ac­ million dollars. In the following 12 months celerated pace. The Annual Report you have we made three more development loans before you shows that we have done so. amounting to 109 million dollars. In fiscal As your Chairman has remarked, the past 1950, the figures rose to eight loans and 134 fiscal year was the largest in our history. It million dollars. In this year on which we was largest in the number of loans, largest now report to you, we have made 21 loans, in the amount lent, and largest in the extent of the activities we have carried on in our totaling nearly 300 million dollars, for de­ task of helping our member nations to in­ velopment projects in 11 different countries. crease productivity and raise standards of This is twice the volume of lending for de­ living. velopment in any previous year. In fact, it [ 5 ] is more than the volume of development lend­ economic development in our member states, ing in all our earlier years put together. to the extent that those needs ought prop­ As you know, the Bank considers the man­ erly to be met on a long-term loan basis. ner of putting money to work to be no less In view of the record, it seems strange in­ important than the amount. We always have deed that suggestions are still heard that new been ready to help provide technical assist­ ways must be found to increase many times ance in both the preparation and execution over the amount of intergovernmental loans of loan projects. This type of activity, in for development purposes. Such suggestions, the past year, has been an increasingly sig­ in my experience, are usually based on large nificant part of our lending operations. but hazy calculations of what is available and Quite apart from specific Bank financing, what really can be used in the form of loan we have made growing progress in helping capital for development. They are made our member countries to assess and to real­ without consideration of the seriousness of ize more effectively their full economic po­ the obligation a country assumes when it tential. One of our instruments for pro­ incurs debt. They ignore the frustration and viding such assistance is the comprehensive bitterness a country invites when it shoulders economic survey mission, which suggests to an obligation greater than it can afford, and the receiving country policies and investment before it is really ready to put capital effec­ programs that appear most likely to accel­ tively to work. erate its development. Last year we were I would like to record my emphatic dis­ able to inform you that one such mission had agreement with suggestions of this kind. If completed its work in Colombia. This year, they divert members from a proper use of the we report that the work of this group has financial facilities available to them, if they produced specific action; we present you with distract developing countries from concrete the findings of four other groups that have objectives, they can do great harm to the worked in Turkey, Guatemala, Cuba and orderly progress of development. Uruguay; and we announce work of a similar That is not to say that there may not be kind being completed or contemplated in five other useful instruments in the field of pro­ other countries of Latin America and the viding capital, on an international basis, for N ear and Far East. economic growth. The idea has been ad­ Finally, during the year, we have increased vanced, for instance, of an international au­ our own resources; we have broadened our thority to allocate grants for development. base in the private capital markets which Under present world conditions, it does not provide the bulk of our loan funds. We sold appear likely that any significant amount of the first public offerings of our bonds in the grant capital will be provided on a truly in­ United Kingdom and in Switzerland, and ternational basis; but the idea has merits are continuing to explore opportunities to that might well be considered in a later and issue our securities outside the United States. happier day. In the American market, we raised new money for the first time since 1947 with a The proposal also has been made that an bond issue last February. The market itself international finance corporation be estab­ welcomed the news that from now on we lished as an affiliate of the International expect to be offering dollar securities, not at Bank to do two things that the Bank does widely spaced intervals as in the past, but not do: that is, to make equity investments more frequently, as our lending operations and to make loans for private enterprise require. Preparations for another offering without some form of governmental guar­ of dollar bonds are now virtually complete. antee. It may be that a corporation of this All this demonstrates the considerable and kind could do much to stimulate private in­ growing strength of the International Bank. vestment, both local and foreign. Such a It is my opinion, which I think the record result would be of the greatest advantage. adequately supports, that unless the inter­ The Bank is giving the proposal serious national situation deteriorates further, we study, and will report on the matter to the will be able to meet all the capital needs of United Nations Economic and Social Coun- [6 ] ------~------...------III

cil, at the request of that body, early next standards is through greater production. Not year. long ago, the world emerged from a great For the first time in the history of the war which made it necessary, in many areas, world the problems of development are be­ to suspend normal processes of economic ing attacked on an organized international growth. The nations have had to engage in basis. At the same time, the awakening peo­ tremendous effort and to spend enormous ples within the under-developed countries sums of money to repair the loss of those have been pressing strongly for economic years. Surely we would now court disaster betterment. These two movements have if economic development were again to be joined to bring real progress: a rise in pro­ treated as a secondary problem and more ductive capacity and the building of sound years were to be lost. foundations for further expansion. But The very increase in production which is while progress has been made, the problems now required must be based on balanced are so enormous and the attack upon them is growth. Rising industrial production cre­ so new that none of us can be satisfied with ates demands for additional supplies of raw the advances so far achieved. materials; while developed countries them­ There has been extensive discussion of selves can do much to increase their output ways and means to speed up the development of these materials, and especially of food, process. Inevitably, much of that discussion new production elsewhere is also imperative. has been in political forums, and more from The under-developed countries can hardly be the viewpoint of politics than of economics. expected to continue to supply basic com­ We are familiar with the customary lines of modities, without some reasonable return in argument-from the under-developed coun­ equipment and machinery that will enable tries that they need more assistance than them to raise their own standard of living. they are now getting, and from the developed It is therefore less than ever possible to countries that the other nations are not do­ divide production problems neatly between ing enough on their own account. There nations that are highly industrialized and are elements of truth in both assertions. those that are not; the fact is that sound in­ We are fortunate here today in that we can vestments in raw materials production and approach the subject of development from an in industrial growth, in either kind of coun­ economic-and technical-standpoint, with try, are potential contributions to the solu­ fewer political overtones. It is for that rea­ tion of a common problem. son that I believe it may be helpful to state­ I wish I could assure you that this premise, or, rather, restate-a few of the fundamental of the importance of economic development, principles which, as I see it, should be guide­ is universally accepted. But I cannot. Some posts in our attack on the problems of de­ countries have acted on it with vigor and velopment. wisdom, but there is still much that others The first such principle-and it is a truism could do. Let me mention two widely differ­ indeed-is this: Economic development is an ing aspects of the problem as they are ob­ important objective for the entire commu­ served in the Bank's operations. nity of nations. It is important to less de­ As you well know, our member countries veloped countries in terms of production, of have subscribed to the capital of the Bank standards of living and of continuing na­ partly in their own currencies, which are tional growth. It is not less important to ultimately intended for use in the Bank's countries that already have reached a high lending operations. We appreciate the diffi­ stage of development. Their own livelihood culties involved in releasing significant and their own future depend on the progres­ amounts of these capital subscriptions in the sive expansion of world production and com­ circumstances of today; yet we feel that it merce. would be worthwhile, in the pursuit of our The present international situation should common objective of development, to put illuminate rather than obscure these truths. more of these resources at the Bank's dis­ The only way to support defense prepara­ posal. Since development does serve the tions and at the same time protect living common good of all the members, we are not [7] asking for an unrewarded export of capital the fundamental conditions of which the from developed nations, but for an invest­ fever may be only a long-delayed symptom. ment which will redound to their interest Aid to development will be wasted unless and to the interest of less developed coun­ there is continuity in providing it, and, al­ tries as well. Release of the members' cur­ most equally important, unless there is a rencies, in some instances, may well mean reasonable assurance of such continuity. the difference between a useful development Moreover, if economic assistance is cast investment, including dollars, and no invest­ solely in the mould of historical friendships ment at all. or strategic considerations, it will neglect On the other side of our lending opera­ useful resources that should be developed for tions, I am sorry to have to report to you that the common good. many of the Bank's borrowers are slow in Thirdly, let me say that in my opinion too putting money to work. We certainly ap­ much emphasis is often placed on capital, preciate the care that must be taken in the particularly foreign capital, as the prime in­ commencement of any undertaking; yet I gredient of development. think we have more instances than we should We are familiar with the complaint that of an interval of many months-sometimes lack of capital impedes progress in under­ amounting to a year or more-between the developed countries, and this is undoubtedly signing of our loan contract and the accom­ true. Yet there are many other factors in­ plishment of the preliminary steps that are volved in development. Most of our member necessary to allow a development project to nations could profit by giving much more proceed. Our rate of disbursements, in rela­ attention to these factors than they do. tion to commitments, is low enough to be a The social institutions of the country, the cause of concern. distribution of wealth and opportunity These are but two instances in which the among the people, the effectiveness of the Bank finds that the importance of economic educational effort, the energy and compe­ development is not fully appreciated-in­ tence of government administration, and the stances in which development is retarded character of the policies governing the use of from causes not by any means beyond the the country's resources-these are all factors control of member nations. which bear quite as directly as foreign capi­ My second proposition is this: Economic talon the rate of development. development cannot be based on expediency Proper action in these fields is not only -political or any other kind. worthwhile in itself, but is indispensable to Political processes, of course, are the es­ the productive use of capital. It could do sence of democratic governments; and it is much to mobilize capital resources which ex­ true that in a democratic society it is often ist in nearly every under-developed country difficult for a government to take the long­ but are not fully available for development. term view. Yet development is a long-term We all know of many cases in which local process. It cannot be carried out sporadi­ capital is sent abroaq, or hoarded in the form cally; it must be approached as a matter of of gold, commodities or land that is not put broad and continuing public interest-not a to productive use. We know of countries means of promoting the interests of a par­ where individual wealth finds speculative ticular area of the country, not a means of trading profits more appealing than invest­ winning votes in a critical electoral district, ment in manufacturing or other productive not a means of satisfying the ego of political enterprises. So long as governments and sponsors. peoples do not pay sufficient attention to the The more developed nations, too, need to environment in which capital must grow and remind themselves continually that interna­ work, it is hard to see how the case could be tional aid for development ought not to be otherwise. Yet if a country cannot induce based on expediency. To be really effective, its citizens to put their own capital into pro­ they should not relate their efforts to fever ductive investments at home, it cannot rea­ charts of international tension, but rather to sonably expect to attract capital from abroad. [ 8 ] My fourth proposition is that we must con­ think, have a coherence and impact far stantly work to improve the effectiveness of greater than at present. technical assistance. So far as concerns the sectors of the econ­ The shortage of trained personnel at every omy directly concerned with production­ level is one of the greatest and most intract­ agriculture, industry, mining, power, trans­ able obstacles to development. Recent pro­ portation and the like-there is need for far grams of technical assistance, undertaken closer association of technical assistance with both bilaterally and internationally, are a financial assistance. In these fields particu­ constructive effort to help the under-devel­ larly, recommendations for improvements, oped countries meet this difficulty. Consider­ however sound, are apt to go unheeded unless able progress has been made. Many capable at the same time capital is made available to and devoted men are now hard at work, help carry out the recommendations. Good under these programs, in under-developed advice is rarely welcomed for its own sake; countries throughout the world. They daily experience demonstrates that if the advice is provide proof that the programs are sound in to be effective, it must usually be accom­ purpose. panied by something more tangible. In other As we gain experience in technical assist­ words, technical assistance in these fields ance, however, it is becoming clear that some should not be regarded as a separable activ­ revisions of approach are necessary. ity. To the extent possible, it should be in­ In an effort to get these programs started, tegrated with financial help in pursuance of a too much emphasis has been put on sending single development objective. out into the field as many experts as possible My fifth and last premise is that develop­ in just as short a time as possible. Too little ment is primarily the responsibility of the emphasis has been put on getting, in ad­ developing country itself. vance, a clear definition of their duties, re­ There is not, and cannot be, any substitute sponsibilities and status. The result often for internal effort. Foreign capital cannot has been frustration on the part of the ex­ be broadly effective in the absence of local perts; and in some recipient countries there capital. Foreign advice will be useless unless has been bewilderment at a multiplicity of there are roots for it to nurture. advisers without defined functions, and a At best, outside aid can provide only a breeding of antagonism toward the whole margin over and above what a people are concept of technical assistance. doing for themselves. It can be the margin It is essential, I think, that certain under­ between failure and success, but only when standings should be reached before any tech­ there is substantial local effort. And there nical expert is sent to the field. There should can be such an effort only when a nation has be a convincing demonstration both of a a will to develop-when there is a drive need and a desire for his services, a clear within the country itself to improve the liv­ agreement on the work he is to perform, and ing standards of its people, and a government a precise understanding of his relationship which reflects that drive. to the official whom he is to serve. Let me conclude by restating what, as I see I believe there has been far too much scat­ it, we are all seeking in this process of eco­ tering of effort in the technical assistance nomic development. Expanding world com­ programs. Assistance has been asked and merce and higher living standards are provided over the whole vast range of eco­ phrases that mean something important, but nomic and social activity, without much con­ they may obscure the fact that both the sideration for relative orders of importance. source and the object of our efforts is the There is need for more concentration of ef­ individual human being. In him is the motive fort on the fundamentals-on such things as power of what we can do, and for him are improvement of agricultural techniques, edu­ the rewards of what we can accomplish. cation, health and public administration. More clearly today than ever before, we Concentrated on these fundamentals, the pro­ know what happens when men live and are grams would be more understandable, more treated as masses, as statistics, as servants manageable, more effective-they would, I of privileged classes or as creatures of the [9 ] state. All during our lifetimes, we have seen Variety of choice is one of the things we them erupt in riot and bloodshed; we have are talking about when we talk about free­ seen them hypnotized and driven to self-de­ dom. In far too much of the world today, struction in war. The threat that faces us this element of freedom does not exist. Men today does not lie in the wilfulness of a few are likely to think they have a choice only men; it lies in their ability to control people between extremes; between slow starvation in masses, and to appeal to other masses who and quick revolution; between complete in­ may be willing to exchange one form of sub­ ertia and regimented obedience to political jugation for another. leaders who themselves may represent ex­ In that perspective, economic development tremes. can be one of the most significant and con­ I think it is obvious that a world of free structive activities of our time. Through men would be far more stable and peaceful development, we can help give men a chance than the one around us today. I think it is to satisfy their aspirations not as a mob but obvious that economic development is an in­ as individuals. For one of the striking char­ dispensable tool for providing the richness acteristics of a developed society is the great of alternatives that makes up a world of free variety of choice it can offer to individuals; men. If I am right, that our objective is to a choice not merely of one 20th century con­ protect and enlarge the freedom of the in­ venience over another, but a choice of work, dividual, it is an objective that is surely of careers, of living places, of ideas and of worth all the energy we can devote to its leadership. achievement.

• •

[10 ] COMMITTEE REPORTS

JOINT PROCEDURES COMMITTEE Chairman ______CANADA V ice Chairman ______ITALy Rep orting M emb er ______CUBA

Other Members: AUSTRIA, BELGIUM, CHILE, CHINA, FRANCE, INDIA, PAKISTAN, UNITED KINGDOM, UNITED STATES

Report No. 11

September 10, 1951

The Joint Procedures Committee, at its first meeting at 9 :30 a.m. on September 10, 1951, considered the matters of business which had been proposed for the Sixth Annual Meeting of the Boards of Governors of the Bank and the Fund. I have the honor to submit the following recommendations of the Committee:

I. Business of the Board of Governors of the Bank A. Agenda The Committee recommends that: 1. The agenda attached as Annex I be adopted and that Item 9 thereon be considered first at the first business session of the Joint Boards of Governors.2 2. After the adoption of the initial agenda, proposed additions to the agenda be sub­ mitted in writing to the Procedures Committee, through the Chairman, for its rec­ ommendations thereon.

B. Committee The Committee recommends that: 1. A Committee on Finance and Organization be established as shown in Annex II. 2. The items shown in Annex III be referred to the Committee on Finance and Organ­ ization for report to the Board of Governors.

C. Bank Informal Discussion The Committee recommends that: 1. There be an Informal Discussion between the Board of Governors, the President and certain officers of the Bank on important policies and activities of the Bank as shown in Annex IV. 2. The Informal Discussion be in addition to the formal session to discuss the Bank's Annual Report.

1 Fund business omitted.

2 See page 27.

[ 11 ] D. Item for Information 1 The Committee considered the Report of the Executive Directors on Decision Interpreting the Articles of Agreement of the Bank (Bank Document No.7) and recommends that the Board of Governors, without taking other action, note this document as having been received for information.

II. Business of the Board of Governors of the Fund 2

III. Procedural Matters of Joint Concern to the Bank and the Fund

A. Order of Business The Committee recommends that: 1. The order of business tentatively scheduled in Annex VIII be adopted.3 2. The Secretaries of the Bank and the Fund, in consultation with the Chairman, be authorized to change the schedule, if necessary, as the work of the Meeting pro­ gresses.

B. Conduct of Meeting The Committee recommends that the provisions relating to the conduct of the Meeting, as contained in Annex IX, be approved.

C. Procedural Items The following procedural items will be dealt with in a later report of this Committee to the J oint Boards of Governors: 4 1. Place and date of Seventh Annual Meeting. 2. Election of Officers and Joint Procedures Committee for 1951-52.

Approved:

/s/ DOUGLAS C. ABBOTT /s/ LUIS MACHADO Chairman Reporting Member (Canada) (Cuba)

This Report was approved and its recommendations were adopted by the Boards of Governors at the Joint Session on September 10, 1951.

1 See pages 42 to 43. • Fund business omitted. • Annexes V-VII related to business of the Fund. 'See Joint Procedures Committee Report No.2, page 17.

[ 12] ANNEX I

AGENDA 1. Sixth Annual Report of the Bank 2. Financial Statements and Annual Audit 3. Administrative Budget for Fiscal Year ending June 30, 1952 4. Allocation of Income by Executive Directors to Reserve 5. Bond Regulation No. 1 of the Bank 6. Revised Loan Regulations Nos. 3 and 4 of the Bank 7. Payments due of Postponed Portions of Capital Subscriptions of China and Czechoslovakia 8. Relationship with United Nations-General Assembly Resolution 377 (V) entitled "Unit­ ing for Peace" and related ECOSOC Resolution 363 (XII) of March 14, 1951 9. "Draft Resolution to be submitted by the Governor for Czechoslovakia Proposing Ex­ clusion of the Kuomintang Group from all Organs of the Bank" 10. Place and Date of Seventh Annual Meeting 11. Election of Officers and Procedures Committee for 1951-52

Item for Information 12. Decision Interpreting Articles of Agreement of the Bank

ANNEX II

COMMITTEE ON FINANCE AND ORGANIZATION Chairman ------____ ---______CEYLO N Vice Chairman ------______------_PANAMA Reporting M ember ------______------ICELAND

BRAZIL ETHIOPIA PHILIPPINES CHINA FINLAND SWEDEN COLOMBIA FRANCE UNION OF SOUTH AFRICA COSTA RICA INDIA UNITED KINGDOM CZECHOSLOVAKIA IRAQ UNITED STATES DOMINICAN REPUBLIC NETHERLANDS VENEZUELA

[13 ] ANNEX III

COMMITrEE ON FINANCE AND ORGANIZATION

Terms of Reference For consideration and report to the Board of Governors: 1. Financial Statements and Annual Audit (Appendices "A" to "G" of Sixth Annual Report) 2. Administrative Budget for Fiscal Year ending June 30, 1952 (Appendix "H" of Sixth Annual Report) 3. Allocation of Income by Executive Directors to Reserve (Report of the Executive Directors) 4. Bond Regulation No.1 of the Bank (Report of the Executive Directors) 5. Revised Loan Regulations Nos. 3 and 4 of the Bank (Report of the Executive Directors) 6. Payments due of Postponed Portions of Capital Subscriptions of China and Czechoslovakia (Report of the Executive Directors) 7. Relationship with United Nations-General Assembly Resolution 377 (V) entitled "Uniting for Peace" and related ECOSOC Resolution 363 (XII) of March 14, 1951 (Report of the Executive Directors)

ANNEX IV

INFORMAL DISCUSSION

Subject of Discussion Administration of Bank's Loans; Policies and Procedures Followed by the Bank in relation to Loans, after Signature of Loan Contracts. I. Introductory Remarks II. International Bidding III. Procurement of Supplies IV. Procurement of Currencies V. Disbursement and Project Follow-up VI. Economic Follow-up VII. Summary VIII. Discussion [14 ]

------_._-- ANNEX VIII

PROVISION AL SCHEDULE

MONDAY -September 10- 9 :30 a.m.-Joint Procedures Committee 11 :40 a.m.-Opening Ceremonies 12 : 15 p.m.-Opening Session-Joint: Report of Joint Procedures Committee 4 :00 p.m.-Presentation of Bank Annual Report TUESDAY -September 11-10 :00 a.m.-Presentation of Fund Annual Report 11 :00 a.m.-Fund Annual Report Discussion 2 :30 p.m.-Bank Annual Report Discussion 4 :30 p.m.-Fund Committee on Payments, Par Values and Gold WEDNESDAy-September 12-10 :00 a.m.-Bank Committee on Finance and Organization 11 :30 a.m.-Fund Committee on Finance and Organization 3 :30 p.m.-Fund Committee on Exchange Restrictions and Fund Transactions THURSDAY -September 13-10 :00 a.m.-Bank Informal Discussion 2 :30 p.m.-Bank Board: Committee Report 4:00 p.m.-Fund Board: Committee Reports FRIDAY -September 14-11 :00 a.m.-Joint Procedures Committee 3 : 00 p.m.-Closing Session-Joint: Report of Joint Procedures Committee

[ 15] ANNEX IX

PROVISIONS RELATING TO THE CONDUCT OF THE MEETING Attendance (a) Joint sessions of the Boards of Governors of the Bank and Fund and the sessions at which the Annual Reports are presented shall be open to the press and public; other sessions of the Boards of Governors, committee meetings and informal discussions shall be closed to the press and public. (b) Accredited observers may attend all sessions of the Boards of Governors and their committees, other than the Joint Procedures Committee, unless a committee decides otherwise. (c) Committee meetings, with the exception of the Joint Procedures Committee, shall be open to Governors and Alternate Governors who are not members of the committee, and their advisors. (d) Meetings of the Joint Procedures Committee shall be open only to Governors and Alternate Governors and one advisor for each member country represented on the committee. (e) Sessions of the Boards of Governors, committee meetings and informal discussions shall be open to such members of the joint secretariat and the technical staffs as may be necessary to the orderly conduct of business. (f) Accredited observers wishing to speak at meetings shall consult the Chairman in advance.

Public Information The Chairman of the Boards of Governors, the President of the Bank and the Managing Director of the Fund are authorized to communicate to the press such information con­ cerning the proceedings of the Sixth Annual Meeting as they deem suitable.

Records (a) The Secretaries of the Bank and Fund are authorized to have prepared verbatim transcripts of the proceedings of the sessions of the Boards of Governors, committees and informal discussions. The transcripts of committees and informal discussions will be kept confidential and made available only to the Chairman, the Managing Director of the Fund and the President of the Bank. (b) The Secretaries are authorized to have prepared summary records of all proceedings of the committees. (c) Reports of committees shall be signed by the Committee Chairman and the Reporting Member.

[ 16 ] Report No.2

September 14, 1951

I have the honor to submit the Report of the Joint Procedures Committee on its second meeting which was held at 11 :00 a.m. September 14, 1951.

I. Place and Date of Seventh Annual Meeting The Committee considered the question of the place and date of the Seventh Annual Meet­ ing. The Committee noted the ratification by the Government of Mexico of its invitation to hold the Seventh Annual Meeting of the Boards of Governors in Mexico City, in 1952. With regard to the timing of Annual Meetings in general it is recommended that, in order to define more clearly the time reserved for meetings of the Boards of Governors and thus avoid conflicting with meetings of other international organizations, meetings of the Boards of Governors generally be convened in the first half of September. I have the honor, in the name of the Committee, to recommend acceptance of the kind invitation of the Government of Mexico and the adoption of the draft resolutions attached hereto as Annex 1. 1

II. Officers for Ensuing Year The Committee next considered the question of officers of the Boards of Governors for the ensuing year, and agreed to recommend that the Governor for Brazil be elected Chairman for the ensuing year and the Governors for China, France, India, the United Kingdom and the United States be elected Vice Chairmen. In the name of the Committee, I have the honor to recommend to the Boards of Governors the adoption of the draft resolutions attached hereto as Annex IV

III. Composition of Procedures Committees for Ensuing Year The Committee then considered the composition of the Procedures Committees of the Bank and the Fund for the ensuing year. I have the honor, in the name of the Committee, to recommend to the Boards of Governors the adoption of the draft resolutions attached hereto as Annex III,! which propose that the Procedures Committees consist of the Governors for Brazil, Chairman; Australia, Vice-Chairman; Lebanon, Reporting Member; and China, Fin­ land, France, India, Luxembourg, Mexico, the Philippines, the United Kingdom and the United States.

Approved: /s/ DOUGLAS C. ABBOTT /s/ LUIS MACHADO Chairman Reporting Member (Canada) (Cuba)

This Report was approved and its recommendations were adopted by the Boards of Governors at the final Joint Session, September 14,1951.

1 See Resolutions Nos. 65 to 67 on page 26.

[ 17] REPORT OF COMMITTEE ON FINANCE AND ORGANIZATION September 13, 1951 Chairman ______CEyLON

V ice C ha~~rman ______P AN AMA Reporting M em ber ______--______ICELAND Other Members: BRAZIL, CHINA, COLOMBIA, COSTA RICA, CZECHO- SLOVAKIA, DOMINICAN REPUBLIC, ETHIOPIA, FINLAND, FRANCE, INDIA, IRAQ, NETHERLANDS, PHILIPPINES, SWEDEN, UNION OF SOUTH AFRICA, UNITED KINGDOM, UNITED STATES and VENEZUELA

I have the honor to report that the Committee on Finance and Organization met at 10 :00 a.m. on Wednesday, September 12, 1951, and considered the following Agenda items: (1) Financial Statements and Annual Audit (2) Administrative Budget for Fiscal Year ending June 30, 1952 (3) Allocation of Income by Executive Directors to Reserve (4) Bond Regulation No.1 of the Bank (5) Revised Loan Regulations Nos. 3 and 4 of the Bank (6) Payments due of Postponed Portions of Capital Subscriptions of China and Czecho­ slovakia (7) Relationship with United Nations-General Assembly Resolution 377 (V) entitled "Uniting for Peace" and related ECOSOC Resolution 363 (XII) of March 14, 1951 The President commented briefly on several of the matters before the Committee.

Financial Statements, Annual Audit and Administrative Budget The following documents, attached as Appendices "A" to "G," inclusive, to the Sixth Annual Report, were then considered: A. Balance Sheet-June 30, 1951 B. Comparative Statement of Income and Expenses for the Fiscal Years ended June 30, 1950, and June 30, 1951 C. Statement of Loans-June 30, 1951 D. Statement of Currencies held by the Bank-June 30, 1951 E. Statement of Subscriptions to Capital Stock and Voting Power-June 30, 1951 F. Notes to Financial Statements-June 30, 1951 G. Opinion of Independent Auditor

The Committee also considered the Administrative Budget for the fiscal year ending June 30, 1952, attached as Appendix "H" to the Annual Report, and a written statement of the President giving additional information concerning the Budget. The Budget was prepared in accordance with Section 19 of the By-Laws and approved by the Executive Directors. The Governor for the United Kingdom re-emphasized, in the light of the Bank's expanding operations, the continuing need for economy, both for its own sake and to give no occasion for the kind of public criticism so often directed at international organizations in this regard. He [ 18]

------,._------also stated that, in view of the improved position of many under-developed countries, it would be desirable, and not ungenerous, to request them to make substantial contributions towards the cost of the Bank's assistance to them. He urged that efforts to coordinate the activities of the Bank and the Fund be vigorously pursued. In the name of the Committee, I have the honor to recommend to the Board of Governors the adoption of the draft resolution on the Financial Statements and Budget attached hereto as Annex I.l The President informed the Committee that the Executive Directors had approved for the staff of the Bank a Group Life Insurance Plan in which neither the Executive Directors nor their Alternates were included. He stated further that he proposed to make provision for the inclusion of the Executive Directors and their Alternates in the Plan, at their option, and recommended that the Board of Governors note this proposal with approval. The Committee joins in this recommendation.

Allocation of Income to Reserve The Committee considered the Report dated August 21, 1951, of the Executive Directors on the Allocation of Income to Reserve and concurs in the recommendations of the Executive Directors. In the name of the Committee, I have the honor to recommend that the Board of Governors note with approval the allocation, in accordance with resolutions previously adopted by the Board of Governors and by the Executive Directors, of the net income of the Bank for the fiscal year ended June 30, 1951, to the General Reserve.

Bond Regulation No.1 of the Bank The Committee considered the Report, dated August 21, 1951, of the Executive Directors regarding Bond Regulation No. 1 of the Bank. In the name of the Committee I have the honor to recommend that the Board of Governors notify the Executive Directors that they have reviewed and noted Bond Regulation No.1 of the Bank.

Revised Loan Regulations Nos. 3 and 4 of the Bank The Committee then considered the Report, dated August 21, 1951, of the Executive Direc­ tors concerning Revised Loan Regulations Nos. 3 and 4 of the Bank. I have the honor in the name of the Committee to recommend that the Board of Governors notify the Executive Directors that they have reviewed and noted Revised Loan Regulations Nos. 3 and 4 of the Bank.

Payments Due of Postponed Portions of Capital Subscriptions of China and Czechoslovakia The Committee considered the Report, dated August 31, 1951, of the Executive Directors of the Bank concerning the Payments due of the Postponed Portions of the Capital Subscrip­ tions of China and Czechoslovakia. The Governor for Czechoslovakia stated that, while in agreement with the recommenda­ tion of the Executive Directors, he reserved for his government such action, if any, as it might desire to take, including the making of payment. The Governor for the United States spoke in support of the action and recommendation of the Executive Directors. I have the honor to recommend in the name of the Committee that the Board of Governors approve the Report of the Executive Directors and adopt the recommendations contained therein that no action be taken at this time by the Board of Governors with respect to China or Czechoslovakia under the provisions of Article VI, Section 2, of the Articles of Agreement of the Bank.

1 See Resolution No. 63 on page 26. [ 19 ] Relationship with United Nations-General Assembly Resolution 377 (V) Entitled "Uniting for Peace" and Related ECOSOC Resolution 363 (XII) of March 14, 1951 The Committee then considered the Report of the Executive Directors dated August 21, 1951, concerning the action to be taken by the Bank in respect of United Nations Assembly Resolution 377 (V) entitled "Uniting for Peace" and Economic and Social Council Resolution 363 (XII). Czechoslovakia and India spoke in opposition to the draft resolution proposed by the Executive Directors for adoption by the Board of Governors. The Governor for the United States spoke in support of the draft resolution and the Governor for the United Kingdom asso­ ciated himself with his remarks. The Governor for Finland stated that since Finland is not a member of the United Nations, he wished to be recorded as abstaining from comment on the proposed resolution. In the name of the Committee I have the honor to recommend that the Board of Governors approve the Report of the Executive Directors and adopt the draft resolution attached hereto as Annex IV

Marketing Activities of the Bank A statement was made by Mr. George L. Martin, Director of Marketing of the Bank, on the marketing activities of the Bank.2

Approved: /s/ J. R. JAYAWARDENE /s/ JON ARNASON Chairman Reporting Member (Ceylon) (Iceland)

This Report 'Was app1'oved by the Board of Governors on September 14, 1951.

1 See Resolution No. 64 on page 26. • See page 21.

[20 ] REPORT ON MARKETING ACTIVITIES OF THE BANK

Statement by the Director of Marketing of the Bank to the Committee on Finance and Organization, September 13, 1951

Although the Annual Report sets out in of holders of our securities by "explaining" considerable detail the operations of the Mar­ the Bank to those who do not hold them. It keting Department, it may be helpful to is hard to realize that many investment coun­ summarize these activities. Also the report sellors, savings banks and other institutions covers for the most part the results for the still are not holders largely because they do fiscal year whereas our real results have been not understand what we have to offer. I am obtained in the past seven months; viz., the sure that we will be able to report each year latter part of February 1951 to date. a marked increase in the number of holders We have sold in that period four issues of of our securities. Within the past two months bonds: your President has himself tackled several very large institutions which we had every $50,000,000 United States 25-year 3 ,/,0 reason to believe would not consider our Bonds bonds for investment. I am pleased to say £5,000,000 20-year 31f2's that two of those institutions bought hand­ Sw. Fr. 50,000,000 12-year 31f2's some blocks of our new issue of 3% % bonds $100,000,000 United States 30-year 3%'s and other institutions should follow soon. As pointed out in the report, we employed All of this has been accomplished in spite the rather unique system of securing 32 spon­ of some very profound changes in the bond sors for the issues in the United States and market both here and abroad, reflected in those sponsors, in turn, have distributed the generally higher interest rates. The Swiss bonds through a selling group of approxi­ loan early this year as 3's required 112 of 1 % mately 400 banks and investment dealers additional interest and a shortening of ma­ throughout the United States. Thus the out­ turity. Likewise in England the interest standing banks and dealers of the country rate was increased and because of this gen­ have been included in one group never be­ eral increase in rates a proposed issue in fore brought together in this way. The sell­ another member country was not consum­ ing group was widely located, assuring the mated. best possible distribution. Marketing activities included, as shown As was the case here, we had the finest in the report, sales of rather substantial sponsorship available in both England and amounts of our portfolio to private investors Switzerland. This is of the greatest impor­ without our guarantee. This is concrete evi­ tance for the future success of our borrowing dence of the following: (1) the soundness of operations. It means we have the active sup­ the Bank's loans, (2) improvement in the port of the entire investment and banking affairs of borrowers resulting from our loans, fraternity which insures the favorable re­ and (3) acceptance by the private market of ception by an ever increasing number of in­ the Bank's appraisal of the situations in­ vesting banks, insurance companies, pension volved. We expect a continuation of these and trust funds at reasonable rates. Again operations. heavy oversubscriptions were received with Returning to markets for our own bonds small allotments. -I want to point out that a principal func­ The Marketing Department is constantly tion of the Marketing Department is the in touch with as many of these investors as constant effort to know where our bonds are possible and endeavoring to broaden the list held, who may wish for various reasons to [21 ] dispose of them, and who are or might be satisfactory levels, making possible loans at interested in buying. We try to bring buyer the lowest reasonable interest, are quite ap­ and seller together with no profit to our­ parent. Further, the international charac­ selves. We have had rather good success ter of the Bank is demonstrated by both bor­ and have been instrumental in placing and rowing and lending in as many member coun­ replacing upwards of 35 to 40 million during tries as possible. the past twelve months. Most important has We have also urged with some success spe­ been the placing with central banks of mem­ cial treatment of our bonds in various coun­ ber countries of the greater proportion of tries so that insurance companies, foreign this amount. Besides bringing buyer and banks and local investors can have these seller together, these purchases have proved prime investments constantly available. In­ very profitable investments to the banks in­ deed this may well be a keystone in the de­ volved. Our bonds are generally exempt velopment of local capital markets desired from a 30% withholding income tax. Net by all. We urge your study of such changes returns, therefore, are indeed favorable and for the good of all concerned. we urge a thorough examination into this In closing may I invite your inquiries at all by all of our members. The advantages of times, be they relative to actual buying and assisting in keeping a stable market, insur­ selling or to necessary local legislation or to ing ample borrowing powers of the Bank at marketing problems in general.

[22 ] RESOLUTIONS ADOPTED BY THE BOARD OF GOVERNORS BETWEEN FIFTH AND SIXTH ANNUAL MEETINGS Resolution No. 61

TERMS AND CONDITIONS ON WHICH BURMA SHALL BE ADMITTED TO MEMBERSHIP IN THE BANK WHEREAS, the Government of Burma has applied for admission to membership in the International Bank for Reconstruction and Development in accordance with Section 1 (b) of Article II of the Articles of Agreement of the Bank; and WHEREAS, pursuant to Section 20 of the By-Laws of the Bank, the Executive Directors, after consultation with representatives of the Government of Burma have made recommenda­ tions to the Board of Governors with regard to the application of said Government for admis­ sion to membership in the Bank; NOW, THEREFORE, the Board of Governors, having considered the recommendations of the Executive Directors, hereby RESOLVES: THAT the terms and conditions upon which the Government of Burma shall be admitted to membership in the Bank shall be as follows: 1. Definitions: As used in this resolution: (a) The term "Burma" means the Government of Burma. (b) The term "Bank" means International Bank for Reconstruction and Development. (c) The term "Articles" means the Articles of Agreement of the Bank. (d) The term "dollars" or "$" means United States dollars of the weight and fineness in effect on July 1, 1944. (e) The term "subscription" means the capital stock of the Bank subscribed to by a member. (f) The term "member" means member of the Bank. 2. Subscription: By accepting membership in the Bank, Burma shall subscribe to 150 shares of the capital stock of the Bank at the par value of $100,000 per share. 3. Membership in the Fund: Before accepting membership in the Bank, Burma shall accept membership in and become a member of the International Monetary Fund. 4. Payments on Subscription: (a) Before accepting membership in the Bank, Burma shall pay to the Bank: (i) Gold or United States dollars equal to 2 % of its subscription, without any right to postpone payment of any part thereof under Section 8 (a) of Article II of the Articles; and (ii) An amount in the currency of Burma which, at the appropriate prevailing exchange rate, shall be equal in value to 18 % of its SUbscription. (b) Burma shall agree that, if it tenders any part of the payment called for in para­ graph (a) (i) above in gold, the Bank shall have the right to reject any such gold which, in its opinion, may not be sold freely and unconditionally by the Bank to members requiring certification or other evidence as to the origin of gold pur­ chased by them. 5. Representation and Information: Before accepting membership in the Bank, Burma shall represent to the Bank that it has taken all action necessary to sign and deposit the instrument of acceptance and sign the Articles as contemplated by paragraph 6 (a) and (b) of this resolution and Burma shall furnish to the Bank such information in respect of such action as the Bank may request. [23 ] 6. Acceptance of Membership: After the Bank shall have informed the Government of the United States of America that Burma (i) has made the payments called for by para­ graph 4 of this resolution; (ii) has made the representation called for by paragraph 5 of this resolution; and (iii) has furnished the information requested by the Bank pur­ suant to said paragraph 5, and after Burma shall have become a member of the Inter­ national Monetary Fund, Burma shall become a member of the Bank, with a subscrip­ tion as set forth in paragraph 2 of this resolution, as of the date when Burma shall have complied with the following requirements: (a) Burma shall deposit with the Government of the United States of America an in­ strument stating that it has accepted in accordance with its law the Articles and all the terms and conditions prescribed in this resolution, and that it has taken all steps necessary to enable it to carry out all its obligations under the Articles and this resolution; (b) Burma shall sign the original copy of the Articles held in the Archives of the Government of the United States of America. 7. Limitation on Period for Acceptance of Membership: Burma may accept membership in the Bank pursuant to this resolution until October 15, 1951; provided, however, that, if extraordinary circumstances are deemed by the Executive Directors to warrant an extension of the period during which Burma may accept membership pursuant to this resolution, the Executive Directors may extend such period until such later date as they may determine, but in no event beyond April 15, 1952. (Adopted May 15, 1951)

Resolution No. 62

TERMS AND CONDITIONS ON WHICH SWEDEN SHALL BE ADMITTED TO MEMBERSHIP IN THE BANK WHEREAS, the Government of Sweden has applied for admission to membership in the International Bank for Reconstruction and Development in accordance with Section 1 (b) of Article II of the Articles of Agreement of the Bank; and WHEREAS, pursuant to Section 20 of the By-Laws of the Bank, the Executive Directors, after consultation with representatives of the Government of Sweden have made recommenda­ tions to the Board of Governors with regard to the application of said Government for admis­ sion to membership in the Bank; NOW, THEREFORE, the Board of Governors, having considered the recommendations of the Executive Directors, hereby RESOLVES: THAT the terms and conditions upon which the Government of Sweden shall be admitted to membership in the Bank shall be as follows: 1. Definitions: As used in this resolution: (a) The term "Sweden" means the Government of Sweden. (b) The term "Bank" means International Bank for Reconstruction and Development. (c) The term "Articles" means the Articles of Agreement of the Bank. (d) The term "dollars" or "$" means United States dollars of the weight and fineness in effect on July 1, 1944. (e) The term "subscription" means the capital stock of the Bank subscribed to by a member. (f) The term "member" means member of the Bank. 2. Subscription: By accepting membership in the Bank, Sweden shall subscribe to 1,000 shares of the capital stock of the Bank at the par value of $100,000 per share. [24 ] 3. Membership in the Fund: Before accepting membership in the Bank, Sweden shall accept membership in and become a member of the International Monetary Fund. 4. Payments on Subscription: (a) Before accepting membership in the Bank, Sweden shall pay to the Bank: (i) Gold or United States dollars equal to 2 % of its subscription; and (ii) An amount in the currency of Sweden which, at the appropriate prevailing exchange rate, shall be equal in value to 18% of its subscription. (b) Sweden shall agree that, if it tenders any part of the payment called for in para­ graph (a) (i) above in gold, the Bank shall have the right to reject any such gold which, in its opinion, may not be sold freely and unconditionally by the Bank to members requiring certification or other evidence as to the origin of gold purchased by them. 5. Representation and Information: Before accepting membership in the Bank, Sweden shall represent to the Bank that it has taken all action necessary to sign and deposit the instrument of acceptance and sign the Articles as contemplated by paragraph 6 (a) and (b) of this resolution and Sweden shall furnish to the Bank such information in respect of such action as the Bank may request. 6. Acceptance of Membership: After the Bank shall have informed the Government of the United States of America that Sweden (i) has made the payments called for by para­ graph 4 of this resolution; (ii) has made the representation called for by paragraph 5 of this resolution; and (iii) has furnished the information requested by the Bank pur­ suant to said paragraph 5, and after Sweden shall have become a member of the Inter­ national Monetary Fund, Sweden shall become a member of the Bank, with a subscrip­ tion as set forth in paragraph 2 of this resolution, as of the date when Sweden shall have complied with the following requirements: (a) Sweden shall deposit with the Government of the United States of America an instrument stating that it has accepted in accordance with its law the Articles and all the terms and conditions prescribed in this resolution, and that it has taken all steps necessary to enable it to carry out all its obligations under the Articles and this resolution; (b) Sweden shall sign the original copy of the Articles held in the Archives of the Government of the United States of America. 7. Limitation on Period for Acceptance of Membership: Sweden may accept membership in the Bank pursuant to this resolution until August 31, 1951; provided, however, that, if extraordinary circumstances are deemed by the Executive Directors to warrant an extension of the period during which Sweden may accept membership pursuant to this resolution, the Executive Directors may extend such period until such later date as they may determine, but in no event beyond March 1, 1952. (Adopted July 6, 1951)

[25 ] RESOLUTIONS ADOPTED BY THE BOARD OF GOVERNORS AT SIXTH ANNUAL MEETING Resolution No. 63

FINANCIAL STATEMENTS AND BUDGET RESOLVED: THAT the Board of Governors consider the Financial Statements, Auditors' Report and Administrative Budget, included as exhibits" A" to "H" inclusive, of the Sixth Annual Report, as fulfilling the requirements of Article V, Section 13, of the Articles of Agreement and of Section 19 of the By-Laws.

Resolution No. 64 UNITED NATIONS ASSEMBLY RESOLUTION 377 (V) ENTITLED "UNITING FOR PEACE" WHEREAS the General Assembly of the United Nations on November 3, 1950 adopted a Resolution entitled "Uniting for Peace"; NOW, THEREFORE, the Board of Governors, taking note of the said Resolution, hereby resolves: THAT the Bank, in the conduct of its activities, shall have due regard for recommenda­ tions of the General Assembly made pursuant to the said Resolution for the maintenance or restoration of international peace and security.

Resolutions Nos. 63 and 64 'Were adopted by the Board of Governors on September 13, 1951. Resolution No. 65 PLACE AND DATE OF SEVENTH ANNUAL MEETING RESOLVED: That the Chairman shall convene the Seventh Annual Meeting of the Board of Governors of the International Bank for Reconstruction and Development in Mexico City in the first half of the month of September, 1952. Resolution No. 66 OFFICERS OF BOARD OF GOVERNORS FOR 1951-52 RESOLVED: That the Governor for Brazil is hereby elected Chairman, and the Governors for China, France, India, the United Kingdom, and the United States, are hereby elected Vice Chairmen of the Board of Governors of the International Bank for Reconstruction and Development, to hold their respective offices until the election of officers of the International Bank for Recon­ struction and Development takes place at the close of the next annual meeting.

Resolution No. 67

COMPOSITION OF PROCEDURES COMMITTEE FOR 1951-52 RESOLVED: That a Procedures Committee be hereby established, to be available after the termination of this meeting, and until the election of officers of the International Bank for Reconstruction and Development takes place at the next annual meeting, for consultation at the discretion of [26 ]

------_.__ ._------the Chairman, normally by correspondence, and also if occasion requires by convening imme­ diately before the annual meeting of the Board. The Procedures Committee shall consist of the Governors for the following members: AUSTRALIA FINLAND LEBANON PHILIPPINES BRAZIL FRANCE LUXEMBOURG UNITED KINGDOM CHINA INDIA MEXICO UNITED STATES The Chairman, Vice Chairman and Reporting Member shall be the Governors for Brazil, Australia, and Lebanon, respectively. Resolutions Nos. 65-67 were adopted by the Board of Governors at the Joint Session on September 14, 1951.

DRAFT RESOLUTION SUBMITTED BY THE GOVERNOR FOR CZECHOSLOVAKIA TO THE BOARD OF GOVERNORS OF THE BANK AT THE SIXTH ANNUAL MEETING WHEREAS China is one of the original signatories of the Bretton Woods agreements as a member of the International Monetary Fund and of the International Bank for Recon­ struction and Development, WHEREAS the Kuomintang Group does not exercise control over the territory of China, is not recognized by the Chinese People, and is incapable of fulfilling ·and carrying out the obligations of a member of the International Monetary Fund and of the International Bank for Reconstruction and Development, WHEREAS the Central People's Government of the Chinese People's Republic established in October 1949 is the only lawful representative of the Country, WHEREAS the Foreign Minister of the Central People's Government of the Chinese People's Republic has notified both institutions that his Government does not recognize the representatives of the Kuomintang Group as delegates of China, The Sixth Annual Meeting of the Boards of Governors of the International Monetary Fund and of the International Bank for Reconstruction and Development decides that the representa­ tives of the Kuomintang Group shall be immediately excluded from all organs of the Inter­ national Monetary Fund and of the International Bank for Reconstruction and Development. The Governor for the United States moved, and the Governor for the United Kingdom seconded, that no action be taken on the draft resolution subm,itted by the Gove1'nor for Czechoslovakia. On vote by a show of hands, the motion of the Governor for the United States was adopted, September 10,1951.

[27 ] SUMMARIES OF STATEMENTS OF OFFICERS OF THE BANK AT INFORMAL DISCUSSION OF SIXTH ANNUAL MEETING

INTRODUCTION OF DISCUSSION

W. A. B. ILIFF, Assistant to the President

Last year during the Governors' meeting in Ethiopia, or, as in the case of one of the in Paris, the President thought it might be Bank's loans to Thailand, the establishment useful, . and of some interest, if the Gover­ of an autonomous port authority to operate nors, in an informal session, were given some and administer the Port of Bangkok. account of the policies and procedures fol­ Let us assume, however, that all the neces­ lowed by the Bank in its approach to its sary steps have been taken to make the loan lending operations. effective and that a loan account in the name This year, Mr. Black has thought that it of the Borrower has been opened in the books may be appropriate to carryon the story a of the Bank. stage further. My colleagues who are beside me here We propose to take it up today from the today will now speak about the policies and point where the negotiations leading up to a procedures which the Bank follows in the loan have been completed, and a loan agree­ processes of what I can best describe as ment has actually been signed. Normally, putting-the-Ioan-to-work, and its aftercare. certain steps are necessary before a loan In the course of their presentation, they will agreement becomes effective, that is to say, deal with the placing of contracts; the pro­ before the Borrower is entitled to draw down curement of the needed equipment; the pro­ on the loan. curement by the Bank of the funds to be put For example, the Bank requires satisfac­ at the Borrower's disposal to pay for this tory evidence that the loan agreement and equipment; the manner in which the loan is the guarantee agreement (if there is one) disbursed to the Borrower; the steps which constitute a valid and binding obligation of the Bank takes to follow up the progress of the Borrower or the Guarantor, as the case the programme or project which it is financ­ may be. Not infrequently, this may necessi­ ing; and, finally, the relationship which the tate the enactment of ratifying legislation in Bank seeks to establish and maintain with the Parliament or Congress of the member the Borrower and the Guarantor on matters state concerned. relevant to the service of the loan. In some cases, it may be necessary, also, The first speaker in this presentation will that the Borrower should set up some or­ be General Wheeler. ganization or mechanism essential to the General Wheeler is the Engineering Ad­ proper operation of the project which the visor of the Bank. He will discuss the ex­ Bank loan is financing; for example, the tent to which the Bank interests itself in the formation of a public highway authority, as placing of contracts for a Bank-financed in the case of the Bank loan for the rehabili­ project, with special reference to interna­ tation and improvement of the road network tional bidding.

• • •

[28 ] INTERNATIONAL BIDDING GENERAL R. A. WHEELER, Engineering Advisor to the Loan Director

Where the proceeds of a Bank loan are to considered only when tendered by bid­ be used to finance a specific project (for ex­ ders who are demonstrably qualified to ample, a hydro-electric power plant or a tele­ carry out the work, or to supply the equip­ communications installation) competitive ment, or to render the services, that the bidding, on an international basis, for equip­ contract requires. ment, materials and services to be used in Secondly: Those who are invited to sub­ the project, is a matter of considerable im­ mit bids must have confidence that the portance, not only to the Borrower but also contract will be awarded to the bidder to the Bank. who, having regard to all the circum­ To the Borrower, it is of obvious inter­ stances, tenders the most favorable bid. est that the cost of a project should be kept Thirdly: The plans and specifications at the lowest possible figure, having regard advertised in the invitations for tenders to all the circumstances. The lower the con­ should be carefully prepared and complete struction costs, the lower will be the finan­ in detail. cial charges and, in consequence, the more If these principles are observed, very sub­ economical will be the cost of operations. stantial savings in costs will accrue. If they To the Bank, the principle is also of ob­ are ignored, reputable firms will decline to vious concern; the more economically the tender, and the project will be denied the Bank can spread its loanable resources, the benefits of adequate competition. greater will be their impact in terms of Those of the Bank's Borrowers who have physical projects actually completed. More­ experience in the field of large construction over, as an international co-operative insti­ enterprises have no need to be convinced of tution, the Bank regards it as appropriate the importance of these principles. But that all member countries, who are in a posi­ where a Borrower lacks this experience, he tion to supply the goods or services which will be well advised-and the Bank so ad­ the Bank is financing, should be given an vises him-to retain the services of a qual­ opportunity to do so in a field of fair com­ ified consultant to act for him in the deter­ petition. mination of the qualification of bidders, in The usual form which Bank participation the preparation of specifications, and in the takes is the financing of imported equip­ analysis of bids. ment, materials and services necessary for The Bank never proposes that a particular the execution of a project. In these circum­ contract should be placed by the Borrower stances, maximum competition can be de­ with a particular firm. Nor does the Bank veloped only on the basis of international ever suggest that competition should be re­ bidding. The Bank has therefore deliber­ stricted to any group of firms. The selec­ ately adopted the policy of encouraging its tion of the list of bidders from whom tenders Borrowers to invite bids on an international should be invited is the responsibility of the basis, in all cases where such a procedure is Borrower, and so is the selection of the in­ not, for some reason or other, inappropriate. dividual firm to which the contract should be If the maximum benefits are to be gained awarded. However, the Bank, on request, is from competitive bidding (whether or not prepared to supply its Borrowers with a list in the international field), it is essential that -compiled on an international basis-of certain principles should be observed when firms which the Bank considers to be qualified tenders are invited. to undertake the work which the specific Of these, I shall mention three: contract requires. This list is, however, sup­ First: The authority inviting the tenders plied on the understanding that it is not ex­ should take steps to ensure that bids are haustive, and that it should be supplemented [29 ] by the Borrower as far as it may be possible by two bidders may warrant the selection of to do so. a firm quoting a higher price. - There are certain circumstances in which Let me mention two specific cases in our the Bank may not be able to advocate resort recent experience where the Bank felt justi­ to international bidding. fied in agreeing that a contract should be For example, it sometimes happens that awarded to a bidder who was not the lowest. part of the equipment for a project may al­ A Borrower did not invite bids from Euro­ ready have been ordered at the time a Bank pean manufacturers, who might have quoted loan is made. But in such cases, if adequate lower prices, because, having standardized competition has not been developed in the certain equipment on the basis of United bidding, the Bank expects the Borrower States and Canadian types and patents, he to convince it that the contract prices were preferred to continue this standardization, reasonable. If this can be demonstrated, the thereby saving considerable cost in mainte­ loan is made on the basis of those prices. nance and reserves of spare parts. His ex­ In other cases, the Bank recognizes the perience with this type of equipment had desirability of standardization of some types been very good and the technical personnel of equipment by the Borrower from the in his organization were thoroughly familiar standpoints of easy interchange of units and with its operation. the stocking of spare parts. In those cases In another case, the lowest bid was from an where a Borrower has standardized, and has American supplier. But the Borrower ac­ a sufficient number of units in service of a cepted the second lowest bid which was from given size and make, the Bank may not in­ a European supplier. His reason was that sist on competitive bidding. he and his staff had had long and satisfactory There may be circumstances, too, where it experience and familiarity with that type of would not be appropriate that the Bank equipment. There have been a few cases where the ac­ should expect a Borrower to accept the low­ ceptance of a higher bid has been justified est bid. Date of delivery is most often the by a preference for a particular type of factor eliminating one or more low bidders. equipment which experience had proved to be In recent months, this circumstance has espe­ most suited to conditions prevailing in the cially operated in the case of certain sup­ country in which it was to be installed. pliers who, while quoting relatively lower As an international financial institution, prices, have not been able to undertake to the sole concern of the- Bank in the placing deliver except on a time schedule which would of contracts by its Borrowers is to do what have seriously delayed the construction of the it can to ensure that the money it invests does project. In other cases, a difference in tech­ the maximum amount of work and that the nical features between the products offered Borrower gets the best possible value . • • • MR. ILIFF: The next speaker will be Mr. Anderson. In the circumstances prevailing today throughout the supplying coun­ tries of the Western world, the real troubles of those responsible for carrying out a large capital project needing quantities of heavy equipment and mate­ rials are likely to begin after they have placed their contracts and are awaiting the delivery of what they have ordered. Realizing that its Borrowers would probably encounter serious obstacles in their search for supplies, the Bank some months ago set up a small organ­ ization within the Loan Department and gave it the responsibility of helping Borrowers to procure the equipment to be financed by Bank loans. This organization is directed by Mr. Anderson, Special Advisor to the Loan Director. He will now speak about the present difficulties regarding the availability of equipment and the help which the Bank may give to Bor­ rowers in procuring it. [30 ]

-._------_._------PROCUREMENT OF SUPPLIES

S. W. ANDERSON, Special Advisor to the Loan Director

As the Governors are aware, the initial im­ tant policy decisions are taken-for example, pact of the defense program of the Yi estern the allocation of scarce equipment and ma­ world began to be felt only about a year ago. terials to specific defense needs and to essen­ Up to now, orders for the equipment and tial domestic and foreign economic programs, materials required by Borrowers from the in their due order of priority. International Bank have been placed, for The principal forum in the Defense Pro­ the most part, in the United States. It may, duction Administration is the Requirements therefore, be of interest that I should first Committee. This consists of representatives spend a few minutes describing how pro­ of some 19 so-called "Claimant Agencies" curement in the United States is affected by whose duty it is to determine, and to act as the defense program; how the various de­ advocates for the needs of those sectors of fense agencies function, and what is the the economy with which they are concerned. Bank's relation to them. I need not name all of the Claimant Agencies; The machinery for carrying out the U. S. it will be sufficient to mention the Munitions Government's defense program was set up Board (which speaks for the combined armed by the Defense Production Act, which be­ services of the United States) ; the Depart­ came law in September 1950. During the ment of Agriculture (which speaks for the succeeding three or four months, policies farmers); and the Department of Interior were formulated, programs were established, (which speaks for the needs of the oil, power and the necessary administrative steps were and mining industries). taken to create the defense agencies in the Of special importance to the Bank and its United States. Borrowers are the two Claimant Agencies Of these defense agencies, the most impor­ which represent foreign requirements, tant is the National Production Authority­ namely, the Economic Cooperation Adminis­ the NP A as it is called. The chart which you tration for ECA countries including parts of see here shows its complex organizational Southeast Asia, and, for all other countries, set-up and you may be interested to study it the Office of International Trade of the De­ in more detail later. Briefly, the NP A con­ partment of Commerce (commonly referred sists of a large number of industry divisions to as OIT). OIT is also responsible for all administering the controls applicable to in­ problems connected with export licensing, dividual groups of manufacturers-for ex­ and for establishing national quotas for ma­ ample, those making power equipment, con­ terials in short supply, such as copper, steel, struction machinery, machine tools, steel, aluminum and sulphur. copper and aluminum, and so on down the The needs of Borrowers from the Inter­ list. In addition, there are certain divisions national Bank for American equipment or of the agency whose responsibility it is to materials must, therefore, be made known deal with the difficult problems of program­ through one of these two foreign Claimant ming, the issuance of priorities, and the like. Agencies, depending on the location of the From the standpoint of the Bank's Bor­ Borrowers. rowers, the most important single division is Conditions today are such that in many the Foreign Division, under the Policy Co­ cases the requirements of the Bank's Bor­ ordination Bureau. rowers must be documented in considerable Superimposed on the National Production detail. Not only must a comprehensive list Authority is a second and less complex of the needed equipment and materials be agency called the Defense Production Ad­ presented, but also a convincing statement of ministration. This agency is headed by the the justification for the project from an eco­ same individual as heads the National Pro­ nomic point of view. This enables the de­ duction Authority. In it, the most impor- fense agencies to form a considered judg- [31 ] ment as to the degree of priority and the therefore, been anxious to develop with the extent of allocation assistance which can governments of the industrial nations of properly be given to a Bank-financed project. Europe, as the need for it arises, a modus It is the declared policy of the U. S. operandi corresponding to the arrangements Government to render reasonable assistance that we have been able to establish with the to sound economic projects tending to Government of the United States. strengthen the economies of the western On behalf of the Bank, I have recently en­ world. It is in the light of this policy that gaged in discussions with the appropriate the Bank and its Borrowers may claim sup­ ministries in five European countries and port for the carrying out of projects of eco­ procedures-formal or informal-have, I nomic benefit in the Bank's member states. hope, been set up, under which the Bank may, N one of the defense agencies will commit from time to time, lay before the govern­ themselves to any specific action in advance ments concerned, specific problems which of complete knowledge of the facts. The may confront the Bank and its Borrowers in Bank has, however, been met by a helpful the rapidly changing supply picture in West­ and sympathetic approach on the part of the ern Europe. We are dealing with a fluid agencies, and they have given every possible situation, and while markets may be rela­ assistance in the direction of obviating se­ tively easy in one country at any given time, rious delays in delivery of goods and equip­ this can quickly change. Weare encouraged ment needed for Bank-financed projects. to find, however, that the supply authorities It must be admitted, however, that the of the European industrial nations attach scarcity of certain raw materials (especially special importance to the projects financed steel, copper, and aluminum) is quite severe by the Bank and are willing, in principle, to -so much so, that a number of industries in assist in the procurement of equipment for the United States engaged in the manufac­ these projects wherever possible within the ture of such highly essential products as framework of their overall national policies. electrical equipment, construction machinery, The primary responsibility for procuring specialized factory tools, and the like, are equipment and supplies for Bank-financed currently experiencing difficulties in main­ projects rests on the Borrower. But where taining production at their full potential. the Borrower runs into difficulties, the help This scarcity is likely to continue, probably of the Bank is available to him. Moreover, through 1952, and may even become more the examination of the technical details and acute before it is relieved. of the economic merits and priorities of a While, up to now, no other industrial coun­ project which the Bank carries out before try is operating a system of controls as com­ undertaking to finance it, is undoubtedly a plex and as far-reaching as is the United factor which carries weight when the supply States, nevertheless, a short survey of Euro­ authorities come to consider its entitlement pean supply availabilities recently carried to priority in the field of procurement. out by the Bank indicates that the same We have, therefore, every reason to hope tendencies are at work in Western Europe. that damaging delays in deliveries of goods The practice of international competitive for Bank-financed projects from all sources bidding, about which General Wheeler has of supply may be held to a minimum and spoken, directs procurement of equipment for will occur only where they are unavoidable Bank-financed projects to Western Europe as viewed from the standpoint of the direct or well as to the United States. The Bank has, indirect requirements of defense.

• • •

[32 ] MR. ILIFF: The next speaker will be Mr. Koster, who is the Acting Assistant Director of the Loan Department of the Bank. Mr. Koster will speak to you about the Bank's policies and procedures with regard to the procurement of currencies to be used in the disbursement of its loans and, in the course of his talk, he will give you some general back­ ground relating to the resources of funds available to the Bank for use in the course of its lending operations.

PROCUREMENT OF CURRENCIES W. KOSTER, Acting Assistant Loan Director

As general background, I should first like different, and is still far from the ideal that to speak for a few minutes about the extent I have mentioned. and the nature of the resources on which the These first five years of the Bank's opera­ Bank can rely for its loanable funds and tions have been a period of unprecedented about our policies for expanding and diversi­ economic and financial difficulties for many fying them. of our member states, and particularly for These resources are two: those who have been traditional exporters First, the Bank's own capital, and of capital. A fully convertible currency has Secondly, the Bank's own borrowings. been a rare phenomenon. So far as the first is concerned, I need In these circumstances, the Bank has been scarcely remind the Governors that 80 % of faced with a situation where it could rely the capital subscriptions of our members is upon its 18 % capital funds for lending only not available to the Bank for use in its opera­ to the extent that a member state (having tions; it has not been paid-up, and is subject regard to its overall economic circumstances) to call only when, and to the extent, it may felt able to afford the unrequited export be needed to meet the Bank's own obligations. which a release of 18 % entails. It is, therefore, only the remaining 20 % Altogether, this has meant that in the of our capital that we can rely on for loan­ Bank's operations up to the end of the past able funds. fiscal year, the capital funds that have been Of this 20% of the capital subscriptions, available to it, and that we have been able to 2 % is paid-up in gold or dollars. This has use for the financing of our Borrowers' been available to the Bank from the begin­ needs, have been the following: ning. But in aggregate amount, it has not First, the whole of the 2 % subscribed by been a very significant element in our re­ all our member states, amounting to sources. $163 million; The heart of the matter is the availability Secondly, the whole of the U. S. 18ro to the Bank of the 18 ro, which may be used (amounting to $572 million) which has by the Bank only with the consent of the been made available without restriction member state concerned. as to the area in which it would be spent; We can envisage an ideal situation where and all the Bank's members would have permitted the Bank to use freely the whole of this por­ Thirdly, partial releases, notably fr'!m Bel­ tion of their subscriptions, without restric­ gium, Canada, Denmark, France, Italy tion, and under conditions of complete con­ and the United Kingdom. These have vertibility. The result would then have been totalled approximately the equivalent of that the Bank would have had available for $25 million. lending 20ro of its subscribed capital, or the In aggregate, these availabilities of the equivalent of about 1,600 million dollars. Bank's capital have amounted to $760 mil­ But the actual situation has been very lion. [33 ] But this amount falls considerably short the eventual source of the goods and services of the $1,100 million that the Bank has ac­ which the loan is to finance. If a loan agree­ tually loaned. Lending on this scale would ment should be signed before the allocation not, therefore, have been possible unless the of a supply contract has been fixed, the Bank Bank had been successful in obtaining access can have no sure knowledge of the currency to the various capital markets of the world. that the Borrower will need to finance it. Up to now, and more particularly during The Bank's loan agreements, with one ex­ the earlier years of our existence, the de­ ception, have denominated our loans in terms mands on the Bank by its Borrowers were of United States dollars. But this has been predominantly for the means of financing done for accounting purposes only. The equipment, materials and services from the Bank has the option to provide the Borrower United States, that is to say, demands for either with dollars or such other currency as dollars. The dollar funds available from the he may need to finance his purchases. United States capital subscription and from Let us suppose that we make a loan agree­ the 20/0's by themselves, would have been in­ ment to finance the imported equipment for sufficient to meet those demands and, in any a hydroelectric power plant, amounting, say, case, the Bank has used them to finance pur­ to $10 million or the equivalent. Let us fur­ chases outside the United States on a con­ ther suppose that when the contracts are siderable scale. finally placed, they should go, as to $3 mil­ Our major borrowing operations have, lion, to suppliers in the United States, $3 mil­ therefore, been conducted in the United lion to suppliers in Italy and the remaining States market to which, as the Governors are $4 million to suppliers in Belgium. The aware, the United States Government has problem before the Bank is the availability been able to permit the Bank to have fre­ of $3 million in United States currency, $3 quent and substantial recourse. million in Italian lire and $4 million in Bel­ We have also been able on several occa­ gian francs. sions to raise funds in the Swiss market. In present circumstances, the provision of These issues constituted of course useful ad­ United States dollars ordinarily presents no ditions to our lending resources, having re­ difficulty. As regards the provision of the gard to the convertibility of the proceeds. Italian lire and the Belgian francs the Bank Finally, earlier this year, we have been has three courses open to it : able to make a welcome addition to our re­ sources of non-dollar currencies when the First: We can ask the Belgian and Italian Government of the United Kingdom per­ authorities for a release of the needed mitted us to float a £5 million issue in the amounts of their currencies from their London market. 18%'s. What I have said up to now has, I hope, Secondly: We can, with the permission of given you a general picture of the resources the Belgian and Italian Governments, at our disposal for use in our lending opera­ borrow the needed currencies by an issue tions. of our own securities in the local capital Under its statutes, the Bank may not make markets. what are called "tied" loans, that is to say, Third: If we cannot obtain Belgian and the Bank is precluded from making a loan Italian currency by either of these two conditional on the proceeds being spent in the methods, we can disburse some other territory of any particular member state. currency against which the needed Ital­ This Illeans that the Borrower is completely ian or Belgian currency can be acquired. free to make his own choice as to where he This normally means a disbursement of places his orders for the equipment or mate­ United States dollars. rials or services that the Bank is financing. As you will have gathered from what Gen­ If we have been able to adopt either of eral Wheeler and Mr. Anderson have said, the first two methods that I have mentioned, there may be considerable uncertainty at the the Bank disburses Italian lire and Belgian time a loan agreement is signed as regards francs. We are therefore able to place on [34 ] our Borrower a liability to repay in those The situation which I have outlined points currencies. up the observation made by Mr. Black when But if we are forced to adopt the third he presented the Annual Report to the Gov­ method, and so disburse dollars to enable the ernors. He said, speaking of the Bank's other currencies to be acquired, then we are need for non-dollar currencies: "Releases, in obliged to place a dollar liability on the Bor­ some instances, may well mean the difference rower. between a useful development investment, in­ Consequently, if the Bank should fail in cluding dollars, and no investment at all." its efforts to acquire the needed Western On Tuesday afternoon the Governor for European currencies either from the 18 %'s Pakistan suggested one way by which he or from the proceeds of a borrowing opera­ thought the Bank might get around this diffi­ tion, the result is that the Borrower will have culty. His proposal was that the Bank might to accept a liability in United States dollars, be able to accept repayment, not in dollars not only for the actual dollar expenditures (which it disburses), but in the soft cur­ themselves, but for the whole external cost of rency in which the Borrower paid for his the project. goods. Such a policy would inevitably lead Such a result is of little consequence in the Bank into a "short" position in dollars; the case of those of our Borrowers to whom it and would contravene sound banking princi­ is a matter of indifference whether they in­ ples. cur a repayment liability in dollars or in a There is, however, one policy which the non-dollar currency. But by no means all of Bank has adopted to ease the position as far our Borrowers are in this situation. as possible. In the interests of our member We are only too familiar with the case states as a whole, we conserve our resources where a prospective Borrower has already of "soft" currencies to meet the needs of incurred dollar debt up to the prudent limit those of our Borrowers who are least able that he can expect to service, and yet where to undertake a dollar liability. perhaps even a substantial addition to his There is a paradox here: . . . What are indebtedness would be justifiable, if the re­ "soft" currencies for most of our individual payment obligation were in another currency members are "scarce" currencies for the which he could earn much more easily, and Bank. with greater continuity. Anything that can be done to relieve this When a Borrower who is in this position scarcity for the Bank will be a significant comes to us with proposals for financing a contribution in the expansion of our lending project, we are often forced to reply that the operations. We well realize the difficulties; Bank can only participate on two conditions: but it must not be forgotten that, as often first, if the bulk of the supply contracts-or as not, a Bank investment, financed entirely even perhaps the whole of them-can be paid in "soft" currencies, will yield a return to a for in non-dollar currencies, and secondly, if borrowing country that may directly as well the Bank has sufficient resources of such non­ as indirectly, add to that country's earning dollar currencies available, either from 18 ro capacity and consequently to its debt-servic­ releases or from the proceeds of borrowing ing capacity, not only in "soft" currencies, in non-dollar markets. but in dollars as well .

• • •

MR. ILIFF: The Articles of Agreement of the Bank provide that the proceeds of a loan shall be disbursed to a Borrower to meet expenses in connection with a project, only as these expenses are actually incurred. Mr. Aldewereld of the Treasurer's Department will now speak about the policies and procedures which are followed by the Bank in disbursing its loans. [35 ] DISBURSEMENT AND PROJECT FOLLOW-UP S. ALDEWERELD, Assistant to the Treasurer

When a loan has been made, the Bank transactions in which the Bank is interested agrees with the Borrower on a list of the are actually financed in the first place goods and services which are necessary to through letters of credit. We knew that this carry out the project which the Bank is help­ was likely to be the case, when we laid the ing to finance. It is against this list that the foundations for our system. Accordingly, Bank makes disbursements. Thus, each loan we enlisted the help and advice of banks, and may, in a sense, be considered as a line of organizations of bankers, throughout the credit covering the specified goods and serv­ world. Our objective was to avoid duplica­ ices. Our system of controlling disburse­ tion of effort, and we have succeeded in ments has been designed accordingly. evolving a procedure under which-instead When, almost five years ago, we set about of ourselves examining invoices, bills of lad­ establishing this system, the Bank decided as ing, etc.-we accept reports prepared by a matter of policy to use normal banking commercial banks all over the world, which channels and techniques whenever possible, have made payments under their own let­ rather than to devise new procedures. This ters of credit, which will ultimately be is in line with the Bank's general attitude of financed by the Bank. not competing, but rather cooperating, with The principles on the basis of which we private enterprise. It has the incidental ad­ established our disbursement procedure at vantage that it avoids unnecessary compli­ the outset of the Bank's operations have not cations and work, both for our Borrowers had to be altered since that time. But the and for ourselves. techniques by which these principles are put The system that has been developed is into practice have been, and continue to be, based on the submission by our Borrowers of modified and developed, to meet the particu­ documents of the kind normally used in con­ lar requirements and practices of individual nection with international letters of credit. borrowers. Further modification and de­ Nothing new has been added. These docu­ velopment, however, becomes less and less ments enable us to establish that the Bor­ necessary as we gain in experience and as rower has spent, or must spend, money for our system becomes more comprehensive. goods or services covered by the agreed list Thus while our principles always remain which I have just mentioned. If the docu­ ments are in order, we are in a position to the same, our practice is essentially flexible. make an immediate disbursement of the The system of controlling disbursements needed funds in the currency of anyone of which I have just described enables us to our 50 member states, as may be appropriate. know what the Articles of Agreement require As I have said, this system is substantially us to know, namely, that the money we lend similar to the methods by which a commer­ has been spent on the goods and services cial bank controls payments under letters of which are necessary for the successful execu­ credit. As a matter of fact, many of the tion of the project that the Bank is financing. • • • MR. ILIFF: There is another provision in the Bank's Articles which requires the Bank to make arrangements to ensure that the proceeds of a loan are actually used for the purpose for which the loan was made with due attention to con­ siderations of economy and efficiency. The Bank's interest in these goods and services, about which the pre­ vious speakers have talked, does not therefore cease when they have been purchased. What happens to them after their delivery in the borrowing country is part of a wider question in which the Bank is interested, namely: How does the project as a whole progress? [36 ] In making loans, the Bank's primary concern is that each investment that we make in a member country should make its contribution by way of new or additional production facilities which can lead to an improvement in the standard of living. That is one of the reasons why we foUow up the progress of every project where the Bank is participating in its financing. Mr. Aldewereld will now speak about how we do this.

MR. ALDEWERELD

I have already explained how, in planning being held up because of delays in the prep­ and organizing our system of control over aration of the necessary plans and drawings. disbursements, we have worked from the They need to know-and in present circum­ outset on the principle of using established stances this is an important and ever increas­ techniques and normal channels, wherever ing concern-that the materials and equip­ possible. In following the progress of proj­ ment which they require will be delivered in ects we have, from the outset, approached good time where they are wanted. They need the question along the same lines. to know how expenditures already incurred In general, I may say that our interest in compare with the estimates on which their the successful completion of a project which plans for the project have been based. This a Bank loan helps to construct, is identical applies not only to the foreign exchange with the interest of those who are themselves needed to purchase imported goods or serv­ responsible for its execution and manage­ ices, but also to the local currency that is re­ ment. We look on ourselves as an interested quired to meet local costs of labor, materials, party in a common enterprise. administration, etc. More than this, they Thus, what we need to know in order to need to be in a position to foresee future diffi­ follow the progress of a project is nothing culties, in order that they may be able, when­ mysterious or unusual, as those borrowers ever possible, to take steps to prevent those with whom we have been working during the difficulties, rather than be obliged to cure last five years have discovered. In some them when they have been allowed to arise. cases, when we first begin to talk to people In particular, the project managers need to about this aspect of the Bank's work, we find check from time to time the estimates of cost them apprehensive, and even suspicious that of the whole project in order to be sure that we may wish to pry into their affairs and put the budgeted funds will suffice. them to a great deal of trouble. I am glad These are the things which the Borrower to say that as soon as they learn the kind of needs to know for himself, and are exactly thing that we wish to know, their apprehen­ the things in which the Bank is interested. sions and suspicions disappear. They under­ In cases where we are dealing with an or­ stand that they themselves need this kind of ganization which has a long tradition of good information for their own purposes, and, in­ management and much experience in the deed, frequently have it available without field of capital construction, we have no diffi­ the necessity of taking any special steps to culty in obtaining the kind of reports which procure it. we need to follow the progress of a project. What is it, then, that the Bank wants to Indeed, in such cases our problem is not one know? All I need to do to answer this ques­ of setting up mechanisms for obtaining nec­ tion is to tell you what a prudent Borrower essary information; it is one of selecting the would anyhow wish to know for himself. minimum data essential for the Bank's pur­ Those directly responsible for the success­ poses from reports which are rendered to ful completion of a project need, for their the project management as a matter of rou­ own purposes, to be able at any given moment tine. to know exactly how things stand. They There are, however, cases where we are need to be sure that construction work is not dealing with organizations that do not have [37 ] behind them such experience, and that may mon interest in the successful execution of be suffering what one might call growing the project. pains in this sphere; In such cases, the man­ We keep under constant review the infor­ agement is frequently so busily occupied with mation which flows to Washington about the day-to-day affairs that they have no time to progress of these projects all over the world. study managerial techniques which may be In most cases we are able to report that all is available as the result of others' experience. going well. But it is in the nature of things In these circumstances, the knowledge which that difficulties will sometimes arise, or we have gained during our operations often threaten to arise, and when this happens, we enables us to make helpful suggestions. I discuss them with our Borrowers to try to am happy to say that, in several cases, sys­ find the best solution. tems of control which we have proposed have Our experience has been that the most been adopted by our Borrowers, and have troublesome problems have arisen in cases even been extended to those sectors of their where the amount of local currency made operations not directly connected with proj­ available has proved, or threatened, to be in­ ects financed by the Bank. adequate to meet the local costs of the proj­ The reports on progress which we receive ect. This has happened generally because of from our Borrowers do not, however, repre­ rises in local cost levels which have taken sent the full extent of the Bank's activities place during the construction period. There in this field. From time to time, we send have been three or four cases of this kind, members of our staff to visit the different in which a real danger developed that prog­ projects which we are financing, in order ress on the project might be slowed down or even brought to a halt. In all these cases we that we may see for ourselves the progress talked with our Borrowers, and I am happy which is being made, and in order to have to say that they were able to work out satis­ an opportunity for discussion of problems factory solutions. which may have arisen or that can be fore­ We have learned much during the last five seen. Our first visit normally takes place years and, as I have said, our Borrowers have shortly after a loan has become effective. It been happy that we should pass on to them is on this occasion that we work out in co­ the fruits of our own experience. This, I operation with the Borrower the system of think, is a kind of technical assistance on a reporting which, while keeping us adequately very practical level, which we are glad to informed, will impose a minimum of trouble be able to offer, and which is an important and additional work on our Borrower. On factor in maintaining the friendly working this occasion, the foundations are laid for a relationships in this field which we have es­ continuing relationship, based on our com- tablished with all our Borrowers. • • • MR. ILIFF: The interest of the Bank does not come to an end when a loan to a Borrower has been completely disbursed, or even when the project which the Bank is financing has been completed. Disbursement and construction of a project are comparatively short-term affairs. But the Bank is in the business of long-term lending. The maintenance of service on its loans must therefore be a matter of continued concern to the Bank until the last maturity has been met. The evolution of the economic and financial situation in a member state . where a Bank loan has been made is a matter which directly relates to service of external debt. It is therefore our policy to establish a relationship with our member governments which will enable us to follow and understand economic and financial developments. We 'refer to this p'rocess as "Economic Follow-Up," and now, Mr. Rist, who is Director of the Economic Department of the Bank, will speak about this process and the philosophy underlying it. [38 ] ECONOMIC FOLLOW-UP L. B. RIST, Economic Director

We think that our relationship with a tions, we have a second recourse to the gov­ member state where we have made a loan ernment. Whether the government is the must be a continuous one for two main rea­ primary debtor, or whether it is only the sons. guarantor, does not alter the fact that our In the first place, as Mr. Iliff has said, as credit is granted to the nation and that the long as any part of a Bank loan remains out­ nation in its entirety is liable for it. It is, standing we have a direct financial interest therefore, essential that in every case there in the maintenance of its service. should be a continuous appraisal by the Bank But we have a further interest. We may, of all the factors affecting the external credit from time to time, be able to sell to private of our borrowing member countries. investors, without our guarantee, bonds in The purpose of the so-called "Economic our portfolio representing a given country's Follow-Up" is thus to ascertain, at intervals, obligations. We should still feel as great· the extent to which the economic and finan­ a responsibility towards these private in­ cial position of a borrowing member coun­ vestors as the most conscientious investment try may have changed; whether it has im­ banker. The Bank itself has accepted those proved or deteriorated; whether develop­ bonds in the first instance and taken them on ments, unforeseen at the time when the loan as its own risk. Even when we are legally was made, have contributed to the changes. free of any liability with respect to them, we It serves as a test of the accuracy of our own should still feel a real moral responsibility. forecasts and provides us with the means to In the second place, we have always con­ carry them further. I would not like to leave sidered that a loan that we make is probably the Governors under the impression that we only a step in a series of lending operations. are concerned only with following current We do not believe that with one loan we have events, and the immediate prospects of the accomplished all that can be accomplished. balance of payments of a country. No judg­ And we know that if development proceeds ment could be passed unless a longer view normally, the borrowing country may wish were taken. That is to say, the general trends to call again on foreign resources to carry it of production, trade and exchanges must be further. Our interest relates therefore not taken into account and an attempt made to only to past loans but also to the possibility forecast on that basis what may be the in­ of future lending. ternal and external financial and economic It has sometimes been asked why we dis­ pattern in the long run. play such an interest in the general position The questions and situations which are ex­ of a borrowing country, especially where the amined in the course of the follow-up are the government is not the Borrower but acts only same as those which have to be examined be­ as guarantor of a loan to finance some specific fore a loan is made, and the methods by project. Is it not enough that the project be which information is obtained and opinions competently executed? The answer is ob­ are reached are the same also. We can gather viously no. The Bank's loans must be serv­ much information from public sources and iced in foreign exchange and we cannot ever from other international agencies (mainly afford to disregard the capacity of the coun­ the Monetary Fund) ; but our contacts with try in whose territory the project is located the responsible authorities in each individual to service its foreign debt, direct or guaran­ country provide us with, by far, the most val­ teed. uable material. Our member Governments The provision of the Bank's Articles re­ have come to realize that our purpose is not lating to government guarantees makes this to interfere, but to understand; and I would interdependence clear. It gives the Bank the like to take this opportunity to express the added assurance that even if the primary Bank's appreciation for the constant willing­ debtor should be unable to meet his obliga- ness shown by officials and private citizens [39 ] in our member countries to answer our ques­ we do not propose to lay down specifically tions and, more important, to explain to us that prior consultation in the restricted field the policies, the disappointments and the of foreign indebtedness shall be a contractual hopes of their country. obligation of the borrowing or guaranteeing In this relationship between the Bank and government in every case. It is the intention our member countries, there are two practi­ of the Bank to apply past agreements in ac­ cal aspects which may be of interest to the cordance with this new policy. Governors: in the first place, our contractual There may still, of course, be special cases relationship with the borrowing country in where prior consultation on the part of the the field of consultation; in the second place, borrowing or guaranteeing government how we utilize the information gathered. might be advisable in the light of the exist­ All our loan and guarantee agreements ence of special circumstances, and the in­ contain a provision according to which the clusion of such a provision in future contracts Bank will be afforded facilities for consulta­ is by no means precluded. tion with the borrowing or guaranteeing gov­ The second aspect of this general problem ernment "with regard to matters relating which might be of interest to the Governors to the purposes of the loan and the mainte­ is the administrative procedure involved. nance of the service thereof." This ob­ When a new loan from the Bank is pro­ viously covers exchanges of views of the kind posed, a report on the economic structure and I have just described. This provision has on the capacity of the borrowing country to the whole worked well, and, we believe, to service external debt is prepared and sub­ the mutual satisfaction of our member coun­ mitted to the Executive Directors. Similarly, tries and ourselves. the follow-up of the loan in all its forms is In almost every agreement, there has been evidenced by so-called "Loan Administration an additional provision, which required the Reports" which are submitted to the Execu­ borrowing country to give the Bank prior tive Directors at intervals of approximately notice before incurring additional foreign one year. These reports contain a recital of indebtedness. Our experience has been that the progress made by the project, informa­ this particular provision has not been effec­ tion on disbursement, and, when appropriate, tive in building up a sound consultative re­ the status of service payments. lationship between the Bank and its Borrow­ But in addition, these reports include a ers. It is too mechanical in its application. reappraisal of the economic and financial Moreover, the extent of a country's foreign position of the member country. The eco­ debt (though obviously very important) is nomic section of these reports is discussed only one of several elements bearing on its with the representative of the country, either servicing capacity. at the seat of the Bank or during a visit to In the light of its experience of the man­ the country itself, before being submitted to ner in which these provisions have worked, the Executive Directors. Later the report is the Bank has adopted a new policy. officially transmitted to the government con­ Rather than insisting, as a matter of con­ cerned with any observations which the tractual right, on information on one par­ President, after consultation with the Execu­ ticular point which may well be only one tive Directors, may think it appropriate to detail in a general picture, we hope to ac­ make. These administration reports are complish more through the general relation­ treated as confidential and are not made pub­ ship that we shall be able to establish with lic. our member countries. These reports have served as a means of We shall continue to expect to be fully in­ fully informing the Executive Directors and formed of any important changes in the our member Governments of the status of general economic situation, or the financial our existing loans. They have also served as and economic policies, of our Borrowers in a basis on which the Bank can discuss with the course of our regular and continuous re­ a member Government the existence, or the lations with them, including their policy with probable emergence, of factors which bear regard to additional foreign borrowing. But upon a country's general external credit [40 ]

------standing. Moreover, the situation disclosed We have, therefore, come to regard this by these periodic economic re-appraisals also process of "Economic Follow-Up" as an im­ affords a useful background against which portant part of the Bank's routine activity, the Bank itself can determine its future op­ and as a most effective means of establish­ erational policy in the member state con­ ing, and maintaining, a healthy banker-client cerned, whether by way of additional loans, relationship, of benefit not only to the Bank or in the field of technical assistance. but also to the member Government.

• • •

SUMMARY BY MR. ILIFF

That, Mr. Chairman and gentlemen, brings look for comfortable guidance. this presentation to an end. Inevitably, our approach to our problems We had set out, in the course of it, to take must often be empirical. Across the whole the Governors, so to speak, inside our rooms field of our activities we have still a lot to in 1818 H Street and a little closer to the learn, and we all hope that we are learning Bank's day-to-day workings. We have tried, it, day-by-day and bit-by-bit. too, to explain the purposes underlying the But for all of us on the Staff of the Bank­ daily tasks that our Staff are called on to collected from the four corners of the globe perform. I hope that we have succeeded in -this very novelty of our task gives to our doing this. daily work an interest and a zest that few The art of international banking in the other careers anywhere in the world can disordered world of today faces the prac­ offer. titioner with situations that are novel and Mr. Chairman, on behalf of my colleagues with the necessity of devising policies and of and myself, I should like to thank the Gov­ taking decisions often in circumstances ernors for the patient hearing they have where there is no precedent to which he can given us.

[41 ] DECISIONS OF THE EXECUTIVE DIRECTORS INTERPRETING ARTICLES OF AGREEMENT OF THE BANK

I. SECTION 9 OF ARTICLE II AND SECTION 2 (B) OF ARTICLE IV OF THE ARTICLES OF AGREEMENT OF THE BANK

Question 1 If the Bank, pursuant to a loan agreement, advances to a borrower currency of a member paid to the Bank under Article II, Section 7 (i), of the Articles of Agreement and receives obligations of the borrower representing such advances and payable in the currency of that member and if the Bank sells such obligations, are the proceeds of the sale received by the Bank subject to the provisions of Article IV, Section 2 (b), of the Articles of Agreement?

Answer 1 Yes. If the Bank, pursuant to a loan agreement, advances to a borrower currency of a member paid to the Bank under Article II, Section 7 (i), of the Articles of Agreement and receives obligations of the borrower representing such advances and payable in the currency of that member, and if the Bank sells such obligations, the proceeds of the sale received by the Bank are subject to the provisions of Article IV, Section 2 (b), of the Articles of Agreement.

Question 2 In the circumstances described in Question 1, are the proceeds of the sale received by the Bank currency to which the provisions of Article II, Section 9, of the Articles of Agreement are applicable and are such proceeds to be treated as a repayment of the principal of the loan for the purposes of Article II, Section 9, as interpreted by the decision of the Executive Direc­ tors of May 23, 1950? * Answer 2 Yes. In the circumstances described in Question 1, the proceeds of the sale received by the Bank are currency to which the provisions of Article II, Section 9, of the Articles of Agreement are applicable and such proceeds are to be treated as a repayment of the principal of the loan for the purposes of Article II, Section 9, as interpreted by the decision of the Executive Directors of May 23, 1950.* That for the purposes of this decision, the words "proceeds of the sale" do not include any amount received by the Bank on account of accrued interest on such obligations nor any amount received by the Bank on account of a sales price in excess of par nor any proceeds received by the Bank otherwise than in the currency in which the obligations are denomi­ nated; and such words refer to gross proceeds before deduction of sales expenses or com­ missions. (Decision of the Executive Directors at their meeting on June 14, 1951.)

* See page 43.

[42 ]

"-- . --_. ------II. SECTION 9 OF ARTICLE II OF THE ARTICLES OF AGREEMENT OF THE BANK

Question 1 If (a) the Bank advances to a borrower pursuant to a loan agreement part of the cur­ rency of a member to which Article II, Section 9, of the Articles of Agreement is applicable; and (b) after the date of the advance and prior to the date on which repayment of the prin­ cipal of such advance is made, the par value of the currency of such member is reduced or the Bank determines that the foreign exchange value of such currency has depreciated to a significant extent within such member's territories; and (c) such reduction or depreciation continues in effect on the date on which such repay­ ment is made; is such member obligated under Article II, Section 9 (a), of the Articles of Agreement to pay to the Bank, in respect of the amount so repaid, an additional amount of such currency sufficient to maintain the value, as of the time of initial subscription, of the currency so repaid?

Answer 1 Yes. Under Article II, Section 9 (a), of the Articles of Agreement, if (a) the Bank advances to a borrower, pursuant to a loan agreement, part of the currency of a member to which said Section is applicable; and (b) after the date of the advance and prior to the date on which repayment of the principal of such advance is made, the par value of a currency of such member is reduced or the Bank determines that the foreign exchange value of such currency has depreciated to a significant extent within such member's territories; and (c) such reduc­ tion or depreciation continues in effect on the date on which such repayment is made; such member is obligated to pay to the Bank, in respect of the amount so repaid, an additional amount of such currency sufficient to maintain the value, as of the time of initial subscription, of the currency so repaid.

Question 2 If the par value of such currency is increased (rather than reduced) in the circumstances described in Question 1 and such increase continues in effect on the date of such repayment, is the Bank obligated under Article II, Section 9 (b), of the Articles of Agreement to return to such member an amount of the currency so repaid equal to the increase in the value of such currency? Answer 2 Yes. Under Article II, Section 9 (b), of the Articles of Agreement, if the par value of such currency is increased (rather than reduced) in the circumstances described in Question 1 and such increase continues in effect on the date of such repayment, the Bank is obligated to return to such member an amount of the currency so repaid equal to the increase in the value of such currency. (Decision of the Executive Directors at their meeting on May 23, 1950.)

[43 ] ACCREDITED MEMBERS OF DELEGATIONS AT SIXTH ANNUAL MEETING

AUSTRALIA BRAZIL Governor Governor P. C. SPENDER HORACIO LAFER Alternate Governor Alternate Governor L. G. MELVILLE OCTAVIO P ARANAGUA (Executive Director) Advisers Advisers V ALENTIM BOUCAS JOSE GARIBALDI DANTAS L. H. E. BURY (Alternate Executive Director) WALTHER MOREIRA SALLES T. A. FOWLER CANADA J. F. NIMMO THOMAS G. SINCLAIR Governor D. C. ABBOTT AUSTRIA Alternate Governor Governor JOHN DEUTSCH EUGEN MARGARETHA Advisers Alternate Governor G. E. FREEMAN WILHELM TEUFENSTEIN LOUIS RASMINSKY (Executive Director) BELGIUM HARRY L. WOLFSON (Alternate Executive Director) Governor JEAN VAN HOUTTE CEYLON Alternate Governor Governor MAURICE FRERE J. R. JAYAWARDENE Temporary Alternate Governor Alternate Governor JOSEPH V ANHEURCK G. C. S. COREA Advisers Advisers THOMAS BASYN RANAPALA BODINAGODA (Executive Director) RAJENDRA COOMARASW AMY LOUIS DUQUESNE R. G. SENANAYAKE JEAN GODEAUX P. WIGNARAJA ERNEST DE SELLIERS (Alternate Executive Director) CHILE Governor BOLIVIA ARTURO MASCHKE Governor Temporary Alternate Governor HECTOR ORMACHEA-ZALLES GUILLERMO ARRIAGADA Alternate Governor Adviser JAIME GUTIERREZ-GUERRA HORACIO D'OTTONE [44 ] •

CHINA DOMINICAN REPUBLIC Alternate Governor Governor TE-Mou HSI WENCESLAO TRONCOSO Temporary Alternate Governor Temporary Alternate Governor P. H. Ho L. JULIAN-PEREZ Advisers Y. L. CHANG ECUADOR (Executive Director) Tsoo-WHE CHU Governor (Alternate Executive Director) LUIS ERNESTO BORJA KAN LEE Alternate Governor COLOMBIA RAMON DE YCAZA Governor Adviser EMILIO TORO EDUARDO SALAZAR Temporary Alternate Governor (Alternate Executive Director) IGNACIO COPETE-LIZARRALDE EGYPT COSTA RICA Governor Alternate Governor AHMED ZAKI SAAD PASHA MARIO FERNANDEZ Alternate Governor Temporary Alternate Governor AHMED NAZMY ABDEL-HAMID BEY JOSE ANTONIO CASTRO

CUBA EL SALVADOR Governor Alternate Governor LUIS MACHADO LUIS ESCALANTE-ARCE Alternate Governor Adviser JOAQUIN E. MEYER EUSEBIO MARTELL

CZECHOSLOVAKIA Governor ETHIOPIA JAROSLAV DOCEKAL Governor Alternate Governor JACK BENNETT ANTONIN BEZKOCKA

DENMARK FINLAND Governor Governor SVEND NIELSEN ARTTURI LEHTINEN Alternate Governor Alternate Governor HAKON JESPERSEN RALF TORNGREN [45 ] FRANCE INDIA Governor Alternate Governor RENE MAYER SIR B. RAMA RAU Alternate Governor Temporary Alternate Governor PIERRE MENDES-FRANCE G. R. KAMAT Advisers Advisers PIERRE LOUIS CALVET K. N. KAUL THIERRY DE CLERMONT-ToNNERRE W. R. NATU JACQUES DONNEDIEU DE V ABRES B. K. NEHRU GUILLAUME GUINDEY (Executive Director) ROGER HOPPENOT D. S. SAVKAR (Executive Director) (Alternate Executive Director) JULIEN PIERRE KOSZUL PIERRE PAUL SCHWEITZER MARCEL THERON IRAN *

GREECE IRAQ Governor Governor GEORGE MAVROS ABDULLAH BAKR Alternate Governor Adviser GREGORIOS ZARIFOPOULOS TARIQ EL MUTWALLI

GUATEMALA Governor ITALY MANUEL NORIEGA-MORALES Alternate Governor Alternate Governor GIORGIO CIGLIANA-PIAZZA (Temporary Alternate Executive Di­ CARLOS LEONIDAS ACEVEDO rector)

HONDURAS Advisers Alternate Governor GINO BoLAFFI CARLO CAPOMASI GUILLERMO LOPEZ-RoDEZNO ATTILIO JASCHI Advisers MASSIMO MAGISTRATI GIOVANNI MALAGODI ALFREDO AMAYA EGIDIO ORTONA FRANCISCO SAFONT TRIA

ICELAND LEBANON Governor Governor JON ARNASON CHARLES MALIK Alternate Governor Alternate Governor THOR THORS RAJA HIMADEH

* Not represented. [46 ] LUXEMBOURG PANAMA Governor Governor PIERRE DUPONG ROBERTO HEURTEMATTE Alternate Governor Alternate Governor PIERRE WERNER JULIO E. HEURTEMATTE

MEXICO PARAGUAY Governor Governor CARLOS NOVOA JUAN R. CHAVES

Alternate Governor PERU MARIO R. BETETA Governor FERNANDO BERCKEMEYER NETHERLANDS Governor Temporary Alternate Governor CARLOS GIBSON P. LIEFTINCK Adviser Alternate Governor PEDRO CASO A.M. DE JONG Advisers PHILIPPINES J. W. BEYEN Governor (Executive Director) MIGUEL CUADERNO, SR. L. R. W. SOUTENDIJK Alternate Governor

NICARAGUA EMILIO ABELLO Alternate Governor Advisers RAFAEL A. HUEZO TOMAS B. AGUIRRE ANDRES CASTILLO

NORWAY SWEDEN Governor Governor GUNNAR JAHN K. E. BooK Alternate Governor Alternate Governor OLE COLBJORNSEN N. G. LANGE Advisers Advisers ALF ERIKSEN GUNNAR AKERMALM HALLVARD HILLESTAD LENNART KOLM THORALF SVENDSEN (Alternate Executive Director) SYRIA Governor PAKISTAN HUSNI A. SAWWAF Alternate Governor Alternate Governor AMJAD ALI NIHAD IBRAHIM PASHA [47 ] THAILAND UNITED STATES Governor Governor PRINCE VIWAT JOHN W. SNYDER Alternate Governor Alternate Governor KAJIT KASEMSRI JAMES E. WEBB Advisers Advisers DEVADAYA DEVAKUL LUANG SATHIRA JOTISAR HAWTHORNE AREY BUA SAJISEVI HOMER E. CAPEHART WILLIAM C. FOSTER JOHN S. HOOKER TURKEY (Alternate Executive Director) Governor THOMAS J. LYNCH WILLIAM McC. MARTIN, JR. REFII SUKRU SUVLA (Executive Director) Alternate Governor BURNET R. MAYBANK HARRY A. McDoNALD MUNIR MOSTAR FRANK A. SOUTHARD, JR. Advisers BRENT SPENCE RESAT AKSAN ALLAN SPROUL NAHIT ALPAR CHARLES SAWYER JAMES J. SAXON WILLARD L. THORP UNION OF SOUTH AFRICA GEORGE H. WILLIS Alternate Governor JESSE P. WOLCOTT MICHIEL HENDRIK DE KOCK Adviser URUGUAY JOHN WILMOT Temporary Alternate Governor MARIO LAGAMMA ACEVEDO

UNITED KINGDOM Governor VENEZUELA HUGH GAITSKELL Temporary Alternate Governor Alternate Governor AURELIANO OTANEZ SIR LESLIE RowAN YUGOSLAVIA Advisers Governor W. ARMSTRONG SIR GEORGE BOLTON LAVOSLAV DOLINSEK SIR SYDNEY CAINE Alternate Governor (Alternate Executive Director) A. CHRISTELOW BOGOLJUB LAZAREVIC C. S. LESLIE SIR EDWIN PLOWDEN Advisers D. H. F. RICKETT MILENKO FILIPOVIC ERIC ROLL VASILIYE MILOVANOVIC A. M. STAMP VLADIMIR VELEBIT M. STEVENSON UGO ZUNJEVIC [48 ] OBSERVERS

BURMA BANK FOR INTERNATIONAL JAMES BARRINGTON SETTLEMENTS KHIN MAUNG GALE ROGER AUBOIN

FEDERAL REPUBLIC OF GERMANY FOOD AND AGRICULTURE HANS KARL VON MANGOLDT ORGANIZATION GUNTHER GROSSE GOVE HAMBIDGE MORRIS GREENE INDONESIA MISS FLORENCE REYNOLDS ISMAEL M. THAJEB D. W. RENGERS INTERNATIONAL LABOR OFFICE A. A. P. DAWSON JAPAN RYUJI TAKEUCHI ORGANIZATION FOR EUROPEAN TAKESHI WATANABE ECONOMIC COOPERATION SIR EDMUND HALL-PATCH JORDAN ROBERT MARJOLIN YUSUF HAIKAL FRANCOIS SELLESLAGS UNITED NATIONS WALTER CHUDSON MILIC KYBAL

WORLD HEALTH ORGANIZATION G. E. HILL

[49 ] EXECUTIVE DIRECTORS AND ALTERNATE EXECUTIVE DIRECTORS

Executive Directors * THOMAS BASYN '" J. W. BEYEN * Y. L. CHANG MANUEL JOSE DIEZ ... ROGER HOPPENOT '" WILLIAM MeC. MARTIN, JR.

>10 L. G. MELVILLE

>10 B. K. NEHRU ... GUILLERMO PEREZ-CHIRIBOGA ... LOUIS RASMINSKY * SIR ERNEST ROWE-DuTTON CABIR SELEK :1< YAQUB SHAH Alternate Executive Directors '" L. H. E. BURY '" SIR SYDNEY CAINE '" TSOO-WHE CHU ... GIORGIO CIGLIANA-PIAZZA (Temporary)

>I< JULIO E. HEURTEMATTE ... JOHN S. HOOKER ... EDUARDO SALAZAR '" D. S. SAVKAR ... ERNEST DE SELLIERS ... THORALF SVENDSEN :1< HARRY L. WOLFSON

~ Appear also as delegates.

[60 ]

------OFFICERS OF THE BOARD OF GOVERNORS AND PROCEDURES COMMITTEE FOR 1951-52

OFFICERS Chairman ______BRAZIL V ice Chairmen ______CHINA FRANCE INDIA UNITED KINGDOM UNITED STATES

PROCEDURES COMMITTEE Chairman ______.______BRAZIL V ice Chairman ______A USTRALIA Reporting Member ______LEBAN ON Members ______.______..... ______CHINA FINLAND FRANCE INDIA LUXEMBOURG MEXICO PHILIPPINES UNITED KINGDOM UNITED STATES

[51 ]