INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL FINANCE CORPORATION INTERNATIONAL DEVEWPMENT ASSOCIATION Public Disclosure Authorized 1971 ANNUAL MEETINGS OF THE BOARDS OF GOVERNORS

SUMMARY PROCEEDINGS Public Disclosure Authorized Public Disclosure Authorized

WASmNGTON, D.C. SEPTEMBER 27·0CTOBER 1, 1971 Public Disclosure Authorized INTRODUCTORY NOTE

The 1971 Annual Meeting of the Board of Governors of the International Bank for Reconstruction and Development, held jointly with that of the International Monetary Fund, took place in Washington, D.C., September 27-0ctober 1 (inclusive). The Honora­ ble Karl Schiller, Governor of the Bank for Germany, and the Honorable Karl Klasen, Governor of the Fund for Germany, served as Chairmen. The Annual Meetings of the Bank's affiliates, the International Finance Corporation (IFC) and the International Development Association (IDA), were held in conjunction with the Annual Meeting of the Bank. The Summary Proceedings record, in alphabetical order of mem­ ber countries, the texts of statements by Governors relating to the activities of the Bank, IFC and IDA. The texts of statements con­ cerning the IMF are published separately by the Fund.

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

Washington, D.C. December 15, 1971

v CONTENTS

Page Opening Greetings by John B. Connally, Governor of the Bank and Fund for the United States ...... Opening Address by the Co-Chairman, Karl Schiller. Governor of the Bank for Germany...... 2 Annual Address by Robert S. McNamara, President of the Bank and its Affiliates...... 7 Statements by Governors and Alternate Governors...... 31 Concluding Remarks by Mr. McNamara ...... , .... " ... , .. 185 Concluding Remarks by the Co-Chairman, Karl Schiller. . . .. 187 Remarks by Ali Wardhana, Governor of the Bank for Indonesia ...... 189 Remarks by J. H. Mensah, Governor of the Bank and Fund for Ghana...... 190 Documents of the Boards of Governors ...... 191 Schedule of Meetings ...... " 191 Provisions Relating to the Conduct of the Meetings...... 192 Agendas...... 193 Reports of the Joint Procedures Committee ...... 194 Report I ...... " 194 Report IW ...... " 195 Resolutions Adopted by the Board of Governors of the Bank Between 1970 and 1971 Annual Meetings ...... , .. " 196 No. 264 ... Increase of $3,000 Million in Authorized Capital Stock ...... " 196 No. 265 ... Increase in Subscription by India ...... " 197 No. 266 ... Membership of Fiji...... 198 No. 267 ... Place and Date of 1973 Annual Meetings ..... 200 No. 268 ... Agreement with World Health Organization .. 200 No. 269 ... Allocation of Net Income...... 200 Resolution Adopted by the Board of Governors of the Bank at the 1971 Annual Meeting .... " ...... " " " 201 No. 270 ... Financial Statements, Auditors' Report and Administrative Budget...... 201

IReport II related to the business 0/ the Fund.

VII Resolution Adopted by the Board of Governors of IFC at the 1971 Annual Meeting ...... , 201 No. 79 ... Financial Statements, Auditors' Report and Administrative Budget...... 201 Resolutions Adopted by the Board of Governors of IDA Between 1970 and 1971 Annual Meetings ...... 202 No. 77 ... Additions to Resources: Third Replenishment .. 202 No. 78 ... IDA Third Replenishment: Voting Rights of Certain Part II Members...... 206 No. 79 ... Membership of Equatorial Guinea ...... 206 No. 80 ... Membership of Fiji ...... 208 No. 81 ... Agreement with World Health Organization ... 209 Resolution Adopted by the Board of Governors of IDA at the 1971 Annual Meeting ...... " 209 No. 82 ... Financial Statements, Auditors' Report and Administrative Budget...... " 209 Report of the Executive Directors of the Bank and IDA .. " 210 Proposed Cooperative Arrangements with WH O...... 210 Reports of the Executive Directors of the Bank ...... 215 Increase in Authorized Capital Stock ...... 215 India: Increase in Subscription under Article II, Section 3(c) of the Articles of Agreement...... 216 Allocation of Net Income...... 216 Reports of the Executive Directors of IDA ...... 217 Additions to IDA Resources: Third Replenishment...... 217 Study by the Executive Directors on the Means for Providing Additional Resources and of an Adjustment of Voting Rights ...... 230 Further Study of Adjustment of Voting Power...... 240 IDA Third Replenishment: Voting Rights of Certain Part II Members...... 259 Accredited Members of Delegations at 1971 Annual Meetings 262 Observers at 1971 Annual Meetings ...... 287 Executive Directors and Alternates ...... , 289 Officers of the Boards of Governors and Joint Procedures Committee for 1971-72 ...... , ., ..... , ., .... 290

viii

------_._-_.. ------OPENING GREETINGS BY JOHN B. CONNALLY GOVERNOR OF mE BANK AND FUND FOR mE UNITED STATES

Chairman Schiller, Chairman Klasen, Mr. McNamara, Mr. Schweitzer, fellow Governors, distinguished guests, ladies and gentlemen: On behalf of the President, the Government and people of the United States, it is my honor to officially welcome the Governors of the Bank Group and of the Fund, their associates and the officials of these organizations to Washington to hold this Annual Meeting. We meet at a time of major change in financial and trade relation­ ships among countries. Some would regard this as a time of crisis and would focus their attention mainly on the dangers of division and the failure of cooperation. Without minimizing those dangers, I also see in the present situation an unparalleled opportunity for constructive initiative. If we but seize the historic chance that we now have, we can build a financial system as well adapted for the next quarter century as our predecessors at Bretton Woods built for the quarter century just concluded. It is in this spirit-looking toward a new generation ahead of cooperative progress-that I welcome the beginning of these delib­ erations. The good wishes of the American Government and people go with each of you as you pursue your important and constructive tasks.

1 OPENING ADDRESS BY THE CO-CHAIRMAN KARL SCHILLER GOVERNOR OF THE BANK FOR GERMANY

On behalf of my Co-Chainnan, Governor Klasen, and myself, I cordially welcome all Governors, Alternates, Advisors, Official Observers and Special Guests to the Twenty-Sixth Annual Meetings of the International Bank for Reconstruction and Development and its affiliates and the International Monetary Fund. I take particular pleasure in extending a special greeting to the Governors and Alternates for Barbados1 and Fiji,2 who are partici­ pating in these meetings for the first time, and to the Observers from Oman, which has applied for membership in both the Bank and the Fund, and to those from Western Samoa, which has applied to join the Fund. I am sure that I speak for everyone present in thanking the Governor for the United States for his gracious remarks and in expressing our profound appreciation for the generous hospitality which is being extended to us once again by the Government and people of our host country. It is inevitable that world attention this week will be focused on our discussions in the field of monetary affairs. Our meetings have been awaited with some apprehension, but also with keen expecta­ tion. The need to re-establish orderly conditions in the world mone­ tary system and to put it on a sounder basis is widely recognized. We are presented with very basic and difficult questions. We cannot expect to find full and final answers to all these questions during our present meetings, but we must at least endeavor to give impetus and direction to their solution. The seriousness of the present disturbances is not in question. It is in the common interest of all countries, large and small, developed and less developed, that a liberal and multilateral regime of trade and payments be preserved. The problems we are facing are not problems of anyone country or group, let alone of any particular institution. They concern the international community at large-all the governments, the banking groups, and other financial communi­ ties represented here. Our regular Annual Meetings this year could hardly have been convened at a better time because they present us with an important opportunity to deal with the serious situation that has recently arisen in world payments. These meetings are a challenge to our spirit of responsibility and our determination. We have to demonstrate to the world that international cooperation will stand the most difficult test the world monetary system has undergone since the creation of

'Member of the Fund. 'Member of the Bank and Fund.

2 the Bretton Woods Institutions. I am firmly convinced that by our combined efforts we will pass the test. The disruption in the system which occurred in mid-August should in my view be seen as a challenge and a chance. A major jolt of this nature can act as a powerful catalyst for comprehensive re­ form. I have been encouraged by the emphasis that has been given to this aspect in several important pronouncements. Ideas that some time ago appeared overly ambitious are today examined as possible steps in a program of realistic reforms. In the clouds that have gath­ ered in recent weeks, this possibility of creating a fully viable inter­ national monetary structure may be seen as a silver lining--or perhaps I should rather say a lining in SDRs. Very few of us had believed-only some months ago-that a reform of the international monetary system would become a concrete agenda item so soon. The issues that now require urgent consideration are not of course completely novel. They were raised in some aspects at our last An­ nual Meeting, in Copenhagen. This summer's disturbances did not come from a blue sky. Severe inflationary pressures developed in North America in the mid-Sixties, and thereafter in the rest of the world economy also. Such tensions could hardly have left even the best international financial system untouched. Despite a number of important innovations and improvements, the system remained vulnerable in at least one major respect. The centerpiece of the sys­ tem was still the United States dollar, the health of which was and is dependent upon the state of the U.S. economy and in particular its balance of payments. With a growing deficit in the foreign accounts of the United States, it has become more and more apparent that a realignment of the currencies of all countries concerned is essential to restore equilibrium to world payments. When the President of the United States, in the framework of a new economic program, suspended the convertibility of the dollar into gold and other reserve assets six weeks ago, this solitary move marked the end of the old relationship between the dollar and other currencies. It also marked a major change in the role that had been played by the dollar for so many years in the international monetary structure. Since the fifteenth of August the world has no longer been the same. But, as often happens when big changes are under way, the old relationships have been broken before new ones have been put in their place. Thus, we are in an interim phase in which national authorities are responding differently to the pressure of events. For the time being, a great variety of expedients is being applied in the exchange markets. We have first to deal, therefore, with the immediate danger of avoiding international conflict in trade and payments and an escala­ tion of restrictive and protectionist policies. At the same time we have to lay the basis for a strong and durable international monetary

3 system. There may be a number of views on what the precise frame­ work of such a system should be. But I am sure there is already a consensus here that the system should be governed by agreed rules of conduct. A year ago the Fund's Executive Directors put before us a report on exchange rate policies. This report did not perhaps receive all the attention it deserved. In that report it was emphasized that "the pursuit of exchange rate policies by national authorities necessitates a mechanism of international coordination.... The fulfillment of national needs demands the protection of international safeguards." These principles should be the guidelines for all our work of inter­ national monetary reform. In my role as Chairman, I shall refrain from expounding my own views on the concrete steps that should now be taken to restore the secure functioning of the international monetary system. Reforms will have to apply to both the mechanism of exchange rate adjust­ ment and the development of the international reserve system. I will want, in any case, to hear the views of other Governors and I look forward to the address of the Managing Director of the Fund later this morning. Let me conclude this topic by emphasizing that high stakes are attached to our achieving this week a meeting of minds. This con­ ference will surely reflect the realities of this world in which we are living. It will reflect a wide range of different and even conflicting interests. But this confrontation might be necessary and helpful for a satisfactory solution to our complex and vital problems. It is widely agreed that we cannot seek a mere restoration of the status quo ante by a few makeshift and patchwork devices. We should use the op­ portunity created by our very difficulties to construct a more endur­ ing payments and reserve system. It should be based on the strong foundations that exist in the long experience and the authority of the International Monetary Fund. We may not this week achieve a com­ plete blueprint. But I hope that as a result of our discussions we will articulate our common determination to settle the problems before us. We all need the spirit of reform and reason. It is with this aim in mind that we should apply all our efforts this week to set the course firmly toward an agreed solution. In facing this challenge, we should not lose sight of the fact that urgent and enormous problems also exist in the development field. I will refrain from quoting the impressive figures contained in the Annual Reports of World Bank, IDA, and International Finance Corporation. These reports give ample proof of the high and dy­ namic activities of our institutions. The continuation of these activi­ ties depends to a significant part on the Third IDA Replenishment. Some governments have not yet been able formally to notify IDA that they will make their specified contributions. I sincerely hope

4

------that they will be in a position to do so as early as possible, in order that IDA should not be severely handicapped in its operation. We can feel pride in reviewing the work of our institutions. Nevertheless, the size of the task which is still before us remains formidable. Our common efforts-the joint efforts of both indus­ trialized and developing countries-have brought about consider­ able improvements in production, economic structures, and average standards of living. Millions of people undoubtedly have already felt in their daily lives the effects of our continuing work. However, the overall balance at the beginning of the Second Development Decade does not allow complacency. The standard of living in most developing countries still is alarm­ ingly low. The fight against hunger and protein deficiency is stilI far from being won. Life expectancy in developing countries continues to be low, infant mortality rate high. Unemployment and under­ employment have increased. Distribution of incomes and property is widely unsatisfactory. The share of developing countries in world exports is declining. This brief and not even exhaustive assessment must rouse us all to action. The trail has been laid: The members of the United Nations and other countries, jointly and separately, have conceived a strategy for the Second Development Decade. Our institutions have to playa decisive role in achieving the objectives this strategy is aiming at. Many indications suggest that, for all our efforts, the present eco­ nomic and social differences between industrialized and developing countries will not have been fully overcome by the end of the Second Development Decade. Nevertheless, if we all act with determination and imagination over the years to come, we will get close to reach­ ing our goals. It is not sufficient to concentrate our efforts on promoting eco­ nomic growth, defined in quantitative terms. To enable all mankind to live in decent and materially secure conditions our actions have to be guided by some basic principles. What is necessary is: {irst, a greater willingness of all countries to focus their physical and moral capacities on peaceful development. The strategy docu­ ment of the United Nations has clearly pointed out the relation­ ship between economic and social development and disarmament. second, a flexible adaptation of traditional social and economic structures to the requirements of a modem industrial society. Without such an adaptation any development policy geared to a swift increase of prosperity and a fairer distribution of the do­ mestic product is bound to fail. third, the readiness of the industrialized countries to open their markets still more to the products of developing countries. These

5 countries should become fully integrated members in a world­ wide trading community. In this connection the system of general tariff preferences favoring the export of manufactures and semi­ manufactures from developing countries is a challenge to all par­ ticipants: through a diversified and better balanced economic structure of the developing countries it can open the way to this integration. Development aid is a mutual task, both of developing and indus­ trialized countries. They are equal partners. Their efforts are com­ plementary. In the world of today we can simply no longer afford to live under widely differing conditions of life. Diminishing these differences means eliminating tension. Indeed, development policy is a policy of peace.

6

~~-.-..-.----.---- ANNUAL ADDRESS BY ROBERT S. McNAMARA PRESIDENT OF THE BANK AND ITS AFFILIATES

I. Introduction Today I want to talk with you mainly about basic problems of development: nutrition, employment, income distribution, and trade. However, before doing so, let me comment briefly on the events of the past few weeks and their relation to the developing world. It is clear that we are in for a difficult period of basic readjust­ ments in international monetary and trade arrangements and that the repercussions may continue for some time. Although the solution of these problems is not the responsibility of the World Bank, we are deeply concerned with the manner of their resolution because of the impact it may have on the external trade of the developing countries, and on the resource flows to them. The transfer of public and private capital to the developing coun­ tries-to which all the advanced countries are committed-is criti­ cally dependent on the operation of an exchange system that does not interfere with their continued flow. Foreign exchange difficulties have at various times induced donor countries to tie their aid to domestic procurement, to inhibit the outflow of private capital, and sometimes to limit their appropriations for public development loans and grants. In recent years a serious obstacle to the achievement of the United Nations target of a transfer of public and private capital equal to 1 % of the GNP of the developed countries has been the preoccupation of some of the donor countries with the effect of such transfers on their balance of payments. Whatever steps are taken to improve the operation of the international monetary system must be such as to permit a continuing increase of capital flows to meet the targets to which the developed countries have subscribed: an increase in public development assistance from $8 billion per year in 1970 to $12.5 billion per year in 1975. The developing countries are just as dependent for their con­ tinued growth on a rapid expansion of trade with advanced coun­ tries. Developing and developed countries alike will benefit from an international financial framework which permits smooth and rapid growth of production and trade. I will develop this subject at greater length further on. Before turning to my main themes, I simply wish to give an indi­ cation of the degree to which the developing world is concerned both with the restoration of financial equilibrium among the major trading countries and with the formulas by which that equilibrium is achieved.

7 In our previous meetings in this forum I have stressed the view that our era is characterized by a basic demographic shift whose consequences reach to the very heart of the development problem. Progress in both the qualitative and quantitative aspects of life of the vast majority of developing countries is severely threatened by the gross imbalance between birth and death rates. Since we met together a year ago the world's population has grown by more than 70 million people. For every two deaths there have been five births. Between 85 and 90% of this population growth has occurred in the poorer countries. Development has brought death rates down in those countries, but a corresponding adjustment in the birth rate is not automatic, and to date has been negligible. The profound implications of the resulting population explosion on development policy are not yet fully understood. I should like to explore some of those implications with you today. Before turning to those issues, however, I want to report to you on the operations of the World Bank Group during the past year, and on our plans for the remaining period of our first Five-Year Program.

II. The Bank Group's Operations in Fiscal Year 1971 During the past fiscal year our new loans, credits, and investments totalled $2.6 billion. This compares with $2.3 billion in 1970, $1.9 billion in 1969, and $1.0 billion in 1968. The total cost of these development projects, which have been financed in part by the Bank Group during the past year, amounted to $7.0 billion. For 90% of the projects, it was possible to prepare estimates of the annual rates of return to the developing countries: they average 18 % . To finance a rise in disbursements, and to increase liquid reserves, the Bank borrowed $1.37 billion during the year. This brought its level of liquidity to $2.6 billion-up $500 million from June 30, 1970. Disbursements will continue to rise in the coming years as the increase in commitments translates into expenditures. The net flow of funds from the Bank Group to the developing countries now represents about 10% of the total received from public external sources, up from 4 or 5 % a few years ago. Our operations in 1971, as was the case in 1970, benefited from the unusually high rate of earnings on the investment of our liquid reserves with the result that the year's net income totalled $212 million.

III. The Bank Group's Five-Year Program You will recall that in my initial address to you three years ago,

8 I outlined a Five-Year Program for the Bank Group. Our overall objective was to double the level of investments for development in the period FY 1969-1973 as compared with the previous five years when investments had totalled $5.8 billion. In FY 1971, the midpoint of the five-year target period was reached. What have been the results? New commitments for the first three years have totalled $6.8 billion. Taking account of the operating program for the current year, FY 1972, and the prospects for the following year, it seems probable that the final total of new investments in the five-year period will in fact exceed the initial objective of $11.6 billion, and the total cost of Bank-supported projects for the period should exceed $30 billion. As you remember, our goals also included trebling lending in the field of education, and quadrupling it in the agricultural sector. At midpoint in the Five-Year Program, those goals are on schedule and are being met. Another objective we have sought is to give greater emphasis to assisting the very poorest among our member countries-countries with per capita incomes of $100 or less. Our current estimate is that during the five-year period from 1969 to 1973 we will have assisted the poorest countries with a total of 215 separate projects. The comparable figure for the first 23 years of the Bank's activities­ from 1946 to 1968-was 158. The twelve months since we last met have, then, been vigorous and productive in the pursuit of our first Five-Year Program's ob­ jectives. Those objectives appeared arduous when we set out in 1968, and despite the encouraging results thus far, they remain so. But already we are planning in a preliminary way what the Bank might do in a second Five-Year Program from FY 1974 to 1978. These plans will become clearer over the next 12 months, and we will want to discuss them with the Governors at next year's meeting. It is becoming increasingly apparent that such future plans of the World Bank Group, as well as of other bilateral and multilateral development finance agencies and, most importantly, of the devel­ oping countries themselves, must give far greater attention to the basic problems affecting the lives of the developing peoples. These problems-which stem largely from the unanticipated growth of population-include severe malnutrition, rising unemployment, and the growing inequality in the distribution of income. Unless we deal with these fundamental issues, development will fail. The best appraised project, with the highest rate of financial return, will be of no avail if the community as a whole dissolves into bankruptcy or civil chaos. It is to these problems and their implications for all who are en­ gaged in development that I turn now.

9 IV. The Current Status of Population Planning Events of the past year have reinforced the thoughts I expressed at our meeting in Copenhagen. You will recall that I stressed then my belief that population planning must have high priority in most of the developing countries-even in those countries where the symptoms of overpopulation are not yet fully evident. The reason is clear: much more time is required than is generally imagined in order to translate population-planning programs into reductions in the birth rate sufficiently large to result in reasonable rates of growth. Last year I noted that 22 developing countries had adopted offi­ cial population-planning policies. In launching Ghana's National Family-Planning Program in 1970-the first such national program in West Africa-the Minister of Finance stated: 'The present rate of growth increases our population by 5,000 people every week .... In simple terms, it means that as a Na­ tion we are increasing in number faster than we can build schools to educate our youth, faster than we can construct hospitals to cater for the health needs of the people, and faster than we can develop our economy to provide jobs for the more than 140,000 new workers who enter our labour force each year. Our rate of population growth thus poses a serious threat to our ability both as individuals and as a Government to pro­ vide the reasonable needs of our people .... Thus we see that our population growth and our reproductive habits pose very serious problems which must be tackled realistically and effec­ tively NOW if we are to avoid the justifiable curse of our children and those who come after them. "We are aware that there will be some in our midst to whom these dangers are more imaginary than real. There are those in the grip of the dangerous illusion that the vast expanses of underdeveloped land invalidate the argument for the regulation of population growth in Ghana. They fail to realize that in­ variably the land remains undeveloped because of the lack of capital and technical skills required for its development. There are also those who still cling to the equally dangerous miscon­ ception of the prestige value of large populations in a techno­ logical age when the quality of our people is more important than their numbers." In the past 12 months several more governments have moved in this direction. But though this trend is encouraging, one must admit that only in a handful of developing countries is the population problem perceived by the top political leadership as a matter of high priority. It is in part due to the absence of strong political support that the measurable effect to date of popUlation-planning programs on fer-

10 tility rates is insignificant. But it is becoming increasingly evident that even with the requisite political support, even with expected advances in contraceptive technology, even with major improve­ ments in the administration of the programs-and to all of these critical elements we must give much greater emphasis-decades will pass before the rate of growth declines to acceptable levels. In the meantime, the world is going to get immensely more populous than it already is. The latest demographic studies, completed within this past year, indicate that if a net reproduction rate of one (an average of two children per couple) is reached in the developing countries by the year 2040-a possible but by no means certain achievement-their present population of 2.6 billion will increase more than fivefold to nearly 14 billion. If the net reproduction rate of one could be reached two decades sooner, the ultimate size of the population of the developing countries alone would be reduced by over 4 billion, a figure substantially in excess of the planet's total population today.

Billions of People Developed Developing Countries Countries World Present Population l.l 2.6 3.7 Ultimate Population: • If replacement rate is reached by developing countries in 2040 and developed countries in 2020 1.8 13.9 15.7 • If replacement rate is reached two decades earlier 1.6 9.6 11.2

Two important conclusions can be drawn from these projections: • Each decade of delay in addressing the population problem in developing countries will lead to an ultimate population in those nations approximately 20% larger than would otherwise be the case. • Even on very favorable assumptions, the populations of the developing countries will continue to grow rapidly for several decades, expanding perhaps fourfold from present levels and reaching a total of nearly 10 billion. The implications of these facts for all of us engaged in develop­ ment are clear: • We must intensify our efforts in population planning, seeking to shorten the time required to reduce the rate of growth. • We must reshape development programs for the next decade or two to take account of what is certain to be a continuing rapid growth of total population.

11 Development programs have not as yet faced up to the adjust­ ments that the consequences of continuing population growth re­ quire. Two of these consequences-widespread malnutrition and chronic and growing unemployment-require particular attention. It is to them that I tum now.

v. Malnutrition and Development! Much of the most significant knowledge dealing with nutritional deficiencies-and most particularly the implications for develop­ ment-has been discovered only recently. Even now the full extent of these deficiencies in the less-advantaged countries and the de­ gree to which they seriously limit economic and social progress is only beginning to become apparent. And we have hardly even be­ gun to develop plans to deal with the problem. The argument I shall make is that: • Malnutrition is widespread. • It is a major cause of high mortality among young children. • It limits the physical-and often the mental-growth of hun­ dreds of millions of those who survive. • It reduces their productivity as adults. • It is therefore a major barrier to human development. And yet, despite the evidence that with a relatively small per capita expenditure of resources major gains can be achieved, there is scarcely a country in the developing world where a concerted attack on the problem is under way. The number of childhood deaths is enormous in the poorer coun­ tries. Malnourishment severely lowers immunity to infection, and tens of millions of children succumb each year to preventable fatali­ ties simply because they have no reserves of resistance. The Food and Agricultural Organization states that "malnutrition is the big­ gest single contributor to child mortality in the developing countries." And that contention is borne out by the Pan American Health Or­ ganization's reports of studies in Latin America which show mal­ nutrition to be either the primary cause, or a major contributing factor, in 50 to 75% of the deaths of one- to four-year-olds. How great is child mortality in the developing world? • In India, there are large areas where deaths in the first year of life number as many as 150 to 200 per 1000 live births. • In the United Arab RepUblic, the proportion of children be­ tween the ages of one and two who die is more than 100 times higher than in Sweden. q am indebted to Nevin Scrimshaw. Chairman of MIT's Department of Nutrition and Chairman of the FAa/WHO/UNICEF Protein Advisory Group; and to Alan Berg, Senior Fellow, The Brookings Institution, for many of the points in this section.

12 • In Cameroon, children under five, although only one-sixth of the population, account for one-half of the deaths. • In Pakistan, the percentage of children between the ages of one and four who die is 40 times higher than in Japan. Clearly, the first result of widespread malnutrition is high child mortality. 1 But not all malnourished children die. Hundreds of mil­ lions of those who live-and the F AO and WHO estimate that as many as two-thirds of all surviving children in the less-developed countries have been malnourished-suffer serious deprivation of the opportunity to realize their full human potential. The deprivation often begins before the child is born. In the last three months of pregnancy, and the first two years after birth, a child's brain reaches nearly 90% of its structural development. During this critical period, a deficit of protein can impair the brain's growth. Autopsies have revealed that young children who die of protein-calorie malnutrition may have less than half the number of brain cells of adequately nourished children in the same age group. While it is difficult to distinguish the effects of protein deficiency on child development from other aspects of poverty in the child's environment, there can be no serious doubt that there is a relation­ ship between severe malnutrition in infancy and mental retardation -mental retardation which more and more scientists are concluding is irreversible. But malnutrition attacks not only the mind but the body as well. Protein deficiency seriously limits physical growth. The Director of the National Institute of Nutrition in India reports that 80% of the nation's children suffer from "malnutrition dwarfism." Low-income popUlations almost universally have a smaller body size. The FAO estimates that more than 300 million children from these groups suffer "grossly retarded physical growth." Prolonged into adulthood, the poor mental and physical growth characteristics of the early years can greatly impair the range of human capacities. Add to that the current low standards of nutrition for grown adults in much of the developing world, and it is clear why there are adverse effects on the ability to work. Workers who are easily fatigued and have low resistance to chronic illness not only are inefficient, but add substantially to the accident rate, absentee­ ism, and unnecessary medical expenditure. More serious still, to the extent that their mental capacity has been impaired by malnutrition in childhood, their ability to perform technical tasks is reduced. Dexterity, alertness, initiative: these are the qualities that malnutri­ tion attacks and diminishes. We are not speaking here of dietetic nuances, or the fancies of

1ft ;s becoming clear that the population problem and the nutrition problem are closely intertwined. In the end better nutrition will hal'e a beneficial effect on reducing jertili(v, despite the short-run reduction in in/ant mortalily. Indeed. many authorities believe that reduced in/ant and child mortality are preconditions for successful population control.

13 food faddists. We are speaking, instead, of basic nutritional deficien­ cies which affect the minds and bodies of human beings. But the problem is so dimly perceived, so readily dismissed under the pres­ sure of other priorities that we have neither applied the knowledge now at hand, nor mobilized the resources required to broaden that knowledge further. In one sense, of course, the ultimate cause of malnutrition is pov­ erty. But this does not mean that we either must, or can even afford, to wait for full economic development to take place before we begin to attack the problem. On the contrary, reducing the ravages of serious malnutrition will itself accelerate economic development and thus contribute to the amelioration of poverty. And there are a number of practical steps which can be taken even within the limita­ tions of our current knowledge and economic priorities. As in the case of the population problem, the nutrition problem represents less a need for new and immense amounts of develop­ ment capital, than a need for realistic understanding of the situation. What we already know suggests that to meet basic nutritional de­ ficiencies of hundreds of millions of the developing peoples will not entail unacceptable costs. It has been estimated, for example, that at a cost of $8 per child per year one could make up the deficiencies of a diet that now deprives him of one-fourth of his protein need and one-third of his caloric need. There are, in fact, many promising possibilities for increasing the nutritional value of food through low-cost agricultural and industrial solutions: • Crop shifts-through appropriate pricing policies-from low­ protein cereals to high-protein pulses. • The introduction of higher nutritive strains of conventional cereals, such as the new high-lysine corn which doubles pro­ tein value. • The fortification of existing basic foods to improve their nutri­ tional value, such as the protein fortification of cereals, and the vitamin and iron fortification of wheat flour. • The development and distribution of wholly new low-cost pro­ cessed foods, particularly for the feeding of young children, using available oilseed protein. There are, of course, many other solutions-some already avail­ able, some near at hand on the research horizon-which deserve support. But the central conclusion I wish to propose to you is that the international development community and the individual gov­ ernments of the countries concerned must face up to the importance and implications of the nutrition problem. I tum now to another serious consequence of the population ex­ plosion: unemployment.

14 VI. The Unemployment Problem The fall in the death rates, which caused the population explo­ sion in developing countries, disproportionately affected the young­ est age groups, with the result that the major increase in population occurred initially among children under the age of 15. The growth in the labor force (i.e., in the age group 15 and over) has been slower, but is now accelerating. Between 1950 and 1960, it rose at 1.6% compared with the population growth rates of 2.3%; and in the period 1960-70 at roughly 1.9% compared with 2.6%. Throughout the developing world the labor force will grow at an even faster rate in the 1970s than it did in the 1960s. On average it will rise by 2.3 % per year. And when one reflects on the expected 2.8 % growth in population for the next decade, it is clear that labor­ force growth rates for the developing world as a whole will inevitably accelerate in the two or three decades immediately ahead. In Latin America these rates are already over 3 % . What these figures mean for some of the principal countries is staggering. It is estimated, for example, that the Indian labor force will grow by over 50 million in the next 10 years. This is equivalent to the combined labor force of Great Britain and the Federal Repub­ lic of Germany. These rates of growth are far higher than the 1-1.5% per year faced by the developing countries of Western Europe a century ago -growth rates which could readily be relieved by massive emigra­ tion to the then underpopulated New World with its abundant nat­ ural resources. No such large-scale relief is available for today's developing countries. Available statistics and concepts of employment and unemploy­ ment are both inadequate and ambiguous in less-developed coun­ tries. However, there is ample evidence that although growth rates of national product have increased substantially over the past de­ cade, very few developing economies have expanded fast enough to absorb the growth in their labor force. Today I believe most econo­ mists would agree that: • Unemployment and underemployment are extremely serious in the developing countries, much more so than in the developed countries. • On reasonable definitions-including allowances for under­ employment-unemployment approximates 20-25% in most countries. • If past patterns continue, unemployment is bound to become worse. 1

IThe following table (prepared b)' the International Labor Organization). while suffering from the weaknesses affecting all such estimates, i/Iustrates the magnitude 0/ the problem. It projects an increase of 170 million in the labor force during the next decade. with only half as great an increase in the number of full-time jobs.

15 Level of Unemployment and Underemployment in Developing Countries excluding mainland China (in millions and percent) 1970 1980 1970 1980 Fully employed 504 592 75.3% 70.5% Underemployed 130 200 19.4 ~ 23.8 ~ Employed 634 792 94.7%/,24.7% 94.3%/,29.5% Unemployed 36 48 5.3 5.7 Total Labor Force 670 840 100.0% 100.0% It can be misleading to speak of the employment problem. There are in fact two distinct employment problems: one urban and one rural. Of the two, the urban problem is usually the more dramatic. Estimates of total open unemployment in most developing coun­ tries are in the range of 5 to 10% of the total labor force. But as this unemployment is very heavily concentrated in cities, the pro­ portion of the urban labor force that is unemployed is much greater. Urban surveys in the Sixties showed unemployment to be wide­ spread in many developing countries. In the urban areas of Algeria it was 27 % and in the Philippines 13 % ; in Kaduna it was 31 % ; in Abidjan 20%; in Kingston 19% and in Bogota 16%. The age group most adversely affected is the 15- and 24-year-olds. Nearly 40% of this age group in Ceylon's urban labor force was unemployed in 1968. Such massive unemployment among youth carries with it a very heavy social cost: there is the lost opportunity to acquire pro­ ductive skills and steady work habits at the most receptive age, plus a corrosive social frustration that can ultimately erupt into open and irrational violence. Underemployment is also common in urban areas. Far more people eke out a meager living in unproductive and excessively duplicated service activities than are actually required by the volume of work performed. It is impossible to measure precisely the extent of this phenomenon. But, for example, the proportion of the non­ agricultural labor force engaged in services in most Latin American countries is between 60 to 70% and tending to rise, whereas in the developed countries of Europe it has been generally constant for several decades at between 40 to 50%. As bad as the urban situation is, almost everywhere the rural underemployment problem is numerically worse; and since it in­ volves the poorest people of a developing society, it is even more tragic. Typically it results from large families sharing the little work provided by tiny farms, or landless laborers who can find jobs only at peak seasons of the year. The result is an immense waste of potentially productive resources. It has been estimated that in Latin America in 1960 rural underemployment already amounted to the equivalent of one-third of the agricultural labor force. This is likely to have risen since then.

16

.., .. _--_._---_._-_._------Even more important than this waste of resources is the cost of underemployment in terms of human misery. The problem is not only that people are unoccupied for so much of the year, but that the employment which they can find yields them so little income. In Brazil the poorest 20%, who are predominantly rural, had in 1960 an average income only one-sixth of the national average. Recent studies indicate that between 40 and 50% of the population of India currently have incomes below a poverty line nationally established in terms of basic nutritional needs. And these studies suggest that the situation has worsened rather than improved in recent years. Rural underemployment is a major cause of the large and often widening gap between urban and rural incomes. In most developing countries average incomes in the urban areas are far higher than in the rural areas. In metropolitan Manila, for example, the average income is almost four times that of rural areas in the Philippines. These inequalities are reflected in statistics on national income dis­ tribution, which often suggest less equality in developing than in developed countries. In most developed countries the share of the richest 5 % is about two-thirds that of the poorest 60%. In many of the developing countries, the share of total income going to the richest 5 % of families is larger than the share of the poorest 60 % , and in one of the largest Latin American countries, it is almost twice as great. Rural and urban unemployment are clearly related: that in urban areas results from the growing inequality between the incomes of those fortunate enough to obtain urban employment, and the mass of the rural poor. To many in the countryside it appears more attrac­ tive to migrate to the cities and wait there-even without work-in the hope of eventual employment, rather than to endure the poverty of underemployment in agriculture. Although there is a good deal that can and must be done to in­ crease the rate of growth in productive jobs in the urban areas-as I will discuss later-so long as rural underemployment exists, the income gap will exist, and migration to cities will tend to exceed the number of new jobs there. So, solving the urban problem depends on solving the rural problem. And the solution to the rural problem must be found mainly in the rural areas. There simply is no hope. in most countries, that urban job creation will be fast enough to absorb all the underemployed from the countryside. For employment to grow at 4.5% per year in the urban areas of the developing world would be a tremendous achievement, and be­ yond what has been achieved in the past. Growth of manufacturing employment in developing countries between 1955 and 1965 ap­ proximated 4%, with growth of manufacturing output of over 7%; and in all regions of the world the gap between these rates was tend­ ing to widen. The bulk of the population of the developing world is

17 in countries with at least 70% of the people now living in rural areas. In such countries a 4.5% growth in urban jobs would provide work for an increase to the total labor force of 1.3%-approximately one-half of the increase anticipated. The remainder must be ac­ commodated in the rural sector, already characterized by heavy underemployment. One of the more disturbing facts about the mounting under­ employment of labor and the increase in rural poverty is that they have taken place during a period when total income was growing at an unprecedented rate. In aggregate terms, the First DeVelopment Decade (1960-1970) appears very successful: the average annual growth in GNP of the developing countries more than met the target of 5 % per year. But the distribution of this GNP increase has been so unequal-as between countries, regions, and socioeconomic groups-that it has finally created a reaction against growth as the primary development objective, and a demand for greater attention to employment and income distribution. 1 As I have already stressed, my view is that development policies must explicitly aim at greater employment and greater equality of income distribution. The lesson of the last decade has been that we cannot simply depend on economic growth alone to solve the prob­ lems of employment and income distribution. Fiscal systems cannot be counted upon to redistribute the fruits of that growth in a socially equitable way: tax collection practices are too inadequate, and political pressures are too severe. The only effective solution is to raise the incomes of the poorest groups by increasing the number of productive jobs available to them. But it is equally true that to frame the issue as a mutually exclu­ sive choice between economic growth and employment is to over­ simplify a very complex matter. What is required is a realistic search for measures which will provide satisfactory rates of both job crea­ tion and economic growth. We believe that such measures are within reach. Let me turn now to a consideration of such actions, first in the field of agriculture and then in industry. Later, I shall discuss the requirement for an expansion of exports to provide the foreign ex­ change necessary to support the advances in agriculture and industry.

VII. Agriculture and Rural Development Development programs that place the relief of poverty, the elimi­ nation of malnutrition, and the provision of employment high among their goals must give prime attention to agriculture. In the great

lA measure of the lack of concern a\'eT the problem 0/ income distribution is the fact that l'ircually no data has been gathered on it. For only 20 developing countries is there any data whatet'er; in only 7 of these aTe there even rudimentar)' time-series; and for none oj them is the data comprehensive.

18 majority of developing nations over half the labor force is engaged in that field. In the poorest countries of the world the proportion is over 80%. As we have seen, this labor force is already dispropor­ tionately poor and underemployed, but is nevertheless certain to continue to grow. It is in the nature of the growth process that the relative impor­ tance of agriculture in every economy declines as economic develop­ ment proceeds. As people grow richer they spend diminishing proportions of their incomes on food, and more on manufactured goods and services. As technology advances, proportionately fewer resources go into producing raw materials, and proportionately more into processing these materials into increasingly sophisticated manu­ factured goods. The realization that at a later stage in a given society agriculture will gradually lose its primacy to other sectors does not justify neglect­ ing it at an earlier stage. But this is just what is happening in many cases today. Public investment often favors urban areas; trade, ex­ change-rate and price policies often discriminate against agriculture. Excessive export taxes and rigid price controls restrict farm earnings, and squeeze the farmer who has to buy manufactured inputs and consumer goods from protected high-cost domestic industries. Five years ago drought on the Indian subcontinent awakened the world to the precariousness of its food supply. Asian prospects ap­ peared particularly grim. Since then progress in Asian cereal pro­ duction has been dramatic enough to justify the term revolution. But this revolution has been primarily in the production of wheat, rice, and maize, and it has been largely confined to irrigated agriculture. So far its impact has been massively felt in only a few countries: principally India, Pakistan, and the Philippines. The Green Revolution has not solved the long-term world food problems, but it has given us confidence that they can be solved. It has reminded us that once persuaded of the urgency of the task, man's ability to solve technological problems is immense. In the same spirit, we have to see the social and economic problems of de­ velopment-where mankind's record so far has been less impressive -as challenges rather than as a cause for discouragement. The need to sustain the momentum of the Green Revolution con­ tinues to provide such challenges, both technological and socio­ economic. At present, the new technology requires irrigation. But over 75% of India's arable land, and about 50% of Pakistan's are without irrigation. To benefit the majority of farmers, technological research on new varieties suitable for non-irrigated agriculture is essential. Further agricultural research is needed in all parts of the develop­ ing world. Little research is going on for certain important crops­ tubers, for example, and high-yielding pulses. Little research is going

19

------, -, - - on for certain important regions-the deep-water rice areas, for example, of the Ganges and Mekong Delta. Developed countries normally spend very much more on agricultural research in relation to the size of the sector than do the developing countries. The United States, Israel, and Australia spend on agricultural research the equivalent of between 2 and 3 % of the contribution that agriculture makes to the GNP; Japan and Western Europe spend about 1 %. But the developing countries of Asia and Latin America spend only about one-tenth to one-fifth of 1 % of agriculture's contribution to the GNP. Because of the immense importance of this type of research, the Bank has taken a new step, and has jOined with FAO and the United Nations Development Program to sponsor a consultative group to mobilize finance in order to continue and expand the work of exist­ ing international research centers, and to establish new ones. The social and economic challenge is to prevent the benefits of the Green Revolution from being monopolized only by wealthier farmers. So far, the more-advantaged farmers have obtained dis­ proportionate shares of irrigation water, fertilizers, seeds, and credit. Unwise financial policies have sometimes encouraged these farmers to carry out excessive mechanization. Farm machinery has been made available at too cheap a price by allowing equipment to be imported at over-valued exchange rates, and purchased with loans bearing unrealistically low interest rates. This is not to argue that farm mechanization in countries with rural employment problems is always unwise. Sometimes it may increase employment by multiplying the crop cycles during the year. In itself the Green Revolution should lead to an increase in employ­ ment per acre by increasing output, by encouraging double-cropping, and by stimulating the development of ancillary agricultural activi­ ties. But this can be offset by excessive mechanization. The benefits of agricultural progress may also be limited if its effect is that the already more-advantaged large farmers expand at the expense of sharecroppers and small farmers. In India and Paki­ stan, agricultural incomes are largely exempt from direct taxation, and large farmers have used their windfall profits to enlarge their farms even further. In contrast, the Republic of China imposes a seven-acre limit on farm size in Taiwan, and agricultural develop­ ment has in consequence been relatively labor-intensive. What is frequently forgotten is that small farmers often work their holdings more intensively than large farmers, and often achieve a higher output per acre. Research in Colombia has shown that if land, labor, and capital are given prices appropriate to their relative scarcities, farms of less than 25 acres can be economically more efficient than substantially larger farms. Studies in India and Brazil have indicated similar findings.

20 All this suggests that there are many communities in which the reasonable redistribution of land, currently held in excessively large blocks, to the landless or to small farmers would be desirable not only on grounds of equity, but on grounds of efficiency as well. Mere land redistribution by itself, however, is not likely to lead to more output unless those who receive it are also given the necessary assis­ tance to finance and improve farming techniques. This will require a change in the structure of credit institutions and extension services, which typically serve large farmers. If the poorer farmers do not benefit from the Green Revolution's increase in output, they cannot increase their own food consump­ tion, and the whole drive towards greater productivity will be dimin­ ished by a sluggish market. Conversely, an increased availability of food and income to large segments of the rural population could well be self-reinforcing in boosting labor productivity. It would also provide an opportunity for countries to utilize their unemployed on rural investment in transport, schools, clinics, and irrigation-and without the costs of food imports or inflation. Experience with such programs in the Asian subcontinent and in Tunisia during the 1960s were encouraging, and India has recently begun to blueprint a new program of rural works. The measures I have outlined here suggest that there need be no necessary economic conflict between the goal of helping the mass of the rural population and other goals of economic development. Land reform and practical assistance for the small farmer will bene­ fit those who can get the highest output from the scarcest factor­ land. Realistic prices for productive factors, and for output, will not only help to maximize total output, but will tend to increase em­ ployment as well. Rural works will serve both to build up rural infrastructure and to raise incomes. Recent projects financed by the Bank have been directed expressly to small farmers and to an integrated approach to rural development. But we have to admit that in this whole area we are still feeling our way. None of us in the Bank or in the development community at large can yet presume that we are experts at designing the most effective institutions for helping small farmers, or that we know enough about the use of labor-intensive methods of construction, or how best to launch large-scale rural works programs. All these matters manifestly need further study and experimentation. But the evidence now available does not indicate that greater attention to the poorer agricultural groups must inevitably entail sacrifice of economic growth. Quite the contrary, we are confident that formulas can be found for furthering at one and the same time both healthy rural growth and much more equitable income distribution. I have argued that the solution to the worst problems of poverty

21 and unemployment must be sought in the countryside. But under the best of circumstances, agricultural employment will not be able to grow fast enough fully to absorb the growing rural labor force. Therefore, a rapid expansion of industrial production will be required.

VIII. A Strategy for Industrialization Postwar industrial expansion in the developing world has been very impressive. In most developing countries manufacturing has been the fastest growing sector, although starting from a very small base. Manufacturing in the developing world increased at an average rate of 6 to 7% between 1950 and 1970, exceeding the rate of in­ crease in most of the industrial nations of today at a comparable stage of their development. Manufacturing now accounts for 17% of the combined gross domestic product of developing countries, as compared to 12 % two decades earlier. Its contribution to employ­ ment creation, however, was limited. With annual increases of about 4%, manufacturing employment absorbed less than one-fifth of the approximately 200 million increase in the labor force between 1950 and 1970. In a very real sense the contribution that manufacturing makes to economic development is understated by a simple calculation of the value of its output, or of the number of jobs it provides. For countries whose economies are dependent on the export of a few primary products, perhaps with poor long-run prospects or fluctuat­ ing prices, it contributes an important degree of diversification. Industrialization furthers the training of a skilled labor force; it en­ courages the emergence of managers and indigenous entrepreneurs; it expands the development of a local capital market; and it tends to promote investment in infrastructure and technical facilities which might not otherwise be economically feasible. In other words, it contributes to modernization in general. The desirability of expanding the industrial sector has therefore been obvious for many years to the governments of most developing nations. And when starting the process, those with sizable internal markets have naturally begun by producing at home items which they have had to import in the past.! Usually these are simple con­ sumer goods. In order to encourage domestic production, some sort of protective policies against imports-high import duties or quota restrictions-have often been applied. It is hard to think of any other way in which the industrialization process could get started. But once the process is under way, devel-

ISmaIl countries, and most of the de~'eloping countries are small, ha\'e restricted possibilities for pursuing an import substitution strategy because of the extremely limited size of domes­ ric markets.

22 oping countries are confronted with an important choice which substantially affects the benefits which they can derive from indus­ trialization. This choice is whether to continue to rely on the domes­ tic market as the basis for industrial expansion, or to attempt to break out into foreign markets. And at this point many, if not most, of the developing countries have made the wrong choice: they have continued too far along the path of import substitution. Experience has shown that though this pattern of industrialization may for some years be conducive to high growth rates of manufac­ turing output, sooner or later it faces increasing difficulties. In the first place, once imports of any product have been replaced, that industry's growth is limited to the growth of the domestic market. To maintain industrial momentum requires import substitution in continually new products. Frequently this means moving into prod­ ucts less and less suited to the size of the market and the nature of the economy. Many developing countries-already short of capital, and burdened with high unemployment-have found themselves in the uneconomic position of providing high levels of protection to capital-intensive industries. There are other difficulties as well. High levels of protection have often made it possible to maintain over-valued exchange rates. This has penalized exports, and. since most capital goods are imported, has kept the price of capital equipment low thereby encouraging the uneconomical use of labor-saving techniques. These problems can be overcome by an alternative strategy of development which gives greater emphasis to manufacture for ex­ port. The industries stimulated by such a program will be those most suited to conditions in developing countries. Many are likely to be relatively labor-intensive, thus contributing to the solution of the employment problem. and production for foreign as well as domestic markets should help insure the benefits of large-scale production. These advantages are not merely hypothetical. The results in countries which have oriented their manufacturing sectors toward exporting have been more promising than those relying entirely on import substitution. Their industrial growth rates-often as great as 10 to 15%-have been higher, and the expansion of employment has been substantially faster. Among the most notable successes have been those in Korea and the Republic of China, which switched to exporting early in the industrialization process. Undoubtedly it is easier to shift to greater exporting before the structure of manufacturing becomes fixed in a distorted high-cost pattern. Recent achievements in Mexico, Brazil,l and Yugoslavia, lBy reorienting its industrial sector from import substitution to exports, Brazil increased its export earnings from manufactured goods from $144 million to $412 million in only four years' time (1966 to 1970).

23 however, suggest that it is possible for countries which have long emphasized import substitution to adjust export incentives to offset protection, and as a result to enjoy a marked increase in manufac­ tured exports. Policies outside the foreign trade field also are important in deter­ mining the pattern of manufacturing development and labor absorp­ tion. All too. often investment in capital goods in the developing countries has been encouraged by tax concessions and subsidized interest rates, while use of labor has been discouraged by revenue systems based primarily on payroll taxes. Such taxes are extraordi­ narily high in many countries of Latin America: in one, for example, they amount to 28% of the wage paid. There is no reason why edu­ cation, pensions, insurance, housing, and the many other public expenditures for which these taxes are used, should not be financed in a way that has a less harmful effect on the volume of employment. There is no conflict here between employment creation and eco­ nomic growth. Industrial policies which cause prices to reflect more accurately the scarcity of capital, and the abundance of labor, will lead not only to greater output and a healthier balance of payments, but to increased employment as well. The suggestion that developing countries base their trade and industrial policies on a clearer recognition of international oppor­ tunities and of the relative scarcities of productive factors has been made many times. I myself emphasized it in my address at this meeting two years ago. Yet the subject is often received with a good deal of skepticism. It is worth discussing why. In the first place, it is sometimes doubted whether an appropriate labor-intensive technology exists in most branches of manufacturing industry. I agree that the choice of technology is often limited, and certainly a good many of the apparently more labor-intensive meth­ ods of production are inefficient and obsolete. Nevertheless, there is evidence that in the production of many products there is a genuine prospect for substituting labor for capital. This is particularly true in the transport, handling, and packaging of materials. There are also possibilities for more widespread use of multiple-shift operations. There are a number of examples where differences in the relative costs of labor and capital have led to new techniques of production. In the case, for instance, of the production of plywood in Korea. what at first appears to be a manufacturing process very similar to that carried out in the United States, turns out, on inspection, to be full of innovative and indigenous variations. In America, mechanical sensors are used to detect defective pieces of timber, and the entire slab is then discarded. In Japan, defective pieces of timber are lo­ cated and cut out by hand. In Korea, the defective area-a knothole, for example-is located and patched up by hand. Admittedly, the empirical knowledge in all these matters is in-

24 complete. That is why the Bank is at present exploring whether there are ways in which it might encourage the development of more labor­ intensive technologies. And it is why our research program is examin­ ing the possibilities of labor/capital substitution, in order to provide both ourselves and our member countries with a more complete picture of how these issues work out in practice. An even more critical question to this general line of reasoning is whether if developing countries produce manufactured goods at competitive prices, the tendency of advanced nations to protect their existing industries will block their export. I shall turn to this issue next, both because of its effect on employment and because of its relationship to the availability of the foreign exchange required for the financing of a nation's total development program.

IX. The Need for Foreign Exchange The target for the Second Development Decade, adopted by the United Nations General Assembly following our meeting in Copen­ hagen, calls for an average GNP growth rate of 6% during the 1970s. This acceleration of economic growth, from the 5 % rate achieved in the 1960s, will require that imports grow more rapidly than national income. This explains why the U.N. General Assem­ bly calls for an annual increase of approximately 7% in the imports of the developing countries during the Seventies, a rate confirmed by the Bank's own projections. Foreign exchange requirements will grow faster than this. Devel­ oping countries have had to borrow an increasing proportion of such requirements. The result has been a rapid rise in obligations for the servicing of this debt in the form of amortization and interest. The Bank's projections indicate that these borrowings will lead to an increase in debt service substantially exceeding the rate of increase of national income. In other words, in order to attain a rate of im­ port growth close to 7%, and meet their debt obligations, developing countries will require foreign exchange resources to grow by over 7% a year. Foreign exchange is available from three sources: export earn­ ings, foreign aid, and private capital. Export earnings provide about 75% of the total; foreign aid, 15 %; and foreign private capital, 10%. These are averages. Private capital, other than for investment in extractive industries, tends to go disproportionately to the some­ what more-advanced developing countries, and foreign aid is of special importance to the less-advantaged countries. 1 have repeatedly stressed the need for increasing foreign aid, and in particular the aid available on concessionary terms. This is essen­ tial for the developing countries so that they can both service their debt and supplement their domestic savings. Yet even if the devel-

25

------,,------,- _.. -, .. oped nations which have subscribed to the 1 % of GNP aid target do meet their goal in full, the fact remains that the major portion of the increase in foreign exchange needed by the developing coun­ tries will have to come from increased export earnings and these must grow at a rate in excess of 7% per year, doubling in the pres­ ent decade. Let us examine the prospects for accomplishing this formi­ dable task.

x. Trade Objectives for the 1970s The developing world as a whole can achieve this large export expansion only by a very rapid growth in its manufactured exports. There are, of course, some exceptions. Fuel exports are growing at an average rate of 10% a year, and already account for one-third of export earnings. But three-quarters of these earnings go to six countries, containing only about one-fortieth of the population of the developing world. 1 The other developing countries obtain about two-thirds of their export earnings from primary commodities, and one-third from manufactures. Most of the primary exports are foodstuffs and agri­ cultural raw materials. These are growing very slowly. For some items the market in the richer countries is not expanding very quickly, and for others, especially foodstuffs, the problem is aggra­ vated by protectionist policies. Non-fuel mineral and metal exports are growing somewhat faster than agricultural products, but even so the average annual growth in the value of non-fuel primary ex­ ports probably will not exceed 3 to 4%. If the industrialized countries would reduce tariffs and other obstacles to primary imports, this rate of growth could certainly be increased, but not enough to provide the foreign exchange that the developing countries need for rapid economic growth. The conclusion is clear. If the developing countries are to secure the foreign exchange they need, and achieve fuller employment, they must substantially increase their manufactured exports. It is here that world demand grows most rapidly. And there is a variety of products which these countries can produce at competitive cost: products that generally have either a high labor content, or that utilize domestic materials. The major groups of manufactures which are particularly profitable for the developing countries are listed in the Appendix. Growth in exports of manufactured goods from the developing countries has already been rapid. They have increased at an annual rate of about 15% during the period 1962-69. They started, how­ ever, from such a small base that the share of the manufactured lExcluding mainland China.

26 exports of the developing countries remains only 5 % of the manu­ factured imports of the developed nations, and one-third of 1 % of their GNP. If manufactured imports from the less-advantaged nations could continue to grow at 15 % until 1980, this would be enough-if aid targets are met-to offset the slow growth of primary exports and to satisfy projected import requirements. But a 15 % rate of growth in manufactured exports will be harder to achieve in the Seventies than it was in the Sixties. To do so, annual exports, which rose from less than $2 billion in 1960 to $7 billion in 1970, will have to quadruple to $28 billion in 1980. Even if this level were to be reached by 1980, the total volume of such exports would still remain a very small part-approximately 7%-of the expected manufactured imports of the advanced countries, and only 1 % of their projected GNP. Although these exports need not all be aimed exclusively at the markets of the richer countries, the principal markets must be pro­ vided in the developed nations. The developing countries have justifiable grounds for complaint that they are being treated unfairly in their attempts to expand their manufactured exports to those markets. On the average, tariffs are higher on the kinds of manufac­ tured goods imported from poor countries as compared to imports from rich countries. According to a recent study, tariffs on the two groups of imports average 7 and 12 % in the United States, 9 and 14% in the United Kingdom, and 7 and 9% in the European Community. Even worse than the absolute level of tariffs is their structure. Tariffs rise with the degree of fabrication. Thus, in the European Community cocoa beans imported from non-associated countries bear a 3 % duty, while the tariff on processed cocoa products is 18 % . In the United States, hides and skins enter duty free, but tariffs of 4 to 5% apply on leather and 8 to 10% on shoes. This margin could well offset the comparative advantages in processing found in many developing countries. Finally, and perhaps worst of all, non-tariff barriers to trade have proliferated throughout the rich countries in recent years. Restric­ tions on market access exist in a variety of administrative and fiscal measures, including quotas, subsidies, valuation techniques, and preferential buying arrangements under government procurement. They too are more severe for developing countries. An important element of the U.N. development strategy for the Seventies is the proposal that the more-developed countries grant preferential treatment to the manufactured exports of developing countries. Representatives of 18 industrialized countries have under­ taken to try to implement this proposal. The European Community, the Nordic countries, and Japan have already adopted the plan, with

27 various limitations. However, even if all 18 countries carry out their part, these measures will enable the developing nations to increase their trade by only $1 billion a year.l If the remaining $20 billion of additional exports per year is to be achieved during the Seventies, the developing countries must radically change their industrial policy from import substitution to export-oriented manufacturing, and the developed countries must provide the necessary markets by greater efforts to remove discriminatory trade restrictions. We must face the fact that expanding the volume of manufactured imports from the poor countries into the rich countries, while bene­ fiting the majority of the citizens of the rich countries, will involve injuries to certain sectors of their economies. These injuries will be strongly-and rightly-resisted by the individuals and firms affected unless appropriate adjustment assistance policies and procedures are introduced which keep fully in step with the reduction of tariff and non-tariff barriers. Few, if any, developed countries now possess such policies and procedures. To urge both the more-advanced countries and the less-developed countries to expand their trade with one another-the former by more freely admitting labor-intensive imports, and the latter by not resorting to excessive import substitution-is not to urge that one set of countries do the other set of countries a favor. I am simply recommending that each recognize where their true mutual inter­ ests lie.

XI. Summary and Couclusious Let me now summarize and conclude the central case I have put before you: • Economic development in the second half of this century is increasingly dominated by the consequences of rapid popula­ tion growth. Mortality has fallen faster than fertility, and the effects of this disequilibrium require major changes in develop­ ment policy if we are to achieve significant improvements in human welfare. • In the longer run, the most important issue is effective popula­ tion planning. Its goal must be to stabilize the planet's popu­ lation several decades earlier-and several billions lower-than would otherwise occur. • Since reducing birth rates to replacement levels will neces­ sarily require decades, we must reshape development programs now in order to take account of what is certain to be a continu­ ing rapid growth of population to levels heretofore considered

'Over a three· to fit'e-year period. approximately $400 million annually would be represented by additional imports into the European Economic Community; $400 million by additional Imports into the United States; and $200 million by additional imports into other developed countries.

28 unlikely. Two of the consequences of such growth-widespread malnutrition and chronic and growing unemployment-require particular attention. • It is clear that malnutrition prevents realization of the full genetic potential of hundreds of miIlions of persons in the de­ veloping world and retards both economic and social develop­ ment. But research has pointed to feasible means to make immediate progress on this neglected problem. • The problems of unemployment and underemployment are al­ ready severe and will become worse as the rate of growth of the labor force accelerates in the two or three decades ahead. • More equitable income distribution is absolutely imperative if the development process is to proceed in any meaningful man­ ner. Policies whose effect is to favor the rich at the expense of the poor ar~ not only manifestly unjust, but in the end are economically self-defeating. They push frustrations to the point of violence, and turn economic advance into a costly collapse of social stability. • Poverty, inequality, and unemployment cannot be effectively dealt with by expanding the urban sector alone, but must be attacked directly in the rural areas through measures which will raise the incomes of the poorer farmers and the landless. • To achieve accelerated economic growth, an expanding flow of foreign aid remains critically important. At best, however, it will be insufficient to meet the total foreign exchange require­ ments of the developing countries. Hence there must be a dra­ matic increase in their manufactured exports. This requires policy changes in the rich and poor countries alike: changes which wiII necessitate difficult economic adjustments and re­ quire astute political leadership. The Bank Group's role in all of this is clear. Our mandate is to assist. That assistance must be both in the form of the policy advice leading to sound social and economic development programs-ad­ vice conforming to the principles I have outlined this morning-and an augmented capacity to provide financial support for those programs. In the end, development is like life itself: complex. The danger is to oversimplify. Development has for too long been expressed simply in terms of growth of output. There is now emerging the awareness that the availability of work, the distribution of income, and the quality of life are equally important measures of development. Although this is gradually being accepted in theory, it has yet to be translated into practice by either the developing countries or the suppliers of external capital. It is toward this broader concept of the entire development pro­ cess that the World Bank is moving. If we are to meet our mandate

29 to our member countries-and indeed to man himself-I believe we must move even faster. With your support, that is precisely what we propose to do.

APPENDIX Major Groups of Manufactured Goods Particularly Profitable for Developing Countries (a) Processed primary products: These involve items such as vege­ table oils, foodstuffs, plywood and veneer, pulp and paper prod­ ucts, and fabricated metal. As these products are cheaper to transport in a processed form, rather than in raw, unprocessed bulk, the countries processing them enjoy an additional advan­ tage vis-a-vis the user markets. These goods presently account for roughly two-fifths of the manufactured exports of the de­ veloping countries. (b) Traditional labor-intensive goods: These comprise garments, textiles, footwear, and simple engineering products. Their low labor costs make the developing countries competitive in these commodities, which currently account for another two-fifths of their manufactured exports. (c) Newer labor-intensive industrial products: Goods such as plastic and wooden items, rattan furniture, glassware, pottery, and wigs have made their appearance in recent years. While it is difficult to distinguish them from other categories, they appear to account for about one-tenth of the total of manufactured exports. (d) Electronic and mechanical items: A few developing countries are beginning to export a wide range of more complex products of labor-intensive manufactures, chiefly parts and components for assembly elsewhere. Exports of radios, other electrical equipment, and machine tools have also been rising. These products may have reached approximately one-tenth of the manufactured exports of developing countries, and their share is likely to increase.

30 STATEMENTS BY GOVERNORS AND ALTERNATE GOVERNORS' AFGHANISTAN: GHULAM HAIDER DA WAR Governor of the Bank This assembly has already heard so many well-chosen words con­ cerning the present dramatic monetary situation from more authori­ tative sources that any further exposition of causes and effects is likely to sound commonplace. And yet, as a delegate from one of the developing countries, I feel it my duty to draw the attention of the representatives of all those nations that are privileged to play an active part in these discussions to a few of the problems that our countries, whose only strength lies in their number, now face as a result of the current situation. Our responsibility toward society obliges each one of us to resist the threats to our coexistence. We would like to be able to playa more active role rather than be reduced to the role of spectator in acts of international sabotage. The present monetary upheaval will, if not counteracted, not only upset monetary equilibrium throughout the world but also create great economic and social havoc, particularly in the developing countries, the damaging effects of which would be world-wide. The general atmosphere of uncertainty that now prevails even in ~he large industrialized nations is intensified for many developing countries by their position of total impotence. The observer from the developing countries, who is competent to act but reduced by the actions of the large industrialized nations to be a looker-on, also knows from experience that after interminable negotiations the in­ dustrialized nations usually agree on a compromise to suit their own interests. So the developing countries still have no choice but to adapt themselves to changes determined by other parties, a proce­ dure hardly guaranteed to strengthen their confidence in the spirit of international cooperation which by now has become a cliche. How much more meaningful it would be, on the other hand­ even now after unilateral steps have been taken-to go ahead with joint world-wide discussions which, like the Bretton Woods Agree­ ment in its time, could shed light on the defects of the international exchange system and the need for its improvement, and which would help prepare all participating countries for the assumption of new obligations, regardless of their degree of economic development. Such an atmosphere would also create sufficient understanding of certain partner countries' internal economic objectives, and the measures required to achieve them .... lCornprising statements re/alin!? to the work of the IBRD, [Fe, and IDA. Omitted passages are indicated by dots (, . ,J. Statement<; re/alinl: to the International Monetary Fund are reproduced in the IMF Summary Proceedin!(s.

31 · .. In the last instance, it is the developing countries that will suffer the most, since they are forced to bear the brunt of the U.S. import surcharge and also of the restrictive measures taken by other industrialized countries. If Europe and Japan are indeed forced to revalue their curren­ cies this will also be at the expense of the developing countries. Exports from our countries, which in any case are not diversified and therefore are vulnerable to upheavals, are likely to be severely affected by complications in international commercial and financial transactions. As a result the developing countries will show large deficits in their balance of trade, to the detriment of their economic development. Lastly, it must be borne in mind that the industrialized nations will be less willing to provide development aid. This will entail a further decline in the growth potential of developing countries and will also jeopardize their development projects. The developing countries themselves also want to share in the burden of solving the problems. We should find it helpful if the industrialized countries, besides providing the development aid for which we are grateful, would also reconsider those aspects of their policies on trade, taxes, credit and monetary arrangements that have restrictive effects on the develop­ ing countries and hinder their development. The existing order will be thrown into confusion if one country places priority on full employment at all costs, another on monetary stability, another on increased exports of goods, and yet another on capital exports, without taking the interests of the others into ac­ count. Added to this is the fact that the balance of payments deficits of the strongest member countries do not only arise out of com­ mercial transactions .... When making domestic policy decisions, the industrialized coun­ tries should also think of the effects of these measures on the opera­ tion of the international monetary system. In particular, the developing countries must appeal here to the good will of the industrialized nations. To what avail is the develop­ ment aid provided by the latter if international trade is at the same time becoming more difficult? A step in this direction would be the abolition of the import surcharge imposed by the United States ....

ALGERIA: ISMAIL MAHROUG Governor of the Bank The mission assigned to the Fund and the Bank makes it obliga­ tory for us, at our Annual Meetings, to make a detailed analysis of the situation so that we may evaluate our institutions' action and

32 determine to what extent it responds to the needs of a rapidly chang­ ing world and to pressing problems whose solution can no longer be deferred. From the point of view of international economic relations, the year 1971 has obviously been dominated by the monetary crisis in the area of exchange rates and of the circulation of capital among the leading developed economies of the Western world. The recent developments of this crisis have somewhat eclipsed the other events of the year. And yet, since our last Meeting in Copenhagen, an event of world importance has given the international community a re­ minder of the Third World and, essentially, an assertion of its rights, a subject which, hitherto, had made no progress beyond the good intentions and pious hopes periodically expressed at international assemblies. I refer to the joint action undertaken by the petroleum­ producing countries to put an end to a system of exploitation the mechanisms of which, frequently concealed, were nonetheless bane­ ful to their economies. As we know, these countries by their concerted action and their determination, succeeded in diverting petroleum taxes and prices to their own favor, at the conferences of Caracas and Teheran. Some countries, including Algeria, have gone further in challeng­ ing the mechanisms of a petroleum economy branded with the in­ famy of colonialism, which for many years has operated greatly to their economic and financial detriment. As an instance, the right of the host country to have a say in the investment policies of the for­ eign companies was ratified by the Tripoli conference, while the principle of majority participation by the producing country in the exploitation of the wealth of its subsoil was imposed in our own country as a necessity to ensure the real and independent economic development of the national economy. These are not isolated incidents or chance events, but rather signs of the end of an era in which some people pretended to believe that the problems of the Third World could be solved merely by lifting certain tariff barriers and increasing the volume of financial aid. A new era is now being born, as the underdeveloped countries become aware that, if they want to ,break quickly from the vicious spiral of underdevelopment, they must make far-reaching structural changes with regard to the exploitation of their natural resources. Many of our countries are convinced that international aid can in no way be a substitute for the necessary mobilization of the national resources to promote true. independent development. And, in fact, the affirma­ tion of the principle of States' sovereignty over their natural re­ sources and its resolute implementation by several Third World countries in 1971 are new factors that will undoubtedly bring into question once again, and fundamentally, the relationships between

33 the countries producing raw materials and the countries consum­ ing them. However, although the effective exercise of control by States over their natural resources inevitably affects foreign interests implanted in their territory, it is in no way the reflection of any prejUdice against the States in which those interests originate but rather of a prejudice in favor of the economic and social development of peo­ ples who can no longer resign themselves to the idea that rate has condemned them to poverty. It surely must be recognized that the States in whose earth these treasures lie hidden are also the best judges of the proper means to exploit them in the interests of national development and the well-being of the population. A United Nations resolution recognized this fact when it affirmed that the goal of de­ velorment would be easily attained if the developing countries had the means of themselves exploiting their natural resources so as to be able to exercise their liberty of choice in the various domains associated with the utilization of natural resources on the most fa­ vorable terms. Algeria, aware of the demands of its economic and social devel­ opment, has spared no effort to recoup its rights over the resources of its subsoil. Having fruitlessly explored all ways and means in negotiations lasting 18 months, and in the face of its partner's mani­ fest refusal to recognize the new basic facts of the petroleum econ­ omy, my country resolved to exercise its sovereign right partially to nationalize the foreign interests in the petroleum sector. Several foreign groups implicated in the nationalization decisions then tried, with their governments' support, to mount what really was an eco­ nomic blockade of my country, not only by suspending payment for petroleum shipments effected after nationalization but also by dis­ suading our international partners from buying Algerian petroleum. Ultimately, it was the equilibrium of Algeria's foreign accounts that they wanted to damage, with the avowed aim of limiting our coun­ try's capacity to amass the foreign means of payment necessary for its autonomous development. In spite of this, the principle of the indemnization of the national­ ized foreign companies was not contested by the Algerian Govern­ ment, and large-scale compensation was offered to them which, after first contemptuously refusing it, they eventually accepted. It must be cause for gratification that the disputes arising from the national­ ization of the oil companies were so quickly settled, but it should certainly be recognized that, for months, foreign firms tried to under­ mine the international credit of a young country that has willingly made the heaviest sacrifices to free itself from colonial exploitation and that is continuing to make meritorious efforts to build up a pros­ perous economy that will serve the interests of the people first and foremost. In our opinion, international agencies like the Bank should

34 exhibit great caution in this particularly complex and delicate sphere of nationalization, and show themselves more attentive to the plead­ ings and arguments of the Third World countries. The right to indemnization should. in fact, not be invoked unless there is something to indemnize, i.e., a net contribution of foreign origin to the nation's economy. It is inconceivable that a country recuperating wealth of which it was dispossessed at one time in its history should be asked to repurchase its own property from others by indemnization, in the form, for example, of rent for the subsoil. All enterprises of whatever nationality that have accepted these prin­ ciples of equity can only have been gratified at the attitude of the Algerian authorities, since they received substantial indemnities up to the real value of their contributions to the national economy. Please excuse me for having dwelt so long on the question of na­ tionalization. I have done so to illustrate certain aspects of the strains in the economy between the great industrial centers of the world and the non-industrialized fringe which intends to free itself from under­ development and foreign exploitation. The unjust situation of which our countries are victims threatens to become yet more difficult as the result of the international mone­ tary crisis that is convulsing the world. The countries which are courageously trying to emerge from underdevelopment were already having to face the serious consequences of the deterioration in the terms of trade. Their situation has been singularly aggravated since the appearance of a new element of uncertainty resulting from the disorder in the international monetary system. If such disorder per­ sists, it can only distort yet further the estimates of our countries' receipts and disrupt our objectives of economic growth, particularly when such objectives are the result of long planning efforts. Further­ more, the developing countries' external debts, which were regarded as excessively heavy in the past, threaten to become insupportable by reason of the de facto or de jure revaluation of the different creditor countries' currencies ....

AUSTRALIA: B. M. SNEDDEN Governor of the Bank and Fund Australia joins in the welcome to Barbados and Fiji, and to Oman and Western Samoa, and wishes their delegations well in the course of this and future Meetings ...... Our preoccupation with immediate monetary problems should not divert our attention from the longer-run issues of world eco­ nomic development. The Bank. and its President, arc to be congratulated on their per­ formance in achieving the progress made by the Bank Group during

35 the past year. There has been an increase in the level of loan ap­ provals in the past year and an increase in disbursements of some 30 per cent. Despite this performance, there has been some criticism asserting that the Bank Group should have moved ahead even faster. This criticism is perfectly understandable as an expression of the need the developing countries have for a greater flow of resources. How­ ever, it is a matter of very considerable doubt whether the cause of deVelopment would really be assisted if the Bank were to lower its lending standards in an effort to accelerate disbursements. There is value for developing countries themselves in the fact that the Bank Group takes steps to ensure that development finance is well spent. But the paramount consideration is that if the Bank were to reduce its lending standards, it would very likely weaken its ability to raise money in the capital markets of the world. That could mean not only less money but more expensive money. It is argued frequently nowadays that such policies as emphasis on project finance, adherence to international competitive bidding, and lending at rates that provide an adequate financial return are outdated. But if these principles were abandoned, the Bank might be on the way to putting itself out of business. It is better to have the Bank strong and active. While the financial resources of IDA are not derived from the capital markets, the same considerations apply. Every donor gov­ ernment would wish to have some assurance that the funds it pro­ vides are directed toward economically viable projects and programs. The Australian Government is more than happy with the perfor­ mance of IDA, and I am pleased to be able to say that I have in­ formed the President that we are making an advanced voluntary contribution to the Third Replenishment. Australia will make the first US$16 million of its three annual installments to the Third Replenishment available for commitment forthwith. The Australian people and the Australian Government are most conscious of the need to maintain a steady flow of resources to de­ veloping countries. Our aid program rises steadily year by year and last year, for the first time, the net flow of resources from Australia to developing countries exceeded 1 per cent of gross national product. My Government will continue to attach importance to aid matters and moneys will continue to be provided, within the limits of our aid budget, to help meet the financial needs of the World Bank Group.

AUSTRIA: HANNES ANDROSCH Governor of the Bank May I begin by saying that my Delegation very much appreciates

36 the warm welcome extended to us by the Government of the United States. This year's Annual Meeting is characterized by the great concern all of us are feeling about the present state of the international mone­ tary system. Before I make some remarks on this problem, I would like to deal briefly with the activities of the World Bank Group, since there seems to be no doubt that, in our concern over urgent matters of the moment, we must not forget long-term aspects of economic and financial policy. In my country, we attach great importance to the activities of the Bank and its affiliates and we recognize that adequate funds have to be provided to enable the Group to continue and expand its ac­ tivities. I am authorized to inform you that the Austrian Parliament has approved the increase of the Austrian share in the capital stock of the Bank. The Austrian subscription was given to the President of the Bank on Monday. The Austrian Parliament has, furthermore, decided that Austria should adhere to the Convention on the Settle­ ment of Investmen't Disputes between States and Nationals of other States. The Austrian instrument of ratification was deposited with the Bank on May 25, 1971. At the Annual Meeting of the Governors, I welcome the oppor­ tunity to recall activities of the Bank in the past year. We note with satisfaction that the Bank was able to expand its operations as the world's leading international development financing organization. The Annual Report shows that the quinquennial target of the Bank will be met soon; we must, however, not give way to complacency but rather pay early attention to how to maintain and strengthen the Bank's activities. This necessitates, in my opinion, further considera­ tions as to the orientation of the Bank's lending operations: namely, whether they should be extended on a more general basis of financial assistance or whether they should increasingly concentrate on the finanCing of specific sectors. It is beyond any doubt that the highest possible return on capital investment lies in the educational sector. H. G. Wells once charac­ terized human history as becoming more and more a race between education and catastrophe. Having those words in mind, we very much welcome the fact that the Bank has continuously emphasized the fundamental importance of education for developing countries. We also believe that all efforts of the Bank to accelerate the de­ velopment of rural areas should be further supported. Within the wide range of its activities, the World Bank played, and is still to play, an important role in the implementation of in­ dustrial projects all over the world. To facilitate future decision­ making on industrial projects, I would think it would be appropriate to draw up a scheme for a long-term credit policy giving priority to certain projects. In this connection, particular consideration oUght

37 to be given to labor-intensive projects; that is to say, to provide more job opportunities to local firms and thus reduce unemployment. In meeting the needs of the borrowing countries, the Bank has frequently been relying on the international capital market. Should the Bank intend further borrowing in Europe, Austria would again be prepared to consider the possibility of offering access to her capital market. With regard to the World Bank affiliates, the importance of IDA for developing countries is reflected in the figures of the Report we have before us. It is hoped that the Third Replenishment of IDA funds will become effective as soon as possible. With respect to IFC, it appears that it has been able to invest large sums and to attract considerably more private capital for in­ vestments in developing countries than in the past ....

BELGIUM: BARON SNOY ET D'OPPUERS Governor of the Bank When listening to Mr. McNamara's address, I noted with pleasure that during the past fiscal year the Bank Group has substantially increased its contribution to the volume of financial resources allo­ cated to the developing countries, to the point of approaching the goal which he set himself two years ago of doubling the volume of the Bank's lending over five years. The Belgian Government is entirely in agreement with this aim and promises its full support and wholehearted cooperation in achieving it. It was with this in view that Belgium participated quite recently in the special increases in the Bank's capital, and agreed that the part of the subscription paid in Belgian currency could be freely used. It was likewise with this in view that my country author­ ized the issue of a Bank loan on its market. As regards the International Development Association, Belgium has already announced its acceptance of the resolution concerning the Third Replenishment of the Association's resources. I would take the liberty of expressing the fervent hope that the conditions for the entry into force of that resolution will be fulfilled in the very near future ....

BOTSW ANA: Q. K. J. MASIRE Governor of the Bank One of the first acts undertaken by Botswana after gaining its independence in 1966 was to join the International Monetary Fund, the World Bank and the International Development Association.

38 Today, the eve of the fifth anniversary of Botswana's independence, is the first occasion on which a Botswana Governor has made a state­ ment at these Annual Meetings. I trust that my fellow Governors will agree that Botswana has not made unreasonable demands on their attention ...... A striking and ironic feature of these Annual Meetings is that they so often focus attention on two conflicting forces. In the mone­ tary field, we are frequently grappling with forces which tend to create instability, uncertainty, disunity and retrogression. Yet, in the same conference hall and during the same week, we review the ac­ tivities of three institutions which have a vital role to play in promot­ ing the development and advancement of mankind. If my remarks deal mainly with the achievements and policies of the World Bank and its affiliates, it is because Botswana can do little to influence the resolution of the international monetary problem. But, as one of the least developed countries in the world and one which has re­ ceived considerable benefits from its membership in the World Bank and IDA, Botswana has a continuing interest in the future of those organizations. Before commenting on some of the aspects of the Bank and IDA which are of particular concern to Botswana, and in case my re­ marks should be misconstrued, I should like to place on record my Government's appreciation of the assistance which Botswana has received from the Bank and from IDA. To date, Botswana has con­ cluded negotiations for one Bank loan and three IDA credits, which will provide over US$41 million by the time all four projects are complete. This will represent an average investment of approxi­ mately US$70 per head of population. An additional two projects, for which IDA financing is sought in part, are nearing the negotia­ tion stage. When these projects have been fully implemented, Botswana will have been transformed, at the cost of less than one-fifth of 1 per cent of the combined Bank and IDA resources, from a chronically back­ ward country into one which should be capable of sustained and largely internally financed economic growth. The Bank loan and IDA credits will have been applied to virtually every type of devel­ opment activity-agriculture, road and rail transportation, water development, power transmission and urban services. By the end of this decade, we hope to have eliminated the need for external assistance on concessionary terms. If this objective is accomplished, it will be due largely to the financing which Botswana has received or hopes to receive from the Bank and IDA, and to the efforts of a number of bilateral donors, notably the United Kingdom, Canada, Denmark, Sweden and the United States. It is our hope that those agencies which are participating in Botswana's development will be able to look back in 1980 and see what can be achieved in a

39 relatively short period through careful planning, intelligent lending and determined implementation. If Botswana has benefited from its relationship with the Bank and IDA, and from the capable and dedicated attention of the Bank staff, it has also gained experience from its dealings with the Bank and IDA over the past four years. It is against this background that I wish to make a few general comments. I note from the Annual Report of the Bank and IDA that there were again during the 1971 fiscal year satisfactory increases in the usable resources of both bodies. The continued success of the Presi­ dent and his staff in expanding the resources of the two institutions deserves the congratulation of all member governments. And in this connection, I should like to join other speakers in conveying Bots­ wana's gratitude to those member governments whose timely action, in providing advance contributions of their IDA pledges, enabled IDA to continue its lending operations. In view of the fact that IDA is such an important source of devel­ opment assistance, and having regard to the commitments made by the Bank Group toward increasing the flow of its resources to Africa, it is disappointing to see that the amount of IDA funds made avail­ able to African countries last year was 24 per cent lower than in the previous year. This decline was very much greater than that experienced by other geographical areas. For a country such as Botswana, which has proved itself to be capable of using IDA credits quickly and effectively, the allocation of IDA resources is a matter of critical concern. There are two further interrelated aspects of the 1971 Annual Report which are, however, of particular interest. Firstly, it is noted that the level of disbursements of Bank and IDA funds did not rise as fast as might have been expected, indicating the persistence of delays between the approval of a loan or credit and the draw-down of funds. What the Report does not indicate is the additional and earlier lag which arises between the conception of a project, say, for example, its first appearance in a national development plan, and the approval of the project loan or credit by the Executive Directors. It would be interesting to know what length of time elapses, on av­ erage, between the first consideration of a project and the final dis­ bursements of funds on it. Clearly, if the Bank and IDA are to become fully effective agents in the transfer of resources from the richer to the poorer countries, the total lag, not just between loan approval and disbursement but between project conception and proj­ ect implementation, must be reduced to a minimum. I am aware of the fact that this problem has already received considerable attention within the Bank. In considering this issue, the need of recipient countries to speed up the utilization of available development resources is often stressed. Nevertheless, one view,

40 which in our opinion has particular merit, is that a greater delega­ tion of authority and decentralization within the Bank could do much to speed up the preparation and consideration of creditworthy programs and projects. To accomplish a reduction in processing time through decentralized decision-taking might initially involve some reorganization of the structure of the Bank to achieve a greater degree of integration of project and area department functions and to avoid having to submit small and straightforward projects through all the elaborate stages of internal consideration which were surely designed for large reconstruction loans. Such a reorganization could lead to a further development, namely the physical decentralization of the Bank and IDA. If this were to take place, closer cooperation with regional economic com­ missions and development banks might occur. Similarly, greater proximity to and more frequent contact with the governments of member countries could facilitate the granting of more program loans, particularly to low-income countries which require financing for a number of small projects. It seems to me that program lending, on the basis of a national development plan, can only succeed, in the nature of things, if the lender has a greater and more continuous knowledge of the recipient's ability to plan and manage a coordi­ nated development program than is provided by occasional eco­ nomic and appraisal missions sent out from a distant headquarters. This kind of decentralized organizational structure, in which the various appraisal disciplines were more tightly integrated, might also enable the Bank and IDA to assist in strengthening and working through the existing institutional framework of recipient countries rather than insisting on a proliferation of new parastatal organiz

41 In concluding, I must express the hope that my remarks will not be misinterpreted. The Management of the Bank Group and its member countries have cooperated in transforming the Bank and IDA into institutions which have an enormously important role to play in the process of international development. Their accomplish­ ments in increasing so significantly the inflows of resources available for development must now be matched by measures to ensure that development actually takes place. The expeditious conversion of financial resources into jobs and education and better health in the less developed countries will require changes, not only in the recipi­ ent countries themselves, but also in the international agencies through which the resources pass. Just as we, in the developing part of the world, need advice and assistance in achieving the institu­ tional reforms to enable us to benefit from external support, so should we play our part in suggesting changes which might enable international organizations to respond more effectively to our needs.

BURMA: U KYAW NYEIN Governor of the Bank and Fund Mr. Chairman, our first and pleasant duty is to congratulate you upon the opening address ... an address as much marked by the persuasive logic of its thinking as by its remarkable breadth of vision and the views to which it has given expression. There can be no question whatever that all of us stand in more need of both these qualities at the present time than at any other, and I believe every member has a right to expect you to exercise them fully in the consideration of and decision on the crucial issues which beset the world's economic and financial community today. It is also a pleasure to acknowledge our debt to our host country, the United States, the Government and people of the nation, and to the citizens of its capital city, Washington, for their unfailing hospitality to the visitors from all over the world who come here for these Annual Meetings. The frequency of our visits here is only too apt to make us a little indifferent to the kindness shown to us. I should also like to congratulate Mr. McNamara on his excellent Report, which records how much progress has been made by the World Bank Group during fiscal year 1971, toward the objective of doubling the volume of lending in the five-year period, 1969-73, and at the same time for paying increasing attention to make the Group's assistance optimal to its recipients. It is also gratifying to learn that the Bank's Executive Directors have given serious study to a sizable number of policy recommendations made by the Pearson Commission, and it is to be hoped that some of these will be brought to the stage of implementation within the current year.

42 An element of uncertainty, however, exists as regards the Third Replenishment of IDA's resources, and the recent extension of the final date to December 31, 1971, for donors to notify their willing­ ness to participate in the scheme, will have the effect of setting back projects which would be eligible for assistance under IDA rules. The grant to IDA of US$11 0 million out of the Bank's net income for 1971 has proved to be a welcome, much needed addition to IDA's resources, especially at a time when the external debt-servicing burden on the developing countries has come to assume a greater proportion than the means available to them through the growth of their export earnings. This is indeed a disquieting feature. and the problem of finding new sources of funds for this type of assistance may well tax the ingenuity and resourcefulness of the Executive Directors and Management in the coming years ...... I come finally to the developing countries. Their peculiar lot, never very favorable, has been rendered more precarious by the recent international developments. Their terms of trade with the richer industrial nations have steadily worsened in the past two decades; their traditional primary product exports have increasingly yielded ground to similar exports by industrial countries made on concessional terms; their remaining exports have now come to be supplanted by increased production and trade between advanced countries themselves; and the ventures of their industrial products to find markets abroad have met with protective walls in the indus­ trial nations. The two differential competitive advantages hitherto enjoyed by them as privilege, namely, the prompter facilities to change their parities and to use some forms of trade control. have now slipped from their grasp. Development assistance has also re­ ceded in volume. The hope that I would venture to express in favor of the wide range of developing countries, as a representative of one of them, is that, in the crucial discussions now taking place in the search for greater means of production and exchange among nations, due recognition be given to all factors making for the vast differences between rich and poor, to the end that more effective action would be taken to reduce this gap.

CAMEROON: BERNARD BIDIAS A NGON Governor of the Fund It is a great honor and privilege for me to address this august assembly and I am particularly happy to join with earlier speakers in thanking the United States Government for its hospitality and warm welcome. First let me point out a number of contradictions and their serious consequences:

43 The less wealthy nations are experiencing very great difficulties in making themselves heard within the international economic and financial community. But the goals that this community set itself in the agreement by which the World Bank, among others, was created, are chiefly con­ cerned with the need to promote the development of the least wealthy nations. Both in monetary affairs and in matters of economic policy we immediately feel the repercussions of decisions over which we have no control, however much the wealthy countries are anxious and able to defend our interests. The consequence of these fundamental contradictions is that dur­ ing the past few years, despite the urgent appeals made here and in other international forums, the prevailing trend has been to widen the abyss separating the wealthy from the least well-endowed countries, and the outlook for the future, as far as we can gather from the re­ ports presented to our Annual Meeting, is that this trend will continue. Meanwhile, conflicts of interest among industrial powers and the upheavals within the international monetary system are likely to obscure the essential problem on the agenda: the need to find the means of bringing about an international development process that will give the developing countries the place they deserve. Otherwise, the present so-called DeVelopment Decade will be a decade of re­ cession from which our countries will suffer the most, as everyone is aware. Without being too optimistic, I should like to believe that once the monetary situation has passed through this crucial stage, and perhaps even because of it, the countries responsible for decision­ making at the international level, aided by the staff of the Bank and Fund, to whom we express our fervent gratitude for their positive action in our favor, will tum to the most urgent problem of the century: the need to clamp down on underdevelopment by pro­ moting the bold policies that are finally emerging from the well­ trodden paths of good intentions. It is with such a prospect in mind that I address you on behalf of the five Central African nations: Chad, the Central African Re­ public, the Gabonese Republic, the People's Republic of the Congo and the Federal Republic of Cameroon. The implementation of coherent policies designed to achieve de­ velopment goals on a world-wide scale devolves particularly on the World Bank Group and the capital-exporting countries insofar as it depends on the flow of external resources to the developing countries. An analysis of recent flows and of future projections reveals trends that give the developing countries cause for considerable concern.

44 Firstly, bilateral and multilateral public aid are both showing a clear tendency to decline, representing no more than 0.30 per cent of the GNP of the more developed countries, against the 0.75 per cent that is considered the minimum necessary in order to promote a development policy. Secondly, it must be pointed out that the structure of this public aid has altered considerably. For the past ten years the grant ele­ ment has been decreasing and is now equivalent to 65 per cent of the total net public aid flow, against almost 90 per cent a decade ago. On the other hand, public aid in the form of the financing of exports from the wealthy countries, which is in fact the form of public development aid that is the most advantageous to the capital­ exporting countries, has registered a remarkable upswing, reaching 15 per cent of total public development aid in 1970 against a mere 5 per cent in 1960. The developed countries, being careful of their own interests, do not. hesitate to choose the form of financing that will be most beneficial to their own development. Thirdly, private interest groups are accounting for an increasing share of the external resources made available to the developing countries. The net capital contribution from the principal DAC capital-exporting countries was $6.7 billion in 1970 against $2.5 billion in 1963. To put it simply, the industrialized nations are shift­ ing the burden onto private financing, which is naturally the most costly type of aid for the developing countries, which are already finding it difficult to keep their domestic public finances in a state of equilibrium. We note that over the past five years the net amount of suppliers' credits has been doubling from one year to the next, representing in 1970 one third of total private capital contributions from the major industrialized countries. Private loans, and for that matter some public loans made in ac­ cordance with the rules imposed by the international capital market, the terms of which need not be mentioned at this time, are for the most part given to the relatively more industrialized countries which can afford to pay the interest rates. As to the less well-endowed countries, including those of Africa, the resources allocated to development become more and more scarce as the foreign aid debt becomes more and more burdensome. As the Annual Report of the World Bank points out, 47 per cent of gross capital flows went to Africa and South Asia in 1965, but only 33 percent in 1970. It should also be observed that this year has been the worst in the last three years for our group of African countries, our relative share of the World Bank Group's assistance having fallen off in relation to previous years. It has become obvious that the foreign debt of the various devel­ oping countries is exerting greater pressure on their current bud-

45 getary resources due to changes in the flows of external resources for investment purposes and to the resultant sharp price rise. In this situation of generalized inflation-which affects our countries all the more since the rich countries, without exception, export their inflation to us-the pressure of our external debt has been aggra­ vated by the speculative activities of powerful international interests, international monetary fever, and the resultant instability of par values. During the last few years the growth rate in the debt service bur­ den has been three times greater than the growth rate of the GNPs of our countries. If this trend continues and if there are no signs that it will come to a halt, it will without doubt constitute the main stumbling block to the industrialization, and consequent develop­ ment, of our countries. Despite these rather dim prospects, however, we must once again hail the efforts of the World Bank Group, whose President an­ nounced a bold new program when he entered into office. Great progress has indeed been made. The rich countries, how­ ever, are well aware that by contributing to the development of our countries they are contributing to their own growth, and that for the time being at least they stand to benefit more from our develop­ ment than we do ourselves. Nonetheless, they still do not seem inclined to take any decisive steps. The Rio Resolution for higher prices of raw materials has by and large remained a dead letter. The product agreements entail nu­ merous problems which once again can only be solved by the devel­ oping countries and by powerful international private interests. Moreover, it has become obvious that the procedures of the IMP's compensatory financing scheme are unwieldy, and that the system is inadequate to resolve the problem of erratic movements in prices of raw materials. While the developed countries are quick to make decisions when their own interests are at stake, they are slow to seek ways and means to release the necessary resources for investment in our coun­ tries. Despite the repeated wishes of the poor countries, indeed, despite the studies they have submitted, no link has been established between special drawing rights allocations and public development assistance. We need hardly say who is profiting from the system as it is now operating. In any event, the failure of that system to con­ tribute to the development process is indeed cause for regret. Our primary problem is still that of obtaining the resources for our countries' development on terms compatible with development objectives. The World Bank's borrowings on an overheated finan­ cial market can only have aggravated the terms of such assist­ ance. There still remains the International Development Association,

46

------.---.. -.. ------~ .. ---,.. -.-.,- on which our countries must be able to place the greatest reliance. We appreciate the efforts of the donor countries who released their contributions before all the formalities were completed for the Third IDA Replenishment. We wish to make an urgent appeal to those who have not yet made national decisions in this regard, and whose contributions to IDA are essential, to make the necessary dl!cisions as soon as possi­ ble. This appeal is also addressed to those countries who think it necessary to subordinate their own decisions to those of some other country. We are pleased to note that the World Bank allocated $110 mil­ lion of its net income to IDA. We nonetheless feel that this measure is insufficient, and repeat our proposal that all of the Bank's net profits be allocated to IDA. This might seem Utopian, but the pres­ ent situation will perhaps lead the wealthy countries to give the matter some thought. Our own feeling is that the World Bank is not a source for feeding the national budgets of those countries. If there is in fact real support for development financing, expe­ rience shows that it is now possible to carry out in modified form a suggestion made from this podium three years ago, that the national currency equivalent of SDRs be allocated to the International De­ velopment Association. This would involve causing the developed countries who receive allocations of special drawing rights to place the nonreimbursable share of their allocations at the disposal of IDA in their own cur­ rencies. In this way, not only would IDA have access to permanent, large-scale resources, but the countries concerned would find this to be a noninflationary way of increasing their exports, it being understood that the currencies placed at IDA's disposal could be used to purchase capital goods in the countries which receive allocations. At a time when the tribulations of the present monetary system are such as to enhance the role of special drawing rights in the in­ ternational reserve system, the time has come-indeed, it is long overdue-for the poor countries to become the primary beneficiaries. Although I have chosen to speak only on the subject we feel to be the most pressing, namely, development financing, it is particu­ larly important that the present studies on reform of the monetary system do not add to our countries' already enormous difficulties. It is particularly essential that protection be given to our export proceeds and to tax receipts connected with our foreign trade, which are vital for some countries. Above all, our foreign debt burden must not be increased by the new international monetary order. We would like to think that the rich countries involved in these negotiations will keep these imperatives in mind. We do not doubt their good will, but we think it advisable that decisions involving a

47 potentially vital impact on the developing countries not be made without consulting them, and in any case they should not run counter to their legitimate interests. We are therefore insisting that we be closely associated with the negotiations now in progress. It would be dangerous for the fundamental contradiction mentioned in my introduction to be confilmed on this occasion, which will perhaps mark the beginning of a new era in the international and financial economic community. Will we be heeded?

CANADA:EDGARJ.BENSON Governor of the Bank The great merit of these Annual Meetings is the opportunity that they give to the Governors of the Fund and the Bank to take stock together of where matters stand and of what needs to be done. It is obvious that on this occasion we face a situation of the utmost gravity and urgency ...... The situation facing the developing countries is very serious. They are confronted with a potential loss of export earnings as a result of the U.S. import surcharge. In addition, they face the pros­ pect of a temporary, we hope, decline in the volume of U.S. foreign economic assistance. We must all seek solutions to present difficulties which, as far as possible, will not inhibit the increase in export earn­ ings and in resource flows required by these countries if their devel­ opment is to proceed at a satisfactory pace. In the meantime, we would hope that assistance provided by countries other than the United States will be maintained and, indeed, increased. In addition, we must continue to recognize the vital role of the World Bank Group in the development process, and to ensure that it is provided with the support necessary to carry out its responsibili­ ties. That the Bank has met these responsibilities is demonstrated strikingly by the tremendous increase in the volume of its lending during the last three years. Continued lending on this scale will necessitate a careful look at the Bank's borrowing program and its prospective financial position. We are glad to note that the Execu­ tive Directors will be examining these matters during the course of the year. In order to meet its borrowing requirements, it is essential that the Bank have access to capital markets. There have been a number of Bank issues in Canada in the past. In recognition of the need for a continuing flow of funds, particularly in present circumstances, Canada has agreed that the Bank might make another approach to the Canadian market within the near future.

48 We are also acutely aware of IDA's requirements for additional funds, and have agreed to make available on the first of November the first installment of our contribution to the Third Replenishment, even if the Replenishment has not become formally effective by that date. We are gratified that a number of other countries have taken similar action, and hope that others will do so in order to prevent a serious interruption of IDA's lending activities. It is reassuring that the U.S. Administration intends to seek Congressional authority for its IDA contribution, despite the announced reduction in the U.S. development assistance program. The importance of providing funds to IDA is underlined by the seriousness of the debt-servicing problems of many developing coun­ tries. One cannot view, without concern, the rapid growth in the debt-servicing payments of developing countries in the face of a slowdown in the total net flow of resources to these countries and of a hardening in the terms of lending. The Bank staff have studied this problem in some detail, and much of their analysis and many of their conclusions are contained in this year's Annual Report. The flow of financial resources to developing countries has often failed to gener­ ate sufficient foreign exchange even to cover interest and amortiza­ tion payments. In my view, greater importance should be attached by all lenders to the finanCing of projects which have a favorable impact on the foreign exchange earning capacity of countries with debt problems. It is noted in the Annual Report that there are some developing countries in which the capacity to transform the output of borrowed capital into foreign exchange is high. These countries can normally afford to borrow external capital at commercial rates. There are many other developing countries, however, where these conditions are not present. For them, the avoidance of debt-servicing problems requires that, on average, foreign capital be available on concession­ ary terms. I am in complete agreement with the emphasis the Presi­ dent has put on the need to soften the terms of aid, particularly at a time when the prospects for a greater volume of aid are not particu­ larly encouraging. We have also noted the stress placed by the President on the im­ portance of a rising volume of exports of manufactures by developing countries in providing necessary foreign exchange. His suggestions as to how this might be achieved seem well taken. and I have only a few comments concerning them. First, I would repeat and emphasize that the elimination of trade restrictions, whether against developing or developed countries, would be a major step forward. An impor­ tant element in this process must be the removal of barriers on prod­ ucts which are of particular interest to developing countries. Second, there is no question that the process of reduction or removal of exist­ ing restrictions to trade would be considerably eased if developed

49

------_._"----- . - . countries would establish effective programs for adjustment as­ sistance to industries which suffer serious injury from increasing imports. Third, programs to assist developing countries in the techniques of marketing have proved helpful and could usefully be expanded. In present circumstances, it is particularly important that Mr. McNamara spoke as he did on trade and has linked development aid to trade. In our view, development assistance programs have played and can continue to play, a vital role in the expansion of world markets, which is to the benefit of both developing and developed countries. I wish to conclude, Mr. Chairman, by thanking you and Mr. McNamara and Mr. Schweitzer for your opening speeches. I wish also to emphasize the historic and critical nature of this occasion. A generation ago at Bretton Woods the foundations were laid for these two great institutions, the Fund and the Bank. Through international cooperation, they have made an immeasurable contribution to the growth of world trade and payments and the expansion of develop­ ment aid which have benefited all of us. These institutions have evolved in response to changing needs, but we are now confronted with the gravest challenge to the postwar order. All of us have an obligation to work together to resolve this crisis through an expan­ sion of trade and employment and an improvement in relations among the countries of the world.

CEYLON:N.M.PERERA Governor of the Bank and Fund It is a distinct privilege to be able once more to address this dis­ tinguished assembly. It is fitting that we meet in Washington at this momentous time, when the whole world is watching with anxiety this hub of the financial and monetary universe. It is also fitting that we of the developing countries should be afforded an effective oppor­ tunity of presenting our views on the many controversial issues before us. I am happy to state that in the year that has elapsed my Govern­ ment has maintained cordial relationships with the Bank and the Fund and we look forward to their continuing and sympathetic cooperation in the arduous task of planned national development that lies ahead of us in Ceylon. Last year I drew attention to the challenges posed for both these institutions by the growing concern with several aspects of the de­ velopment process which had been previously neglected. Policy makers in developing countries have become increasingly aware of

50 the distinction between "growth" and "development." Development implies a concern with structural change in societies-with questions of land reform, income redistribution, more rapid employment crea­ tion, a better adaptability of production structures to a changing external environment and the like, in place of the hitherto predomi­ nant concern with GOP growth per se. It is true that in many respects a faster rather than a slower growth of production may permit these other wider development goals to be reached more easily, but it is nevertheless the case that many points of conflict between these objectives and those of GOP growth are also likely to arise. I am happy that these same considerations have now been recognized and accepted at the very commencement of our Meetings by the Presi­ dent of the Bank himself. It is pertinent, therefore, to ask what it is that the Fund and the Bank can do to make it easier for countries to follow the kind of approach to development that I have tried to sketch out. Since I spoke last year, the tum of events in Ceylon has given added point to these considerations. I explained then that the prin­ cipal problem facing countries such as mine was unemployment, especially among educated and restless youth. In situations such as ours, there is a gulf between the aspirations of youth and the achieve­ ments which the normal run of economic circumstances usually permits. The result of this impatience in Ceylon has been an uprising by some of our young people, which has transformed the kinds of approaches to economic policy that may have previously seemed appropriate. In other words, for the future, the multidimensional aspects of development must receive an even greater emphasis than contemplated in the past. The question then is what kinds of approaches by the Bank and the Fund are most likely to be helpful in situations such as ours. Let me deal first with a range of issues that are more within the com­ petence of the Bank. I welcomed last year the recent thinking in the Bank about a new and expanded program of country economic mis­ sions involving the United Nations as well, and intended to assist member countries to draw up a development strategy which would encompass both the economic and social aspects of development. Ceylon has just had the benefit of the advice of a mission of precisely this kind, sponsored by the ILO as part of its World Employment Program, with members of the Bank staff participating in it. The

report of the mission, I headed by Professor Dudley Seers, has not yet been formally submitted to the Government, though its findings have been made available to us in draft form. But what it does em­ phasize is that hard and painful decisions in the realm of domestic

1fnternational Labour Office. The report ot an Inter·Agenc.1' Team organized by the Inter· national Labour Office: Matching Employment Opportunities and Expectations; A Pro­ gramme of Action for Ceylon. Genna, 1971 (forthcoming),

51

"------, - " policy cannot be expected to bear fruit unless these policies receive adequate international support. I do not want to summarize this report at any length but it envis­ ages fundamental reforms with regard to land tenure arrangements, fiscal policy, educational policy and incomes and wages policies. I shall focus for the moment only on the fiscal aspects of the problem as seen both by the Mission and the Government. The attempt to raise domestic resources for an employment-oriented strategy neces­ sarily implies that the real consumption of those already employed will have to grow very slowly indeed. Full employment, in other words, means considerable sacrifices on the part of those already employed in order to release resources for the creation of additional employment. The fiscal policy decisions that are required in our case imply a modification of traditional policies in regard to consumption expenditure and the returns required of public enterprises, balanced in the interests of both equity and efficiency by a redistributive policy in regard to incomes and landholding. But unless a strategy along these lines is in some sense internationally underwritten, its chances of success are limited. "But why," asks the ILO employment strategy mission, "should rich countries pay particular attention to Ceylon in a world where there is more serious poverty and distress?"" The answer given is an interesting one. "Partly because she has received relatively little help in the past; partly because her problems are so urgent; partly because if she takes the necessary hard decisions and receives outside support then she has an excellent chance to overcome them; but perhaps above all because these same problems are already visible over the horizon on a grander scale throughout Asia, so Ceylon presents a sort of horoscope of the future of the region (and indeed perhaps other regions too)." The Mission goes on to argue that "the long-run trade-based pros­ perity of both Asia and the rich world needs a type of solution (in­ volving) hard, timely decisions by the Government of the country concerned, decisions made politically more feasible by bridging sup­ port from other countries. Ceylon," it asserts, "is an ideal place to try it. She is small enough for the size and nature of the problem to be clear and for the burden to be manageable. Yet unless helped soon, the political atmosphere may be changed beyond reversal, and a country so closely geared into world trade could move along a downward spiral of economic setbacks and political crises." What is it that international policy-specifically in areas in which initiatives could lie with the Bank and the Fund-can do to help in this kind of situation? Here, too, Ceylon's problem is part of a more general one, and the international financial institutions will have to

'This and subsequent quotations are from chapter 13 of the lLO report, op. cit., entitled "'The Contribution of the Rest of the World."

52 evolve in newer directions if they are to deal adequately with it. An essential prerequisite for a satisfactory solution is the alleviation of the load of Ceylon's short-term indebtedness. This is running cur­ rently at US$100 million or a quarter of her merchandise import capacity. She got into this situation essentially because export values in recent years had fallen consistently below reasonable expectations, so that import capacity could only be maintained at the levels deemed politically safe by the previous Government by having recourse to short-term borrowing, in the absence of any satisfactory alternative. Some facility for funding this debt that has been inherited from the past is essential, if the decks are to be cleared for planned develop­ ment. Had a discretionary form of supplementary financing scheme been in operation, it is conceivable that Ceylon's debt problem could have been dealt with within its terms of reference. As it is, the scope for more ad hoc s.olutions under the auspices of Aid Group and the Bank will have to be explored. To deal with situations such as Ceylon's in a more systematic manner, however, the world will have to await some sort of insti­ tutional facility with separate resources, administered within the Bank, on which hopefully firm decisions could be reached at UNCTAD III. It is from this standpoint disappointing to note that the President of the World Bank has once again been obliged to report to the Secretary-General of UNCTAD somewhat negatively as regard the progress of supplementary financing within the Bank. It is gratifying to note, however, that, at the Commonwealth Finance Ministers' Meeting a few days ago in the Bahamas, "the hope was widely expressed that the Bank would resume its efforts to work out a scheme for supplementary financial measures." This echoed the sentiments strongly expressed by the developing countries as a group and by certain developed countries, in particular, the Scandinavian group of countries, the Netherlands, and Spain, at the conclusion of UNCTAD's Trade and Development Board sessions a little earlier. We welcome, however, the concluding sentiments of the Presi­ dent's letter to the Secretary-General of UNCTAD in which he conveys the assurances of the Executive Directors of the Bank "that, should a developing country member of the Bank, for reasons out­ side its control, experience an unexpected shortfall in its export earnings which threatens to disrupt the implementation of its de­ velopment program, the Bank Group would examine the case on its merits with a view to determining whether and how it could shape or modify its lending and other operations for that country in such a way as to help the country to overcome the difficulties. "1 While the intention implied in this statement is gratifying, it is clear that the purposes which we have in common in dealing with

'UNCTAD document TD/B/l53.

53 problems of this kind can only be adequately served if sufficient resources are available to the Bank, and if those do not have to be diverted from other claims of comparable priority. Even if it is the case that the level of resources of IDA are for the time being deter­ mined by agreements already reached, there would surely be an opportunity to raise the matter afresh when these agreements come up for renewal. In the meanwhile it would be helpful if there were evidence of the Bank being able to implement its Executive Direc­ tors' pledge on supplementary financing in particular cases, perhaps by an extension of IDA program lending. The funding operation just mentioned will only serve to take care of the present emergency situation. For the future, however, what Ceylon needs are assurances of aid of a kind which present arrange­ ments do not adequately provide. As the ILO Mission puts it: "Aid will also be far more effective if it were both more certain and more flexible. Ceylon needs some assurance that she will get support throughout the long uphill pull-that is, for donors to work out in advance commitments for, for example, five years ahead, especially in fact for the years 1972-1976." Such assurances have, in a more general context, been repeatedly and successfully sought by the de­ veloping countries within the framework of UNCT AD, and have more recently been advocated by the Pearson Commission. Yet un­ less the international community were willing to move in this direc­ tion with reasonable celerity, the conditions are unlikely to be created where hard domestic political decisions will in fact be made. As things are, countries will be tempted to substitute ad hoc im­ provisations for long-range strategies that imply present sacrifices for future benefits, and postpone the hard choices until these are forced upon them under crisis situations. In the absence of longer­ term assurances of aid, therefore, development objectives must necessarily give way to ad hoc expedients geared to temporary polit­ ical survival. Indeed what I have just said could equally well pass for a capsule version of Ceylon's own economic history in the recent past; it would be unfortunate from the standpoint of development if the international community were in this instance to permit history to repeat itself ...... Mr. Chairman, I began by asking what it is that the Bank and the Fund could do to promote development and structural change in developing countries. I recognize that these organizations have endeavored in certain respects to broaden their approach to develop­ ment questions in recent years. Indeed they seem to be a little more receptive to ideas and suggestions that have been advanced rather than reject them offhand as they did a few years ago. All I am urging now is that they should be allowed to evolve somewhat further in directions more suited to our needs. Clearly it is within their power to take certain steps in the relevant directions as has been shown

54 for instance in the assurances of the Bank Board in regard to sup­ plementary financing. These efforts are likely to be fruitless unless the rest of the international community-and principally the rich and powerful countries of the world-supply supporting assistance. There is very little the Bank and the Fund can do on their own as institutions with existing resources. Would I be wrong in stating that on international monetary issues the Fund appears to have been very much on the sidelines in regard to recent developments? What is required is a more generous and comprehensive approach to de­ velopment questions than has recently been in evidence. Let me hope that this would not be just another cry in the wilderness.

CHINA: KWOH. TING LI Governor of the Bank I wish to assocjate myself with other Governors in expressing our sincere appreciation to the Co-Chairmen, the officers, and the staff of the Bank for their most efficient handling of the 1971 Annual Meetings. It is also my pleasure to extend a very warm welcome to all the new member countries which have joined the Bank Group since the last Annual Meetings in Copenhagen. Now I would like to make some comments on the business of the Bank Group. It is gratifying to note from the Annual Report that in fiscal 1971 the World Bank Group had another very successful year. As shown in the Appendix attached to the Annual Reports of the Bank, IDA and IFC, the total commitments made by the Bank Group as a whole for the economic development of member coun­ tries amounted to US$2.58 billion, which represents an increase of 12 per cent over the previous fiscal year and is larger than any other single year since the founding of the Bank in 1946. Without any doubt, if the lending operations are maintained at the same level for the fiscal years 1972 and 1973, the total commitments for the five­ year period (1969-73) would more than double those made during the previous five years (1964-68), as projected by Mr. McNamara shortly after he assumed office as the President of the Bank in April 1968. This marked expansion in the lending commitments of the Bank Group manifests commendable efforts on the part of the Bank's officers and management. The mere increase in the volume of lending activities in dollars and cents by $280 million over the previous fiscal year may not be so significant. What is more impor­ tant is the qualitative aspects of the lending operations of the Bank Group. During the fiscal year under review, the activities of the Bank Group have been widened in both geographical areas and in the nature of the projects, with increased emphasis on social aspects

55 such as education, tourism, urban water supply and sewerage, popu­ lation control, ecology (pollution control), etc. While infrastructure such as power and transportation will always remain as development projects of high priority in the less developed countries, the social projects as enumerated above are of equal importance as a means to elevate the skiIl and intellectual level of manpower and to raise in due course the standard of living comparable to that of more advanced countries. Speaking of popUlation control, it is truly alarming to note from Mr. McNamara's address to the Governors on Monday morning that by the year 2040 the total population of all developing countries in the world presently estimated to be about 2.6 billion will increase more than fivefold to nearly 14 billion. If this projection should be true then it will certainly create tremendous and insurmountable problems such as malnutrition, high mortality, unemployment, and hindrances to economic development in general. According to Pro­ fessor S. Y. Eyre of Leeds University, an authority on population, "the rate of increase in birth could be considered as in a 'swarming' stage and the inevitable outcome would be mass mortality." There­ fore, increasing numbers of social scientists have come to the con­ clusion that we must intensify our efforts in popUlation planning in order to avoid the catastrophe. In this connection I am happy to say that in the Province of Taiwan of the Republic of China my Govern­ ment has introduced since 1950 a number of measures to lower the rate of birth growth from 6 per cent per annum down to 2.4 per cent by the end of 1970. My Government would gladly cooperate with the World Bank Group in giving technical assistance to all member countries which may be confronted with the serious problem of population explosion. Now I would like to discuss briefly about the aspect of external debt problem of developing countries. As all of us are aware, it is a problem which has caused in recent years serious concern among both developed and developing member countries. According to the Bank's Annual Report, the future outlook for the flow of foreign capital from developed countries to the developing countries remains rather gloomy. Much to our regret the goals set for the last develop­ ment decade were not reached. According to the survey made by the Bank, the total net flow from the developed countries to under­ developed countries would fall short of most reasonable estimates of net capital requirements over the next decade and the Bank's projections give little cause for optimism. In the calendar year 1970, debt service obligations of 80 underdeveloped countries increased by 20 per cent while their export earnings gained by only 9 per cent. It is, therefore, obvious that this problem of external debt servicing is very serious and requires the concerted action of the governments of the rich countries in cooperation with multilateral agencies such

56

-----.------,------as the World Bank Group to help minimize the burden on the less developed countries. We are very grateful to the Bank for its staff study paper entitled "'The External Debt of Developing Countries," from which we deduce the inevitable conclusion that all developing countries should avoid excessive reliance on commercial loans and/or suppliers' credits with high interest rates and shorter terms which would make them vulnerable to external debt pressures. I would like to pay my tribute to Mr. McNamara and his asso­ ciates for their foresight and successful borrowings in the world capital market in fiscal I 971 at a time when money was relatively tight. The record shows that the Bank had borrowed during fiscal 1971 a total of US$1.37 billion compared with US$0.73 billion in the previous fiscal year-almost a 100 per cent increase. What is more important is the fact that the Bank has entered into several new financial markets in addition to Germany and the United States, notably in Japan, Belgium. and Switzerland. Because of the high liquidity, the Bank Group was able to expand its lending operations with a comfortable margin. In this connection I note from the Report that the average cost of such borrowing was as high as 8 per cent per annum. In spite of this high cost of money the management of the Bank has decided to keep the Bank's lending rate at 714 per cent per annum, which helps to reduce the burden on the developing countries in no small measure. Finally, a few words about the operations of the International Finance Corporation may not be amiss. It is gratifying to note from the IFC Annual Report that the Corporation is now ready to expand its existing areas of activities and to move into new areas. There is one sphere in which need and opportunity are increasingly apparent. i.e .. the mobilization and utilization of local capital. My Delegation therefore warmly welcomes the recent establishment of a Capital Markets Department as a focal point for both the Bank and IFC to help create and support local institutions to channel domestic sav­ ings into potential private enterprises. This objective is in keeping with the spirit of the IFC Charter, which is "to play the role of a catalyst in encouraging the flow of short-term funds between savers, both individual and institutional on one hand and industrial com­ panies on the other hand, and to concentrate on underwritings and the development of a sales and distribution system." Among the highlights of the Annual Report we note with grati­ fication that the Bank Group had given greater assistance to agricul­ tural research during the fiscal year under review. I may mention in passing that the long-heralded Asian Vegetable Research and De­ velopment Center finally came into being last Spring under the sponsorship of the Joint Commission on Rural Reconstruction of the Republic of China, the U.S. Agency for International Develop­ ment, and six Asian countries. The Asian Development Bank has

57 given a grant to the A VRDC and it is our fervent hope that in the course of time, if and when necessary, the World Bank may be able to extend some financial assistance to this institution. It is gratifying to note that the Board of the Executive Directors have given due consideration to several important policy matters as recommended by the Pearson Commission, and in many of the loan projects the management has given special attention to the problem of creating opportunities for employment and more equitable dis­ tribution of income between the rich and poor. In recent years, more developing countries have come to realize the urgent need of expanding their exports, both visible and invis­ ible. Many of them are heavily dependent on the export of a few primary commodities that are subject to violent fluctuations in world market prices and are more or less under the control of rich countries. The Republic of China, having recognized the fact that a nation cannot depend too much on anyone or two countries for the sale of its primary products, has gradually shifted from agricultural economy into more sophisticated light industries by taking advan­ tage of cheap and abundant labor. We have made great strides in the diversification of our export products and in widening our world markets. In recent years, we have been trading with more than 120 countries in the world. The World Bank Group should give to the developing countries their advice and technical assistance as to how to diversify their exports, not only in kind but more importantly in quality and price so as to enable them to compete in the world market. On the part of the developed countries, they must cooperate wholeheartedly and assist the developing countries in every way possible. As stated by Mr. McNamara in his address to this august assembly on the opening day of these annual meetings, "an impor­ tant element of the United Nations development strategy for the Seventies is the proposal that the more developed countries grant preferential treatment to the manufactured exports of developing countries." In referring to the "Trade Objectives for 1970s," Mr. McNamara said, inter alia, "on the average, tariffs are higher on the kinds of manufactured goods imported from poor countries as compared to imports from rich countries." As Governors represent­ ing less developed or developing member countries, I am sure we all stand for Free Trade and we are looking to the rich or indus­ trialized countries as our trading partners who should help us to promote our exports and create a more favorable balance of trade. Finally with a sincere desire to share our hard-earned experience with other developing member countries, I would like to make a few remarks on the rapid progress of the economic development in the province of Taiwan of the Republic of China in the last two decades. Basically our economic development policy has been characterized

58 by the gradual transformation of an agricultural economy into vari­ ous stages of industrialization. In the decade of the Fifties, solid ground had been laid for rural development and agricultural diversification through land reform with the "land-to-tillers" as its final objective. During the early part of this decade, 95 per cent of Taiwan's exports consisted of agricul­ tural products; and the industries were limited to the processing of agricultural products. The land reform program during the first five years (1949-53) resulted in increased production, which gave more income to farmers, created greater purchasing power and a bigger market for nonagricultural products, and finally promoted agricul­ tural exports in exchange for imports of industrial products and machinery. By this process, industrialization was gradually gaining momentum. The promulgation of the Statute for Encouragement of Invest­ ment in 1960 marked the beginning of a decade of rapid industrial development and foreign trade expansion. It encouraged private savings and investments, which laid down the foundation for eco­ nomic stability and free enterprise. This economic progress was further accelerated by the implementation of various kinds of eco­ nomic plans for infrastructural developments. Extensive efforts were made by my Government in expanding electric power supply, im­ proving transportation and telecommunication facilities, and raising the quality and skill of manpower through the introduction of a nine-year free education system in 1968 along with an increasing number of vocational and technical schools. Ever since 1950, five successive four-year plans for the economic development of the Republic of China have been successfully car­ ried out according to schedule, generally over and above the set targets. Per capita income steadily increased from US$114 in 1960 to US$292 in 1970. The annual growth of our GNP for the decade of the Sixties has risen by an average of 10 per cent in real terms, and of industrial production, by 16 per cent. In 1970, the two-way foreign trade was over US$3,000 million, up 33.4 per cent from 1969, and accounted for 57 per cent of GOP. For the first half of 1971 foreign trade con­ tinued to expand at an even faster pace with the total volume reach­ ing almost US$2,000 million or an increase of 36 per cent over the corresponding period of last year, giving a favorable balance of US$55 million. What is more important is the fact that in 1950, 95 per cent of Taiwan's exports consisted of agricultural products. But by 1970, because of rapid industrialization, the pendulum has swung the other way: about 78 per cent of exports was composed of industrial products and only 22 per cent agricultural produce or processed goods thereof. The record of two decades of Taiwan's economic development

59 proves beyond any doubt the comparative advantages of the free economy system. With the rapid industrial development, Taiwan is experiencing for the first time in the long history of China a shortage of seasonal farm labor and a corresponding rise of farm wages. My Government, looking into the decade of the Seventies, foresees a new phase of economic development ahead. The expanded economy has reached a stage whereby it is now necessary to pursue a new policy to achieve a balanced growth of agriculture and industry. Toward this end, a set of new measures has been promulgated by my Government since November 1969, which aims at elevating the income of farmers and forestalling the widening of the income gap between farmers and nonfarmers, while still allowing industry to forge ahead unabated. It is going to be a delicate balancing act of a free economy to which we are deeply committed. We are planning, with the assistance of a possible loan from the World Bank to in­ troduce farm mechanization in order to increase agricultural pro­ ductivity, both qualitatively and quantitatively, and to facilitate a transfer of labor from agriculture to industry. We are fully prepared to meet the most challenging stage of the long road of transforming a traditional rural economy to an industrially based economy. Another outcome of the unexpected rapid economic growth in excess of the planned growth rates is the gradual revelation of bottle­ necks in infrastructure. including electricity generation capacity, railways. highways, harbors. and industrial estates. My Govern­ ment is now exerting full efforts to improve these infrastructures to pave the way for further accelerated overall growth. In this respect, again, the World Bank has played an important role in assisting us to speed up the process of broadening our infrastructural basis. Furthermore, we are grateful to IFC's studies on our capital market with valuable recommendations. My Government has now formulated concrete plans to improve both our short-term and long­ term capital markets. It is expected that such improvements will serve as a lubricant to ease the smooth functioning of all economic activities. The economic development of the Republic of China, despite the phasing out of American aid in the early Sixties, has been really remarkable. My Government is willing to share our knowledge and experience with other developing countries. It is a well-known fact that, in the last decade. we were exporting our expertise and tech­ nical know-how to less developed countries in the form of agricul­ tural, medical, and other assistance missions. More recently my Government has sent several trade missions to various countries in different parts of the world to seek ways and means for closer eco­ nomic cooperation through the sharing of development experience and increased trade. We are living in a very competitive world with ever increasing need of international cooperation. The Republic of

60 China always stands ready at any time to cooperate with other member countries in joint efforts to promote better living conditions and the prosperity of mankind.

CHINA: KUO-HWA YU Governor oj the Fund On behalf of my Delegation, I wish to join previous speakers in congratulating the Chairmen for conducting our meeting in the most efficient manner...... Finally, Messrs. Chairmen, with your permission, I must voice strong objection to one of the remarks made by the Governor of the Fund for Tanzania in his speech yesterday. It was a matter of profound regret that he should have touched upon a political topic in a conference to·discuss important monetary matters among mem­ bers of the Fund and Bank.

DEMOCRATIC REPUBLIC OF CONGO: JULES-FONTAINE SAMBWA Governor oj the Fund At the outset of this brief statement I should like to congratulate the Bank, the International Development Association, and the Inter­ national Finance Corporation on their accomplishments over the past year. During fiscal 1971 the activities of these institutions have progressed still further, and have continued to show a satisfactory degree of diversification. My country is one of the beneficiaries of this increased activity, for which I should like to thank the World Bank, its President, and its staff. In accordance with our Chairman's recommendation that we keep the length of our statements to a minimum, the delegation of the Democratic Republic of Congo has submitted a written text con­ taining its comments on the Annual Report of the World Bank Group regarding the future orientation of aid to developing coun­ tries. I am therefore able to limit myself to voicing my observations on the present monetary disorder ....

DEMOCRATIC REPUBLIC OF CONGO: ETIENNE NDONGALA Governor oj the Bank The World Bank emphasizes in its Report, as it did last year, that prospects for foreign aid are rather unencouraging. The terms of the aid are becoming tougher and the portion of real aid in the

61 flow of resources to the less rich countries is declining. Moreover, there is nothing to lead one to expect that this trend will be reversed in the near future. This unfavorable trend was noted at the time of the Pearson Report, whose authors stressed that the volume of aid had not kept pace with the growth in the national products of the developed countries. This situation gives cause for concern, and I should like to express the desire that the governments of these countries give it careful thought and weigh all its implications. International economic cooperation, of which the Bretton Woods institutions are the most efficient instruments, can only function harmoniously to the extent that it is based on a moderate, but not negligible, redistribution of world resources. Recent events point to the need for a far-reaching revision of the rules of the international monetary system. It is my belief that along­ side this endeavor to achieve monetary reconstruction, the principles governing development assistance should also be adapted to tie in with the developments which have taken place over the past 25 years and the changes which have occurred in the composition of the community of nations. I should like to express the wish that this reform be prepared in a spirit of mutual understanding. It would be most unfortunate if it were to be the hasty outcome of piecemeal decisions, as might occur in our sister institution. We have read with interest the observations formulated by the Bank regarding indebtedness. External loans can be the best and the worst of things. Included in a carefully thought-out program and used to finance productive investments, they can make a valuable contribution to the expansion of the recipient countries. The major­ ity of what are today the industrialized countries have in fact, at one stage or another in their history, been obliged to tum to foreign capital. Experience shows, however, that rapid expansion of indebted­ ness vis-a.-vis the rest of the world can lead to deterioration of the financial situation. It is of course quite true, and the Bank is right in emphasizing it, that responsibility for ensuring that loans and commercial credits are put to good use lies with the governments of the debtor States. It is nevertheless desirable that the creditor coun­ tries and international institutions should keep an eye on the matter. A satisfactory solution to the burden of indebtedness of the de­ veloping countries, which is now assuming disturbing proportions, can only be found through a substantial expansion of the means available to the International Development Association (IDA), whose conditions for assistance are the most in harmony with the growth needs of the Third World countries. On behalf of my Government, I would address an urgent appeal to the rich countries for a rapid replenishment of IDA's resources, without which some high-priority projects will either have to be

62

-----_. - - .... -.....-- postponed or else financed on terms which could be prejudicial to our development. In 1971 the Democratic Republic of Congo has continued the rehabilitation work commenced in 1965. The main objective of the Congolese Government over recent years has been to re-establish law and order, to restore the authority of the State and to ensure the proper functioning of institutions. As stressed in the Pearson Report, the top priority for the newly independent nations of Africa is to consolidate their political and social organization. This is a complex undertaking and one which cannot perforce be accom­ plished overnight. Today, the essential part of this work has been completed. My country is henceforth in a position to devote all its efforts to speed­ ing up progress and has resolved that the present decade shall be one of growth. In this perspective, it is encouraging to note that the Consultative Group on the Congo was able to hold its first meeting in Paris in May. The progress of the last six years would not have been possible were it not for the assistance we have received from the Bank, the International Monetary Fund and friendly countries. It is good that an organ has been formed which will permit better coordination of external assistance and ensure that it increases in volume. I should like to thank the Bank for its help in the forma­ tion of this Group. For its part, the Government of my country, by following a prudent and realistic course, will mobilize our domestic resources to support the development of the economy. These aims and policies are unfortunately all too often thwarted by the fluctuations in copper prices. No solution has yet been found for the problem of stabilizing raw material prices, and this could have serious consequences for the policy followed by the countries of the Third World. The Democratic Republic of Congo intends to remain a pole of stability and growth in the heart of the African continent, open to new ideas and public or private international cooperation, but firmly attached to its own values. In this connection, the progressive and necessary Africanization of economic structures inherited from the colonial era. the highly desirable formation of new groups of Con­ golese professionals, technicians and entrepreneurs and fruitful and steadfast cooperation with foreign investors are objectives which have to be pursued simultaneously and in parallel. It would be desirable if the World Bank Group, with the support of our regional and national development banks, would give us its assistance in the promotion of genuinely Congolese enterprises which, together with foreign interests, could playa motor role in the growth of our economy. We are convinced that the Bank will be able to render us, in this field. services that will be as valuable in every respect as those which it has always provided us.

63 ARAB REPUBLIC OF EGYPT: MOHAMED A. MERZEBAN Governor of the Bank ... Here we have to stress once more that careful thought should be given to the interests of developing countries in reforming the exchange rate system. It is a well-known fact that most developing countries are net importers with a relatively inelastic demand for imports, whilst their exports-which encounter various tariff and nontariff barriers in the markets of developed countries--consist largely of agricultural products and raw materials for which foreign demand is generally inelastic. With their currencies pegged to certain intervention currencies, developing countries have a special stake in the stability of the ex­ change rate system. For they are liable to suffer from uncertainties in export earnings arising from changes in the rate of an interven­ tion currency in terms of other currencies-whether as a result of flotation or widening of margins-with attendant adverse effects on their economies. One way of safeguarding the interests of these countries against the harmful effects of changes in the par values of the major cur­ rencies would be to guarantee the value of their external assets de­ nominated in such currencies. whilst minimizing the increase in the burden of their external liabilities as a result of such changes. These are not the only problems facing the developing countries for which solutions should be devised. and some of their difficulties are alluded to in both the World Bank and the Fund Annual Re­ ports. Among these, reference may be made to the higher costs and restricted availability of credit in international financial markets, sluggishness in the flow of official capital and aid to developing countries, the long-term lag in the expansion of their exports com­ pared with the industrial countries, the fall in their terms of trade, and the increasing burden of servicing their external debts. The two Annual Reports point out the urgent need for a major improvement in the volume and quality of aid. This warning, we trust. will not fall on deaf ears but should have the ready response of the industrial countries in enhancing the efforts deployed to this end. The failure of the flow of official capital and aid to keep pace with income growth in industrial countries over the Sixties. and the decline in aid flows in real terms in recent years will only serve to remind the developed countries of the need to raise the level of their develop­ ment assistance in accordance with their potential. We should like here to express our appreciation of the evident growth in the World Bank's lending activities. It is especially en­ couraging to note that this growth has taken place at a time of a relative slowdown in net foreign assistance flowing to the develop­ ing countries from various other sources. We appreciate the Bank's

64

" -,--.-.. -----.~--.------~---- efforts to widen the scope of its activities in order to cover a greater number of member countries in the developing world and hope that this policy will be continued and strengthened in the future. It is also our hope that the Third Replenishment of IDA will be duly completed as soon as possible ...... This having been said, I wish to refer to the question of the desirability of a link between the allocation of SDRs to industrial countries and the provision of additional development assistance to developing countries which was voiced last year in Copenhagen. In his concluding remarks at that Meeting, the Managing Director reiterated that the Executive Directors would give careful considera­ tion to the remarks made in this respect, including the establishment of some kind of link. To our disappointment, however, we fail to find any reference to this issue in the 1971 IMF Annual Report. Although the Executive Directors have recently been preoccupied with urgent problems, we earnestly urge them to expedite their ex­ amination of the various proposals for the establishment of the link with a view to reaching recommendations for the eventu~d realiza­ tion of the scheme from which the developing countries would derive certain benefit ....

EQUATORIAL GUINEA: ANDRES NKO IV ASA Governor of the Bank I bring greetings from the Government for Equatorial Guinea and would like to thank our American hosts for their generous hospital­ ity and to extend a warm welcome to the new member countries of our institutions. The present multitude of important and exceptionally far-reach­ ing problems makes these Meetings of the World Bank and the International Monetary Fund highly significant and unusual. The discussions here will be charting a course of historic importance and responsibility for the international community. Young countries like ours hope that the results of the discussions will lay the foundation for a permanent solution to these problems. Now more than ever the economies of the developing countries are conditioned by the attitudes and decisions of the more developed nations. Where the implementation of exchange policies is con­ cerned, we can contribute little or nothing to the solution of the problems that have arisen in the international monetary field. Never­ theless, we lay claim to the sovereign right to look to the interests of our economies, and even when the responsibility for decision­ making lies unquestionably with those who are the leaders in the economic field we do not want to decline our obligations or re-

65 nounce what is our due. Discussion at international level is impera­ tive. The interests of all nations, rich and poor alike, are at stake, since no one currency can presume to be unaffected by the vicissi­ tudes from which others are suffering ...... I should now like to refer to a few aspects of development in Equatorial Guinea, to give you a brief idea of how our country has progressed economically. At last year's meeting in Copenhagen I mentioned how we achieved our political independence on October 12, 1968, and how, on October 12, 1969, we took the first steps toward economic independence by creating the Central Bank, issu­ ing our currency, the Equatorial Guinean peseta, and instituting exchange and foreign trade mechanisms. A new nation going through a transition period faces many obstacles, but it also gains instructive experience from occurrence of events inherent in its struc­ ture and socio-economic framework. The President of the Republic, Mr. Francisco Macias Nguema, is demonstrating great patriotism and resolution in promoting a nationalist economic policy in the interest of the majority, which respects individual rights but makes them subordinate to the priorities of the community and regard for our sovereignty as a nation. In all our actions we are endeavoring to merit the confidence of the national and international financial community ...... In regard to fiscal matters, a new Tax Law has been intro­ duced, one of whose aims is to favor foreign investment with a fair and attractive participation in their activities in Equatorial Guinean territory. The recently approved Customs Law offers incentives to industry and consequently for import substitution, with equal treat­ ment for imports of goods from all our supplier countries. New treaties on economic and commercial cooperation have recently been signed with a number of countries. Our efforts to raise the standard of living of the Equatorial Guinean people are, however, hampered by the lack of technical and capital resources. President Macias has persistently asked Mr. McNamara for his Group's support, since this is essential in helping us gradually eliminate the economic obstacles at present in our way. We shall shortly become official members of the International De­ velopment Association, having made the requisite contribution. We have been visited by several World Bank missions, and according to these it would seem that we can soon expect to receive a loan which, although not very large, will be significant for us in that it will mark the start of our financial relations with the World Bank Group. We have every confidence in the traditional and accepted policy promoted by Mr. McNamara of assisting the economic growth of the poorer nations, in particular those of the African Continent. We must, however. point out that despite these efforts and inten-

66 tions, it seems that the Bank Group does not at present have the necessary organization to deal quickly enough with the urgent prob­ lems of the developing countries. Although we do not dispute the necessity of assigning priorities when dealing with the most important needs, we do feel that each need has a right to be respected, and because of the way this century is going it is essential to deal immediately with all urgent appeals. We regret that the visit of a mission to a member country failed to materialize because of the many requests from other countries. But we believe that these difficulties can be overcome along the lines set forth by Mr. McNamara in his inaugural address. We should like to reiterate our most fervent desire for the achieve­ ment of lasting international monetary and financial cooperation.

ETHIOPIA: MAMMO TADESSE Governor of the Bank We are once again meeting in the shadow of crises and disagree­ ments on the international monetary and trade scenes. It seems to me that these confusions and uncertainties are threatening to be­ come permanent features of world economic relations. If we reach one resolution this week, therefore, it should be, I venture to sug­ gest, that these crises should not become a habit. I realize that the magnitude of the current crisis has shaken the postwar international monetary system to its foundations. The time has come for a basic reform of the entire system. Posterity will severely judge us of this generation, if-with the demonstrable mas­ tery of technology achieved, enabling us to circumnavigate the world in a few hours, explore the moon in a matter of days-we prove incapable of finding our way out of a monetary maze uniquely of man's own making. Nevertheless, fellow Governors, our preoccupations, this week, with parities, currency realignments and the like, should not be allowed to overshadow completely the underlying realities that mat­ ter most. May I urge that we bear in mind that the stability which can be enduring is that which can assure a reasonable livelihood for the bottom two-thirds of the human race; that the prices which still matter are those for the basic commodities by which most of the world stilI lives; that the monetary flows that matter most are those which facilitate trade and development; that the parity that is crucial is not even a parity, in this sense, but reasonable access to the capital. resources and knowledge of the affluent world, in order to reduce-even by a little-the growing disparity between the prosperity of the nations represented here today.

67 In grappling, as needs we must, with these monetary crises, may I therefore underscore the fact that money, however indispensable, is only a means and not an end; that the price of gold is a means and not an end; that stable international exchange rates are means and not ends; and that the principal target of our discussions in this room should continue to be the improvement of the livelihood, the wel­ fare, and the enlargement of the horizons of the millions who live and toil in the less developed world. For, without stability in two­ thirds of the world, there can be no stability in the rest; and there is no lasting stability where poverty exists. I submit that the seeds of the present monetary crisis are to be found, at least partially, in this fact. The foregoing statements should not be misconstrued as indiffer­ ence on our part to the necessary reform of the international mon­ etary system, nor lack of appreciation of the indispensability of monetary stability for growth and development. On the contrary, we are keenly interested in the manner in which the present crisis is to be resolved, because it has a direct bearing on our external trade and the flow of aid resources. Therefore, we strongly endorse the suggestion of the Governor for France that appropriate procedures be devised to enable the developing countries to have their views heard in the search for final solutions. The current monetary crisis, however profound, I have no doubt will find a relatively early solution. But it is the solution to the prob­ lems of development that still remains arduous and protracted. What we learn from the Fund's Annual Report is disheartening. While the prices of industrial goods-which we import-continue to rise, those of primary commodities-which we export-continue to fluctuate and mostly downward, at that. Furthermore, while trade among the developed nations during the last decade grew by over 100 per cent, trade between the developed and developing countries was nowhere near that magnitude. As for our continent, total ex­ ports are still no more than 4 per cent of the world's total. So long as these trends are permitted to persist. there is little hope of clos­ ing the gap between the fortunate minority and the less fortunate majority. The conclusion to be drawn from these facts is inescapable. Access to the markets of the developed nations for the products of developing countries is vital, especially for semi-processed and manufactured products. As Mr. McNamara pointed out in his open­ ing address, the limits on and undesirable consequences attendant upon industrialization that has for its purpose import substitution are many. Moreover, trade is a close ally of aid in the develop­ ment process. Indeed, beyond a certain stage of development, it is even the greater factor. I am not unaware of the numerous statements that have been

68 made by members of both the rich and the poor nations, emphasiz­ ing the role of trade in development. But professing is one thing and practice is another. Hence the need to raise this point once more. For the same reason, J will mention also the question of supple­ mentary financing to help those developing countries that are ad­ versely and seriously affected by a fall in the price of their staple primary commodities. The search for elegant solutions should not be allowed to obscure the urgency of the matter. We recognize the problems and difficulties, but they shall be nothing, compared to the disasters that could befall some countries if the fall in commodity prices experienced in the last twelve months is repeated in the next twelve. Let me now tum to the World Bank Group. We are now in the third year of the new and expanded programs of development activi­ ties introduced by the President with the support of this assembly. It is a good time to take stock-not merely in terms of the flow of funds made available to the developing world, the record of which is plain for all to see-but also of the diversification and sophisti­ cation of the Bank's approach to the many-faceted aspects of the development process. I believe that the increased emphasis now apparent on personal contacts by the President, and on local and regional representation, is contributing progressively to a more effective pattern of collabo­ ration between the Bank and the developing world. In our own case, a particular manifestation of this has been the establishment of the Consultative Group for Ethiopia, which was held in Paris earlier this year. My colleagues and I who attended that meeting came away with the feeling that we had achieved a closer meeting of minds among ourselves, the Bank and our principal aid partners. I would like to thank the President and staff of the Bank for organizing, and our aid partners for supporting, that useful meeting. We believe that, as a result, cooperation with our principal aid partners and the Bank is likely to yield practical benefits in the form of more effective support for our development programs, particu­ larly in realization of the need for technical assistance to be matched with capital assistance. This is particularly important for us, when we are entering a phase where we must devote increasing resources to rural and other long-term investments in our national economy. In this particular connection may [ add that we have also been interested and encouraged to learn of the recent decision by the World Bank Group to make a large investment-some US$12.7 million-in agricultural research in a member country and to estab­ lish international consultative machinery in the field of agricultural research. We hope that this will constitute a precedent for us and other developing countries to receive similar assistance.

69 For it is increasingly clear to us, and we think it is also confirmed by the statistics put before us by the Bank in its present Report, that the promotion of agricultural development is at once the most criti­ cal and most difficult task facing the developing world. Industrial production, for all its difficulties and false starts here and there, is rising-by 8.9 per cent and 10 per cent for the past two years-but agricultural output remains resistant: less than 1 per cent in 1967, either side of 4 per cent in the two following years, and back below 1 per cent in 1970. The need for a real and effective priority of effort for agricultural development is obvious. We know the Bank recognizes this, and that we in the developing world must also do our part. We urge all our aid partners to recognize this need too, and to help generously with technical assistance and with aid on soft terms. My country, with its sizable population dispersed over a large area, still has massive infrastructural and service investments loom­ ing ahead of it, if it is to make a meaningful impact on the standard of living of its people within a reasonable period. Hence our grave concern over cutbacks in external aid by any of our traditional donors. But even if, as we hope, the flow of aid is sustained despite the present monetary crisis, it is no less important that the terms be concessionary, in order to obviate the heavy burden of debt service. In this sphere, the role of IDA has been and will continue to be significant. The delay in the Third Replenishment has had its adverse impact on IDA. I am encouraged, however, by the prompt actions shown and statements of intent made by some major Part I members of IDA. I hope that the other donor members will also honor their pledges without further delay. While I am referring to the activities of the ancillary members of the World Bank family, I would like to refer to IFC's decision to participate in the financing of the State-owned automobile factory in Yugoslavia. We welcome this new flexibility in the Corporation's lending policy and suggest that it should be extended to the developing countries whose stage of development has not reached the point where the supply of foreign private venture capital is sufficient to finance basic industrial developments and where, in consequence, government is forced to take the financial initiative. This is the case in Ethiopia, where the government has been con­ strained to establish or participate in a number of what are really private sector enterprises for no other reason than the lack of private venture capital. Granted that the role of IFC is to support the private sector, we suggest that it should be a legitimate extension of this role to assist, not merely those industries which are established by private enterprise, but also industries which have all the character-

70 istics of a private sector undertaking but, for the reasons which I have just mentioned, have to be initiated by the government. In conclusion, I would like to state that the word "collectively" symbolizes the wisdom and technical competence required to re­ solve the current crises in a manner that is fair to all and to the benefit of both the developed and the developing world.

FIJI: W. M. BARRETT Governor ot the Bank and Fund Mr. Chairman, as one of the two new members of this gathering, I must abide by your request for brevity. I would first like to say thank you on behalf of my Government for the kind words of wel­ come that have been expressed by fellow Governors of the Bank and the Fund. In our application for membership we received valuable guidance and assistance from both institutions, so much so that we were able to complete negotiations for a Bank loan before we had become a member. So, as far as the Bank is concerned, we are a satisfied customer...... The present international monetary instability and, in partic­ ular, the air of uncertainty that is prevailing has given rise to many problems in a small country like ours. The tasks of development, of lessening poverty, reducing illiteracy, and, indeed, the process of living from day to day in our country, as in many developing coun­ tries, are difficult enough within an environment of a stable inter­ national monetary scheme. To attempt the same objectives in the uncertain financial situation which exists today makes it even more difficult if not altogether impossible. We therefore believe in a stable system of par values. Much has been said and written in favor of floating exchange rates. In this regard I would venture to say that if developing countries which are largely primary producers were to float it would only be in one direc­ tion and that is downward. The consequences of that can be grave for us, not only in intro­ ducing a further destabilizing force in our international trade, but also in making debt servicing problems more difficult, and, consid­ ering the deteriorating terms of trade of developing countries, the problem is going to be even more intolerable. My country therefore adds its small voice to the call for an urgent solution to the problem. In conclusion, I wish to reiterate our thanks for the words of wel­ come expressed by fellow Governors and hope that despite current international monetary problems the Fund and Bank will grow in strength and continue to play their respective roles. As a new mem­ ber we look forward to a long and happy relationship.

71 FRANCE: VALERY GISCARD D'ESTAING Governor of the Bank It is the province of political men to be concerned with the future. We have not come here as prosecutors or as historians. What had to happen has happened. We are not gathered here, as if at Pompeii, to view the ruins of the international monetary system and question our guide about the circumstances of the catastrophe, but rather to seek together the conditions for the restoration of a monetary order, acceptable to all, and capable of satisfying the immense need for economic progress and social advancement experienced by all the countries in the world ...... Today the problem is more economic than monetary. Many people still reason as though we were living in a world of vigorous economic growth, in which all monetary measures like floatings and revaluations could be easily absorbed and regarded with a certain indifference as far as their effects on the level of activ­ ity and of employment are concerned. Without playing prophet, one can consider this state of affairs as past history. The world economy is entering a stage of lessened growth in which, within a few months, problems of activity and of employment will raise universal concern. All indicators concur: the trough in the investment cycle, the slug­ gishness in the consumption of semidurables, the sagging prices for the main commodities, the compartmentalization of international trade, the uncertainty of exchange rates. In view of these factors, if we were to resign ourselves to not restoring order in the international monetary system, by our next meeting in 1972 this attitude would very likely be viewed as a lack of judgment and character on the part of those who, by reason of their responsibilities, bear the destiny of the world economy ...... Whether prices or liquidity are concerned, a selective realign­ ment of currency rates should evidently be universal. A problem on this scale is more political than technical. In fact, if there were a sufficiently powerful X-ray machine to probe the brains of the eminent authorities assembled in this room, it would show that we are all, in varying degrees, convinced that the main fea­ tures of the final solution have already emerged, and that this will include, as the Managing Director of the IMF has so wisely proposed: -a realignment of all currencies, without any exception; -a return to fixed parities; -a moderate widening of the fluctuation margins, at any rate for a certain period; -a more equitable sharing of certain burdens between the United States and the partners concerned and a more pronounced and homogeneous world-wide effort in favor of the developing countries;

72 -measures designed to limit capital movements which could have a disruptive effect; -a composition of international liquidities which would, together with gold, assign a diminishing role to reserve currencies and a growing one to what I will term "objective liquidities," such as SDRs ...... I will not conclude this statement without drawing attention with due seriousness to the situation of the developing countries. I shall do so, of course, because of the special concern which France has, and which-for why should I try to hide it-I have myself regarding the fate of those countries, but also because the present trend of affairs entails grave dangers, both in matters of substance and of procedure. Regarding the former, monetary uncertainties have a greater effect on raw materials and commodities than on the trade in prod­ ucts incorporating a high proportion of added value. And the ups and downs of the economic situation, in a world still incapable of properly organizing the major raw materials markets, hit the coun­ tries which produce these materials the hardest. As regards procedure, the indisputable responsibilities of the countries with a lively trade and high reserves do not qualify them to assess, by themselves alone, the effect of their decisions on the econ­ omies of developing countries. An appropriate procedure has to be devised. not just to protect the interests of these countries but also to allow their voices to be heard in the search for final solutions. Mr. Chairman. the monetary upheaval we are undergoing is not perhaps the result of chance. We are passing through a phase of uni­ versal readjustment, as is illustrated almost every day by the spec­ tacular changes in relations between States. The monetary order of the 1970s cannot be the same as that of the '50s or even that of the '60s. Too many of the basic factors of world equilibrium have under­ gone far-reaching changes. What is still necessary is that we should bring to the restoration of order in this system as much perspicacity and firmness of intent as those who in 1945 succeeded in formulating the principles which organized the economic progress of the world for 25 years.

THE GAMBIA: S. M. DIBBA Governor oj the Bank and Fund Mr. Chairman, I would first of all like to thank you, Mr. McNamara and Mr. Schweitzer for your opening remarks on Mon­ day. Much of your words have thrown much needed light on the issues. very crucial issues that face all of us. I would also wish to join other Governors in welcoming Fiji and Barbados and to express

73 our deep appreciation to the Government and people of the United States for the warm reception they have extended to us on our stay in this country. We are meeting this year at a time of grave international financial crisis. The events since May 1971 have shaken the very foundation of the international monetary system and given rise to a great deal of uncertainty about the future shape of things. The Bretton Woods system of fixed exchange rates, which served the world so well in the postwar period, has been eclipsed by unilateral decisions taken by a number of countries to float their currencies. The convertibility of the dollar into gold has been suspended indefinitely. To overcome the problems arising from payments imbalances, both surplus and deficit countries are increasingly having recourse to measures dis­ ruptive of international trade and commerce. The imposition of a 10 per cent surcharge by the United States on all dutiable imports not subject to quotas and various types of exchange control insti­ tuted in a number of industrially advanced countries are prominent examples of these "inward-looking" policies. Foreign aid has also been a casualty of the international monetary disturbances, with the United States, the largest donor country, announcing a 10 per cent cut in its foreign aid program ...... It is unfortunate that the steps taken by major industrial na­ tions during the current international financial crisis are all likely to adversely affect the interests of developing countries. The flotation of major currencies, the levy of a 10 per cent surcharge on imports into the United States and a reduction of 10 per cent in its foreign aid program are a matter of serious concern for us in Africa. Most African countries are characterized by a good deal of openness in their foreign trade transactions. About 80 per cent of their reserves are in the form of foreign currencies. Most of them conduct their foreign trade transactions through a major intervention currency on the basis of fixed buying and selling rates. Fluctuations in the value of major currencies have therefore created a number of problems for them. They have become liable to serious losses in the value of their foreign exchange reserves. An element of added uncertainty has been introduced in their prospective foreign exchange earnings on account of the fluctuations taking place in the value of intervention currencies to which their own currencies are tied. Exchange rates exercise an important influence on relative prices and resource allo­ cation. and changes in tneir exchange rates vis-a-vis other currencies as a result of action taken by other countries has made the task of economic management especially difficult in developing countries. The imposition of a 10 per cent import surcharge by the United States would adversely affect the export earnings of developing countries both directly and indirectly through its unfavorable reper­ cussions on the level of international trade. The 10 per cent reduc-

74 tion in American economic assistance would bring about a cut of nearly 5 per cent in the total value of bilateral assistance by all DAC countries, and since Latin American countries have been exempted from this cut, the incidence would be more severe in the case of other developing regions, including Africa. It is ironical that the climate for trade as well as aid has taken a tum for the worse at a time when developing countries were looking forward to a substantially better deal from the developed countries in the context of the International Development Strategy for the Second Development Decade agreed upon at the last session of the General Assembly of the United Nations. They were expecting a significant liberalization in the trading practices of advanced coun­ tries and a substantially enhanced flow of financial resources for development. In view of the pitifully low living standards in develop­ ing countries, especially of Africa, and the recognized need for accelerating their growth rates, I would earnestly urge the advanced nations of the world to review the steps taken by them during the current international financial crisis and to so modify their policies that their adverse impact on the economies of developing countries is minimized. I would particularly plead for the exemption of de­ veloping countries from the 10 per cent import surcharge levied by the United States and the 10 per cent cut announced in its foreign aid program ...... Coming now to broader issues of development finance, it is gratifying to note that the lending of the World Bank Group main­ tained its momentum in 1970-71. From a total level of US$2.3 bil­ lion in 1969-70, commitments of the World Bank Group increased to US$2.6 billion in 1970-71, representing a growth rate of about 13 per cent. In 1968 the World Bank decided to embark on an am­ bitious program of doubling the Group's lending in the five-year period 1969-73 compared to the previous five-year period 1964-68. The implication was that the World Bank Group would lend a total of US$l1.6 billion during 1969-73. Total lending in the first three years of the five-year period has reached US$6.8 billion so that the target seems to be well within reach. The World Bank has also improved the geographical coverage of its loans in this period. We appreciate the effort made by the World Bank to expand its lending activities in the countries of Africa but would urge a further step up in this direction. It is disconcerting to note that the share of African countries in the total lending of the World Bank Group went down from 20 per cent in 1969-70 to 18 per cent in 1970-71. It is even more disconcerting that this decline was due to a fall in the credits of IDA, which lends on softer terms. IDA credits to African countries declined both absolutely and pro­ portionately in 1970-71. The amount lent was down to US$122 million as against US$161 million in 1969-70, while, proportion-

75 ately, the share of African countries declined from 26 per cent in 1969-70 to 21 per cent in 1970-71. It is our hope that IDA credits to African countries would show significant expansion during the next year and would more than compensate for the decline recorded in 1970-71. The lending rate of the World Bank reflects the pattern of interest rates in advanced countries from whose capital market the Bank raises most of its resources. The present lending rate of the Bank is 71/4 per cent, which is rather high, taking into consideration the repayment capacity of the developing countries. The developing countries have for the past few years been proposing the setting up of a multilateral interest equalization fund to soften the terms of financial flows. We would commend this suggestion once again to the World Bank and the advanced industrial nations for consid­ eration. In the meantime, a softening of the overall terms of lending is only possible through an enlargement of the role of IDA in develop­ ment financing. In this context, it is extremely disappointing that the Third Replenishment of IDA resources has not yet become effective. I must compliment the President of the World Bank for the initiative he has shown in securing interim contributions from a number of Part I countries to avoid any abrupt interruption in the activities of IDA. I also welcome his proposal to transfer a large sum of US$110 million from the Bank's net income in 1970-71 to IDA to augment its resources. Total lending by IDA to all countries declined from US$606 million in 1969-70 to US$584 million in 1970-71, which is a matter for concern. I hope that all Part I countries which have not yet done so would ratify their contributions toward the Third Re­ plenishment as early as possible to enable IDA to enlarge the scale of its operations. It is commendable that the World Bank has initiated and com­ pleted a number of studies designed to shed light on the various con­ straints that hold up progress in different sectors of the economies of developing countries. These would be of significant help to us in developing countries in removing these bottlenecks, thereby improv­ ing the growth performance, as well as the capacity to absorb and fruitfully utilize a larger volume of loans from the World Bank Group. In the initial stages of development, lack of technical exper­ tise in project formulation and project implementation acts as a serious handicap in expanding the development effort. I hope it would be possible for the World Bank to provide technical assistance to such countries as may need it for overcoming this problem. I would also request the Management to review the loan approval and disbursement procedures to see whether they can be further simpli­ fied. This would help in reducing the lag between loan investigations and disbursements which has tended to lengthen in recent years.

76

------_._--_.. _--_ .. GERMANY: KARL SCHILLER Governor of the Bank As developments in Germany received wide attention during the past year, I feel lowe this Meeting a few comments. We should not forget: one of the major causes of the present dis­ turbances is the persistence of world-wide inflation. There is the danger that inflation will become the unwanted gross national "by­ product" in developed as well as less developed countries. When we enter into more detailed discussion on international monetary re­ form, we should bear in mind that even an improved system cannot work in a climate of excessive demand and cost pressures. The reforms we are preparing have therefore to be geared right from the start to the requirements of internal financial stability. Better balance in our domestic economies is also the precondition for an improvement of the international adjustment process. A greater convergence in national policies would help to reduce un­ wanted and excessive capital flows. Capital movements as such are in my view not the villain of the piece. They are to a great extent only the symptoms and not the main causes of the difficulties. I am therefore alarmed by the present tendencies to consider physical controls as a cure-all and to sacrifice the free play of market forces. The IMF in its Annual Report reminds us rightly "that the integration of the world economy and the rational allocation of resources throughout the world owe too much to wide opportunities for the movement of capital ... to justify a general recommendation that countries should have comprehensive exchange controls." This warning is even more true, as experience of many countries shows that comprehensive capital restrictions are complicated to administer, are uneven in their application and are never evasion­ proof. Countries would give up the advantages of freedom in inter­ national transactions without obtaining the desired effect. It was a long and hard way to achieve the convertibility of cur­ rencies, which is the basis for integration and prosperity. Indeed, convertibility is the true link between highly and less developed countries. The economic growth of developing countries is largely affected by the capacity of industrialized countries to provide real and financial resources, not only through official aid but also through the freedom of capital movements. Restrictions in this field could easily lead to a drying up of the fertile capital markets of the poten­ tial surplus countries. This would be very much to the disadvantage of the developing countries ...... An early and satisfactory solution of the monetary problems would also help us to overcome the difficulties in the field of trade. The avoidance of an escalation of restrictive practices should have first priority. But it is not enough to remain on the defensive. We

77 need new initiatives. By less protective and more liberal policies all would benefit. The problems in the field of development policy are no less pressing. My Government, in its comprehensive development pro­ gram, decided early this year to support in principle the qualitative and quantitative objectives of the Second Development Decade. It also supports the efforts aiming at an improvement of the methods needed for the realization of these aims. We favor an efficient sys­ tem of multilateral aid and are looking toward intensified coopera­ tion comprising bilateral as well as multilateral aid. We hope that in the years to come our aid effort will continue to place us among the first of the donor countries. Cooperation with developing countries should, of course, not be limited to financial contributions. Of special importance are actions aiming at improv­ ing trade relations between developing and industrialized countries. It is for this reason that from the very beginning my Government has supported the introduction of a system of general tariff preferences for the export of manufactures and semi-manufactures from devel­ oping countries. In concluding I am happy to announce that my Government, with the approval of Parliament, has decided to pay the first installment of its contribution to the Third IDA Replenishment as originally planned. This payment in the amount of US$72 million will be made even if it were in advance of the effective date of the Third IDA Replenishment. We have taken this decision in order to contribute to the continu­ ation of the flow of IDA commitments. In development policy no standstill, no interruption can be tolerated. There is a clear interdependence between our efforts in the de­ velopment field and our work on monetary reform. Our aim to inte­ grate the developing countries into the world economy will best be promoted by a properly functioning monetary system. This is the real justification for our two institutions-the Bank and the Fund­ and for us to meet here together.

GREECE: EMMANUEL FTHENAKIS Governor ot the Bank It is an honor to attend the Annual Meetings of this year and to meet with you again in this hall. At the outset I would like to asso­ ciate myself with the tributes paid to our Chairman for this year. I would also like to express our ·Delegation's pleasure in attending these Meetings once again in this hospitable country which has con­ tributed so much, first to the reconstruction of European and other

78 countries from the devastation of war, and thereafter to the develop­ ment effort of the poorer parts of our world community. These Meetings form the summit of discussions on international financial, economic and monetary problems by the highest national authorities, and, from that point of view, the significance and repu­ tation of the World Bank and the International Monetary Fund con­ tinue to grow. During the past twelve months, apart from the continuing progress of the World Bank's lending and the Fund's operations of the Spe­ cial Drawing Account and under the General Account, two very important events have taken place: the launching of the Second Development Decade; and culmination of the creeping monetary upheaval to the dimension of a crisis. The first event-the International Development Strategy for the 70s-is a positive and constructive one, and a source of hope for the future. But the international monetary turmoil and its broad impli­ cations for international trade, shipping and foreign aid is a strong negative factor, the repercussions of which are as yet to be appraised: it is a matter of deep concern because it may completely jeopardize the aims and goals of the development strategy of the Decade. It is during this Decade that the less developed countries expect to reach a decent standard of living and, from that point of view, these countries have an important stake in the preservation of a stable system of international trade and payments, regulated on a multilateral basis in institutions in which these countries have a voice. We have nothing but praise for the two institutions which issued from the Bretton Woods agreement. Both the World Bank and the International Monetary Fund have proved once again that they can serve well the needs of the small countries. Referring to the most inspiring address by the President of the World Bank, Robert McNamara, I would like to mention the figure of almost US$2.6 billion for loans approved during the fiscal year ended June 30, by the Bank and its affiliates. I may conclude from this record that the Bank is well on its way to achieving the goal of doubling its lending to the less developed countries from the levels of the late 1960s. This is most comforting and augurs well for the success of the Second Development Decade. On the other hand, referring to the Report of the World Bank, I would like to point out the concern expressed about the total flow of external financial resources to the poor countries. Furthermore, al­ though Government aid and private capital flows in 1970 have increased by about US$l billion, to almost US$15 billion, the Re­ port said that nearly all of the increase was in "relatively hard-term, official export credits and private funds." This finding, combined with the problem of the external debt of developing countries, makes

79 it imperative that the Bank's policies reflect more and more the aims and targets of the Second Development Decade. With regard to the distribution of loans and credits among sec­ tors, the shift to educational reforms is most gratifying and in line with the main goals of the Development Strategy. May I, however, observe that the general rule of the five-year grace period for such loans by the Bank is inadequate for most of the developing coun­ tries and it should be extended. At this point I would like to refer to the terms and conditions of the Loan Agreements in general and to propose that a diversification of such conditions amongst different sectors and projects would better serve the purpose of the loans. A certain flexibility within definite margins could be adopted to meet the differing require­ ments of individual countries. For instance. a protective levy of 15 per cent provided in the Loan Agreement for local industry of the borrower is not, in most cases, enough to serve the purpose for which it was provided in the Agreement. To conclude this short reference to the Bank's activity, I would also like to stress one more point: that in its Annual Report my country, Greece, is mentioned as a borrower for the first time-for two government loans-one for the educational and the other for agricultural sectors. Our appropriate services and the Bank's staff have established a close relationship and more projects are in the pipeline for approval and execution. On behalf of the Greek people, I would like to thank the President, the Executive Board and the staff of the Bank for their goodwill and hard work in contributing to our concerted struggle for development and progress ....

GUYANA: HUGH DESMOND HOYTE Governor ot the Bank May I first of all join with my fellow Governors in expressing my thanks to the host government for the several courtesies extended to us and for the kind arrangements made for our comfort and con­ venience. It is also right, at the outset. that I should thank the President and staff of the Bank and the Managing Director and staff of the Fund for their sustained efforts during the past year, and congratulate them on the achievements and successes which have flowed from those efforts. May I also express my pleasure and delight in congratulating Barbados, a sister Caribbean state, and Fiji, also a Commonwealth member, on their accession to this family of nations. The developing countries are encouraged by the expansion in the activities and the increase in lending that the Bank and the Associa-

80 tion have been able to report for the year 1970. As Governor for a developing nation, I cannot but hope that this trend would continue without interruption. I observe with interest the Bank's increasing attention to educa­ tion, health and nutrition, as I am convinced that in the long run it is the human resource-through better and more relevant education and through improved health standards-which will be the critical factor in the achievement of sustained economic growth of the less developed countries. I must confess, however, to some disappointment-that, in a year of expanding Bank assistance to developing countries, aggregate lending by the Bank and IDA to countries of Africa, Asia and the Western Hemisphere recorded only slight changes. I expect that the Bank Group will not accept this situation with equanimity, and will, in fact, do everything possible to ensure and facilitate flows of de­ velopment finance in increasing amounts to the developing countries which rely so heavily on the Bank Group for the financing of their investment projects. In this Second Development Decade, there is a general acceptance that the Bank and IDA must play an increasingly important role in the transfer of financial resources to developing countries. The Report, however, indicates that aggregate net flows of investment funds from the principal countries providing development finance still do not exceed 0.75 per cent of their combined gross national product; at the same time, official development assistance from these countries-most of it on concessionary terms-has declined. However, this decline has been accompanied by a rise of nonconces­ sionary capital flows-which in the main takes the form of export credits. Similarly, as the Report confirms, conditions on the capital mar­ kets of the leading financial centers have been increasingly prohibi­ tive of borrowing by the less developed countries. However, the cost of borrowing on these markets has been so high, and the need for loans on concessionary terms so great, that developing countries must continue to look to the Bank Group and to bilateral assistance from the developed countries for capital funds on terms and conditions that would not impose on them intolerable debt servicing burdens. Unfortunately, bilateral official assistance has not been expanding rapidly enough; for many countries it may actually have diminished. To this extent, therefore, must the role of the World Bank Group be extended. It is for this reason that, as Governor for a developing country, I must record my disappointment that the Third Replenishment of IDA has not proceeded according to schedule. It is my hope that other Part I countries WOUld, at an early date, follow the lead of those countries which have already responded and make available

81 enough subscriptions and contributions to enable the Association to continue its most important function of providing loans to develop­ ing countries on concessionary terms. I would like to join my col­ leagues in expressions of appreciation of the countries that have indicated their intention to pay the first installment of their contri­ bution to the Third Replenishment. But supplementary to the availability of loans on easy terms must be the flexibility with which such loans could be utilized by the recipient countries. Such flexibility could be achieved only through program lending. The merits of program lending from the point of view of effectiveness with which such funds could be disbursed has been recognized by the Pearson Commission and by the Bank staff. Prog~am loans are also potentially cheaper loans. It is a common experience among developing countries that works could be more cheaply carried out, under more labor-intensive methods, if more loan funds were available for meeting local costs of both material and labor. The fact that the loans must be used for financing only the foreign exchange cost of projects creates a bias in favor of proj­ ects and methods which involve a high proportion of foreign cost, to the exclusion of projects and methods which utilize more labor-inten­ sive technology and more local materials and therefore contribute more effectively to the growth of employment and incomes within the developing economy. Yet, by far the most explosive problem facing developing countries today is the high level of unemployment, par­ ticularly among young persons and the waste of human resources which this situation involves. There should, therefore, be a more positive and clearly discernible trend in Bank Group lending, in favor of program lending. It is pos­ sible that this principle has already been accepted by the Executive Directors of the Bank. As the representative of the Government of a country that has experienced the effect of pure project lending, I must confess that I look forward keenly to seeing early and clear evidence of this new approach in the lending activities of the Bank and IDA during the next fiscal year. I am convinced that program lending would dramatically increase the flow of development funds to poor countries. The distinguished Governors for Colombia and Peru, in their lucid and cogent statements, have presented critical, thoughtful, and well-reasoned commentaries on the operations of the Fund and the Bank Group and have raised many vitally important issues relat­ ing to current policies of the Fund and the Bank. I am in sympathy and agreement with those presentations and fully support and endorse them. There are, however, a few aspects of these general issues which seem to me to be of urgent importance, and I would like to touch briefly on them.

82

~-.. -.. ---.------It is right and proper that we should acknowledge and applaud successful performances and achievement, but it would be unwise for us not to note failings and early signals of danger ahead and take prompt corrective action. For these reasons, I believe the Bank has an obligation to keep its lending policies under close and constant review to ensure that the maximum benefits flow to recipient coun­ tries. Of necessity, such policies need to be flexible and must be responsive to the basic philosophy of developing countries, most of which are pursuing a strategy of development which is not conven­ tional or traditional. Too often the unfortunate impression is gained that the Bank seeks to mold developing countries in the image of West European or North American countries and exacts conformity with the eco­ nomic models of the latter countries as the price for the seal of approval on projects for which loans are sought. It is possible that this impression does not accord with the fact of the matter; but this is all the more reason why the Bank should pur­ sue a more visibly aggressive policy to enable developing countries to deal urgently and effectively with what Mr. McNamara in his opening address so rightly described as "the fundamental issues"­ malnutrition, unemployment and inequality in the distribution of income. It is patent that, in order to tackle these issues with any hope of success, the governments of developing countries will have to inter­ vene decisively in the economic sectors of their countries in order to exercise control and give clear directions in the national interest. Moreover, they will have to devise economic models which give scope for fuller and more meaningful participation by the masses of the people in economic activities. In my own country, Guyana, the Government has identified the cooperative as the type of economic organization by and through which development relevant to the needs of Guyana will be pro­ moted. The objective is to diffuse economic power as widely as pos­ sible by involving as many people as possible in economic activities, not as mere passive wage earners, but as decision makers, managers and owners of economic enterprises. The historical, political and economic circumstances of Guyana, as well as our accumulated experience, have dictated this strategy. My Government, therefore, is committed to a policy of assisting cooperatives in a rational way to enter into every field of economic activity, and to develop the necessary technical, managerial and other skills. In the context of national policy and philosophy, the Guyana Government will, in the very nature of things, discriminate con­ sciously, within tenable limits, in favor of cooperatives. I have referred to these matters to emphasize the point I am seek-

83 ing to make, namely, that the Bank must accommodate within the framework of its lending policies the economic and other realities in the recipient country. The Bank must avoid recommendations or proposals which tend to compel the recipient country to abandon basic national philosophy as the price of a loan. On the contrary, the Bank should be sensitive to that philosophy and should adopt a strategy which harnesses that national philosophy to power the developmental process. It is a fundamental error to believe that eco­ nomic and other guidelines appropriate to the circumstances of developed countries are necessarily relevant to those of poor or developing countries. On a general note, I would draw attention to the fact that in the developing countries of Latin America, the Caribbean, Asia and Africa, the old economic regimes are undergoing a rapid-and in one or two cases cataclysmic-transformation. These countries are taking a firmer grip on their internal economy and are seeking to exercise more effective control for the benefit of nationals. A logical consequence of this development will be that governments will in­ creasingly act to ensure a progressive transfer of economic power from foreign to local hands. Such action will include-let us face it -nationalization or variants thereof in conformity with the several United Nations resolutions on permanent sovereignty over natural resources. These developments are inevitable, and we cannot, like the old Anglo-Saxon king, Canute, stand on the margin of the sea and bid the waves recede. The Bank must take note of these developments and must be pre­ pared with courageous ingenuity to devise policies and procedures which will enable it to fulfill its functions in those countries without being deflected by the plausible, but basically irrelevant arguments of those who have a vested interest in maintaining the status quo. And this brings me to another point. It concerns the Bank's integ­ rity as a nonpolitical organization motivated only by technical and economic considerations. We have, in the course of these proceedings, put understandable stress upon the current monetary problems and reform of the mone­ tary system-and rightly so. But we solve these problems in vain, if we do not ensure that the Bank is always free to fulfill its functions and pursue its objectives in accordance with its charter. I would be less than candid if I did not express my own uneasiness at what appears to be a disturbing belief in certain influential quar­ ters, albeit outside of the Bank; namely, that a member country could legitimately seek to use the Bank as an instrument of its politi­ calor other national policy. I am certain that we are all unanimous in rejecting such a point of view out of hand. I am equally certain that we will all close ranks in an impenetrable phalanx against any attempt, from any quarter

84

------_._-- whatsoever, to deflect the Bank from its proper sense of duty. In our discussions and debates on technical problems-balance of payments, the reform of the international monetary system, project lending versus program lending, GNP and such esoteric things-we sometimes forget the real rationale for the existence of the Bank. I am therefore grateful to Co-Chairman Schiller for reminding us, by implication, that the Bank's real business is to promote a regime of peace. It does this by helping the poorer countries of the world re­ duce the harsh effects of economic inequalities between the various countries-harsh effects such as disease, illiteracy, hunger, unem­ ployment, and unequal distribution of wealth. In other words, by giving attention to Mr. McNamara's "fundamental issues." If the Bank remains faithful to its charter, I have no doubt that it can and will be the most powerful and decisive instrument in the pro­ motion of that regime of peace for which we all so earnestly yearn. Now for a brief word on the monetary problems which beset us. This Meeting is being held in the shadow of the most serious and far-reaching crisis in the international monetary system since Bret­ ton Woods. The efficiency with which the international monetary system serves its purposes is obviously the concern not only of the developed countries but also of the developing countries. Indeed, not only in terms of popUlation but also in terms of the proportion of their na­ tional income derived from exports, the developing countries must surely have an even greater stake in the efficient working of the inter­ national monetary system than developed countries. Guyana, for example, sells two fifths of its production on the ex­ port markets and correspondingly satisfies a large part of its needs by importation. The flow of trade and capital can be best facilitated by an orderly international monetary system that provides stable exchange rates, while yet avoiding instability in export demand derived from rigidities in the adjustment process. We must return to a situation of law and order in the international monetary field as quickly as possible ....

INDIA: Y. B. CHAVAN Governor of the Bank and Fund I should like, first of all, to express my warm appreciation of the thought-provoking addresses by you, Mr. Chairman, and by Mr. McNamara and Mr. Schweitzer. I also welcome Barbados and Fiji, which have recently joined our institutions ...... It would be unwise if under the pressure of the present crisis this Meeting were unable to devote adequate attention to the long­ range problems of development which are the concerns of the World

85 Bank Group. Weare happy that the volume of business of the World Bank has increased further and that there is considerable diversi­ fication of its lending operations. In a period of rapid increase in business, expansion of the organization, and the broadening and widening of its lending operations, the Bank Group needs continuity of leadership; and it is our earnest hope that Mr. McNamara will continue to provide this leadership at least for the full span of a decade, which has somehow become a yardstick for measuring our progress in development. The Bank has been fortunate in having many able and devoted persons on its staff. For an international development agency like this, however, an extra dimension is needed; and that is the direct experience and understanding of the problems of development. We think that the effectiveness of the staff needs to be improved by bringing in, at policy levels, experienced administrators and tech­ nicians available in developing countries. The crisis in development finance is even more acute-and may have graver consequences-than the monetary turmoil about which so much has already been said. Official development assistance as a percentage of GNP of industrial countries has declined in 1970 (from 0.36 per cent to 0.34 per cent), and in this respect the world is not even halfway to the goals indicated by the Pearson Commis­ sion. IDA is once again faced with a hiatus in its operations, and but for generous advance contributions from a number of countries, IDA's operations would have come to a complete halt. We hope and trust that the Third Replenishment will soon become effective; but it is necessary that attention be given right now to the need for securing a more stable arrangement for so important an institution as this. We are concerned also, that 25 years after the Bretton Woods Conference, the Articles written then are regarded as gospel truths, not susceptible to interpretations or changes which would be more in keeping with the current needs of the developing world. We fail to understand why project lending is regarded as superior to program lending and why the Bank Group should be concerned primarily with the financing of foreign exchange costs. I believe the Executive Directors gave prolonged consideration to these questions in the course of the last year and arrived at conclusions which appear to be progressive but do not seem to have led to any increase in program lending or any dramatic change in attitude regarding local-cost fi­ nancing. These old-fashioned and outmoded notions do more than anything else to give credibility to the view that the Bank is not a development agency but is primarily interested in promoting exports from its richer members. I would be the last person to subscribe to such a view; but if these attitudes persist, it may become increasingly difficult for the Bank to counter such a view with conviction. Nowhere is the vulnerability of the Bank Group to criticism of

86 this kind seen more clearly than in its procurement policies. A prime concern of the Bank should be to see to it that the technology adopted in the execution of projects is well suited to the conditions prevailing in the country, that local capability in manufacture as well as construction is built up and that procurement policies are such as to help in this process. The essence of development is the building up of domestic capability in its widest possible sense and not just the establishment of a few projects transplanted from abroad. The pres­ ent margin of preference of 15 per cent, which applies to equipment, is grossly inadequate and is even lower than some of the tariff levels prevailing even now in the industrialized countries. The policy of international bidding is sought to be applied rigidly even to con­ struction contracts and, in respect to these contracts, there is no preference given to domestic suppliers. In the name of development, international firms are encouraged by these policies to use capital­ intensive methods for construction even of school buildings and roads, in far-off places in Asia, Africa and Latin America. The small entrepreneurs in developing societies who strive to engage in these occupations, using labor-intensive methods which generate employ­ ment, tend to be driven out of business. If this is economic develop­ ment, I fail to see what the objective of such development is. We find it particularly heart-warming to note the new emphasis in the Bank on growth with social justice, on taking care of the unemployed and the undernourished and the underprivileged, even as we strike out for higher ranks in the Growth Rate League. To us in India, it has been a matter of national policy to assert that enduring social and economic strength is not possible without due regard to distributive justice, which is also an essential prerequisite for the survival of democratic institutions. We have often been told that we should not disregard the dictates of the dismal science which decrees that there is always a hard choice to be made. But equally, while choose we must, we must guard against easy and convenient options which contrast the interest of the whole against the well­ being of the less privileged majority. The moment we overlook the potential of the people, of the ordinary people, we drift, in the name of pragmatism, into enrichment of the privileged few. That is why it strikes us as particularly relevant and timely when Mr. McNamara speaks of unemployment, malnutrition, land reforms and better urban surroundings. As the Bank enters these hitherto neglected fields-family plan­ ning, rural works, education, agricultural credit for small farmers, etc.-it must also be careful about not being out of tune with indi­ vidual national policies and institutions in these fields. Development of human resources cannot be chalked out on a uniform canvas applicable to all nations alike. A certain degree of circumspection on the part of the Bank staff and a willingness to remain in harmony

87 with national policies and traditions would pay rich dividends over a period of time. Let it not be said of them that the greater their knowledge, the less their understanding-or even worse, as it was said of one of the sons of Pandu, that the greater their knowledge, the less their ability to act. The obvious privations of millions of people around the world brook no delay and cannot wait on our interpretation of an antiquated charter or on our dreams of imposing some grand design on the economic system and institutions of the future. Let me conclude by saying that I have expressed these concerns in the hope that a consideration of them will help advance the cause of development and prosperity for the world which we all cherish.

INDONESIA: ALI WARDHANA Governor of the Bank Before presenting to you the observations which I have in mind, may I first extend my warm congratulations to the Governors from Barbados and Fiji, who are attending our Annual Meetings for the first time. They come in the midst of much confusion, but also as our Chairman and Secretary Connally said, in a period full of new and challenging opportunities. May I also welcome the observers from Oman and Western Samoa, whom we hope to see next year as our colleagues ...... After having addressed myself to the present monetary crisis, I now would like to say a few words on the Bank. Reading its lucid Report we are grateful to take note of its expanding lending pro­ gram, of its interest in education and in reconstruction. For all its operations the Bank needs funds and it will suffer if the present crisis is allowed to continue. I note in the Bank's Report the presence of a study on the debt burden of developing countries which is helpful to them in view of their continuing need for funds. Such need, however, is not limited to foreign funds. Governments are increasingly finding it difficult to find domestically the necessary amounts of money to finance their development programs. This burden is bound to be­ come heavier in view of the de facto revaluation of some major cur­ rencies requiring larger counterpart funds to purchase foreign exchange. The World Bank Group is in a position to assist the affected developing countries in this matter by providing local cur­ rency as well as foreign exchange. In the past, its Executive Directors refused to do so but they should reconsider their position, especially in the light of the present crisis and its consequences. But on the whole the Bank's performance was satisfactory last year and I feel that Mr. McNamara deserves our gratitude and praise for his tireless and effective efforts to improve the quality and quantity of the

88 Bank's operations, from which my own country is benefiting. May I now end with words of warm thanks to our host country, the United States, whose Government is again providing us with all the facilities needed both for our comfort and our work.

IRELAND: T. K. WHITAKER A lternate Governor of the Fund ... The President and staff of the World Bank again deserve our congratulations on the impressive work of the Bank Group during the year. A particularly pleasing feature is the flexibility of the Bank's activities, both in its lending program and in its efforts to tap new sources of capital. This is evidenced by the support given during the year to projects in such fields as education, research, urban water supply and pollution control, since these are fields in which, as the Report points out, the true benefits to the community cannot be measured solely in terms of the financial returns. Nevertheless, there are clouds on the horizon. The static volume of long-term official aid is one. The delay in completing the IDA replenishment is another. The Report contains a somber warning that, over the next decade, the flow of capital for development may not meet the targets of the Second Development Decade or the suggestions of the Pearson Commission. Perhaps these problems are the result of the slowing down in the growth of world production. Undoubtedly, they are a warning of what may happen if present international monetary problems, with their attendant dangers to trade and development, are not solved urgently. While the resolution of these problems is primarily a matter for the Fund, the Bank Group has, as Mr. McNamara so rightly emphasized, a vital interest in an early, equi­ table, and enduring settlement.

ISRAEL: DAVID HOROWITZ Governor of the Bank The problem of development with which the World Bank, as the foremost global institution in this field, is confronted is convention­ ally regarded as that of the gap between the developed and under­ developed nations. This gap will inevitably widen, for. according to a projection for 1980, GNP per capita will by then average $245 in the developing world and $3,280 in the developed world, as com­ pared with $175 and $1,964 respectively in 1968; in other words, the disparity will increase from elevenfold to thirteenfold. This will be due mainly to the rapid population growth in the developing countries, which will swallow up part of their 5.2 per cent annual gain in GNP.

89 However, the malady lies much deeper than that. For affluent society itself is suffering from a malaise, which could be alleviated by responding to the great challenge of helping to build up the under­ developed nations. One third of humanity-the developed world-has fallen prey to hedonistic tendencies, worshiping the idol of consumption and status symbols and enslaved to a multiplicity of modem gadgets, turning its back on human and spiritual values. Considerable seg­ ments of the affluent society manifest all the symptoms of internal disintegration and spiritual degeneration: violence, delinquency, drug addiction; following to a great extent the ancient Roman adage, "Homo homini lupus est." This society is tom by internal strife and contradictions, mired in a socio-psychological crisis and intellectual confusion. Moreover, overconsumption, with its atten­ dant discharge of noxious wastes and its endless accumulation of disused materials, has become a primary source of pollution of water and air, soil and sea, ruining the beauty of the natural environ­ ment and perniciously affecting human life in the noisy, grimy mega­ lopolis with all its environmental and ecological problems. The two-trillion-dollar economy of this affluent society can spare only $13.6 billion a year, i.e., about three quarters of one per cent, for the development of the two thirds of humanity which has to sub­ sist on only half-a-trillion-dollar GNP-a distribution of wealth of about 80 per cent for one third of mankind and 20 per cent for the other two thirds. There is the frightening specter of a clash between the overaffluent society, which has largely abandoned its humanistic and rationalistic achievements, and the two thirds of humanity steeped in misery, hunger and disease, engaged in a struggle for their very physical existence, made resentful by the demonstration effect of the affluent western civilization. This is the reflection of the global scene, with its apocalyptic mosaic of material, spiritual, cultural and political cross-currents, which are exacerbating both the ailments afflicting the affluent so­ ciety and the misery and want of the rest of humanity. This is the universal and human challenge of development in its prosaic and pragmatic form. After the Second World War, the victorious powers proved equal to the challenge posed by the ruin and destruction of the European continent. The Marshall Plan and the establishment of the World Bank and the International Monetary Fund at Bretton Woods amply bear out the truth of this contention. But today, a swelling volume of factors of production and a technology enabling man to reach the moon and explore outer space, to devise instruments of both life and destruction, are inadequate to meet the challenge of hunger, ignorance and disease plaguing two thirds of mankind.

90 This is a dangerous situation. The technological achievements and the deteriorating quality of life contrast too glaringly to be tol­ erable for any length of time. Destitution breeds despair and de­ spondency. But in the Third World it is not only the low standard of living, which has improved only slighrly in the past decade, but also un­ employment that is the curse of the underdeveloped nations. It is mounting twice as fast as the growth of the population-and this at a time when many of the developed nations are suffering from an acute shortage of labor. Moreover, the urbanization of masses of starving, underemployed people alienated from the rural economy leads to a proliferation of slums and a situation in which hundreds of thousands of persons without shelter, living literally in the street, is of frequent occurrence. This tremendous potential source of production is not being tapped because of insufficient capital. Whatever the rationalization of the reluctance to allocate more than a tiny fraction of the annual incremental GNP of the developed world to promoting the economic growth of the Third World, capital availability is the foremost and indispensable precondition for any attempt to break the vicious circle of underemployment and sub­ human standards of life. There are only two possible ways to activate the potential factors of production of the developing world-domestic capital formation and capital imports. Domestic capital formation is obviously re­ stricted by the low margin of subsistence in the developing nations and has reached its limits. But the two-trillion-dollar economy of the developed world, with its $100 billion annual increase in GNP, with all its affluence and overconsumption, does not find it possible to export sufficient capital, skill and know-how to foster and stimulate economic growth in the underdeveloped world. It should be stressed in this context that providing work for hundreds of millions of under­ employed and unemployed would increase the wealth of the world as a whole and facilitate a tremendously expanded production of capital goods in the advanced industrial nations for export to the underdeveloped nations. Such a development would, in the final analysis, redound to the benefit of the developed, no less than of the developing, nations. Today, some four fifths of total capital investment in the devel­ oping world is derived from domestic capital formation. This is obviously the limit. More cannot be squeezed out of the under­ developed economies of these countries, with their precariously narrow margin of subsistence-certainly not under a democratic regime, nor under the influence of the demonstration effect of high standards of living in the west. The challenge is to telescope a process which should normally

91 take half a century into two decades. This can be done, with an adequate import of capital, skill and know-how and with a motiva­ tion transcending material incentives. For capital will not flow to the developing world as a result of the operation of economic forces alone. Political instability, illiteracy, low standards of education and the risk of war and internal conflict preclude this. I would like to cite the example with which I am familiar-that of my own country-as proof that it can be done. In a country of 8,000 square miles, three quarters of them desert and barren hills, with a pronounced scarcity of natural resources, devoid of coal, oil, timber and ores and almost all other natural resources, with a limited quan­ tity of water and a small cultivable area, contending with a difficult geopolitical situation and the quadrupling of the population within two decades, Israel has achieved an annual real GNP growth of ten per cent per annum since its establishment, and within two decades real GNP has multiplied sevenfold. The standards of living and private consumption have increased two and a half times per head in the same period. Agricultural production has been stepped up to a level where it now supplies 85 per cent of the requirements of the vastly larger population. What is more, Israeli agriculture has achieved the highest rate of growth in the world and, in some branches, yields have attained a world record. Exports of goods and services have increased from $46 million in 1950 to $1,500 million in 1971. The labor force has expanded three times, and while agricultural production has in­ creased more than eightfold during this period, the number of per­ sons engaged in farming has declined from 17 per cent of the total labor force to 10 per cent. Productivity per worker in the economy as a whole has improved at the rate of 4.5 per cent per annum. The process of industrialization has brought up the number of persons employed in manufacturing to 26 per cent of the total labor force. Exports constitute 29 per cent of the country's GNP and of these about 90 per cent consists of manufactured goods and services and only 10 per cent of agricultural produce and raw materials. This is an impressive record of growth and progress, and proof that the challenge of development can be met. The indispensable ingredients of such progress are sufficient, even plentiful, capital, an adequate level of skilled labor, science, technology and expertise, and the imponderables of motivation. This is the key to the enigma of economic growth, and all of these ingredients can, and should, be reproduced on a world scale. The present financial and monetary condition of the world is not conducive to such a broad all-embracing approach and action. What the developing nations desire is, first and foremost, stability and an early settlement of the monetary crisis. As mentioned by the Man­ aging Director of the IMP, Mr. Schweitzer, the interests of develop-

92 ing nations are of little weight in the bargaining contest of the giants and their voice is hardly distinguishable. The instability and violent fluctuations of money values have a most detrimental effect on the developing nations. The keener competition on world markets, the threat of a revival of protectionism, may interrupt the incipient diversification of the economies engaged in primary production. The developed countries may be tempted to reduce aid and export of capital to the Third World. Thus the developing countries will be the first victims of the rever­ berations of the monetary crisis. Under the circumstances, the intro­ duction of tariff preferences for developing countries is imper­ ative, and the implementation of the policy of development most urgent. First, consider capital supply. It is not the sole ingredient of a development policy: capital alone cannot do the job. On the other hand, the argument frequently voiced that capital is the least rele­ vant of the elements is patently fallacious, as is borne out by the experience of all those countries that have undergone vigorous eco­ nomic growth, all of which have been distinguished by a large capital import. The claim that capital is of little significance too frequently serves as a convenient rationalization of the fact that only a trickle is being diverted to the underdeveloped nations. Since the World Bank is responsible for this particular aspect of development, this is the proper forum in which to dwell on this problem. There are presently under discussion two methods of augmenting the flow of development capital, which are not contradictory but complementary: the so-called Horowitz Plan, and a link between the creation of SDRs and development. As to the Horowitz Plan, it could be implemented by the World Bank alone. There would be little, if any, difficulty in very substan­ tially increasing the Bank's borrowing if its bonds yielded a higher return. The raising of the interest rates on such bonds would enable them to supplant some of the issues of lower priority, which serve to increase investments in the already overheated economy of the de­ veloped world, contributing to inflationary pressures and tendencies. The time is particularly propitious, as some $60 billion of speculative Eurodollars crowd the money markets of the world, and, to some extent, this constitutes one of the major causes of financial fluctua­ tions and disturbances. This source of capital could be tapped by an appropriate management of the interest rate of World Bank bonds. The additional amounts so procured could be lent by the World Bank to IDA, and the interest differential covered from the interest equalization fund, which would consist of three component ele­ ments: the profits of the World Bank, the income surplus of the IMF and relatively small allocations from the budgets of the developed

93 nations, even if these are at the expense of the IDA replenishment. Considering the heavy indebtedness of the underdeveloped nations, IDA must become a much more important instrument of develop­ ment than it is today, and should therefore have an ample supply of capital at its disposal. Such funds cannot be obtained on an adequate scale by going, year after year, hat in hand, to the governments and parliaments of the world with a request for replenishment. They can be obtained by direct access to the capital markets, provided that exaggerated interest-rate considerations do not militate against this course of action and that replenishment funds are partly utilized for this purpose. Only large-scale borrowing, particularly on the Eurodollar mar­ ket, could put at the disposal of the World Bank sufficient funds, which could then be lent to IDA, using the interest equalization fund to free the Bank from the constraints of a too low interest rate accruing to holders of its bonds. Even the relatively smaller amounts now being allocated by the various governments to IDA could serve a much more useful role as an ignition spark releasing massive amounts of capital to IDA through access to the capital markets. The diversion for this purpose of Eurodollars and other funds procured on the capital markets is a cheap and simple way of stepping up the flow of capital to developing nations without detri­ mentally affecting the advanced nations. The Committees that examined this proposal in an objective man­ ner-the Pearson Committee, appointed by the World Bank; the Perkins and Peterson Committees, appointed by the President of the United States; and, more recently, a comprehensive and well­ reasoned report that had been commissioned by UNCTAD from Harry Bell, economic consultants-all recommended one variant or another of this plan. The latter study makes the point that implementation of the Horowitz proposal is presently easier, as larger amounts could be raised on the capital markets of the world. Paragraph 14 of the summary (Document TD/B/361) states: "An examination of the major capital markets shows that their size is a very large multiple of the total requirements envisaged under proposals for a multilateral interest equaliza­ tion scheme." In previous discussions, one of the difficulties mentioned was the necessity of making multi-year budgetary commitments. On this point the study came to the following conclusion: "None of the countries studied appears to have experienced difficulty in making multi-year budgetary commitments of in­ terest subsidies for domestic programmes (Paragraph 11)." Another way of mobilizing capital for the developing nations is

94 the establishment of a link between the creation of SDRs and de­ velopment. Here I would like to stress that it is not suggested that SDRs should be created for purposes of development. As far as I know, nobody has suggested this unorthodox method of financing develop­ ment. However, if SDRs are created to increase world liquidity, there is no reason why allocation according to IMF quotas-i.e., substantially more to the rich and less to the poor nations-should be sacrosanct. The same ends could be served by using part of the SDRs to buy World Bank bonds, which would enormously enlarge the World Bank's capacity to finance IDA. Apart from the ultra-orthodox argument that there should be no connection between development and the creation of liquidity, for which it is difficult to find a rational explanation, much is made of the threat of inflationary pressures liable to be generated by such a policy. Inflation is, of course, one of the greatest dangers facing the world economy at the present juncture and should be combatted by all possible means, and certainly I would not advocate an indulgent attitude toward inflation. However, it is hard to comprehend why the creation of SDRs for allocation on a quota basis to various countries is less inflationary than their utilization for development purposes. A good case can be made out that the opposite is true, as in the devel­ oping nations there are still dormant or idle factors of production which could be galvanized by additional capital and thereby expand world production. Further, it hardly seems plausible that in the 2.5-trillion-dollar world economy, one billion dollars per year­ which is a fraction of one per mil-could have any inflationary im­ pact. Similar arguments were raised when the Executive Directors allocated part of the profits of the World Bank to IDA for the first time, and much was made of the arguments that the creditworthiness of the Bank in the money markets would be affected by such an unorthodox method. The proposal was adopted by the Executive Directors, but later it was rescinded under the influence of this specious argument and after some time readopted. As we are now fully aware, that step has not had the slightest effect on the credit worthiness or credibility of the World Bank. For the priests of ultra-orthodoxy, Keynes might just have not been born at all. Motivation by fears and anxieties, superstition and myth, carried over from the era of animism into the economics of modern life, is irrational and remote from reality. We shall make no headway in facilitating the economic growth of the developing na­ tions if we are guided by obsolete doctrines which hold that any redistribution of the world's GNP is anathema. In view of the mount­ ing frustration felt by the leaders of the developing nations, the com­ placency and shortsightedness of these attitudes is a source of great peril, which is not confined solely to the economic aspect.

9S We must liberate ourselves from the fetters of bureaucratic advice and conventional wisdom. We cannot afford to be guided by the same doctrine and theory which, under different conditions and in a different way, brought on the great economic crisis of the Thirties. By contrast, the postwar era, by breaking the fetters of conventional wisdom, assured humanity of a long period of progress and pros­ perity, which is now being imperiled by the same attitudes which determined policies in the first four decades of this century. Expe­ rience, the philosophy of humanism and sound horse sense indicate the correctness of the new policy. Poverty, the scourge of man from time immemorial, is, in our age of modern technology and new economics, an unnecessary and pre­ ventable affliction. It has ceased to be the remorseless and inescap­ able product of mysterious and ungovernable forces. By conscious human effort and control it can be abolished as a factor of global economic policy. The accumulation of capital and the increasing of the productivity of the millions of underemployed people in the developing nations may transform a utopian dream of rapid, prosperous development into reality. The projection of a world economy with a 6-trillion­ dollar GNP by the end of the century suggests what can be attained by wise and bold policies, by vision combined with realism. We are aware, of course, that, apart from capital supply, there are other problems that must be solved. If the proliferation of the human race proceeds at the present rate, the damage to the ecology and the ruining of the environment may destroy us, quite apart from economic disasters which are well-nigh inevitable. The brilliant statements made by the President of the World Bank, Mr. McNamara, his intuition and leadership, inspire some confidence that the inflexibility of the present situation may be overcome. Let us hope that human wisdom and vision, the spirit of innova­ tion which sent man to the moon and endowed humanity with incredible technological achievements, will also be applied to the crucial problem of development with which the world is confronted.

ITALY: MARIO FERRARI-AGGRADI Governor of the Fund ... Turning now to the activities of the World Bank Group, we wish to record our satisfaction with the important progress made in expanding the Group's lending operations. In the last three years, the World Bank's loan operations have been growing constantly, averaging some $2.3 billion annually, as against less than $1 billion in the previous three years. Consequently, the ambitious goal set out here in Washington in 1968 by President McNamara, of doubling

96 in the period up to 1973 the flow of financial resources channeled through the Group to developing nations, will almost certainly be met, and may actually be surpassed. In our view, the Bank and its affiliates should be commended not only for substantially increasing the volume of loans but also for the qualitative changes they have introduced in their lending operations. In the first place, the geographical diversification of the Group's loans has allowed a great number of countries, some of them small and poor, to undertake development projects which, by themselves, these nations would not have been capable of carrying out. Secondly, the Group has rightly placed more emphasis on financing agricul­ tural activities and education projects. Thirdly, greater efforts are being made to assist members in formulating consistent global de­ velopment strategies. Finally, we should also like to commend the continued effort of the World Bank Group to increase the volume of loans and equity commitments to development finance companies. Such institutions are a natural conduit for development funds, and it seems appropriate that their role be given increased emphasis. It is also noteworthy that a Capital Markets Department has recently been established in the IFC to encourage and facilitate the mobiliza­ tion of private savings. Undoubtedly, without a substantial and growing volume of private savings, the necessary economic growth in less developed nations will be seriously hampered. Although much has been accomplished in the development field, a lot still remains to be done if we are to achieve a more equitable society on Spaceship Earth. There remains a vast need for a greater flow of real and financial resources from the developed countries to the less developed ones. We believe that such resources should pre­ ferably be channeled through multilateral institutions and that donor countries should, moreover, strive to reduce the tying of their foreign aid in order to increase the effectiveness of the financial assistance which is provided. Finally, I should like to note that, not­ withstanding the economic difficulties my country has experienced during the last year, Italy's net economic aid to developing countries has been kept at almost 1 per cent of GNP. The present international situation is full of uncertainties and endangers the continued growth of the world economy. But it is also rich in great promises if, by harking back to the principles that in­ spired the Founding Fathers of the institutions we have inherited, we shall be able to adapt them to our times.

JAMAICA: EDWARD SEAGA Governor of the Bank and Fund Since their establishment at Bretton Woods in 1944, policies of

97 the World Bank and the International Monetary Fund have sig­ nificantly helped to shape the course of national development; it should not be unexpected then that some 25 years later forces of development would in turn be shaping the policies of these two institutions ...... If the International Monetary Fund was originally conceived as an instrument for minimizing monetary disequilibrium, surely the International Bank for Reconstruction and Development was con­ ceived as the counterpart to reduce the disequilibrium of capital resources shared by the developed and developing world. Developing countries have the fear that the continuing efforts to improve capital inflows will be limited in the context of the new monetary emergencies. On the other hand, the crisis may very well be the catalyst for initiating monetary reforms which will adjust to the inadequacies of the present pattern of capital flows. It is this latter view we prefer to take in the expectation that the proposal for an International Monetary Fund Commission on Mone­ tary Reform which I have made will be able to establish links in the adjustment process of payments and capital flows. One such link which is already under consideration and study by the Fund is the proposed tie between SDRs and capital transfers. This bridge between the Fund and the Bank holds possibilities for development which are timely and exciting. It is to be noted, how­ ever, that much acceptance has been given to the use of SDRs in a wider role in the context of proposed reforms. In devising this new role it is of great importance that a mechanism be included which will enable this transfer of resources from the Fund to the Bank for capital development purposes. This link is all the more urgent in the light of statistics on the extent to which the reverse flow of debt servicing by developing countries is reducing the net transfer of resources from developed nations. Statistics from 80 nations available from the recent Bank study on External Debt Servicing indicate a reduction in net transfers to the developing world from $5.8 billion to $5.2 billion between 1967 and 1969. Clearly, the problem of "catching up" is all the more urgent now that the evidence signifies unmistakably that we are "falling behind." But the whole question of sharing of resources is much broader in perspective; the movement of goods is as important as the move­ ment of capital. Direct reference to this is made in the comprehensive and pene­ trating statement on development strategy presented to the Gover­ nors at this Annual Meeting by the President of the World Bank, Mr. McNamara. The quadrupled expansion over this decade en­ visaged for manufactured exports can only be met by a conces­ sionary tariff structure in the import policy of the major market

98 economies, as the statement correctly concludes. But tied up with this are the market values of primary exports which must find some stabilizing mechanism if the desired gain in manufactured exports is not to be offset by reduced earnings on primary commodities. I touch on a fourth and final area of resource sharing. It con­ tinues to be noticeable that many capital exporting countries who subscribe in principle to resource sharing back away from confer­ ence tables in the face of the fairest claim of all, revenue sharing. The question here is not an inflow of borrowed funds or capital grants but a fair division of the revenue actually generated by the host economy where two taxing authorities have jurisdiction. Inter­ est and dividends, rents and royalties must be shared by double taxation agreements in a manner which takes into account the un­ equal size of the economic partners when small and large economic units sit down to talk. The model agreements of the past drawn up to serve economic equals when applied to the one-way flows of unequal partners also convey a one-way flow of revenue. In summary, there are four specific possibilities for advancing the rate of sharing of resources: 1. establishment of a link between SDRs and development capital; 2. easement of debt servicing burdens by refinancing arrange­ ment. Every dollar borrowed at 7V2 per cent is repaid twice over in 10 years; 3. concessionary tariffs and price support machinery for primary and manufactured exports; 4. more equitable revenue sharing in double taxation treaties. The emergence of a broader development strategy as set out in the statement by Mr. McNamara is welcome. Few will take issue with the conceptual framework of this strategy. For the most part, many countries here are the living example of the statistical story. With the world employment picture over the next decade reveal­ ing an expectation of full-time jobs for only one half the increase in the labor force. deterioration rather than improvement seems inevitable. A shift in development strategy is clearly demanded. The pro­ posals of the Bank Group will rest squarely on assumptions about mobilizing the traditional (rural agricultural sector) alongside the modern (urban industrial sector). Whether this tandem is sufficient to reverse the ultimately worsening position will depend on the ex­ tent of the response received from rural-agricultural development, traditionally a weak area with a reluctant pace of development. Any shortfall from the expectations for improvement in this area will add to the unmanageable proportions of the urban-industrial prob­ lem, the sector which is already the catchment for the unemployed. If the Bank Group is to support its advocacy, it will have to alter some of its fundamental approaches to rural projects. Small farm-

99 ing, the ecunomic base of the rural areas, will require Bank support. Moreover, the Bank will need to alter its concepts of scale: good projects are not always big projects. And most important to the solution of any urban problem, it is worth reminding the Bank that it has directed little attention to urban development, particularly housing and mortgage financing, a gap which generates such social tension as to potentially prejudice all other gains. I would not wish to close without commending Mr. McNamara and his staff for the new initiatives and staggering gains which they have produced in the efforts of the Bank Group and the projection which they have given to the problems of the developing world. Undoubtedly, they will meet their targets; what remains to be seen is whether these and other targets met will enable us to win the race between development and discontent.

JAPAN: MIKIO MIZUTA Governor of the Bank and Fund ... I should like now to turn to the operations of the World Bank Group. I extend my congratulations, first of all, to the good progress made by the Bank Group in fiscal year 1971 toward the target of doubling the volume of activities in the five-year period. Our country places full confidence in the Bank Group which, with its vast knowledge and experience, has long played a leading role in promoting the economic and social development of the world. This year the Government of Japan has extended its full support to the yen loans to the Bank amounting to the total equivalent of US$240 million. In June 1971, the Bank launched the first success­ ful issue of its bonds in the Tokyo market in the amount of US$30 million. The agreement was signed here yesterday' for the second issue of US$33 million. The monetary crisis we now face is a new challenge to the Bank Group. The stability of the international monetary system provides the foundation not only for the expansion of world trade but also for the growing flow of development assistance. Should monetary instability continue, the total financial flow from developed coun­ tries to developing areas will be bound to slow down. In these diffi­ cult circumstances, it seems that the true worth of the World Bank Group is facing a real test. For the moment, it is a matter of urgency for us to concentrate our utmost efforts on an early realization of the third replenishment of IDA resources.

'September 27, 1971.

100 I should like to point out here that our country's aid efforts have been a substantial achievement and that we are determined to make further efforts in this field. I stated at the Rio de Janeiro Meeting that the total volume of our aid in 1966 had been twice as much as that of 1963, and now I am pleased to say that our aid volume in 1970, which exceeded US$I.8 billion, was three times as much as that of 1966. The ratio to the GNP has reached 0.93 per cent. In promoting our economic assistance, emphasis will be given to multilateral aid. It is our intention to continue our close cooperation with the World Bank Group and other international financial institutions. It is in this context that our Government is actively participating in a study of ordinary capital replenishment of the Asian Develop­ ment Bank and we are also considering the expansion of our con­ tribution to the Special Funds, together with other contributors. Furthermore, we are willing to explore possibilities of cooperation with other regional financial institutions. Thrown into the midst of world-wide inflation and monetary un­ certainties, the people of the world are craving the restoration of order and discipline in the economy. The re-establishment of the normal rhythm of economic activities, which, I believe, is the foun­ dation of progress and prosperity, is urgent. To conclude my re­ marks, I express the hope that this Meeting will pave the way toward a new monetary order.

KENYA: MWAI KIBAKI Governor of the Bank and Fund We have, as in past years, been stimulated by the contents of the statements made by the President of the Bank Group and the Man­ aging Director of the Fund. In almost all respects, I find myself in agreement with the points they have made. In particular, their con­ cern at the impact of recent events on the developing countries is one for which we are all, ] believe, most appreciative at the pres­ ent time. It will be difficult to count the number of times the word "crisis" will be spoken at this year's Annual Meeting of Governors. And because this word is likely to be so overused, there is a serious risk that we shall begin to lose sight of what the crisis is about. What we are facing is a crisis of commitment; or what Mr. Schweitzer called "codes of behavior." After all the fine words that have been spoken in international meetings in recent years regarding the commitment to development aid, the commitment to liberal trade practices and the commitment to policies leading to a higher level of world production and the more equitable distribution of that production, we have reached a point in monetary affairs when the

101 fine words and rhetoric with which commitments are made are in danger of being regarded as no more than just words and rhetoric. Every year Governors have spoken regretfully of unfair trade practices, the dangers of inward-looking economic groups and the economic selfishness of economic isolationism. The developing countries have complained interminably in this forum, in meetings of GATT and in UNCTAD of the protectionist policies of the indus­ trial countries-whether represented by high and discriminatory customs barriers or protective domestic agricultural policies, quota systems or other devices. It is, therefore, ironic to the developing countries that the whole world economic system should be called into question only when these policies start to impinge on the devel­ oped countries themselves. It is difficult to escape the conclusion that the world will only listen seriously to a diagnosis of pressing world economic problems when it is one of the richer patients that is beginning to feel the stomach cramps that have been felt by the poorer patients for many years. The present crisis in trade is no more than a part of the general crisis of commitment to undertakings given to the international com­ munity. All countries have made undertakings in GATT and the spirit of GATT is clear. Accusation and counter-accusation now abound, but I ask whether any of the developed countries can look the developing world straight in the eye and say they are not party, or proposing to be party, to unfair trading practices in varying de­ grees. Mr. McNamara's remarks on the need for developing coun­ tries to have freer access to markets in order to earn foreign exchange are most relevant. The economic system operating for the last 25 years has provided the world with a steady growth of production and income. And al­ though the developing world has been all too conscious that the gap between the rich and the poor has grown wider over this period, they have accepted the fact that they have been able to make some de­ velopment progress so long as there was this expanding world pro­ duction and trade. If now the industrial countries are to abandon their commitment to fair trading practices and endeavor to safe­ guard their own economies from having to carry part of the burden of the required readjustment of world trade balances, the result can only be to shift that burden from the industrial countries, who have largely created the situation, to the helpless developing world that has had no part in it. Already primary commodity prices are declining and unless the normal upward trend in world trade is restored rapidly, the outlook for primary producers is grim indeed. The developing world has suffered a long-term adverse trend in its terms of trade, but the movement of the terms of trade has deteriorated very rapidly in recent months. The failure of the industrial countries to control in-

102 flation has caused the real value of the financial aid-measured in terms of the prices of capital equipment-to flatten out, although in financial terms the upward trend has been maintained. The bal­ ance of payments of developing countries dependent largely on primary commodities will deteriorate rapidly and the development efforts generated by those countries' own savings, as well as aid, will achieve little as the terms of trade move against them. Unless the world can control inflation or devise a system of preserving the real value of primary commodities in terms of capital imports, the targets for the Second Development Decade can be written off now. The present crisis in maintaining faith to commitments is demon­ strated most forcibly by the failure of nearly all of the industrial countries to carry through on their commitments to development aid. The reluctance of most of the industrial countries to commit even a part of one year's increases in their annual wealth toward the assistance of developing countries means that nations can only be judged on their performance and not on pronouncements. The needs of the developing countries were spelled out forcefully by the Pearson Commission; and the U.N. proposals on the Second Development Decade led to a feeling of hope in the developing world that at last their problems were understood. But we now fear that those expres­ sions of sympathy and commitments to aid may be consigned to limbo because the richer countries have run into economic diffi­ culties of their own. The World Bank and the IMF cannot and must not accept the proposition that aid is to be something that can only be afforded when an industrial country is in balance of payments surplus. Indeed we must reject and oppose those who would have us define a balance of payments deficit as being synonymous with poverty. The need for some realignment of the major currencies seems to be generally accepted, but no one country in the industrial world has stated that it is prepared to undertake to allocate at least 1 per cent of its GNP toward development aid before determining its currency parity. Is it too late for the industrial world to return to its aid commitments and to accept the fact that those commitments must be provided for in any calculation of currency realignments? The momentum of aid that has been built up in recent years must not be lost and the present currency situation must not be allowed to become the occasion or the excuse for slackening in our pursuit of the goals of the Second Development Decade. Too often repre­ sentatives of the industrial world attempt to separate the issues of international finance from the questions of aid. The recent setback in the outlook for aid-particularly the delay in the replenishment of IDA and the failure to loosen the strings tying aid to import sources-underlines once and for all the fact that the issues of aid and finance cannot be separated, convenient though it may often be

103 to the donor. Although it is true that the total volume of world liquidity rose sharply in 1970, the distribution of that liquidity was of no help to the developing world. It is no longer possible to argue that it is only the totality of liquidity that matters, for a crisis has been reached because of the maldistribution of that liquidity. In this situation, is it too much to ask that a decision should be taken now to allocate a certain quantum of SDRs to the International Develop­ ment Association in order to assist it to maintain and even raise the level of its activities? The results of such an experiment cannot be worse than the present situation in which IDA is sometimes left without resources to operate at all. Already we seem to have reached the point where disagreement over details is preventing the implementation of fundamentals. Arguments over a possible change in the price of gold are a matter of less importance than the fact that the world economy should operate at full capacity and inflation be restrained. Liberalization measures should be undertaken to ensure that the world benefits from a rapidly rising level of trade. Commitments relating to the level of official aid should be implemented and, while some controls may be necessary over speculative short-term capital, they must not prevent the free movement of long-term private capital flows, par­ ticularly to the developing world ...... Although Governors, this year, are bound to be concerned with the basic fundamentals of the change of currency parities, the quantum of aid and level of resource transfers, I hope I may for just a minute be allowed to mention some of the more detailed points of Bank policy which are of concern to me as a Bank borrower. I, and many other Governors, have complained in previous years of delays in processing projects on the part of the Bank. Improve­ ment has been achieved, but the structural organization of the Bank can be improved still further to accelerate the decision-making pro­ cess for project lending. Some degree of decentralization for lending decisions on a regional basis could possibly overcome part of the bottleneck over project clearance. Mr. Chairman, we from Kenya welcome the new emphasis in the speech of the President of the World Bank where he has shown clearly that the Bank is now prepared to shift emphasis toward rural development, toward social development. We welcome in particular that the World Bank will now be prepared to go with us into small projects affecting the ordinary peasant, the ordinary peasant farmer in the rural areas. We welcome equally his emphasis that family planning programs are an essential part of any strategy for develop­ ment. But since family planning is repeated every year in the Presi­ dent's speech, we ask him and his staff to appreciate equally that there can be no effective program of family planning until it is linked effectively to the provision of basic medical facilities.

104 We ask him equally and his staff to appreciate that as we move into rural development we are bound to have not one large project, but a stream of small projects because that is the nature of rural development. We know that the Bank has acquired enough expertise to be able to go into this field effectively and with speed and with a note of confidence. The quality of the economic reports prepared by the Bank's staff on the problems of developing countries is as high as ever, but too often the problems we can define ourselves are defined again for us by the Bank's missions, without the Bank being prepared to provide the means to overcome those problems. Solutions are fre­ quently dependent on the detailed preparation of projects, but the Bank continues to show a reluctance to provide the necessary tech­ nical assistance for project preparation. The limitations on the United Nations Development Programme imposed by the size of its budget mean that there is a serious shortage in personnel able to prepare projects for aid assistance. The world shortage of profes­ sional manpower also means that we need greater assistance to develop our own human resources. Once again the Bank could do more to help than it does at present. Some of the resources now devoted by the Bank to defining economic problems could perhaps be usefully redeployed in helping us to solve them. The Bank should organize country programs of assistance in the field of project prepa­ ration specifically to meet the exacting project requirements set by the Bank itself. Much of the problem could be solved if the Bank could be per­ suaded to adopt a more flexible attitude toward program aid. If overall acceptance of a development program or parts of the devel­ opment program could be achieved as a basis for lending, the prob­ lem of financing small projects would solve itself. I am aware that many of the problems I have just mentioned must seem insignificant to many of the Governors represented at this Meeting concerned today with the problems of the reform in the currency system. I must, however, continue to believe that the world is not entirely insane. and that my fellow Governors are aware, as I am, that at this 1971 Meeting of Governors, we stand before the court of history. We have the opportunity to go forward as the world did after Bretton Woods or we can lead the world back into stagna­ tion and chaos and stand condemned in the future. I do not minimize the problems facing us, but provided Governors are prepared to acknowledge that there are one or two basic fundamentals that must not be forsaken, I am confident that the right decisions will be made. If, however. we are to maintain good faith with the future, we must first honor our existing commitments to the present.

105 KOREA: DUCK WOO NAM Governor of the Bank and Fund

It is indeed a great pleasure for me to participate in this Twenty­ Sixth Joint Annual Meeting of the Boards of Governors of the Bank Group and the Fund. Especially it is a special privilege and honor for me to address this distinguished forum as the first speaker. I wish to extend, on behalf of the Korean Delegation, our sincere appreciation to the U.S. Government for the warm hospitality and most friendly reception accorded to all of us here. I am happy to welcome the members who have newly joined the Fund and Bank Group. I would also like to take this opportunity to congratulate the Bank and Fund managements on their excellent performance, which has involved both the expansion of lending activities and the inten­ sive preparatory work relating to the new international monetary developments ...... May I now turn to the World Bank Group for a few comments. In reading the Bank's Annual Report it is gratifying to note that the Bank Group enjoyed another successful year in making larger finan­ cial resources available to its developing member countries. The annual development finance commitments totaling $2.6 billion made by the Bank Group during fiscal 1971 are by far the largest in any single year since the commencement of the Group's operation. With the large commitments made in fiscal 1971, chances are much better that the Bank Group will be able to achieve the goal of doubling total commitments for the five-year period from 1969 through 1973 over the previous five years, 1964-68. Apart from the record expan­ sion in the volume of financial assistance last fiscal year, I have been impressed by the Group's imaginative and flexible approach toward lending and technical assistance to its developing member countries. A case in point is its increasing emphasis on educational planning, agricultural research, pollution control, family planning, tourism promotion, urban water supply and sewerage improvements, and capital market developments, all of which did not command high priority in the Bank Group's financing in the past. Especially as to the last, the capital market development in devel­ oping countries, I wish to welcome, and give my blessing to, the creation of the Capital Market Department in IFC. I am particularly appreciative of IFC's quick response to my request last year in send­ ing a mission to look into the possibility of establishing a capital investment institution in my country. As a consequence, IFC has undertaken the role of midwife in the creation of a capital investment institution named the Korea Investment Finance Corporation, in which IFC also has made an equity investment, holding 20 per cent of the total shares of the Corporation. This new corporation is the

106 first of its kind in my country and I am hopeful that it will play an increasingly important role in mobilizing and channeling private capital, domestic and foreign, into productive ventures in Korea. We may also note that, despite the increasing borrowing costs of the Bank, it has been successful in keeping its lending rate at the present level of 71/4 per cent throughout the period, thus sparing the developing member countries an additional interest burden. All in all, I commend highly Mr. McNamara, President, the mem­ bers of the Board of the Executive Directors and staff of the Bank Group for these splendid achievements. I would like, however, to urge the Bank Group to move faster and do even more. The economic development of poor countries is too pressing a task to halt even a moment. Three considerations have prompted me to say this. First, the total flow of resources amounting to $15 billion from 16 developed to developing countries in 1970, as described in Part II of the Bank's Annual Report, is obviously an insufficient amount for their economic development in view of the enormous magnitude of resource requirements of the developing countries. Secondly, the flow of resources into the developing coun­ tries from official and international sources under concessional terms has been stagnant in recent years, despite the increasing world con­ cern that the problem of external debt-service payments by develop­ ing countries has grown to serious proportions. Thirdly, there exist examples in which trade restrictions have been imposed by industrial countries against the products of developing countries, and in the current monetary crisis there seems to be increasing danger that the industrial countries may intensify their trade restrictions. I have no illusions that these difficulties can be solved by a further stepping up of the Group's financial assistance alone, but it can certainly serve to encourage the developing countries morally and strengthen them physically to endure hardships. Let me express my warm appreciation to those Part I countries which have made available in advance part of their payments to the Third Replenishment of IDA. Their expeditious and generous action not only ensured the continued operations of IDA but also helped sustain the development efforts of the poor countries without losing momentum. It is obvious that growing debt-service difficulties call for even more expansion of IDA resources to relieve the situation, and I sincerely hope that the Part I countries will give generous con­ sideration to further replenishment of IDA resources in the future. As regards the International Investment Insurance Agency, I must confess frankly my disappointment at its slow progress, although I very much appreciate the tireless efforts that the members of the Committee of the Whole and the Bank staff expended to create it. lt is my firm conviction that an institution like IlIA could make im­ portant contributions to the flow of private investment capital to

107 developing countries. If the number of capital exporting and import­ ing countries participating in this scheme becomes sufficiently large to permit a reasonable spread of risk, the Agency should be brought into being without further delay. Once the Agency is created and begins operations, I am hopeful that the number of participants will grow, as was seen in the case of IFC. One of the important goals of economic cooperation is to ensure economic development through collective efforts. We, the develop­ ing countries, are trying hard to do our part to narrow the develop­ ment gap between rich and poor countries. Our task, however, will never be successful without the positive and sufficient cooperation of developed countries. One of the most effective ways to cooperate is to ease trade restrictions in favor of the developing countries. I am aware that some encouraging steps along this line have already been taken by developed countries. However, these steps are far from satisfactory in promoting trade for the developing countries. I should like to urge the industrial countries to take further steps for the promotion of imports from the developing countries. Before closing my remarks, I would like to express my hope that this Annual Meeting will be a milestone in the restructuring of the world's trade and payments system, and that it will direct the Fund and the Bank Group to play an increasingly important role in pro­ moting economic cooperation and development and the harmonious prosperity for all member nations.

LESOTHO: R. SEKHONY ANA Governor of the Bank .. Although the current international financial difficulties arise out of the disequilibrium in the trade relations of and speculative capital flows among industrialized countries, they are having dis­ torting effects on the economies of the developing countries, which depend on export earnings from their raw materials and agricultural products. Uncertainties in the prices that could be expected for their products and fluctuations in their foreign exchange earnings will make development planning difficult. Indeed, even the little progress they made in the first United Nations Development Decade is likely to be greatly eroded. It is in the light of these considerations that we would urge the major financial powers to reach an early satisfactory solution, embodying a system of fixed parities and within the frame­ work of the International Monetary Fund ...... Turning to aid and development matters, I would like to state my country's concern about the effect that a protracted search for a solution to the monetary crisis may have on the overall level of aid to developing countries, and on the attitudes of the donor countries

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_.- -_._------_._------.---- to aid. Contrary to the recommendation of the Pearson Commission, it may lead to greater tying of aid. These unfavorable prospective effects on aid are of great concern to my country, which is just beginning to develop a capacity to plan and execute development projects. I do not have to emphasize the fact that I come from a small, landlocked country, close to half of whose able-bodied men are employed outside its borders-a country facing high rural and urban unemployment, relatively uneven in­ come distribution, and a rapidly rising population. All these basic problems of development were adequately expounded by the Presi­ dent of the World Bank Group. As one of the least developed among the developing countries, with a per capita income of only US$80, Lesotho had looked for­ ward with great anticipation to the Third Replenishment of resources of the International Development Association. The failure of this Replenishment to become effective was disappointing to many of us. Nevertheless, I am sure that everybody is appreciative of the contri­ butions and pledges of those countries which have already made effective their contributions to IDA in order to avoid an interruption in the flow of its commitments. Finally, in order to make the W orId Bank Group more effective and more responsive to its member countries' needs and priorities, I would like to suggest that consideration be given to the regionaliza­ tion or decentralization of some of its operations. Since its inception about a quarter of a century ago, the World Bank has shown a great capacity to adapt itself to changing circum­ stances. This has been illustrated, not only by the establishment of IDA and IFC, but also through its changes in policy. Among these policy changes I would single out the decision to give loans for agri­ culture, education and popUlation, in addition to the traditional sectors of power, transport and communications. Recently, the Management has shown an increasing awareness of the current prob­ lems of urbanization and environmental pollution. The Bank must be complimented on all these. But these laudable advances should not make us blind to the fact that the Bank is a highly centralized institution in which funds are raised centrally in most developed countries and decisions on their expenditure in the developing countries are also taken centrally. Its role and capacity in recent years has led to a tremendous increase in staff and overhead costs. The frequency and comprehensiveness of its economic missions have increased while the projects it has to cope with have multiplied. I am wondering whether the time has not come when some of the activities of the Bank should be devolved on the areas in which it makes investments. This could be done while en­ suring good and sound management. Such devolution need not be done all at once.

109 If the Bank is going to assist the developing countries to evolve policies and projects that would tackle some of the basic develop­ mental problems discussed by the President on Monday, then it will be necessary to regionalize its present activities, especially those in the Area Departments. These developmental problems, which re­ quire a thorough understanding of the history, culture and attitudes of people to life, work and leisure, can best be understood and ap­ preciated by people exposed to them for periods longer than those possible under the present occasional visits by headquarters staff. Moreover, by decentralizing a little, the Bank may be able to add dimensions of social justice to the present stock of appraisal criteria, which are largely based on considerations of efficiency, but often pay little regard to human needs and sentiments. I know that to some this suggestion may sound like heresy. Per­ haps, in our circumstances, the world can do with a little heresy just as it did when SDRs were first conceived.

MALAWI: ALEKE K. BANDA Governor of the Bank I, too, Mr. Chairman, would like to associate myself with your thanks to the distinguished Governor for the United States for his cordial welcome. This is one of many visits I have paid to the United States and on every occasion I am impressed with the hospitality and courtesy of its Government and people. One is inclined to take these courtesies for granted, although in their absence the orderli­ ness and efficiency of the Meetings could be seriously impaired. Once again we have been treated to memorable speeches, which Governors have been accustomed to expect from the President of the World Bank Group and the IMF Managing Director. The speeches, as they should, have clearly articulated the main points which should engage our attention at this historic juncture ...... Although the situation demands that we should chiefly occupy ourselves with the international monetary problems, I now wish to confine my remarks to the long-term problems of development. In this respect, I would like to record my congratulations to the Presi­ dent of the World Bank for the vast expansion in the Bank's operations. Last year he stated that "one objective is to double the Bank Group's operations in the five-year period 1969-1973, as compared with the period 1964-1968." From the figures of loans, credits and investments of the Bank Group for the last three years, one gets the pleasant impression that the $12 billion target the President had in mind could be achieved by 1973. However, I would like to caution you that the achievement of this

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~ ------_. ---_. target could well depend upon whether and when IDA's Third Re­ plenishment will become effective. It is regrettable that this has not been possible so far because a number of member countries, par­ ticularly some major Part I countries, have not ratified the Agree­ ment. We hope that these countries will, as soon as possible, complete the necessary arrangements to enable this cherished insti­ tution to continue its most worthwhile operations. Above all, we strongly request that the monetary crisis should not interfere with aid commitments. We believe that any cuts in external aid will hit innocent countries which have no part in causing the present difficulties. In the Bank's 1971 Annual Report, it is estimated that bilateral aid to developing countries is slowing down. In fact, it is widely understood that a number of major donor countries increasingly prefer to extend external aid through international institutions among which IDA is the most significant. If, therefore, financial sup­ port to this institution is withheld, if it is grudgingly given to the extent that its operations must stand still, however temporarily, then the repercussions on our economies will be very grave indeed. We appeal to the generosity of developed countries upon which the development of our economies has so much depended. We are grateful for what we have had. As I have pointed out, we assure them that we are mindful of their domestic problems. However, we believe that they must continue to hold to the conviction that the help they extend to poor countries such as my own is for the better­ ment of humankind, to which we all belong. While I am on this point, I wish to express our thanks to the Governments of Canada, the United Kingdom, Japan, Denmark, Norway, Finland and Germany, among others, whose contributions have helped to sustain the operations of the Association. On the problems of loan and credit disbursement, I am glad that the Bank is giving its attention to this. Although the problem has not been pressing in the case of Malawi, it is quite clear that the time has come for the Bank management to resolve the imponderables. It is not enough to analyze the causes of the problems. We must eradi­ cate or minimize them. The solution might well lie in the formation of a committee con­ sisting of officials from member countries and from the Bank who are responsible for disbursements. Such a committee would help to identify the problems and to suggest changes where necessary. I would also propose that the Bank's Economic Development Institute should help by providing a course specifically for the purpose of familiarizing member countries' officials with the Bank's require­ ments. It would be a pity to render the Bank's increased lending less effective through rigid requirements, as well as lack of familiarity with its techniques on the part of responsible officials.

111 Before I left for these Meetings, a team of educational experts, commissioned by the Bank, started a survey of Malawi's educa­ tional needs with a view to identifying areas in which the Bank can be of assistance to us. I believe this is an example of the Bank's changed policy on its lending for this purpose. Malawi welcomes this new policy. Unlike the old one, it does not prejudge the areas which must be eligible for Bank assistance. This new policy, which takes into account the special circumstances in a member country, is very commendable. Indeed, Malawi has advocated this policy for a long time, and we do hope that the Bank's policy toward education will be extended to other social sectors, such as health matters. At present the Bank seems to have prejudged that water supply and sewerage facilities in municipal areas present the most immediate problems in develop­ ing countries. While this may be so, a closer examination of indi­ vidual countries could well highlight other areas in this sector for which Bank assistance would be appropriate. I now turn to the activities of the International Finance Corpora­ tion. Of the three World Bank affiliates, the least utilized and the least known by the developing countries is IFC. This is not due to the lack of potential in the sectors it is intended to serve. Rather, it is because of its extremely restricted operations vis-a-vis the preva­ lent economic practice in these countries. My understanding of the division of functions among the three affiliates of the World Bank is that, whereas IBRD and IDA are meant to assist in the development of infrastructural facilities of member countries, IFC is intended to supplement and augment scarce capital and skills which are the main factors of production. At the time these institutions were founded, the prevalent eco­ nomic organization was such that governments were confined to the construction of infrastructural facilities while actual production was left to private enterprise exclusively. This being the case, I presume, it was thought that IFC's activities should be divorced from govern­ mental associations. While this made sense at the time, the situation has completely changed, particularly in developing countries. Public sector par­ ticipation in productive enterprises is increasing in almost all de­ veloping countries. Often government wholly owned development institutions have had to be created to pioneer new industries as well as to supplement private capital. Yet, in order for IFC to enter into a joint venture with these institutions, various rigid specifications concerning the percentage of private ownership in the development institutions are insisted on. Is it not ironical that before IFC can consider supplementing the resources of such institutions, private capital must be found to pur­ chase a proportion of the latters' capital stock? To us, development

112 institutions represent our countries' self-help efforts, which I would request the Bank to encourage. Clearly, therefore, for IFC to be of maximum service to develop­ ing countries, this aspect of its operations should be reviewed. As it stands, it is regrettably out of line with the economic organizations in the countries it seeks to serve. However, on this I am encouraged by the Corporation's Report, which, inter alia. projects a picture of constant changes throughout its history, in its effort to adapt to changing circumstances within its member countries. I am certain that I am speaking for a number of my colleagues in requesting yet another major review which would take this very important factor into account. Let me say that, in proposing these various changes, I do so with full confidence in the dynamic leadership of the Bank-a leadership which has proved receptive to new ideas. I am confident, therefore, that if it can, it will, after serious examination of the possibilities, try to make use of them. Lastly, let me welcome the new members, Barbados and Fiji, to this distinguished gathering, a gathering which symbolizes the world's economic aspirations. Notwithstanding the stresses and strains, the institutions represented here have achieved tremendous results. Through calm deliberations and through the mutual respect of member countries-among which these two countries are now numbered-our institutions are continuously being modified as ve­ hicles for the achievement of our declared goals of development and economic welfare for mankind.

MALA YSIA: TAN SlEW SIN Governor of the Bank In the first place, I would like to offer my warmest congratula­ tions to Mr. McNamara and Mr. Schweitzer on the usual high quality of their annual addresses. The World Bank is almost entirely con­ cerned with the problems of the developing world and to Mr. McNamara I would like to say that we greatly appreciate his en­ lightened and farsighted approach to our problems. Since we last met only a year ago, we have seen two more inter­ national monetary crises. These have been related to the continuing weakness of the U.S. dollar and the unwillingness of the major indus­ trial countries to adopt policies in the domestic field to correct their adverse balance of payments positions. Under such circumstances, it was not surprising that last month's crisis occurred. This led to the suspension of the gold pledge for the U.S. dollar, which is largely the basis of our present world monetary system. If international mone­ tary cooperation is to survive, there must be greater willingness to

113 exercise domestic monetary discipline-a point which I have often stressed. While those directly involved in the series of monetary crises in recent years are the industrial countries, the effects are widespread and include the developing countries as well. If one of the effects is growing protectionism, developed to a degree where the world is divided into trade blocs which trade less and less with one another but aim at growing self-sufficiency within their own blocs, then the ultimate result could well be shrinking world trade, with all the disastrous consequences which such a situation would ensure. Let us, therefore, hope that the industrial countries realize the gravity of the situation sufficiently to restrain themselves from following this easy downward path, which might appear to solve their imme­ diate difficulties but which is certainly not a viable long-term solu­ tion, even from their own point of view. Another aspect of this matter which is of direct concern to the developing world is rising prices in the industrial countries. Since the end of World War II, the developed countries have been unable to control inflation. Up to a few years ago, that inflation was at least only creeping, but what is more disturbing, one can only foresee the situation continuing or growing worse instead of better. This means that development costs in developing countries will rise, through no fault of those countries. This is because, for a long time to come, developing countries will be heavily dependent on industrial coun­ tries for the supply of machinery and other capital equipment which is required for their development. This, in tum, means that the developed countries will export their inflation to the developing countries, and the latter will be powerless to counter its ill effects, even though they may be models of prudent financial and economic behavior. We in Malaysia are now saddled with a rubber price of a little more than US$O.30 a kilogram-the lowest price in 24 years. As the rubber plantation industry is by far our largest industry, it can be imagined what this means to us. If we had not embarked on industrialization and agricultural diversification some years back, we would now be in the depths of our worst economic depression in the postwar years. Thanks, however, to this foresight on our part, the effect of low prices, though an unavoidable setback, has been cushioned somewhat by the buoyancy in other sectors of our economy. Developed countries, which are the main tin-consuming coun­ tries, are still unwilling to contribute financially to the international tin buffer stock, whose main purpose is to stabilize tin prices, which would be to the benefit of consumer and producer countries alike. Here I must congratulate the forward-looking attitude of the Nether-

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._------,-_.,-_._-,------lands, which is the first consumer country to contribute to the financ­ ing of the international tin buffer stock ....

MAURITIUS: VEERASAMY RINGADOO Governor of the Bank This year's Annual Meetings are taking place at a time when the monetary system is in turmoil. The dollar crisis and the floating of several international currencies have created uncertainties in the exchange rates which can only be to the disadvantage of small coun­ tries like Mauritius that depend heavily on exports. But what is worse is that recent events have indicated a tendency for developed countries to move toward restrictionist trade and exchange policies, and that is certainly a backward step. We therefore hope that some broad consensus on exchange rates will be reached soon and that certainty in exchange parities will be re-established so as not to affect unduly the development efforts of small countries. I must also observe that, despite the plea which was made last year by several developing countries for a link between SDRs and development finance, no concrete proposal has yet emerged. I hope that the staff of the Fund will give some attention to that question. I should like to congratulate the Managing Director of the Fund and the President of the Bank on the remarkable achievements of their respective institutions during the fiscal year 1970/71, which are evident in their Reports. It is heartening to note that during the fiscal year 1970/71 the Bank and IDA together entered into new commitments totaling $2,480 million, out of which $468.7 million went to African countries. We in Mauritius are grateful for receiv­ ing during the year a first IDA credit for $5.2 million in respect of our Tea Development Program and which, I am given to understand, has been negotiated within a record time. We are looking forward to further IDA credits in respect of a few of the main projects in our new Development Plan, and we hope that the negotiations will be successfully completed in an equally short time. Inspired by the speech made by Mr. McNamara at the 1969 Annual Meetings, my Government has translated the concern of the President of the World Bank Group for the widespread problems of population and unemployment into a plan for action, in accordance with the needs of our country. Hence, unlike the traditional develop­ ment plans which are oriented toward an increase in GNP, my coun­ try's development plan is an employment-oriented one geared toward a fairly rapid solution to our unemployment problem, which is threatening the very basis of our society. Although there has been much talk about the problems of unemployment and overpopUlation during the past few years, it is surprising to note that no precise

115 guidelines have emerged from any of the international organizations regarding ways to tackle those two problems. Nevertheless, with some assistance we have been able to achieve some success in popu­ lation control. The growth rate has fallen from 3 per cent in 1962 to 1.7 per cent in 1970. Let me explain further the rationale behind our development strategy. We in Mauritius consider that economic development will be meaningless unless it means the creation of employment oppor­ tunities for the growing labor force. Indeed, statistically measurable rates of economic growth can take place and are taking place in many low-income countries in excess of the rates of increase in the population or labor force without resulting in additional jobs or additional incomes. If there is more productive employment there will necessarily be more output, that is to say, more income; if there is more production, it does not necessarily follow that there will be more employment or that the gains of development will be ade­ quately shared among the population. Mauritius created export processing zones last year and quite a few industries are already successfully operating in these zones. I am gratified to note that this development is in line with the strategy for industrialization expounded in Mr. McNamara's speech at the 1971 Bank-Fund Meetings. With the help of the World Bank for the financing of our harbor, airport, and water projects, we can reasonably look forward to an expansion of the activities in our export processing zones. The experiment of our country in this field could well be profitable to other developing countries suffering from the same constraints-namely, a small domestic market, no mineral resources to speak of, and not much experience in manufacturing and in entrep6t trade. Mauritius is a small country but we are proud to be a member of such a big international organization as the Bank, whose total lend­ ing program for development is certainly very important. However, from the Bank's point of view our needs are relatively insignificant, and a little help from the Bank can mean a lot to us. And if the emphasis is not to be on finance but on the dimensions of the prob­ lems involved, then some other criteria must be used for the Bank's lending. It is my Government's view that project-by-project assis­ tance and the approval of one project a year are too restrictive and are constraints on our development. Smaller countries in the devel­ oping world are watching carefully how the Bank will adapt itself to assume the new tasks set by Mr. McNamara, and we are wonder­ ing, in particular, what kind of general support we can expect from the Bank. We, therefore, welcome that part of the Annual Report of the World Bank which deals with "nonproject lending," and we appre­ ciate the review made by Executive Directors on policies for non-

116 project lending and the financing of local currency expenditures. We humbly submit to the President and to this Conference that its 720 square miles of land, its population of 800,000, and its large un­ employment and underemployment, coupled with its explosive socio­ economic and political situations, make Mauritius a cas d' espece, which warrants the Bank's considering that "special circumstances" exist for financial support of its development program.

MEXICO: HUGO B. MARGAIN Governor of the Bank and Fund For some time now we have seen the signs of a profound exacer­ bation of economic pressures among the major industrial countries, and so the crisis itself did not take us by surprise. But we were caught off guard by its serious consequences. The developing na­ tions-hardly listened to and not responsible for the disorders­ are the first to suffer. The monetary crisis should not be considered as an isolated aspect of the international economy. It inevitably affects the possibilities of achieving higher levels of trade, economic activity, and opportu­ nities for employment in the various countries comprising the sys­ tem. The inherently weak capacity to import of some nations has been diminished. Equitable decisions must immediately be adopted to attenuate the loss of real income and to avoid a schism which cannot be bridged at some later date by marginal adjustments. The de­ veloping countries have a limited margin of maneuver, and the slight­ est slipup could seriously harm chances for long-term success ...... The unilateral, unjustified adoption of measures restricting the expansion in the developing countries' very exports which are the most dynamic has emphasized the ever present uncertainties, aggra­ vated the crisis, and spread it to other fields and countries. A halt has been made to the favorable progress of the system of unilateral generalized preferences. The limitations and risks in international transfers of savings for productive investment purposes also would in the long run limit trade among nations. The 10 per cent surcharge on our exports is particularly unfor­ tunate. It has been said that its only purpose is to bring about an adequate realignment of certain currencies. It is therefore incon­ ceivable for it to be applied indiscriminately to countries whose balance of payments positions and whose own monetary systems are such as to place them in a position to help support the dollar. In addition to being unfair, it is counter-productive ...... The future growth of the trade and the economies of the coun­ tries comprising the international monetary system depends on the stability of that system. It is necessary that it provide favorable

117 circumstances for the lowering of protectionist tariff and non-tariff barriers to international trade. The positive attitude of various industrial countries at these ses­ sions in the last few days gives us reason to believe that decisions will soon be adopted to preserve the interests of the developing countries. We may with confidence continue to devote ourselves to the task of achieving social justice through economic development. Mr. McNamara's statement confirms our conviction that the Bank at this stage is helping to identify and attack the limiting fac­ tors of economic and social underdevelopment. Not only the greater quantitative contribution is encouraging­ even more so is the qualitative increase. Mexico's experience is posi­ tive in both respects. The Bank's priorities-unemployment, income distribution, malnutrition, exports-coincide with those of my coun­ try's government. Our new strategy is based on the goal of better distribution of the fruits of progress, both on the international level and on that of each nation. In Mexico we shall make a still greater effort to make better use of the Bank's contribution. We are giving particular emphasis to subsistence agriculture and to more thorough use of iron and steel, forest, and fishery resources. Transportation was studied by a special mission, and we have gained knowledge and united our efforts to formulate coherent railroad and port programs. The Bank's contri­ bution will also be useful in improving utilization of the scarce water resources in both urban and rural areas. The World Bank has given its support to tourism as a means of obtaining foreign exchange and creating new employment opportunities in regions which would otherwise have no development alternatives. These new fields of external financing will supplement the traditional activities in such sectors as irrigation, railroads, and particularly electrical energy. There is absolutely no doubt that the need to encourage exports of goods and services constitutes one of the highest priorities for the developing countries. We are entirely in agreement with the Bank's emphasis on this matter, and are pleased at the acknowledgement given my country for its efforts to achieve a more dynamic external sector. The fiscal and credit incentives we have established will shortly be supplemented by the Industrial Equipment Fund, a trust fund of the Federal Government through the Secretariat of Finance, which will be established in the Bank of Mexico. Its main purpose is in fact to raise the competitiveness of industry on foreign markets for manufactured products. These efforts to stimulate exports de­ mand a favorable climate on the part of the industrialized countries and the removal of protectionist threats. In this context we would repeat the need to implement the system of preferences previously granted. We think that by pooling our experience we shall be able to for-

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------_._--_ .. _-_._---_. ---- mulate investment programs in appropriate sectors with a higher labor content. But significant progress cannot be made unless the Bank decides to take a full share in the financing of programs and not limit the use of external funds to the imported content of the projects. In this connection we have valuable experience in the agri­ cultural sector and will shortly formulate adequate programs in this sector and in others. We have been impressed by the good judgment, vitality, and interest displayed by our international institutions in preserving the interests of the developing countries. Mr. McNamara and Mr. Schweitzer, together with their staffs, merit our applause and sup­ port. We bear the responsibility for strengthening multilateral mech­ anisms and assuming the corresponding obligations to assert our rights. Finally, I should like to take this opportunity of sharing with you some reflections on the Mexican social and economic scene. A year ago, at the Annual Meeting of Governors held in Copenhagen, I stressed the economic priorities of our highest government authori­ ties, and I now reaffirm them. The purpose of these guidelines was to consolidate the Mexican economy, in order to establish firm bases for sustained, harmonious economic and social development. It is satisfying to be able to point out that we are on the right road for the achievement of our objectives: (a) Inflationary pressures are under control and the rate of in­ crease of domestic prices has been reduced. (b) Imports have been cut down by increasing domestic pur­ chases. Exports of goods and services have continued to in­ crease. (c) The maintenance of exchange stability and free convertibility are assured by the higher level of international reserves. (d) The finances of the public sector have been reinforced and we propose to continue this course. At the same time, the frame­ work of effective coordination with monetary policy has been strengthened. (e) External public debt has been subjected to strict control. The rate of increase of our debt has been significantly reduced and we have succeeded in making substantial improvements in the credit conditions. For the Mexican economy, as for many others, 1971 is a year for adjustment, for a review of objectives. The solution of the interna­ tional problems is a matter of the most vital interest to us. Unless there is an adequate external framework, domestic endeavors are unfairly hampered. The course we must take is to redouble our ef­ forts and maintain confidence and serene optimism in the future.

119 MOROCCO: MUSTAPHA FARIS Governor of the Bank The Annual Meeting of the international monetary institutions, always a very important event, is particularly significant this year. Because of the monetary crisis, which affects more or less all the countries represented here, it is all the more essential that different viewpoints be heard and that constructive solutions be sought. As the spokesman for Morocco, a developing nation, I propose to touch briefly on certain financial and monetary aspects of inter­ national cooperation. The closer one looks at the development process the more one becomes aware of the importance to that process of investments on the cultural and social side. Directly productive investments are, it is true, a necessary condition of growth, but they are not sufficient in themselves and we endorse the statement made in the recent World Bank Report on Morocco to the effect that if industry is to make for­ ward strides it is as important to improve management and labor training and to offer export incentives as it is to increase the volume of investments. The 1969 Report of the Chairman of the Development Assistance Committee pointed out that, where the lasting effectiveness and the scope of the development effort were concerned, it was of the utmost importance to have donors and recipients work together to find bet­ ter solutions to the interrelated problems of employment, income distribution, education, nutrition and family planning. The Moroccan Government is particularly aware of these urgent needs. It fully concurs with the World Bank's recommendations for combating unemployment, and is tending to orient its expansion policy more and more toward the achievement of a more rapid and more harmonious growth. In so doing, it lays particular emphasis on increased investment and, in particular, on the implementation of social programs. Indeed, one of the basic prerequisites for sound economic devel­ opment is that priority consideration be given to the "human fac­ tor." It is necessary to keep a harmonious balance between the local environment and technical achievements, since this is the only way to ensure that such achievements will be profitable and that the pop­ ulation will gradually enjoy a better standard of living. The develop­ ment of production capacity must be accompanied by improvement of public health conditions, more widespread education, and mod­ ernization of housing. The Government has progressively increased its resources to de­ fray the cost of public investments, but it is still essential that foreign aid, which has so far been relatively modest in volume, be substan­ tially increased.

120 In this connection, I am gratified to note that the World Bank is increasing its assistance to Morocco in certain sectors. I should like to express the hope that this aid can be extended to new sectors to finance the social and cultural programs to which my Government attaches the highest importance. I also hope that IDA will be able to participate as much as pos­ sible in these programs and that the difficulties surrounding the re­ plenishment of its resources can soon be overcome. Lastly, I should like the international financial institutions to accede to the desire frequently expressed by the countries benefiting from their assistance, which is that administrative procedures be made much more flexible, to ensure the provision of rapid and effec­ tive aid ...... Lastly, I should like to express Morocco's utmost confidence both in the International Monetary Fund and in the International Bank for Reconstruction and Development, and its desire to see their activities expanded and intensified for the well-being of everyone.

NEPAL: VISHNU PRASAD LOHANI Governor of the Bank It is a privilege for me to have this opportunity to address this dis­ tinguished gathering of Governors, Advisers, and Observers. Such an international gathering of financial leaders of the world is sure to promote goodwill and understanding among themselves and pave the way for better implementation of agreed plans and procedures. I would also like to congratulate the President of the World Bank, Mr. McNamara, for making splendid efforts toward a speedy realiza­ tion of the avowed economic idealism of the Bank. I would also like to point out Mr. McNamara's reference in his opening speech to poverty, malnutrition, unemployment overpopulation, and insuffi­ ciency of distributive justice which, I feel, has practical relevance to living realities in many countries. Humanity is a unity. Reasonable prosperity for all and a habitual feeling of brotherhood are a surer foundation for establishing lasting and creative peace in the world. I honestly feel that it is to this end that the World Bank came into existence and now it has to gear itself with increased vigor to the realization of these ends. We in Nepal are inclined to place increased trust in the ability and immense potentialities of the World Bank. We are aware of and we deeply appreciate the attention and assistance now being given by the Bank to the smaller and less developed countries of the world. But it may also be pointed out that a realistic appraisal of what the Bank has done so far may be profitable in finding new ways and means through which the Bank can better help the developing na-

121 tions face the economic challenges of the age. In this connection the following considerations are worthy of note. First, a mere propor­ tionate distribution of the assistance of the Bank on the basis of size or population will not, in itself, result in greater distributive justice. Therefore it may be suggested that the greater urgency of the need for assistance felt by the most needy of the developing countries be accorded a higher priority by the Bank. Second, lending a helping hand to such countries merely for what are generally called bank­ able projects may, to all intents and purposes, mean nothing more than a euphemistic refusal to help them. I would therefore strongly urge the Bank to set aside some of its resources for the identification, preparation and development of projects. Third, there is also some scope for expediting the processing of loans to the advantage both of the Bank and of the developing countries and reducing the time lag between the commitment and disbursement of funds. Fourth, it is also high time to consider whether the loan terms can be made softer than they are today. Otherwise, the burden of the debt ser­ vicing can become one of the deterrents to faster growth. Newly de­ veloping countries such as my own which have yet to complete the development of infrastructure cannot qualify for many of the Bank's ordinary loans. In this context, an increasingly faster replenishment of IDA's resources is highly desirable. We meet today at a time when the very foundation of economic understanding among the nations represented here is being threat­ ened. Before us lies the frightening prospect of prolonged disequilib­ rium in monetary and financial issues. What this does to the majority of developing nations is a question that deserves serious thinking and, above all, action. Aid and trade: both these aspects of inter­ national cooperation face an uncertain future today as a result of the present economic situation. It is in this area that international agencies must come to the rescue of the poorer nations and safe­ guard their interests. I am not only concerned with the flow of re­ sources between nations, but would also like to emphasize that we must seize this opportunity to create a new economic order which will restore faith that the community of nations represented here today can arrive at a mutually satisfactory solution. The Bank is well acquainted with the economic development plans and programs of Nepal. Nepal, under the wise and able leader­ ship of His Majesty King Mahendra, is making serious efforts to raise the standard of living of our people and we are determined to make the present decade a decade of economic development in Nepal. In our current Five Year Plan, which is in operation, we have been concentrating our efforts, among others, on the develop­ ment of human resources. Toward this end, we have recently intro­ duced a new educational plan which is designed to develop human resources in such a way as to secure a balance between the social

122 and economic development of the country. The Bank management has been emphasizing over the last few years the greater need to develop both social and economic infrastructure in the developing countries. We look forward to receiving meaningful assistance from the Bank in these and other important areas such as agriculture, transport, tourism, etc. I am grateful to the Bank for recently opening a resident repre­ sentative's office in Kathmandu, and I believe that this will result in an effective partnership between the Bank and my country. I close my remarks with a wish that the Bank will be able to ad­ here to the course of action which its President has outlined for us early in our meeting.

NETHERLANDS: R. J. NELISSEN Governor of the Bank Although the problems besetting the Fund are uppermost in our minds I would like to begin by making a few comments on the activi­ ties of the Bank Group. As the Annual Reports clearly indicate, there has again been very considerable expansion in the operations of the Bank and IDA under the eminent chairmanship of Mr. McNamara, and I would like to congratulate the management and everyone concerned in the Bank and its affiliates on what has been achieved in the past year. I hope that during the current fiscal year IFC will have its share in this expansion. In addition to the increase in loans with all the thorough studies of projects and countries they involve, a number of important docu­ ments have been produced on matters of general Bank policy. I would like to mention in this connection the many Memoranda re­ lating to the Pearson Commission Recommendations, the Sector Program Papers, and last, but not least, the Study of the External Debt of Developing Countries, to which I shall refer later. All these documents have helped to clarify the Bank's position and the prob­ lems with which it is confronted in a developing world. The Government of the Netherlands attaches great importance to the part played by international organizations, particularly the Bank Group, in the development effort. Although the present Five-Year Program for the Bank Group still has nearly two years to go, I think it is essential that we have at our disposal without much delay the Bank's plans for the next five years, which will start on July 1, 1973. Therefore, we welcome the intention of President McNamara to dis­ cuss these plans during our next Annual Meeting. In my opinion these plans should not only contain the targets to be observed for the investments of the Bank Group itself, including their organiza­ tional aspects, but they should also define the role of the Bank in

123 coordinating a very important part of the development effort of the whole world. I should like to recommend the preparation of the new Program as one of the most important subjects of discussion by the Board of Executive Directors in the coming year. Looking again at the Bank's work in the past year, I note with great satisfaction that, in spite of the uncertain state of the capital markets, the Bank succeeded in carrying out its borrowing program without great difficulty, and it remained very active in this field. However, the borrowing rate of interest has now for a long time been much higher than the lending rate which the Bank charges its clients, and I would like to draw attention to this state of affairs, which could tend in the long run to affect the Bank's standing in the international capital markets. As far as the Debt Study by the Bank staff is concerned, I agree in general with the conclusions reached in this important paper. I welcome the fact that the Bank will continue to watch the various aspects of the problem. I am confident that the Bank Group can playa major role in preventing the growth of the debt position of developing countries from becoming a serious obstacle to develop­ ment itself. It seems obvious to me that, if a country is desirous of improving its creditworthiness by reducing its dependence on short­ and medium-term borrowing for long-term investment purposes, this could in many cases be achieved by increasing the grant element in the flow of resources, in order not to impair the steady growth of the country concerned. What institution is in a better position than the Bank to evaluate the extent to which such an expedient is appro­ priate for a particular developing country? The Bank should use its influence, especially in consortia and consultative groups, to foster an appropriate mix of the various forms of financial aid. My last remark on the Bank Group's problems concerns IDA and the difficulties it has with the Third Replenishment. I sincerely hope that the delay in the effectiveness of the Third Replenishment will be reduced to a minimum. I also hope that in the meantime many Part I countries will be prepared to make advance contributions. As far as my country is concerned, we intend to make an advance con­ tribution as soon as Parliament has given its approval. ...

NEW ZEALAND: R. D. MULDOON Governor of the Fund Many of the major industrial economies have continued during the past year to experience an unusually high level of internal infla­ tion. In the past this sort of development has usually been linked to rising levels of economic activity. This in turn has meant a buoyant demand for some of the primary products which countries like New

124 Zealand export and an initial lift in the prices received for our ex­ ports. Unfortunately, in the past year, despite very sharp increases in the prices of industrial products entering world trade, there has been no comparable rise in the prices received for internationally traded primary products. As a consequence, New Zealand's terms of trade have declined to their lowest level for peacetime since the great depression of the 1930s. This continuing decline in New Zealand's terms of trade has in recent years caused us to move from about fourth place in the world in terms of gross national product per capita to about fourteenth and this movement will tend to con­ tinue unless the relative value of primary products improves by comparison with industrial products. In order to alleviate these pressures the National Development Conference of 1968-69 set out export targets for the following de­ cade designed to produce a total increase in real gross national prod­ uct per capita of 31 per cent during that period. The targets were based on some diversification of production and trade and increased production in all sectors. After three years these targets are being reasonably met and New Zealand's balance of payments has re­ mained in a satisfactory situation with a cash surplus on current account on the latest figures, while our official overseas exchange reserves are at a record level. This record level, however, is to a significant extent due to a substantial inflow of private capital. The worst feature of the New Zealand economy during the past year has been an unusually high level of cost-push inflation. Monetary and fiscal policy has been designed to limit the rate of growth in spending to a level commensurate with the increase in real resources with some allowance for the inevitable repercussions from earlier in­ creases in wages and costs. During this period the New Zealand Government has passed legislation limiting the rate of growth of wages and salaries during the current year, and this is already having some effect on the size of wage increases being negotiated. The prices of a wide range of commodities have been SUbjected to official surveillance and, late last year, a three-month price freeze operated. The transfer from this price freeze to the price surveillance system was accomplished satisfactorily and there was a continuing decline in the rate of price increases following this event. It is too soon, how­ ever, to make a final judgment on the effectiveness of these policies, although the signs at present are encouraging. Our most important trading partner, Britain, will shortly take a decision on the British Government's proposal to enter the European Economic Community. Although British entry will pose some prob­ lems for New Zealand, I should make it clear that the New Zealand Government believes that the enlargement of the Community would be in the best long-term interests of Britain, and thus of New Zealand. We also believe that the Luxembourg Agreement, insofar

125 as it affects New Zealand, is adequate, with the one reservation, that the price for New Zealand butter on the British market during the transitional period is too low, as the formula makes insufficient pro­ vision for further inflation and could thus add to the decline in our terms of trade. We believe, however, that the British Government has complied with the assurances given to the New Zealand Govern­ ment during the past decade that New Zealand's special problems would be given full consideration in the negotiations leading up to British entry...... Our analysis of the present situation is that, although the American moves precipitated a consideration of major problems, with potentially grave long-term implications, it is clearly possible to resolve these problems, given goodwill and a reasonable spirit of compromise. In these circumstances no country has the right to re­ main intransigent. We note with pleasure the further increase in the scale of operations of the Bank and its affiliated organizations. We remain convinced of the need for the Bank to conduct its affairs in such a way that it will retain enough confidence in the world's capi­ tal markets to enable it to continue to borrow large sums at preferen­ tial rates of interest. We congratulate the President and management of the Bank on this continued progress. We particularly congratulate the Managing Director of the Fund on his initiative during the present difficult period and on his wise statement at the opening of this Meeting and assure him of the continued confidence of the New Zealand Government.

NIGERIA: A. A. A YIDA Governor of the Bank Mr. Chairman, I wish to join others in thanking you for a most interesting opening address. This provided the setting for President McNamara's inspiring statement followed by the comprehensive and lucid presentation of Mr. Schweitzer, the Managing Director of the IMP. On listening to the three opening addresses, the Nigerian Delega­ tion felt that by the time Mr. McNamara is finished with the World Bank that institution will not be the same. It is also clear to us that by the time the international monetary crisis is satisfactorily resolved, the IMF will not be the same either. As the Co-Chairman succinctly put it, "the need to re-establish orderly conditions in the world monetary system and to put it on a sounder basis is widely recog­ nized." What is not widely recognized is the necessity for the financ­ ing requirements of developing countries to be taken into account in the final settlement. The voices of Africa, Asia, and Latin America must be distinctly heard in any forum where the search for the

126 sounder basis for world trade and orderly payment is conducted. In this connection, it should be placed on record that no member of the Group of Ten has the mandate to speak for the varied needs of all developing countries. As already pointed out, our annual discussions take place at a time when the international monetary system is experiencing one of the most pronounced shocks of recent times. Although the Bretton Woods arrangement and the GATT have not been perfect, they have contributed to an unprecedented rate of economic expansion and world trade. Because of balance of payments and other domestic economic difficulties, some of the major currencies have been var­ iously adjusted with severe adverse impact on the less developed countries. For example, when sterling was devalued in November 1967, we had no need to devalue the Nigerian pound because of the basic underlying strength of our economy. Nigeria suffered a loss of over $22 million in the value of its external reserves, although the Nigerian economy benefited in other ways from the realignment. In 1967, however, there still remained the hope that the international monetary system would, somehow, be held together. Today, the tripod on which the Bretton Woods arrangement rested, and on which the vast economic growth since World War II depended-fixed exchange rates, free movement of capital, and multilateral trade-has been severely shaken. Today, fixed exchange rates have been discarded and the most important trading currencies are floating as a result of the dollar crisis. The imposition of a sur­ charge on imports by the United States has produced sharp, if con­ fused, reaction from the rest of the world. If prolonged, retaliation is a possibility and the result would be a curtailment of world trade as protectionism takes over. The cut in development aid, and the probability of restraint on nonofficial capital movements, threaten a sharp reduction in official and private capital flows-especially to the less developed parts of the world. This would mean a setback to world economic development and trade ...... Over the past few years, nations have taken action to readjust the exchange rates of their currencies as corrective economic mea­ sures. As already pointed out, these exchange rate adjustments have always led either to substantial losses to the less developed coun­ tries, who hold their external reserves in these currencies, or to eco­ nomically unjustified readjustments in their own exchange rates. Although readjustments of exchange rates are dictated by domestic circumstances of states, reserve currency countries have special ob­ ligations to those states which hold reserves in these currencies. But while the world seems to regard nationalization with repugnance, no one blinks when substantial values of reserve assets are wiped out overnight through devaluations. The international economic com­ munity, under the auspices of the Bank, has fashioned the Inter-

127 national Centre for Settlement of Investment Disputes so that claims arising from nationalization may be settled amicably. In view of the instability in currency parities, and especially in order to protect the interests of developing countries, Nigeria would like to see an ar­ rangement, under the auspices of the IMF, for settling claims for losses arising from unilateral devaluations, notably of reserve cur­ rencies. Such an arrangement should constitute an important part of the new international monetary system. It is our strong view that, whatever monetary system succeeds the present embattled arrange­ ment, two new features have to be seriously considered: first, a sys­ tem must be devised to guarantee the value of reserves held by developing countries; secondly, the new neutral reserve unit should be interest bearing especially for holders from the Third World. The IMF has so far doggedly stood aloof from direct involvement with development finance. Every year at these meetings, the less developed members, almost to a man, have been consistent and persistent in calling upon the IMF to modify this policy. But while the Bank has steadily endeavored to explore new grounds of involve­ ment-even in the sphere of balance of payments support-the IMF has remained mostly orthodox. On balance, the IMF has remained more of an institution established for the support and use of the industrialized countries. It has not really been responsive to the medium-term balance of payments needs of developing countries. This imbalance and aloofness of the IMF should be corrected under the new dispensation. The IMF could make a positive contribution to development if it would allocate a portion of its annual profits to IDA and IFC. Such contribution would be particularly welcome at a time when national contributions toward multilateral aid are being reduced. The IMF contribution to development finance could also be linked to the SDRs. Again, the developing members of the Fund have been unanimous in calling for an organic link between this reserve asset and development finance. After many years of advocacy, the Fund agreed in Copenhagen to undertake a study of the problem. It is our sincere hope that the study has been, or will soon be, concluded. Mr. Chairman, you rightly implored the international community while facing the challenge of monetary instability "not to lose sight of the fact that urgent and enormous problems also exist in the de­ velopment field." I would like, therefore, to conclude this statement by touching on five salient points in the development field: (i) the developmental role of a reformed IMF, which has already been emphasized and therefore needs no further treatment; (ii) the need for greater flexibility and speed in the Bank's opera­ tions; (iii) the tendency for project aid to stultify vital development in

128

" """------some instances, instead of accelerating the development pro­ cess, notably where the donors concentrate religiously on feasibility study and consultancy services at the expense of project implementation; (iv) the inescapable logic of population explosion; and (v) Nigeria's experience with postwar reconstruction and eco­ nomic expansion. Nigeria's recent experience is relevant in these annual discussions partly because of the speed of economic recovery after the Nigerian civil war and partly because of the $80 million program loan from the IBRD. This is the first program loan to an African country and I strongly urge the Bank management to ensure that it is not the last. Wherever the circumstances are appropriate, the Bank should give program loans to supplement, not to replace, project assistance. The necessary conditions for program assistance are the existence of a viable development program and the fact that project aid cannot speedily satisfy all the foreign exchange requirements of the recip­ ient economy. My strong plea is that these conditions should be further reviewed and expanded. The main fears of the opponents of program assistance are that it may lead recipient countries to divert their resources to low-priority projects and discourage the adequate preparation of high-priority projects. One may add, ungraciously, that it may lower the influence and growing power of the project departments of the Bank. Our experience in Nigeria is that these fears are groundless. Program assistance has enabled us to implement the Second National De­ velopment Plan with greater certainty and confidence. Program assistance is very useful for small-scale projects, such as rural water supply schemes where the aggregate foreign exchange component is high. The Bank may well find that through program assistance it can assist the smaller member countries where individ­ ual projects are too small for the Bank's scale of operations. The transformation of rural life and the development of agriculture, the cornerstone of Mr. McNamara's address, can be realized through program assistance. In the field of population policy, one cannot listen to the rigorous logic of Mr. McNamara's population statistics without being im­ pressed by the gravity of the situation. The Nigerian authorities have decided to establish a National Population Council to coordinate the various family planning activities in the country. With current popu­ lation of nearly 70 million, Nigeria need not worry unduly about the population question in its extreme form, but we are much concerned with being placed in a position to develop our resources much faster than the rise in population. In conclusion, the Bank has performed quite well under the dy-

129 namic leadership of Mr. McNamara. But there is need for greater flexibility of its policies and procedures. Unless this is done, as many donor countries shift their emphasis to multilateral assistance, the Bank's operations may be stultified by the sheer weight and magni­ tude. I sound this note of warning because Mr. McNamara will not be with the Bank all the time to double and treble targets! In the long run, the international financial institutions will be judged by what they can accomplish in the development field rather than on the promotion of monetary stability for its own sake.

PAKISTAN: S. U. DURRANI Governor of the Fund We meet in difficult times, as the excellent opening statements of our two chief executives and their Annual Reports so well portray. It is comforting to have in this unsettling environment the wisdom and the leadership of the Bretton Woods institutions. The crisis in world exchange and trade relationships was long in the making. It is per­ haps just as well that the dramatic, if somewhat abrupt, actions of the U.S. Government give us an opportunity to look anew at prob­ lems that have been accumulating over the years: the erosion of sta­ bility in the central economy of the world trading system, the growth of a truly international capital market with no established principles for its regulation, a certain lack of reciprocity in the balance of pay­ ments adjustment process, a degree of rigidity in exchange rates which have tended to move out of alignment with relative changes in price levels and in trading power, and, perhaps most importantly, the growing disparity between poor and rich nations in an ever more crowded planet. We urgently need to make a determined effort to dispel the present uncertainties and to prevent the disruption of world trade and pay­ ments. The Managing Director of the Fund has clearly pointed to the adverse impact of the present situation on developing countries: these effects are particularly distressing since these countries have not contributed in any manner to the difficulties in the adjustment process between the United States and its principal trading partners. We strongly support the Managing Director's recommendation that we proceed to an agreed solution of certain issues without delay since the dangers of a prolonged interregnum are grave. If trade restrictions or currency discrimination or financial distortions grow, there will be serious disruption of development programs based on assumptions of rising capital inflows and enlarging trade opportuni­ ties. The less developed world may have a smaller weight in the global volume of production and trade but, as the President of the World Bank observed in his address, it must nevertheless support

]30 the predominant weight of the world's people. Their concerns in the satisfactory evolution of orderly arrangements for the operation of the international monetary and commercial system are therefore real and their participation must be active and even intimate. While the developed countries would prefer to work out their differences in more restricted groupings, there is too much at stake for the formulating of any solutions to be left to such exclusive forums. In the Bretton Woods institutions we have a world community and it is much to be desired that the process of seeking and finding solutions will be enhanced through them. The crisis that is upon us cannot be overcome by realignment of exchange rates alone, although this will be a crucial ingredient of any settlement. Beyond it there is need for re-thinking the reserve settlement mechanism and for a greater coordination of monetary policies among the developed countries. As for the developing coun­ tries what is needed most is the restoration of the primacy of rules of conduct in international economic relations that are generally ac­ cepted and effectively enforced. In particular, there is an urgent need for restoring the elements of stability that are basic to the par value system, possibly qualified by permission for temporary devia­ tions from par value obligations. Even a brief floating of rates, how­ ever, has dangers and should be permitted only under international supervision through the granting of additional powers of surveillance to the Fund. Moreover, once a currency has settled down to a par value, fluctuations around par should remain within specified limits and preferably within the limits prescribed under the Articles of Agreement. There is also an important need for elaborating the re­ serve creating and reserve settling functions of the Fund, which now exist in an embryonic form in the special drawing rights. Until solutions along these lines are negotiated, the prospects of development financing are seriously in jeopardy. The 10 per cent cut in U.S. aid is a portent which might affect the willingness of other donors until a proper burden-sharing formula is evolved. The prog­ ress toward untying aid, which was being pursued under OEeD auspices, has reportedly slowed down. The improvement in terms of aid, which is so desperately necessary if debt service problems are to be contained, may receive a setback. It is disturbing to find that, while foreign aid experts emphasize the developing of new relation­ ships among donors and recipients and deciding aid matters on strictly economic criteria, non-economic considerations are increas­ ingly applied. Hence, it is incumbent on us that as we move toward major innovations in the functioning of the international monetary system we also take a closer look at the assumptions and working of the international development financing arrangements which are focused in the World Bank Group. The assumptions on which the World Bank was established are

131 increasingly called into question by the growing burden of debt ser­ vice. We welcome the Bank staff study on the external debt problems of developing countries, as well as the work done in the past year in the Fund on the experience of countries that have gone through multilateral rescheduling of debt. While we have now a much better knowledge of the complex factors that lead to situations of excessive indebtedness, there is not yet a disposition to act upon the recom­ mendations of the Pearson Commission and other expert groups both in the UN system and outside for realistic longer-term arrange­ ments. In their continuing work on this subject, we expect that our institutions will focus urgently on both the financial and organiza­ tional contributions that they can make in this vital area. The concept of the Bank as a development lender to creditworthy nations is perhaps tending to deviate from the reality as we know and find it. A stage has been reached where some of the largest de­ veloping countries are unlikely to be eligible to borrow from the Bank and where the Bank can, at best, stabilize its loan portfolio. Even a stable portfolio must mean a transfer of resources from these countries to the World Bank. This is clearly an untenable situation and raises the difficult question of how far the Bank can show greater flexibility in rearranging amortization schedules for its loans under certain specified conditions. The Bank and its members have tried to take account of the diffi­ culty of the poorer countries through establishing the IDA as "the soft window" of the World Bank Group. But this has been associated with a new element of instability because every few years IDA must seek its replenishment. This is an exercise beset with many political troubles and resulting in periodic spells of uncertainty in interna­ tional development finance. We must search for more assured and more enlightened solutions. The idea of a link between special draw­ ing rights and development finance is perhaps one of the most prom­ ising initiatives that has been proposed in the post-war period, and could do for international development finance a service as great as the activation of SDRs has done for the international monetary sys­ tem. We hope that the Fund's studies on this subject will be con­ cluded in good time for consideration before decisions are taken on the second SDR period. Another problem that comes increasingly to the fore as the World Bank Group grows in importance and prestige is the possibility of conflict between its strictly economic functions and the political im­ plications of its actions. The world is a highly turbulent place and however much we seek to bring a sense of order to it, there are inevitably times and situations in which differences in objectives will arise. In this troubled framework the manner in which the World Bank Group acts, as well as the substance of its actions, must be carefully guarded lest harm be done to relationships of trust. Per-

132

------haps the need is for a greater sensitivity to the political consequences of actions by a staff that is expert in its own restricted field of compe­ tence, but whose objectivity needs a stronger buttress in procedures and arrangements within the institution itself. A review in depth is necessary in the relationship of the Executive Board as representa­ tives of member governments and the management and staff of our institutions. We have heard with interest in the address of the World Bank President the advocacy of development policies aimed at providing greater employment opportunities. If developing countries have not given to these objectives the attention that they deserve, a primary constraint is the larger claim that such programs make on internal financial resources and on scarce organizing ability. The shortage of domestic savings shows itself acutely in the creation of physical facil­ ities using domestic labor. It is, perhaps, inevitable that developing countries have relied on the use of foreign equipment incorporat­ ing a technology not consistent with their own resource endowments simply because foreign saving could be obtained only through project loans. Moreover, employment-creating activities are likely to be widely diffused, involve small enterprises, and give returns that are hard to quantify in financial terms. Such activities are hard to fit into the normal mold of project loans. The Bank has been experimenting with general sector or program lending and its guidelines on local currency financing have also provided some escape from the diffi­ culties of Bank financing for the foreign exchange component of projects. What is now required is a decisive move in the direction of program lending that would greatly strengthen the feasibility of undertaking employment-intensive investments. I would suggest that the great success achieved in making overall evaluations of the economic situation and prospects by Bank missions gives enough assurance that the total deployment of Bank resources will serve development objectives in the employment field, without regard as to whether these resources are tied to projects or not. Also essential is a reformulation of lending criteria and appraisal procedures of the Bank and other external lenders that would reflect the awareness of the importance of employment-creating invest­ ments and favoring a more egalitarian pattern of production. We recognize that this broader concept of the development process will require time and intensive study before it can be implemented and we look forward to the Bank's leadership in this field as in many others.

PARAGUA Y: CARLOS CRAVES BAREIRO Governor of the Fund It is indeed a pleasure for the Paraguayan Delegation to convey, by special instruction of the President of the Republic of Paraguay,

133 General Alfredo Stroessner, the greetings of my country's Govern­ ment and people to the illustrious Government and dynamic people of the United States, as also to the Governors, observers and special guests attending this international gathering ...... We must once again emphasize the need to organize a system of support financing for the exports of developing countries. Our Latin American countries continue to suffer from a shortage of the capital needed to foster a substantial increase in their exports. We must frankly say that the lines of financing for physical infra­ structure projects are gradually being expanded, but these will only make a small contribution to economic replenishment if lines of ex­ port, whether of raw materials or manufactured products, are not promoted at the same time. We do indeed find that the system of financing is defective in that interest rates on the debts contracted for the financing of physical infrastructure are not permitted the progressivity that should be manifested in terms of the sustained increase of exports. This is a defect liable to produce disequilibrium in the balance of payments. Without prejudice to the further advancement of this project, our countries must give the maximum encouragement to investment in such forms as institutional stability, monetary stability, and tax in­ centives. In this connection the Government of Paraguay is encouraged by the fact that these essential requirements for ordered economic and social development are to be found in our country. It enjoys assured peace and political liberty, as a proof of which we may point to the continuing increase of tourism, which today constitutes an impor­ tant item on the earnings side of the balance of payments. Full effect has been given to the new investment law providing a series of tax incentives for Paraguayan and foreign entrepreneurs, in the interests of expanding manufacture of our raw materials. Our country enjoys sound monetary stability, which is a meritorious achievement on the part of our Government headed by General Alfredo Stroessner. For over ten years the Government has promoted national savings, which have attained a total equivalent to US$50,000,000, not to mention the continued creation of new financial institutions to at­ tract national savings. After a pronounced recession in the years 1966/67-due to ad­ verse factors, both external and internal-the national economy attained in 1970 the record figure for the growth of the global prod­ uct of 6.1 per cent in relation to 1969. In the same year, exports of goods increased by 26 per cent, which, together with a slight reduction in imports as the result of a cautious import selection policy, engendered a substantial increase in the international monetary reserves, thus consolidating Paraguay's monetary stability.

134 The evolution of the main economic indicators shows that, as indicated by performance in the first six months of the present year, the gross domestic product will increase in 1971 at a rate approxi­ mately equal to that in 1970. This means that the target proposed for the first year of implementation of the 1971/75 National Devel­ opment Plan will have been reached. The public sector will play a strategic role in this connection, significantly increasing its participation in the economy with an ambitious investment program. This increased participation will take the form of additional appli­ cations for financial resources, necessitated by the greater com­ mitments to be assumed, and, for these, appropriate financing mechanisms are envisaged. In this connection, the Government in fact has in mind the adoption of measures for the substantial modifi­ cation of the tax system, and others designed to improve the admin­ istration of taxes and to coordinate economic policy as a whole with an indebtedness policy compatible with both external and internal financial equilibrium. Furthermore, in view of the need to obtain a greater volume of savings so as to finance the investments pro­ grammed for the next few years, we envisage the adoption of a relatively austere current expenditures policy which, nevertheless, makes provision for the budgetary resources required to assure the normal functioning of the operational programs, including the addi­ tional budgetary appropriations to satisfy the requirements of the executing entities in charge of projects completed and handed over to the public service. The program of public investment proposed for the period 1971/75 has been based on a rigorous selection of projects that are considered as having priority in the light of the national objectives set forth in the Development Plan, and in which the role to be played by the public sector will be of fundamental importance. In fact, the need to establish the bases in such a way as to give the great­ est productivity to the economic system will make it necessary to channel a large proportion of the public resources into the execution of projects directly linked with the productive activities, and the same applies to the execution of those projects that are to benefit the social field. The volume of public investment might pose problems of com­ patibility with the basic requirements of monetary stability and with external financial equilibrium. Therefore, it has been considered advisable to determine rigorously the maximum amount of invest­ ment which at the same time serves as a dynamic factor in the econ­ omy and makes it possible to overcome both budgetary and balance of payments problems. To this end, the amount of the credit to be provided by the Central Bank of Paraguay was first determined,

135 taking into account the foreseeable expansion of its net internal assets, and tax policy was thus reconciled with the monetary pro­ gram. Another factor taken into account was Paraguay's purchasing capacity abroad, principally in relation to exports, and care was taken to maintain a reasonable volume of international reserves ....

PERU: FRANCISCO MORALES BERMUDEZ Governor of the Bank I have the high honor to be spokesman for Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, EI Salvador, Guatemala, Guyana, Haiti, Honduras, Ja­ maica, Mexico, Nicaragua, Panama, Paraguay, Peru, Trinidad and Tobago, Uruguay, Venezuela and the Philippines at this great as­ sembly, an honor which makes it obligatory for me to present a realistic picture of the aspirations of all our peoples, and of their united and constructive will. This Twenty-Sixth Annual Meeting of the Governors of the World Bank and the International Monetary Fund is being held here through the hospitality of the Government and people of the United States, for which we are grateful. This is one of the most important moments of postwar financial history, when changes are being pre­ cipitated in the international monetary system and the nature, struc­ ture, aims and procedures of our institution are being called in question. In this connection the report submitted by the President of the World Bank on the activities of the institution during the past year is particularly valuable, since it enables us to make an assessment of the state of international cooperation for development. The happenings of the past weeks were surprising but not in­ explicable. They are no more than a link in the chain of events which has been taking place in our community since Bretton Woods, aris­ ing from the fact that the already marked disequilibria existing in the international distribution of means of production and resources were being aggravated by the contradiction between the need to produce more and the impossibility of distributing production ra­ tionally, as evidenced, on the one hand, by the great difference be­ tween the poor and the rich countries, and on the other, by the less obvious inconsistency between the rich countries in their struggle to win supply and consumer markets. The present crisis, while having its roots in the latter inconsis­ tency, inevitably affects the underdeveloped countries because of their direct dependence on the industrialized ones; this effect occurs, however, in a reflected form, and the underdeveloped countries are unable to play any other role than that of more or less impotent spectators.

136 Both this cnSlS and that between the industrialized and non­ industrialized countries can only be solved if considered as one whole. It is not just a matter of politico-economic actions between leader and nonleader states, but a question of implementing a mech­ anism of economic relations which will permit supervision of certain multinational private enterprises in their essence and interests. We should like to make some general comments on the activities of the Bank in 1970-71. The lending activity of the World Bank Group in fiscal 1971 reached the highest level ever. Loans and credits granted amounted to the not inconsiderable figure of US$2,581 million, slightly more than in the preceding year. We hope that the aim set by the President of the Bank, viz., doubling the volume of the Bank's lending over the five-year period 1969-73, compared with the previous five years, will be achieved. Regarding this figure, we would note the larger proportion ac­ counted for by soft loans, even though the benefit for our countries is nevertheless reduced overmuch thereby. The breakdown by sector also shows important changes and evinces a trend toward achieve­ ment of the objectives set, and regarding which the Latin American countries and the Philippines indicated their agreement at the last meeting in Copenhagen. In this way, the amount of the loans di­ rected toward relatively new sectors for the World Bank (agricul­ ture, education, industry, public social services, tourism, town planning and others) reached a total of US$814 million, or around 30 per cent of the overall total. This trend is a positive one and in expressing our pleasure we recognize the definite beginning of a favorable trend that gives growing support to our efforts; however, we would reaffirm the need for a larger volume of resources to be channeled to the priority sectors of our economies, where a major impact on productivity levels can be achieved through a real im­ provement in the living conditions of the majority groups of the population since in economic development, an objective we are all working toward, the human aspect is and must always be the main concern. We are bound to admit that, in some cases, there has been a delay in the preparation of certain important projects, a circumstance which has brought about a reduction in the loans to the area on be­ half of which we are now speaking. On the other hand, there has been a major improvement in the rate of disbursements on the loans granted. In our opinion, while there is still much to be done, this is nevertheless an important step in the right direction. These features of the lending activity of the World Bank Group, together with the dynamism displayed by these institutions, lead us to express our firm support for the trends which have become

137 apparent and their continuation into the future. Under its present leadership our organization appears to be more closely concerned with the cause of development. On all these points, we would repeat here our sincere congratulations to the President of the Bank, Mr. Robert S. McNamara. The role of the World Bank can acquire significance if one con­ siders the recent position regarding capital transfers to the develop­ ing countries. In actual fact, the flow of financial resources from the industrialized countries to the underdeveloped nations does not dis­ playa clear trend in line with the present needs of our world. The amount of such resources in 1970 was US$15 billion, or an increase of around US$1 billion compared with 1969. It is also necessary to 'note that the relative importance of official flows in the total has decreased, which has contributed to the greatest quantities of funds channeled to the developing countries being furnished in the form of private investments and suppliers' credits, and hence not in the form in which such flows could make the best contribution to our eco­ nomic development, i.e., through the multilateral mechanisms for external financing. Moreover, the flow of resources from the industrialized countries is maintaining the negative trends observed in recent years. both from the quantitative and the qualitative angle. In 1970 the flow of resources to the developing countries represented 0.74 per cent of the GNP of the member countries of the Development Assistance Committee, less than the percentage in 1968. The participation of the International Finance Corporation in various projects in our part of the world has been positive, not only because of the funds furnished but also on account of its interest in stimulating greater participation by local investors, taking due ac­ count of the legal requirements and general interests of each coun­ try. However, we do not think it appropriate that the Corporation should ask the governments of the countries in which it invests for better conditions than are granted to other foreign investors. On the other hand, the Capital Markets Department 'recently es­ tablished in the Corporation is a mechanism which we believe can be utilized with valuable results by the countries of our region. There are certain points of special interest for our peoples to which I should now like to refer. The provision contained in Article IV of the Bank's Articles of Agreement to the effect that the financing has to be for the amount of the imported component in the project to be carried out becomes limiting as developing countries progress toward industrialization. The Bank has, however, been interpreting this provision flexibly. The Latin American countries and the Philippines consider that, for the Bank's loans to improve their development impact, the basis for the interpretation of the Article referred to ought to be broadened,

138 with a view to permitting financing for a financially reasonable pro­ portion of the total value of the work, rather than being tied to the imported component factor. To this end, we have instructed our Executive Directors to draft a specific resolution when appropriate embodying the corresponding changes in the relevant legal pro­ visions. The conditions for the granting of Bank loans form a topic of special interest for the Latin American countries and the Philippines and, in this connection, we should like to repeat the suggestion made at the last Annual Meeting of Governors to the effect that a study be made of the manner in which the growing reserves of the Bank­ which now stand at US$l ,444 million-could be utilized to reduce the cost of loans for deVelopment purposes at times when the cost of money is high. In this respect, too, we have instructed our Executive Directors to draw up specific proposals. We likewise believe that greater participation by the Latin American countries and the Philippines in the credits provided by the International Develop­ ment Association, by means of a combination of these credits with Bank loans, would appear to be the most suitable means for reduc­ ing the average cost of loans to the countries of the region. The Latin American countries and the Philippines hold the view that the time has come for the Bank to consider giving greater flex­ ibility to both the maximum terms for loans and, above all, to the grace periods allowed. Such flexibility could contribute toward alleviating the problems associated with the service of external debts. Another matter of concern to the Latin American countries and the Philippines is that of the inflexible application of the principle of awarding contracts for civil engineering work by means of public international competitive bidding. For those developing countries whose local contractors are capable of carrying out such works this practice adds up to a negative impact on their balances of payments, and also a limitation on their overall development. Bearing in mind that the main objective of the Bank is the financ­ ing of development, the Latin American countries and the Philip­ pines believe that, for such cases, a procedure similar to that for international competitive bidding for supply of goods should be fol­ lowed, consisting in allowing local contractors an adequate prefer­ ence margin and seeking to achieve a foreign exchange saving, better utilization of the domestic funds available and a strengthening of the local construction industry. The foregoing becomes all the more relevant if it is borne in mind that, quite often, the enterprises which are awarded these contracts are from the major industrial countries and use capital-intensive methods which aggravate the already serious unemployment prob­ lem of our countries; on the other hand, the seeking of means to stimulate local contractors can have a positive effect in raising em-

139 ployment levels, an aim of overriding importance in the developing countries. The Latin American countries and the Philippines are gratified to note the wider geographic spread of the technical personnel ap­ pointed by the Bank over the past few years; however, they would reaffirm the view already expressed previously that efforts must continue to bring about a better balance in the geographic distribu­ tion of the Bank's technical personnel, especially at the senior man­ agement levels. At the Copenhagen meeting last year, the President of the Bank offered to reopen the discussion regarding the proposed International Investment Insurance Agency. We should like to utilize this oppor­ tunity to repeat what has already been stated in different interna­ tional forums, namely that the Latin American countries and the Philippines are opposed to the setting up of such a body. We have already on a previous occasion raised the matter of the need for a link between the additional creation of liquidity and the long-term financing of economic development. However, recent events oblige us to think in relatively wider terms; in other words, the discussions on possible reform of the international monetary system, as has already been noted, require as one of their central objectives the maintaining of adequate and sufficient external fi­ nancing for the developing countries. On various occasions a deeper study on the link between SDRs and the need for external financing has been given. We would re­ affirm right now our interest in such studies and the need for such considerations to be expanded to cover reformulation of the inter­ national monetary system and its inevitable connection with the financing of economic development. The World Bank, on its own responsibility, should advocate this aim before the governments and the appropriate international agencies. We should like to express our appreciation to those developed countries which have made advance contributions toward the re­ plenishment of IDA's resources, and we trust that the remaining countries will see their way clear to making their contributions effec­ tive as soon as possible. Moreover, we consider it praiseworthy that certain industrialized countries have repaid borrowings from the Bank in advance, thus making more funds available to help finance the countries which most need it. The Latin American countries and the Philippines regret that in the section of the Annual Report relating to the external debt of the developing countries, the recommendation concerning correcting of the practices of the Berne Union, which have been one of the factors aggravating this problem, has not been followed. Furthermore, we consider it necessary that the supplementary

140 loan scheme repeatedly requested by UNCTAD be finalized and put into practice as soon as possible. We should also like to express our satisfaction with the major role played by the Bank in the setting up of the Consultative Group on International Agricultural Research Centers, and with the sup­ port which the Bank is furnishing it, at levels which, we hope, will continue to rise, in terms of both technical and financial resources. The Bank's greater concern regarding employment levels in member countries and the repercussions which international loans have in this connection coincides with the fundamental views of our countries. Following the realistic and constructive line adopted in this statement of ours, we should like to mention two matters which we consider of vital importance on account of their incidence on the developing countries in their relationship with the Bank. The first relates to those countries which, in their efforts to raise their productive potential as quickly as they can and to improve the living standards of their people, have to introduce reforms or pro­ found changes in their economic systems. Such reforms entail a reorganization of their productive and financial structures, carried out in the exercise of their national sovereignty. In the countries which have decided to apply such measures, there is a justified fear that the multilateral financial assistance organizations will base their assessments of them on political rather than technical grounds. The other case is that of the application of certain criteria which tie the granting of credits to the implementation of certain domestic policies in the recipient countries. Regarding this point, we consider it necessary to point out that, despite the positive and highly appreciated attitude of the President of the Bank, certain practices governing the granting of loans are still followed. It is undeniable that the projects in which the Bank participates form part of the countries' development policy, so that when moves are made to modify the criteria which the recipient countries have established in the matter, this amounts de facto to requiring that they modify their development strategy and policy. At the Twenty-Fourth Annual Meetings of the Bank and Fund, held in Washington in 1969, we took note of the Pearson Report which, despite ignoring the problem of dependence, views inter­ national cooperation as an excellent medium which promotes the development of the poorer countries. The recommendations of the Report, which today, in the context of the world events we are expe­ riencing, recovers its validity, have not been taken into account by the developed countries. The recommendations of the Report have to be brought into line with present-day realities and all the measures which will permit the

141 developing countries to form their own productive bases through the maximum utilization of their domestic resources, either at the national level or at that of economic integration groupings, must be adopted. International policy concerning development must be modified in order not to widen yet further the gulf between rich and poor coun­ tries. In this connection we would draw particular attention to the following very real contradiction: generally, the achievement of a certain degree of stability is set as a prerequisite for external assis­ tance. However, for this to be achieved a form of international co­ operation is needed which does not impose excessively onerous conditions on underdeveloped countries in regard to their exports or the importation of capital. Obviously, for this to be brought about the factors of frustration and tension vis-a-vis the developed countries have to be eliminated. To this end, it will also be necessary to strengthen the multilateral institutions so that they may be able to fulfill their functions in the present development process. This statement includes viewpoints submitted individually by different delegations of the countries I represent, who deemed it es­ sential to speak constructively in order to achieve, in this new epoch, solutions which would be favorable and beneficial to the developing nations, and to convert the Bank into what we all desire it to be, namely, a valuable organization dedicated to providing real support to the development of our peoples; a development which, sustained by the decisions which the individual countries take, has as its su­ preme goal the well-being of man.

PHILIPPINES: GREGORIO S. LICAROS Governor of the Fund This year's Meeting takes place at a time when the international monetary system faces its gravest challenge since Bretton Woods. Even as our Executive Directors were trying to evolve a more flex­ ible management of exchange parities and less rigid adjustment mechanisms to ensure smoother changes in parities, momentous events supervened, and indications are that these exercises, while useful in themselves, will not suffice. The whole Bretton Woods sys­ tem is now up for review. We are forced to this conclusion not so much by the nature of the steps recently taken, but by the ease with which unilateral decisions, affecting not only the major trading countries but developing na­ tions as welL without regard to the latters' problems, were made ...... In connection with the peculiar problems of developing coun­ tries, allow me to discuss two important points:

142 Firstly, developing countries should be permitted to impose quan­ titative restrictions, as an alternative to tariffs, for the protection of their domestic industries and their balance of payments. Standard orthodoxy at present is that the whole burden of protection must be assumed by the tariff system. It is conceivable, however, that cer­ tain developing countries, which find it administratively difficult to put up an effective tariff system, may find it more feasible to set up quantitative payments restrictions, and vice versa. The choice should be left up to them. Another problem of developing countries is not only that their average per capita income is low, but that this very average dis­ guises a wide disparity in income distribution. While fundamental but slow-moving changes are being undertaken to correct this dis­ parity, it is very possible that governments may wish to restrict certain types of imports for social reasons, in order to avoid the exacerbation of social tensions. The mere setting up of high tariff walls would still allow the rich to purchase luxuries and nonessen­ tials, tantamount to rubbing salt in the wounds of impoverished masses. Where tariffs cannot do the job, quantitative restrictions should be resorted to without incurring international sanctions. The present system frowns upon use of quantitative restrictions as being barriers to trade. For developing countries, however, they may be highways leading, in the long run, to higher levels of eco­ nomic activity. And with a higher degree of development, the vol­ ume and value of international trade expand. The old order has collapsed. In constructing a new one we must work with heart and mind. The ideas I have presented to you are but part of our modest contribution to the great task of international monetary reconstruction.

SENEGAL: BABACAR BA Governor of the Fund This year I have the honor to be among you not only as the spokes­ man for the Republic of Senegal but also as President of the Central Bank shared by our six member States of the West African Monetary Union: Dahomey, Ivory Coast, Mauritania, Niger, Togo, and Upper Volta. It is in the name of all these that I thank the Government and people of the United States for the welcome they have given to our Meeting, and express our satisfaction at the way in which Mr. Pierre­ Paul Schweitzer and Mr. Robert McNamara have conducted the business of our great international financial institutions. Never, however, has the task of these two men been so difficult,

143 At this time we see them as captains courageous at the helm of ships disabled by the insubordination of some of their officers and the menace of panic on the part of the rest of the crew. Such a situation is, to be quite accurate, inadmissible. There is no excuse and no expectation to justify postponing any longer, even for only a few weeks, measures to enable our institu­ tions to begin running smoothly again. This applies particularly to the Fund, the usefulness of whose action is partly dependent on the speed with which it is implemented. The International Development Association must receive without further delay the indispensable resources to continue its activities­ which are equally indispensable to us. We hope that the conditions fixed for the entry into effect of the resolution on the replenishment of the Association's resources can, after all, be satisfied. The reper­ cussions of the present monetary crisis on the value of the present resources of the World Bank and its affiliates, and on their ways and means of future action, must be evaluated and the appropriate compensatory measures must be determined. So much for the immediate future. Looking only a little further ahead, any disposition of the great industrial powers to get caught up in the endless toils of protec­ tionist measures should be modified or restrained. The developing countries from which we come know only too well that they would be the first to suffer from such measures. It is far too simplistic an analysis to gauge the impact of the measures provoked by the present monetary crisis by examining the direct effect of these measures on some isolated flow of trade or aid. The truth is that it is the slowdown in the growth and trade of all the developed countries as a whole which, we fear, will have the most far-reaching adverse effects for ourselves. The indispensable condition for the autonomous development of our countries is the development of their exports, and it is the most difficult to fulfill. We were pleased that it was stressed by Mr. McNamara in his highly meaningful opening address, but we should even more appreciate seeing his conclusions taken into consideration by our partners, the industrial countries. The firmest basis for our own economies still consists in the ex­ port of a very small number of commodities and raw materials. the rates for which are determined on international markets. The harm that any instability in these prices can do, not only to the annual income of our peoples but also to prospects and plans for our eco­ nomic development, has frequently been stressed in this Meeting. But, so far, only very modest remedies have been proffered. It would be advisable, at least, not to add the last straw in the form of a permanent uncertainty regarding the value of the leading currencies in international trade.

144

---_._--- We are, therefore, even more concerned about a rapid return to exchange rates contained within the narrowest possible limits around approved parities. A new outbreak of trade protectionism would certainly be re­ flected in the procedures for granting the financial aid still vital to our development. Even if the amount of such aid were not affected, it would be focused even more rigidly than at present on supplies of goods more often advantageous to the donor than to the beneficiary. What we expect from the World Bank is that it will strive by all the means at its disposal to counter this tendency. It seems to us that the most effective course would be for the Bank to participate more extensively in financing the local costs of completing the projects to which it contributes. The considerable difficulties experienced by the International De­ velopment Association in attracting new resources induce us to ask that consideration again be given to the proposals that Mr. Horowitz has often outlined to our Meeting, whereby the Association could borrow, on the terms of the market, funds providing a guarantee and an equalization of the interest rates for the loans contracted by developing countries. These last few days in this forum, we have frequently heard it prophesied that disorder deliberately provoked will lead to a new and better order. All revolutions have attempted to justify themselves in this manner-few have succeeded. When the Bretton Woods system was instituted 25 years ago by the very same people who are trying to disrupt it today, most of the countries represented here had no voice in the affairs of the world. If since that time they have acquired such a voice, it is surely not in order to allow a few financial metropolises to determine at their discretion an order satisfactory to themselves that the rest of the world will have to put up With. The irresistible movement all over the world, which has doubled the number of members at this assembly and other international gatherings in the last six years, is not to be ignored, much less dis­ dained, with impunity. We intend to be associates in the definition of the new interna­ tional monetary order. Such an association, it seems to us, can best take place within the framework of the International Monetary Fund. This is not in any way to admit that the present crisis hinges only on an adjustment, however ingenious, of monetary techniques. As was demonstrated to this Meeting in such timely fashion last Tues­ day, the monetary crisis is only one manifestation of the economic, social, and political crisis that is smouldering throughout the world. The solutions that we have to seek and implement must be on this same world-wide scale. The definition of the reserve instruments

145 should provide for their being protected from fluctuations in the economic and political situation of any single country whatever. The deliberate creation of reserve instruments must take place in such a way as to contribute not only to the execution of commer­ cial transactions in the best conditions, and their continued develop­ ment, but also in such a way as to encourage the leading industrial countries truly to fulfill the commitments they have made to con­ tribute and maintain at 1 per cent of their gross national product the flow of their financial contribution to the development of the less advanced countries ....

SIERRA LEONE: C. A. KAMARA-TAYLOR Governor of the Bank This is the first time that I have had the privilege of addressing this gathering of Governors of the Fund and Bank and this gives me very great pleasure. I would first like to take this opportunity of expressing on behalf of my Delegation our appreciation to the Government and people of the United States for the warmth and friendliness with which they have welcomed us to Washington for another meeting of these two great institutions ...... We believe that although SDRs do not as yet constitute the most important component of international reserve assets, their acti­ vation marks the beginning of our achievement of this goal. The system envisaged should be conceived in such a way as to facilitate the transfer of additional development financing to developing coun­ tries in line with the goals of the International Development Strategy for the Second United Nations Development Decade. The reform of the international monetary system should provide an opportunity for meeting this objective through the establishment of a link be­ tween the creation of new liquidity and additional development financing as an essential component of the international monetary mechanism. I shall return later to this all important question in another context ...... However, the SDR scheme has not been an unqualified suc­ cess for all member countries. Of the over US$6,000 million allo­ cated so far, only a mere quarter of this went to the developing countries. As a matter of fact the Economic Commission for Africa has recently pointed out that deterioration in the terms of trade of less than 1 per cent would wipe out the increase in the reserves of African countries arising from SDRs. However, my Government hopes that the promise made by the President of the World Bank to investigate ways of using SDRs to speed up development in the poorer nations would soon materialize.

146 Perhaps in this respect the developed countries can channel addi­ tional aid to the developing countries through the International Development Association to the extent of their SDR allocation. This matter, in my opinion, deserves consideration. The question of aid to the developing countries cannot be raised without referring to that very remarkable report, "Partners in De­ velopment," commonly referred to as the Pearson Report. This Report, which has been described as "one of the most important documents of the 20th century," seemed to have summarized the problems of development aid quite eloquently when it stated that "the only constraint on our ability to transform the world is faint­ ness of heart or narrowness of vision." On the question of aid generally, much has been said at these meetings in previous years. Quite often the justification of aid has been questioned and comparisons made between trade and aid. Development aid must not only take the form of capital, which is an essential ingredient, but must also be supplemented by technical assistance in the form of professional experts, highly skilled per­ sonnel, and training facilities. Highly skilled personnel and technical experts are immediately required in the developing countries to facili­ tate their development efforts, while education and training facilities are essential in order to ensure a continuing flow of local counter­ parts to technical assistance as well as the development of local manpower resources. Let me now turn to an issue I raised earlier. This is the interrela­ tionship which exists between aid and trade. Time and again, devel­ oping countries have lost substantial amounts of potential foreign exchange earnings through sharp decreases in the world prices of their exports, which are predominantly primary commodities. These losses quite often are far greater than the amount of aid received during the corresponding periods. While aid is certainly a necessary addition to the foreign exchange earning capacities of developing countries, it can never be a substitute for shortfalls in foreign ex­ change earnings caused by market limitations. Similarly, a decline in the rate of growth in foreign trade would naturally increase the dependence of developing countries on foreign aid. A persistence of this trend would sooner or later render aid meaningless, owing to accumulating debt servicing burdens, a phe­ nomenon which is already evident in a number of developing coun­ tries. For this reason alone, proper trade policies must form the basis of sound international cooperation in the current Development Decade. The more enlightened the trade policies adopted the more rational it becomes to provide supplementary resource transfers to developing countries in the form of aid. The existing international monetary system was evolved, and has functioned mainly, in response to the trading needs of developed

147 countries. A new international monetary system, therefore, must be geared to a more dynamic concept of world trade based on a new international division of labor between developed and developing countries. Accordingly, the objectives of any future reform of the international monetary system should be adapted to the needs of the international community as a whole. The new system must create conditions appropriate for a continuing expansion of world trade, taking into account especially the needs of developing coun­ tries, in line with the objectives and commitments of the International Development Strategy for the Second United Nations Development Decade. It has been suggested that in the current Development Decade aid and foreign investment should be treated as complementary rather than as alternatives. Aid programs should be adopted to suit the mixed economies that are evolving in most of the developing countries. It is hoped that unlike the first Development Decade the second turns out to be a period in which developing countries achieve real development in the broadest sense of the word ....

SOMALIA: IBRAHIM MEGAG SAMATER Governor of the Bank I should like to associate myself with those Governors who have expressed their appreciation of the warm welcome which we always receive from the United States when our Meetings are held in Washington ...... Developing countries like Somalia can be severely injured by the major crises which occur more or less every year in the inter­ national monetary system and we, therefore, have a particular in­ terest in solutions to prevent such occurrences. We are well aware of the possible repercussions on our individual economies. The free­ dom of movement of the average developing country is much more limited than in the industrial nations when these crises occur. Usu­ ally there are no local financial markets which can help absorb the strain, financial expertise is lacking, and communications with the major foreign exchange markets are difficult. Uncertainty as to what export earnings will be or what imports will cost is a much more important matter to a developing nation than to a more advanced country. And losses in the value of our hard-earned foreign exchange reserves impose still further hardships. In Somalia we have watched with interest the various proposals to reform the international monetary system. The crisis in which we still remain shows that the efforts made in the past have not been good enough. Reform and change are obviously necessary and with reasonable haste. It is our view that the present system can be made

148 to work and indeed must be. A world of floating exchange rates would be very hard indeed on the developing countries. I will not comment at length on the solutions being discussed. There is little doubt that certain major currencies are undervalued in relation to the keystone currency in the system-the United States dollar. A strong case can undoubtedly be made for the revaluation of these currencies, but this can inflict hardship on the developing countries by increasing the cost to them of their imports of manu­ factured goods and their loan repayments. I would urge that any formula which may be worked out for restoring equilibrium to the international monetary system should take full account of the needs of the developing countries. At the same time we expect the United States to make efforts to strengthen the international value of the dollar. Turning to other matters, we welcome the successful inauguration of the special drawing rights scheme. SDRs have proved themselves a valuable reserve asset and a useful addition to international liquid­ ity. We will support any proposal for a second scheme to start in 1973, with SDRs being linked to development aid in such a way that the developing countries receive a large share of the total allo­ cation. More than that. we believe that SDRs should be used as a reserve currency. The present crisis has made it evident that the dollar can no longer serve as an international reserve. Attempts to revalue other currencies in terms of the dollar do not touch the core of the problem. Any realignment of currencies is but a temporary measure. Steps must, therefore, be taken soon to utilize SDRs as an international reserve asset. Since the last Fund-Bank meeting, the Somali economy has con­ tinued to expand. Prices have remained stable, unlike the situation in most other countries. Our foreign exchange reserves have shown remarkable growth; they doubled in 1970 and are still rising. For the first time since 1964 we no longer require a stand-by arrange­ ment with the Fund. Our banking system has been drastically re­ vised and is now in a position to make a worthwhile contribution to the 1971-73 Development Plan. Somalia has limited economic resources but we are doing our best to develop by increased efforts at home and by the wise and efficient use of aid from our friends abroad. A crisis in the inter­ national monetary system hinders our efforts to develop and we therefore support changes which will make the present system func­ tion properly. I make no apology for returning to the subject of the allocation of the profits of the International Bank. In the past we have voted on this matter during the course of the Annual Meeting. This year we were asked to vote by post before the Annual Meeting. I know that there were good reasons for altering the procedure in this way,

149 but it meant that the Governors of the African countries had no opportunity for discussing the draft resolution among themselves as they had in previous years. The effect of the resolution was to add a further $100 million to the Supplementary Reserve against Losses on Loans and Guarantees and from Currency Devaluations. This Reserve was already standing at the enormous total of $1,152 mil­ lion. This is in addition to the amount of nearly $300 million in the Special Reserve established under Article IV of the Bank's Articles of Agreement. I am fully aware of the need for the Bank to pursue sound banking policies in view of its reliance on the world's financial markets for the money that it needs for its current operations; and it can be argued that as the Bank's operations are expanding the Supplemental Reserve should be increased pro rata. I would like to suggest, how­ ever, that the matter be looked at from another angle. Is it con­ ceivable that reserves of the present magnitude will be called on to any substantial extent in the foreseeable future? The Supplemental Reserve is designed to cover losses on loans and guarantees and from currency devaluation. How many member countries have ever defaulted on a Bank loan? How much is the Bank likely to lose in the next few years from devaluations against the dollar? I wish to urge strongly that this matter be re-examined very carefully by the Executive Directors, with a view to providing that in future all profits of the Bank should be placed at the disposal of IDA in the form of grants, until such time as there is clear evidence that the Bank's reserves need augmenting. I should also like to express Somalia's appreciation of the tech­ nical assistance which we have received from both the Fund and the Bank during the past year. I hope that the Economic Development Institute will develop its program for offering courses in Africa in conjunction with local institutions, and I would like to suggest that the Fund Institute should also examine the possibility of setting up regional courses. Valuable as are the courses in Washington, I have no doubt that the training is even more beneficial if it can be pro­ vided within the African continent, where it is easier to provide practical examples within the African context and field trips can be arranged to projects that are directly relevant to the problems in participants' own countries. There is one administrative matter to which I should like to refer briefly. We are asked by the Bank from time to time to vote by post on certain resolutions. The time allowed for recording these votes is often very limited, and I would like to suggest that rather more allowance be made for the fact that even air mail correspondence takes some time to travel between Washington and other parts of the world. I have also noticed that when the time limit for recording votes is extended we sometimes receive circular notices to this effect

150 long after our vote has been recorded and can be assumed to have arrived in Washington. Perhaps it might be possible to devise some system whereby such notices are sent out only to those member countries that have not already recorded their votes. The Governors representing the African countries very much ap­ preciate the care with which the joint memorandum that they present each year is examined by the President of the Bank and his staff. It would be extremely valuable if it were possible to reply to the individual points raised by the African Governors in their statements at the same time as the answer to the joint memorandum is circulated to them.

SOUTH AFRICA: NICOLAAS DIEDERICHS Governor of the Bank and Fund During the past few weeks the attention of the world has been focused upon the currency problems of the major countries and upon the differing standpoints of these countries regarding the ap­ propriate solutions to their problems. It is sometimes forgotten that the smaller countries, which had no hand in the events leading up to the present crisis, are also severely affected by the measures taken by the major countries and by the continuing uncertainty which be­ sets the future of international finance. The problems confronting the smaller countries are, for them, relatively just as acute as those which face the major countries, though the problems sometimes differ in kind. Such countries, and particularly the developing coun­ tries and those which happen to be in balance of payments deficit, may be affected, not only by restrictions on their exports, but also by the possibility of further appreciations of major currencies. The prospect of such further appreciations may lead to leads and lags in foreign payments and to other speculative capital movements, thus further aggravating their balance of payments deficits. If pro­ longed uncertainty should lead to a relapse into general restriction­ ism, the prospects for the smaller countries-many of which rely heavily upon the export of demand-sensitive raw materials-would be bleak indeed. I realize that the great decisions on future inter­ national monetary arrangements must, realistically, be taken by the major financial powers, but I believe that the smaller countries have the right and the duty to ask that their interests be considered and that the present harmful uncertainties be removed as soon as possible ....

SPAIN: ALBERTO MONREAL LUQUE Governor of the Bank On behalf of the Minister of Commerce of Spain, who is at the

151 Meeting, and on my own behalf, I wish to congratulate the Execu­ tive Board of the Monetary Fund and the World Bank for their An­ nual Reports. I also wish to congratulate President McNamara and Managing Director Schweitzer for their speeches at the opening ses­ sion and for the work carried out by their respective institutions ...... Alongside monetary and commercial problems there also exist development problems, which are dealt with by the group of institutions headed by the World Bank. We must indeed congratulate ourselves for having set a new record this fiscal year for transfers of resources to the developing world. This reflects the Bank's efforts in this field over the last few years, which we hope will continue in the future. It wiII also be necessary to protect the developing coun­ tries from any negative repercussions of the present monetary problems ....

SUDAN: MOHAMED ABDEL HALIM Governor of the Bank Mr. Chairman, it gives me special pleasure, sir, to congratulate you on your assumption of your high post as Chairman of the Board of Governors of the Bank and IDA for this session, and assure you of the support and cooperation of my delegation. This session assumes a special importance in view of the crises now facing the monetary system of the world. Although efforts by all concerned to reach a satisfactory solution are commendable, one cannot help but register a note of apprehension before this august assembly, if the present impasse is allowed to continue unresolved. The developing countries were given cause for optimism when the World Bank Group, under the able leadership of its President, Mr. McNamara, set about doubling its lending in the five-year period 1969-73 as compared with the period 1964-68, thus in the period 1964-68 the IBRD family lent a total of US$5,809 milIion, while Mr. McNamara's target implies a total lending of US$11 ,618 mil­ lion in 1969-73. There were indications that the Bank Group was well on its way to realize this target; this indication is confirmed by what has been achieved in the first three years of the present period: "total lending in the first three years has reached US$6,781 million, amounting to 58 per cent achievement of the plan target." Therefore it looks as if the Bank Group is on its way to meet the target. Another point that may perhaps confirm this positive indi­ cation is the increasing interest being shown in Bank Group activities by more countries than those countries which traditionally took such an interest. The issues of Bank obligations which were sold during the fiscal year 1971 aggregated US$1 ,368 million as compared with US$735 million in 1970 and US$1 ,224 million in the previous peak

152

------_.. _ .... marketing year of 1969. It is certainly encouraging to note that nine bond issues have been floated in important industrial countries like Japan and the Federal Republic of Germany, a trend which we hope will continue. It is also of interest to note that some of the develop­ ing countries, following the example of Libya, are likewise showing an interest in the Bank's borrowing activities, which only proves the point that the world community as a whole is moving toward a more positive note in coordinating their efforts toward a global at­ tack on the problems posed by poverty and underdevelopment. We earnestly hope that more countries, both developing and de­ veloped, will take a cue from the positive attitude shown by industrial countries such as Japan and the Federal Republic of Germany, and developing countries such as Libya. We do, however, find it impera­ tive to point out that this impressive progress may be impeded by the delay in making the Third Replenishment of IDA effective on the date set for it, which was originally June 30, 1971, and which was extended to September 30 of the same year. 1 Should the delay extend beyond the latter date, the operations of IDA, at least on the scale hoped for, will be very much reduced, and this will certainly be to the detriment of the efforts undertaken by the developing countries to combat the problems of rapidly growing world popula­ tion, of unemployment and underemployment and of the decreasing share of the developing countries, as lucidly put to this august as­ sembly by Mr. McNamara in his opening address. While the present situation continues, both the Bank Group and some member countries have resorted to measures designed to al­ leviate the acute situation which may otherwise develop: (a) The Board of Governors of the Bank approved a transfer of US$100 million of the Bank's net income for fiscal year 1970 as a grant to IDA. My Government's response to this proposal was prompt and positive. I am sure other governments have taken similar actions. We do hope that this policy will continue to be implemented in future years and that an increasing percentage of this net income will be transferred as a grant to IDA. (b) Many Part I countries have given formal notification that they will make available advances of their pledges to IDA to enable it to continue making advances at the rate that the target figure requires. These actions are certainly steps in the right direction, but they will not be a substitute for the depositing of the formal notifications at the effective date for the final replenishment of the resources of IDA. The developing countries, especially those at a lower stage of development, have in the past encountered a number of problems caused by their inability to evolve promptly complex integrated lSubsequentl}' extended to December 31,1971.

153 projects, and consequently problems caused by the Bank Group's own procedures. This, in tum, tended to create lengthening intervals between commitments and disbursement of funds. This difficulty will continue until these countries are more capable of submitting well-prepared requests for loans in time for the required financing. Consequently, a resort to retroactive financing was developed to overcome this problem. We hope that this mechanism will continue to be increasingly applied to avoid any delays caused by the time­ consuming procedure of the Bank. Before concluding my remarks on the Bank Group's activities, I find it essential to emphasize my Government's serious concern over the delay which has so far impeded the working out of a de­ tailed discretionary scheme for supplementary financial measures in eight primary producing countries which are faced with declining world market prices for their products. This question has been ex­ haustively debated in the meetings of UNCTAD; its importance and urgency has been recognized by all concerned, especially in the developing countries. It is hoped that the Board of the Bank will take a similar view and will proceed forthwith to take the necessary action ....

SWEDEN: GUNNAR STRANG Governor of the Bank Speaking on behalf of the five Nordic countries-Denmark, Fin­ land, Iceland, Norway, and Sweden-I would like to preface my remarks with a reference to the recent events in the monetary field which illustrate to what extent all our countries depend on a stable expansion in world trade and payments. The consequences of the present situation could, however, be particularly serious for the developing countries. Balance of payments problems have tradi­ tionally tended to affect the flow of development assistance, despite international agreement that assistance programs should not be used as instruments in the short-term adjustment process. It is, there­ fore, all the more important that the industrialized countries improve their policies in order to avoid such fluctuations in the aid programs. One of the major social problems in the developing countries to­ day is unemployment. In his introductory statement, Mr. McNamara pointed out that 20-25 per cent of the labor force in developing countries is at present unemployed. Structural unemployment is a loss of productive human capital in a process where all resources should be mobilized. In addition to personal hardship, unemployment furthermore ac­ centuates the unequal distribution of income. Efforts to reduce unemployment will thus both promote economic development and al-

154 · . --- _. ------

leviate social injustices. I would like to concur with Mr. McNamara's statement that a more equitable income distribution is absolutely imperative if the development process is to proceed in any meaning­ ful manner. This is also in line with the Development Strategy, which stresses the need for qualitative and structural changes that con­ tribute to development in all spheres of economic and social life. The Strategy, as such, does not, however, solve the problem of unemployment. Developing countries for their part will have to harness all their policies, be they economic, social, or structural, to come to grips with it. Technologies will have to be sought that can usefully employ larger numbers of workers. Small-scale industry with greater development effects in rural areas should be encour­ aged. A new, integrated approach to rural and urban development may frequently motivate a redistribution of land holdings. Further­ more, the special attention that the Bank plans to give to the pop­ ulation issue should be welcomed and encouraged. Grave as the unemployment problem already is, it will be drastically aggravated in the years to come if the population continues to increase at the present rate. This underlines the need for rapid and efficient mea­ sures in the population field. The industrialized countries on their part must, both through unilateral actions such as improvements in their bilateral assistance cooperation and through the international development organiza­ tions, seek to assist the efforts of developing countries. They must accept increased imports from those countries, in the first place, by speeding up the implementation of the preferential scheme intro­ duced last year and by helping them to draw the full benefits out of it. Through its size, the experience gained, and its efficiency, the World Bank Group is the most important international body for channeling financial flows to developing countries. From this follows an obligation to pay special attention to the social problems in de­ velopment. The very soft terms which accompany credits from the International Development Association makes IDA particularly well-suited to support projects which confer social benefits, and planning toward this end should in our view be stepped up. The International Development Association should furthermore strive to modify its methods and analysis so that its activities in the future will be even more in line with the emphasis placed by the Strategy on social adjustment and structural reform. I am thus gratified to note Mr. McNamara's statement that the World Bank intends to move further toward a broader concept of the development process. An even greater emphasis on credits to rural development, education, and family planning is to be encour­ aged. Equally important is, however, that the Bank Group in all its activities pay particular attention to the creation of employment and the distribution of income.

155 The Bank staff has presented us with an interesting study on the debt problem of developing countries. One obvious conclusion that can be drawn is that the average terms of development assistance should be softened and that the volume of grants and credits on soft terms should be expanded. Since the main objective of official development assistance is to promote economic and social devel­ opment, the financial terms should correspond to the economic situ­ ation of the recipient countries. It has now been widely accepted that the tying of aid tends to lead to higher prices of goods supplied under development credits. Pro­ curement restrictions will, in such circumstances, be comparable with higher interest and shorter repayment schedules. Negotiations on an international agreement on untying have taken place in the OECD during the last year. Unfortunately, the present outlook for an early agreement is not encouraging. Failure to reach agreement would, however, constitute a major setback in the implementation of the Development Strategy. An international agreement on effec­ tive untying would not only confer benefits to the developing coun­ tries, but generaIIy would contribute to a more efficient international division of labor. In a situation where the debt burden is rising rapidly, increased and sustained activity by IDA is particularly important. IDA is again confronted with a situation where an agreement on replenishment has not become effective on schedule due to delay, in some countries, in the ratification procedure. Even if the most immediate problems can be temporarily solved through advance contributions by some countries, it is of the greatest importance that the activities of IDA can be placed on a solid basis as rapidly as possible. If the activities of IDA were to be retarded or arrested, the flow of assistance to developing countries would be affected in a period when the need is greater than ever. In concluding, I would like to announce that, subject to the neces­ sary Parliamentary approval, four Nordic countries-Denmark, Finland, Norway, and Sweden-wiIl make their first annual IDA contribution available irrespective of any possible further delay in the effectiveness of the agreement. I am also in the fortunate posi­ tion to state that Iceland expects shortly to become a Part I member of the International Development Association.

TANZANIA: A. H. JAMAL Governor of the Fund Mr. Chairman, as one belonging to a developing country, let me say how much I appreciate your statement on the opening day of these Meetings, which clearly indicated that, in the exigencies of

156 present circumstances, the major industrialized countries were re­ minding themselves of the appalling poverty that prevails in most parts of the world-the entire world. It does not appear that many people are in an excessively polite frame of mind. The word is going round that the current Joint Meet­ ings of the IMF and Bank are not expected to resolve the current international monetary situation, pressing as the need is for its reso­ lution. It is being said that the world is facing a great danger of sliding backward if no immediate settlement is reached. And, at the same time, it is being suggested that the prospects of coming to a settlement are remote. The question that arises is, well, what is one supposed to be able to do here at all? Not that the developing countries have had many illusions left in them. But still, there has been usefulness in these Meetings up to a point, and I do hope that, of all times, this week there will be readiness to pay slightly more heed to the voices of the developing countries. The first point that needs to be made is that this is a truly inter­ national monetary and economic crisis. It is no use calling it just a dollar crisis or even a currency crisis. It is an international economic crisis, though immediately precipitated by the actions and inactions of some major industrialized countries. The loss to Tanzania from devaluation of our reserve assets, re­ valuation of our external debts and deterioration of our terms of trade integrally related to repeated currency crises over the five years 1967-1971 will approximate US$100 million, that is, over 8 per cent of our annual gross domestic product. Surely this is an ample demonstration of how heavily the present international mone­ tary system weighs upon our struggle for self-development. It can hardly be a surprise that we press forward, once again, our de­ mands for a fundamental reform of the international system which operates both inequitably and inefficiently. While the crisis persists, the difficulties of the poor become even more aggravated. It is a classical scenario, that of the rich beginning to feel poor, with all the usual consequences for an orderly devel­ opment process in the world. In such a situation, it was most heart­ ening to listen to Mr. McNamara's perceptive and penetrating words concerning the character and scope of the challenge of development needs of this world of ours, this earth spaceship in which we are orbiting round the sun together. I am sure there will be wholehearted support for the Bank Group's enunciation of a new dimension of entering into commitments so as to bring hope and fulfillment to the rural societies of the world and to encourage the efforts of those committed not just to economic growth but also to equitable social and economic development. Mr. McNamara's observation that developing countries would

157 have to have an export growth rate of over 7 per cent in order to maintain their development momentum deserves particular atten­ tion. This can only be achieved if not only is there a combination of exports of primary products and manufactured goods, but also at least three prerequisites are met. One, the prices of primary prod­ ucts should remain constant in terms of the prevailing price index of machines, equipment, transport and freight costs and intermediate goods; two, there should be steadily increasing effective demand for these goods, that is to say, markets should be available on that basis; and three, the very high cost of their manufacture, largely determined by the cost of machines, technology and freights, is set off against low interest rates for their economic projects and by the removal of all interest rates in respect of transfer to them of re­ sources to combat malnutrition, unemployment and disease, and to promote education and rural development. What this means is that the Bank must abandon its insistence on lending hard, simply because it borrows hard, without taking into account the state of the economy of the borrowing country. It is just no use establishing the economic viability of a project, be it trans­ port or power development. The crucial fact is that the borrower is the whole economy itself, because the repayment has to be made through enhanced export performance. It also means that IDA funds need to be augmented considerably and, for this, the world com­ munity must now devise an automatic transfer mechanism. And while this is being pursued, all commitments made toward the launching of the Second Development Decade need to be honored faithfully. I sincerely hope that the major industrialized countries will face this challenge with determination and with a sense of purpose, even as they are engaged in finding immediate solutions to the monetary crisis ...... I believe the time has now come for reserve currencies to be phased out, preferably by funding via the IMF with the ex-reserve currency countries paying interest to the IMF and the IMF, in turn, paying interest to central banks, turning in dollars, francs, and pounds for a special series of IMF transferable, interest-bearing securities. Internationally, as nationally, any reserve unit should meet four tests. It should be virtually costless to create and manage. It should be subject to planned allocation in amounts to meet the needs of sound economic management. It should impose similar obligations on all users. It should be readily acceptable. Only an IMF unit serv­ ing as the standard against which national currencies are valued and issued on a planned basis adjustable to meet real changes in world economic conditions can meet these tests. It is fortunate that our foresight in creating the SDRs-even if in

158

.... ------~------"---- .. --.-"'. too limited a role-gives us a good deal of insight into how such a unit could be operated. First, gold could be surrendered to the IMF for such units; second, reserve currency holdings could be funded for a special series of units which-unlike others-would automat­ ically bear interest; third, existing SDRs could be converted; fourth, new units could be created at an annual basic rate to parallel the underlying growth of world liquidity needs, but with an annual or biannual review mechanism to allow higher or lower rates. Some regulations on reconstruction of position and on interest charges when holdings fell below (and payments when they rose above) a level fixed in relation to total units received would be needed. It would be necessary to devise at least two separate interest rates for relatively low holdings and for those which must be considered un­ necessarily high, the latter bearing a lower interest rate, in respect of amounts held beyond the acceptable level. It should be stated here that there is a unique opportunity of serving the genuine needs of combating world poverty, parallel with the establishment of a sane monetary order in the world. I refer here to the need to consider either issuing a portion of the units to IDA, UNDP, and regional development banks or tying a certain propor­ tion of the allocations to national soft finance for such institutions. Further-and this proposal is not uniquely of concern to low-income economies but affects all of us-the allocation procedure should be weighted to increase the allocations of countries suffering from terms of trade deterioration at the expense of those benefiting from their improvement, an arrangement which appears to me an equitable quid pro quo. This is the decisive direction in which the rich and the poor should move together. While the process will take some time, the realign­ ment of the major currencies in terms of the SDR needs to be car­ ried out immediately. At present the world is running a very big risk. But the biggest of all risks is the frustrations that are likely to be built up in the developing world, with their adverse terms of trade, now threatened to be aggravated by contraction in exports, and compounded by the enhancement of debt burden due to appre­ ciation of various currencies, and serious impediments in the flow of development capital and resources. It has been a sad enough sight, finding desperate, dispossessed individuals or groups taking re­ course to desperate actions such as kidnapping and hijacking. What a tremendous risk for the world if states turn desperate, simply because the world would not take a few sane steps at a time and above all, a most rewarding single step which can be the most deci­ sive turning point in international human relations. When all the major powers finally agree to take this step, let them take those steps together with the poor, and not alone by themselves. For in such an event, it would be just unacceptable.

159 Finally, all the progressive forces in the world are looking for­ ward to the entry of the People's Republic of China as the only authority representing the Chinese people. I would like to express a sincere hope that, in such an event and in those circumstances, it will be possible to see the People's Republic of China becoming a full member of the IMP and the Bank. If we want to have one world instead of two, or three or even more, we must all prepare to work together, and to make joint endeavors for a better world than we have so far managed to create.

THAILAND: SERM VINICCHA YAKUL Governor of the Bank I am most encouraged by what many of my fellow governors from industrialized countries have said regarding what should be done to restore order in the international monetary system. The sense of urgency is clear. The more disorder is prolonged, the heavier would be the damage to nations, big and small. I would therefore like to join in this appeal for early action to re-establish once again some basic order in the international monetary system. Problems of the less developed countries are already innumer­ able. Population explosion, high rates of unemployment, unstable export earnings, and huge debt burdens are the major ones among them. I am glad that in this respect the World Bank Group has done much to aid developing nations to overcome them. I particularly welcome the Bank's expanded activity in agriculture, education and facilities to overcome urbanization problems. We have gained con­ siderable experience in the development of power, irrigation and telecommunications. It is in these new sectors that we shall have to develop more experience as we go along as to how best the devel­ oping nations can be aided to secure better living conditions for their people. Education is basic to all. It is through education that people will be able to enjoy more fully the opportunities and resources which the world can offer them. In securing resources for development, countries sometimes run into external debt problems. The debt-service ratio in itself is not the only means of measuring the creditworthiness of a country, but it is a good warning signal. To improve a country's debt position, I agree, efforts must first be made by the country itself to earn enough foreign exchange to pay for its daily needs and to service its debt. Producing the right types of commodities at competitive costs is essential in this respect. However, sometimes countries may produce what is suitable to their resource endowment but find that they can­ not get access to markets. It is clear that what the developed nations can do most to aid the

160

------less developed to help themselves is to open their markets to them. Under present-day conditions, it is not only manufactured products that are up against trade barriers, but primary products, too. In the past few years, it has become evident that the flow of offi­ cial aid and capital to the less developed countries has not been as large as might be expected. In countries where private suppliers' credits have taken a larger share of total debt, their debt-service ratio has worsened. Although this may be an indication of how traders view their creditworthiness, the trend cannot be allowed to con­ tinue. It is essential that they improve their debt structure, by seek­ ing more official long-term capital. Consultative groups organized by the Bank can perform a very useful role in this respect. The fact that the Third IDA Replenishment has not yet become effective is indeed a matter of deep concern for us all. We in Thai­ land feel that we have discharged our responsibility in this respect, not only in the matter of capital increase and replenishment, but also in our support of the Two-Year Bonds. We feel that the Bank Group needs all the financial support it can get in order to do what is intended to be done for the developing world. In conclusion, I would like to say that in this period of stress and strain, there is still a ray of hope. At least there is full realization that there is much to be done. Order must be restored so that there will be a flow of resources among nations. We all want peace and progress for the world.

TRINIDAD AND TOBAGO: GEORGE M. CHAMBERS Governor of the Bank and Fund ... The Managing Director of the International Monetary Fund and the President of the World Bank have given us very clear expositions of the problems which we face in the monetary and de­ velopment fields and clear guidelines to follow as we seek produc­ tive solutions. We are very grateful to them ...... I do not underestimate the gravity and the potential dangers inherent in the problem which faces us in the monetary field at the present time. But it would be wrong if the international community allowed itself to be deflected from the really fundamental problem which it has been facing for some time and to which it gave renewed recognition by its adoption of the United Nations strategy of devel­ opment for the Second Development Decade. The real problem is how to overcome the poverty, the bad living conditions, and the high rates of chronic unemployment and under­ employment in the developing world. The percentage growth rates of output in these countries cannot be allowed to blind us to the fact that the gap in living standards between the developed and the

161 developing countries is widening; a 10 per cent increase in a per capita income of $100 is $10; a 5 per cent increase in a per capita income of $4,000 is $200. The fact is that the poor nations of the world are not being assisted to emerge from their poverty at a rate fast enough to allow clear consciences in the rich countries. The transfer of resources from the rich countries to the poor countries is both inadequate and expensive and these poor countries are being obstructed more and more in their efforts to sell their goods in the markets of the rich countries under competitive conditions. Mr. McNamara's clear exposition of the problem and probable solutions cannot be ignored if we value world peace and stability ...... We are pleased to see that the Fund has continued its studies on the practical problems to be faced in establishing a link between special drawing rights and development finance on concessional terms. I look forward to receiving concrete resolutions relating to the establishment of the link at our next Board Meeting in 1972. We welcome the new initiatives of the Bank in expanding its loan commitments to the developing countries. We note with gratifica­ tion that not only has the amount of money committed been sub­ stantially increased but also the sectors benefiting from Bank loans have been widened. This enlargement of the scope and content of Bank support for the development efforts of the developing coun­ tries reveals a recognition of the socioeconomic. cultural, and polit­ ical issues that comprise the development problem faced by the emerging countries; it reveals also a recognition of the fact that economic and social development in the developing countries re­ quires the unlocking of the creative energies of the population, the removal of obstacles to progress, and the full involvement of the whole population in the production of income as well as in the enjoy­ ment of such income. The President of the Bank ably and clearly identified these issues in his address to us yesterday; we therefore look forward confidently to the Bank's beginning to reappraise its operational policies and redesign the complex of parameters which it is now using to determine the form and content of its loans. To this end, we expect that the present insistence on international bidding in civil works of moderate size, the inadequate domestic preference margin, the limited scope given to program loans, the tendency to enjoin the use of expensive expatriate consultants who are not always effective, the lack of an operational distinction be­ tween large and small developing countries and the limited local cost financing which the Bank provides will undergo revision; these constraints minimize the effectiveness of the Bank's support and slow down the progress which the Bank is trying to generate in the developing countries. Trinidad and Tobago congratulate those countries which have taken steps to assist IDA to continue its operations on an interim

162 basis; we urge other Part I countries to meet their pledges as early as possible. We must repeat, however, that we are not satisfied with the criteria used by the Bank to determine eligibility for IDA credits. The concepts now used in such determination have been demon­ strated to be inadequate by studies undertaken by the Bank itself. The erosion of the cohesive fabric of a small developing society that arises from the existence of urban blight and serious structural un­ employment, particularly among the educated young people, is, in our view, an important matter which must be given full weight in determining whether a country's development problem should be given international support on maximum concessional terms. We fully accept the requirement of the international community that we in the developing countries should exert our best efforts to mobilize all available resources for development; that we should employ adequate fiscal measures to bring about an equitable distri­ bution of income; and that generally we should adopt policies which will assist in the solution of the unemployment problem and in pro­ viding a means whereby all our citizens can become involved in and contribute toward the development of their society. Trinidad and Tobago are doing this. We therefore cannot accept the fact that the Bank should seek to penalize us when we are making the maximum effort in this regard. We request the Bank to examine the criteria in depth. The 1971 Meeting of the Boards of Governors will make a sig­ nificant contribution to the future welfare of the people of the world if it takes a balanced approach to the problems that confront us and allocates both rights and obligations in accordance with defensible and objective criteria. The presentations of the Managing Director of the Fund and the President of the Bank to this Meeting give us hope that we will be able to achieve substantial progress in the months ahead.

TUNISIA: MANSOUR MOALLA Governor of the Bank The Tunisian Delegation, represented by Mr. Ali Zouaoui, Gov­ ernor of the International Monetary Fund for Tunisia, and myself, wishes first of all to thank the Government of the United States for its kind welcome and the facilities it has provided for the work of our Meeting. Our thanks and compliments are also due to the President of the World Bank and the Managing Director of the International Mone­ tary Fund for the excellent reports they have just submitted to us. h has been stated several times-and quite correctly-that this Meeting is the most important of all those which have been held so

163 far. The monetary crisis which has just shaken the world and which is calling in question the entire world monetary system constructed at Bretton Woods places us, today, at the starting point of a new order on which the economic future of our countries will to a large extent depend. The work of this Meeting will therefore have far-reaching effects; and alI the more so because the decade now opening is marked by a flagging in the economic growth of the developed countries coupled with a disturbing rate of population increase in the countries of the Third World, regarding which increase Mr. McNamara has just given us precise details. This points up the gravity of the problems before us and the urgency of arriving at solutions. At Bretton Woods only 44 countries were represented, certain of which are not among us now. Today, there are 118 countries taking part in this gathering. As soon as they have recovered their sover­ eignty, the developing countries have hastened to join the interna­ tional community and to apply strictly-sometimes to their own detriment-the rules established for international monetary matters. Today, we have a unique opportunity to revise the international monetary system. It would therefore be highly important that the developing countries should be able to have their say, not only in the search for a solution but also and especially in the taking of decisions. This will only be possible if the discussion of the fundamental prob­ lems takes place within existing institutions: the World Bank and the International Monetary Fund. These two institutions have already proven their worth in the international cooperation field and have been able to carry out the mission assigned to them. In so doing, they have acquired experience and a degree of technical capability which will enable them, we are convinced, to draw up and see to the application of a new interna­ tional order, taking into account the legitimate interests of all mem­ ber countries and especially the developing countries ...... In this connection, however, one should not lose sight of the need to revise-in the interests of fairness-the present rules govern­ ing the allocation of SDRs. To this end, it would appear necessary to reinsert in the agenda of the Fund Executive Board the question, that has been placed on one side for some little while, of the link between SDR allocations and development assistance. The establishment of this link should be an integral part of the envisaged reform of the international monetary system, since it is highly important that the financing of the growth of the developing countries should be one of the main motives in the future for the creation of international liquidities. Thus, the new international order will have the advantage of not being just a system for the creation of liquidities for financing the

164 growth of international trade, but also a system which will permit the development of the economies of the less well-endowed countries and contribute toward the goals set by the United Nations for the Second Development Decade and the solution of the problems raised by the President of the Bank. The dimensions of these latter problems are well known and have led to concurring comments on the part of the delegates who all recognize that even more extensive and bolder improvements are needed in development assistance. Development is a task which calls for the joint efforts of the advanced and developing countries. This task has a dual aspect-a qualitative and a quantitative one -since it is a fact that lasting economic growth cannot be achieved if it is built on social and economic structures which are contrary to the improvement of human well-being, which is the ultimate aim of all economic development. Viewed in this light, development is a more complex and arduous undertaking, but at the same time the results already obtained are more encouraging than if the quantitative aspect in the stricter sense of the term had been the only one considered. This does not mean that the latter may be ignored or neglected. On the contrary, we consider, in the specific case of Tunisia, that the commencement of the Second Development Decade coincides with greater possibilities for aiming at higher growth rates. And we say this precisely because of the efforts which have already been made to increase the suitability and capability of the country for develop­ ment and economic growth. As Mr. McNamara noted, and in view of the limitations of agricul­ ture for solving the unemployment problem, the developing countries have to promote manufacturing industries and the exporting of man­ ufactured goods, as industry in these countries has to pass beyond the initial substitution stage. This strategy, of which we approve and which we intend to apply in our own country, requires the support of the developed countries, at either the aid or the trade level. Regarding public aid, we do not believe that the only questions will be those of the volume of such assistance and the conditions governing it, although these will of course continue to be the main concerns, but we think that the procedures applied and the forms in which this assistance is furnished can greatly speed up the prepara­ tion of a developing country to adopt such a development strategy. The methods applied can in fact help to raise the competitive capa­ bility of developing countries' economies, since the present multiple and varied forms of liaison and subordination of assistance result in additional charges and surprises for these economies both during the investment and also in the subsequent production stage and perpetu-

165 ate compulsory trading patterns which are contrary to the rules of sound management. Review and amendment, where appropriate, of the manner in which assistance is provided is therefore important for the success of the development strategy analyzed in Mr. McNamara's report. Con­ sequently, our Delegation has no hesitation in recommending that the management of the Bank undertake all the studies and steps that will be of use in completing this review, which has made but halting progress since the Pearson Report, the scale of public aid still being reduced too much by purely nationalist considerations which are, of course, quite legitimate but which are likely to form serious obstacles to the rapid development of the Third World. Neither can this development strategy succeed unless the devel­ oped countries also agree to undertake on the trade level the neces­ sary changes as likewise described for the greater part in the Bank President's report. These changes and improvements are all the more necessary and urgent since, despite an international effort on the problem, it has not been found possible to arrive at an appropriate solution to the raw materials and commodities problem. Since raising or stabilizing the prices of these has proven a problem, we should really think in terms of processing them on the spot, which is in fact the only really valid solution. Another essential step is the reduction or elimination of obstacles to the marketing of processed and manu­ factured articles in developed countries. The latter should therefore accept an appropriate sharing of industrial production, leaving in particular the developing countries to process their raw materials and commodities and to set up the types of industries which will absorb the labor they have available ....

UGANDA: E. B. WAKHWEYA Governor of the Bank and Fund I should like to join the Chairman, the Hon. Karl Schiller, and fellow Governors in thanking the Government and people of the United States of America for the excellent arrangements made for the Annual Meetings here in Washington and for the warm hos­ pitality extended to us all. I should further like to thank the Executive Directors, the manage­ ments and staff of both the Fund and the Bank for yet another suc­ cessful year of operation, particularly when they have continued to operate under the most difficult circumstances. In spite of these diffi­ culties, the Fund and the Bank have demonstrated an impressive capacity to grapple with the financial and economic problems in member countries with considerable success and due consideration to the special problems peculiar to individual member countries. It is

166 my hope that these institutions, particularly the Fund, will emerge from the present difficulties stronger than ever before. This Meeting is significant because it is taking place at a time when the international payments system is under extreme strain. Uganda, like other developing countries, has every reason to urge the early solution of the current international monetary crisis because we feel that continuation of the present dislocation in the payments system is likely to be followed by a diminution of world trade and the restric­ tion of the flow of capital resources to developing countries, espe­ cially for supplementing the efforts of these countries in development. Furthermore, continued uncertainties in the foreign exchange mar­ kets are likely to adversely affect the proceeds realized from the sale of primary products from developing countries and to increase the price of imports into developing countries. All these at a time when these countries are experiencing considerable unemployment and underemployment requiring urgent solution. It is not often realized that the level of assistance to developing countries is very low in relation to the requirements for development assistance possible and necessary for maintaining a reasonable rate of growth. According to DAC estimates, the developing countries received, on the average, about US$8.10 per head of population in 1970 as against US$5.40 in 1960. However, due to continued deteriorating terms of trade to the detriment of most, if not all, developing countries, the apparent increase in the flow of assistance over the same period has had very little impact...... With regard to the Bank Group, it is encouraging to note that the volume of lending has increased from year to year. The Uganda Delegation cannot fail to appreciate the initiative and forward-look­ ing policies introduced by the President of the Bank, Mr. Robert McNamara. Although Uganda is grateful for the assistance so far received from the Bank Group, the problems of development still remain to be tackled. Although the Bank's lending has increased by 13 per cent over the last year, the share that has gone to African countries has not been as high. It is my hope that increasing invest­ ments will be made by the World Bank Group in African countries. We are grateful for the efforts made by the World Bank to increase the resources of IDA. We note with appreciation the proposal to transfer US$1 10 million from the net income of the Bank as a grant to IDA. Given the high quality of IDA assistance to developing countries, I should like to appeal to those countries that have not yet indicated their positions with regard to the Third Replenishment of IDA to do so. This is even more urgent as most developing countries largely depend on IDA credits to supplement local resources in the implementation of their development programs in view of the rising public debt burden experienced by these countries and the high cost of commercial credits.

167 Before I conclude, I should like to appeal to the World Bank to re-examine its policies on those matters which we have raised at these Meetings in the past and which we consider to be of paramount importance to many member countries, and if external assistance from the Bank is to be more effective. These are the financing of a larger proportion of local costs of projects financed with the Bank or IDA assistance; secondly, the need for financing of programs as opposed to the insistence, in all cases, on financing of specific projects. One point I would like to add concerns classification of projects in the categories of infrastructure and commerce. The development process involves a transformation of the economic and social struc­ ture of society. This transformation cannot take place without the assistance of the necessary infrastructure, including power, which is vital to the development process. I do not, therefore, understand why the Bank, in extending assistance for power development, views it differently from that extended for other infrastructure projects. Power projects cannot be justified in terms of commercial returns alone, and therefore, should be financed from IDA rather than Bank funds. I, therefore, consider it essential for the Bank to reconsider its lending criteria in this respect. Lastly, I should like to say a word on the activities of the Inter­ national Finance Corporation. Uganda and other countries in Africa continue to feel that there is need for the International Finance Corporation to be more active in the field of industrial development. Its modest performance in the past could, perhaps, be attributable to the limitations imposed by the Corporation's charter. We are happy to note, however, that the Corporation has decided to change its policies so that it can now invest in publicly owned industries. We welcome this flexibility and hope that this encouraging trend will continue. While we do not underrate the complexity of the world monetary crisis and its implications, the Third World demands specific atten­ tion and considerations by the developed member nations, in order to minimize, if not eliminate, adverse consequences which would re­ sult from any final short-term and long-term solutions that may be arrived at. We look forward to the maintenance of determined efforts by the Bank Group to further intensify their activities with a view to increas­ ing the flow of suitable technical and financial aid to African coun­ tries and, indeed, all developing countries. I must state at this historic Meeting that an early resolution of the payments dislocation problem and the tackling of the question of a long-term world monetary system that will work are, right now, of urgent and paramount importance to the well-being of the peoples of member countries.

168 UNITED KINGDOM: ANTHONY BARBER Governor of the Fund It is good to be meeting again so many colleagues and a pleasure too to greet the newcomers; in particular, the Governors for Bar­ bados and Fiji, new representatives from Commonwealth countries at these meetings. Whatever differences we Finance Ministers may have, to be to­ gether with one's fellow sufferers and far away from one's spending colleagues at home is a most agreeable experience which only we can share! I join in gratitude to the United States for extending to us yet again the hospitality of this city. The Developing World I would like to say something first about the affairs of the World Bank. I suppose that all of us at this Meeting-as we flew into Washington-were thinking of the great problems which have re­ cently come to a head in the international monetary system. These momentous events in the monetary scene loom large in all our minds, and of course they have a particular importance for the developing countries. So much has been done in the past to promote the pros­ perity of the developing world that it would be a tragedy to allow it now to be reversed by financial instability or trade restriction. Much still remains to be done. The fact that there are still millions of human beings existing in a state of degradation is an affront to our ideals and makes a mockery of our civilization. It was particularly disappointing when the Third Replenishment of resources of the International Development Association failed to become effective this summer. In the United Kingdom we were very concerned to ensure that this delay should not break the flow of IDA commitments. And so, early in June, we obtained Parliamentary approval, not only for our ratification of the Third Replenishment, but also for taking part in interim arrangements to enable us to pro­ vide up to one year's installment. We offered immediately an advance pledge of $50 million. This, together with other advance contribu­ tions, secured the IDA's commitments for the first few months of the new fiscal year. I am happy now to pledge to the Association in advance a further $53.68 million, representing the balance of our first year's contribu­ tion to the Third Replenishment, which we hope will soon be made fully effective. Since we met last year in Copenhagen, the British Government has announced an accelerating program for official overseas aid for the next few years. We have done this despite the fact that we have an-

169 nounced extensive reductions in many other forms of public expendi­ ture. But official aid alone is not enough. We all recognize the impor­ tance of the role of private investment. In the United Kingdom we have decided to introduce both an investment insurance scheme and a scheme for supporting preinvestment studies by the private sector. But it cannot be said too often that the prerequisite of private in­ vestment is a climate of confidence and stability in the recipient country, for there are plenty of opportunities for scarce capital elsewhere. I have come to Washington direct from chairing a two-day meet­ ing of Commonwealth Finance Ministers. There were more than 30 countries represented. As well as developed countries, the Common­ wealth contains almost half the people of the developing world rep­ resented here today. It is not going too far to say that they recognized that probably just as important to them as all the aid and all the investment is a stable and liberal system of trade and payments. And judging from the remarks yesterday by both Mr. Schweitzer and Mr. McNamara, neither of them will be surprised to know that these Commonwealth Finance Ministers were profoundly concerned about the problems now confronting the international trading and mone­ tary system. The effectiveness of that system depends in large part on the sta­ bility of the individual major economies.

U.K. Economic Situation In recent years in so many countries the canker of inflation has been eating away at the prospects of stability and improving pros­ perity. This was the prime theme of the speeches at Copenhagen last year. As organized labor found new power in the conditions of full employment, so the balance of collective bargaining was changed. And the existence of cost inflation has not only altered the whole relationship between prices and employment but has had profound consequences for the international system of trade and payments. The United Kingdom has been no exception. During the past year or two the pace of our inflation has been much too fast, and substan­ tially greater than that of most other industrial countries. Now the prospect looks more hopeful. This summer British industry-both private and public-itself volunteered a program for price restraint, and they did so because they considered it to be in their own interests. For reasons I shall explain later I have been able to match this with measures for faster expansion of demand and with substantial reduc­ tions in indirect taxation. This program provides a concrete assur­ ance for the unions, and there is now a reasonable chance of a progressive reduction in the level of pay settlements. Indeed it is on this that the success of our policy primarily depends.

170 So now we have the opportunity of reducing the pace of inflation to more acceptable proportions. But the faster inflation which we have already experienced in the United Kingdom is bound to have a delayed, adverse effect on the future course of our balance of pay­ ments. And, of course, this will be reinforced by the faster expansion of demand, and the need to take up slack in our economy, which will lead to a substantial increase in our imports. It will be essential to ensure that balance of payments difficulties do not once again frustrate our efforts to secure sustained growth with steadier prices. Our comparatively slow rate of economic growth since the war has been attributed to many different causes. But two of those causes have certainly been our labor relations and our peculiarly steep and complicated system of direct taxation. One of the main aims of the present administration has therefore been to create a new long-term basis for industrial relations. We have studied and applied the experience and legislation of many other countries, and our new and comprehensive Industrial Relations Act became law last month. In addition to the problem of inflation, we have been suffering from a rising level of unemployment. It was because of this, as well as because of the slow rate of economic expansion and the better outlook on the pay and prices front, that I came to the conclusion that it was both right and safe to introduce measures to expand de­ mand. This, coupled with reductions in public expenditure, has enabled us to make progress with our longer-term policy of reducing taxation. And we are now well advanced on a fundamental reform of taxation, covering personal direct taxation, indirect taxation, and corporate taxation. We have also replaced our previous quantitative restrictions on bank lending by a new system for controlling the supply of credit. This will combine greater freedom for financial enterprise with effec­ tive control of the total money supply. Since we last met in Copenhagen there has been one particular development of great consequence for the United Kingdom. We have substantially completed our negotiations with the European Eco­ nomic Community, and next month Parliament will take the decisive vote. I am sure that the decision will be that we should join. I should also report on another matter which is directly relevant to international financial stability-the Sterling Agreements. Most of these Agreements, first concluded in 1968, were due to expire this month, at the end of three years. I am glad to say that there has been virtual unanimity that they should be extended for a further two years ...... To the outside world our discussions here this week must often seem theoretical and esoteric. And yet there is a great responsibility upon us. For we know that our decisions vitally affect the employ-

171 ment and the well-being, the hardship or the prosperity, the happi­ ness or the misery, of millions of people throughout the world. If I were to say that our decisions are a matter of life and death it might seem to some of my colleagues from the developed countries of the Western world a mere cliche. To my colleagues from the Third World the life and the death are only too apparent. We must succeed.

UNITED STATES: JOHN B. CONNALLY Governor of the Bank and Fund After a remarkable quarter century of stability and development, nurtured by close collaboration within the International Monetary Fund and the World Bank, events have challenged the underlying premises and functioning of the system devised at Bretton Woods. Some of those basic premises are now invalid. Those at Bretton Woods planned for the transition from a war­ torn world to a world of reconstruction and peaceful prosperity. The founders could assume, without challenge, a world in which the United States, for a time, possessed the dominant economic and financial power. The challenging goal was to rebuild the strength of others, in a context of flourishing trade, freedom for payments, and rapid deVelopment. Now, our very success has produced new problems. Trade has grown enormously-but the patterns have not been in sustainable balance. International transactions have been substantially freed and investment accelerated-but we have not learned to maintain an equilibrium in underlying payments or in exchange markets. And after 25 years, international monetary stability can no longer depend so heavily on a single nation. The announcements by President Nixon on August 15 recognized these long-building realities. In doing so, his intention was to launch the United States into a new economic era-and to assure more balanced and sustainable economic relationships with the rest of the world. His actions accept, as a basic point of departure, the links already emphasized here by several Governors between effective domestic performance, a secure balance of payments, and interna­ tional financial stability. We are committed to curbing inflation and revitalizing the Ameri­ can economy-not just this year or next, but for the longer pull. We are committed to ending the persistent deficit in our external pay­ ments; indeed, at this point in time, the only choice can be the means to that end, not the end itself. Finally, in making the difficult decision to suspend the convertibility of the dollar into reserve assets, we are

172 committed to negotiating with our friends for a monetary order responsive to the needs and conditions of this generation. The United States has not been alone among the countries repre­ sented here in grappling with the problem of achieving vigorous growth and productivity while dealing with the destructive forces of domestic inflation. To cope with this situation, President Nixon moved boldly to apply a 90-day wage-price freeze to make a simple point as forcibly and directly as he could: cooperation in the elimination of inflation is a prime national priority. We are now deeply engaged in a broad effort, involving all ele­ ments in our economy, to develop an effective, forceful follow-on program to the freeze. In a matter of weeks, that program will be announced. At the same time, we will be implementing other parts of the President's domestic program to assure both near-term growth and lasting gains in effiCiency, productivity, and technology. In its entirety, this program is designed to fulfill our first obliga­ tion both to ourselves and to the international monetary system: a stable, prosperous domestic economy. Nevertheless, crucial as they are, I believe it is now fully under­ stood that domestic measures alone cannot deal with the present and prospective imbalance in the external payments of the United States. The specific monetary and trade measures which we introduced on August IS-including the imposition of a temporary import sur­ charge-will not in themselves solve the problem. They were, how­ ever, the necessary first steps to arrest an intolerable deterioration in the balance of payments position of the United States. The de­ terioration in our position has, of course, had its counterpart in improvement abroad-and only by working together can we find solutions conducive to expanding trade and monetary stability ...... While dealing with the monetary system as a whole, we shall, for our part, also proceed with the associated task of dismantling unfair barriers to trade and impediments, including our own, to the free flow of long-term capital. We will also need to deal with many questions bearing more spe­ cifically upon the economic well-being of developing countries. My Government particularly welcomes the discussion at this Meeting and elsewhere of the pressing problems posed by population trends in much of the world, the new emphasis on nutritional and environ­ mental concerns, and the more careful consideration of the implica­ tions of external debt burdens. We are impressed by the growing scope of the traditional activities of the World Bank and its affiliates under the able leadership of President McNamara. President Nixon has called for an increase in the emphasis that we, ourselves, give to multilateral institutions in our development assistance effort, and we plan to continue that process.

173 The high levels of lending by the World Bank Group are supported for the most part by Bank borrowing in the developed countries. Twenty-five years of activity has encouraged increased direct finan­ cial support by all developed countries, and I hope other nations will continue to open their capital markets to the Bank. As the level of activity expands, the Bank must take even more care with the efficiency and effectiveness of its operations and must question old premises. It is in this light that I welcome the evaluation efforts being undertaken by the Bank. It is important not only that we ensure that the Bank Group processes projects quickly and effi­ ciently but also that its funds have their planned impact-including assurance that these resources are reaching all the people of the developing countries. As the World Bank Group further develops its ambitious plans, I must also speak frankly of our own situation and intentions. I can do so explicitly with respect to the pending replenishment of the International Development Association, without which the plans for the years ahead will be gravely impaired. We firmly support that replenishment. In reducing our total of assistance by some 10 per cent over the current fiscal year, we mean to avoid any reduction in that major commitment. Within our con­ stitutional system, however, IDA replenishment requires, but has not yet received, Congressional approval. The fundamental sympathy and support of the Congress for IDA over the years has, I believe, been amply demonstrated. Nevertheless, Congress will have to be convinced, as never before, that: first, this development assistance efficiently serves to promote growth in the developing world; and, second, that our own situation will strengthen to the point where this and other burdens on our payments can be safely assumed. All these official efforts must be supplemented by flows of private capital. I am disturbed when I see instances of developing countries treating private investment in a manner not accepted by international law. In a world already short of capital to meet pressing demands, the adverse effects on the investment climate of such practices are bound, in a very tangible sense, to deny real benefits to the people. The damage in reducing the flow of capital can extend beyond the parties immediately involved to other potential investors or recipients of funds. It is in this context that the United States firmly supports the crea­ tion of the proposed International Investment Insurance Agency. The maintenance of a healthy climate for private investment in those countries which recognize the important role such investment can play has become a matter of concern for all such nations. The inter­ est in this proposal at last year's Meeting has not yet produced a result. I am hopeful that a new resolve and firmer commitment to

174 this idea by both developed and developing countries will produce agreement in the coming year. A logical complementary development would be more active reli­ ance on the Center for the Settlement of Investment Disputes. Of course, the policies of the World Bank itself, in situations when existing foreign investments are unfairly treated, will importantly affect the future climate for the flow of public development assistance as well as for foreign private investment. In conclusion, I would only reiterate we have a large agenda before us. We all know the present situation has both risk and opportunity. We should not fear the one nor fail the other. With the same vision that motivated those at Bretton Woods, we can build a better monetary and trading world. With wisdom, we can devise monetary arrangements that combine an essential stability with the capacity to adapt. With courage, we can move together to reduce restrictions on trade and payments, in recognition of our mutual dependence. With patience, we can work together, finding a balance of oppor­ tunity and responsibility for rich and poor alike that fits the impera­ tives of today's world. These qualities are present in the men who have come to Washing­ ton this week and in the governments they represent. You can be sure the United States will join you in the vanguard of the effort. In this sure knowledge, I look ahead with confidence.

YUGOSLAVIA: JANKO SMOLE Governor of the Bank At the outset I would like to join those who spoke before me and to express my gratitude for the comprehensive address made by our Chairman, Mr. Pierre-Paul Schweitzer, and Mr. Robert McNamara. I state with pleasure that we see the continuation of a tradition: these addresses are both an excellent analysis of the activity of our organi­ zations and, at the same time, a help to us in our own discussion on the past and future activities of our international organizations. It is a pleasure for me to be able to state that the Fund and the Bank and its affiliates achieved a satisfactory measure of success in the past fiscal year, and I hope that in the present fiscal year this suc­ cess will be repeated and, if possible, even be surpassed. My country considers their activity to be a matter of the greatest importance. I am glad that the membership of our organizations is increasing from one year to the other and am happy to welcome those countries that have joined our organizations since the last Annual Meetings ...... All measures aiming at restriction of international trade, or those that cause uncertainty in international payments, affect to the

175 utmost the developing countries, which are least to be blamed for the present state of the international monetary system. Effects of these measures are much more serious because export receipts are the main source of funds for debt service by the developing countries. The problem of debt repayment is, as is well known, the acute prob­ lem of developing countries. Measures which adversely affect exports make the debt service obligation even more difficult; instead adequate measures for the alleviation of that problem should be sought. I would now like to address a few words on questions which are especially familiar to me as they affect the economy of my country. We have embarked upon the task of building up the economic sys­ tem, pursuing a policy that aims to release all useful initiatives in our economy, to diminish the role of the state, to strengthen the influence of the market, and to increase the autonomy and the role of enter­ prises in decisionmaking. Lately this has been combined with im­ portant constitutional changes, self-management, and the further implementation of the principles of equality among nationalities within Yugoslavia; the strengthening of the autonomy of self-man­ aging enterprises and the further transfer of responsibility from the Federal Government to the Republics and autonomous provinces has resulted. Our economy is an open economy and, as such, it is exposed to foreign developments. Consequently, it is especially sensitive to any disturbances in the world economic and monetary system. This effect is so much greater due to our dynamic economic development which has made it more vulnerable, particularly as we have reached a stage of mobilizing our own resources to a high degree, in order to be able to solve basic infrastructure problems in the building up of our econ­ omy before embarking on a calmer phase of development. The strug­ gle against inflation and for the stabilization of internal economic relations is one of the primary tasks of my country. Various measures recently undertaken by my Government in the credit, monetary, fiscal, and foreign exchange fields point to the fact that serious stabili­ zation efforts are being made, but the full effect of such measures could be expected to materialize only if the economic stabilization measures of other countries, and especially of industrially developed countries, are implemented. I would now like to express my country's special interest-and I hope I shall not be contradicted if I say that this interest is shared by other developing countries too-for the recommendations proposed by the Pearson Commission. These recommendations should not only be the subject of greater interest but methods should be explored in order to implement them. Considering the fact that two years have already passed since the Pearson Commission Report was made available to the public, and also considering the fact that up to now little has been done to implement the most important recommenda-

176 tions, we think that the role of the W orId Bank and its affiliates could be of importance in achieving this implementation in a broader con­ text and not only in their regular daily activities. The Bank-namely its Executive Directors dealing with those recommendations of the Pearson Report that touch upon the Bank's activity and that have been expertly elaborated by the Bank's staff have almost, without exception, adopted a positive attitude, and the Bank has already implemented some of these recommendations: reorientation of the International Finance Corporation policy attributing greater impor­ tance to the development implications of its investments; organizing new groups and reactivating others which should help institute a link between external aid and the performance of these countries' eco­ nomic objectives; preparation of studies on debt-servicing prob­ lems, etc. However, the high repute and general influence of the Bank and its affiliates are such that they could and should be used to help con­ tribute to the implementation even of those Pearson Commission recommendations which are not specifically addressed to the Bank Group. I refer to those recommendations that are basic categories, such as setting ambitious targets, and their implementation, as re­ gards the flow of aid into the developing countries; measuring the performance of both donor and recipient nations, although such a division is made less distinct by the fact that all should be, as the Pearson Commission rightly terms them, "partners in development." We would like, therefore, to see the Bank Group's influence also used in the realization of these recommendations. In that a useful cooperation could, perhaps, be maintained with the regional de­ velopment banks. Furthermore, developing countries, and some industrially devel­ oped countries too, favor the establishment of a link between special drawing rights from the Fund and development financing. My coun­ try expects a speedy completion of the studies that are now being prepared by the Fund on the subject, so that a discussion could be initiated as soon as possible with a view toward implementing this idea, which could be one of the instruments for increasing the speed of development of the developing countries. I wish to express my satisfaction with the activity of the Bank Group during the preceding fiscal year, both with the volume of loans extended and especially with the volume of loans and credits dis­ bursed. The doubling of lending by 1973, a policy which was set forth by the President of the Bank, is becoming something that we may be increasingly confident to hope for. The Bank's successful policy in mobilizing funds for development should be coupled-but this is a matter for other multilateral and official bilateral sources too-with better composition of external development funds: a greater proportion of funds from official

177 sources on concessional terms, untying of funds from strictly limited sources of procurement, and other items should effectively con­ tribute to the increase of the real net flow of external funds for development purposes. I would also like to express my satisfaction with the Bank's policy of financing local, and not only foreign exchange, costs of develop­ ment projects. I support this policy because local cost financing generally deals with infrastructure projects, which are capable­ especially so when the projects are located in the least developed regions of the member countries-of stimulating structural changes in important sectors of the economy. As regards the Bank's program financing, I welcome the decision of the Executive Directors. Such financing is capable of meeting an important requirement of well-organized aid, namely, the require­ ment of continuity in the influx of funds for development. Neither of these policies run counter either to the basic ends set forth in the Articles of Agreement or to the Bank's policy of serving the cause of development. I do not wish to finish my statement, which had to be a short one, before making a favorable comment on the cooperation between my country and the Bank Group, which has been traditionally good. This cooperation has been manifold, not only in the field of lend­ ing which recently has been extended to include the financing of the tourist industry. I refer to the setting up of a seminar to improve the skill of our experts in appraising projects in various sectors of econ­ omy. This idea, which is about to be implemented, will make use of the great experience accumulated by the Bank staff over many years. I would like to mention just one more thing: namely, the first case of direct investment in a Yugoslav enterprise by the International Finance Corporation. I hope that this venture will result in a mu­ tually beneficial experience which could be used, both by us and by the Corporation, in our relations with third parties, which are becom­ ing increasingly numerous. As mentioned before, my country holds the work of our interna­ tional organizations in the highest esteem. Their success is to a considerable degree to be attributed to the high professional skill of its staff. In emphasizing that the cooperation between my country and these organizations in the past fiscal year was a constructive one, I believe that this cooperation will continue as such in the future as well.

YEMEN ARAB REPUBLIC: MOHAMED ALATTAR Governor of the Bank Let me begin by joining my fellow Governors in extending our

178 thanks to the people and Government of the United States for the courtesies and hospitality they are affording us. I would like also to take this opportunity and welcome to our family of nations gathered here the new members joining the Fund and Bank for the first time; the Yemen Arab Republic joined this family of nations only in 1970 and we can assure the new members that we have benefited a great deal from this experience. The Annual Meetings of the Fund and the Bank are naturally the forum where major economic and financial issues affecting the fate of nations and international trade are raised and discussed. This year's Meeting in particular is historic because the crisis in the international monetary system has assumed such proportions that it is threatening the very basis of the monetary discipline that has been regulating international trade and transactions since 1945. Member states of this community of nations have been living from crisis to crisis, but we note with dismay that all these crises have been directly or indirectly caused by the richer and highly industrialized coun­ tries, leaving us, the poor and weaker partners. to suffer all the consequences of such crises. We are sorry to say that each of these strong and rich nations is trying to solve its problems of inflation and balance of payments difficulties in the manner that will best safeguard its national interests and the welfare of its people. making concessions and compromises only to the extent that its fundamental interests are not affected. We can understand, appreciate and sym­ pathize with that, but we only wish to see these countries give the interests of the poorer and weaker partners more attention and a greater portion of their consideration. For one thing, these crises constantly divert the world's attention from the plight of the devel­ oping countries while, on another plane and from a different angle. the outcome more often leaves the developing countries worse off. A case in point is the impact of all these crises and the current one in particular on the flow of foreign aid and assistance to the develop­ ing countries. The records of our Annual Meetings will reveal how the developing countries have. over the years. been pressing the vital importance of the increase in foreign assistance that the more advanced countries should provide to help the developing countries achieve reasonable rates of economic growth. What we see now is that the richest country in the world is cutting back its aid instead of increasing it. What would happen if some other rich countries follow suit in trying to correct and solve their balance of payments problems? In addition, if all the fluctuations and changes in the ex­ change rates of the richer nations leave us the poorer, we pay more for our imports. get less for our exports, and the standard of living and the welfare of our people is gradually eroded. We do not say all this from a theoretical or academic point of view. As I said earlier. the Y.A.R. has only recently joined this

179 community of nations, but we are expecting a great deal from these two great institutions and from the world community at large. It is not our intention here to describe conditions in the Y.A.R. in any detail or to list the innumerable problems, difficulties and various constraints that our country is suffering from. Suffice it to say that the Y.A.R. is a country newly born to the modern world and has practically very little on which a modern state can hope to build for the welfare and advancement of its people. To categorize it as "un­ derdeveloped" or "developing" is to do it injustice, since it compares with almost none of the other underdeveloped or developing coun­ tries in the uniqueness of its conditions. Our dilemma and predica­ ment is that while we as a Government are expected-like all other Governments in the Third World-to face up to and resolve the challenge of the Revolution of Rising Expectations, our freedom of action is severely limited by the fact that the country suffers from an economy distorted by civil war. Yet our people are ambitious and are willing to pay any price and make any sacrifice to catch up with the modern world. Our country is potentially rich in natural re­ sources and there are unlimited opportunities for their exploitation. We therefore need every assistance that we can get from the com­ munity of nations as a whole and from the World Bank and the Fund. We would like to take this opportunity to thank all those organizations and countries that have generously given assistance to the Y.A.R. either through multilateral or bilateral channels. How­ ever, this assistance flowing into the Y.A.R. satisfies only part of our needs, and we think we have a right to ask and expect additional assistance from all friendly countries and institutions. We hope that we have succeeded in conveying the message we wanted to convey. Our contribution in this Meeting would be to join those voices that urge the richer countries to take into account the effects of the economic and fiscal measures they take to safe­ guard their national interests, on the plight of the poorer and devel­ oping nations. We want to look to the future and to international cooperation and understanding with confidence and optimism, and it is our trust that the deliberations of these Annual Meetings will playa constructive role toward those ends. Allow me now to address myself briefly to some of the specific issues that have been raised in the Annual Reports and the other documents prepared for this Meeting. We would like to take this opportunity to express our appreciation to the Executive Directors, President of the Bank, Managing Director of the Fund and the staff of the Bank and the Fund for the work they have done and the efforts they are relentlessly making. Though we understand the motivation behind the U.S. economic measures, yet the floating of the dollar has undermined the very essence of the Bretton Woods system which has proved an effective monetary mechanism in the

180 stabilization of the international monetary system. The most puz­ zling aspect of the present monetary crisis, it seems to me, is the fact that no one knows for sure where the whole system is going to end up. Human nature always looks to the unknown with mixed feelings of anxiety and hope ....

ZAMBIA: J. M. MWANAKATWE Governor of the Bank and Fund I wish to join my colleagues in welcoming Fiji and Barbados as new members. I am sure that the contribution that their representa­ tives will give will be a valuable one. Also, on behalf of Zambia, I should like to thank our hosts for the arrangements that they have made for this very large and impressive gathering and for the pleasant welcome which we have all received. At the outset I would wish to be pardoned if, in my address, I do not adhere entirely to the traditional analysis of monetary and re­ lated matters but instead dwell upon some of the fundamental issues which my country and, I believe, many other developing countries consider of particularly crucial significance in the present circum­ stances. The monetary crisis that faces the world community today, which has been so ably summed up in the address of the Co-Chairman and by my distinguished colleagues who have preceded me, is truly unique in many ways. I would, in fact, agree with those who feel that the happenings of 1971 may easily mark a watershed in the monetary history of the world-a watershed of as great a signifi­ cance as was marked by the Bretton Woods Conference of 1945- possibly even greater. The Bretton Woods Conference, as we all know, also took place in the aftermath of a major upheaval-though of much wider and horrific dimensions-yet containing also the same elements as the one we face now, namely, the urgency of the need for construction and development, strengthening and advancing the material and economic well-being and prosperity of a large mass of people. The visionaries--our distinguished predecessors-who conceived the need for a concerted international and mutually beneficial coopera­ tive effort and agreed to establish the two organizations-the Bank and the IMF-were farsighted men of goodwill and our thanks go to them even today when the principles they laid down have come to be challenged by factors which had not perhaps been imagined 25 years ago. Much has happened in these 25 years. The world has seen an unprecedented growth in some of its parts. We have witnessed mate-

181 rial prosperity of an unparalleled order and tremendous break­ throughs in science and technology. The world has seen men landed on the moon. Yet, the same 25 years have also witnessed a patheti­ cally slow rate of growth in the greater part of the world, the ever widening of the gulf between the extremes of poverty, hunger, and destitution, on the one hand, and overwhelming prosperity, on the other. Nevertheless, I hasten to emphasize that the two organizations of which we are proud to be a member-the IMF and the Bank-have valiantly struggled in these years to give help and succor to the developing world, but I maintain that, with the best of intentions, the magnitude of the assistance that they could provide has been modest and limited, especially when viewed both against the back­ ground of our needs and the potential resources which these organi­ zations could have received from the developed world. It is not an organization, but the members who form it who deter­ mine its policies. I hope that there are no two opinions about the fact that we the members of the developing countries of the IMF and Bank have conscientiously and dutifully conformed to the dis­ cipline enjoined upon us by these organizations. We feel justifiably proud of the record that in the 25 years' history of the World Bank, there has hardly been a default on the part of any developing country in meeting its obligations. The advice of the IMF in regard to the various aspects of its operations has been largely respected and adopted by us, and where, for some pressing reasons, marginal trans­ gressions have taken place, we have listened dutifully to the criticism which came from the organization. And yet it is painful to see that when these very disciplines enjoined by the IMF became burden­ some to the more fortunate members, these were ignored and re­ nounced until a stage has now come where the organizations have had to stand back and see its advice and exhortations fal! on unre­ sponsive ears. It is not my intention to underrate the problems that face the developed countries. These are truly of immense proportions. At the same time I cannot help stating that to a very great extent these problems have grown, not out of scarcity or want, but from abun­ dance and affluence. Whichever economic indicator you may care to look at from the developed countries as a whole, you would find that the absolute growths are staggering, and if the relative score has been more modest in the immediate past it was largely due, para­ doxically, to the very factor of superabundance. It is in this context that dejection and anguish compel us to see that the unrelenting efforts of the developing countries, along with those of the UN and UNCTAD, etc., have not been able to convince the developed coun­ tries to share this prosperity even to a modest degree with the less fortunate.

182

,------_...... ---. I felt disappointed once again, when going through the World Bank Report for 1971-a very ably produced document which is highly informative and useful-to find that the total flow of aid from developed to developing countries has again gone down in relative terms. Instead of the aid from the developed countries reaching the target of 1 per cent of their GNP, in 1970 it again went down below the previous year's level, and at 0.74 per cent it has not even once exceeded the level of 0.78 per cent reached in 1965, in the inter­ vening years. The latest cut in U.S. aid by 10 per cent creates further concern. It is equally disappointing to note that the progress made on buffer stock financing, or linking the SDRs with development assistance, or reducing the rates of interest by the World Bank to the develop­ ing countries, etc., has been painfully slow. However, the World Bank has played an extremely useful role in the past. Through the dynamic leadership of President McNamara, it has expanded its programs of lending in an impressive manner and enlarged the services it offers to the developing member coun­ tries. While appreciating that the Bank, of necessity, has to function on basically banking principles, I would wish that its mandate might be enlarged to soften its terms. The cooperation I envisage should place larger resources at the hands of the Bank to undertake more challenging and rewarding tasks. It is in this context that we supported the introduction of special drawing rights and are still confident of their overall advantages. Criticism has been made on the grounds that they have not been used, and that they are supporting inflation. I do not think that these comments can both be justified. The purpose of their introduction was to supplement world reserves, then at a low level, and to prevent any dislocation of trade. Perhaps the SDRs are not a perfect system of achieving all that had been expected, but we see it as a major advance, not only in respect of their purpose of covering the world against a shortage of liquidity, but also as a badly needed example of international monetary cooperation and readiness to accept, cautiously, a new idea. Nevertheless, we cannot but note that the greater proportion of special drawing rights accrue to the developed states-generally countries that are least likely to face a shortage of foreign exchange. For this reason we would very much favor the establishment of a link between special drawing rights and increased financial aid for development. For us in Zambia it is ironical that we should not be eligible for IDA resources, having regard to the present level of our poverty. Although developing countries have reached different de­ grees of development, the differences are merely relative and should not deflect the Bank from making IDA's credits available to as many

183 developing countries as possible in order to accelerate the pace of bridging the gap between the rich and poor nations. In conclusion, let us admit that this has been a very difficult year for the international organizations. We meet this year against the background of an increasingly urgent problem of monetary reform. Unless the financial reforms are basic and acceptable to the world at large, there is a danger that the IMF may be reduced in influence to our common disadvantage. The developing countries are naturally extremely concerned about the possibility of a departure from the Bretton Woods system, unless there is an organized and acceptable improvement in the international monetary system. Zambia is concerned at the tendency of major currencies to depart from fixed parities and at proposals for a general adoption of flexible exchange rates. I do not expect a lasting or permanent solution, but I hope that we may find, perhaps by adopting appropriate margins for major currencies, a means to re-establish the monetary system on an improved basis that may last for a good number of years. The problem confronting us needs an urgent solution. People, particu­ larly in the developing countries, would suffer considerable distress if the crisis resulted in a complete breakdown of the system that has served the world-on the whole, well-since the Second World War. It is now my pleasant duty to express my Government's apprecia­ tion both of the expanding role of the World Bank in assisting de­ veloping countries, and of the efforts of the Managing Director, Executive Directors, and staff of the Fund to overcome our grave financial problems and to restore stability to the international finan­ cial and trading situation.

184 CONCLUDING REMARKS BY MR. McNAMARA

On the monetary issue, which has been the subject of so much discussion this week, there is no need for me to comment beyond expressing my satisfaction over the widespread recognition that any realistic solution to the problem must take into account the critical needs of the developing countries. What has struck me most during these past five days is the clear consensus that the entire concept of development must be broad­ ened. It must be broadened beyond the simple goal of continuing the growth of gross national product. Such economic growth is a necessary condition of development. But it is not a sufficient one. What is the essential condition of development is that it should encompass the basic needs of the two billion people of the develop­ ing world: adequate nutrition, meaningful employment, a more equitable distribution of income, a decent chance to improve one's lot in life. That idea was underscored by you, Mr. Chairman, in the very first address of these sessions, when you said: "The standard of living in most developing countries still is alarm­ ingly low. The fight against hunger and protein deficiency is still far from being won. Life expectancy in developing countries con­ tinues to be low, infant mortality rate high. Unemployment and underemployment have increased. Distribution of incomes and property is widely unsatisfactory. The share of developing coun­ tries in world exports is declining." You concluded by saying: "It is not sufficient to concentrate our efforts on promoting eco­ nomic growth, defined in quantitative terms." The key conviction that development must transcend exclusive preoccupation with growth of output was repeated by many speakers from both developing and developed countries and it was given particular emphasis by the Chancellor of the Exchequer of the United Kingdom when he stated: "To the outside world our discussions here this week must often seem theoretical and esoteric. And yet there is a great responsi­ bility upon us. For we know that our decisions vitally affect the employment and the well-being, the hardship or the prosperity, the happiness or the misery, of millions of people throughout the world .... The fact that there are still millions of human beings existing in a state of degradation is an affront to our ideals and makes a mockery of our civilization." Throughout the week, statements of this caliber of statesmanship and realism have strengthened my own conviction that the World

185 Bank Group must move on even more decisively in the direction of the broader concepts of development which I outlined in my re­ marks on Monday: concepts which move beyond the growth of gross national product, and look to the satisfaction of the essential human needs of all groups in society. To accomplish this we clearly require an augmented capacity to provide financial support for effective development programs. In this connection, I am deeply gratified that a number of governments, led by Denmark and including Australia, Canada, Finland, the Federal Republic of Germany, Japan, Kuwait, The Netherlands, Norway, Sweden, the United Kingdom, and Yugoslavia have either made, or stated their intention to make, advance contributions to the International Development Association, even before the replen­ ishment agreement has become effective. But these advances are only a stopgap. The agreement of all donors to provide their share of IDA funds is needed, and needed soon. I therefore welcome the statement of the Governor from the United States that his Govern­ ment continues to firmly support the replenishment and will work to obtain its ratification. There is a discernible feeling among both Part I and Part II coun­ tries that, having again experienced delays in the replenishment of IDA, we should seek a more stable base for future replenishments. There are various ways in which this might be accomplished and all should be explored as we enter into a new system of monetary arrangements. As we move into a period of negotiations which all of us hope will open up a new era of monetary stability, we must keep before us the recurrent theme repeated throughout the week: that the solu­ tion of monetary difficulties among the highly industrialized nations must be such as to facilitate an expansion of trade of the developing countries and an increased and more certain flow of external re­ sources to them. To be mindful of these needs-and to be responsive to them-will not weaken new international monetary agreements. On the contrary, it will strengthen them and help assure their success. Thank you and goodbye until next year.

186

------,------CONCLUDING REMARKS BY THE CO-CHAIRMAN, KARL SCHILLER

As our proceedings draw to a close, I will venture a small predic­ tion: the 1971 Annual Meetings will be among the most memorable in the history of our organizations. As I remarked in my opening statement on Monday, these Meetings had been awaited with some apprehension, but also with keen expectation. Today I have no doubt that the expectation has been well fulfilled. The spirit of re­ form and reason which I urged at the outset has indeed been present. Governors have addressed themselves to the actual delicate situation with full understanding of the risks, as well as of the opportunities, which now present themselves. Governors have also shown wise understanding of each others' difficulties. As a result of this week's discussions, I am convinced that there is a will to come to a coopera­ tive solution. I may refer in this connection to the Resolution" we passed this morning. Our deliberations have not been confined to expressions of mutual goodwill. As the Managing Director of the Fund has just noted, an impressive degree of consensus has been shown on a number of important matters. These include the need to re-establish a satis­ factory pattern of exchange rates, the role to be played by the widen­ ing of margins, and the desirability of a major extension in the role of SDRs as a reserve medium internationally managed and con­ trolled. And there is also a widespread opinion that we need a new code of conduct in a world of greater flexibility. As has been widely recognized at this Meeting, the present dis­ turbances in world currency and trade relationships are of grave concern to less developed countries. Many Governors have empha­ sized the importance of a liberal and stable system of trade and payments to promote development. They have welcomed Mr. McNamara's emphasis on the need for developing countries to ex­ pand their exports of manufactured goods and raw materials, and the need for industrialized countries to reduce or eliminate obstacles to imports from the developing countries. It is gratifying to note that many of the donor countries have announced advance contributions to the Third IDA Replenishment and we look forward to the implementation of the IDA Replenish­ ment by all Part I countries. The World Bank Group's increasing emphasis on the social sectors has been most favorably received. We look forward to the World Bank Group playing a significant role in the economic and

'Published in the Fund'. Summary Proceedings.

187 social development of member countries during its Second Five­ Year Plan period. At the outset of our proceedings I suggested that our task was to demonstrate to the world that international cooperation will stand the most difficult test the world monetary system has undergone since the creation of the Bretton Woods institutions. As a result of our efforts this week we have passed at least the first stage of this test. The way may be difficult. But we have set the course. Our tasks in the weeks and months ahead will be no less demanding. We have to maintain the momentum of this cooperative advance so that we may complete the course in a way satisfactory to all. I wish each of you every success in this work. It remains for me, finally, on behalf of my Co-Chairman, Gov­ ernor Klasen and myself, and on behalf of all those who have con­ tributed to the success of this Meeting, to express our sincere thanks to the Government and people of the United States for once again ~xtending their hospitality to us. I declare the 1971 Meetings of the Board of Governors of the Bank and its affiliates and of the Fund adjourned.

188

------. -----_.. _------_. REMARKS BY ALI WARDHANA GOVERNOR OF THE BANK FOR INDONESIA Mr. Chairman, fellow Governors, for the exceptional honor which you have just bestowed on us by your decision to designate Indonesia to preside over the 1972 Annual Meetings of our great institutions, I would like, on behalf of my Government, to convey to you our feelings of deep appreciation and our most sincere thanks. I am very much aware that by selecting my country you are in fact honoring the whole developing world of which we are an integral part and in all whose trials and expectations we share. Your choice is, furthermore, testimony to the spirit of international co­ operation which necessarily embraces all nations, be they big or small, powerful or weak, developed or developing. Faced with the need and the challenge, as we are these days, to find a speedy and equitable solution for our monetary crisis, it becomes more apparent than ever that cooperation among all the members of the financial and monetary community is necessary and indispensable. My country has greatly benefited from international cooperation, not least through the International Monetary Fund and the World Bank Group. We owe a large debt to cooperative action with other countries in and outside international institutions. We therefore welcome the opportunity now given to us to serve, in our turn, the international community, although we realize that we may never be able to give back what we received. But while our capacity is limited, Mr. Chairman, I wish you and the Boards of Governors to know that there is no limit to our readi­ ness and dedication to fulfill the duty which you have assigned to us to the very best of our ability.

189 REMARKS BY J. H. MENSAH GOVERNOR OF THE BANK AND FUND FOR GHANA 1

Before I present the report and recommendations of the Joint Procedures Committee let me take this opportunity to thank our hosts, the Government of the United States and our institutions, for the hospitality which they have shown to me and my Delegation this past week. I am sure I also speak on behalf of the many Governors who can­ not do so personally when I extend our felicitations to you for bringing these Annual Meetings so smoothly through what could have been a tempestuous week. We are all grateful for the calm efficiency with which you have conducted our affairs. To Mr. McNamara, the President of the Bank Group, I extend our renewed appreciation for the imagination and vigor with which he is managing these institutions. My own country has much to be grateful for already to the Bank. It is our hope that the activities of IDA in particular will not be impeded by any cause whatsoever. We look forward to hearing from him at our next Annual Meeting reports of progress on some of the fundamental changes and im­ provements that he recognizes to be necessary if the work of the Bank Group is to be adequate to the requirements of the 1970s. In particular we look forward to more effective arrangements to cope with the problems that are posed by the present disorganized system of international trade in primary commodities and their derivatives. All of us have admired the courage and the clarity of vision with which Mr. Schweitzer has tried to lead the international community through these anxious times. Whatever may be our different views on particular aspects of the present crisis, I am sure that the good­ will of all Governors is with him as he pursues his search for a rational international monetary system to serve an expanding vol­ ume of world trade. For my part, I leave Washington only hoping that the drastic surgery that is now proposed to be carried out on the body of international trade will in the end prove to have been conducive to the health of the system. But I must confess that the prospect of a contracting international trade will continue to haunt me and, I am sure, many other Governors. I hope that twelve months from now the Board of Governors will be able to assemble here again feeling that, as a result of the work of our institutions in the period between now and then, the world has moved closer to realizing the aspirations of all her peoples.

'Statement on presenting the Reports 0/ the Joint Procedures Committee (see pages 194 and 195).

190 DOCUMENTS OF THE BOARDS OF GOVERNORS

SCHEDULE OF MEETINGS"

Monday September 27 10:00 a.m.-Opening Ceremonies Address from the Chair Annual Address by President, IBRD, IFC and IDA Annual Address by Managing Director, IMF

Tuesday September 28 9: 30 a.m.-Annual Discussion 3: 00 p.m.-Annual Discussion

Wednesday September 29 9: 30 a.m.-Annual Discussion

Thursday September 30 9: 30 a.m.-Annual Discussion 4: 30 p.m.-Joint Procedures Committee

Friday October 1 9:30 a.m.-Joint Procedures Committee Reports Comments by Heads of Organizations Adjournment

'Approved on April 7, 1971, pursuant to the By-Laws, IBRD Section 6(d), IFC Section 4(d) and IDA Section l(a). All sessions were joint sessions with the International Monetary Fund. NOTE: The International Centre for the Settlement of Investment Disputes held the Annual Meeting of its Administrative Council on Thursday, September 30, at 3:30 p.m.

191 PROVISIONS RELATING TO THE CONDUCT OF THE MEETINGS'

Admission 1. Sessions of the Boards of Governors of the Bank, the Fund, IFC and IDA will be joint and shall be open to accredited observers, the press, guests and staff. 2. Meetings of the Joint Procedures Committee shall be open only to Governors who are members of the Committee and their ad­ visers, Executive Directors, and such staff as may be necessary. Procedures and Records 3. The Chairmen of the Boards of Governors will establish the order of speaking at each session. Governors signifying a desire to speak will generally be recognized in the order in which they asked to speak. 4. With the consent of the Chairmen, a Governor may extend his statement in the record following advance submission of the text to the Secretaries. 5. The Secretaries will have verbatim transcripts prepared of the proceedings of the Boards of Governors and the Joint Procedures Committee. The transcripts of proceedings of the Joint Procedures Committee will be confidential and available only to the Chair­ men, the President of the Bank and Affiliates, the Managing Di­ rector of the Fund, and the Secretaries. 6. Reports of the Joint Procedures Committee shall be signed by the Committee Chairmen and the Reporting Member. Public Information 7. The Chairmen of the Boards of Governors, the President of the Bank and Affiliates, and the Managing Director of the Fund will communicate to the press such information concerning the pro­ ceedings of the Annual Meetings as they may deem suitable.

'Approved on April 7, 1971, pursuant to the By·Laws, lBRD Section 6(d), lFC Section 4(d) and IDA Section lea).

192 BANKAGENDAl

1. 1970/71 Annual Report 2. Financial Statements and Annual Audit 3. Administrative Budget 4. Officers and Procedures Committee for 1971/72

IFCAGENDAl

1. 1970/71 Annual Report 2. Financial Statements and Annual Audit 3. Administrative Budget

IDAAGENDAl

1. 1970/71 Annual Report 2. Financial Statements and Annual Audit 3. Administrative Budget

'Approved on August 12, 1971, pursuant to the By-Laws, IBRD Section 6(a). IFC Section 4(a) and IDA Section l(a).

193 REPORTS OF THE JOINT PROCEDURES COMMITTEE

Chairmen ...... Germany Vice Chairmen ...... Burma Colombia Reporting Member ...... Ghana

Other Members Burundi' Jamaica" Chile Japan People's Republic of the Congo' Morocco France Singapore2 Guatemala Syrian Arab Republic Iceland United Kingdom India United States Iran Yugoslavia

Report I September 30, 1971 At the meeting of the Joint Procedures Committee held on Sep­ tember 30, 1971, the items of business on the agendas of the Boards of Governors of the Bank, IDA and IFC were considered. A. The Committee submits the following report and recommenda­ tions on Bank and IDA business: 1. 1971 Annual Report The Committee noted that the 1971 Annual Report and the ac­ tivities of the Bank and IDA had been discussed at these Annual Meetings. 2. Financial Statements, Annual Audits and Administrative Budgets The Committee considered the Financial Statements, Auditors' Reports and Administrative Budgets contained in the 1971 Bank and IDA Annual Report, together with the Report dated August 10,1971. The Committee recommends that the Boards of Governors of the

Bank and IDA adopt the draft resolutions .... 3

'Not a member at IFC. 'Not a member of IDA. 3See pages 201 and 209.

194 3. Further Study of the Adjustment of Voting Power of IDA The Committee has noted the Report of the Executive Directors of IDA dated July 13, 1971, entitled Further Study of the Adjust­ ment of Voting Power .... 1

B. The Committee submits the following report and recommenda­ tions on IFC business: 1. 1971 Annual Report The Committee noted that the 1971 Annual Report and the ac­ tivities of IFC had been discussed at these Annual Meetings. 2. Financial Statements, Annual Audit and Administrative Budget The Committee considered the Financial Statements and the Auditors' Report contained in the 1971 Annual Report, and the Administrative Budget attached to the Report dated August 10, 1971. The Committee recommends that the Board of Governors of IFC adopt the draft resolution .... 2

Approved:

/s/ KARL SCHILLER /s/ J. H. MENSAH GERMANY-Chairman GHANA-Reporting Member

This report was approved and its recommendations were adopted by the Boards of Governors on October 1, 1971.

Report liP September 30,1971 The Joint Procedures Committee met on September 30, 1971, and submits the following Report:

1. Place and Date of 1972 and 1973 Annual Meetings The Committee noted that the 1972 Annual Meetings will be convened in Washington, D.C., and that the 1973 Annual Meetings will be convened in Nairobi, Kenya.

'See page 240. 'See page 201. 'Report 11 related to the business 0/ the Fund.

195 2. Officers and Joint Procedures Committee for 1971/1972 The Committee recommends that the Governors for Indonesia be Chairmen, and that the Governors for Austria and Nigeria be Vice Chairmen, of the Boards of Governors of the Bank and its Affiliates and of the Fund to hold office until the close of the next Annual Meetings. It is further recommended that a Joint Procedures Committee be established to be available, after the termination of these Meetings and until the close of the next Annual Meetings, for consultation at the discretion of the Chairmen, normally by correspondence and, if the occasion requires, by convening; and that this Committee shall consist of the Governors for the following members: Austria, Bo­ livia, Brazil, Canada, Central African Republic, Ethiopia, France, Germany, India, Indonesia, Iraq, Ireland, Japan, Lesotho, Nica­ ragua, Nigeria, Thailand, United Kingdom, United States, and People's Democratic Republic of Yemen. It is recommended that the Chairmen of the Joint Procedures Committee shall be the Governors for Indonesia and the Vice Chair­ men shall be the Governors for Austria and Nigeria and that the Governors for Nicaragua shall serve as Reporting Members. Approved: /s/ KARL SCHILLER /s/ J. H. MENSAH /S/ KARL KLASEN GHANA-Reporting Member GERMANY-Chairmen This report was approved and its recommendations were adopted by the Boards oj Governors on October 1, 1971.

RESOLUTIONS ADOPTED BY THE BOARD OF GOVERNORS OF THE BANK BETWEEN 1970 AND 1971 ANNUAL MEETINGS Resolution No. 264 Increase of $3,000 Million in Authorized Capital Stock WHEREAS the original capital stock of the Bank amounted to $10,000 million in terms of United States dollars of the weight and fineness in effect on July 1, 1944; WHEREAS the Board of Governors, by Resolutions Nos. 128, 131, 194 and 222 increased the authorized capital stock to $24,000 million; WHEREAS it is desirable further to increase the authorized capital

196 stock of the Bank by $3,000 million in order to provide for the ad­ mission of new members and for future increases in members' sub­ scriptions; WHEREAS the Board of Governors expects that in the circum­ stances members will not wish to avail themselves of their right to subscribe a proportionate share of such increase pursuant to Article II, Section 3 (c) of the Articles of Agreement of the Bank: Now THEREFORE the Board of Governors hereby resolves as follows: 1. The authorized capital stock of the Bank shall be increased by $3,000 million in terms of United States dollars of the weight and fineness in effect on July 1, 1944, divided into 30,000 shares having a par value of $100,000 each. 2. In absence of notice to the contrary from any member on or before January 22, 1970, such member will be deemed to have waived its right to subscribe its proportionate share of such increase. (Adopted December 31, 1970)

Resolution No. 265 Increase in Subscription by India under Article II, Section 3 (c) of the Articles of Agreement of the Bank WHEREAS on December 31, 1970, the Board of Governors of the Bank authorized by Resolution No. 264 an increase of $3,000 mil­ lion in the capital stock of the Bank; WHEREAS the Government of India has notified the Bank of India's intention to subscribe its proportionate share of such increase of stock pursuant to Article II, Section 3 (c) of the Articles ,of Agreement of the Bank and accordingly is entitled to subscribe 1,000 shares of stock of the Bank; WHEREAS it has therefore become necessary for the Bank to de­ termine the terms and conditions under which such subscription may be made; RESOLVED THAT: The terms and conditions under which India may subscribe the said shares of stock of the Bank shall be as follows: 1. India may subscribe from time to time prior to November 16, 1971 (or such later date as the Executive Directors may determine) up to 1,000 shares of stock of the Bank; 2. The subscription price per share shall be $100,000 in terms of United States dollars of the weight and fineness in effect on July 1,1944;

197 3. With respect to the subscription price of one-half of such shares, the 2% portion payable in gold or United States currency and the 18 % portion payable in the currency of India shall be left uncalled on the conditions set forth in Resolution No. 129 as gov­ erning SUbscriptions made pursuant to Resolution No. 128 of the Board of Governors. 4. Before such subscription shall be accepted by the Bank (i) India shall have taken all action necessary to authorize such sub­ scription and shall furnish to the Bank such information thereon as the Bank may request, and (ii) with respect to and on account of the subscription price of one-half of such shares, India shall pay to the Bank gold or United States dollars equal to 2 % of such price, and an amount in its own currency equal to 18 % of such price. (A dopted March 29, 1971)

Resolution No. 266 Membership of Fiji WHEREAS the Government of Fiji has applied for admission to membership in the International Bank for Reconstruction and De­ velopment 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 Fiji, have made recommendations to the Board of Governors regarding this application; Now, THEREFORE, the Board of Governors hereby RESOLVES: THAT the terms and conditions upon which Fiji shall be admitted to membership in the Bank shall be as follows: 1. Definitions: As used in this resolution: (a) "Bank" means International Bank for Reconstruction and Development. (b) "Articles" means the Articles of Agreement of the Bank. (c) "Dollars" or "$" means United States dollars of the weight and fineness in effect on July 1, 1944. (d) "Subscription" means the capital stock of the Bank sub­ scribed to by a member. (e) "Member" means member of the Bank. 2. Subscription: By accepting membership in the Bank, Fiji shall

198 subscribe to 111 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, Fiji shall accept membership in and become a member of the International Monetary Fund. 4. Payments on Subscription: (a) Before accepting membership in the Bank, Fiji shall pay to the Bank on account of the subscription price of one­ half of such shares: (i) Gold or United States dollars equal to 2% thereof; and (ii) An amount in its own currency which, at the appro­ priate prevailing exchange rate, shall be equal to 18 % thereof. (b) With respect to the subscription price of the other one-half of such shares, the 2 % portion payable in gold or United States dollars and the 18 % portion payable in the cur­ rency of the member shall be left uncalled, as set forth in Resolution No. 129, on the same basis as the 2% and 18 % portions of subscriptions made pursuant to Reso­ lution No. 128 of the Board of Governors. 5. Representation and Information: Before accepting member­ ship in the Bank, Fiji 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(d) and (e) of this resolution and Fiji shall furnish to the Bank such information in respect of such action as the Bank may request. 6. Acceptance of Membership: Fiji shall become a member of the Bank with a subscription as set forth in paragraph 2 of this resolution as of the date when Fiji shall have complied with the following requirements: (a) Become a member of the International Monetary Fund; (b) Made the payments called for by paragraph 4 of this resolution; (c) Furnished the representation, and such information as may have been requested, pursuant to paragraph 5 of this resolution; (d) Deposited with the Government of the United States of America an instrument stating that it has accepted in ac­ cordance with its law the Articles and all the terms and

199 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; (e) Signed the original copy of the Articles held in the Ar­ chives of the Government of the United States of America. 7. Limitation on Period for Acceptance of Membership: Fiji may accept membership in the Bank pursuant to this resolution until July 6, 1971, or such later date as the Executive Directors may determine. (Adopted April 5, 1971)

Resolution No. 267 Place and Date of 1973 Annual Meetings

RESOLVED: THAT the 1973 Annual Meetings be convened in Nairobi, Kenya, in September 1973. (Adopted June 17, 1971)

Resolution No. 268 Agreement with the World Health Organization

RESOLVED: THA T the agreement in the form of the Memorandum of Under­ standing between the World Health Organization and the Bank and the International Development Association attached to the Report of the Executive Directors to the Board of Governors dated June 1, 1971, is hereby approved. (Adopted July 7, 1971)

Resolution No. 269 Allocation of Net Income for FY71

RESOLVED: 1. THAT the Report of the Executive Directors dated July 20, 1971, on "Allocation of Net Income" is hereby approved;

2. THAT the Bank transfer to the International Development Association by way of grant the equivalent of $110 million out of the net income of the Bank for the fiscal year ended June 30, 1971, such transfer to be made at the time and in the manner to be decided by the Executive Directors;

200

._--_._--_._---_._------_. 3. THAT the allocation of the balance of the net income of the Bank for the fiscal year ended June 30, 1971, to the Supplemental Reserve against Losses on Loans and Guarantees and from Cur­ rency Devaluations is hereby noted with approval. (Adopted August 4,1971)

RESOLUTION ADOPTED BY THE BOARD OF GOVERNORS OF THE BANK AT THE 1971 ANNUAL MEETING

Resolution No. 270 Financial Statements, Auditors' Report and Administrative Budget

RESOLVED: THAT the Board of Governors of the Bank consider the Financial Statements, Auditors' Report and Administrative Budget, included in the 1970/71 Annual Report, as fulfilling the requirements of Article V, Section 13, of the Articles of Agreement and of Section 19 of the By-Laws of the Bank. (Adopted October 1,1971)

RESOLUTION ADOPTED BY THE BOARD OF GOVERNORS OF IFC AT THE 1971 ANNUAL MEETING

Resolution No. 79 Financial Statements, Auditors' Report and Administrative Budget

RESOLVED: THAT the Board of Governors of the Corporation consider the Financial Statements and the Auditors' Report, included in the 1970/71 Annual Report, and the Administrative Budget attached to the Report dated August 10, 1971, as fulfilling the requirements of Article IV, Section 11, of the Articles of Agreement and of Sec­ tion 16 of the By-Laws of the Corporation. (A dopted October 1, 1971)

201 RESOLUTIONS ADOPTED BY THE BOARD OF GOVERNORS OF IDA BETWEEN 1970 AND 1971 ANNUAL MEETINGS

Resolution No. 77 Additions to Resources: Third Replenishment A. Introduction 1. WHEREAS (a) The Executive Directors of the International Development Association have considered its prospective financial requirements and have concluded that additional resources should be made avail­ able to the Association for new commitments for the period up to June 30, 1974, in the amounts and on the basis described in the Report of the Executive Directors dated July 21, 1970, submitted to the Board of Governors; (b) The governments of the Part I members of the Association have expressed their intention, subject to any necessary legislative authorization, to make available additional resources to the Asso­ ciation equivalent to US$2,398,080,000 in the respective amounts and on the basis set forth in the said Report and below; ( c) The governments of certain Part II members of the Asso­ ciation have expressed their intention, subject to any necessary legis­ lative authorization, to make available additional resources to the Association equivalent to US$l 0,540,000 in the respective amounts and on the basis set forth in the said Report and below; and the Swiss Confederation has agreed to lend to the Association the equivalent of approximately US$30,OOO,OOO on terms whereby the proceeds thereof would be made available in three equal instalments in 1971, 1972 and 1973 and be repayable over a 50-year period without interest.

2. Now THEREFORE the Board of Governors resolves that the said Report of the Executive Director is accepted by the Board of Governors and its conclusions adopted.

B. Additional Resources Provided by Part fMembers 3. WHEREAS (a) A portion of the resources to be made available by Part I members will be made available in the form of contributions not carrying voting rights; (b) The respective portions of the total amount authorized to

202 be made available by each such member by way of subscriptions have been calculated in such a way as to result in the adjustment of each member's relative share in the aggregate voting power of the Part I members (not counting votes given in respect of membership) so as to correspond to the relative share in the total amount of re­ sources which has been and is being made available by such member to the Association on the basis set forth in the said Report of the Executive Directors; (c) Each Part I member of the Association has agreed to the foregoing arrangements to the extent that such arrangements require its agreement under Article III, Section 1 (c) of the Articles of Agreement of the Association;

4. Now THEREFORE the Board of Governors resolves that: (a) The Association is authorized to accept additional re­ sources from Part I members of the Association in the amounts set forth for each such member, respectively, in Table I, column 7,' such amounts being divided into amounts for subscriptions carrying voting rights and contributions not carrying voting rights as speci­ fied in Table I in columns 9 and 11; (b) Each member shall, in respect of such subscriptions, have the voting rights specified for it in Table I, columns 14 and 15, cal­ culated on the basis of 1250 votes plus one additional vote per $80 of such subscription; (c) Payment of such subscriptions and of such contributions shall be made in freely convertible currencies in three equal instal­ ments on or before November 8, 1971, November 8, 1972, and November 8, 1973, provided, however, that if the replenishment authorized by this Resolution shall not have become effective in accordance with Section E below by October 8, 1971, payment of the instalment due on November 8, 1971, shall be postponed and shall be made not later than 30 days after the date when the replen­ ishment shall have become effective; (d) The rights and obligations of the Association and the members in regard to the subscriptions and contributions shall be the same (except as otherwise provided in this Resolution) as those which govern the ninety per cent portion of the initial subscriptions of original members payable under Article II, Section 2 (d) of the Articles of Agreement by members listed in Part I of Schedule A of the Articles; (e) Notwithstanding the foregoing, any member which agrees to make payment of its subscriptions and contributions without ex­ ercising its right to substitute notes or similar obligations therefor

lSee page 227.

203 may make such payment in amounts and on dates other than those specified pursuant to subparagraph (c) above provided that in the judgment of the Executive Directors the terms of such payment would be no less favorable to the Association than if notes or similar obligations had been deposited instead; (f) If any member shall deposit the notification referred to in paragraph 9 (a) below after the date when the first instalment shall be payable, including any postponement thereof (as provided in subparagraph (c) above), payment of such instalment by such member shall be made within 30 days after the date of such deposit; (g) If any member advises the Association not less than 30 days before any payment is due as specified above that because of governmental procedures or administrative problems it is not in a position to'make such payment and wishes to postpone it, such pay­ ment shall be postponed for a period of not more than three months. C. Additional Resources Provided by Certain Part II Members 5. WHEREAS Part II members Ireland, Spain and Yugoslavia have expressed their intention, subject to any necessary legislative action, to make available additional resources to the Association in usable form in the form of contributions not carrying voting rights on the basis set forth in paragraph 15 of the said Report of the Executive Directors;

6. Now THEREFORE the Board of Governors resolves that: (a) The Association is authorized to accept additional re­ sources from the members listed in paragraph 5 above in the amounts set forth for each such member, respectively, in Table II, column 7, in the form of contributions not carrying voting rights; (b) Payment of each such contribution shall be made in usable form but otherwise shall be made on the same basis, and the rights and obligations of the Association and the subscribing member with respect to such contribution, shall be on the same terms and condi­ tions, as provided in paragraph 4 (c), (d), (e), (f) and (g) of this Resolution for the subscriptions and contributions of the Part I members. D. Part II Subscriptions; Article Ill, Section I(c) 7. WHEREAS additional subscriptions are being authorized for the Part I members under Section B of this Resolution and therefore, under the provisions of Article III, Section 1 (c) of the Articles of Agreement of the Association, each Part II member shall be given an opportunity to subscribe, under such conditions as shall be rea­ sonably determined by the Association, an amount which will enable it to maintain its relative voting power;

204 8. Now THEREFORE the Board of Governors resolves that: (a) The Association is authorized to accept additional sub­ scriptions from the Part II members of the Association in the amounts and carrying the voting rights as set forth for each such member, respectively, in Table II, columns 8, 10 and 11, respec­ tively, calculated on the basis of 1250 votes plus one additional vote per $80 of such subscriptions. 1 (b) Payment of each such subscription shall be made in the currency of the subscribing member but otherwise on the same terms and conditions as those provided in paragraphs 4(c), (f) and (g) of this Resolution for the subscriptions of the Part I members; (c) The rights and obligations of the Association and the mem­ bers in regard to such subscriptions shall be the same (except as otherwise provided in this Resolution) as those which govern the ninety per cent portion of the initial subscriptions of original mem­ bers payable under Article II, Section 2 (d) of the Articles of Agree­ ment by members listed in Part II of Schedule A of the Articles. E. Effectiveness 9. The Board of Governors hereby resolves that: (a) None of the subscriptions and contributions authorized by this Resolution shall become payable unless the following condition has been satisfied: Members, including at least 12 Part I members, whose sub­ scriptions and contributions aggregate not less than $1,900,- 000,000 shall have given the Association, on or before June 30, 1971, or such later date as the Executive Directors may de­ termine, formal notification that they will make both the sub­ scription and the contribution authorized hereunder for each such member in accordance with the terms of this Resolution. (b) The replenishment authorized by this Resolution shall be- come effective on the date when the condition specified in subpara­ graph (a) above shall have been satisfied; provided, however, that no member shall be obligated to make the SUbscription and contri­ bution authorized hereunder for such member unless it shall have notified the Association that it will do so. On the date when that condition shall have been satisfied, each member who shall have given the Association such notification shaH be entitled to the voting rights accorded to its subscription as specified in this Resolution. Each member who on any date thereafter shaH give the Association such notification shaH be entitled, as of that date, to the voting rights accorded to its subscription as specified in this Resolution. (Adopted Februar.v 17, 1971) ISee paJ(es 228 and 229.

205 Resolution No. 78 IDA Third Replenishment: Voting Rights of Certain Part II Members

WHEREAS the Executive Directors have submitted a Report dated July 21, 1970, together with a draft resolution (herein called the Third Replenishment Resolution), to the Board of Governors rec­ ommending that the Board of Governors authorize the acceptance of certain additional subscriptions from Part I members carrying voting rights as described therein; WHEREAS the Executive Directors also recommended that the Board of Governors authorize each Part II country then a member of the Association to make additional subscriptions carrying voting rights in order to permit it to maintain its relative voting power; WHEREAS it would be desirable to permit certain countries which became Part II members of the Association after July 21. 1970, to make dditional subscriptions carrying voting rights on the same basis as that accorded to Part II members under Part D of the said Third Replenishment Resolution; Now THEREFORE the Board of Governors resolves that: (a) The Association is authorized to accept additional sub­ scriptions from the Khmer Republic and the People's Democratic Republic of Yemen in the amounts and carrying the voting rights as set forth for each such country, respectively, in Table A, Columns 8, 10 and 11 attached to the Report of the Executive Directors dated March 2, 1971, which submitted this Resolution. 1 (b) The rights and obligations of the Association and the mem­ bers in regard to such additional subscriptions shall be the same as those which are applicable to the subscriptions authorized for Part II members under Part D of the said Third Replenishment Resolution. (Adopted April 30, 1971)

Resolution No. 79 Membership of Equatorial Guinea

WHEREAS the Government of Equatorial Guinea has applied for admission to membership in the International Development Associa­ tion (hereinafter called "Association") in accordance with Section 1 (b) of Article II of the Articles of Agreement of the Association (hereinafter called" Articles") ; and

'See pUKe 259.

206

._------.----... ~-.--.-.-. WHEREAS, pursuant to Section 9 of the By-Laws of the Associa­ tion, the Executive Directors, after consultation with representa­ tives of the Government of the Republic of Equatorial Guinea, have made recommendations to the Board of Governors regarding this application: Now THEREFORE the Board of Governors hereby

RESOLVES: THA T the terms and conditions upon which Equatorial Guinea shall be admitted to membership in the Association shall be as follows:

1. Initial Subscription (a) The terms and conditions of the membership of Equa­ torial Guinea in the Association other than those speci­ fically provided for in this resolution shall be those set forth in the Articles with respect to the membership of original members listed in Part II of Schedule A thereof (including, but not by way of limitation, the terms and conditions relating to subscriptions, payments on sub­ scriptions, usability of currencies and voting rights). (b) Upon accepting membership in the Association, Equa­ torial Guinea shall subscribe funds in the amount of $320,000 expressed in terms of United States dollars of the weight and fineness in effect on January 1, 1960. (c) Before accepting membership in the Association, Equa­ torial Guinea shall make all payments on its initial sub­ scription which would have been payable on or before the date of acceptance had it become a member of the Asso­ ciation as an original member listed in Part II of Schedule A of the Articles. (d) Equatorial Guinea may accept membership in the Asso­ ciation pursuant to this resolution until December 30, 1971, or such later date as the Executive Directors may determine.

II. Additional Subscription (e) Upon or after acceptance of membership, Equatorial Guinea is also authorized at its option to make an addi­ tional subscription in the amount of $12,240 which shall carry 1250 votes plus one vote for each $80 of such additional subscription (that is, 153 votes).

207 (f) The rights and obligations of the Association and Equa­ torial Guinea with regard to such lidditional subscription shall be the same as those which are applicable to the sub­ scriptions authorized for Part II members under Part D of the Third Replenishment Resolution adopted by the Board of Governors on February 17, 1971. (Adopted June 7,1971)

Resolution No. 80 Membership of Fiji WHEREAS the Government of Fiji has applied for admission to membership in the International Development Association (here­ inafter called "Association") in accordance with Section 1 (b) of Article II of the Articles of Agreement of the Association (herein­ after called "Articles"); and WHEREAS, pursuant to Section 9 of the By-Laws of the Associa­ tion, the Executive Directors, after consultation with representatives of the Government of Fiji, have made recommendations to the Board of Governors regarding this application: Now THEREFORE the Board of Governors hereby RESOLVES: THAT the terms and conditions upon which Fiji shall be admitted to membership in the Association shall be as follows: I. Initial Subscription (a) The terms and conditions of the membership of Fiji in the Association other than those specifically provided for in this resolution shall be those set forth in the Articles with respect to the membership of original members listed in Part II of Schedule A thereof (including, but not by way of limitation, the terms and conditions relating to sub­ scriptions, payments on subscriptions, usability of cur­ rencies, and voting rights) . (b) Upon accepting membership in the Association, Fiji shall subscribe funds in the amount of $560,000 expressed in terms of United States dollars of the weight and fineness in effect on January 1, 1960. (c) Before accepting membership in the Associaiion, Fiji shall make all payments on its initial subscription which would have been payable on or before the date of acceptance had it become a member of the Association as an original member listed in Part II of Schedule A of the Articles.

208 (d) Fiji may accept membership in the Association pursuant to this resolution until December 30, 1971, or such later date as the Executive Directors may determine. II. Additional Subscription (e) Upon or after acceptance of membership, Fiji is also au­ thorized at its option to make an additional subscription in the amount of $21,440 which shall carry 1250 votes plus one vote for each $80 of such additional subscrip­ tion (that is 268 votes) . (f) The rights and obligations of the Association and Fiji with regard to such additional subscription shall be the same as those which are applicable to the subscriptions authorized for Part II members under Part D of the Third Replenish­ ment Resolution adopted by the Board of Governors on February 17, 1971. (Adopted June 7,1971)

Resolution No. 81 Agreement with the World Health Organization

RESOLVED: THAT the agreement in the form of the Memorandum of Under­ standing between the World Health Organization and the Interna­ tional Bank for Reconstruction and Development and the Associa­ tion attached to the Report of the Executive Directors to the Boards of Governors dated June 1, 1971, is hereby approved. (A dopted July 7, 1971)

RESOLUTION ADOPTED BY THE BOARD OF GOVERNORS OF IDA AT THE 1971 ANNUAL MEETING

Resolution No. 82 Financial Statements, Auditors' Report and Administrative Budget

RESOLVED: THA T the Board of Governors of the Association consider the Financial Statements, Auditors' Report and Administrative Budget,

209

------_ .. " included in the 1970/71 Annual Report, as fulfilling the require­ ments of Article VI, Section 11, of the Articles of Agreement and of Section 8 of the By-Laws of the Association. (A dopted October 1, 1971)

REPORT OF THE EXECUTIVE DIRECTORS OF THE BANK AND IDA June 1,1971 Proposed Cooperative Arrangements with the World Health Organization

1. The President of the Bank/IDA has proposed that the Bank/IDA enter into arrangements with the World Health Organization (WHO) for cooperation in the fields of water supply, wastes disposal and storm drainage. The principal purpose of the arrangements would be to provide increased and more effective assistance to common member countries in identifying and preparing investment projects in these fields. The accelerating needs of the developing world for water supply, wastes disposal and storm drainage facilities will re­ quire vastly expanded programs of pre investment activities in these fields. 2. WHO is a specialized agency of the United Nations with special responsibilities in the field of public health. Its responsibilities in­ clude efforts to expand and improve water supply facilities and to reduce health hazards through the efficient disposal of wastes of all kinds and of surplus surface water. For some time the Bank/IDA have been cooperating on an ad hoc basis on matters of common concern in the fields of water supply, wastes disposal and storm drainage. The proposed cooperative arrangements would broaden, strengthen and systematize this cooperation. WHO has substantial expertise in this sector on its headquarters and field staffs. It seems desirable for the Bank to utilize this expertise to the fullest possible extent to support the Bank's expanded operational program in the water supply field, rather than to rely exclusively on increasing the Bank's own technical staff for this purpose. 3. To that end, the attached Memorandum of Understanding ... ' has been negotiated with WHO, covering the scope of the pro­ posed cooperative program; personnel; periodic agreement on activi-

'See Annex A page 2 J 1.

210 ties to be performed under the cooperative program; financial arrangements; and effectuation, modification and termination of the arrangements. The Executive Directors believe that the cooperative program contemplated by the Memorandum of Understanding with WHO will make the work of the Bank/IDA in the fields of water supply, wastes disposal and storm drainage more effective, and that conclusion of the agreement is in the best interests of the Bank/IDA. 4. The Memorandum of Understanding requires the approval of the Boards of Governors of the Bank and of IDA, pursuant to Article V, Section 2 (b) (v) of the Articles of Agreement of the Bank and to Article VI, Section 2 (c) (v) of the Articles of Agreement of IDA, under which formal arrangements to cooperate with other interna­ tional organizations must be approved by the Boards of Governors.

RECOMMENDATIONS: 5. The Executive Directors recommend that the Memorandum of Understanding with WHO be approved by the Boards of Governors and that (a) the Board of Governors of the Bank adopt by vote without meeting the draft resolution ... 1; and, (b) the Board of Governors of IDA adopt by vote without meet­ ing the draft resolution ...."

ANNEXA MEMORANDUM OF UNDERSTANDING WITH RESPECT TO WORKING ARRANGEMENTS BETWEEN THE WORLD HEALTH ORGANIZATION ("WHO") AND THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT ("THE BANK") AND THE INTERNATIONAL DEVELOPMENT ASSOCIATION ("THE ASSOCIATION") WHO and the Bank" have for several years been cooperating on an ad hoc basis on matters of common concern. The organizations now wish to intensify and systematize this cooperation for pre invest­ ment activities in the field of water supply, wastes disposal and storm drainage, and it appears desirable to both WHO and the Bank that working arrangements be agreed upon setting forth the prin­ ciples to govern such cooperation. These working arrangements, as agreed upon by the Director­ General of WHO and the President of the Bank subject to the approvals specified in paragraph 6 hereof, are as follows:

'See page 200. 'See page 209. JAil re'erences In this memorandum to the Bank shall be taken to Include both the Bank and the Association.

211 1. The Cooperative Program The cooperative program in which WHO and the Bank will par­ ticipate will involve the following activities in the fields of water supply, wastes disposal and storm drainage: (a) assisting countries of common membership in the carrying out of sector studies required to formulate sector programs and policies (other than those sector studies financed by the United Nations Development Programme ("UNDP"»; (b) assisting countries of common membership in the identifica­ tion and preparation of investment projects of types which fall within WHO's field of responsibility and which, in the framework of its economic development objectives and general policies, the Bank is ~lVilling to consider for financing (other than those activities financed by the UNDP); (c) assistance to countries of common membership in identifying and preparing proposals for preinvestment studies and other projects (including those suitable for financing by the UNDP); (d) WHO participation in Bank economic, sector, project ap­ praisal and project supervision missions; and (e) other related activities as agreed between WHO and the Bank.

2. Personnel (a) It is agreed that the cooperative program requires a unit of engineers, economists, financial analysts and other technical special­ ists of high calibre within the WHO Secretariat which can devote itself continuously to this work and to WHO's responsibilities as executing agency for UNDP preinvestment projects. The Director­ General of WHO has already established a unit, called the Preinvest­ ment Planning Unit (hereinafter referred to for purposes of this memorandum as the "Unit") as an identifiable group within the WHO Secretariat and an integral part thereof. (b) WHO will pro~ide through the Unit for agreed activities in the cooperative program such man-years of professional services per year as shall be agreed from time to time by WHO and the Bank. Accordingly, there shall be established by WHO in the Unit a cor­ responding number of cooperative program posts in the professional category at such levels and for such periods as shall be agreed from time to time by WHO and the Bank. For the-period 1 September 1971 through 31 December 1971 there shall be five such posts, and for the calendar year 1972 there shall be ten such posts. WHO and the Bank will agree from time to time on the types and classifica­ tions of positions of the posts to be included within the Unit, and WHO will consult with the Bank on appointing the staff to the additional posts to be established for purposes of the cooperative program.

212

------. (c) It is recognized that from time to time it may be necessary and desirable to use WHO staff members outside the Unit for pur­ poses of the cooperative program. (d) The Unit is located at the headquarters of WHO. Unit staff may be outposted to regional offices of WHO after consultation between WHO and the Bank. Assignments of Unit staff to regional offices shall be made only after they have acquired adequate ex­ perience, including sufficient familiarity with the objectives and procedures of both WHO and the Bank. When outposted to regional offices of WHO, such staff will remain under the technical super­ vision of the Unit at the headquarters of WHO.

3. Agreement on Activities All services to be performed under the cooperative program by staff members of the Unit will be agreed in advance by WHO and the Bank. Such services may be requested by member countries, or proposed by WHO (headquarters or regional offices) or the Bank. Services may be performed under the direction of either WHO or the Bank. Agreement on the services to be performed, the means by which they wiII be provided and the responsibility for their direction will normally be reached and subsequently reviewed during periodic review meetings of the program. In reaching agreement the activity wiIl be defined with respect to the country involved, the type of activity, the numbers and types of personnel required, their terms of reference and the timing and schedule of the activity. An estimate of the total man-months (or weeks) required will be made and travel and other supporting services (when necessary) will be indicated.

4. Financial Arrangements (a) Subject to the qualifications set forth below, the costs of WHO in connection with agreed work under the cooperative pro­ gram will be shared in the proportion of 25% by WHO and 75% by the Bank up to a ceiling figure to be fixed from time to time by agreement between the two organizations. The costs to be shared shall include the following: (i) for work performed by members of the Unit or by outside consultants, salary, allowances and other benefits for profes­ sional staff, general services support and travel costs; and (ii) for other WHO staff members assigned to such work, salary, allowances and other benefits, general services support and travel costs, except that WHO will bear the salary, allow­ ances and other benefits costs of a limited number of short­ term assignments of such WHO staff members.

213 (b) The Bank will bear the costs of documentation, reproduction and translation undertaken by WHO in agreement with the Bank. ( c) The ceiling figure referred to in paragraph (a) above shall be $80,000 for the four-month period ending December 31,1971, and shall be $500,000 for calendar year 1972. (d) WHO will pay for invisible overhead costs (including space) and for identifiable indirect costs (other than the cost of documen­ tation, repro,duction and translation) involved in its participation in the cooperative program. (e) The Bank and WHO will agree on the procedures for pay­ ment of funds from the Bank to WHO, and for accounting to the Bank by WHO, in connection with the cooperative program. 5. Modification and Termination These working arrangements may be modified or supplemented at any time by mutual agreement between the two organizations. Each organization may, after reasonable notice, terminate the ar­ rangements, provided that, if they are terminated by the Bank, the Bank will reimburse WHO for the financial consequences of can­ celling personnel commitments entered into for purposes of the cooperative program. 6. Effectuation of the Arrangements The working arrangements set out in this Memorandum of Under­ standing will become effective on September 1, 1971, or when ap­ proved by the Boards of Governors of the Bank and the Association and signed by the Director-General of WHO and the President of the Bank and the Association, whichever is later. It is contemplated that the necessary approvals, if not completed on or before Sep­ tember 1, 1971, will authorize payment by the Bank to WHO retro­ actively to September 1, 1971, of expenses incurred for purposes of the cooperative program which would have been eligible for pay­ ment if these working arrangements had been effective on that date.

Director-General President World Health Organization International Bank for Reconstruction and Development and International Development Association

Date: ______Date: ______

214 REPORTS OF THE EXECUTIVE DIRECTORS OF THE BANK

January 6,1970 Increase in Authorized Capital Stock 1. The initial authorized capital stock of the Bank was $10,000 mil­ lion in terms of United States dollars of the weight and fineness in effect on July 1, 1944. Article II, Section 2 (b) of the Articles of Agreement provides that the capital stock may be increased by a three-fourths majority of the total voting power. 2. Authorized capital was increased by $10,000 million in 1959 to provide for the doubling of members' subscriptions, and was in­ creased by a further $1,000 million in 1959, by $1,000 million in 1963 and by $2,000 million in 1965 to provide shares for new members' subscriptions and for increases in existing subscriptions. It now stands at $24,000 million. 3. As of December 22, 1969, member countries had subscribed $23,066.3 million, leaving an unsubscribed balance of $933.7 mil­ lion, of which $140.9 million will be required for pending member­ ships and increases in subscriptions already in process. 4. The Executive Directors of the Fund have recommended to the Fund's Board of Governors the adoption of a resolution proposing the adjustment of quotas of individual members. 5. In accordance with past practice, the Executive Directors of the Bank are recommending to the Bank's Board of Governors the adoption of a resolution authorizing the Bank to accept special sub­ scriptions from members aggregating $2,222.0 million. The poten­ tial shortage in Bank authorized capital stock would thus be in excess of $1,400 million. 6. In view of the foregoing, the Executive Directors recommend that the authorized capital stock of the Bank be increased by $3,000 million, to accommodate the increases in subscriptions being rec­ ommended to the Board of Governors and leave available sufficient unsubscribed capital for new members' capital subscriptions and future increases in the capital subscriptions of individual members. It is assumed that members will not wish to exercise their right under Article II, Section 3 (c) of the Articles of Agreement to subscribe pro rata to an increase in the authorized capital stock of the Bank. 7. The Executive Directors recommend that the Board of Governors adopt the attached resolution."

'See page 196.

215 March 2,1971

India: Increase in Subscription under Article II, Section 3 ( c) of the Articles of Agreement of the Bank 1. On December 31, 1970, the Board of Governors of the Bank adopted a resolution (Resolution No. 264) authorizing an increase of $3 billion in the authorized capital stock of the Bank, raising it from $24 billion to $27 billion, in order to provide for the admis­ sion of new members and for future increases in members' subscrip­ tions. The Resolution provides that in the absence of notice to the contrary from any member on or before January 22, 1970, such member will be deemed to have waived its right to subscribe its proportionate share of such increase pursuant to Article II, Section 3 (c) of the Articles of Agreement of the Bank (such right being hereinafter called the pre-emptive right). 2. On January 22, 1970, the Government of India notified the Bank that India does not waive its pre-emptive right and intends to sub­ scribe its proportionate share of the said increase. 3. The Executive Directors have concluded that, under Article II, Section 3 (c), India is entitled to subscribe a proportion of the $3 billion increase of authorized capital equivalent to the proportion (i.e. 31/3 %) which its stock theretofore subscribed (i.e. $800 million) bears to the total authorized capital stock of the Bank (Le. $24 billion), which is to say $100 million. 4. The Executive Directors have also concluded that it would be reasonable that the terms and conditions under which India's sub­ scription may be made should be the same (except for those condi­ tions which have already been fulfilled) as those prescribed by the Board of Governors for the special increases in subscriptions which were authorized at the same time as the $3 billion increase in authorized capital stock. 5. Accordingly, the Executive Directors recommend that the Board of Governors adopt the draft resolution ....1

July 20, 1971 Allocation of Net Income 1. The Bank's net income available for allocation for the fiscal year ended June 30, 1971, amounts to $211,747,168. In addition the Bank had a net gain from currency revaluations of $2,255,609 which has been credited directly to the Supplemental Reserve against Losses on Loans and Guarantees and from Currency Devaluations (Supplemental Reserve). There was also commission income for that fiscal year estimated at $0.3 million, which was appropriated

'See page 197.

216 -.

to the Specia', Re5>erve created under Article IV, Section 6 of the Bank's Articil.'s of Agreement. As of June 30, 1971, the Special Re­ serve totalled $292 million and, without regard to the 1971 fiscal year's income, the Supplemental Reserve amounted to $1,152 mil­ lion. Total reserves therefore amounted to $1,444 million, of which the $292 million in the Special Reserve is kept in liquid form, the remainder being used in the business of the Bank. 2. The Executive Directors have considered what action to take, or to recommend that the Board of Governors take, with respect to the net income for the fiscal year ended June 30, 1971. 3. The Executive Directors have considered what portion of that net income, if any, they should recommend that the Board of Governors transfer to the International Development Association and what por­ tion thereof should be allocated to the Supplemental Reserve. The Executive Directors have concluded that that part of such net income which it is not necessary to retain in the Bank's business amounts to $110 million. They have further concluded that the interests of the Bank and its members would best be served by the transfer of that amount to the International Development Association by way of grant. 4. The Executive Directors have allocated the balance of such net income to the Supplemental Reserve. 5. As far as drawings on the transfer are concerned, the attached draft resolution prOVides that the transfer would be made at the time and in the manner to be decided by the Executive Directors. 6. Accordingly the Executive Directors recommend that the Board of Governors approve the present Report and adopt the draft resolution ....1 This report was approved and its recommendation was adopted on August 4,1971.

REPORTS OF THE EXECUTIVE DIRECTORS OF IDA July 21,1970 Additions to IDA Resources: Third Replenishment 1. At the 1969 Annual Meeting of the Board of Governors, the President of the Association announced that, since the resources available to IDA would be fully committed by June 30, 1971, he

'See page 200.

217 intended to initiate consultations with Part I members with a view to reaching agreement among them on a third replenishment of those resources. Discussions began in December 1969 and continued over the months which followed until agreement on the proposals to be made to the Executive Directors was reached in June 1970. On July 21, the President presented these proposals to the Executive Directors, who have reviewed and approved them. The basis on which it is now proposed that the additional resources be provided is set forth below and in the draft Resolution attached hereto .... t Amount of the Replenishment 2. As of June 30, 1970, a total of $3,229.9 million had become available to the Association for commitment: US$ million Source (equivalent)

Initial subscriptions 795.7' First Replenishment 744.7 Second Replenishment Regular contributions 1,170S Supplementary contributions 17.5 Swiss loan 12.1 1,200.F Special supplementary contributions by Denmark, Norway, and Sweden 65.8 Transfers from IBRD profits 385.0 Net income and repayments 38.6 3,229.9

Notes: 'This amount includes (i) the subscriptions of Part 1 members ($751.3 million), (ii) the /0% portion of the subscriptions of Part II members payable in gold or comertible cur­ rency ($26.3 million), and (iii) that part of the 90% portion of the subscriptions of Part II members released Oil a convertible basis and releases on a non-conl'ertible basis which ha\'e actually been used ($18.0 million). 'Includes a contribution of $48.4 million by one country for which final legislalil e ap­ proral has not ret been obtained.

Of this total, $2,773 million had been committed (net of cancella­ tions) as of June 30, 1970, leaving a balance of approximately $457 million available for lending. On present plans, it is expected that this amount, plus any additional amounts which might become avail­ able during FY 1971 from further IBRD profit transfers, releases from Part II members' subscriptions, cancellations, etc., will have been fully committed by June 30, 1971. 3. There was general agreement that a major increase in the level of resources available to the Association would be of great benefit to

'See page 202.

218

... -.-. __._._------developing countries. Accordingly, the Part I member countries listed below have stated that, subject to any necessary legislative action, they intend to make available to the Association new re­ sources totalling the equivalent of $2,398.08 million, payable on the conditions stated below. The amount each member country has stated it would contribute is as follows: Country US$ (equivalent) * Australia 48,000,000 Austria 16,320,000 Belgium 40,800,000 Canada 150,000,000 Denmark 26,400,000 Finland 12,240,000 France 150,000,000 Germany 234,000,000 Italy 96,720,000 Japan 144,000,000 Kuwait 10,800,000 Luxembourg 1,200,000 Netherlands 67,560,000 Norway 24,000,000 South Africa 3,000,000 Sweden 102,000,000 United Kingdom 311,040,000 United States 960,000,000 Total 2,393,080,000

4. Three Part II members have also indicated their intention, subject to any necessary legislative action, of making a contribution in con­ nection with the Third Replenishment. These contributions, payable in usable form 1 on the conditions stated below, are: Country US$ (equivalent) *"

Ireland 4,000,000 Spain 2,500,000 Yugoslavia 4,040,000

*In terms of U.S. dollars of the weight and fineneH in effect on JanuQT}' I, 1960. lResources are deemed to be in usable form if they are provided in freely convertible cur­ rency or in local currency available for financing purchases in the donor country, provided there is a reasonable expectation that they will be fully used for procurement in that country during the Third Replenishment disbursement period. 'These amounts will be divided between amounts made available in the form of contribu­ tions not carrying voting rights (see paragraph 15, page 224) and amounts being made avail­ able in the form of subscriptions carrying voting rights being authorized under Section D of the Resolution in order to permit each Part II member to maintain its relative voting power. For this reason the figures shown in the table in paragraph 4 abo,'e differ slightly from the figures shown in Table II, column 7, for the amount of additional resources being contrib­ uted by each of these members,

219 5. In addition to these contributions from member countries, the Swiss Confederation, which is not a member of the Association, has again agreed to participate in a replenishment of the Association's resources by lending the Association the equivalent of approximately $30 million on terms whereby the proceeds would be made available to the Association in three equal instalments in 1971, 1972 and 1973 and be repayable over a 50-year period wIthout interest. Like the original Swiss loan extended to IDA in connection with the Second Replenishment, the Second Swiss Loan is subject to approval by Parliament and is expected to become final in 1971. Added to the proposed contributions of Part I and Part II member countries, the Second Swiss Loan would take the total resources provided under the Third Replenishment to $2,438.62 million.

6. The total available for commitment may be somewhat higher still. It is possible that, as in the past, the International Bank for Recon­ struction and Development will be in a position to provide further resources to the Association during the Third Replenishment com­ mitment period. Repayments on previous credits over the Third Replenishment commitment period are expected to be $12.0 million. In addition, one Part II member, Spain, has expressed its willingness to cooperate by releasing that part of the 90% portion of its original subscription which remains unused as of July 1, 1971, in fully con­ vertible form over the period of the Third Replenishment. As of June 30, 1970, the amount of $6,488,106 was still to be released from the original subscription of Spain. Even without counting any transfers which may be made by the Bank, therefore, the amount available for commitment during the Third Replenishment commit­ ment period should be at least $2,457.11 million.' It is our expecta­ tion that these resources will be committed at a reasonably even pace over the three fiscal years 1971)72, 1972/73 and 1973/74.

Form at Resources Made A vailable under the Third Replenishment 7. Consideration has been given to the form in which the resources provided under the Third Replenishment should be made available. Except for the initial subscriptions, all other resources provided by Part I members to date have been made available in the form of contributions. Since contributions do not carry voting rights, the voting rights of members have remained unaffected by these contri­ butions. Part II members were not asked to participate in the First and Second Replenishments.

'Some of the 90% portion of the subscription of Spain mentioned above may be released and committed before June 30, 1971; however, this factor should be more than offset during the period of the Third Replenishment by the accrual of further resources from such sources as supplementary contributions by Part I members, the Association's net income, cancellations, and releases by other Part 11 members of all or part of the 90% portion of their subscriptions.

220

------8. In connection with the Third Replenishment arrangements, how­ ever, consideration has been given to the advisability of adjusting the voting power of the Part I members so as to reflect more accu­ rately their total financial contributions. It has been agreed that such an adjustment should be made; but in order to do so it is necessary that (a) the resources provided by the Part I members under the Third Replenishment be represented partly by subscriptions carry­ ing voting rights and partly by contributions not carrying voting rights, and (b) Part II members be given the opportunity to make additional subscriptions in order to permit them to maintain their relative voting power. The arrangements agreed for this purpose are described in paragraph 13 below. 9. As to the form of the contributions not carrying voting rights, consideration was given to the question whether they might take, in whole or in part, the form of loans. It was concluded that loans should not be used by member countries to replenish the resources of the Association during the Third Replenishment. This would not preclude reconsideration of this matter on the occasion of subse­ quent replenishments. This conclusion is more fully discussed in Annex B attached hereto,' which contains the study called for by paragraph 23 of the Report, dated March 8, 1968, of the Executive Directors to the Board of Governors recommending approval of the Second Replenishment.

Timing of Payments 10. Payment of the subscriptions and contributions is to be made in three equal annual instalments. except as noted below, commencing on November 8, 1971, unless that date is postponed (see paragraph 4(c) of the attached draft resolution). Members may, in accordance with Article II, Section 2 (e) of the Articles of Agreement, C deposit notes or similar obligations in place of currencies not needed by the Association in its operations. 11. However, at the present time some countries make resources available to the Association in currencies which can be invested pending disbursement. These cash payments are extremely welcome to the Association since they help in the administration of its finances and enable it to derive some income from the investment of such funds prior to their being disbursed on credits. In recognition of the advantages to the Association of receiving these payments, the draft resolution (paragraph 4(e» provides that any member which agrees to make payment of its subscriptions and contributions without sub-

'See page 230. ;:This section relates to the initial subscriptions of members. Howel-'er, under paragraphs 4(d). 6(b) and 8(c) of the attached draft resolution this section would also be applicable to the subscriptions and contributions under the Third Replenishment and would thus permit the deposit of notes or similar obligations.

221 stituting notes or similar obligations therefor may make such pay­ ment in amounts and on dates other than those specified in paragraph 10 above, provided that in the judgment of the Executive Directors the terms of such payment would be no less favorable to the Asso­ ciation than if notes or similar obligations had been deposited instead. Germany, Luxembourg and Norway have indicated their intention to pay currencies on this basis; the amounts and dates of such payments are set forth in the Appendix attached. The Executive Directors have concluded that, taking into account the rate at which drawings can be expected to be made on the notes or similar obliga­ tions deposited by members in the light of anticipated disbursements on credits, the terms of such payments would be no less favorable to the Association than if notes or similar obligations were deposited instead, and that, accordingly, when the replenishment becomes effective, such payments will be accepted in accordance with such terms. 12. It is also provided (paragraph 4 (g) of the draft resolution) that if any member advises the Association not less than 30 days before any payment is due that because of governmental procedures or administrative problems it is not in a position to make such payment and wishes to postpone it, such payment shall be postponed for a period of not more than three months.

A djustment of Voting Rights 13. As noted above, since all resources provided by members to date, except for the initial subscriptions, have been made available in the form of contributions which do not carry voting rights, the relative voting power both among members individually and between Part I and Part II members as groups has not been affected by such contri­ butions. Because a number of members have, since making their initial subscriptions, made additional contributions (not carrying voting rights) in proportions different from those fixed for initial subscriptions, the relative voting power of nearly all Part I members is not in proportion to the amount contributed by them.' In some cases, the differences are substantial and if future additions to re­ sources are not to carry voting rights, these differences are likely to become even greater. This situation impelled the Executive Direc­ tors, in connection with the Second Replenishment, to report to the Board of Governors that they would make a study (to be included as part of the study referred to in paragraph 9 above) which among other things would include a review of the desirability and practica­ bility of adjusting (with or without amendment of the Articles of

'This is without regard to the 500 \'Otes which were given to each member upon initial subscription. Votes of this class are herein called membership ,'otes. Additional votes were ~il'en for each $5,000 of initial subscriptions, Votes of this class are herein called subscrip­ tion \ oles.

222 Agreement) the voting power as among Part I member countries to reflect their total financial contributions to the Association, without affecting the voting rights of Part II member countries. This matter has been reviewed by the Executive Directors and the principal con­ clusions which have been reached, and the arrangements proposed for an adjustment of voting power, are summarized below. (a) It would be desirable to adjust the voting power of the Part I members to reflect their total financial contributions to the Associa­ tion, including those being made available under the Third Replen­ ishment. Under the Articles of Agreement any adjustment in the voting power of members can only be made by according additional votes to them in connection with additional subscriptions. (b) The voting power adjustment for Part I members should be accomplished by permitting each Part I member to make a subscrip­ tion under the Third Replenishment (within the total amount to be provided by that member to the Third Replenishment) which would carry voting rights and be calculated so that the proportion of its total subscription votes (i.e. on account of both its initial subscrip­ tion and Third Replenishment subscription) to the total of all Part I subscription votes would be equal to its proportionate share of total Part I contributions from initial subscriptions, the First and Second Replenishments, supplementary contributions and funds provided to the Third Replenishment. Under this arrangement therefore the subscription votes of each Part I member (i.e. not counting mem­ bership votes) will reflect its relative share in total financial contri­ butions upon completion of the Third Replenishment. (c) The conferring of additional votes on Part I members would increase the voting power of the Part I members in relation to the voting power of the Part II members unless they also made addi­ tional subscriptions for which they would receive additional votes sufficient to permit them to maintain their present relative voting power. In order to make it easier for the Part II members to sub­ scribe and thus to maintain their relative voting power, it has been agreed that the cost of a vote under the Third Replenishment should be substantially less than under the initial subscriptions and that Part II subscriptions should aggregate the equivalent of approxi­ mately $10 million, all payable in the currency of the subscribing member. The cost of a vote has accordingly been fixed at $80 for purposes of the Third Replenishment. (d) In order to avoid dilution of the relative voting power of the smaller members of the Association, it is proposed that additional membership votes should be given in connection with the making of additional subscriptions so that the total of each country's member­ ship votes would be .25 % of the total of potential subscription votes,

223 as it was at the time of the fixing of the membership votes for original members under the Articles of Agreement of the Association (see, in this connection, Table I, footnote (d), and Table II, footnote (e». (e) If all Part II members take up the additional subscriptions authorized for them as described above, their relative total voting power (i.e. initial subscription votes, all additional subscription votes and all membership votes) will not be changed 1 as a result of the adjustment proposed for the Third Replenishment.

Agreement of Part I Members 14. The making of the arrangements described in paragraph 13(b) and (c) above would require, under the provisions of Article III, Section 1 (c) of the Articles of Agreement, the unanimous agree­ ment of the Part I members. The Part I members have so agreed.

Additional Resources Provided by Certain Part II Members in Usable Form 15. As noted above in paragraph 4, three Part II members which have released in usable form the full amount of the 90% portion of their existing subscriptions also intend to provide additional re­ sources to the Association in usable form. It would have been rea­ sonable to provide that all or part of these additional resources should be provided in the form of subscriptions carrying voting rights. In that event, it would be necessary to make provision under Article III, Section 1 (c) for the exercise by the other Part II mem­ bers of their pre-emptive right to maintain their relative voting power. To do this in the context of the Third Replenishment voting adjustment would introduce serious complications which might delay the completion of the Third Replenishment arrangements. Fortu­ nately, the three members concerned have agreed to provide the additional resources by way of contributions not carrying voting rights (net of their respective proportionate shares of the amount available for subscription by Part II members under Section D of the resolution; see page 219, footnote 2, above). It is the understand­ ing of the Executive Directors that this will not preclude any of the three members from requesting subsequently that the Association convert all or part of these contributions into subscriptions carrying voting rights. The Association will then decide the terms and condi­ tions on which contributions may be so converted. The Executive Directors express their appreciation of the understanding shown by the members concerned.

'Except for very slight changes resulting from the restoration for each member of the .25% ratio of membership rates to potential subscription votes (see Table I, footnote (d) and Table II, footnote (e)).

224 Other A dditional Supplementary Resources 16. Consideration has been given to whether the provision by indi­ vidual members of additional resources to the Association after the Third Replenishment (e.g. similar to those made in the past by Denmark, Norway and Sweden) should be made in the form of subscriptions carrying votes, or, as in the past, in the form of con­ tributions not carrying votes. The voting power adjustment arrange­ ments outlined in paragraph 13 above adjust subscription votes for all contributions which have been made in the past, as well as those being made under the Third Replenishment. It would be consistent with these arrangements to provide that additional resources thus made available to the Association should also carry votes so that the relative voting power of each member can continue to correspond, as closely as practical, to its relative share in contributions. How­ ever, a final decision on this matter, including the basis on which such votes would be accorded, would be taken by the Association at the time when it takes action to accept the resources. Further Study of Problem of Adjustment of Voting Power 17. The discussions which were held in connection with the making of the arrangements for the Third Replenishment have shown that the problem of an adjustment of Part I members' voting power in­ volves a number of complex and difficult problems. Among the problems raised by an adjustment is the fact that any adjustment of the voting power of the Part I members will, under the Articles of Agreement as they now stand, necessarily result in a reduction of the relative voting power of the Part II members unless they make additional subscriptions so that they can also obtain additional votes (see paragraph 13 above). The Executive Directors have therefore concluded that, in the light of earlier discussions on the SUbject, fur­ ther study should be given to the problem of adjustment of voting power, including among other things an amendment of the Articles of Agreement if this should be required as a long-term solution to the problem of adjustment of voting power, such study to be com­ pleted in time to enable its conclusions to be submitted to the Board of Governors at their 1971 Annual Meeting.

General Consideration 18. The Executive Directors consider that arrangements under the Third Replenishment should be regarded as without prejudice to any arrangements in connection with subsequent replenishments. Effective Date of the Third Replenishment 19. It is proposed that the Third Replenishment should not become effective, and the obligation to contribute new resources should not

225 become binding on any member, unless and until members, includ­ ing at least 12 Part I members, whose contributions and subscrip­ tions aggregate not less than $1,900 million, give the Association formal notification that they will make both the contribution and the subscription authorized for each of them. On the date when that condition shall have been satisfied, each member who shall have given the Association such notification shall be entitled to the voting rights accorded to its subscription as specified in the attached reso­ lution. Each member which on any date thereafter shall give the Association such notification shall be entitled, as of that date, to the voting rights accorded to its subscription as specified in the attached resolution. Recommendation 20. The Executive Directors recommend that the Board of Governors (a) adopt the draft resolution attached ... to this ReporF; and (b) note the study attached" [as Annex B] to this Report.

ApPENDIX TO THE REPORT Payments to be Made without Substitution of Notes or Similar Obligations July 21, 1970 Member Dates of Payment Amount of Payment (a) Germany November 8, 1971 * $50,000,000 November 8, 1972 50,000,000 November 8, 1973 67,000,000 November 8, 1974 67,000,000 (b) Luxembourg November 8,1971 * 300,000 November 8, 1972 400,000 November 8, 1973 500,000 (c) Norway November 8, 1971 * 6,000,000 November 8, 1972 8,000,000 November 8, 1973 10,000,000 This report was accepted by the Board of Governors and its conclusion adopted on February 17, 1971.

'See page 202. 'See page 230. 'Or such later date as may be fixed pursuant to paragraphs 4(c), (I) and (g) of the Resolu­ tion submitted by the Executive Directors to the Board of Governors entitled "Additions to Resources,' Third Replenishment."

226 TABLE I IDA THIRD REPLENISHMENT Adjustment of Voting Rights of Part I Members (Thousands of dollars, a number of votes and percentages)

AdditIOnal Resources from Part I Members Part I Total Subsc Under the 3td Replen. and Addit. Res. Adjustment of Votes Adjusted Voting Power Incl. 3td Replen. Imtlal SubscriptlOnsb Present Voting Powerb Tolal Addl! Subscr. Contrih. Addit. Additional Subser. Votes Member- Total Votes % % No of % % % % carrying % Subser. Member- % ship % % Amount Part Ie total Votes Part I total Amount Patti Amount Part I no votes Amount Part I Votes ship Votes d Number Part I Votes Number Part I total (1) (21 (3) 141 (5) 161 (7) (8) (9) (10) (11) (121 (13) (14) (15) (16) (17) (18) (19) (20) (21) Australia 20,180.0 2.69 1.99 4,536 2.85 178 48,000.0 2.00 58344 197 47.416.56 1ll,980.0 2.18 7,293 1,250 11,329 2.18 1.750 13,079 1.37 1.48 Austria 5,040.0 .67 .50 1,508 .95 .59 16,320.0 .68 197.92 .67 16,122.08 34,560.0 .67 1,474 1,250 3,482 .67 1.750 5,232 .95 .59 Belgium 8,250.0 1.10 81 2,150 135 .84 40,800.0 1.70 495.76 1.68 40,304.24 )) .700.0 1.51 6,197 1,250 7,847 1.51 1.750 9,597 1.74 1.09 Canada 37,830.0 5.03 3.73 8,066 5.06 3.16 150,000.0 6.26 1,851.84 6.27 148,148.16 304,530.0 5.91 23,148 1,250 30,714 591 1.750 32.464 5.89 3.67 Denmark 8.740.0 1.16 .86 2,248 141 .88 26.400.0 1.10 433.92 1.47 25,966.08 70,840.0 138 5.424 1,250 7.172 1.38 1.750 8,922 1.62 1.01 Finland 3,830.0 .51 .38 1,266 .79 .49 12,240.0 .51 12168 41 12,118.32 22.448.0 44 1.521 1,250 2,287 .44 1.750 4,037 .73 .46 France 52,960.0 7.05 5.22 11,092 6.96 4.34 150,000.0 6.26 2,075.36 702 147,924.64 362,032.0 7.03 25,942 1,250 36,534 7.03 1.750 38,284 6.95 4.33 Germany 52,960.0 7.05 5.22 11,092 696 4.34 234,000.0 9.76 3,002.56 10.16 230,997.44 476,560.0 9.26 37,532 1.250 48,124 9.26 1.750 49,874 9.05 5.64 Italy' 18,160.0 2.42 1.79 4,132 2.59 1.62 96.720.0 4.03 1,26856 4.29 95,451.44 193,2400 3.75 15,857 1,250 19,489 3.75 1.750 21,239 3.85 2.40 Japan 33,590.0 4.47 3.31 7,218 4.53 2.83 144,000.0 6.00 1.765.84 5.98 142,234.16 285,320.0 5.54 22,073 1,250 28.791 5.54 1.750 30,541 5.54 3.46 Kuwait 3,360.0 .45 .33 1.172 .74 .46 10,800.0 .45 13336 .45 10,666.64 22,920.0 .45 1,667 1,250 2,339 .45 1.750 4,089 .74 .46 N Luxembourg 375.0 .05 .04 575 .36 .22 1,200.0 .05 14.80 .05 1.185.20 2,550.0 .05 185 1,250 260 .05 1.750 2,010 .36 .23 N Netherlands 27.740.0 3.69 2.73 6,048 3.80 2.37 67,560.0 2.82 695.28 2.35 66,864.72 141,080.0 274 8,691 1.250 14,239 2.74 1.750 15,989 290 1.81 -...J Norway 6.720.0 .89 .66 1,844 116 .72 24,000.0 1.00 291.60 .99 23.708.40 49,320.0 .96 3,645 1.250 4,989 .96 1.750 6.739 1.22 .76 South Africa 10,090.0 1.34 1.00 2,518 1.58 .99 3,000.0 .13 .72 2,999.28 20,080.0 .39 9 1,250 2,027 .39 1.750 3,777 .69 43 Sweden 10,090.0 1.34 1.00 2,518 1.58 99 102,000.0 425 1,501.60 5.08 100,498.40 206,225.0 4.00 18.770 1,250 20.788 4.00 1.750 22,538 4.09 2.55 United Kingdom 131,140.0 17.46 12.93 26.728 16.79 10.47 311,040.0 12.97 3,510.31 11.88 307,529.68 694,300.0 13.49 43,879 1.250 70,107 1349 1.750 71,857 13.04 8.13 United States 320,290.0 42.63 31.58 64,558 40.54 25.28 960,000.0 40.03 11,609.52 39.28 948,390.48 2,072.2900 40.25 145,119 1.250 209,177 40.25 1.750 210,927 38.27 23.87 Total, Part I Members 751,345.0 100% 74.08 159,269 100% 62.37 2,398,080.0 100% 29,554.08 100% 2,368,525.92 5.147,975.0 100% 369,426 22,500 519,695 100% 31.500 551,195 100% 62.37 Total, Part II Members 37.63 117.722 108.750 108,305 37.63 Grand Total 100% 497,148 131,250 700,000 100%

a Amounts In terms of United States dollars of the weight and fineness in effect on January 1, 1960. b Initial subscriptions and presentvotirtg power refer 10 the status of memhershipas of June 30,1970. C This column also shows the present relative voting power (Without regard to membership votes) among Part I members as of June 30, 1970. d Under the Articles of Agreement, membership votes were fixed for the Initial subscriptions of original members to represent for each member .25% of total potential subscription votes. Since new members have Joined the Association, but no readjustment of membership votes has been made, the 500 membership votes presently held by each member represents .2465% of the total of present subSCription votes. Under the Third Replenishment, additional member­ ship votes are given in connection with the makmg of additional subSCriptions so that each member's membership votes Will again become .25% 01 the total potential subSCription votes ThiS results In very minor changes in the relative voting power among Part II members, but does not affect the total voting power of the Part II members or the Part I.' Part II voting power relationship. e Assumes thiS member has deposlled Its notification that it Will make ItS contributIOn to the Second Replenishment. I less than .005%. Because of rounding detail may not add to total. TABLE II IDA THIRD REPLENISHMENT Adjustment of Voting Rights of Part II Members (Thousands of dollars,a number of votes and percentages)

b b Adjustment of Votes Adjusted Vollng Power Imtlal SUbSCriptlOns Present Votll1g Power Additional Part II Addl! Subser d No. Of Resources in Add I Subser Membership Total Voles Amount % Parille %Iolal Votes %Parlll %Iolal Usable form Amoul'lt % Part II ~:--'--- Votes votes Number % Partl] %Iolal ,I) \2) (3) (4) ,51 (6, (71 (8) (9) 112) li3) (14) (15) (I6) AfghanIStan 1,010.0 .38 .10 702 .73 27 3880 .38 485 1,250 687 1,750 1,437 .73 .27 Algeria 4,030.0 \.53 .40 1,306 1.36 51 156.32 153 1,954 1,250 1,760 l.750 4,510 136 51 Argentina 18,830.0 7.16 186 4,266 4.44 \.67 731.60 716 9,145 1,250 11,911 l.750 14,661 441 \.66 Bolivia 1,060.0 .40 .10 7\2 .74 18 4088 .40 511 1,250 713 1,750 2,473 74 .18 Botswana 160.0 .06 02 532 .55 .21 616 06 77 1,250 109 l.750 1,859 .56 .21 BraZil 18,830.0 7.16 \.86 4,266 4.44 1.67 731.60 7.16 9,145 l.250 12,911 l.750 14,661 4.41 \.66 Burma 2,020.0 .77 .20 904 .94 35 78.72 .77 984 1,250 1,388 1,750 3,138 94 .35 Burundi 760.0 .29 .07 652 .68 26 29.68 .29 371 1,250 523 l.750 2,273 68 .26 Cameroon 1,010.0 .38 .10 702 .73 .27 3880 .38 485 1.250 687 1.750 2,437 .73 .27 Central African RepublIC 500.0 .19 .05 600 .63 23 1944 .19 243 1,250 343 1,750 2,093 .63 24 Ceylon 3,030.0 1.15 .30 1,106 U5 43 117 52 U5 1,469 1,250 2,075 1.750 3,825 115 .43 Chad 500.0 .19 05 600 .63 23 19,44 .19 243 1,250 343 1,750 2,093 63 .24 Chile 3,530.0 \.34 .35 1,206 1.26 47 136.96 1.34 l.712 l.250 2,418 1,750 4,168 1.26 .47 China 30,260.0 1\.51 298 6,552 6.82 2.57 1,17608 11 51 14,701 1,250 20,753 1.750 22,503 6.77 2.55 Colombia 3,530.0 \.34 .35 1,206 1.26 47 136.96 134 1,7\2 l.250 2,418 l.750 4,168 1.26 .47 Congo, People's RepublIC of 500.0 .19 .05 600 .63 23 19.44 .19 243 l.250 343 l.750 2,093 .63 .24 Congo, DemocratIC Rep. of 3,020.0 U5 30 1,104 U5 .43 117.52 115 1,469 l.250 2,073 l.750 3,823 U5 .43 Costa RICa 200.0 .08 .02 540 .56 .21 816 08 102 l.250 142 l.750 1,892 .57 .21 Cyprus 760.0 .29 .07 652 .68 .26 29.68 .29 371 l.250 523 l.750 2,273 .68 .26 tv Dahomey 500.0 19 .05 600 .63 .23 19.44 .19 243 l.250 343 1,750 2,093 .63 .24 tv DominICan RepublIC 400.0 15 .04 580 .60 .23 15.36 .15 192 l.250 272 1,750 2,022 .61 23 00 Ecuador 650.0 25 .06 630 .66 25 25.60 .25 320 1,250 450 1,750 2,200 .66 .25 EI Salvador 300.0 .11 .03 560 .58 .22 11 28 .11 141 l.250 201 1,750 1,951 .59 .22 Ethiopia 5000 .19 .05 600 .63 .23 19.44 .19 243 1,250 343 l.750 2,093 .63 .24 Gabon 500.0 .19 .05 600 63 .23 19,44 .19 243 1,250 343 l.750 2,093 63 .24 Gambia, The 276.0 .10 .03 553 .58 .22 10 24 .10 128 l.250 181 l.750 1,931 58 .22 Ghana 2,360.0 90 .23 972 1.01 .38 92.00 .90 U50 1,250 1,622 1,750 3,372 101 .38 Greece 2,520.0 96 .25 1,004 1.04 39 98.08 .96 1,226 1,250 l.730 l.750 3,480 \.05 .39 Guatemala 400.0 .15 .04 580 .60 23 15.36 15 192 1,250 272 1,750 2,022 .61 .23 Guinea 1,010.0 .38 .10 702 .73 27 38.80 38 485 1,250 687 l.750 2,437 .73 .27 Guyana 810.0 .31 .08 662 .69 .26 31.68 31 396 l.250 558 l.750 2,308 .70 .26 Haiti 760.0 .29 .07 652 .68 26 2968 .29 371 1.250 523 1,750 2,273 .68 .26 Honduras 300.0 .11 .03 560 .58 .22 1\.28 11 141 l.250 201 1,750 1,951 .59 .22 Iceland 100.0 .04 .01 520 .54 .20 4.08 .04 51 1250 71 l.750 1,821 .55 .21 Ind" 40,350.0 15.35 3.98 8,570 8.92 3.36 1,568.48 1535 19,606 l.250 27,676 l.750 29,426 8.85 3.33 IndoneSia 11,1000 4.22 \.09 2,720 283 \.07 431.20 422 5,390 l.250 7,610 l.750 9,360 2.82 1.06 Iran 4,540.0 1.73 .45 1,408 1.47 .55 176.80 1.73 2,210 l.250 3,118 l.750 4,868 1.46 .55 Iraq 760.0 .29 .07 652 .68 .26 2968 29 371 1.250 523 l.750 2,273 .68 .26 Ireland 3,030.0 U5 .30 1,106 U5 .43 3,882.48 117.52 l.l5 1,469 1.250 2,075 l.750 3,825 115 .43 Israel 1,680.0 .64 .17 836 .87 .33 65.44 .64 818 l.250 1,154 l.750 2,904 .87 .33 Ivory Coast 1,010.0 .38 .10 702 .73 .27 38.80 .38 485 1,250 687 l.750 2,437 .73 .27 Jordan 300.0 .11 .03 560 68 .22 11.28 .11 141 1.250 201 1,750 1,951 .59 .22 Kenya 1,680.0 .64 .17 836 .87 .33 65.44 .64 818 l.250 1,154 l.750 2,904 .87 .33 Korea 1,260.0 .48 .12 752 78 .30 49.04 .48 613 1.250 865 l.750 2,615 79 .29 a Amounts in terms of United States dollars of the weight and fineness In effect on January 1, 1960. b Initial subscriptions and present voting power refer to the status of membership as of June 30, 1970. C This column also shows the present relative voting power (Without regard to membershiP votes) among Part II members as of June 30,1970, d Part II additional subscriptionsarealJocated on the basIs of share sin Inlilal subscriptions e Under the Articles of Agreement, membership votes were fix!!d for the Inilial subSCriptions at original members to represent for each member 25% of total potential subScriptIOn lIoles Since new members halle JOined the ASSOCiation, but no readjustment of membership lIotes has been made, the 500 membership lIotes presenlly held by each member r!!presents 2465% 01 the total of present SubScription lIotes. Under the Third Replenishment, addltlOnal membership lIotes are given in connechon with the makm& at additional SubScriptIOns so thai each member's memb!!rshJp votes Will again become .25% of t~e total potential subSCriptIOn votes ThiS results In very minor changes in the relatille vollng power among Part It members, but does not affect the total votmg power of the Part Ii members or the Part I/Parl Ii voting power relatIOnship. TABLE II (Cont.) IDA THIRD REPLENISHMENT Adjustment of Voting Rights of Part II Members (Thousands of dollars, a numbero! votes and percentages) Adjustment of Votes Adjusted Voting Power Initial Subscflptionsb Present Voting Power b Additional No. 01 Resources in Part II Addlt. SubseT d Additional Additional Sub~cr . Membership Total Votes Amount %Partllc % total votes % Part II % total Usable Form Amount % Part II Sub. Votes Membership Votese Votes Votes Number % Part II % total ,I) (I, (31 ,41 (5) (61 --'-')- (8) (9) dO) (11) il2) (13) (14) (15) !l6) Laos 500.0 .19 .05 600 .63 .23 19.44 .19 243 1,250 343 1,750 2,093 .63 .24 Lebanon 450.0 .17 .04 590 .61 .23 17.36 .17 217 1,250 307 1,750 2,057 .62 .23 Lesotho 160.0 .06 .02 532 .55 .21 6.16 .06 77 1,250 109 1,750 1,859 .56 .21 Liberia 760.0 .29 .07 652 .68 .26 29.68 .29 371 1,250 523 1,750 2,273 .68 .26 Lybian Arab RepublIC 1,010.0 .38 .10 702 .73 .27 38.80 .38 485 1,250 687 1,750 2,437 .73 .27 Malagasy Republic 1,010.0 .38 .10 702 .73 .27 38.80 .38 485 1,250 687 1,750 2,437 .73 .27 Malawi 760.0 .29 .07 652 .68 .26 29.68 .29 371 1,250 523 1,750 2,273 .68 .26 Malaysia 2,520.0 .96 .25 1,004 1,04 .39 98,08 .96 1,226 1,250 1,730 1,750 3,480 1.05 .39 Mali 870.0 .33 .09 674 .70 .26 33.76 .33 422 1,250 596 1,750 2,346 .71 .26 Mauritama 500.0 .19 .05 600 .63 .23 19.44 .19 243 1,250 343 1,750 2,093 .63 .24 Mauritius 860.0 .33 .08 672 .70 .26 33.76 .33 422 1,250 594 1,750 2,344 .71 .26 Mexico 8,740.0 3.33 .86 2,248 2.34 .88 340.24 3.33 4,253 1,250 6,001 1,750 7,751 2.33 .88 Morocco 3,530.0 1.34 .35 1,206 1.26 .47 136.96 1.34 1,7\2 1,250 2,418 1,750 4,168 1.26 .47 Nepal 500.0 .19 .05 600 .63 .23 19.44 .19 243 1,250 343 1,750 2,093 .63 .24 Nicaragua 300.0 .11 .03 560 .58 .22 11.28 .11 141 1,250 201 1,750 1,951 .59 .22 Niger 500.0 .19 .05 600 .63 .23 19.44 .19 243 1,250 343 1,750 2,093 .63 .24 Nigena 3,360.0 1.28 .33 1,\72 1.22 .46 130.80 1.28 1,635 1,250 2,307 1,750 4,057 1.22 .46 Pakistan 10,090.0 3.84 1.00 2,518 2.62 .99 392.40 3.84 4,905 1,250 6,923 1,750 8,673 261 .98 Panama 20.0 .01 , 504 .52 .20 1.04 .01 13 1,250 17 1,750 1,767 .53 .20 Paraguay 300.0 .11 .03 560 .58 .22 11.28 .11 141 1,250 201 1,750 1,951 .59 .22 N Peru 1,770.0 .67 .17 854 .89 .34 68.48 .67 856 1,250 1,210 1,750 2,960 .89 .34 N Philippines 5,040.0 1.92 .50 1,508 1.57 .59 196.24 1.92 2,453 1,250 3,461 1,750 5,21\ 1.57 .59 \0 Rwanda 760.0 .29 .07 652 .68 .26 29.68 .29 371 1,250 523 1,750 2,273 .68 .26 Saudi Arabia 3,700.0 1.41 .36 1,240 1.29 .49 144.08 1.41 1,801 1,250 2,541 1,750 4,291 1.29 .48 Senegal 1,680.0 .64 .17 836 .87 .33 65.44 .64 818 1,250 1,154 1,750 2,904 .87 .33 Sierra Leone 760.0 .29 .07 652 .68 .26 29.68 .29 371 1,250 523 1,750 2,273 .68 .26 Somalia 760.0 .29 .07 652 .68 .26 29.68 .29 371 1,250 523 1,750 2,273 .68 .26 Spain 10,090.0 3.84 1.00 2,518 2.62 .99 2,107.60 392.40 3.84 4,905 1,250 6,923 1,750 8,673 2.61 .98 Sudan 1,010.0 .38 .10 702 .73 .27 38.80 .38 485 1,250 687 1,750 2,437 .73 .27 Swaz,land 320.0 .12 .03 564 .59 .22 12.32 .12 154 1,250 218 1,750 1,968 .59 .22 Synan Arab Republic 950.0 .36 .09 690 .72 .27 36.80 .36 460 1,250 650 1,750 2,400 .72 .27 Tanzania 1,680.0 .64 .17 836 .87 .33 65.44 .64 818 1,250 1,154 1,750 2,904 .87 .33 Thailand 3,030.0 1.15 .30 1,106 1.15 .43 1\7.52 1.15 1,469 1,250 2,075 1,750 3,825 1.15 .43 Togo 760.0 .29 .07 652 .68 .26 29.68 .29 371 1,250 523 1,750 2,273 .68 .26 Tunisia 1,510.0 .58 .15 802 .83 .31 59.28 .58 741 1,250 1,043 1,750 2,793 .84 .32 Turkey 5,800.0 2.21 .57 1,660 1.73 .65 225.84 2.21 2,823 1,250 3,983 1,750 5,733 1.73 .65 Uganda 1,680.0 .64 .17 836 .87 .33 65.44 .64 818 1,250 1,154 1,750 2,904 .87 .33 United Arab RepublIC 5,080.0 1.93 .50 1,516 1.58 .60 197.20 1.93 2,465 1,250 3,481 1,750 5,231 1.57 .59 Upper Volta 500.0 .19 .05 600 .63 .23 19.44 .19 243 1,250 343 1,750 2,093 .63 .24 Viet-Nam 1,510.0 .58 .15 802 .83 .31 59.28 .58 741 1,250 1,043 1,750 2,793 .84 .32 Yemen Arab Republic 430.0 .16 .04 586 .61 .23 16.40 .16 205 1,250 291 1,750 2,041 .61 .23 Yugoslav" 4,040.0 1.54 .40 1,308 1.36 .51 3,882.64 157.36 1.54 1,967 1,250 2,775 1,750 4,525 1.36 .51 lamb" 2,690.0 1.02 .27 1,038 1.08 .41 104.24 1.02 1,303 1,250 1,841 1,750 3,591 1.08 .41 Total, Part II Members 262,917 .0 100r, 25.92 96,083 100r, 37.63 9,872.72 10,217.76 100r, 127 ,722 108,750 180,305 152,250 332,555 100r, 37.63 a Amounts in terms of Umted States dollars of the weight and fineness in effect on January 1, 1960. b Inillal subscriptions and present voting power refer to the status 01 membership as of June 30, 1970, c This column also shows the present relative voting power (Without regard to membership votes) among Part II members as of June 30, 1970. d Part II additional subSCriptions are allocated on the baSIS of shares In initial subscriptions. e Under the Articles 01 Agreement. membership votes were fixed for the lIutial subSCriptions of Qngmal members to represent for each memr , "'01, .,., "r but no readjustment of membership votes has been made, the 500 membership votes presently held by each member represents .2465% of II I 1.1 I I' . ,II, il r"l i,. votes are given in connection With the making 01 additional subscriptions so that each member'smembershlpvoteswillagaln become .25% I II . I I~I ~ Ir .1, I "I" , , 'J'-'" '. , power among Part II members, but does not affect the total voting power 01 the Part II members or the Part I/Part II voting power relatIOnship. .' f Less than .005%. Because of rounding detail may not add to total. ANNEXB July 21,1970 Study by the Executive Directors On the Means for Providing Additional Resources to the Association and of an Adjustment of Voting Rights Introduction 1. Paragraph 23 of the Report dated March 8, 1968, of the Execu­ tive Directors to the Board of Governors recommending approval of the Second Replenishment stated as follows: "The Executive Directors will undertake a study, to be completed before the resources provided under the Second Replenishment are fully committed, of the means which have been employed and which might be employed for the provision of additional resources to the Association. This study will include a review of the desirabil­ ity of providing additional resources through loans on appropri­ ately concessional terms and conditions from member countries in addition to or in lieu of subscriptions and/or contributions. The study will also include a review of the desirability and practica­ bility of adjusting (with or without amendment of the Articles of Agreement) the voting power as among Part I member countries to reflect their total financial contributions to the Association, without affecting the voting rights of Part II member countries." The study which has been made pursuant to that Report is set forth in this memorandum. I. Means for Providing Additional Resources to the Association 2. As of June 30, 1970, the overwhelming majority of the usable resources available to the Association had come from the subscrip­ tions of Part I members ($751.3 million, or 23.3%), and from con­ tributions from the same members ($1,998.6 million, or 61.9%). Resources Available to the Association ($ million) 1. Subscriptions by Part I members 751.3 by Part II members ( excluding unreleased portions) 44.3 795.7 2. Contributions First Replenishment 744.7 Second Replenishment 1,188.01 Special 65.8 1,998.61 3. Swiss Loan 12.1 4. Transfers from IBRD net income 385.0 5. Net income and repayments 38.6 3,229.9 'Includes a contribution of $48.4 million by one member jor which final legislative ap­ proval has not yet been obtained. 230 Though the Association has no "capital" of the conventional type, shares of which are "owned" by the members, the subscriptions clearly have the character of permanent capital. They carry the vot­ ing rights of the membership and have some of the characteristics of permanent capital, being refundable only on liquidation or with­ drawal. The contributions which have been made have the same characteristics, but they carry no voting rights. 3. Initially, all the resources available to the Association were the result of subscriptions by members. The concept of contributions without voting rights was introduced in connection with the First Replenishment when it was desired to find some way by which only Part I members could contribute to the Association's resources without reducing the relative voting power of the Part II members." For the same reason, resources for the Second Replenishment were also made available in the form of contributions. The result has been that the relative voting power of the Part II members has been preserved through the first two replenishments. 4. The terms and conditions on which the Association's resources have been replenished to date have been challenged by some Part I members on two separate scores. First, it was felt by a few members that, as a matter of principle, an institution that makes loans can, and should, be financed by loans. Secondly, it was felt that the con­ tinued use of contributions carrying no voting rights was increas­ ingly unsatisfactory as relative contributions diverged more and more from relative voting power. It was the expression of these concerns during the negotiations preceding the Second Replenish­ ment which led to the present study. Loans, Contributions or Subscriptions 5. In the past, the Association was reluctant to be dependent on loans for a substantial part of its additional resources for two rea­ sons. First, its "equity" base was small; and in view of the fact that the Association lends to the weaker credit risks, the likelihood that some of the Association's borrowers would be unable to meet their obligations was relatively high. Taken together, these factors would have made it most unwise for the Association to assume large debts. At present, with "equity" in the form of subscriptions and contri­ butions being almost the only resources used by the Association, this argument loses much of its force. 6. Secondly, there was the risk that, once the principle of replenish­ ment by loans was accepted, there would be a tendency on the part

lThat this was the motivation behind the adoption of contributions is clearly implied in para. 10 of the Report of the Executive Directors to the Board 0/ Governors on Additions to IDA Resources and Membership of Belgium and Membership of LuxembourK. dated Septemher 9. 1963.

231 of the lenders to introduce an interest charge on these loans which would have to be passed on by the Association to its borrowers. This argument still has considerable weight. 7. The argument that the Association should continue making in­ terest-free credits does not rest on any view that such terms are generally necessary if development is to proceed, but rather on the belief that a leavening of such soft money is critically necessary given the fact that most other financial flows, both official and private, are on considerably harder terms. Frequently, Association funds are "blended" with loans on harder terms within the Bank group itself; more than half the credits of the Association extended during FY1970 were to countries also receiving Bank loans, at the standard 7% rate of interest. A 50/50 blend of Bank/Association money already results in a net cost to the borrower of more than 3 %; were the Association obliged to charge 3 % interest on its credits in ad­ dition to the 0.75% service charge, this average would rise to approximately 5 % . 8. Some argued that making resources available to the Association in the form of loans would make it easier for members to contribute to the replenishment. Discussion among the representatives of the Part I members revealed, however, that for the time being only a few governments saw any advantage in the use of loans. 9. On balance, therefore, it is believed that loans should not be used by member countries to replenish the resources of the Association during the Third Replenishment. This would not preclude recon­ sideration of this matter on the occasion of subsequent replenish­ ments. As for the question whether the resources provided for the Third Replenishment should take the form of SUbscriptions or con­ tributions or both, this is discussed below in Part II of this study. II. Adjustment of Voting Rights 10. This portion of the study will cover the following SUbjects: (a) past practice regarding voting; (b) voting provisions of the Articles of Agreement; (c) the desirability and practicability of an adjustment in voting power of Part I members; (d) the basis for such an adjustment, including (i) the effect of such an adjustment on Part II members; and (ii) the problem of membership votes; and (e) the further study of a long-term solution of the voting power adjustment problem.

232 Past Practice 11. When the Articles of Agreement of IDA were drafted, it was decided to follow, as closely as practicable, the voting power system of the Bank. In the Bank voting power is based on subscriptions to shares of capital stock (each of $100,000 par value) with each member having 250 votes plus 1 additional vote for each share of stock held. Votes in the case of the Bank are thus in proportion to subscriptions, except for a weighting in favor of the smaller coun­ tries resulting from giving all countries a minimum number of votes regardless of the amount of their subscriptions and irrespective of the extent to which the subscriptions are used by the Bank. 12. In the case of the Association basically the same system was followed, with members having a minimum number of 500 votes (votes of this kind are herein called membership votes) and one vote for each $5,000 of initial subscription (votes of this kind are herein called subscription votes).l These subscriptions were divided into two categories: the subscriptions of Part I members were pay­ able in full in gold or convertible currencies, whereas 10% of the subscriptions of Part II members was payable in gold or convertible currencies with the balance being payable in a member's own cur­ rency which could be used by the Association only if certain condi­ tions were satisfied and with the agreement of the member concerned. However, both categories of subscriptions carry the same voting rights. 13. Up to now all votes in the Association have been based entirely on the initial subscriptions of members, both original members and other members, under the formula stated above. Tables I and II show the subscriptions of members and their voting power. As the tables show, as of June 30, 1970, Part I members had 62.37 % of total voting power and Part II members had 37.63%. 14. The increases in the Association's resources (in addition to the initial subscriptions and the Swiss loan) have been effected in two ways: (a) under the First and Second Replenishments, by contribu­ tions from Part I members generally, rather than by subscriptions; and (b) from several members (i.e. Denmark, Norway and Sweden) by special supplementary contributions. Since contributions carry no voting rights, the relative voting power both among members

IThe reason for using this voting formula was explained in the Report dated January 26, 1960, of the Executhe Directors of the Bank accompanying the submission of the Articles oj Agreement oj the Association to member gOl'ernments. This Report stated as follows: "VotinK Ril(hts. 9. The rating rights oj ori1:il1al members in respect of their initial subscriptions, prescribed hy A rtide V I, Section 3. are in general based on the Bank pattern of voting rights. Assum­ ing that all members of the Bank become original members of the Association, members will ha\'e approximately the same relatil-e ,'oting power in the Association as in the Bank followillg completion of the recent capital increases, but adjusted to restore the l'oting power 0/ the smaller Bank members which was somewhat diluted by those capital increases."

233 individually and between Part I and Part II members as groups has not been affected by the increases in the Association's resources.

Articles of Agreement 15. As far as voting rights are concerned, the relevant provisions of the Articles of Agreement are as follows: Under Article VI, Section 3 (a), subscriptions other than initial subscriptions of original members shall carry such voting rights as the Board of Governors shall determine pursuant to the provisions of Article II, Section I (b) or Article III, Section 1 (b) and (c), as the case may be. Article II, Section l(b) provides that membership shall be open to members of the Bank (in addition to the original members) at such times and in accordance with such terms as the Association may determine. Article III, Section l(b) provides that, subject to the provisions of paragraph (c), when additional sub­ scriptions are authorized, the amounts authorized for subscriptions and the terms and conditions relating thereto, shall be as determined by the Association. Paragraph (c) provides that when any additional subscription is authorized, each member shall be given an oppor­ tunity to subscribe, under such conditions as shall be reasonably determined by the Association, an amount which will enable it to maintain its relative voting power, but no member shall be obligated to subscribe. Under Article IX(b)(ii), there can be no amendment of the Articles modifying the pre-emptive right thus secured by Article III, Section l(c) without the unanimous consent of all members. 16. Additional resources other than subscriptions cannot carry vot­ ing rights (Article VI, Section 3(a)).

17. The following general conclusions emerge from these provisions: (a) Additional voting rights can be conferred only on the basis of additional subscriptions. (b) Each member has the pre-emptive right to maintain its rela­ tive voting power when any additional subscription is authorized. This pre-emptive right can be waived by members, but there can be no amendment of the Articles modifying this right without the unanimous consent of all members. (c) Subject to (a) and (b) above, the Board of Governors is free to determine voting rights and other terms and conditions in con­ nection with additional subscriptions on any reasonable basis. (d) Since existing votes cannot be taken from a member, any adjustment in the voting power of the Part I members can only be made within the framework of a scheme according additional votes

234 and this, as stated above, can only be done in connection with additional subscriptions. Desirability and Practicability of Adjusting Voting Power of Part I Members 18. The first question raised is whether it is desirable to adjust the votes of Part I members to reflect their total financial contributions. The answer to this question depends essentially on two interrelated questions: (a) is the present system under which additional resources are provided in the form of contributions not carrying votes fair to Part I members and any individual Part II members willing to con­ tribute additional resources, and (b) what effect will any adjustment, or a decision to make no adjustment, have on future replenishments. In answering these questions, it is relevant to examine the relation between the amounts which have been contributed by each Part I member (by way of both subscriptions and contributions) and the present proportionate share of such member in the voting power of all Part I members. This is shown in Table I. 19. Table I shows that the voting power of nearly all Part I mem­ bers (without regard to membership votes) is not in exact proportion to the amount contributed by them. In some cases, the differences are substantial. As noted above, these differences have arisen be­ cause of the fact that a number of members have, since the making of their initial subscriptions, made additional contributions, not carrying voting rights, in proportions different from those fixed for the initial subscriptions. If future additions to resources are not to carry voting rights, these differences are likely to become even greater. 20. Can a system which results in differences of this kind continue indefinitely? It seems clear that this would be most unlikely. It can be expected that in the future some members may be willing to con­ tribute larger relative amounts than they have in the past. As a prac­ tical matter, the Association should put itself in the best position it can to attract increased resources from its members. A system which equates voting power with financial contributions is more likely to satisfy its members, and their legislatures, than a system which does not. Thus, it is likely that in the long run it would be desirable to have a system which apportions reasonably closely for each Part I member voting power in proportion to its financial con­ tributions to the Association's resources. 21. As far as the Third Replenishment is concerned, the conclusion has been reached that an adjustment should take place. Such an adjustment has been found to be practicable. The arrangements made, which also take account of the pre-emptive rights of Part II

235 members, are described in the Executive Directors' Report to the Board of Governors on the Third Replenishment.

Basis for Adjustment of Part I Voting Power without Amending the Articles of Agreement 22. Under the Articles of Agreement, as noted above, any adjust­ ment in the voting power of the Part I members can be made only by according additional votes to them in connection with additional subscriptions. Given this constraint, it appears that the most ap­ propriate arrangement to effect the adjustment would be to permit each Part I member, on the occasion of a replenishment, to provide in the form of a subscription part or all of the resources to be made available by it. The subscriptions and the voting rights carried by them would be calculated so that the proportion of each Part I member's subscription votes to the total of all Part I SUbscription votes (leaving aside membership votes) would be equal to its pro­ portionate share of the total resources made available by Part I members from initial subscriptions and contributions. This arrange­ ment was accepted for the Third Replenishment as shown in Table I.

Effect of Adjustment Arrangements on Part II Members 23. The conferring of additional votes on Part I members in the manner described in the foregoing paragraph would increase the voting power of the Part I members in relation to the voting power of Part II members unless they also made additional subscriptions for which they would receive additional votes sufficient to permit them to maintain their relative voting power. The amount of sub­ scriptions necessary so to be authorized for the Part II members in such a situation would depend on the amount of subscriptions authorized for the Part I members, which in tum depends on the cost of a vote. For example, if the cost of a vote remained at $5,000 (as it was for initial subscriptions) the amount of subscriptions which would have to be authorized for the Part I members under the Third Replenishment would have to be substantial, and so too would be the subscriptions for the Part II members. On the basis of allocating to Part I members the number of votes required satis­ factorily to implement the arrangements under the Third Replenish­ ment at $5,000 a vote, there would be required additional Part I subscriptions totaling $1.85 billion and additional Part II subscrip­ tions totaling $.64 billion in order to preserve the Part I/Part II voting power relationship. 24. Under the Articles of Agreement, however, it is legally possible to reduce this burden on Part II members (i) by reducing the cost of a vote to some figure below $5,000; and (ii) by providing that

236 payment of Part II subscription!'. would be on the same or less bur­ densome terms than those provided for in their initial sUbscriptions. 25. In order to make it easier for the Part II members to subscribe and thus to maintain their relative voting power it has been agreed that the cost of a vote under the Third Replenishment should be substantially less than under the initial subscriptions and that Part II subscriptions should aggregate the equivalent of approximately $10 million, all payable in the currency of the subscribing member. The cost of a vote has accordingly been fixed at $80 for purposes of the Third Replenishment. If all Part II members take up the additional subscriptions authorized for them as described above, their relative total voting power (i.e. initial subscription votes, all additional sub­ scription votes and all membership votes (see paragraph 26 below) ) will not be changed as a result of the adjustment proposed for the Third Replenishment.1 If no Part II member other than Ireland, Spain and Yugoslavia takes up its share of authorized additional subscriptions, the share of the Part II members in total voting power would fall to 16.41 % .

Membership Votes 26. A general problem which would arise whenever additional sub­ scriptions are authorized carrying votes is whether such subscrip­ tions should be issued on a basis which would preserve the weighting in favor of smaller members of the Association (whether Part I or Part II members) by each member's having been afforded 500 votes upon initial subscription. 27. As noted above, under the Articles of Agreement, in addition to the 500 initial membership votes, each member is given one vote for each $5,000 of initial subscriptions. Since the authorized initial subscriptions totaled $1 billion. total subscription votes (if the au­ thorized $1 billion had been fully subscribed) would have been 200,000. Consequently, each member's initial membership votes represented .25 % of the aggregate of potential subscription votes for all members. At present the initial membership votes account (i) as for Part I members, for 5.65 % of their total votes, (ii) as for Part II members, for 45.27% of their total votes, and (iii) as for all members, for 20.56% of their total votes. Membership votes thus represent a substantial component of the total voting power of the members of the Association, particularly for the Part II members. If additional votes are given for additional subscriptions to be made in the future, the weighting given to the smaller countries will be diluted unless additional votes are given to compensate for the

lExcept for rery sliKht changes resulting from the restoration for each member oj the .25% ratio of member.~hip \'otes to potential subscription rotes (see Table /, footnote (d) and Table II. footnote (e)).

237 dilution.1 One of the problems involved in considering the basis on which voting power should be adjusted is the treatment to be accorded membership votes. 28. As far as the Third Replenishment is concerned, the Executive Directors have concluded that, particularly in order to avoid the dilution of the voting power of the smaller members, it would be desirable to preserve the weighting in favor of the smaller members of the Association by providing for an adjustment of membership votes in connection with the voting power adjustment arrangements. 29. In considering the basis on which membership votes should be accorded, the question was raised as to whether membership votes can appropriately be accorded only to members making an addi­ tional subscription. The General Counsel is of the opinion, and the Executive Directions have concluded, that membership votes can be accorded only to members making an additional subscription. 30. As far as the Third Replenishment is concerned, the Executive Directors have concluded, taking into account the foregoing, that the most appropriate way to accord membership votes would be to provide that each member, upon making an additional subscription, would be entitled to additional membership votes (i.e., in addition to its subscription votes) calculated so that the total of its member­ ship votes would be .25% of the total of all potential subscription votes, as it was at the time of the fixing of the membership votes for original members under the Articles of Agreement of the Associa­ tion (see, in this connection, Table I, footnote (d) and Table II, footnote (e». This would mean that under the Third Replenishment, each member making the subscription authorized for it under the Third Replenishment would be entitled to 1 ,250 additional mem­ bership votes (see Table I, column 15, and Table II, column 11).

Further Study of Long-Term Solution of Voting Power Adjustment Problem 31. As can be seen from the foregoing, consideration of an adjust­ ment of the voting power of Part I members necessarily involves a number of complex and difficult problems which affect not only the relationship between the Part I and Part II members, but also the form in which new resources should be made available to the Associa tion.

lIt should be noted that in the case of the Bank 250 votes were gh'en to each member plus ] "ole for each slzare of stock subscribed. The ori1?inal authorized capital stock was $10 hillion: upon full subscription to this amount, members would hare been afforded 100,000 l'otes. Thus, the 250 membership l'otes also originally represented for each member .25% of the total of such rotes for capital stock. Howel'er. as the Bank's capital stack increased, additionall'otes were git'en, necessariI}' under the Bank's Articles, solely on the basis 0/ one I'ote for each additional share of stock of $100,000 par value subscribed. The result has been that the number 0/ membership l'otes held by each member is now .10% of total authorized potential subscription l'otes,

238 32. The Executive Directors have therefore concluded that, in the light of earlier discussions on the subject, further study should be given to the problem of adjustment of voting power, including among other things an amendment of the Articles of Agreement if this should be required as a long-term solution to the problem of adjustment of voting power, such study to be completed in time to enable its conclusions to be submitted to the Board of Governors at their 1971 Annual Meeting.

Summary 33. The conclusions of this study may be summarized as follows: I. Means jor Providing Additional Resources to the Association (a) Loans should not be used by member countries to replenish the resources of the Association during the Third Replenish­ ment. This would not preclude reconsideration of this matter on the occasion of subsequent replenishments; (b) The question whether the resources provided for the Third Replenishment should take the form of contributions or sub­ scriptions depends on the arrangements made for an adjust­ ment of voting power.

II. Adjustment oj Voting Rights (a) It would be desirable to have a system which apportions rea­ sonably closely for each Part I member voting power in pro­ portion to its financial contributions to the Association's resources; (b) Arrangements to this end have been made for the Third Re­ plenishment as follows: each Part I member would provide in the form of a subscription part of the resources to be made available by it; the subscription and the voting rights carried with it would be calculated so that the proportion of its sub­ scription votes to the total of all Part I subscription votes (i.e. excluding membership votes) would be equal to its proportionate share of the total resources made available by Part I members from initial subscriptions and contributions; (c) The conferring of additional votes on Part I members would increase the voting power of the Part I members in relation to the voting power of Part II members unless they also made additional subscriptions for which they would receive additional votes sufficient to permit them to maintain their relative voting power; (d) In order to make it easier for the Part II members to sub­ scribe and thus to maintain their relative voting power under

239 the Third Replenishment, the cost of a vote should be sub­ stantially less than under the initial subscriptions and Part II subscriptions should aggregate the equivalent of approxi­ mately $10 million, all payable in the currency of the sub­ scribing member; (e) A general problem which would arise whenever additional subscriptions are authorized carrying votes is whether such subscriptions should be issued on a basis which would pre­ serve the weighting in favor of smaller members of the Asso­ ciation (whether Part I or Part II members) by each member's having been afforded 500 votes upon initial subscription; (f) As far as the Third Replenishment is concerned, it would be desirable to preserve this weighting by providing that each member upon making an additional subscription would be entitled to additional membership votes (i.e. in addition to its subscription votes) calculated so that the total of its membership votes would be .25 % of the total of all potential subscription votes; (g) In the light of earlier discussions on the subject, further study should be given to the problem of adjustment of voting power, including among other things, an amendment of the Articles of Agreement if this should be required as a long­ term solution to the problem of adjustment of voting power, such study to be completed in time to enable its conclusions to be submitted to the Board of Governors at their 1971 Annual Meeting.

July 13,1971 Further Study of the Adjustment of Voting Power 1. Paragraph 17 of the Report dated July 21, 1970, of the Execu­ tive Directors to the Board of Governors recommending approval of the Third Replenishment concluded that, in the light of earlier discussions on the subject, further study should be given to the problem of adjustment of voting power, including among other things an amendment of the Articles of Agreement if this should be required as a long-term solution to the problem of adjustment of voting power, such study to be completed in time to enable its con­ clusions to be submitted to the Board of Governors at their Annual Meeting.' lSee paKe /95.

240 2. Attached hereto is a study, dated June 14, 1971, of the problem of adjustment of voting power which has been prepared by the staff and reviewed by the Executive Directors.

3. The Executive Directors have concluded that an amendment of the Articles of Agreement of IDA with respect to an adjustment of voting power should not be sought at this time, but that the matter should be kept under review in the light of the experience gained of the voting power adjustment under the Third Replenishment and in any event reconsidered at the time of the beginning of discussions concerning the Fourth Replenishment.

June 14,1971

Issues Raised by Study of Problem of Adjustment of Voting Power

Introduction 1. Paragraph 17 of the Report dated July 21, 1970, of the Executive Directors to the Board of Governors recommending approval of the Third Replenishment stated as follows: "The discussions which were held in connection with the making of the arrangements for the Third Replenishment have shown that the problem of an adjustment of Part I members' voting power involves a number of complex and difficult problems. Among the problems raised by an adjustment is the fact that any adjustment of the voting power of the Part I members will, under the Articles of A.greement as they now stand, necessarily result in a reduction of the relative voting power of the Part II members unless they make additional subscriptions so that they can also obtain addi­ tional votes (see paragraph 13 above). The Executive Directors have therefore concluded that, in the light of earlier discussions on the subject, further study should be given to the problem of adjustment of voting power, including among other things an amendment of the Articles of Agreement if this should be required as a long-term solution to the problem of adjustment of voting power, such study to be completed in time to enable its conclu­ sions to be submitted to the Board of Governors at their 1971 Annual Meeting." 2. It is therefore necessary for a study on the problems of an adjust­ ment of voting power to be made so that its conclusions can be submitted to the Board of Governors at their 1971 Annual Meeting. This memorandum reviews the principal issues which have to be considered by the Executive Directors.

241 Background 3. Paragraph 23 of the Report dated March 8, 1968, of the Execu­ tive Directors to the Board of Governors recommending approval of the Second Replenishment stated as follows: "The Executive Directors will undertake a study, to be completed before the resources provided under the Second Replenishment are fully committed, of the means which have been employed and which might be employed for the provision of additional re­ sources to the Association. This study will include a review of the desirability of providing additional resources through loans on appropriately concessional terms and conditions from member countries in addition to or in lieu of subscriptions and/or contri­ butions. The study will also include a review of the desirability and practicability of adjusting (with or without amendment of the Articles of Agreement) the voting power as among Part I member countries to reflect their total financial contributions to the Association, without affecting the voting rights of Part II member countries. " Pursuant to that injunction, the Executive Directors held extended discussions at the time the Third Replenishment arrangements were being considered and made a study (attached as Annex B to the Report of the Executive Directors), the principal conclusions of which were summarized as follows:

"I. Means for Providing Additional Resources to the Association (a) Loans should not be used by member countries to replen­ ish the resources of the Association during the Third Re­ plenishment. This would not preclude reconsideration of this matter on the occasion of subsequent replenishments; (b) The question whether the resources provided for the Third Replenishment should take the form of contributions or subscriptions depends on the arrangements made for an adjustment of voting power. II. Adjustment of Voting Rights (a) It would be desirable to have a system which apportions reasonably closely for each Part I member voting power in proportion to its financial contributions to the Asso­ ciation's resources; (b) Arrangements to this end have been made for the Third Replenishment as follows: each Part I member would provide in the form of a subscription part of the resources to be made available by it; the subscription and the voting rights carried with it would be calculated so that the pro-

242 portion of its subscription votes to the total of all Part I subscription votes (i.e. excluding membership votes) would be equal to its proportionate share of the total re­ sources made available by Part I members from initial subscriptions and contributions; (c) The conferring of additional votes on Part I members would increase the voting power of the Part I members in relation to the voting power of Part II members unless they also made additional subscriptions for which they would receive additional votes sufficient to permit them to maintain their relative voting power; (d) In order to make it easier for the Part II members to sub­ scribe and thus to maintain their relative voting power under the Third Replenishment, the cost of a vote should be substantially less than under the initial subscriptions and Part II subscriptions should aggregate the equivalent of approximately $10 million, all payable in the currency of the subscribing member; (e) A general problem which would arise whenever additional subscriptions are authorized carrying votes is whether such subscriptions should be issued on a basis which would preserve the weighting in favor of smaller members of the Association (whether Part I or Part II members) by each member's having been afforded 500 votes upon initial subscription; (£) As far as the Third Replenishment is concerned, it would be desirable to preserve this weighting by providing that each member upon making an additional subscription would be entitled to additional membership votes (i.e. in addition to its subscription votes) calculated so that the total of its membership votes would be .25 % of the total of all potential subscription votes; (g) In the light of earlier discussions on the subject, further study should be given to the problem of adjustment of voting power, including among other things, an amend­ ment of the Articles of Agreement if this should be re­ quired as a long-term solution to the problem of adjust­ ment of voting power, such study to be completed in time to enable its conclusions to be submitted to the Board of Governors at their 1971 Annual Meeting." 4. The Executive Directors approved arrangements under the Third Replenishment which reflected these conclusions and submitted a resolution to this end to the Board of Governors for their approval.

243 The Resolution was approved by the Board of Governors on Feb­ ruary 17, 1971. The Third Replenishment arrangements will be­ come effective on the date when members, including at least 12 Part I members, whose subscriptions and contributions aggregate not less than $1. 9 billion shall have given the Association, on or before June 30, 1971, or such later date as the Executive Directors may determine, formal notification that they will make both the subscriptions and contributions authorized for them.' After the effective date of the Third Replenishment, each member having given the Association such notification shall be entitled to the voting rights accorded its subscription as specified in the Resolution. 5. It is clear that the Third Replenishment voting power arrange­ ments stemmed from two basic conclusions which were reached by the Association in 1968 and which are not reexamined in this anal­ ysis: (a) that it would be desirable to have a system which appor­ tions voting power of Part I members in relation to their financial contributions, and (b) that it would be undesirable to reduce the relative voting power of the Part II members. On the assumption that these conclusions are still valid, the question that arises, there­ fore, is whether these objectives can be realized in the future by repeating the system adopted for the Third Replenishment (with suitable modifications) or whether the constraints of the Articles of Agreement as they now stand are serious enough to warrant amend­ ing them. In discussing these questions, consideration will be given, first, to the constraints imposed under the Articles of Agreement, second, to an examination of the problems involved in applying the Third Replenishment system in the future, and, third, to an examina­ tion of a possible amendment, if one is desired.

Articles of Agreement 6. As far as voting rights are concerned, the relevant provisions of the Articles of Agreement are as follows: 7. Under Article VI, Section 3 (a) subscriptions other than initial subscriptions of original members shall carry such voting rights as the Board of Governors shall determine pursuant to the provisions of Article II, Section 1 (b) or Article III, Section 1 (b) and (c), as the case may be. Article II, Section 1 (b) provides that membership shall be open to members of the Bank (in addition to the original members) at such times and in accordance with such terms as the Association may determine. Article III, Section 1 (b) provides that, subject to the provisions of paragraph (c), when additional subscrip­ tions are authorized, the amounts authorized for subscriptions and the terms and conditions relating thereto, shall be as determined by

'A list of formal notifications received by the Association Is set forth In Appendix A.

244 the Association. Paragraph (c) provides that when any additional subscription is authorized, each member shall be given an opportu­ nity to subscribe, under such conditions as shall be reasonably de­ termined by the Association, an amount which will enable it to maintain its relative voting power, but no member shall be obligated to subscribe. Under Article IX (b ) (ii), there can be no amendment of the Articles modifying the pre-emptive right thus secured by Article III, Section 1 (c) without the unanimous consent of all mem­ bers. Additional resources other than subscriptions carry no voting rights (Article VI, Section 3 (a) ). 8. The following general conclusions emerge from these provisions and from the interpretation which has been given to them under the Third Replenishment: (a) Additional voting rights can be conferred only on the basis of additional subscriptions. (b) Each member has the pre-emptive right to maintain its rela­ tive voting power when any additional subscription is authorized. This pre-emptive right can be waived by members, but there can be no amendment of the Articles modifying this right without the unanimous consent of all members. ( c) Subject to (a) and (b) above, the Board of Governors is free to determine voting rights and other terms and conditions in con­ nection with additional subscriptions on any reasonable basis. In this connection, it can fix the price of a vote at any amount it regards as reasonable. A distinction may be made in the terms of payment of subscriptions by Part I and Part II members, as the Articles themselves do with respect to initial subscriptions. (d) Since existing votes cannot be taken away from a member, any adjustment in the voting power of the Part I members can only be made within the framework of a scheme according additional votes and this, as stated above, can only be done in connection with additional subscriptions. ( e) The Board of Governors can provide for additional subscrip­ tions on a basis which would preserve the weighting in favor of the smaller members of the Association by providing for additional membership votes. Additional membership votes can be accorded only to members making additional subscriptions.

Application ot Third Replenishment System in the Future 9. Given these principles and constraints, let us examine the prob­ lem which will have to be dealt with if the Third Replenishment voting power adjustment system is to be followed in the future.

245 10. After all Part I members have committed themselves to make available the resources authorized for them under the Third Replen­ ishment, the relative voting power as among Part I members will be in exact proportion (except for membership votes) to their respec­ tive relative shares in total financial contributions upon completion of the Third Replenishment. 1 I. In order to reach this result, it was necessary under the Third Replenishment to permit each Part I member to make a subscription carrying votes in amounts which took account, not only of the re­ sources it was making available under the Third Replenishment, but also of its contributions under both the First and Second Replenish­ ments and any supplementary contributions, since such contributions did not carry votes. This arrangement, involving as it did, in effect, a retroactive voting power adjustment for prior contributions, raised a number of difficult and complicated issues and required the unani­ mous consent of the Part I members. which consent was given. 12. In future replenishments, however, since the adjustment for those prior contributions will already have been made, it will be simpler to adjust Part I votes. Under future replenishments, Part I members which make available resources can be afforded additional subscription votes calculated so that the relative voting power of each Part I member will continue to correspond (except for mem­ bership votes) to its relative share of total resources contributed by Part I members. In order to permit the existing balance between the voting power of Part I and Part II members to be preserved, the resources provided could be appropriately divided, as they were under the Third Replenishment, partly into subscriptions carrying votes and partly into contributions not carrying votes. If under any replenishment any Part I member does not agree to provide addi­ tional resources, its relative voting power will decrease; and con­ versely, if any member agrees to an increase of its relative contributions its relative voting power will increase, but in all such cases the relative voting power of each member will continue to correspond to its relative share of total resources. Thus, considering only the voting power relationships among the Part I members and without taking into account the complications discussed below, it would appear that the granting of votes to Part I members on the basis described above in future replenishments would produce a satisfactory voting power adjustment and that therefore no amend­ ment would be necessary.

Supplementary Contributions by Part I Members 13. The Report of the Executive Directors on the Third Replenish­ ment stated (para. 16) that consideration was given to whether the

246 provision by individual members of additional resources to the Asso­ ciation after the Third Replenishment similar to those made in the past by Denmark, Norway and Sweden (herein sometimes called Part I Supplementary Contributions) should be made in the form of subscriptions carrying votes, or, as in the past, in the form of contributions not carrying votes. It was noted that since the voting power adjustment arrangements under the Third Replenishment adjust subscription votes for all resources which have been con­ tributed in the past, as well as those being made under the Third Replenishment, it would be consistent with these arrangements to provide that Part I Supplementary Contributions should also carry votes so that the relative voting power of each member can continue to correspond, as closely as practical, to its relative share in total contributions. It was concluded, however, that a final decision on this matter, including the basis on which such votes would be ac­ corded, would be taken by the Association at the time when it takes action to accept the Part I Supplementary Contributions. 14. While the Report does not state the reasons why a final decision was not reached on this matter, prior discussions make it clear that no decision was reached because of the difficulty in dealing with the problems which would arise if additional votes were given to an individual Part I member making a supplementary contribution. These problems are as follows: 15. The first problem arises because of the fact that, by conferring additional votes upon a Part I member, the relative voting power of the Part I members as a group would thereupon be increased unless the Part II members also maintained their relative voting power by making additional subscriptions. As a theoretical matter, this prob­ lem could be handled by permitting Part II members, each time a Part I Supplementary Contribution was authorized, to exercise their pre-emptive rights on soft terms (as under the Third Replenishment) but it was realized that as a practical matter it was unrealistic to expect that Part II members would continually make additional sub­ scriptions, no matter how soft the terms, in order to preserve their relative voting power, especially if Part I Supplementary Contribu­ tions, as it was hoped, were frequently made. Thus, if Part I Supple­ mentary Contributions are made as often in the future as they have been in the past and votes are given for them, it seems reasonable to conclude that relative Part II voting power would gradually decrease, although probably only slightly. 16. A second problem would arise regarding the voting power of other Part I members. If the Supplementary Contribution of a Part I member were accorded votes, this would decrease the relative voting power of other Part I members unless they too were then prepared

247 to make Supplementary Contributions in amounts sufficient to main­ tain their relative voting power. It can, of course, be argued that this is a reasonable result since the other Part I members are free to make Supplementary Contributions or not, as they choose; and if they choose not to do so, they should not object to a decrease in their relative voting power. On the other hand, the legislative posi­ tion of some members may make it difficult for them to provide resources to the Association except as part of a general replenish­ ment and they may regard it as unreasonable or unfair to be ex­ pected to make Supplementary Contributions in order to maintain their relative voting power. 17. A third problem, but one of less significance than the other two, arises from the matter of membership votes. As noted above, under the Third Replenishment, it was regarded as desirable that in order to avoid dilution of the relative voting power of the smaller mem­ bers, 1250 additional membership votes be given to each member making a subscription. If subscription votes are accorded to a Part I Supplementary Contribution but no membership votes are given, this would result in the dilution of the membership votes of the smaller members; on the other hand, if membership votes are given to the member making the Part I Supplementary Contribution, they would also have to be given to other members, but they, in turn, can only get them if they make additional subscriptions. And, since it would be unrealistic to expect all other members to make additional subscriptions in order to obtain additional membership votes, it can be expected that in such a situation the weighting given to smaller members of the Association will be diluted. 18. The voting power problems which are thus raised by the making of Part I Supplementary Contributions can be dealt with in connec­ tion with the next general replenishment, just as they were under the Third Replenishment when the supplementary contributions of Denmark, Norway and Sweden were retroactively treated, in effect, as if they were subscriptions to be accorded votes. The following procedure could in theory be adopted: (a) The Supplementary Contributions would be made available by the member and accepted by the Association as a supplementary contribution not carrying votes but expressly on a basis whereby it would be converted in whole or in part into a subscription at the time of the next general replenishment if votes are accorded to sub­ scriptions under that replenishment (this would avoid one of the problems raised under the Third Replenishment, namely, the neces­ sity for obtaining unanimous consent of all Part I members to the retroactive nature of the voting power adjustment insofar as it related to prior supplementary contributions);

248 (b) The voting power (both subscription votes and membership votes), if any, to be accorded the Supplementary Contributions would be the same as if they were being made by the member concerned as part of the general replenishment. 19. While this procedure should go far towards satisfying a member making a Supplementary Contribution, it does mean that the mem­ ber would not receive votes for the Supplementary Contribution un­ til the time of the next general replenishment and then only if subscriptions carrying votes are accorded to members under that replenishment. It is believed that this consequence should not deter members from making Supplementary Contributions, since in any event the amount of a supplementary contribution is likely to be relatively small in relation to total resources and hence the addi­ tional voting power given in respect of the supplementary contribu­ tions should also be relatively small. However, only the members intending to make supplementary contributions can decide whether this procedure would satisfy them.

Additional Resources by Part II Members 20. Under the Third Replenishment three Part II members intend to provide additional resources to the Association "in usable form." As was noted in the Report of the Executive Directors on the Third Replenishment (para. 15), it would have been reasonable to pro­ vide that all or part of these additional resources should be provided in the form of subscriptions carrying voting rights. In that event it would have been necessary to make provision under Article III, Section 1 (c) for the exercise by the other Part II members of their pre-emptive right to maintain their relative voting power. To do this in the context of the Third Replenishment voting adjustment would have introduced serious complications which might have delayed the completion of the Third Replenishment arrangements and the three members agreed to provide the additional resources by way of contributions not carrying voting rights. The Report, however, goes on to state as follows: "It is the understanding of the Executive Directors that this will not preclude any of the three members from requesting subsequently that the Association convert all or part of these contributions into subscriptions carrying voting rights. The Association will then decide the terms and conditions on which contributions may be so converted." 21. The question that arises is the extent to which the Articles of Agreement inhibit the Association from dealing with the voting power aspects of contributions of this kind (herein called Part II Supplementary Contributions) made either as part of a general replenishment or made between replenishments.

249 22. It should first be noted that contributions of this kind, being payable in "usable currencies" and being made by only a few Part II members who are in a position to do so, differ in substance from the subscriptions to be made by Part II members designed to permit them to maintain the relative Part II voting power (para. 24 et seq.). It is difficult to predict whether and if so to what extent additional contributions of this kind will be made in the future, but, in any event. it would seem advisable for the Association to be in a position to deal with the voting power problems they may raise. 23. These contributions are similar to the Part I Supplementary Con­ tributions referred to above and raise similar, but more complicated, voting power problems. It is believed that these contributions can also be dealt with by use of a technique similar to that described in paragraph 18 above.

Maintenance of Relative Voting Power of Part /I Members 24. As noted above, under the Articles of Agreement as they now stand, any adjustment in the voting power of the Part I members to reflect their total contributions can be made only by according additional votes to them in connection with additional subscriptions. This would increase the voting power of the Part I members in rela­ tion to the voting power of the Part II members unless they also made additional subscriptions for which they would receive addi­ tional votes sufficient to permit them to maintain their relative voting power. The amount of subscriptions necessary so to be authorized for the Part II members in such a situation would depend on the amount of subscriptions authorized for the Part I members, which in turn depends on the cost of a vote, and the cost of a vote can be fixed at any price regarded as appropriate by the Board of Governors. 25. Under the Third Replenishment it was agreed that, in order to help maintain the relative voting power of the Part II members as a group, the burden on the Part II members should be kept low and it was decided that subscriptions should carry votes at $80 a vote payable entirely in local currency.l This resulted in aggregate sub­ scriptions authorized for the Part II members to amount to about $10 million. If all Part II members take up the additional subscrip­ tions authorized for them, their relative total voting power (now about 38%) will not be changed as a result of the voting power adjustment for Part I members under the Third Replenishment; if no Part II member other than Ireland, Spain and Yugoslavia takes up its share of authorized additional subscriptions the share of the Part II members in total voting power would fall to 16.41 % .

1fnjormation regarding the local currency portions 0/ Part II subscriptions is set forth in Appendix B.

250 26. The system followed for the Third Replenishment can be re­ peated in future replenishments and, if it is desired to continue mini­ mizing the burden on Part II members so that they can maintain their relative voting power, this can be done by reducing the cost of a vote (and hence the amount of subscriptions to be taken up) to as Iowa figure as may be regarded appropriate. For example, it would have been theoretically possible under the Third Replenish­ ment to reduce the cost of a vote to say $10 a vote; if so, Part II sub­ scriptions would have totalled the equivalent of $1,277,220 and the amount to be subscribed by any Part II member would have been insignificant, ranging from $130 (Panama) to $196,060 (India). Similarly, in future replenishments, the cost of a vote can be fixed at any figure the Association determines so that the burden on Part II members can be left as low as may be regarded as appropriate. 27. It seems clear, therefore, that under the Articles of Agreement it is possible to permit the Part II members to maintain their relative voting power, at any time the voting power of the Part I members is adjusted, by making additional subscriptions in purely nominal amounts. On the other hand, no matter how small the amounts in­ volved may be, it will be necessary for Part II members to make the additional subscriptions authorized for them if they want to preserve their voting power. It remains to be seen to what extent Part II mem­ bers will take up the subscriptions authorized for them under the Third Replenishment; it may be that some members will not sub­ scribe even though the amounts involved are small. If that proves to be the case, the relative voting power of the Part II members will be reduced and it can be expected that further reductions will also occur under future replenishments, thus resulting in a gradual ero­ sion of the relative voting power of the Part II members. 28. It can be concluded, therefore, that while the Articles of Agree­ ment would permit arrangements in the future to be made which would enable Part II members to maintain their relative voting power at a nominal cost, there is no assurance that the Part II mem­ bers wilL in fact, make the subscriptions necessary to preserve their relative voting power and consequently there is no assurance that their voting power will not be reduced.

Membership Votes 29. A general problem which will arise whenever additional sub­ scriptions are authorized carrying votes is whether such subscriptions should be issued on a basis which would preserve the weighting in favor of smaller members of the Association (whether Part I or Part II members). This problem was considered in connection with the making of the Third Replenishment arrangements and it was

251 concluded that it would be desirable to preserve this weighting. For this purpose, it was provided that additional membership votes would be given in connection with the making of additional sub­ scriptions so that the total of each country's membership votes would be .25 % of the total of potential subscription votes, as it was at the time of the fixing of the membership votes for original mem­ bership under the Articles of Agreement; this meant that under the Third Replenishmcnt each member making the subscription author­ ized for it would be entitled to 1250 additional membership votes. Thus. if all members take up the subscriptions authorized for them under the Third Replenishment, each member will have .25 % of the total of all outstanding subscription votes. The same system can be followed in future general replenishments under the Articles of Agreement as they now stand.

Assignment of Part I Votes 30. Consideration has been given to the possibility of an arrange­ ment to be made in connection with a replenishment whereby Part I members would agree to assign their voting rights in favor of other Part I members so that (i) the total of Part I subscription votes would remain the same but (ii) the voting power of each Part I member would be adjusted to correspond to the total financial con­ tributions of each such member. If an arrangement of this kind were possible. since the total of Part I votes would be unaffected by rela­ tive changes in voting power within the Part I group and hence the total of Part II votes would also be unaffected by relative changes within the Part I group. no amendment of the Articles of Agreement would be necessary. However, there are a number of serious diffi­ culties in making such an arrangement. In the first place, under the Articles of Agreement each member is given a certain number of votes depending on its subscription and "all the votes which a Di­ rector is entitled to cast shall be cast as a unit" (Article VI, Section 4(c». To permit one member to assign its votes in favor of another member was obviously not contemplated by the Articles of Agree­ ment and to permit it would require a highly artificial and strained construction of the Articles of Agreement. It would require the unanimous consent of all Part I members whose votes would be assigned and all members to whom votes were assigned. Further­ more, it could well be argued that it would also require the unani­ mous consent of all members since they would each have to accept as legally binding an agreement among some members which would change the voting pattern of those members. Apart from the clear legal difficulties in making such an arrangement. the practical prob­ lems involved might delay the conclusion of the replenishment. Be­ cause of these serious difficulties, both legal and practical, it has

252

... _._-_._------been concluded that an arrangement of this kind would not be a satisfactory method for dealing with an adjustment of votes.

Amendment of Articles 31. It is apparent from the foregoing that the Articles of Agreement do not afford a completely satisfactory basis for dealing with all the voting power problems which may arise in the future. It is true that the Articles are flexible enough to permit the Association to handle, with varying degrees of difficulty, many of these problems, but only by the making of special arrangements at the time of general re­ plenishments which may raise problems and delay the negotiations for the replenishment. And finally, the problem of the maintenance of the relative voting power of the Part II members is one which, under the Articles as they now stand, cannot be resolved unless the Association is prepared to see their relative voting power gradually eroded in the future. Since it can therefore be argued that it would be desirable to amend the Articles, the possible terms of an amend­ ment are set forth below.

Terms of Amendment 32. In deciding on the particular terms of an amendment it will be necessary to balance the desirability of establishing a system which suits the Association's present needs with one which is flexible enough to meet changing circumstances. It would seem that the basic objective of the amendment should be to establish a system under which (i) votes of Part I members and votes of Part II members among themselves would be subject to adjustment to reflect the relative amount contributed from time to time by members, but (ii) the total of Part I votes would remain fixed in proportion of the total of Part II votes, irrespective of any adjustment made within each group under (i). The effect of such a system would be to establish two different classes of votes, i.e., Part I and Part II, and to permit adjustments in the voting pattern within each class to be made to reflect contributions within the class, but without affecting the voting power relationship between the two classes as groups. It is recog­ nized that this system will formally divide the members of the As­ sociation into two separate classes, with each class being given different voting rights. This formal division may be found objec­ tionable as a matter of precedent and philosophy to some members. On the other hand, it may be argued that the Articles already recog­ nize or permit this division and that therefore the amendment would simply give explicit recognition to the situation which now exists in fact. In any event, this basic question will have to be resolved. 33. An example of the details of an appropriate amendment, to-

253 gether with an examination of some of the related issues to be considered, is as follows: (a) The votes of Part I and Part II members would be divided into two classes and there would be assigned to each class the votes of the Part I and Part U members, respectively. The question arises as to the basis on which votes should initially be assigned to each class. If under the Third Replenishment all members take up their authorized subscriptions in full, the Part IjPart II voting power ratio would remain as it is now, namely about 62% :38%. In that event the relative voting power assigned to each class under the amendment would, presumably, also remain at 62% :38%. How­ ever, if the Part I members subscribe in full and the Part II members do not, then the relative voting power of the Part I members would increase and that of the Part II members would decrease. To guard against that eventuality, should the amendment provide that upon its adoption the relative voting power of the Part II members would be restored to its earlier level, namely 38%? While this might be theoretically possible, it would appear to be a very difficult course to rationalize for it would mean that the Part I members would, by agreeing to the amendment, also be agreeing to reduce their relative voting power in total IDA votes soon after the adoption of a voting adjustment scheme based on a different theory. It would seem that a more appropriate way would be to allocate the votes to the two classes on the basis of the voting power of members as it exists after members are given an adequate time to subscribe under the Third Replenishment. (b) The voting power of each member would be subject to re­ adjustment within each class based on its subscriptions made there­ after, but without changing, except as provided in paragraph (d) below, the relationship between the total voting power of Part I members and that of Part II members. Decisions under this pro­ vision would be made by the vote of the class affected.' (c) Additional subscriptions (whether made in connection with general replenishments or otherwise) would be accorded votes as a matter of right (as in the case of the Bank). Cd) Since the Part IjPart II voting power relationship would be initially fixed on the basis of Part I and Part II votes as of a given

'Another type of amendment which would accomplish the same re~ult as the amendment de,cribed in para{;raphs (a) and (b) abOl'e but would differ in form would be to prOl'ide that if additional subscription} carrying 1'otes are authorized for Part I members additional lotes would thereupon automaticall}' be git'en to Part I I members in amount~ sufficient to maintain their relatil'e l'oting power, each Part 11 member being allocated lote.s based on Its pro rata share of the total. This amendment, in other word.s. would prot ide for the accurdiflK of additional \'otes to Part II memhers without requirinK them to make additional subscriptions whenel'er l'otes are gil'en to a Part I member. The conl'ene could aha be prOt ided, namel},. that if additional l'otes are git'en to a Part 11 member makinK all addi­ tional subscriplion in acceptable form (as in the ca.\'e oj Ireland, Spain and Yu!!o\/al'ia) additional lotes would thereupon he gil'en to Part J members in amounts "r'. I. , to mail1tuin their relatil'e l'otinK power.

254 time, it would seem advisable to provide that there should be an adjustment of relative voting power if the membership in these two groups should change. For example, an adjustment would be made in the following cases: I. If a new country becomes a member of IDA or a country ceases to be a member of IDA, there should be an increase or decrease, as the case may be, in the voting power of Part I members or of Part II members, as the case may be, corre­ sponding to the voting power of the member concerned. 2. If a Part II member becomes a Part I member, there should be an increase in the relative voting power of Part I members corresponding to the voting power of the member concerned and a corresponding decrease in that of the Part II members. (e) The Articles of Agreement as they now stand do not expressly provide that a Part II member can become a Part I member, al­ though it is believed that it would be legally possible for this to be done. Nevertheless, it would be advisable to make specific provision to this effect. 34. Under the Articles as they now stand votes can only be given for subscriptions, not for contributions. In order not to disturb the Part I/Part II voting power relationship, the First and Second Replen­ ishments and the special contributions made in addition to the Re­ plenishments took the form of contributions, not subscriptions. Since under the amendment here described additional votes could be given to certain Part I members without changing this relation­ ship, it would no longer be necessary for that reason alone to cast future additions to resources (whethcr by way of general replen­ ishments or special contributions) in the form of contributions rather than subscriptions. Consequently, the amendment need not provide that votes could be given for contributions, as well as for subscriptions.

Effect of A mendlllent on Pre-emptive Right Provision 35. Under Article III. Section I(c), when any additional subscription is authorized, each member shall be given an opportunity to sub­ scribe, under such conditions as shall be reasonably determined by the Association, an amount which will enable it to maintain its rela­ tive voting power, and under Article IX(b) (iii) there can be no amendment of the right secured by that Section without the unani­ mous consent of all members. 36. Does a voting power amendment along the lines discussed above amend the right secured by Article III, Section l(c) and thus require the unanimous consent of all members? Under the amendment, if

255 one Part I member wished to increase its relative share in subscrip­ tions and would thereby become entitled to an increase in its relative voting power, it would be possible for any other Part I member to preserve its relative voting power simply by making an additional subscription in an appropriate amount. It would be a consequence of the proposed amendment that in such a case, while Part I mem­ bers would have to make additional subscriptions in order to main­ tain their relative voting power, Part II members would not. This, however, does not impair any member's pre-emptive right; it simply confers a benefit on the Part II members. It is concluded, therefore. that the amendment discussed would not amend the right secured by Article III, Section 1(c) and that consequently the unanimous consent of all members to the proposed amendment would not be required. Procedure for Amendment 37. Under Article IX of the Articles of Agreement, an amendment requires the approvaL after approval by the Board of Governors, of three-fifths of the members having four-fifths of the total voting power.

APPENDIX A Formal Notifications Received under Third Replenishment Up to June I, 1971, the following formal notifications had been received: Amount PART I Austria $ 16,320,000 Finland 12,240,000 France 150,000.000 Japan 144,000,000 Norway 24,000,000 Sweden 102,000,000 $448,560,000

PART II Afghanistan 38,800 Botswana 6,160 Burma 78,720 Burundi 29,680 Chad 19,440 China I, I 76,080 Colombia 136.960

256

._------.. Congo, Dem. Rep. 117,520 Costa Rica 8,160 Ecuador 25,600 Ethiopia 19,440 Gambia, The 10,240 Guinea 38,800 Guyana 31,680 Ivory Coast 38,800 Kenya 65,440 Korea 49,040 Laos 19,440 Lesotho 6,160 Liberia 29,680 Malawi 29,680 Mauritania 19,440 Mauritius 33,760 Nepal 19,440 Nigeria 130,800 Paraguay 11,280 Sudan 38,800 Swaziland 12,320 Tanzania 65,440 Thailand 117,520 Togo 29,680 Turkey 225,840 Uganda 65,440 2,745,280

$451,305,280

APPENDIXB Use of Part II Subscriptions 1. Articles of Agreement Under Article II, Section 2, the initial subscriptions of all original members are divided into a 10% component, payable in gold or freely convertible currencies, and a 90% component, payable, as for Part I members, in gold or freely convertible currency and, as for Part II members, in local currency. Under Article IV, Section 1 (a), the local currency of the Part II members may be used by the Association for administrative expenses incurred by it in the terri­ tories of the member concerned, and, insofar as consistent with sound monetary policies, in payment for goods and services pro-

257 duced locally and required for projects financed by the Association and located in the territory of the member. In addition, when and to the extent justified by the economic and financial situation of the member concerned, as determined by agreement between the mem­ ber and the Association, such local currency shall be freely con­ vertible or otherwise usable for projects located in the territories of other members.

2. Release vj Part II Local Currencies As of May 31, 1971, the initial subscriptions of Part II members totaled $265,117,000, of which $238,605,000 (the 90% portion) was pajd in local currencies. Of this latter amount, releases by Part II members of their currencies amounted to $18,150,816, broken down as follows:

Part II Countries-Releases of 90% Subscriptions (As of May 31, 1971) (In US Dollar equivalents) Amount Amount Released for Dis- 90% Portion Released in bursement in Local Currency of Initial Convertible Subscription Currency' Disbursed Undisbursed Argentina $16,947,000 $ $ $ 9,000,000" Greece 2,268,000 1,134,000 1,134,000 Iceland 90,000 90,000 India 36,315,000 5,041,075 31,273,925' Ireland 2,727,000 2,727,000 Israel 1,512,000 1,512,000 Jordan 270,000 270,000 Mexico 7,866,000 1,039.447 Panama 18,000 14,400 Spain 9,081,000 2,594,954 6,496,046-' Yugoslavia 3,636,000 3,636,000 $9,383,400 $8,675,476

None of these amounts has been used to help finance projects in the territory of the subscribing member.

1AIl paid and disbursed on del'e/opment credits. -Released in March 1971 for purchases in Argentina at the rate 0/ $3 million equhalenJ per year. JA \'ai/able for purchases ;n India on basis of 50% paid from 90% and 50% from joreil?ll exchange. 4No general release has been receil'ed from Mexico. All releases made to date were nego­ tiated for specific transactions. 'Spain has agreed that any oj this balance remaining unused at July 1, 1971, will be re leased in jully com'erlible jorm O"er the period oj the Third Replenishment.

258 3. Usability of Part II Subscriptions and Contributions under Third Replenishment (a) The subscriptions (about $10,000,000) of Part II members authorized to be made under the Third Replenishment to enable these members to maintain their relative voting power are payable in the local currency of the member. The use of these currencies, pursuant to the provisions of paragraph 8(c) of the Third Replen­ ishment Resolution, is subject to the same conditions as the 90% component of initial subscriptions of Part II members (see para. I above). (b) The additional resources ($10,540,000) authorized to be pro­ vided by Ireland, Spain and Yugoslavia are payable in "usable form." Pursuant to paragraph 6(b) of the Third Replenishment Resolution, these currencies will be usable in the same manner as the subscriptions and contributions of Part I members under the Third Replenishment.

March 2,1971

IDA Third Replenishment: Voting Rights of Certain Part II Members

I. The Executive Directors, by report dated July 21, 1970, have recommended that the Board of Governors adopt a resolution pro­ viding for the approval of the Third Replenishment arrangements, including an adjustment of the voting rights of both the Part I and Part II members. This resolution was adopted by the Board of Gov­ ernors on February 17, 1971. In order to permit the Part II mem­ bers to maintain their relative voting power these arrangements provide that (a) those countries which were Part II members on the date of the said report may, at their option, make additional sub­ scriptions aggregating the equivalent of $10,217,760 carrying addi­ tional votes at the cost of $80 a vote; and (b) each such Part II member making an additional subscription would be given an addi­ tional 1.250 membership votes. Table II attached to the said report shows for each such Part II member the amount of the subscription authorized for it and the number of votes which each such subscrip­ tion would carry. 2. Two countries (the Khmer Republic and the People's Democratic Republic of Yemen) have become Part II members of IDA since July 21, 1970. The terms and conditions for membership of those countries have been considered by the Executive Directors and

259 recommended by them to the Board of Governors for approval prior to July 21, 1970, and therefore the voting power accorded them was fixed on the same basis as the voting power accorded Part II mem­ bers on initial subscriptions under the Articles of Agreement, i.e. the subscription of each country carries votes at the cost of $5,000 a vote and each country is given 500 membership votes. ' Conse­ quently, no provision has been made to permit those two countries to adjust their voting power as has been proposed under the Third Replenishment arrangements for other Part II members. Taking into account the same considerations which underlay the making of these voting power adjustment arrangements. the Executive Direc­ tors believe that it would be desirable to permit those two countries to make such an adjustment. On that basis, each such country should be authorized to subscribe an additional amount equal to the amount which would have been proposed under the Third Replenishment arrangements for a Part II member with the same initial subscrip­ tion. Table A attached hereto shows for each such country the addi­ tional subscription which each would be authorized to make on that basis, together with the additional votes carried thereby. In order to authorize these two countries to make such subscrip­ tions it is necessary that the Board of Governors approve a resolu­ tion to that end. The Executive Directors accordingly recommend that the Board of Governors adopt the draft resolution attached .... "

ITahle A attached hereto shows the authorized subscription jor each such country and its 10lil1K power. !See pCl1;e 206.

260 IDA TABLE A Adjustment of Subscriptions of the Khmer Republic and the People's Democratic Republic of Yemen

IThousand:;ot dollars" number of voles and percentages'

Present Imtlal Subscriptions Prrsent Volin" Power Part II Adol! Subscr b Adjuslme'll of Volesb Adjusted Voting Power Total Votes Additional % Part II ~/o present ~ present No of % present % Part II Arlditlonal Membershll> Membership 0{. present Amount as of 7 21 70 Part II total Vote~ total Amount as of 7 21 70 Sub Votes Votes Votes Number Part 11 % Total

{21 13, 14: ,5, ,6, ,7, ,8, ,9 dOl Ill, <12, 1131 1141 115) (16) Part II Members, as of ],21. 70 262,9170 100% 9917 2587 90.083 9852 3742 10.217 76 100% 127 .722 108)50 180,305 152,250 332.555 9852 3742 The Khmer RepublIC 1,0200 .39 .38 10 704 72 27 3984 .39 498 1.250 702 U50 2,452 73 .28 Yemen. People's Dem Rep of 1,1800 45 45 .11 736 75 29 4600 45 575 1.250 811 1.750 ~ 76 .29 Total Part II Members 265.117 0 100% 2608 97,523 1000,; 3798 10.30360 128)95 111.250 181,818 155)50 337.568 100% 3798 Total Part I Members 151.3450 7392 159.269 b202 369.426 22.500 519.695 31,500 551.195 62.02 Grand Total 1,016.462.0 100% 256.792 100% 498.221 133.750 701,513 187,250 888.763 100%

~ Amounts 111 terms of Unltpd States dollars of the weight and fineness 111 effect on January 1, 1960 h II \ votes thereunder II' Pro[,osed under the Thl i ~ I I i '-'0, ~, ,-I -11---- .1-;f - tl;-: VI;;;-,-, republic 1'. I I "I "II. Ihal they are the same as those Which would , il" . '" 'II "II, ACCREDITED MEMBERS OF DELEGATIONS AT 1971 ANNUAL MEETINGS

o 0 AFGHANISTAN

Governor ...... Ghulam Haider Dawar

Alternate Governor ...... Abdul Samad Khaliki

Adviser: Faqir Mohammed Munif

o ALGERIA

Governor ...... Ismail Mahroug

Alternate Governor ...... Bouasria Belghoula

Advisers: Hacene Amalou AbdeIkader BousseIham Idriss J azairy Abdelmalek Temam Mouloud Tiab Mahfoud Zerouta

o 0 ARGENTINA

Governor ...... Carlos S. Brignone

A lternate Governor ...... Antonio Estrany y Gendre

Advisers: Tomas Alva Negri Ricardo Arriazu Carlos Bochert Angel R. Caram Alberto L. ChazeIIe Egidio Cristiano Juan Francisco De Larrechea Adolfo C. Diz Carlos F. Etcheverrigaray Rodolfo Fabregas Teodoro Fernandez Juan Floriani Enrique FoIcini Julio Gonzalez del Solar Jorge Hernandez Alberto Kurlat Luis B. Meyt Juan Ocampo Roberto Orgeira Angel Vicente Parets Roberto Recalde Carlos Alberto Rodriguez Babuscio Homero A. San Martin Jose C. Santoro Pena Dante Simone General Hector Solan as Pacheco Carmelo A. Stancato Osvaldo J. Tovo Ricardo Veretoni

o IFC Member t Executive Director t Alternate Director o IDA Member • Temporary

262 o 0 AUSTRALIA Governor ...... B. M. Snedden Alternate Governor ...... J. G. Phillips Alternate Governor ...... Sir Roland Wilson* Advisers: L. B. Brand I. Castles M. A. Cranswickt G.A.Hutton R. A. Johnston Sir James Plimsoll F. G. H. Pooley J. O. Stone E. M. W. Visbord R. J. Whitelaw

o 0 AUSTRIA Governor ...... Hannes Androsch Alternate Governor ...... Walter Neudorfer Advisers: Franz Vranitzky Viktor Wolft

o 0 BELGIUM Governor ...... Baron Snoy et d'Oppuers A lternate Governor ...... Robert Vandeputte Advisers: Georges Janson Jacques Mertens de Wilmars Ludovicus Meulemans Jean Somerhausen Andre van Campenhoutt

o 0 BOLIVIA Governor ...... Raul Lema Pelaez Alternate Governor ...... Jose Justiniano Aguilera Alternate Governor ...... General Edmundo Valencia* Advisers: Fernando Barthelemy Hugo Duchen Charles J. Hull Nestor Sainz

o BOTSWANA

Governor...... Q. K. J. Masire Alternate Governor ...... P. M. Landell-Mills

D IFC Member t Executive Director ~ Alternate Director o IDA Member * Temporary

263 o 0 BRAZIL

Governor ...... Antonio Delfim Netto Alternate Governor ...... Ernane Galveas Alternate Governor ...... Octavio Gouvea de Bulh6es* Alternate Governor ...... Nestor Jost* Alternate Governor ...... Alexandre Kafka *

Advisers: Lelio Toledo Piza de Almeida Filho Oriane Alves Ariosto Amado Roberto Amaral Joao Alberto Leite Barbosa Luiz Barbosa Raul Barbosa Oscar Bloch Lino Otto Bohn Paulo Bornhausen Fernao Botelho Bracher Dario Brandao Sebastiao Camargo Carlos Eduardo Paes de Carvalho Pedro Paulo Gomes de Castro Eduardo Castro Neiva Salomon Cohn Horacio Sabino Coimbra Jose Maria de Sampaio Correa Luiz Felipe d'Aragona Joseph d'Avila Mendon~a Gianpaolo Marcelo Falco Lycio de Faria Jose Nunes Faria Renato Filepo Narciso Fonseca Lucas Nogueira Garcez Eduardo da Silveira Gomes, Jr. Jose da Silva Gordo Ibate Jost Lineo Emilio Kluppel Jose Fernandes Luna Jose Carlos Madeira Serrano Pedro Moura Maia Idalio Abreu Martins Luiz Cabral de Menezes Jose Luiz Silveira Miranda Raymundo G. Motta Alfredo Moutinho Reis Zeuxis F. Neves Idel Pascovitch Paulo H. Pereira Lira Ary dos Santos Pinto Fernando Machado Portela Jose Maria Villar de Queiroz Julio Pereira Ramos Fernando Roquette Reis Casimiro Antonio Ribeiro Jean Paulo Ricommard Alfredo Rizkalah Jose Oscar Abreu Sampaio Luiz Fernando Sarcinelli Garcia Helio Schlitter Silva Gustavo Paulo da Silveira Amaury Stabile Moacyr Teixeira Francisco Thompson Flores Marcus Pereira Vianna Carlos Alberto Vieira Lidiberto Villar Sergio C. Weguelin Vieira

o 0 BURMA

Governor ...... U Kyaw Nyein Alternate Governor ...... U Chit Moung Advisers: U Pe Kyaing Col. KyawZaw o IFCMember t Executive Director t Alternate Director o IDA Member * Temporary

264

-.... _-----_.__ ... ------o BURUNDI Governor ...... Joseph Hicuburundi Alternate Governor ...... Athanase Ntukamazina Advisers: Louis Fortuit Andre Robert Dominique Shiramanga Boniface Simvura

o CAMEROON Governor ...... , .. '" " '" ...... , .. Charles Onana Awana Alternate Governor ...... E. M. Koulla

o 0 CANADA Governor .. .. '" " ..... '" ...... '" ...... " ...... Edgar J. Benson Alternate Governor ...... Paul Gerin-Lajoie Alternate Governor ...... Claude Isbister*t Advisers: Robert B. Bryce Marcel Cadieux F. J. Chambers V. L. Chapin M. Gillan S. J. Handfield-Jones H. J. Hodder Robert Johnstone C. J. Keller R. W. Lawson David I. Miller N. A. Rost van Tonningen P. M. Towe

o CENTRAL AFRICAN REPUBLIC

Governor ...... Fran~ois Pehoua Alternate Governor ...... Andre Zanife-Touambona

o 0 CEYLON Governor ...... N. M. Perera Alternate Governor ...... C. A. Coorey Alternate Governor ... " '" ...... , .. L. R. Jayawardena* Alternate Governor ...... N. T. D. Kanakaratne* Advisers: W. S. L. de Alwis S. Gunasekera N. Kappagoda

o CHAD Governor ...... Bruno Bohiadi Alternate Governor ...... " ...... Jean Chavanel Adviser: Jean Alingue

o IFC Member t Executive Director t Alternate Director , IDA Member '" Temporary

265 o 0 CHILE Governor ...... Alfonso Inostroza Alternate Governor ...... Patricio Morales* Advisers: Orlando Letelier Patricio Rodriguez Javier Urrutia

o 0 CHINA

Governor ...... Kwoh-Ting Li Advisers: Felix S. Y. Chang Chih-chang Chao Reignson C. Chen t C. L. Chow Hsien-Chung Ho P. Y. Hsu T.W.Hu Mrs. Paul C. Y. Hu C. C. King K. H. King Beue Tann Ta-Yeh Wu Hsueh-Si Yeh John C. C. Yuan

o 0 COLOMBIA

Governor ...... German Botero de los Rios Alternate Governor ...... Jorge Mejia-Palacio Alternate Governor ...... Virgilio Barco*t Advisers: Oscar Alviar Douglas Botero Arturo de la Casas Eduardo Gaitan Alvaro Lopez Jaime Lopez-Reyes Jorge Ruiz-Lara Pablo Salazar Leone! Torres Alejandro Uribe-Escobar Miguel Urrutia

o 0 CONGO, DEMOCRATIC REPUBLIC OF

Governor ...... Etienne Ndongala Alternate Governor ...... Pierre Ileka Advisers: Lambert Baruti Herman Biron Joseph Bokana Maurice Demanet Anderson Mawakani F. D. Mushobekwa Jose-Ambroise Tshishimbi Gerard Zonda

o IFCMember t Executive Director :j: Alternate Director , IDA Member • Temporary

266 a CONGO, PEOPLE'S REPUBLIC OF THE Governor ...... Banza Bernard Bouiti Alternate Governor ...... Jean-Edouard Sathoud Adviser: DanielObela

o 0 COSTA RICA Governor ...... Oscar Arias S. Alternate Governor ...... Claudio A. Volio G.

o 0 CYPRUS Governor ...... A. C. Patsalides Alternate Governor .. . " . '" ...... '" ...... A. C. Afxentiou

o DAHOMEY

Governor .. '" ...... , ...... " ..... , .. Joseph Keke A lternate Governor ...... Aboubakar Baba Moussa Advisers: MamaChabi Innocent P. D'Almeida Wilfrid De Souza Marc Pinto Saturnin Soglo Ibrahim Souradjou

o 0 DENMARK Governor ...... Karl O. Bredahl Alternate Governor ...... Steen Seeher Advisers: Henning Dalgaard Erik Hauge Kaj Kjaer Christen Mondrup Lars Tybjerg

o 0 DOMINICAN REPUBLIC Governor ...... Di6genes H. Fermindez A lternate Governor ...... Bernardo Vega ':' Advisers: Opinio Alvarez Santiago R. Soto Bello o IFC Member t Executive Director ~ Alternate Director o IDA Member * Temporary

267 o 0 ECUADOR

Governor ...... Alonso Salgado

Alternate Governor ...... Carlos Mantilla-Ortega

Advisers: Jaime Durango Victor Garcia Raul Sagasti

o 0 EGYPT, ARAB REPUBLIC OF Governor ...... Mohamed A. Merzeban

Alternate Governor ...... Sherif Lofty

Advisers: Shoukry EI-Nahal Aly Gamal EI Nazer Nehad Seif Eldin Henry Tadros

o 0 ELSALVADOR

Governor ...... Julio C. Salaverria

Alternate Governor ...... Tomas Alfonso Medina'"

EQUATORIAL GUINEA Governor ...... Andres Nko Ivasa

Alternate Governor ...... Gabriel Andombe Buanga

Adviser: Javier Otero G.

o 0 ETHIOPIA

Governor ...... Mammo Tadesse

Alternate Governor ...... Wolde Mariam Girma

Advisers: Asfaw Damte Abdul Jelil Mohammed Wolde Mariam Wolde Michael o IFC Member t Executive Directol t Alternate Director o IDA Member * Temporary

268

------~---.--~ .. ~-~.- .... - -.-. FIJI

Governor .. W. M. Barrett Alternate Governor ...... M. Qionibaravi

o 0 FINLAND

Governor ...... C. O. Tallgren A lternate Governor ...... Osmo Kalliala Advisers: Jorma Aranko Piiivio Hetemiiki Olavi Munkki Erik Tornqvistt

DeFRANCE

Governor ...... Valery Giscard d'Estaing Alternate Governor ... Bernard Clappier Advisers: Henri Baquiast Claude Beaurain Paul Bertin Jean P. Carrieret Daniel Deguen Jacques de Larosiere Bruno de Maulde Denis Gautier Denis Georges-Picot Michel Pebereau Didier Pfeiffer Roger Pujol Marcel Theron Marc Vienot-;· Jacques Wahl

o c GABON Governor . Edouard-Alexis M'Bouy-Boutzit A lternate Governor ...... Paul Moukambi Adviser:

Jean-Fran~ois Ntoutoume

o THE GAMBIA

Governor " .5. M. Dibba Alternate Governor .D. A. N'Dow Adviser: Ziauddin Ahmad o IFC Member t Executive Director t Alternate Director , IDA Member * Temporary

269 o 0 GERMANY Governor ...... Karl Schiller Alternate Governor ...... Wilhelm Hankel* Alternate Governor ...... Hilmar H. Hartig* Advisers: Wolfgang Artopoeus+ Manfred Beutgen Horst Dumke Fritz Fischer Miss Lore Fiinfgelt Lutz Halfmann Wilhelm Hanemann Han~-Dieter Hanfland Axel Herbst Heinrich Irmler Hans I anssen Helmut Middelmann Karl-Heinz Neukirchen Otto Pfleiderer Eckard Pieske Wolfgang Rieke Hartmut Rudloff Giinther Schleiminger Fr\~z Stedtfeld t Peter Titzhoff Klaus Weber

o 0 GHANA Governor ...... 1. H. Mensah Alternate Governor ...... , ...... Amon Nikoi'" Advisers: E. N. Afful S. K. Botchway K. D. Fordwor E. P. L. Gyampoh K. Gyasi-Twum H. P. Nelson I. A. Omane A. K. Pianim Sam Sey

o 0 GREECE Governor ...... Emmanuel Fthenakis Alternate Governor ...... Christos G. Achis Advisers: Panayotis Sp. Caberos Andreas Coutris Evangelos A. Eliades Phedon G. Hatjulis Nikita M. Parissis Basil Tassopoulos

o 0 GUATEMALA Alternate Governor ...... Jorge Lamport Rodil Alternate Governor ...... Roberto Mazariegos Go':' Advisers: Guillermo Contreras Mario Antonio Mejia Gonzalez

o IFC Member t Executive Director :t: Alternate Director o IDA Member * Temporary

270 o GUINEA Governor ...... Elhadj Mory Keita Alternate Governor ...... Mohamed Lamine Toure

o 0 GUYANA Governor ...... H. D. Hoyte Alternate Governor ...... F. E. Hope Advisers: Rahman B. Gajraj Miss Anne Jardim

o 0 HAITI Governor ...... Edouard Francisque Alternate Governor ...... Albert Charlot

o 0 HONDURAS Governor ...... Ruben Mondragon C. Alternate Governor ...... Ricardo Zuniga Augustinus Advisers: Lempira Bonilla Felipe Bustamante Jose Dalmiro Caballero Roberto Cantero Emil Falk Jose A. Fernandez Roberto Galvez Roger Marin N. Juan C. Marinakys Armando San Martin C. Paul Vinelli

o 0 ICELAND Governor ...... Ludvik Josepsson Alternate Governor ...... Johannes Eliasson* Adviser: Sigurgeir Jonsson

o 0 INDIA Governor ..... Y. B. Chavan Alternate Governor ...... I. G. Patel A lternate Governor ...... S. R. Sen * t Advisers: M. S. Aiyar J. M. Chona P. R. Ghate M. D. Godbole S. S. Marathe Arvind Pande V. G. Pendharkar G. V. Ramakrishna M. R. Shroff:!: N. S. Taneja o IFC Member t Executive Director :j: Alternate Director o IDA Member * Temporary

271 o 0 INDONESIA

Governor ...... Ali Wardhana A [temate Governor ...... Djoeana Koesoemahardja Advisers: Omar AbdaJla Markoem Djojohadisoeparto Byanti Kharmawan R. A. B. Massie Abdul Moeis Sujitno Siswowidagdo Atmono Surjo T. M. Zahirsjah

o 0 IRAN

Governor ...... J amshid Amouzegar Allernate Governor ...... G. Reza Moghadam

Advisers: Mehdi Samii Shahpur Motamedy Shirazi Abdolhamid Sorush

o 0 IRAQ

Governor ...... Amin Abdul Karim Kalamchi A [Iemale Governor ...... Abdul Aal AI-Sagban

o 0 IRELAND

Alternate Governor ...... C. H. Murray

Adviser: Maurice Horgant

o 0 ISRAEL

Governor ...... David Horowitz Alternale Governor ...... Ephraim Davrath':'

Advisers: Shimon Alexandroni Moshe Meirav M. Naveh o IFC Member t Executive Director :j: Alternate Director o IDA Member * Temporary

272 o 0 ITALY

Governor o 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Guido Carli

Alternate Governor 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Rinaldo Ossola"

Advisers: Bartolomeo Attolico Aldo Baldari Vittorio Barattieri Lorenzo Bellingeri Cesare Cerini Antonio Cerioni Carlo Ciampi Mario Ercolani Florio Gradi Francesco Masera Francesco Palamenghi-Crispi Silvano Palumbo

Francesco Parrillo 0 Aldo Pelosio Alberto Rossi Giorgio Ao Rota t Luigi Spaventa Edgardo Valle Alfredo Vernucci

o Co IVORY COAST

Governor 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Henri Konan Bedie

Alternate Governor 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Abdoulaye Kone

Alternate Governor 000000000000000000000000000000 Mohamed To Diawara*

Advisers: Timothee N'Guetta Ahoua Florent Amany Gnissan Jean-Baptiste Amethier Rene Amichia Jacques Amissah Kobinan Claude Barrand Jean Ro Batigne Jean Charpentier Lamine Diabate Oumar Diarra Alphonse Diby Augustin Douoguih John C. Elliott Charles Gomis Andre Hovine Jean Kesse Andre Koffi N'Guessan Camille Konan Joseph Kouassi N'Te Kouame N'Dri Kpatchibo Olivier Richet Bernard Uzel

o JAMAICA

Governor o 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Edward Seaga

A lternate Governor 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Go Ao Brown

Ad~oisers: Erwin Angus Miss Dorothy Carter Do Ro Clarke L. Ho Hervey Ro I. Mason Donald 00 Mills Miss Masie Plummer Sir Egerton Richardson

o IFC Member t Executive Director 1: Alternate Director o IDA Member * Temporary

273 o 0 JAPAN Governor ...... Mikio Mizuta Alternate Governor ...... Tadashi Sasaki Alternate Governor . . , ...... " ... Seitaro Hattori*t Alternate Governor ...... Takashi Hosomi* Alternate Governor ...... Koichi Inamura* Alternate Governor ...... Shiro Inoue* Alternate Governor ...... Yusuke Kashiwagi* Advisers: Katsuhiko Akita Y oshito Amano Toyoo Gyohten Masamichi Hanabusa Hidezo Hara Masaya Hattori Hiroshi Hori Akira Iida Toshio Iyoda Akira Kaya M ichio Kondo Akira. N ambara Yutaka Nomura Y oshihiko Okuda Koichi Satow Shigemitsu Sugisaki Masanari Sumit Y oshisuke Takiguchi Norio Tsukagoshi Mikio Wakatsuki Tatsuo Yamaguchi Fujio Yoshida

o 0 JORDAN Governor ...... , .. , " ...... , " .Omar N. Nabulsi Alternate Governor ...... M. Nuri Shafiq

o 0 KENYA Governor ...... Mwai Kibaki Alternate Governor ...... P. Ndegwa Advisers: A. T. Brough J. K. Gecau C. Kahara L. O. Kibinge N. Njoroge J. H. O. Omino B. Rapozo P. Wahome

o KHMER REPUBLIC Governor ...... Sok Chhong Alternate Governor ...... Phan Thul" Advisers: Eap Kim Choan Hak Hem Say Nong Savoudh

o IFC Member t Executive Director :j: Alternate Director o IDA Member * Temporary

274 o 0 KOREA Governor ...... Duck Woo Nam Alternate Governor ...... Sung Whan Kim Alternate Governor ...... , ...... Chang Hee Kim* Advisers: Bong H. Kay Chon Taik Chung Byung Kug Choo Yeung Kie Hah Gang Yon Lee Young Tai Kim Young Doo Rah Sung Koo Kang Jae Won Kim Byong Hyun Shint Do Soon Chung Y ong Hee Hong In Y ong Chung Wan Mo Hong Enn Shik Chuh

o 0 KUWAIT Governor ...... Abdul Rahman Salim AI-Ateeqy Alternate Governor ...... , ...... Abdlatif Y. AI-Hamad Advisers: Khalid Abu Su'ud F. AI-Sabah Mohamad W. Khouja

o LAOS

Governor ...... " ...... , " ...... Oudong Souvannavong Alternate Governor ...... Sitha Sisombat Advisers: Thao Bou Soukpraseuth Sithimolada

o LESOTHO

Governor ...... R. Sekhonyana Alternate Governor ...... T. T. Thahane Advisers: E. S. Khoali M. T. Mashologu

o 0 LIBERIA

Governor ...... '" .. '" .. '" ...... J. Milton Weeks Alternate Governor ...... Cyril Bright Advisers: S. Edward Peal Charles Dunbar Sherman

D IFC Member t Executive Director 1= Alternate Director o IDA Member * Temporary

275 o 0 LIBYAN ARAB REPUBLIC Alternate Governor ...... Nuri Baryun Adviser: Abdalla Suwesi

o 0 LUXEMBOURG Governor ...... Pierre Werner Alternate Governor ...... Albert Dondelinger

o 0 MALAGASY REPUBLIC Governor ...... Ralison Rakotovao Alternate Governor ...... Raymond Randriamandranto Alternate Governor ...... Henri Rasolondraibe':' Advisers: Andrianjatovo Jean Kientz Gaston Ramenason Charles Randrianasolo Gilbert Rantoanina Jules Razafimbahiny

o 0 MALAWI Governor ...... Aleke K. Banda Alternate Governor ...... G. E. Gondwe Advisers: J. Chikapa N. W. Mbekeani

o 0 MALAYSIA Governor ...... Tan Siew Sin Alternate Governor ...... Raja Mohar bin Raja Badiozaman Advisers: H. F. G. Leembruggen Ramon Navaratnamt Yoke Lin Ong Fong Weng Phak Wan Hassan bin Haji Wan Teh

o MALI

Governor ...... Tieoule Konate Alternate Governor ...... Abdoulaye Sy Adviser: Georges Dussine

o IFC Member t Executive Director :j: Alternate Director o IDA Member * Temporary

276 D 0 MAURITANIA Goverllor ...... Mohamed Ould Cheikh-Sidia A lternate Governor ...... Mamadou Cissoko

D 0 MAURITIUS Governor ...... Ramaswamy Pyndiah A lterllate Governor . Kadrc,s Vencatachellum Advisers: Guy Balancy Louis Eynaud C. Jesseramsing

D ' MEXICO Governor .. Hugo B. l\largain Altemate Governor .Jesus Silva-Herzog F.':' Advisers: Manuel Calderon de la Barca Rafael Izquierdo Rodolfo Landeros Gallegos Alfredo Phillips Olmedo Rogelio Rivera Mena Jesus Rodriguez y Rodriguez Enrique Sosa

D 0 MOROCCO Governor ..... Mustapha Faris A lternllte Governor ... M'Hamed Bargach Advisers: Farouk Bennis Abderrahman Tazi';'

D 0 NEPAL Governor ...... Vishnu Prasad Lohani A Iternate Governor ... Harihar Jung Thapa Adviser: I. R. Pandey

D 0 NETHERLANDS Governor ..... R. J. Nelissen A Itenwte Governor ...... Baron A. W. R. Mackay':' Advisers: V. M. de Miranda Baron R. H. de Vos van Steenwijk T. de Vries A. M. Dierick B. M. F. Hazenberg Miss G. A. Koen P. Lieftinck A. 11. A. Looijen Harry S. Radhakishun A. Rinnooy Kant V. A. Servage Baron B. F. van Ittersum P. C. Witte o IFC Member t Executive Director t Alternate Director o IDA Member * Temporary

277 D NEW ZEALAND Governor ...... N. V. Lough Alternate Governor ...... S. A. McLeod Advisers: E. G. Buckton W. J. P. Cook R. L. Knightt I. E. Sliper

D 0 NICARAGUA Alternate Governor ...... Juan Jose Martinez L. Alternate Governor ...... General Gustavo Montiel" Advisers: Ricardo Ampie Rosales Nestor Caldera Carlos Dubon A. Gustavo Escoto Goenaga Ernesto Fernandez Holmann Alberto Knoepffier Erwin Kruger Julio Linares Luis Mejia Gonzalez Eduardo Montealegre C. Jorge Montealegre C. Carlos Muniz B. Luis Valle Olivares Roberto Parrales Jose Paiz Alvaro Rizo Castellon Guillermo Solorzano A. Julio Vivas Benard

o NIGER Alternate Governor ...... Abdoulaye Diallo Adviser: Charles Godefroy

D 0 NIGERIA Governor ...... A. A. Ayida Alternate Governor ...... I. J. Ebong Alternate Governor ...... A. E. Ekukinam'" Advisers: S. B. Daniyan M. O. Fashola M. O. Onanaiye H. Osha F. O. Rufai S. O. Sogbetun C. A. Ugbeye

D 0 NORWAY Governor ...... Per Kleppe Alternate Governor ...... Christian Brinch Advisers: Knut Andreassen Erik Brofoss Gunnar Haerum Einar Magnussen Frode Nilsen V. H. Schirmer o IFC Member t Executive Director :j: Alternate Director o IDA Member * Temporary

278 o 0 PAKISTAN Alternate Governor ...... Azizali F. Mohammed'" Advisers: A. R. Bashir Muhammad Yaquh

o 0 PANAMA A lternate Governor ...... _ ..... Rigoberto Paredes Alternate Gal'ernor ...... Pedro Rognoni* Advisers: Manuel B. Garcia Almengor Luis C. Pabon

o 0 PARAGUAY Governor ...... Cesar Romeo Acosta Alternate Governor . Augusto Colman Advisers: Gilberto Caniza Julio C. Gutierrez Marcos Martinez-Mendieta

o ' PERU Governor ...... General Francisco Morales Bermudez C. ALternate Governor ...... Roberto Keil Advisers: Fernando Berckemeyer Toribio Fernandez Baca Alvaro Meneses Jose Manuel Pacheco Wilfredo Pflucker Major Alfonso Romero

o 0 PHILIPPINES Governor ...... " ...... Cesar Virata Alternate Governor _Alejandro Melchor Advisers: Miguel S. Arambulo, Jr. Miss Helena Z. Benitez Mrs. Escolastica B. Bince Abelardo Buenaventura Alberto F. de Villa-Abrille Armand V. Fabella Jose B. Fernandez, Jr. Joselito S. Gallardo Crispulo Guevarra Mrs. Belen Enrile Gutierrez Jesus P. Jacinto Ramon K. Katigbak Benito J. Legarda, Jr. Ernest Leung Artemio AI. Loyola Placido L. Mapa, Jr.::: Sixto Orosa, Jr. Caesar U. Querubin Rafael S. Recto Pablo R. Roman Lorenzo S. Sarmiento Paterno Sisante Pablo R. Suarez, Jr. Wilfrido Tecson Jose R. Tengco Fernando R. Veloso Jesus A. Villareal Eusebio D. Villatuya

o lFC Member t Executive Director 1: Alternate Director o IDA Member * Temporary

279 o PORTUGAL Governor ...... Joao Dias Rosas A /fernate Governor ...... Luis Maria Teixeira Pinto Advisers: Martim L. Cabral Albino Cabral Pessoa Luis Gois Figueira

o RWANDA

Governor ...... Fidele Nzanana Alternate GO\'el'llor ...... Ladislas Buhake Adviser: lean-Marie Gatabazi

o 0 SAUDI ARABIA GOt'enlOr ...... , ...... Ahmed Zaki Saad Advisers: Ahmed Almalek Yusef Nimaatullah

o 0 SENEGAL

GOI'erllor ...... Babacar Ba Alternate Govel'llor . " " .. , ...... Hamet Diop

Ad~'isers: Samba Ba Andre Coulbary Daby Diagne Fran~ois Eliard Birama Fall Ady Niang Famara Ibrahima Sagna Pierre Sanner Mactar Seye

o 0 SIERRA LEONE Governor ...... C. A. Kamara-Taylor A/femate Governor ...... B. Strasser-King Advisers: l. K. E. Cole l. A. C. Davies V. F. lamina V. A. W. Nylander A. Tejan o IFC Member t Executive Director 1: Alternate Director o IDA Member * Temporary

280 o SINGAPORE Governor ...... Hon Sui Sen Alternate Governor ...... Howe Yoon Chong

o 0 SOMALIA Governor ...... Ibrahim Megag Samater Alternate GoW'rnor ... , ...... Omar Ahmed Omar Advisers: Leone Fici Ibrahim H. Mussa

o 0 SOUTH AFRICA

Governor ...... N. Diederichs A lternate Governor ...... T. W. de Jongh Advisers: E. Barkhuizen J. S. F. Botha W. J. J. Conradie G. P. C. de Kock Will em J. Le Roux D.V.Louw W. J. Lubbe R. van S. Smit C. L. Stals

o 0 SPAIN

Governor ...... Alberto Monreal Luque A ltemate Governor ...... Luis Coronel de Palma A [ternate Governor ...... Juan Moro':' t Alternate Governor ...... Carlos Bustelo* Advisers: Rafael Aguilar Agustin Alcocer Moreno Juan Arencibia Jose Luis Ceron Tomas Chavarri Francisco Fernandez Ordonez Rafael Garcia Palencia J. A. Gonzalez-Muniz Javier Irastorza Luis Martinez-Arevalo Angel R. Mata Luis Angel Rojo Duque Manuel Varela Jose Vilarasau

o 0 SUDAN

GO"ernor ...... Mohamed Abdel Halim Alternate Governor ...... Ali Ahmed Sahloul Advisers: Awadalla Awadalkarim Babiker Karrar o IFC Member t Executive Director t Alternate Director , IDA Member * Temporary

281 o 0 SWAZILAND

GOl'ernor ...... J. Nxumalo A iternate Governor ...... J. R. Masson Adviser: S. T. M. Sukati

o a SWEDEN

Governor ...... Gunnar Strang A !lernate Governor ...... Kjell-Olof Feldt Advisers: Gunnar Akermalm Borie Bill ner Curt Lidgard Carl I. Ohmant Bo Jonas Sjonander

o 0 SYRIAN ARAB REPUBLIC Governor ...... Nourallah Nourallah A iternate Governor ...... Ammar Jammal

o 0 TANZANIA GOH'rnor ...... A. M. Babu A iternale Gm'ernor ...... C. D. Msuya Advisers: J. M. Bulemela R. H. Green K. G. Kilewela W. L. Mbago A. H. Mshangama

o 0 THAILAND Governor ...... Serm Vinicchayakul A llernate GOl'ernor ...... Sommai Hoontrakool ,', A llernate Governor ...... Yllne HlIntrakoon* A ilernale Governor ...... Khunying Suparb Yossundara t Advisers: Chamras Chaturabata Pandit Bunyapana Panas Simasathien Vibul Aunsnunta Mrs. Ubol Hatajich o IFC Member t E~ecutjve Director +Alternate Director o IDA Member * Temporary

282

-._ .. _. __ .__ ._------o a TOGO ..... Jean Tevi Governor ...... A lternate Governor ...... Boukari Djobo

Adviser: Epiphane Mawussi

o TRINIDAD AND TOBAGO Gm'ernor ...... , ...... G, M. Chambers Alternate Governor ...... F. B. Rampersad

Advisers: Cyril L. Blanchfield G. H. Legall

o a TUNISIA

Governor ...... Mansour Moalla A lternate Governor ...... Moncef Bel Hadj Amor

Advisers: Ahmed Abdelkefi Hassen Belkhodja Habib Bourguiba. Jr. Hassine Cherif Ahmed Ghezal

o C TURKEY

Governor ...... Sait Naci Ergin A ltemate GOl'ernor ...... Kemal Canttirk

A lternate Governor ...... Ahmet Tufan Gu\'" Advisers: Cengiz Alper Ahmet Guresin Asaf Guven Teoman Kopruluier Alaeddin Y oruk

o 0 UGANDA Gm'ernor ...... E. B. Wakhweya Alternate Governor . .. , .. , .. , .. , ...... ' .. ' ...... '" .... A. Ocaya

Alternate GOl'l!rnor ...... I. K. Kabanda* Advisers: F. Hatega S. Nyanzi E.Odeke

o IFC Member t Executive Director 1: Alternate Director o IDA Member * Temporary

283 o 0 UNITED KINGDOM Governor ...... Sir Leslie O'Brien Alternate Governor ...... A. D. Neale Alternate Governor ...... Terence Higgins* Alternate Governor ...... D. J. Mitchell" t Advisers: J. T. Caff K. M. Critchley* A. D. Crockett R. H. Gilchrist H. M. Griffiths P. C. Hayward Mrs. M. E. Hedley-Miller R. B. M. King J. A. Kirbyshire Sir Donald MacDougall C. J. Packman S. W. Payton A. K. Rawlinson W. S. Ryrie B. S. Sewill J. W. Thorp K. J. Uffen J. M. M. Vereker

o 0 UNITED STATES Governor ...... John B. Connally Alternate Governor ...... Nathaniel Samuels Alternate Governor ...... Arthur F. Burns* Alternate Governor ...... Charls E. Walker* Alternate Governor ...... Paul A. Volcker* Alternate Governor ...... John R. Petty" Alternate Governor ...... Robert E. Wieczorowski*t Alternate Governor ...... William B. Dale* Advisers: George D. Aiken Robert B. Anderson Bill Archer Thomas L. Ashley Joseph W. Barr Wallace F. Bennett Frank T. Brasco Harry F. Byrd, Jr. Charles Coombs John Sherman Cooper William R. Cotter Philip M. Crane J. Dewey Daane Henry H. Fowler Bill Frenzel Henry B. Gonzales James M. Hanley Richard T. Hanna John A. Hannah Charles R. Harley Alfred Hayes Jacob K. Javits Albert W. Johnson Henry Kearns David M. Kennedy Norman F. Lent Russell B. Long Paul W. McCracken Bradford Mills William S. Moorhead Wright Patman Thomas M. Rees Henry S. Reuss Walter C. Sauer Harold B. Scott John W. Snyder Ezra Solomon J. William Stanton Stuart Symington Philip H. Trezise Henry C. WaIIich William B. Widnall o IFC Member t Executive Director *Alternate Director o IDA Member • Temporary

284 o UPPER VOLTA

Governor ...... Edouard Yameogo Alternate Governor ...... Pierre Tahita

o URUGUAY Governor ...... Carlos Mario Fleitas Alternate Governor ...... Walter Lusiardo Aznarez* Advisers: Juan J. Anichini Yamandu D'Elia Hector Diaz Antonio Garcia Diaz Walter Garrido Oscar Goldie Arenas Carlos Koncke Jose Carlos Pena Carlos Ricci

o VENEZUELA Governor ...... General Rafael Alfonzo Ravard A lternate Governor ...... Alfredo Machado Gomez * Alternate Governor ...... Carlos Emmanuelli L. * Advisers: Rodolfo Aristeguieta F. Jorge Baiz Alfredo Belloso Mrs. Ruth de Krivoy Jose Gabaldon Anzola Roberto Guarnieri Mariano Gurfinke1 Guillermo Marquez Luis Enrique Oberto Ildegar Perez Segnini

o 0 VIET-NAM Governor ...... Le Tuan Anh Alternate Governor ...... , .... Nguyen Van Dong Adviser: Mrs. Huynh Thi Kieu Dung

o 0 YEMEN ARAB REPUBLIC Governor ...... Mohamed Alattar Alternate Governor ...... Ali Lutf AI-Thor" Adviser: Abde1 Rahman Osman o IFC Member t Executive Director ~ Alternate Director • IDA Member *' Temporary

285 o YEMEN, PEOPLE'S DEMOCRATIC REPUBLIC OF Governor ...... Mahmoud Abdulla Oshaish A lternate Governor ...... J alIer J ooman

o 0 YUGOSLAVIA Governor ...... Janko Smole A lternate Governor ...... Ante Zelie Alternate Governor ...... Zarko Bulajic* Advisers: Vladimir CeriCt Ratoljub Dodic Radovan Makic Mirko Mermolja Miodrag Stojiljkovic

o 0 ZAMBIA Governor ...... J. M. Mwanakatwe Alternate Governor ...... E. G. Kasonde Advisers: D. S. Atri G. N. McDonald D. A. N. Nyimbili

o IFCMember t Executive Director *Alternate Director o IDA Member * Temporary

286

• • OBSERVERS AT 1971 ANNUAL MEETINGS

Oman Central Bank of Equatorial African Mahmoud U. Murad States and Cameroon Philip Aldous Claude Panouillot Bernard Vinay Joseph Sack Qatar Abdulkadir A. Qadi Central Bank of West African States African Development Bank Robert Julienne Pierre Sanner Abdelwahab Labidi Mustapha M. El-Kouni Ime Ebong Commission of the European R. S. Griffiths Communities Raymond Barre Asian Development Bank Ugo Mosca Takeshi Watanabe Frederic Boyer de la Giroday Edgar Plan Giampietro Morelli Kiyoshi Mizoi W. Koedderitzch Kosuke Nakahira Robert Triffin Renato Ruggiero Jean Claude Paye Bank for International Pierre Malve Settlements Rene Larre Milton Gilbert Common Organization of African, Hans H. Mandel Malagasy, and Mauritian States Falilou Kane Caribbean Development Bank A. Foalem Sir Arthur Lewis Mervyn McConnie Commonwealth Secretariat Arnold Smith Center for Latin American R. Hunter Wade Monetary Studies Noel Salter Javier Marquez Fernando Rivera Contracting Parties to the General Agreement on Tariffs and Trade Central African Customs and Olivier Long Economic Union Gardner Patterson Pierre Tchanque

Central American Bank for East African Community Economic Integration R. K. Kitariko Enrique Ortez Colindres Rodolfo Silva V. Ulises Flores East Afrit'an De/'f4opment /Jank Carlos Manuel Escalante Iddi Simba

Central American Monetary Council European Free Trade Association Jorge Gonzalez del Valle George R. Young

287 European Investment Bank Inter-American Committee on Yves Le Portz the Alliance for Progress Sjoerd Boomstra Carlos Sanz de Santamaria Luciano Miurin Jacques Silva in Organization of Senegal Louis Cassagnes River States Mohamed Ould Amar Food and Agriculture Organization of the United Nations Permanent Secretariat of the J. P. Huyser General Treaty for Central J. P. Bhattacharjee American Economic Integration Howard R. Cottam Raul Sierra Franco Roberto Mayorga-Cortes Inter-American Development Bank Antonio Ortiz Mena United Nations T. Graydon Upton Philippe de Seynes Joao Oliveira Santos Raul Prebisch Merlyn N. Trued Chief S. O. Adebo Jorge Hazera Ismat T. Kittani Arnold H. Weiss Paul L. Faber Jose Epstein Pierre Benoit Enrique Perez Cisneros David H. Pollock Milic Kybal Marcial Tamayo Mrs. Claire Doblin International Atomic Energy Agency Robert Najar United Nations Conference on Trade and Del'elopment International Labour Organization Sidney Dell George L. P. Weaver G. Arsenis Mrs. Mary E. Hoinkes S. Abrahamian

League of Arab States United Nations Development Abdel Moneim El Banna Programme Paul Hoffman Organization for Economic Stephane Hessel Cooperation and Development Jacob Everts E. van Lennep Karl Skjerdal J. C.R.Dow Claude de Kemoularia Raymond Bertrand John A. Olver Andre Vincent Krishan Kapur Fritz Schiettinger United Nations Educational, European Monetary Agreement Scientific and Cultural Alexandre Hay Organization Alfonso de Silva Organization of African Unity Gratien Pognon United Nations Industrial Det·elopment Organization Organization of American States A. J. Aizenstat John T. Birckhead Walter J. Sedwitz Nicolas Ardito Barletta Rene Monserrat World Health Organization Rolf Luders Dr. R. L. Coigney

288

. ------_._,_.. " ... EXECUTIVE DIRECTORS AND ALTERNATES

October 1, 1971

Executive Directors Alternate Executive Directors Mohammed Yeganeh S.OsmanAli Virgilio Barco Placido L. Mapa, Jr. Donatien Bihute Bulcha Demeksa Reignson C. Chen Byong Hyun Shin Seitaro Hattori Masanari Sumi Claude M. Isbister Maurice Horgan Mohamed Nassim Kochman Benoit Boukar R. Lindsay Knight M. A. Cranswick Adrian Lajous Carlos Santistevan Oscar Vega-Lopez LuisB. Mey D. J. Mitchell Kenneth M. Critchley Alfred Rinnooy Kan Vladimir Cerie Giorgio Rota Juan Moro M. R. Shroff S. R. Sen Wolfgang H. Artopoeus Fritz Stedtfeld Khunying Suparb Yossundara R. V. Navaratnam Mohammed Y ounos Rafik Abderrahman Tazi Erik Tornqvist Carl I. Ohman Andre van Campenhout Viktor C. Wolf Marc Vienot Jean P. Carriere Robert E. Wieczorowski

289 OFFICERS OF THE BOARDS OF GOVERNORS AND JOINT PROCEDURES COMMITTEE FOR 1971·72

OFFICERS Chairmen ...... Indonesia Vice Chairmen ...... Austria Nigeria

JOINT PROCEDURES COMMITTEE Chairmen ...... Indonesia Vice Chairmen ...... Austria Nigeria Reporting Member ...... Nicaragua Members ...... Bolivia Brazil Canada Central African Republic Ethiopia France Germany India Iraq Ireland Japan Lesotho Thailand United Kingdom United States People's Democratic Republic of Yemen

290 WORLD BANK/IFC/IDA

Headquarters 1818 H Street, N.W., Washington, D.C. 20433, U.S.A. Telephone: EXecutive 3-6360

European Office 66 Ave. d'Iena, Paris 16e, France Telephone: 720-2510

Cable Addresses World Bank: INTBAFRAD IFC: CORINTFIN IDA: INDEVAS

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