SUMMARY PROCEEDINGS 1966

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©International Monetary Fund. Not for Redistribution INTERNATIONAL MONETARY FUND

SUMMARY PROCEEDINGS

OF THE TWENTY-FIRST ANNUAL MEETING

OF THE BOARD OF GOVERNORS

SEPTEMBER 1966

WASHINGTON, D. C.

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©International Monetary Fund. Not for Redistribution CONTENTS PAGE Introductory Note ix Message from the President of the United States of America, Lyndon B. Johnson 1 Opening Address by the Chairman of the Boards of Governors, the Governor for Iran, Jamshid Amouzegar 2 Presentation of the Twenty-First Annual Report by the Chairman of the Executive Board and Managing Direc- tor of the International Monetary Fund, Pierre-Paul Schweitzer 10 Discussion of Fund Policy at Second Joint Session Statements by the Governors for Jamaica—D. B. Sangster 22 Malaysia—Tan Siew Sin 25 Ghana—A. A. Afrifa 29 Canada—Mitchell Sharp 33 Yugoslavia—Kiro Gligorov 34 France—Michel Debre 37 Japan—Takeo Fukuda 49 Jordan—Hatim S. Zu'bi 53 Germany—Karl Blessing 53 United Kingdom—James Callaghan 57 Afghanistan—Abdullah Yaftaly 64 India—Sachindra Chaudhuri 67 Australia—William McMahon 70 Korea—Se Ryun Kim 75 Singapore—Lim Kim San 77 Somalia—Ali Omar Scego 79 v

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PAGE Discussion of Fund Policy by Governors at Fund Session Statements by the Governors for South Africa—G. W. G. Browne 82 Israel—Pinhas Sapir 85 Finland—Klaus Waris 89 Italy—Emilio Colombo 90 Netherlands—M. W. Holtrop 95 Philippines—Andres V. Castillo 99 United States—Henry H. Fowler 102 Syrian Arab Republic—Ahmad Mourad 115 Belgium—Hubert Ansiaux 118 Austria—Ludwig Seiberl 121 Mexico—Antonio Ortiz Mena 124 Greece—Xenophon Zolotas 128 Ireland—John Lynch 132 New Zealand—H. R. Lake 134 Nepal—Bhekh Bahadur Thapa 136 Congo, Democratic Republic of—Albert Ndele 139 Kenya—J. S. Gichuru 142 Trinidad and Tobago—A. N. R. Robinson 146 Chad—Abakar Sanga Traore 148 Tanzania—A. H. Jamal 151 Paraguay—Cesar Barrientos 155

Discussion of Fund Policy by Governors at Bank, IFC, and IDA Session Statements by the Governors for Pakistan—N. M. Uquaili 162 United States—George W. Ball 163 Mauritania—Mohamed Salem Ould M'Khaitirat .... 163 Paraguay—Cesar Romeo Acosta 165 Guyana—P. S. d'Aguiar 166 Sweden—Krister Wickman 168 Ethiopia—Yilma Deressa 169 Uganda—L. Kalule-Settala 170 Laos—Sisouk Na Champassak 172

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PAGE Discussion of Fund Policy at Closing Joint Session Statements by the Governors for China—Ching-Yu Chen 175 Zambia—A. N. L. Wina 176 Sierra Leone—R. G. O. King 181 Algeria—Ahmed Kai'd 182 Nigeria—A. A. Atta 188 Ceylon—U. B. Wanninayake 189 Central African Republic—Alexandre Banza 191 Libya—Khalil Bennani 193 Burundi—Eric Manirakiza 195 United Arab Republic—Nazih Ahmed Deif . . 196 Upper Volta—Tiemoko Marc Garango .:....., , . 203

Concluding Remarks Statements by The Chairman of the Executive Board and Managing Director of the International Monetary Fund, Pierre-Paul Schweitzer 208 The Governor of the Fund for Greece, Xenophon Zolotas, on the Forthcoming Retirement of the Secre- tary of the Fund 209 The Chairman of the Boards of Governors, the Gov- ernor for Iran, Jamshid Amouzegar 211

Schedule of Meetings 215

Provisions Relating to the Conduct of the Meetings 216

Reports of the Joint Procedures Committee Report I 217 Annex I Agenda 219 Annex II General Reserve 220 Annex III Rules and Regulations 221

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PAGE Annex IV Membership for Indonesia 223 Annex V 1966 Regular Election of Executive Di- rectors 223 Statement of Results of Elections, September 28, 1966. 230 Report III 234

Resolutions 21-1 Increase in the Quota of Nicaragua 236 21-2 Increase in the Quota of Tunisia 237 21-3 Membership for Singapore 238 21-4 Revocation of the Quota Increase for Laos . 241 21-5 Amendment of Section 14(a) of the By-Laws 242 21-6 Amendment of Section 14(e) of the By-Laws . . 243 21-7 1966 Regular Election of Executive Directors . 243 21-8 Membership for Guyana 244 21-9 Financial Statements, Report on Audit, and Ad- ministrative Budget 247 21-10 General Reserve 247 21-11 Amendments of the Rules and Regulations 248 21-12 Membership for Indonesia 248

Attendance Members of Fund Delegations 254 Observers 269

Executive Directors and Alternates 271

Guide to Statements by Governors Alphabetical List, by Country, of Governors' Statements. 275 List of Principal Topics Discussed 277

©International Monetary Fund. Not for Redistribution INTRODUCTORY NOTE

The Twenty-First Annual Meeting of the Board of Governors of the International Monetary Fund was held in Washington, D. C., from September 26 through 30, 1966, under the Chairmanship of the Honorable Jamshid Amouzegar, Governor for Iran. The Meeting was held in conjunction with the Annual Meetings of the Boards of Governors of the International Bank for Reconstruction and Development and its affiliates. These Summary Proceedings include statements, or portions of statements, relating to the work of the Fund which were made by the Governors during the Meetings; omitted passages are indicated by dots(. . .). The statements are presented in chronological order. Resolutions adopted by the Board of Governors of the Fund, reports and recommendations of the Joint Procedures Com- mittee, and other documents relating to the conduct of the Meetings and the election of Executive Directors are also included. A list of statements arranged alphabetically by country and a list of the principal topics discussed will be found on pages 275-78. Statements relating to the work of the Bank are reproduced in the Summary Proceedings of the Annual Meetings of the Bank and its affiliates, issued by the Bank.

W. LAWRENCE HEBBARD Acting Secretary International Monetary Fund

Washington, D.C. November 9,1966

ix

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©International Monetary Fund. Not for Redistribution MESSAGE FROM THE PRESIDENT OF THE UNITED STATES OF AMERICA1

Lyndon B. Johnson

On behalf of the Government and the people of the United States I send a warm welcome to the Governors, Delegations, and the distinguished guests of the International Monetary Fund and the World Bank. You meet once again in the noble cause of international cooperation. The world, remembering your main past accomplishments, looks to you for continued leadership, strengthening the financial arrangements so vital to the common prosperity. The agenda for this meeting and for the coming year is of unusual importance. Your wisdom and imagination can benefit countless millions whose welfare is at stake. Your work, the works of peace embody the hopes and dreams of all men. I wish you every success.

1 Delivered by the Governor of the Fund and Bank for the United States at the Opening Joint Session, September 26, 1966.

1

©International Monetary Fund. Not for Redistribution OPENING ADDRESS BY THE CHAIRMAN OF THE BOARDS OF GOVERNORS, THE GOVERNOR FOR IRAN1

Jamshid Amouzegar

It is indeed a great privilege and a distinct honor for me to welcome you all to our twenty-first Annual Meetings, and to make a few introductory remarks about our organizations' past accom- plishments and their tasks ahead. First, however, I wish to thank the Government and people of the United States for their gracious hospitality and to extend a most cordial welcome to our guests. I extend a special welcome to the Governor for Singapore, which became the one hundred and fourth member of the Fund and Bank on August 3, and to the Governor for Guyana, who has today completed the steps making his country the one hundred and fifth member of the two organiza- tions. We should take special note, also, of the presence here of Delegations from the Gambia and from Indonesia, which have both applied for membership in these organizations. Twenty years ago tomorrow in this very same place, the Gover- nors of the Fund and the Bank gathered together for their first Annual Meetings. The twenty years in retrospect present vivid evidence of the vitality of a group of institutions, constantly looking forward, continually reappraising their mission while holding out stability to a gyrating world. In reflecting upon the past, I am torn between two sentiments: pride in our institutions and their achieve- ments, and disappointment that the world has not yet fully met the challenge of the fundamental issues of development. As for the accomplishments, the World Bank Group has so far provided more than $11 billion for development projects in 89

1 Delivered at the Opening Joint Session, September 26, 1966. 2

©International Monetary Fund. Not for Redistribution ADDRESS BY CHAIRMAN OF BOARDS OF GOVERNORS 3 countries. In recent years they have taken an increasingly active role in agriculture and educational development while pursuing their paramount interest in the financing of infrastructure. They have given large-scale assistance for the growth of industry, and this activity will be broadened and accelerated as the momentum of IFC's operation continues and the Corporation exercises its new authority to borrow from the Bank. On more than one occasion, the Bank's objective intervention has deflected international discord and helped to channel energies into productive achievement. Increasingly, it has applied its experi- ence and professional competence to the search for solutions to some of the more intractable problems of development. The Con- vention on Settlement of Investment Disputes is one such result. The Bank's Executive Directors who proposed that Convention are now considering another to facilitate the flow of private funds by establishing a system for the international insurance of invest- ments. In addition, a study conducted by the Bank's staff has resulted in the outline of a Scheme for Supplementary Financial Measures, now under consideration by the United Nations Con- ference on Trade and Development. It offers a specific method for dealing with one of the most vexing handicaps of developing countries—the uncertainty of export earnings which depend upon highly volatile world markets for primary agricultural commodities. Turning to the Fund, I should like to give recognition to the good work that this organization has performed. Despite the doubts cast upon the operation of the Fund in the early days, this institution has been able to grow in a flexible manner to meet its increasing obligations and responsibilities. Total drawings on the Fund have exceeded $12 billion and net drawings outstanding today approximate $4.8 billion. Few, if any, would have predicted this impressive record. In the last year alone, in addition to advi- sory and consultative services, the Fund provided financial assist- ance, either through direct purchase transactions or in the form of stand-by arrangements, to a record number of 37 member countries, all but 2 of which may be classified as nonindustrial. In the past fiscal year sales of currency to member countries were the highest ever and on April 30, 1966, outstanding balances of

©International Monetary Fund. Not for Redistribution 4 SUMMARY PROCEEDINGS, 1966 drawings from the Fund and unused stand-by arrangements far exceeded the total at the close of any previous fiscal year. There have also been important developments which will affect the financial aspects of the Fund operation in future years. One such notable development is the enlargement of the Fund's resources providing for general and special increases in quotas. In consequence of this, total quotas today are in excess of $20.5 billion, compared with less than $16 billion before the Resolutions were approved in March 1965. These added resources can give us confidence that the Fund will be even better able to continue the work on the financial side that has proven to be so helpful to all members in the past. The Fund's continuing active work in the field of international liquidity also deserves special attention. I think that we can all be heartened by the sense of forward progress that is gained from reading the chapter of the Fund's Annual Report that is devoted to this important problem. In this Report one finds several passages radiating hope that we are in the process of arriving at a consensus that will be beneficial to all. I refer in particular to the possibility of the deliberate creation of reserves in attempting to attain^ an appropriate rate of growth in reserves. It is indeed a great satis- faction to note in the Report that Mr. Pierre-Paul Schweitzer, the distinguished Managing Director, has taken the initiative to present to the Executive Directors a statement on how reserves can be created in the Fund or in close association with it; that his proposals are based on the principles that reserve creation is the concern of all member countries; that they provide that all should participate with due safeguards both in the distribution of newly created reserves and in the decisions that lead to their creation; and that such creation should take place either through the Fund or through an affiliate of the Fund. Despite a recent unfortunate setback, I am sure that all of us can look forward with great expectation to the result of continuing study of this and alternative ways to move forward in the field of international liquidity. Turning to the world's general economic picture, however, I note with regret that with the so-called development decade more than

©International Monetary Fund. Not for Redistribution ADDRESS BY CHAIRMAN OF BOARDS OF GOVERNORS 5 half over, the gap between aspirations and achievements remains wide, indeed wider in many instances. The Annual Report of the Bank and International Development Association shows that while the industrial countries have achieved unprecedented prosperity, laggard progress in agriculture, increases in population, inequities and imbalances in world trade and finance—these and other factors of immense complexity have offset much of the gain in the devel- oping countries. While we have learned a great deal about development and our discussion of its intricacies has become more sophisticated, the needs have remained essentially the same: ade- quate external financial aid, a wide range of technical assistance, and improvement in the credit position and economic policies of developing countries. In the last 15 years, the real gross national product in the developing countries of Asia, Latin America, and Africa as a group has increased by an average annual rate of 4~y2 per cent. In some of these countries the growth rate has hardly kept up with population increase. In others a population growth of between 2 and 3 per cent a year has wiped out much of the production gain. To offset this unfortunate situation, everyone agrees that the magnitude of development finance must be increased and its terms must be made easier. Yet the reverse is happening. While the capacity of the developing nations to receive aid is gradually but surely increasing, and the developed countries' ability to offer aid is also firmly on the rise, the latter's willingness to help the emerging countries seems to be dwindling. A specter of narrow nationalism, inward orientation, and withdrawals from long-range commitments to the cause of international cooperation and assistance again seems to be haunting some advanced countries. Nor is this all. More than half the inflow of development finance is now being offset by debt servicing on the part of the developing nations. A former World Bank official has in fact shown in a recent essay that low income countries are now paying more in interest and principal on World Bank loans than the Bank is disbursing on those loans. In his opinion, Bank loans in the year 1964 were responsible for a flow of resources from the poor to the richer nations. Indeed one must be concerned that the goal of 20 years ago is still so distant.

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The Bank's Report this year places these multiple problems of development in the right perspective. The fundamental problem is one of priorities. Many countries both rich and poor have permitted themselves to be diverted from the cause of economic development by current exigencies of various kinds. Nations, like men, find it difficult to keep their eyes on distant goals when present threats and vicissitudes confront them. I do not wish for a moment to underestimate the magnitude of difficulties which con- front either the developing or the industrial countries and which have sometimes deflected their attention from the imperatives of economic development. The leaders in developing countries in particular must grapple with acute shortages of domestic financial resources and human skills and not only with a scarcity of foreign exchange but also uncertainty concerning the levels of both export earnings and external assistance. The shortage of foreign exchange in most developing countries is a major bottleneck for implementa- tion of national development programs. Although this whole problem is related to the question of trade and development, it is also an important aspect of the structural changes that are necessary in developing countries to bring about conditions for self-sustained growth. I would also like to draw your attention to still another funda- mental problem faced by the developing countries. These countries have often been advised to concentrate on the development of the sectors in which they have comparative advantage, that is, on production of primary products, and to trade the available sur- pluses for imports of manufactured goods including capital goods. Yet the concept of comparative advantage is not a static one; it is a dynamic concept. Changes in relative scarcity of factors of production, changes in relative prices of commodities, discovery of new resources, acquisition of technical skills, development of infrastructure, and other external economies and similar factors may cause a shift in factor ratios and their comparative advantage. Developing countries, in order to bring about the conditions for a rapid growth and to increase their productivity, have no alter- native but to introduce changes in their economic structure. This may be achieved by a process of industrialization parallel with

©International Monetary Fund. Not for Redistribution ADDRESS BY CHAIRMAN OF BOARDS OF GOVERNORS ^ agricultural development in order to reduce the reliance on produc- tion and exports of primary products alone. Continuing uncer- tainties surrounding the export of primary products, however, make it essential for developing countries to consider diversifica- tion of their economies and development of their industrial sector at a more rapid rate. As late as 1964, foodstuffs, raw materials, and petroleum still accounted for 85 per cent of their total exports. In view of the immensity of these problems it is indeed noteworthy that so many developing countries have managed to adhere as well as they have to sound economic policies. There is undoubtedly room for improvement in the use of aid by the emerging nations. But even with the most efficient coordination of aid and the best of performance by its recipients, self-sustaining economic growth will be a receding hope for many countries unless enough resources of foreign exchange are available to finance the imports required. If these countries are to have peace and stability they must have external help and capital for investment to tide them over economic difficulties. Fractions of the cost of the steps which would eventu- ally be taken to restore stability and order in a troubled area would ensure far more tranquillity and peace if contributed toward implementation of economic development. But the curious reality of the mid-twentieth century seems to point to the opposite direction: illogical as it may look, the costlier the peace missions, the greater seems to be their chance of getting support from the rich and the politically powerful nations. The capacity of the industrialized countries to afford an effective precrisis assistance is adequate. Their national income has been increasing in the aggregate at the rate of $40-50 billion a year and if over the last 5 years only 1 per cent of that increase had been devoted to additional development support we should by today be not very far from a satisfactory level of assistance. The 20 or so industrial countries of Western Europe, North America, and the Western Pacific account for over a $1,000 billion of the world's product. These 20 countries with less than one fifth of the world's population produce and enjoy more than one half the world's wealth. By contrast, taking only the developing countries within the World Bank's membership, another segment which is

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one half of the world's population accounts for only one sixth of world product. It is unrealistic to think that this state of affairs can persist. In an age when man is literally soaring to the stars, it is indeed pitiful that he has not yet managed to raise to decent levels the standard of living of two thirds of the earth's inhabitants. An expansion in the flow of private capital can of course add to the availability of foreign exchange, either by increasing exports or producing substitutes for imports. But if the past experience is any indication of future expectations, it would be fanciful to hope that private funds would be made available on an adequate scale to countries where the need is greatest or that they would soon generate enough production of the kinds required to ease the shortage of foreign exchange. We, therefore, inevitably reach the conclusion that there is an urgent need for increased external assistance from the industrial countries and on more concessionary terms. Economic development in poorer countries has acquired a stronger momentum thanks to our common efforts of the last 20 years. The opportunity which now exists to take advantage of this achievement and speed the process of growth through productive investment has never been greater. The need is small in relation to the vast capabilities of the industrial countries, but action to meet it has so far been blocked by obstacles which have assumed formidable proportions, but which, in essence, are political and technical problems in dealing with payments imbalances among themselves. These and other problems of trade, aid, payments, and growth should be tackled in a coordinated manner by everyone concerned. Recent efforts by the Bank, the Fund, and the United Nations Conference on Trade and Development in presenting the plight of the developing countries and their increased interest and involve- ment in world economic reforms seem to move in the right direc- tion. There are numerous plans for the creation of international liquidity, and its distribution to developed and developing countries alike, which could be adopted and put into effect. The essential thing is to act and to act fast before it is too late.

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In his recent address to the Ministerial Meeting of the Develop- ment Assistance Committee, Mr. George Woods, the distinguished President of the World Bank, warned that "today the disparity between the living standards of a prosperous fraction of mankind and the rest of humanity is a gulf that separates the two, but tomorrow it may swallow up both rich and poor in political strife and economic chaos." A more candid interpretation of this elo- quent warning may be to say that the issue of international aid giving is too important to be left to the aid givers alone. Fortunately for us all, the poor and the rich are both represented in this hall today. Let me ask them both to consider before the close of this session what more can be done in the years to come to attain the common goal which has gathered us together. I am confident that with sufficient good will and good faith on the part of aid givers and aid receivers the present difficulties can be over- come in the spirit of international collaboration which gave birth to our institutions 20 years ago. I am equally confident that the industrial countries will be able to solve not only their own prob- lems but also find means to meet the requirements of their less prosperous neighbors. As Governors of the Fund and the Bank we have an obligation to help focus the world's attention on the need to press forward toward self-sustaining economic growth in all countries. These meetings offer an unequaled opportunity in this regard. Unless we come forward with new ideas, new proposals, new ways and means to meet the challenge of world economic problems—trade, aid, international finance, monetary reform, and noninflationary, full- employment growth—our journeys to these meetings simply to approve a number of routine resolutions and to make some general statements would hardly be justified. The difficulties in our way are many and varied. Millions of our people must during the years to come undergo such changes in their ways of thinking and in their ways of living as men in former times have never known. To achieve this, a common devotion of all of us is required. Never before has there been greater or so widespread a need for initiative and for new experiments in international cooperation. I hope as a group we shall not miss the opportunity.

©International Monetary Fund. Not for Redistribution PRESENTATION OF THE TWENTY-FIRST ANNUAL REPORT1

BY THE CHAIRMAN OF THE EXECUTIVE BOARD AND MANAGING DIRECTOR OF THE INTERNATIONAL MONETARY FUND

Pierre-Paul Schweitzer

Mr. Chairman, I should like to join with you in expressing our thanks to the Governor for the United States for his words of welcome. I should like also to associate myself with your greeting to the Governors, delegates, and friends of our organizations who have assembled here today. It is with pleasure that we are able to receive Singapore for the first time as a member, to welcome Guyana to membership today, and to note that the Ministers of Finance of the Gambia and Indonesia, which have applied for membership in the Bank and the Fund, are representing their respective countries. I am pleased to present to you the 1966 Annual Report of the Executive Directors of the Fund. I am sure you will agree that the Report reflects the intensive and concentrated character of the work that the Fund has pursued in the past year. The Report records that in terms of financial operations the latest fiscal year was the most active in the Fund's history. Assist- ance was extended to more members than in any previous year. Sales of currencies reached a new record, exceeding the equivalent of $2,800 million, and stand-by arrangements approved during the year amounted to $575 million. Since the fiscal year ended, the Fund has actively continued its work of assisting members through financial transactions and through stand-by arrangements. In this connection, I should like to mention an important innovation in the

1 September 26, 1966. 10

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Fund's transactions with member countries. On August 18, the Fund borrowed the equivalent of $250 million in lire from the Italian Government. This loan made possible a corresponding drawing of lire by the U.S. Government, notwithstanding the low level of the Fund's holdings of lire. The transaction enabled the United States to acquire dollars from Italy against lire—a transac- tion of the kind which was specifically provided for in the Articles of Agreement. Governors will be aware of the progress which has been made in increasing members' quotas in the Fund under the Resolutions which they approved in March of last year. As of today all but a few members have agreed to the increases in quotas provided for under those Resolutions, and total quotas now exceed $20.5 billion. The Report also describes how the Fund has continued, and indeed expanded, the activities whereby, in a variety of ways, it seeks to be of assistance to its members. Programs of technical assistance have continued to help members in carrying out mone- tary, banking, exchange, and fiscal policies and in developing financial statistics. The Fund also has begun to provide, in Spanish as well as in French and English, its courses on monetary policy and analysis. Fundamental to all of these activities, there has been a continuation of that close consultation and cooperation with individual member countries which has always been the heart of the Fund's endeavors. In May of this year the Executive Directors marked the twentieth anniversary of their first meeting. As we reflect upon the past two decades of the Fund's existence, we can point to the increase in its resources, the development of its policies and facilities, and the advances that have been made toward carrying out the basic principles and objectives of the Fund as set forth in the Articles of Agreement. In any comparison of the economic and financial record of the postwar period with that of the interwar period, we cannot fail to note the unprecedented advances in economic under- standing and in international cooperation. Then, looking at the latest developments, we observe that economic growth in most of the industrial countries continues at a high rate, that international trade goes on expanding, and that the exports of the primary

©International Monetary Fund. Not for Redistribution 12 SUMMARY PROCEEDINGS, 1966 producing countries are being supported by high and rising levels of demand in the industrial countries. All this gives much cause for satisfaction, and it is essential to keep it in mind as a matter of perspective. But I do not intend to dwell upon the more favorable side of things, historical or current. I will instead focus on certain problems in the world economy that require the attention and efforts of all of us—in the Fund, in other international organizations, and in national governments—now and in the coming months and years. Also, I shall have something to say about two matters that have been important preoccupations of the Executive Directors and staff of the Fund during the past year —compensatory financing and international liquidity. Looking at the industrial countries, I would draw your attention to several developments during the past year. First, the further expansion of economic activity in the United States and Canada created a situation in which, for the first time in the postwar period, virtually all industrial countries are simultaneously enjoying high levels of employment and at the same time experiencing pressures on resources. Second, changes in economic activity and in under- lying demand pressures have not served to reduce the imbalances in world payments. Third, the widespread strength of demand for credit and capital, along with other factors, has led to a dramatic rise of interest rates in most industrial countries. These features of the economic scene in the industrial world point up some clear problems and challenges in the field of national economic policy. The problem of maintaining price stability in the world economy has become greatly accentuated by the strain on resources that is associated with the high levels of employment and activity currently prevailing in nearly all the industrial countries. These countries have shown perseverance and ingenuity in their pursuit of economic growth and full employment, but they have been notably less successful in reconciling this with a reasonable degree of price stability. In my view, the increases that have occurred in the domestic prices of many industrial countries in recent years should not be taken as a sign of overabundant international liquidity. Rather, they are attributable to the difficulties encountered by economic management when unemployment gets down to low

©International Monetary Fund. Not for Redistribution OPENING ADDRESS BY MANAGING DIRECTOR 13 levels and structural factors come into play. Such difficulties, experience shows, can afflict countries having deficits in their external transactions as well as those in surplus positions. Coping with inflationary forces in the leading industrial nations will not be easy, as it will require advances in our understanding of eco- nomic processes, more effective uses of a wide variety of policy instruments, and—in some cases—giving a higher priority to the maintenance of price stability among the objectives of policy. The fact that containing cost and price pressures for domestic reasons has become a common problem in the industrial world also has relevance for the balance of payments adjustment process. It may be recalled that during recent years the marked advances of prices and costs that occurred in European countries—combined with essentially stable prices and costs in the United States— worked in the direction of reducing the U.S. payments deficit and moderating major surplus positions in Europe. However, with emergence of the problem of cost increases and incipient inflation in the United States, there would appear to be less assurance that price movements among industrial countries will continue, in general, to support the adjustment mechanism. The adjustment of balance of payments positions is dependent on an interaction between surplus and deficit countries, and the relative shares of the responsibility that they should assume for the adjustment will vary with the nature of the imbalances and with the underlying world economic situation. At this juncture, the assumption by the deficit countries of a major share of the responsibility for proper functioning of the adjustment process seems indicated, not only on the basis of current price trends among industrial countries but of other considerations as well. Following reductions in their balance of payments deficits in 1965, both the United States and the United Kingdom experienced payments developments in 1966 which, though of a very different character, have been disappointing. As noted by the Executive Directors in their Annual Report, the continuance of deficits in the two reserve centers no longer necessarily produces a growth in world reserves and makes it more difficult to reach agreement on constructive solutions to the problem of ensuring an adequate growth of reserves for the future.

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Notwithstanding a tightening of monetary conditions and a sharp upsurge of interest rates, aggregate demand in the United States expanded rapidly in the past year. This has led to a further shrinkage in the customary current account surplus of the balance of payments, offsetting the reductions in capital outflow. It is essential that policies in the period ahead be directed toward the achievement of an effective payments equilibrium, and one which safeguards the needs of other countries for capital and aid. The several measures of fiscal restraint proposed by the U.S. Admini- stration earlier this month in order to diminish inflationary pres- sures would contribute to the desired equilibrium in external payments. The balance of payments position of the United Kingdom, which showed gradual improvement after the crisis of 1964 but remained weak, has been made difficult by lack of confidence. The program adopted in July, together with the earlier measures, represents a substantial disinflationary effort. This should do much to relieve the pressure on British resources and so to correct the external imbalance. The various measures now in effect will entail some slowing down in investment and growth over the short term, but the efforts being made to improve the allocation of resources and to make incomes policy more effective should serve to strengthen the basic structure of the British economy and help to ensure adequate growth with internal and external stability in the longer run. In both the United States and the United Kingdom, a rise in interest rates was appropriate in the prevailing situation of pay- ments deficits combined with excess pressures of domestic demand. However, its contribution to the capital account of the balance of payments of the two reserve centers has been limited by a broadly parallel rise of interest rates in many countries on the continent of Europe. In view of the strength of economic expansion throughout the industrial world, it is perhaps not surprising that interest rates in most leading countries have been high and rising over the past year or so. In part, the dramatic rise of interest rates has been a natural phenomenon reflecting the intensity of credit demands accompany-

©International Monetary Fund. Not for Redistribution OPENING ADDRESS BY MANAGING DIRECTOR 15 ing economic growth. However, there have been various other causes, the most important of which has been the way that indus- trial countries have managed their financial policies. Most of these countries have relied mainly on monetary policy to combat domestic inflation. However, it would have been more appro- priate from the standpoint of international payments equilibrium if European countries in relatively strong payments and reserve posi- tions had made greater use of fiscal policy for the purpose of checking inflation. Within the over-all degree of restraint obtained by the financial policies of such European countries in the recent period, a combination of greater restraint through fiscal policy and lesser restraint through monetary policy would have meant lower interest rates in those countries. This would have been helpful to the international adjustment process. In short, interest rate developments in the industrial countries have not contributed significantly to a lessening of the disequi- librium in international payments. But, at least in some cases, these developments may also have disadvantages from a domestic viewpoint. There is room for concern that the later impact of a rapid advance in interest rates upon investment activity may be greater than desired. Moreover, in a few countries the upsurge of rates in the last year or so has been symptomatic of a somewhat disorderly scramble for funds. Also deserving of attention is the potential danger that further squeezes on liquidity, and further rises in interest rates, could have an adverse impact on particular categories of financial institutions or borrowers, with consequent repercussions on confidence and on real economic activity. In any event, these -considerations regarding interest rate devel- opments point clearly to the need for better fiscal policies in the industrial countries. Some improvement—perhaps not inconsider- able—could be realized through a greater willingness on the part of national authorities to face fiscal problems promptly, within the framework of existing arrangements. More fundamentally, every effort should be made to bring greater short-run flexibility into the instruments of fiscal policy in the industrial countries. This would contribute materially to the general effectiveness of demand man- agement, enabling the authorities to cope more successfully with

©International Monetary Fund. Not for Redistribution 16 SUMMARY PROCEEDINGS, 1966 rapid changes in domestic conditions or in the balance of payments. If fiscal policies were better developed and could be adjusted more readily to changing circumstances, less reliance would need to be placed on monetary policies to influence domestic demand. This, in turn, would permit more attention to be paid to the effects of monetary policy on the international movement of capital. Given the convertibility of major currencies, an unduly heavy reliance on monetary policy may induce capital inflows or outflows which are disequilibrating to the balance of payments and also hamper the use of monetary policy for domestic purposes. The industrial countries, by and large, have achieved some fundamental success in meeting their objectives of national eco- nomic policy in recent years. However, in one vital respect the record has riot been good. Preoccupied with their domestic prob- lems of pursuing economic growth, combating inflationary pres- sures, and protecting payments or reserve positions, the industrial countries as a group have not expanded their various forms of assistance to developing countries. In view of the sheer immensity of the problems and needs facing the developing world, this situa- tion is of the gravest concern. High growth in the industrial countries, to be sure, has provided an expanding market for the developing countries' exports during the 1960's. However, the beneficial effects of this would have been greatly enhanced if the industrial countries, by continuing to lower trade barriers, had eased further the access to their markets. Only slight progress has been made along these lines in recent years. High growth in industrial countries, moreover, might be expected to facilitate the flow of resources to the developing world. But, in spite of increased efforts by some countries, foreign aid in the aggregate has stagnated since the beginning of this decade. Its terms have hardened in the sense that the proportion of assistance in the form of grants has fallen and that of tied aid has risen. Furthermore, the volume of private long-term capital flowing to the less developed countries has increased relatively little over the past few years. Although the industrial countries that impose restrictions on capital outflows have attempted to insulate devel- oping countries from the effects of such measures, the general

©International Monetary Fund. Not for Redistribution OPENING ADDRESS BY MANAGING DIRECTOR 17 economic environment in the industrial world has not been one of positive encouragement, by tax incentives or otherwise, to invest- ment in less developed countries. In view of this situation, the industrial countries should give a high priority to measures which ease the access to their markets and stimulate the flow of investment and development assistance. These countries should make all possible efforts to avoid having such measures become contingent on the state of their balances of payments or of their budgetary positions. If these principles, which appear to find broad acceptance, were to be put into practice, we could then look forward to a time in which the potential benefits of high growth in the industrial countries would be shared more fully with the developing world. On the other hand, the developing countries themselves must play an important role in any such improvement. Financial pru- dence on their part is more than ever necessary, not only in the interests of internal balance but as a means of stimulating the inflow of foreign resources, both private and official. While the control of some of the more conspicuous inflationary situations in the developing world has met with a measure of success, there has been some deterioration in many of the milder cases, and the over-all outlook for internal price stability remains clouded. On the supply side, too, the developing countries must do more to marshal and redirect domestic resources if a higher level of exports to fill expanded markets is to be generated and if an increasing flow of foreign resources is to be used effectively. Particularly important, in view of the rapid growth in population, is the need in many countries for a strengthening of the agricultural sector. The external position of many less developed countries remains precarious. The burden of servicing their accumulated foreign indebtedness has grown heavier, and the level of their reserves remains low. As a group, these countries have made sizable addi- tions to their foreign exchange reserves over the last three years, but these reserves in many cases had fallen to very low levels and, besides, much of the over-all increase has been concentrated in only a few countries. Whatever strengthening of reserves has

©International Monetary Fund. Not for Redistribution 18 SUMMARY PROCEEDINGS. 1966 occurred is certainly to be welcomed; the less developed countries must have adequate reserves if they are to be able to deal with balance of payments uncertainties. The Fund's resources are available to the members, within the established policies governing their use, to supplement their own reserves at times of temporary balance of payments difficulty. A frequent cause of difficulty is a shortfall in export earnings, and ordinary drawings can be made on the Fund in such circumstances. However, in February 1963 the Fund extended its policies by making special provision for the compensatory financing of pay- ments deficits arising out of export shortfalls. Taking account of suggestions made by Governors at the 1965 Annual Meeting and of a Resolution passed by the United Nations Conference on Trade and Development, the Fund in the past year undertook an intensive re-examination of its compensatory financing facility. This resulted in the improvement of the facility that is fully explained in a new report that has been made public today. Here, I might note briefly that outstanding compensatory draw- ings under the special facility—previously limited to 25 per cent of a member's quota—may in the future rise to 50 per cent of quota, with the provision that net drawings will ordinarily not exceed 25 per cent of quota in any one year. Henceforth these drawings will be outside the Fund's tranche policies and therefore they will not affect the member's ability to draw under those policies. The facility can now be said, in colloquial terms, to be a "floating" one. This is, of course, an important liberalization of policy for the benefit of countries eligible to use the facility. Countries making use of this facility will repurchase in accordance with the Fund's established policies which, in general, call for repurchases within three to five years. At the same time, the Fund recommends that in these cases countries apply to repurchases approximately one half of the amounts by which their exports are above their calculated trend values in any year. The compensatory financing facility provided by the Fund has been useful to some Fund members and in the future is likely to be useful to many more. It is for this reason that we have sought and achieved agreement on the expansion and liberalization of that

©International Monetary Fund. Not for Redistribution OPENING ADDRESS BY MANAGING DIRECTOR 19 facility. This has been done within the broad framework of the Fund's policy on the use of its resources, especially the requirement that those resources are available to assist members in meeting temporary balance of payments difficulties. As a result of our latest decision on this subject, the Fund is better equipped to help countries which have encountered export difficulties not of their own making. I turn now to the subject of international liquidity—a subject on which the Fund has done a great deal of constructive work over the past year. The main results of this work are discussed at considerable length in Chapter 2 of this year's Annual Report of the Executive Directors. It is clear from this chapter that the work done during the past year, both in the Fund and elsewhere, has produced significant advances in understanding and agreement. I may mention as one example the issue of the distribution of any newly created reserves; very wide agreement has been gained on the principle that all members of the Fund should participate in any distribution of such reserves and that Fund quotas (or a closely related measure of the relative economic position of countries) should serve as the yardstick for their allocation among Fund members. On other major points, too, there is a growing con- vergence of views. There still remain a number of unresolved issues, including some important ones of both technique and policy. I do not want to minimize the difficulties involved but I am convinced that, given the will to establish a mechanism for the creation of reserves, these difficulties can be resolved in a reasonably short time. On the basis of the experience we have had this far, I conclude that there are no technical reasons why concentrated work could not provide Governors with fully developed suggestions for arrangements for reserve creation in time for next year's Annual Meeting. As an illustration of how certain aspects could be worked out, I put forward some specific ideas last February for the consideration of Executive Directors. These ideas, which are also covered in Chapter 2 of the Report, reflect the basic principle of universality and incorporate those safeguards that are indispensable whenever the creation of money is undertaken.

©International Monetary Fund. Not for Redistribution 20 SUMMARY PROCEEDINGS, 1966

I may perhaps draw attention to the large increases, announced two weeks ago, in the bilateral credit facilities and swap arrange- ments of the U.S. Federal Reserve System and the Bank of England with each other and with a number of other central banks. These arrangements are designed to cope with the problem of heavy short-term movements of capital between financial centers and are not intended to be a substitute either for the conditional liquidity extended by the Fund or for the deliberate creation of new reserves, but I mention them here because they provide impressive evidence that decisive action can be taken quickly in the area of international liquidity. I suggested in my address a year ago that it would be very useful if the efforts of the Fund and the Deputies of the Group of Ten could be directed toward a common view on desirable lines of action in the field of reserve creation. In my view, these efforts might now be helped by informal meetings between the Fund's Executive Directors and the Deputies. I am discussing practical arrangements for this purpose, and I hope to be able to submit proposals to the Executive Directors in the near future. It may well be that informal discussions with other groups would also appear useful during the year, and if the Executive Directors wish these to be arranged I perceive no difficulties. The most important consideration is to leave no procedure and no channel untried which can advance the work in which we are engaged. I have made it clear that I consider it important that concrete arrangements for the deliberate creation of additional reserves be agreed among member countries without undue delay. I do not hold this view because I believe that the international monetary system is in imminent danger without injections of additional liquidity. But I do believe that world confidence in this system will be greatly strengthened once it becomes established that the members of the Fund have agreed on a system of deliberate reserve creation intended to ensure that reserves increase by such amounts as are judged necessary for the full, free, and noninflationary growth of the world economy. I do not harbor the illusion that reserve creation can serve as a panacea for the economic problems of the world. But many of

©International Monetary Fund. Not for Redistribution OPENING ADDRESS BY MANAGING DIRECTOR 21 these problems can more readily and more successfully be tackled if countries following prudent policies can expect their reserves on the average to increase—that is to say, if countries can acquire the reserve increases they need over the long run out of a growing total rather than at the expense of other countries. It is to assure such an economic environment that agreement should be reached on arrangements for deliberate reserve creation. For that reason the most determined efforts of all of us should be devoted to this problem in the coming year.

©International Monetary Fund. Not for Redistribution DISCUSSION OF FUND POLICY AT SECOND JOINT SESSION1

STATEMENT BY THE GOVERNOR OF THE FUND AND BANK FOR JAMAICA

D. B. Sangster

Jamaica is very glad to open the proceedings in the plenary discussions in the 1966 Annual Meetings. I join with you, Mr. Chairman, Mr. Woods, and Mr. Schweitzer in expressing my thanks for the welcome extended to us yesterday by the distin- guished Governor for the United States on behalf of his Govern- ment. I welcome two members of the Commonwealth, Singapore and Guyana, who have been admitted to membership of the Bank and Fund at this meeting. Last year I spoke briefly and extended my remarks: this year I am not able to do so but I hope to set the pattern for very short speeches. As we have come to expect, Mr. Schweitzer and Mr. Woods have given masterly surveys of developments over the last year of those matters which come under their responsibility. . . . Mr. Schweitzer's survey was most lucid and penetrating, and as a small country we welcome the concern he has shown with the necessity of finding a solution to international monetary problems, taking into account both the views and the interests of the devel- oping countries of the world. Once again Jamaica must bring to attention the effect that high interest rates and shortages of capital prevailing in the world's markets have on small underdeveloped countries. The Bank has itself complained that it has to pay high rates of interest for the funds which it borrows, but it seems to me that the Bank should 1 September 27, 1966. 22

©International Monetary Fund. Not for Redistribution GOVERNOR FOR JAMAICA 23 not be satisfied with regarding itself as a victim of a particular situation nor should the Fund be content to see interest rates in the major money markets remain at their present high levels. This is a world problem affecting everyone, and surely we as Governors are conscious that one of the purposes of institutions such as the IBRD and the IMF must be to make some contribution toward the creation of a stable monetary climate which will give the richer countries the confidence which they evidently need to feel before they are both willing and able to promote a greater flow of capital from themselves to the developing countries at reasonable rates of interest. Equally important, we in the developing countries who belong to these great institutions ought to be able to plan on the assump- tion that the more developed countries as a whole can make a steady, indeed an increasing, contribution in one way or another which will help us to bring the living standards of our people closer to that of the richer nations. No one can continue to borrow at an interest rate of 8 per cent or more for expenditure on education or agriculture or health services, so that, if we allow the present conditions to continue, we are really saying that the development of basic infrastructure must cease. For countries like Jamaica which are unreasonably denied access to the resources of IDA, we are in double jeopardy because we are faced with two unpleasant alternatives, either not to spend loan funds on development at all (in which event we must face the inevitable social and political consequences), or, when we get it, use this money which, because of the high interest charges, will eventually destroy our financial stability and oblige us deliberately to restrict the growth of our economies. There are very few developed countries in the world today which, for one reason or another, have not put up barriers to the raising of development loans by other countries. We appreciate that they have very real problems but we do not think that these problems should be solved at the expense of the developing countries. Those large countries which are in balance of payments deficit say that until they cure their deficits they must restrict their new investments overseas; this we can, in some cases at least, understand. But then many of

©International Monetary Fund. Not for Redistribution 24 SUMMARY PROCEEDINGS, 1966 those in surplus often give the impression that their main aim in life is to go on accumulating surpluses, which raises the presump- tion that, when those countries now striving to eliminate their deficits succeed, they may be reluctant to pursue more liberal policies for fear of returning once more to deficit. If an increase in international liquidity by the creation of some new form of reserve asset will get us out of this dilemma, Jamaica is wholeheartedly in favor of such an increase. At the meeting of Commonwealth Finance Ministers in Montreal, it was our view that there was an urgent and immediate need for contingency planning to provide additional liquidity; we also feel that the International Monetary Fund should play a major role both in formulation and execution of any plan so that all members could make their views known in any discussions having to do with monetary reforms. I need not emphasize also that any new reserve assets should be universally available on a uniform basis to all members of the Fund. And I am glad to note that Mr. Schweitzer in his opening address has put his great prestige behind this view. I know that other Commonwealth Finance Ministers will deal with these points at greater length, and I merely make the point that I fully support the views of my Commonwealth colleagues which were expressed in Montreal. I know that Governors for many other developing countries share these views. . . . I hope that this meeting will be most productive and that it will see a resolution of the conflicting views which have beset inter- national development and monetary problems in the past few years and will set the stage for continued progress in the months ahead. May I, in closing, suggest to my colleagues that on their winter vacation next year they should stop over in Jamaica for a visit. We shall be very happy to see them.

©International Monetary Fund. Not for Redistribution GOVERNOR FOR MALAYSIA 25 STATEMENT BY THE GOVERNOR OF THE FUND AND BANK FOR MALAYSIA

Tan Siew Sin

We meet today in the capital of the richest and mightiest country in the world on an occasion which also marks 20 years of effort by the International Bank for Reconstruction and Development and the International Monetary Fund. It cannot be denied that during this period the "heavenly twins," if I may use an affectionate though facetious expression which is sometimes used to describe these two sister organizations, have tried their best to improve the economic health and strength of the free world. They have poured hundreds of millions of dollars' worth of aid, initially into a Europe deva- stated by the most destructive war in history and, thereafter, into the developing countries of the world. As everyone knows, a developing country is really a euphemism for a poor country, and as I prefer to confine myself to reality, I shall hereafter use the expression "poor country" instead of "developing country." The Bank and Fund have done much for Europe. In fairness to all concerned, it should be added that Marshall aid also helped greatly. In any case, Europe not only recovered surprisingly rapidly but achieved levels of prosperity which far exceeded prewar levels. What has been the impact so far of the efforts of the Bank and Fund on the poor countries of Asia and Africa? To take one typical instance, "the Latin American countries increased the volume of their exports of primary commodities by 25 per cent during 1956-62, but they earned less foreign exchange in 1962 than in 1956," if I may quote the exact words of a World Bank official. I agree that this is only one example, but it is common knowledge that the same trends can be observed for all poor countries who export primary commodities. In fact, I think it is true to say that a sure way to remain poor in the modern world is to produce mainly primary commodities and import largely manufactured goods. This official also mentioned two factors which should be borne in mind: (1) Whereas the output of the rich countries is growing at a rate of $40 billion to $50 billion a year, the total

©International Monetary Fund. Not for Redistribution 26 SUMMARY PROCEEDINGS, 1966 flow of financial resources from government and private sources to the poor countries has remained almost unchanged since 1961 and amounts to about $9 billion annually; thus, the flow of financial resources to the developing countries is actually decreasing in comparative terms as the rich countries get richer. (2) More than one half of the foreign aid received by the poor countries from government sources (which is about $6 billion) flows back to the rich countries in the form of debt repayments and services and is not available, therefore, for development purposes. I shall now give another example, and this time I shall take my own country, namely, Malaysia. We have been praised by many impartial observers of standing for not only being able to get along without much foreign aid but for being able to record significant rates of economic growth in spite of its lack. We have pursued prudent and conservative financial policies but liberal trade and economic policies. We have eschewed some of the more novel economic experiments indulged in by some of the poor countries in a desperate bid to overcome the neglect of centuries. As a result, we have one of the highest per capita incomes in Asia. We also enjoy one of the highest living standards in Asia. Our gross national product has increased by an average of 5.6 per cent during the last 5 years. But during the last 14 years, the cost of living index has remained stable. We are probably the only country in Asia and Africa in the postwar years which actually increased its foreign exchange reserves after independence. In spite of a vast development effort which has already lasted 6 years, our foreign exchange reserves are still equivalent to about ten months' imports. One has only to visit our country to be aware that our economy is expanding. There is the evidence of the eyes to go by, and one comes to this conclusion without having to be an economist and without the benefit of figures. In other words, Malaysia can be described as a model poor country. It is, however, rich by the standards of the other poor countries of Asia and Africa in the sense that a small shopkeeper is rich compared to an unskilled laborer. It is a matter of relativity and it can be demonstrated by a point which was made in a recent survey conducted by the

©International Monetary Fund. Not for Redistribution GOVERNOR FOR MALAYSIA 27

United Nations Economic Commission for Asia and the Far East. Among other things, this survey showed that if Malaysia were to continue at its present rate of growth, it would take 58 years to reach the present Japanese income level and 125 years to achieve the present New Zealand per capita income. That, gentlemen, is the magnitude of our wealth when compared with the wealth of Japan and of New Zealand! If this is the picture for Malaysia, which is probably the richest of the poor, one can imagine what the picture is for the poorest of the poor! I referred earlier in this statement to the dramatic economic recovery of Europe after the last war, but it should also be noted that this recovery might not have been possible with the help of the Bank and Fund alone. There was Marshall aid to boot, and this was not only substantial, it was on much easier terms. How much more necessary then that we should have the equivalent of a Marshall Plan for Asia and Africa which has to start from a much less advanced base. There is a vast difference between a Europe which, though devastated by war, had, at least, an adequate reser- voir of technical and managerial skills and a highly industrialized base compared to an Asia and Africa, which lack all or nearly all prerequisites of rapid development. We, therefore, suggest that a basic reappraisal should be made of present attitudes and present policies. It is clear that aid, i.e., foreign economic aid, is not an end in itself. It is a means to an end. The end must obviously be to assist the recipient countries to reach that stage of self-sustaining growth when it can not only help itself but would eventually be in a position to help others as well. Mr. Escott Reid, who is a noted Canadian diplomat, writer, economist, and university professor, has revealed that "the net official flow of long-term capital from the rich members of the World Bank to the poor members is now about $6,000 million a year, or less than %0 of 1 per cent of the combined gross national products of these rich countries." In an article entitled "The Crisis in Foreign Aid" published only a month ago, he stated that he had "no hesitation in saying that the flow should be increased immediately by at least 50 per cent, that is, to $9,000 million or $10,000 million a year. This is the minimum figure suggested by

©International Monetary Fund. Not for Redistribution 28 SUMMARY PROCEEDINGS, 1966 the conservative economists of the conservative, tough-minded World Bank." In other words, this increase is still within the means of these rich countries, and it is not exactly charity because even this increased aid would only partially offset the foreign exchange earnings lost to the poor countries as the result of a pricing system for primary commodities which forces countries producing them to produce more in order to earn less. It is not exactly based on equity because these poor countries get less and less for each unit of production which they sell while they themselves have to pay more and more for each unit of manufactured goods which they buy from the rich countries. I think it is probably true to say that if prices of primary commodities were to increase at the same rate as the prices of manufactured goods, the poor countries might not need any economic aid from the rich countries or even from the Bank and Fund because the difference between what we get now and what we would get if we were paid fair prices for primary com- modities would be greater than what we are receiving in the form of aid. . . . Last but by no means least, the Bank and Fund should provide more technical assistance and expertise which can sometimes be more important than money. Quite often such assistance and expertise can go a long way toward preventing that misuse of aid which the rich countries fear and which, we in the developing countries must admit, does sometimes occur in spite of our best intentions. If I may say so, the essential requirement is to keep hope alive. Even the most optimistic among us cannot but feel depressed if we look merely at the figures. If, therefore, hope is not kept alive, the poor countries might feel that they have no choice but to turn to the only other alternative open to them, i.e., totalitarian rule, though this would be known by different names in different coun- tries. Those of us in the free world who feel that man does not live by bread alone could see to it that this philosophy need not be an idea; it is an idea which can be turned into reality, if the will is there. The material resources are certainly available.

©International Monetary Fund. Not for Redistribution GOVERNOR FOR GHANA 29 STATEMENT BY THE GOVERNOR OF THE BANK FOR GHANA

A. A. Afrifa

I represent a Government that took over from the previous regime in Ghana only a few months ago. I am sure that most of my colleagues are already aware of the economic problems that we inherited, and I wish, therefore, to make only brief remarks about the progress we have made in our efforts at recovery. The recovery of international confidence in Ghana that has occurred in recent months owes a great deal, on the one hand, to the facilities which the Fund has made available to us, and on the other, to the assistance and support which Ghana under the new Government has received in a very generous measure from her friends in the United States of America, Germany, Canada, and the United Kingdom. In May the Fund agreed to a stand-by arrangement for one year whereby we can purchase the equivalent of $36.4 million. The Fund has also used its good offices in arranging negotiations between Ghana and its principal creditor countries to reschedule the repayment and servicing of our debts on suppliers' credits. While the negotiations are in progress, there has been a temporary suspension of payment on medium-term and long-term credits. With the help of drawings under the stand-by arrangements and the resources freed by this temporary suspension, the current foreign exchange position has been brought more under control. Thus, since June 1 of this year we have been able to meet all current import bills at maturity as well as certain essential service payments, and last month a start was made with paying off the accumulated arrears on short-term debts under a systematic and nondiscriminatory arrangement which we have reached with all our short-term creditors. There is thus a temporary respite in our payment crisis, but no one is more conscious than ourselves that all we have achieved so far is merely that we have gained vital time in which to apply the measures for putting our house in order. We are determined to turn this to good advantage, and have already made a start with a

©International Monetary Fund. Not for Redistribution 30 SUMMARY PROCEEDINGS, 1966 bold program aimed at stabilizing the economy and reforming its finances. This program has many facets, but its central feature is the budget introduced two months ago by the Chairman of the National Liberation Council. The main emphasis was placed on reducing government expenditure rather than increasing taxation, which is already very high. We have made a cut of more than one quarter in development expenditure, compared with 1965, and have also reduced recurrent expenditure to the minimum possible. This retrenchment cannot go without some temporary unemploy- ment, which has indeed already emerged as a serious problem. We have plans, however, for undertaking selective labor-intensive pro- grams to contain the problem. We believe, however, that the burden of our stabilization efforts could be greatly lessened if the problem of fluctuating commodity prices were solved. It was therefore a disappointment to us when the Cocoa Conference in New York failed to reach agreement on price stabilization. Turning now to the wider issues before us, I shall make references to both the International Monetary Fund and the World Bank Group in this statement. Few subjects dominate the international monetary scene today more than the discussions that have been going on among the Group of Ten GAB countries in an effort to examine, anticipate, and take steps to avoid the shortage that is already foreseen in international liquidity. At the time of the Annual Meetings last year the Group of Ten had been considering this important matter for two years or more, but it was still not clear then whether and at what stage the Group intended to bring the International Mone- tary Fund into the discussions so that all our member countries might participate in the discourse. Mr. Chairman, you will recall that deliberations on this subject at our last Annual Meetings stressed the need for these discussions to be brought within the machinery of the International Monetary Fund. It is gratifying, therefore, to note from the Fund's Annual Report and from the Managing Director's statement that over the past year the Fund has been associated in a constructive way with

©International Monetary Fund. Not for Redistribution GOVERNOR FOR GHANA 31 the significant advances in understanding and agreement that have been reached on the need, on the one hand, to reform the inter- national monetary system with a view to making it more responsive to the needs of both industrialized and developing countries and, on the other, to make provision for a deliberate creation of inter- national liquidity in the future by planning now on a contingency basis so that there is a ready-made scheme to put into operation when the need occurs. The consensus reached by the Group of Ten on the basic principles that all members of the Fund should participate without discrimination in the distribution of newly created reserves, using Fund quotas for a guide, represents a significant advance toward meeting the interests of countries outside the Group, and we may congratulate both the Fund and the Group of Ten countries for this. It seems, however, that although there is wide agreement among the Deputies of the Group of Ten countries on the broad principle of universal approach to international liquidity, namely, in the reserve creation, distribution, and decision-making process, a number of major industrialized countries are still reluctant to accept fully this universal approach. And in a recent communique issued by the Finance Ministers of the European Economic Com- munity at the end of their Luxembourg talks, stress is laid in paragraph 4 on the special responsibility of the main industrial countries and the unique problem of the developing countries in a way that detracts from the principle of universality. As representatives of a developing country, my Delegation would like to stress and concur in the principle already proposed by the Fund that reserve creation is the concern of all member countries. Consequently, we should all be recognized as having an abundant interest in ensuring that any arrangements for the creation of additional international reserves are such as would satisfy the proper requirements of all countries without discrimina- tion. This principle, in turn, demands that all member countries should have the opportunity through their duly accredited Execu- tive Directors and also at the meetings of Governors to participate in any decisions which lead to the creation of new reserves. I am thus of the view that the International Monetary Fund, which serves

©International Monetary Fund. Not for Redistribution 32 SUMMARY PROCEEDINGS, 1966 all of us so well, should be allowed to play a key role in any new arrangements. I am sure that the Group of Ten countries are not looking for any commendation for their good initiative in this matter, but we must not overlook the special merit in the genuine efforts which their Deputies have been making to ensure that there is a broad approach to this vital question. The Managing Director of the Fund was reassuring in expressing the hope that it may be possible during the course of the year to reach agreement on the details of a contingency plan which we could then consider at the 1967 Annual Meeting. My Delegation supports the sense of urgency with which he is handling this matter and hopes that the steps which he is taking in this direction are fruitful. The improvements that were made in the compensatory financing facility will undoubtedly benefit a large number of member coun- tries, and are further demonstration of the Fund's flexibility and constant search for ways in which it can best meet the needs of its members as fully as possible. . . . During the year both the Fund and the Bank have been extremely generous in affording technical assistance to Ghana, and I should like to be allowed this opportunity of placing on record how much we have enjoyed meeting and working with the staff members of the Fund and the Bank on the various missions that have visited us. Finally, we are happy to note the tremendous progress and growth that has taken place in the Fund and the Bank during the past 20 years. That operations in the past year followed this trend is amply proved by the analysis presented in the Annual Reports of these institutions. For this, we congratulate the Managing Director of the IMF and the President of the IBRD and its affili- ates, as well as the staff, and wish them more years of yet more successful operations.

©International Monetary Fund. Not for Redistribution GOVERNOR FOR CANADA 33 STATEMENT BY THE GOVERNOR OF THE FUND AND BANK FOR CANADA

Mitchell Sharp

We listened yesterday to three noteworthy speeches. I was particularly struck by them because they expressed so eloquently some of my concerns as a Minister of Finance. . . . I find myself in full agreement with the emphasis which has been placed by Mr. Schweitzer on the necessity of an appropriate mix of policies if we are to succeed at the one time in containing the inflationary price pressures and achieving a satisfactory adjustment of international payments. He has stressed the need for an adequate use of fiscal policy and the avoidance of excessive reliance on monetary policy. This has been widely recognized by many countries, including my own. . . . The third problem that I would like to touch upon this morning is the problem of international liquidity. The task here is to devise and put into place adequate machinery for the deliberate and rational creation and management of international reserve assets. Important progress toward achieving suitable arrangements has been made in the past year, but the rate of advance has been disappointing, and we think it most important that substantial further progress be made in the year ahead. In that connection we welcome the continuing intensive work by Jboth the Fund and the Deputies of the Group of Ten, and we also welcome the proposals for informal meetings, between the Fund's Executive Directors and the Group of Ten Deputies. We believe that there is a large measure of agreement around the world about many of the principal characteristics of good arrangements for the management of international liquidity. I speak with greater confidence in this respect, by virtue of the fact that it was my privilege last week to act as chairman of a meeting in Montreal of Commonwealth Finance Ministers at which the views on this subject of the 23 countries represented were exchanged. I cannot, of course, speak for anyone but myself, but I have the

©International Monetary Fund. Not for Redistribution 34 SUMMARY PROCEEDINGS, 1966 impression that there is a wide measure of agreement within the Commonwealth, and I think also outside, on a few salient points. The first of these is that the new arrangements should be very closely associated with the International Monetary Fund. The second is that, since the need for adequate growth of reserves over time is universal, the arrangements should provide for the direct participation of all countries. The arrangements must, of course, commend themselves to the world's principal trading countries, because as a practical matter any scheme would be unworkable without their support. There are of course technical difficulties to be resolved, but I share the view of the Managing Director of the Fund that these difficulties can be overcome in a reasonably short time if the will to do so is present. It is vitally important to make rapid progress because I believe, with the Managing Director, that "world confi- dence [in the international monetary system] will be greatly strengthened once it becomes established that the members of the Fund have agreed on a system of deliberate reserve creation intended to ensure that reserves increase by such amounts as are judged necessary for the full, free, and noninflationary growth of the world economy." Canada is prepared to join in a determined and cooperative approach to this problem.

STATEMENT BY THE GOVERNOR OF THE BANK FOR YUGOSLAVIA

Kiro Gligorov

I take particular pleasure in availing myself of the opportunity to participate in this year's Annual Meetings of the International Monetary Fund and the World Bank and its affiliates. The World Bank and the Fund this year are celebrating 20 years of their work, and this occasion—with our congratulations—should not pass unnoticed. The results so far achieved by these institutions prove the usefulness and positive effect of international organizations

©International Monetary Fund. Not for Redistribution GOVERNOR FOR YUGOSLAVIA 35 whose task and aim is to strengthen international cooperation in finding adequate solutions for concrete questions of wider interest. . . . The Annual Report of the Fund before us has been supple- mented this year by new features and gives a concise review of world economic and monetary developments in the past year. The opening remarks of the Managing Director, Mr. Schweitzer, have offered us a more detailed inside look at these world developments. I am especially glad to note that it is evident from the speech of Mr. Schweitzer that the Fund has taken a decision on further improvements in the existing system of compensatory financing. I hope this liberalization of the system of compensatory financing will be more efficiently applied in the future than in the past in rendering assistance to countries which find themselves in balance of payments difficulties as a consequence of adverse movements in their export earnings. In his statement Mr. Schweitzer has also underlined with great competence the importance of seeking schemes for the maintenance of international liquidity on a level which would not endanger the smooth development and further growth of world trade. In this connection I wish to stress that, in my opinion, the question of the reform of the international monetary system with respect to the maintenance of international liquidity has not in the past year lost its urgency. Even the statement that the present level of liquidity is satisfactory does not lessen the urgency of the problem. On the contrary, I am of the opinion that this problem becomes more and more acute and that it was useful that the Fund actively participated in the discussions held in the past year before various forums. These problems are of prime importance for the future work of the Fund and as such are also of essential importance for all member countries. It seems to me that this question is of such universal character that it is of interest to the whole world community. This leads us to the conclusion that solutions must be sought on a universal basis. In saying that, I do not want to diminish the importance, nor the interest, nor the responsibility of the developed, industrial, reserve currency coun- tries. The true solution to this problem may be found only in the

©International Monetary Fund. Not for Redistribution 36 SUMMARY PROCEEDINGS, 1966 direct participation of all countries on a broad basis of cooperation and international understanding. For this reason, any creation of additional reserves and their distribution should be made accessible to all on the basis of certain objective criteria. I therefore believe that the work on the problems of international liquidity should be intensively continued within the framework of the Fund, and that its action be coordinated with the actions of other bodies, especially the work of UNCTAD and its organs. I do believe that an agree- ment could be reached soon in respect to the procedure for an approach to the solution of this question in the light of the above- stated principles. We should not allow development in the field of international liquidity to become a disappointment to us, and I believe the Fund will see to it that this will not happen. Simultaneously with the changed structure of the membership of the Fund, general concepts have also greatly changed in many monetary developments in the world. It is a fact which imposes the necessity for a quick adjustment of the policy and practices of the Fund to such world developments. This is especially true since the resources of the International Monetary Fund are the most effective support for its member countries, implementing programs of internal stabilization of their economies. It seems to me that this necessity imposes introduction of certain improvements in the Fund policy for the utilization of resources. Such improvements should find a place within the general action for rendering support to that part of the world which is making efforts to bring the development of its economies to a higher level under stable conditions. What has been said above is also closely connected with the question of a closer cooperation between the Fund and the Bank in respect to countries undertaking extensive stabilization programs. All efforts now being made to promote such cooperation are welcome. This cooperation would be even more fruitful if a formula could be found for actions in common with those countries that are making efforts to stabilize their economies and to adjust their monetary systems to the policy and principles of the Fund. This movement does not mean any deviation from existing basic principles, but only an adjustment of the specific policies of the Bank and the Fund to the necessities of these countries. The

©International Monetary Fund. Not for Redistribution GOVERNOR FOR FRANCE 37 experience gained by my country in the implementation of the economic reform now under way offers the best proof of what I have said. I must point out that the Fund's participation and support in this action is of great importance, and my Government greatly appreciates this.

STATEMENT BY THE GOVERNOR OF THE BANK FOR FRANCE

Michel Debre

The science of economics has in recent years made remarkable progress, which may be compared with that realized by medical science, although the latter is a long way ahead. After men of genius have observed with new understanding natural phenomena either of the human or of the social body, we are witnessing today, both in medical science and in the science of economics, an intense effort of reflection by a very large number of minds. The means now available to high officials of state, particularly Ministers of Finance, those practitioners of economics, and the Governors of central banks, those most excellent physicians, are becoming more valuable year by year. The level of knowledge which we have reached does not now allow those bearing responsibility to act purely in accordance with their own intuition or emotions. This preliminary remark will explain the sequence of the obser- vations that I have the great honor to make to this meeting. In this year 1966 we may indeed consider that the international monetary system, the subject of our preoccupations, has become a matter for very serious concern. Under the same title of experts, genuine physicians and unlicensed amateurs are crowding at its bedside, while we, who are responsible for the economic health of our countries, question ourselves. Confronted with this sickness of the international monetary system, let us first try to diagnose the complaint. And then, as a second stage, let us try to establish a therapy, fully aware that it is always easier to discern the symptoms than to prescribe the remedy. A realization of the cause of a trouble may at least enable us to say what ought not to be done.

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I shall speak with a frankness which may hurt some of you. If I had ever doubted such a frankness to be opportune, that doubt disappeared when I once again sighted the shores of America. As we touch land in the United States we repeat the action of millions of human beings who have found freedom in this country and who have demonstrated to the world, for themselves and their children, that it is possible to achieve the highest degree of pros- perity and might while observing the fundamental rights of man- kind. Such a deep feeling of admiration, and our gratitude for the efforts which saved humanity from direst calamity in World War II, give us the assurance of being understood, even if the analysis of facts or judgments involve me in some criticism. It seems to me that a diagnosis may be reached by considering the following three established facts: To begin with, the time is past when certain national currencies could be used as an international reserve instrument, and it is failure to realize this fact that causes the monetary confusion to persist. Secondly, our international system is not at present suffering from a shortage of money, but is rather in danger of a surplus, that is to say that any immediate increase in liquidity (to use the fashionable term) will aggravate our disease. Finally, the solution to the serious economic and even political problem of the unequal development of the countries already industrialized and those in process of industrialization cannot be found only by monetary means. I would like to return to each one of these three points.

1. The gold exchange standard no longer answers to the needs of the international community. Starting from a form of gold exchange standard which was intended for a short time, owing to circumstances, we are now moving toward a notion of world reserve currencies which some are trying to substitute permanently for gold. The prominence given to these world reserve currencies is aggravated by the fact

©International Monetary Fund. Not for Redistribution GOVERNOR FOR FRANCE 39 that, through a probably unavoidable process, one national currency tends to become the exclusive reserve asset. In normal times, times which we would wish to be characterized by a continuing effort for better relations between free and inde- pendent nations, the evolution I have described is pernicious. Obviously a national monetary policy cannot be guided, as it always should be, by the prior consideration of international equilibria. National interests cannot help but predominate. Are we, anyway, on the gold exchange standard? Owing to the privileged position which certain reserve currencies have reached, one of them in particular, the system is no longer working according to its definition. For instance, to convert surpluses into gold is considered, by some curious mental aberration, as a dangerous, indeed as an inadmissible action, whereas this is one of the princi- ples of the gold exchange standard in its normal functioning. Conversions into gold have the advantage of ensuring that unlimited credit is not granted to deficit countries. At the same time they act as a danger signal without giving rise, if well planned, to any abnormal shrinkage of the volume of international liquidity. We must thus not be afraid to recognize that the first defect of our present monetary system is caused by the abuse of certain national currencies as world reserve assets, or, to speak with a frankness justified by honest observations of the facts, of a single currency, the U.S. dollar, which seeks to replace gold. The very great power and the expanding use which support this elect currency explain this evolution. All the same, let us repeat that at one time, by reason of serious circumstances which disturbed many things besides our economy, the gold exchange standard, that is to say, the prominence of the dollar, was timely and justified. But times have changed and so has the system. It is no criticism of anybody, or it could be criticism of everybody, to assert that a currency is above all the expression of confidence in an exchange instrument. If the whole world were under the tutelage of one political authority, which would be universally obeyed and bring to all the benefits of a balanced expansion of production and trade, we might imagine that a monetary symbol, representing the power of such

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an authority and the confidence placed in it by the majority of mankind, would be the expression of an international reserve cur- rency. But it is not so. To be sure, there are and always will be close relationships of solidarity which allow the determination of a monetary policy common to several nations. It is a fact of experience that this solidarity works easily within a limited area where traditional and sentimental ties are allied to economic rela- tions. But such a solidarity cannot cover the whole world. This is the reason why the gold exchange standard loses its value when an attempt is made to bring it systematically to the level of a world-wide rule, to the benefit of a single currency. It must appear as inequitable since it has no reciprocity. Reserve currency coun- tries may acquire the currencies of the others, but the reverse is not true. The gold exchange standard seems to be dangerous since there is no corrective mechanism to offset the deficits of the reserve currency countries, and these countries are therefore able to pursue a certain policy without having their attention called to the causes of the trouble of which the system itself is the origin. Finally, the stability of the international monetary system is impaired because, beyond a certain limit, accumulation of the reserve currency undermines confidence in that currency. This analysis is the result of findings stated with precision in the reports of experts. One of the main causes of the present troubles is the persistent deficit in the U.S. balance of payments. The exceptional monetary function given to this deficit erroneously furthers its conservation. The incessant issue of reserve dollars provokes an excessive creation of money all over the world while also permitting an unlimited outflow of capital. This state of things is the cause of a world-wide inflationary trend which casts a growing shadow on the future.

2. The international community is not suffering at this time from a shortage of monetary liquidity. The opposite view is readily expressed, and the shortage of reserve assets as well as, by implication, the shortage of gold are cited to justify, by a distortion of the present system, the creation of additional international liquidity.

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Is there really a shortage? And is this really the trouble affecting our monetary system? We owe it to ourselves to make a serious investigation. May I recall that in 1964 the financial leaders of the main countries agreed that the volume of liquidity had reached a level said to be "fully sufficient for the time being and even for the immediate future"? This liquidity, on whatever basis it is calculated, increased during the past year by the substantial figure of over one billion dollars. And I do not mention the new formulas by which more than a billion dollars are created overnight—a contradiction, if ever there were one, of all the allegations to the effect that it would be difficult to create additional liquidity! If we consider the evolution of the monetary gold stock, the importance of the currency assets, and the increase in the resources of the International Monetary Fund, we may be assured that today, as well as previously, the volume of international liquidity does not now and should not in the near future act as a brake on the development of production and trade. On the contrary, it is the overabundance of liquidity that is the problem. In France we have learned from our own experience in the last 50 years, and by observation of similar and even more severe events affecting the economy of neighboring countries, what a tragedy inflation is. We should not believe that what is true for the economy of a country is wrong for the international economy. In the past it was inside the borders of a country that inflation, when it became more rapid, stirred up economic and social troubles as well as political disasters. The same things may happen at world level and the symptoms we have observed in the last months are in my opinion revealing enough. The material facts are reinforced by psychological ones, such as the hesitancy of holders of reserve currency to continue the immoderate growth of their foreign exchange assets. Under such conditions, is it really conceivable that the creation of an artificial reserve asset designed to augment the amount of liquidity would be a cure for our illness? I study the works of the greatest experts; I read the reflections of the most eminent scientists; and the least I can say is that

©International Monetary Fund. Not for Redistribution 42 SUMMARY PROCEEDINGS, 1966 these works and reflections show not only that there is no urgency, but that it would be dangerous, through too hastily conducted studies, to let people believe that any useful purpose would be served by a method so far from the right solution. I have heard of paper-gold, and this expression, which is not new but always appeals to the imagination, would have the effect— let us dare to admit it honestly to ourselves—of delaying the return to equilibrium of the balance of payments in the reserve currency countries, thus aggravating the threat of world-wide inflation. Instead of drawing closer to rehabilitation and cure we would plunge deeper into illness. Should we continue up to the point where we would be obliged to surrender the patient to the hands of surgeons, when this deplorable outcome could be avoided?

3. The present monetary disorder: its deterioration through the creation of artificial liquidity in no way facilitates world industrial growth. An argument is now put forward, and it is so weighty as to cause some hesitation. We are told: you may be right, it may be true that the community of nations does not suffer from an excess of liquidity. However, liquidity is unevenly distributed and since the first political obligation of the world of today is to develop less advanced countries, the best, if not the only means, is to create additional liquidity through a reserve currency. This argument merits our attention, not only because in this meeting the IMF and IBRD policymakers are sitting side by side but also, and chiefly, because the problem of the growth of a part of the world requires our constant concern: economics must yield to the needs of politics. The question is whether by providing additional liquidity we would be acting properly. The countries which started their economic modernization only recently are suffering from a lack of capital. Their production and therefore their sales are limited to some agricultural products and a few raw materials. The prices they can obtain for their exports are not always satisfactory and, furthermore, they are not stable. Therefore, these countries are losing their chances of progressing within a reasonable length of time.

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The industrialized countries, and primarily those which have reached a high standard of living, ought to channel part of their acquired riches, present production, and future efforts into the development of the less advanced countries. Is it really through the creation of additional liquidities that we can reach this goal? We have to be serious on this important issue. First of all, we must realize that there is no miracle cure capable of providing international money unless someone is willing to pay for it. It is even dangerous to give credence to the feeling that economic aid could be granted to some countries without its charge having to be borne by others. The assumption that supplementary liquidity would easily assist an aid policy has this first illusion behind it. As far as the developing countries are concerned another illusion is created, but not a better one. Money is not an artificial creation. Capital is not born of nothing. Money means production. By relying on the distribution of artificially created monetary liquidity to improve production and to promote exports a momen- tary sort of false ecstasy may be experienced, but without any other discipline there is no remedy for the real difficulties. On the contrary, poverty will be greater after this illusion than it was before. Assistance to developing nations results from serious action, consistent both with the needs of each of them and with the rules that determine the expansion of international economy. I shall have occasion to come back to this but I wanted in this first part of my statement, dealing with an analysis of the facts, to reject a thesis invented to fit the case, and I can do so with greater force on account of the fact that France is first among industrialized nations as regards the size of its per capita contribution to devel- oping nations. Such are the facts. For our future action, let us now remember the rules of conduct afforded us by both experience and reasoning. Respect for fundamental equilibria, acknowledgment of the role of gold as an international currency: we must not try to evade these two truths. We may then usefully work for economic and monetary cooperation.

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Respect for Fundamental Equilibria The lessons of experience have taught us, and teach us every day, that the economic policy of a modern country is based upon an effort to preserve the fundamental equilibria: working popula- tion and job opportunities, savings and investment, prices and wages, national production and money supply, balance of govern- ment finances, of external trade, and of capital movements. These equilibria require discipline and vigilance. They continuously need adjustments because the evolution of the economy, the activi- ties or the turmoil of social life, constantly bring about sudden changes. But we know that the right way is the one which allows us to exert a constant effort, by which steady economic growth, a progressive improvement of the standard of living, and a national advancement toward progress and independence may be assured. No country can permanently ignore such internal rules, which make possible the equilibrium of external payments. Even countries at the peak of civilization and development cannot, while neglecting external deficit, maintain autonomous monetary policy within. France speaks from experience in this field and it is perhaps because she has suffered grievously from wrong policies that I can speak to you in this way. In this connection, I want to stress the value of the endeavors undertaken by the OECD to promote balance of payments and adjustment processes. Those endeavors are still cautious, but they are made in the right direction. The economic activity of the international community results from the adjustment of the mecha- nisms commanded by national economies.

The Central Role of Gold as an International Currency The value of an international money first comes from its ability to assure that these mechanisms function correctly. If the world has known only one genuine international money, it is because the world is what it is, divided into nations—each with its own political command and the confidence that men and women have in that command. That is why nothing but an instrument inde- pendent of national powers can regulate the balance of trade.

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Gold has been and still remains this international instrument, even in the part of the world not represented here, where one might have supposed that a strong ideological solidarity and nationalization of the means of production would have banished it from the scene. So gold really is an objective reality, to be discussed without superstition. Gold is a raw material whose price, unchanged since 1934, has hitherto been confirmed by supply and demand on a market encompassing the entire planet. It is the only truly international liquidity, for its issue is determined neither by the wish of one or more countries nor by balance of payments deficits. It is certainly not created by the will of man or of a nation; it comes from rare and widely dispersed deposits, none of which, incidentally, is located in France. Production increases yearly, slowly but steadily, the existing monetary stock. Hoarding, despite its drawbacks, expresses all over the world an instinctive trust in the only monetary asset having intrinsic value. Thus, age-old experience, founded upon human trust, has proven through thousands of vicissitudes the permanent value of gold as an exchange and reserve instrument. This conclusion is challenged. Cannot we nowadays visualize some other device to escape from the consequences of a system based upon a raw material? It is true that the recent evolution of the world has made it possible to perfect credit techniques which give international relations necessary flexibility and which allow nations, in spite of their diversity, to evidence ties of solidarity. This is why, provided that gold is retained as the fundamental basis, as was agreed at Bretton Woods, the Monetary Fund, by means of credits in convertible currencies and in reasonable amounts, is able to deal on a multilateral basis with the particular situations it has to confront. But to be sound, any credit must be of a temporary nature, that is to say, result in repayment. Could this situation ever change? As we become more knowledgeable, we must remember to maintain a very modest attitude regarding man's ability to master

©International Monetary Fund. Not for Redistribution 46 SUMMARY PROCEEDINGS. 1966 his destiny. To manage a world-wide currency, on an impartial basis, that is to say a basis acceptable to all; to provide for each and every nation—according to its production, labor, and its technical capacity—the correct amount of money; all that is in the realm of theory. Who can imagine or believe in an authority sufficiently respected to create and manage monetary liquidity, through daily, uncontested decisions, then, according to an interest unanimously acknowledged as the general interest, to regulate the circulation and holding of these additional assets which would furthermore have to coexist with other reserve instruments? Behind this dream there are concrete ideas which revolve around private interests and also around an illusion. The creation of any kind of monetary instrument is not an academic exercise, but a political action, about which we know, from too-frequent experi- ence and which is again menacing us, that it may very well rapidly lead to inflation, unless we conceive of a lasting union of wisdom and dictatorship. But wisdom is rare and dictatorship is unbearable. Let us admit this conclusion: realize that no international monetary system can be based on anything but gold, supplemented by the operations* of an international monetary fund adapted to its role of solidarity.

Methods of Cooperation This "world solidarity" is of capital importance since it inspires, in our particular field, those indispensable complements, economic cooperation and monetary cooperation. What can we say of economic cooperation that has not already been said? It includes, first, financial assistance directly arranged between one nation and another, by a group of nations, or by the World Bank. This is an institution with favorable prospects. No doubt it will have to correct certain imperfections, especially it will have, in the distribution of its activities, to treat Africa—all of Africa—as being of greater importance. The importance of the monetary problem is the reason why, in this speech, I am not dwelling further on the role of the World Bank; its past, however, merits our hailing its future with confidence.

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Budgetary aid is a supplement. Distributed, as it is, by one government to another or through organizations such as the Inter- national Development Association, its prospects are limited because of the burden they entail for the donor countries. International inflation or political pressures set upon it new and severe limits. This means that budgetary aid will be that much larger if the monetary system is more stable and peace better assured. There is also a third form of aid which, as you know, is looked upon favorably by the French Government. Since financial assist- ance is limited in time, since budgetary assistance is limited by the burdens it imposes, and also since cooperation will be all the more fruitful if it is based on the potentials of each developing country and of its own endeavors, the path of progress lies, it seems to me, in the regularization of trade, particularly in agricultural products or raw materials, whose sales on international markets provide the main revenue of part of the world. This idea is slowly making headway. It is true that the mere fact of stabilizing the prices of primary products entails great difficulties, the first of which is the risk of overproduction, which involves a complicated quota system. Still, this road is the right one. Through reciprocal interaction of discipline in the field of production for some, and discipline in the purchasing field for others, international financial mechanisms may allow for economic cooperation, which is the economic expression of a true international solidarity. France, keeping faith with its traditions—which, as I just now recalled, place it in the first rank of cooperating nations—is prepared to open negotiations on the widest basis. Our country is hoping for such negotiations and has already made preparations for them by studies which could provide the basis for a discussion too long delayed. Monetary cooperation is a special form of economic cooperation, but it can exert a lasting influence not only on the economy but also on policy by establishing close links between nations. In difficult times, France had recourse to monetary cooperation, especially to the form of cooperation sponsored by the International Monetary Fund. In the brighter days France is enjoying at present, our country remains loyal to this form of solidarity. In recent years it has brought a very substantial amount of reserves to the

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Fund; its reserve position amounts to roughly $1 billion; and so, after Germany, my country is the Fund's largest contributor. We have also participated in the Paris agreements known as the General Arrangements to Borrow—which already, on two occa- sions, have provided the Fund with the supplementary resources it needed. Finally, we consented to participate in the general quota increase, in spite of the methods for mitigation which seemed, and still seem to us, open to criticism. Our experience, the assistance we have asked for in difficult times, the hardships we have suffered, the efforts we have under- taken and which we are continuing to make, in addition to our contribution to the Monetary Fund, enable us to repeat that there is no cooperation if economic, financial, and monetary disciplines are not sincerely accepted. An objective survey of the facts, a disinterested review of principles which have been proven right: this was my only aim in speaking to you in the name of my Government. Some will no doubt challenge my conclusions, beginning with the one I strongly formulated and according to which, under the threat of inter- national inflation, the idea of creating additional monetary liquidi- ties is precisely what ought not to be done, because this so-called remedy may well pave the way to further deterioration. We would be at fault in deluding ourselves that we could remedy the existing situation without first having searched conscientiously for the origin of the illness. I shall say no more. The French Government has never ceased to collaborate, in word and deed, in any political effort aimed at rehabilitation. It will continue this effort, trying never to yield to illusions and disregarding criticism unjustified by reason or by the common interest. When the clouds begin to disperse, it will be realized that the range of reasonable solutions is narrow. Truth, the basis of ethics, and solidarity, the basis of politics, are natural allies provided that a constant effort at seriousness and hard work is accepted; for without seriousness and without work is the progress of nations conceivable?

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STATEMENT BY THE GOVERNOR OF THE FUND AND BANK FOR JAPAN

Takeo Fukuda

It is an honor to attend the Annual Meetings of this year anu io meet with you once again here in this hall. Indeed, the Annual Meetings play a significant role as milestones of progress and development in international finance. I wish to express my pro- found admiration and tribute for the excellent Annual Reports made to us by the Fund and by the World Bank Group, and for the masterly statements made at the beginning of this meeting by Mr. Schweitzer, Managing Director of the Fund, and by Mr. Woods, President of the World Bank Group. The Annual Report of the Fund points out that, for the first time in the postwar period, virtually all the industrial countries have enjoyed simultaneously high levels of employment during the past year, that containment of cost and price pressures has become their common problem, and that the United States is now in a position to be able to assign a higher priority than in the past many years to the objective of external equilibrium without undue sacrifice of domestic policy objectives. Our attention is also drawn to the world-wide upsurge of interest rates and the restrictive trend of international capital movements. It cannot be denied that there is increasingly a tightening up of conditions in the international money and capital markets. Frankly, I must say that the international economy now faces a rather delicate and difficult phase. If econ- omies of the world should ever be poorly managed, there would develop a tendency detrimental to the balanced growth of the world economy and to a free and multilateral system of trade and payments. In order to prevent this, it is of increasing necessity that each country should, from a broad standpoint, intensify its coopera- tion with others in a spirit of mutual trust in the common interest of prosperity for the world as a whole. One of the outstanding features in postwar international finance has been the greatly enhanced willingness on the part of governments to consult with each other about the external impact of their economic policies. I believe that today is the time when the necessity of international cooperation is

©International Monetary Fund. Not for Redistribution 50 SUMMARY PROCEEDINGS, 1966 most keenly felt and mutual trust in consultation^ is most strongly required. At the Annual Meetings of last year I stated that a recessionary mood continued to prevail in the Japanese economy and that I had been endeavoring to stimulate demand by fiscal and monetary measures in order to lift the economy out of the recession. It is my great pleasure to be able to inform you today that our economy has been making steady recovery since about the end of last year. As the recent recession was deep-seated and different in nature from several others we experienced in the postwar period, I believed monetary policy alone could not be depended upon to revive busi- ness activity. Positive fiscal measures were therefore adopted. Our balance of payments marked a large surplus on trade account in the past year due to a remarkable increase in exports accompanied- by only a moderate rise in imports. Part of this surplus was absorbed by the deficit in invisible trade, but the current account remained in surplus by about a billion dollars. The substantial portion of this surplus was, however, offset by a deficit in the capital account and our official reserves barely showed an increase. We aim to continue to promote a long-run stable growth of the Japanese economy by making full and proper use of fiscal as well as monetary policies. I wish to stress that we realize the mainte- nance of external and internal equilibrium will be an important problem for us in attaining this aim. The Annual Report has made a lucid and penetrating analysis of the problem of international liquidity. My special attention was drawn to the fact that the increase in world liquidity during 1965 was only about half the annual average for the last decade, that most of that increase was accounted for by Fund transactions, and that the increase of gold in official reserves amounted to only $250 million. The Ministers and Governors of the Group of Ten have reached a consensus on a number of basic principles and elements on the creation of new reserve assets, and have thought it appropriate to look for a wider framework in which to consider questions affecting the world economy as a whole. My country welcomes particularly the recognition that all countries have a legitimate interest in the

©International Monetary Fund. Not for Redistribution GOVERNOR FOR JAPAN 51 adequacy of international reserves as well as the agreement that deliberately created reserve assets, as and when needed, should be distributed to all members of the Fund on the basis of IMF quotas or some similar, objective criteria. The establishment of a sound and reliable international monetary system is indeed a matter of common and direct concern of all IMF member countries. The experience of 1965, which I mentioned earlier, might be interpreted as indicating a process in which the formation of international reserves is gradually coming to fall short of the increases annually required. Therefore, I should like to stress a point which I stated here last year. The problem of international liquidity should be approached from the viewpoint of giving confidence to the world by the provision of adequate reserves to assure future expansion of the world economy. However, I think it would be a matter of great regret if the absence of a clear picture about the future concerning international liquidity should produce unnecessary lack of confidence and anxiety with regard to the present international monetary system and lead various countries to timid management of their economic policies and to drifting toward protectionism and restrictions. In this sense, I think it has become more urgent than before for countries concerned to have a clearer picture about the prospects for the international monetary system by establishing a concrete contingency plan for the creation of reserve assets. It is my sincere hope that with the help of each country's wisdom and international cooperation we will be able to discuss a specific contingency plan at the next Annual Meetings. The deliberate creation of new reserve assets represents a bold venture, and will constitute a major step forward in the evolution of the international monetary system. We must embark on this venture with courage and with utmost care. Inasmuch as it is thought unlikely that the existing sources of reserves would provide an adequate basis for world trade and payments in the future and that any other national currency would become a new international currency, the new reserve asset, which must be compatible with the evolution of the existing system and which must contribute to a greater stability of the international monetary system, is bound to be one created on the basis of joint obligations of a number of

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countries and will essentially represent the right to obtain currencies from other participants in order to acquire dollars needed for market intervention by monetary authorities. It is 22 years since Bretton Woods, when the present inter- national monetary system was established. One of the remarkable features which evolved in the course of the development of Fund policy is that drawings from the Fund by countries in temporary balance of payments difficulties are accomplished by the provision of a mixed bag of national currencies. Reserve units or deliberately created reserve assets now being considered in various forums are on the asset side of a mixed bag of obligations of the countries concerned, and thus fundamentally and economically the charac- teristics of such new reserve assets and IMF drawing rights tend to merge. I believe the very fact that national currencies, when jointly used, can perform internationally what they by themselves alone cannot perform should be highly assessed in the context of the evolution of our international monetary system. I should like to emphasize once again that it is urgently necessary that each country promote international cooperation in order to remove the uneasiness and tension which has troubled the inter- national monetary system for the past several years. . . . As the stability of proceeds from exports of primary products is essential for the development of the developing countries, I welcome the decision made recently by the Executive Directors of the IMF to enlarge its compensatory financing scheme, and hope that a study made by the staff of the World Bank on the supple- mentary financing scheme will be further explored, with close contact maintained between the two sister organizations. . . . In concluding I earnestly hope that we, who are working in the international financial field, might make greater progress in the coming year in solving the two major problems before us, namely, the improvement of the international monetary system including the creation of new reserve assets and the furthering of economic aid to developing countries, with far-sighted wisdom and the spirit of international cooperation enabling courageous decisions.

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STATEMENT BY THE GOVERNOR OF THE BANK FOR JORDAN

Hatim S. Zu'bi

... We are pleased by all the efforts made to increase inter- national liquidity at a pace consonant with the expansion of inter- national trade. This increase, however, must, at the same time, meet the foreign exchange requirements of vital projects in devel- oping countries. Since all countries have a serious stake in such an increase we hope that decision making in this regard will not be the monopoly of any group small or large but will be the decision of the international community as a whole. In conclusion, may I say that these hopes, I am sure, are shared by many of my colleagues on the Board of Governors, and it is our aspiration that in a spirit of enlightened, objective, and impartial cooperation we can work toward a better world and higher standards for all our peoples.

STATEMENT BY THE GOVERNOR OF THE FUND FOR GERMANY

Karl Blessing

I should like to join those who have expressed to our American hosts our sincere thanks for the warm welcome once again extended to us here in Washington. I should also like to express our profound appreciation of the excellent work performed by the Fund and the Bank and its affiliates since we last met in this hall 12 months ago. . . .

As regards the monetary field, I should like to congratulate the Fund on its excellent Report and on the work it has performed in a year where strains in the international monetary system have persisted. I am glad to say that the energetic measures taken by the British authorities in July offer much better prospects now for the improvement of the British balance of payments and for the relief of the strains resulting from them. I also welcome the

©International Monetary Fund. Not for Redistribution 54 SUMMARY PROCEEDINGS, 1966 measures recently announced by the U.S. authorities in the field of fiscal policy to dampen the overheated American boom, thus contributing to better internal and external equilibrium. For my country the past year was quite an eventful one. A year ago the general demand was too high, inflationary pressures persisted, wage increases by far exceeded productivity gains, prices had gone up by about 4 per cent, and the balance of payments remained adverse. The main reason for this inflationary process was the high liquidity generated by the payments surpluses of the past. It proved to be quite difficult to absorb the originally abundant liquidity in spite of severe restrictions applied by the central bank and in spite of the fact that the balance of payments deficit was allowed to exert its effect on liquidity. It was not until the end of 1965 that our policies produced results; since then, this policy has worked in an almost classic way. In the course of the year 1966 internal stability improved considerably and our balance of payments became less adverse than it was a year ago. Demand is now in better equilibrium with supply, price increases slowed down remarkably, and the labor market is less strained than before. Contrary to 1965, our exports are rising faster than our imports, partly due to a dampening of demand, partly due to the boom in the United States and to the expanding demand in France and Italy. In order to balance our external accounts we need, however, a high surplus in trade which we have not yet attained. But the prospects of reaching equilibrium are better now than they were a year ago. Of course, monetary policy would be facilitated if budgetary and fiscal policies were to share the burden of such a correction. As in a number of other countries, in Germany also the burden of curbing demand fell, at least in the beginning, mainly on monetary policy. I think that not only in Germany but elsewhere, too, it would be much better if a well-designed "policy mix" between monetary and fiscal measures were applied. If monetary policy is overburdened, disruptions and lower growth rates may ensue. In Germany we are at the moment in the midst of legislative efforts to set up at least the basic elements for a budgetary policy aiming at stability.

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From our own experience I should like to draw the conclusion that internal and external disequilibria can in fact be overcome by mere monetary measures, provided that the countries concerned are courageous enough to apply hard measures and to act in good time. Overspending in domestic and foreign investment and over- spending in consumption—be it in the public or in the private sector—are the result of an excessive money supply, and over- spending normally leads to balance of payments deficits. Such deficits are no matter of fate but depend on human decisions. Of course, there will in practice always be certain disturbances of international equilibrium, induced by seasonal, cyclic, or struc- tural factors. As long as no major and persistent deficits occur, this is quite legitimate. If these deficits, however, are large and sustained, they are apt to endanger the whole international mone- tary order. That is the trouble from which our monetary system is suffering today. Coordination and confrontation of the economic and monetary policies of the major countries, multilateral surveil- lance to control deficit financing, and the proposed "early warning system" are of special importance. It is, however, not only for the national experts but also for the national politicians to pay due regard to the needs of the balance of payments and to accord it a proper place in the scale of economic objectives. Let us be quite clear that one of two things must become more elastic: either the adjustment process or the exchange rate. An improvement in the adjustment process is therefore what we need. There is good reason to support emphatically the efforts now being made in Working Party 3 of the OECD to improve the adjustment process. The postwar trend at first led to a desirable replenishment of the monetary reserves of the world out of the U.S. balance of payments deficit. Since this deficit has continued for a number of years this has gradually brought about an overabundance of dollars. Neither can the United States go on increasing its short-term liabilities to foreign countries substantially, nor are the other countries prepared to build up their dollar holdings in the same measure as hitherto. The Group of Ten was quite right when in its latest study it subscribed to the view that the most important means of main- taining confidence in the reserve currencies and strengthening the

©International Monetary Fund. Not for Redistribution 56 SUMMARY PROCEEDINGS, 1966 monetary system is a restoration of equilibrium in the balances of payments of the reserve countries. There is indeed no alternative to this. If no additional fresh dollars or pounds sterling were to be generated by deficits and fed into the international system, the danger of a sudden shrinkage of existing exchange holdings with its possible deflationary consequences would doubtless be less, although even then fhis danger would not be eliminated. That is why I still regret that the Group of Ten has not seen its way to endorse the.German and Italian proposals of step-by-step harmoni- zation of the ratio between gold and foreign exchange in the monetary reserves of the major countries. Fortunately, inter- national cooperation and consultation have nowadays, compared with the period between the two wars, been greatly developed. It may, therefore, be expected that dangerous disturbances from a sudden conversion of exchange reserves into other reserve media, in particular into gold, can be avoided. Nevertheless, we shall do well to bear in mind the susceptibility of the present monetary system and to keep the fire brigade, which we possess today in the form of the International Monetary Fund and the cooperation of central banks, ready for action. When the U.S. balance of payments deficit has been eliminated, as is the aim of the U.S. authorities, we will probably face a new situation. The American balance of payments deficit has provided, during the past six years, more than two thirds of the increase in the gold and foreign exchange reserves of other countries. Gold alone is not sufficient to supply the world with reserves, as an increase of the price of gold, for good reasons, is out of the question. Thus, we may at some point in the future need a new reserve medium to supplement gold. All the countries of the Group of Ten are agreed that the present world supply of reserves is sufficient and that deliberate reserve creation shall not take place before the deficits of the reserve currency countries will have been eliminated. Nevertheless, in our view, it would be useful even now to enter upon some contingency planning. In doing so a clear distinction must be made between a contingency plan and actually creating additional reserves. In order to allay the fears existing in important

©International Monetary Fund. Not for Redistribution GOVERNOR FOR UNITED KINGDOM 57 circles, safeguards against premature or improper use must be taken. An important question in this connection is who is to make decisions on a new reserve medium, and in what way. In this respect the Group of Ten agreed that when making future decisions the following two points must be observed: first, the interest of all countries in a smooth functioning of the international monetary system, and, secondly, the responsibility of a limited group of major countries who in practice would have to provide a substantial portion of the financial backing for any new reserve assets. In planning such reserve assets we must take care that they do not dislodge the dollar from its present position. In his opening address the Managing Director pointed out that it might be useful now to begin with informal meetings between the Executive Directors of the Fund and the Deputies of the Group of Ten. I agree with this view and I hope that within a reasonable time further progress will be achieved. In conclusion, I should like to say that our efforts must first of all be directed toward the improvement of the balance of payments situation. The essential point is the willingness of the countries concerned to accept the restraint a sound monetary system calls for. Too ambitious rates of growth and too ambitious welfare programs are detrimental to sound money. Let us not forget the old adage: He who drives carefully in the long run not only travels safest but also fastest.

STATEMENT BY THE GOVERNOR OF THE FUND FOR THE UNITED KINGDOM

James Callaghan

Introduction I begin by expressing the gratitude of my Government for the excellent reports made to us by the International Bank and the International Monetary Fund, and for the most helpful and thorough surveys which Mr. Schweitzer and Mr. Woods presented to us yesterday. I should also like to join in welcoming Singapore

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and Guyana as new members of the Fund and Bank, and we hope to see the Gambia in next year. As Mr. Schweitzer pointed out, the role of the Fund continues to grow in importance and diversity, and I single out for mention particularly the successful work of the staff and Executive Board on compensatory financing. My Government welcomes the decision to expand this important facility. I note and welcome the growth of cooperation in the field between the Fund and the International Bank. The objectives of the Fund and Bank are the same—namely, to promote the healthy growth and prosperity of all their members. . . .

The World Scene We meet here at the end of a year in which trade and output continued to grow at high rates, much of this buoyancy being imparted by the rapid expansion in the United States. Import demand in the industrial countries generally has been rising and is apparently still rising at a healthy rate, and although the imports of the less industrialized world have been growing a little less rapidly than in 1964, 1965 was a good year for world trade and it looks as if 1966 will be much the same.

Interest Rates An unwelcome feature of the situation is that interest rates, both short-term and long-term, have been rising continuously in the major industrial countries for about 3 years. Most short-term rates have now reached what are historically very high levels—many, indeed, have not been as high for 40 years. I think the main reasons are clear enough. We have had a long period of rising prices in the world. On top of that, levels of demand—and demand for capital in particular—have recently been very high in a number of industrial countries, the United Kingdom among them. Faced with this situation, they have taken restraining measures among which tighter monetary policies have played an important part. There is a danger that the tighter credit and higher

©International Monetary Fund. Not for Redistribution GOVERNOR FOR UNITED KINGDOM 59 interest rates which may be appropriate to any one country in the management of its own affairs may lead to competitive increases round the world from which none of us gains and all will suffer. If nations give a greater emphasis to fiscal policies, this could help to ease the difficulties and might in due course help to bring down interest rates from their present high levels to the benefit of the industrial nations as well as of the developing nations. Here I fully endorse the views put forward in the Report on the Adjustment Process by Working Party 3 of OECD. As it is, short-term funds have been induced to move from center to center. This has caused strains in the international payments system. World markets have been somewhat nervous and con- cerned of late as a result of this world-wide monetary stringency, and we have seen competition for short-term funds. Fortunately, the system of international monetary cooperation has adapted itself to the needs of the situation. The extension of swap networks announced on September 13 has already had a calming effect on markets. Excellent and useful as these arrangements are they cannot by themselves solve all the problems that lie ahead of us.

The Economic Outlook In the period ahead, it seems possible that there may be a slowing down in the rate of growth in the United States. As for the United Kingdom, it seems unlikely that there will be much expan- sion of activity for the time being. As regards our balance of payments, we have recently made a new assessment of our present prospects following on the measures we imposed last July. We have taken into account the sharp change in our domestic outlook and the continuing buoyancy of world trade. We have assessed our export and import prospects, our income from invisibles, and the possible savings on overseas government expenditure. As a result we can now be confident that Britain will move out of deficit and that, taking 1967 as a whole, Britain will enjoy a healthy surplus in her balance of payments over all—that is, on current and capital account combined. It was also encouraging that the Common- wealth Finance Ministers in Montreal last week came to the view

©International Monetary Fund. Not for Redistribution 60 SUMMARY PROCEEDINGS, 1966 that the sterling area as a whole is likely to be in surplus next year. We can therefore look forward to a substantial strengthening of sterling over the period ahead. This is a most welcome develop- ment, but it will have repercussions in other ways. A move by the United Kingdom from a substantial deficit into surplus is bound to affect the payments situation, as will our repayment of debt to the Fund due at the end of 1967. In the longer run, world trade will feel the consequences of the efforts of the two reserve currency countries to correct their balances of payments. But, in the immediate future, I see no reason to fear a drastic curtailment in the growth of world trade, provided that the momentum of expansion is maintained in the main economies of continental Europe. Those countries with a substantial level of reserves may reflect that if they allow their current account to become unfavorable that will help the process of adjustment and will also be a means of keeping domestic inflation in check. But if the countries with substantial reserves do not act in this way, then plainly there will be increased pressure on international liquidity. If more extreme policies are followed and those countries which already have high reserves maintain policies designed to raise these reserves to a still higher level at the same time as the reserve currency countries are moving into surplus, then our liquidity problems will really become acute. World Liquidity World liquidity has recently increased less than in the past periods. In 1965 there was little increase in the world's owned reserves. The proportion of gold output which has found its way into monetary reserves has been small. We accept that the level of world reserves should not depend upon the deficits of the reserve currency countries. But it is equally illogical that it should depend on the amount of gold that the world's mines can produce. I see no prospect that world liquidity in the next year or two will revert to anything like the rate of expansion of the 1950's or early 1960's. Against this background what progress have we made in the past year, both in the Group of Ten and as a result of the recent studies

©International Monetary Fund. Not for Redistribution GOVERNOR FOR UNITED KINGDOM 61 carried out by the Fund staff and by the Executive Directors? I recognize that a good deal of spadework has been done, both by the Fund and by the Deputies of the Group of Ten, and as a result we are now in a position to press on with the wider discus- sions which we hope will lead to an agreed contingency plan. We know from experience how long it takes to reach agreement among ourselves on these -complicated matters. Thereafter any agreement we may reach will have to be ratified by our Parliaments. Therefore, even if we were all convinced that an increase in liquidity were necessary, the earliest date at which we could implement such a plan would be 1968. I am sure we should be failing in our duties if we do not in the coming year do all we can to reach basic agreement on a contingency plan. It would be a great tragedy if, after all the effort that has gone into the study of this question and is now going into our negotiations, we failed to have a workable plan ready when the need arises. My country accepts the proposals made by the Managing Direc- tor of the Fund for joint meetings to take place between the Fund Executive Board and Deputies of the Group of Ten. I also welcome the confirmation by the Ministers of the Group of Ten of their earlier recommendation that these joint meetings would provide the wider framework which is needed to enable all countries to express their views. It seems to me the way is now open for us to press forward with our work, and it is my hope that we shall have a contingency plan before us for consideration at the next IMF Annual Meeting.

The Elements of a Contingency Plan We have not yet come to the stage of putting together a specific plan. But the wide-ranging international discussions of the past year, in the Fund, in the Group of Ten, and elsewhere, have shown two things. First, so far as the technical details are concerned there are ample components now ready for assembly when we have reached agreement on the few, but important, problems which still remain to be solved. Secondly, there is broad agreement about two principles on which any plan must be founded. On the one hand, all countries must share both in the distribution of any new asset

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and in the responsibility which goes with the creation of inter- national money. On the other hand, it is evident that, as a matter of simple fact, those responsibilities will fall most heavily on the major countries which play the biggest part in the world's trade and payments. No scheme which fails to reflect these two principles can be expected to work successfully over the years. But the two principles are not always easy to combine and reconcile when it comes to organization and detail. Indeed, when the Ministers and Governors of the Group of Ten met at The Hague last July, almost all the unresolved questions then before us were concerned with just this problem. There is, for example, the vital question of how we are to decide that the time has come to put a scheme into actual operation. The arrangements for that must, of course, properly reflect our two principles. But, I suggest that this may be a case where it may be best to leave the principles, so far as possible, to apply them- selves. Clearly, in the decision to create and issue assets to all Fund members all must have their say. But clearly also, before any proposal of this importance is activated, it will only be wise to make sure that the countries on whose support the value of the asset will chiefly depend are in broad agreement that the proposal is timely. In this process of exploration I suspect that it will prove best to use informal methods of arriving at a consensus rather than to rely too much on arithmetical formulae for voting. It may prove easier to agree the need when the time has come than to define criteria or majorities to tell us that the need exists. It is like the boy who was asked to describe an elephant, and who replied, "You can't define it, but you will certainly recognize it when you see it." Likewise, it is my view that there must be participation by all Fund members in the backing of a new asset. In operation the asset will derive its value from the obligation of all members to buy it against their own currencies. But manifestly the obligation of those members whose goods and currencies enter most into international transactions will count for most, with all of us, in assuring the asset's value.

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There are other difficult questions still to be resolved, such as those governing the conditions under which the asset is to be held and used. Here I suggest the aim must be to give all members the assurance that no one will make use of the asset in a way which will put undue burdens on his fellow members and that no individual country will be expected to carry an undue share of the total amount of the asset in issue. I am confident that ways can be found to provide these assurances. As to the form which the new asset should take, I would not wish to take a rigid position, but I must confess to having a marked preference. The choice is between a drawing right and a new international monetary unit. I appreciate, of course, that a drawing right, with which we are already familiar in the Fund, can be set up and operated so as to be virtually identical with a monetary unit. But, to the ordinary man, a drawing right conveys a right to borrow, not a basic international asset to be held in a country's reserves. We are engaged now in,preparing for the establishment of a new international reserve asset on which I, for my part, hope that a truly international monetary system will be built in the course of time. For such a purpose a simple monetary unit is surely the form to choose. But even the establishment of a new unit will only be a stage in the evolution of the international monetary system as a whple. Once introduced, the asset will have to find its place alongside the other reserve assets of gold and reserve currencies. There is no doubt at all that reserve currencies will have a continuing and important part to play in this system. But I would expect that, at times of pressure, there might be some tendency to move out of reserve currencies into the new units—a tendency which I expect would be reversed when the pressures had been corrected. Unless provision can ultimately be made to accommodate such ebbs and flows, which are unavoidable in a mixed asset system, we may find that we have provided ourselves with a scheme to create new liquidity without the means of defending ourselves against the destruction of existing liquidity. These are matters on which a good deal of further thought will be needed. Meanwhile, our

©International Monetary Fund. Not for Redistribution 64 SUMMARY PROCEEDINGS, 1966 immediate need is to press ahead with further discussions that will lead to a contingency plan being placed before us next year.

Conclusion I have glanced at a few of the problems we have to solve. No doubt some of them will present us with considerable difficulties before we reach a solution acceptable to all of us. But it is important to set difficulties in the context of our overriding aim, which must be to strengthen the world's payments system. All our efforts will prove abundantly worthwhile if at the end of these discussions we have evolved a system which encourages sound economic growth, full employment, and stable prices in all coun- tries, developed and developing alike.

STATEMENT BY THE GOVERNOR OF THE BANK FOR AFGHANISTAN

Abdullah Yaftaly

It is an honor and a pleasure to participate in these meetings marking the twentieth year of operations of the World Bank and International Monetary Fund. It is also a pleasure to again enjoy the warm hospitality of the host country, the United States. I want first to compliment both the Bank and the Fund for presenting highly informative and stimulating Annual Reports. We whose economies are in the early stages of development are vitally interested in the continued efforts of these institutions in promoting price stability and accelerated rates of economic growth through increasing the flow of both capital and knowledge. These meetings find Afghanistan nearing the end of its Second Five-Year Plan period. We are now in the process of putting into final form the Third Five-Year Plan, which will go into effect in March of next year. The progress we have made to date in creating the basic elements of an essential infrastructure is reflected in the much greater emphasis in the new Plan on the goods- producing sectors of agriculture and industry. The recent and

©International Monetary Fund. Not for Redistribution GOVERNOR FOR AFGHANISTAN 65 prospective tightening of world markets for grain convinces us that far more effort should and will be devoted to the production of foodstuffs during this forthcoming planning period. All of our governmental policies and budgets will be designed to provide incentives and to assist our farmers and entrepreneurs to produce more goods for home consumption and for greater exports. The last two years have been particularly auspicious ones in relations between Afghanistan and the Fund. In June 1966 the highly successful first stabilization agreement with the Fund was ended, and early in August we entered into a second year's agree- ment. Probably of even more importance, I should note that Afghanistan repurchased the equivalent of $4.3 million during the current year. We are achieving substantial progress in making internal eco- nomic conditions in Afghanistan more conducive to sound eco- nomic growth. Sharply increased revenues and better fiscal controls have significantly curtailed the inflationary pressures that were with us for so long. We are proud of our performance in stopping inflation and bringing about relative price stability. The foreign exchange rate of our currency has stopped its decline and has been essentially stable for about a year. Likewise, we have been able to increase our international reserves. Large increases in savings in the banks over the past two and one half years and greater confidence of the people in the economic future of the country have led the Government to decide to undertake a bond sales program. We are now strengthening credit facilities for both agriculture and industry with the help of the World Bank institu- tions and other sources of capital and technical assistance. As I have said, we take pride in having brought inflation under control, but neither we, nor any developing nation, can afford to slow down the pace of economic growth as a price to be paid for price stability. Rather, we must achieve both. We know we must pursue difficult and austere fiscal and monetary policies as a means to prevent inflation and to facilitate economic expansion. But we also know that large-scale capital flows from the developed nations and from international institutions continue to be essential to speed the progress of the developing countries. We must both help

©International Monetary Fund. Not for Redistribution 66 SUMMARY PROCEEDINGS, 1966 ourselves and have an inflow of capital and technical assistance if the great gap between the have-not and the have nations is to stop growing, let alone be narrowed. We must enlarge capital flows, the transmission of know-how, the volume of trade, and the liquidity base for financing and settling international transactions. Although action has not yet been taken in the field of inter- national liquidity and reserve creation, we are pleased to see that discussion of these problems has moved beyond the exploratory stage. We are favorably impressed with that part of the Managing Director's proposals concerning extension of quasi-automatic drawing rights on the Fund. We feel that administratively the Fund, as presently constituted, could and should handle added schemes for increased liquidity and reserves, and that the creation of an additional organization should be avoided. The nations with the largest foreign exchange reserves and those whose currencies play a particularly significant role in international financial flows are understandably most concerned with liquidity problems, but theirs is not the exclusive concern and they should not make all the decisions in this critical area. We feel that any final decisions should be made by the majority of Fund members, including, of course, the developing countries. At the same time, of course, we cannot realistically expect one country to be the major source of reserve creation when this would force that country to bear the burden of large continuing deficits in its balance of payments. We are pleased to see that the United States has finally succeeded in reducing its deficit and hope this trend will continue. To reduce pressures on the dollar and the pound sterling, and to assure adequate liquidity and reserves, we believe that the resources and the role of the International Monetary Fund should be increased and that every effort should be extended to make strong European currencies, such as the deutsche mark and the French franc, among others, acceptable as international reserve currencies. The IMF should also re-evaluate its policies, especially with regard to drawing rights of its members. The 25 per cent of quota is inadequate. . . . The serious implications of the rising debt-service requirements in the less developed economies are far-reaching. When combined

©International Monetary Fund. Not for Redistribution GOVERNOR FOR INDIA 67 with the possibility of generally harder terms on new loans, the possible effects on the future course of economic development are sufficiently severe to warrant serious examination and considera- tion. We therefore appreciate the understanding of this situation shown by World Bank President Woods and by IMF Managing Director Schweitzer and commend them for calling attention to these problems in recent statements. We applaud Canada for taking the initiative in cutting or abolishing interest rates and softening the terms on which loans are provided. ... let us not overlook the vital training contribution being made by the Economic Development and the IMF Institutes. During their years of operation, the Institutes have provided the quality of training that can be highly influential in the success of national development efforts. We would like to see the training efforts of the Institutes expanded, without compromising standards, so that fewer qualified nominees for training would have to be turned away. . . . Thank you for your interest and patience. I sincerely hope that a year hence we can report even greater progress in Afghanistan, and that the help of the Bank and the Fund will continue to supplement our own expanding efforts to fulfill more nearly the needs and aspirations of our people.

STATEMENT BY THE GOVERNOR OF THE FUND AND BANK FOR INDIA

Sachindra Chaudhuri

Mr. Chairman, I would like to begin by expressing my warm appreciation of, and congratulations for, the excellent addresses by you, Sir, and by Mr. Schweitzer and Mr. Woods. These addresses reflect the forward-looking, yet pragmatic, approaches to the problem of international economic cooperation that are so vital for orderly achievement of accepted goals. I would also like to welcome our new members. The last year, like previous ones, has been very active for the Fund in terms both of the volume of business and of thinking and

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planning ahead. I welcome the increase in the Fund's net income and the proposal to transfer this record surplus of $44 million to the General Reserve. This disposition of the surplus is completely satisfactory, especially in view of the larger and more diversified functions and responsibilities that the Fund will, it is expected, have to undertake in the years to come. I was also happy to learn that the present compensatory financing facility is being enlarged and liberalized. The problem dovetails into the larger one of securing a steady increase in the export earnings of the less developed coun- tries, and continued cooperation and assistance to this end from international agencies and the more developed countries is still needed. While it is right to stress the advances made in inter- national monetary cooperation, we cannot lose sight of the fact that there are aspects of our problems and policies which are disturbing. I share Mr. Schweitzer's concern over rising interest rates in the industrial countries, the tardy performance on liberali- zation of trade policies by the richer countries, and the relative stagnation of developmental aid. Over the last 12 months substantial further work on international liquidity, especially on the techniques of deliberate reserve creation, has been done. I found the discussion on this subject in the Report of the Executive Directors of great interest. Useful ground has also been covered in the Group of Ten and under the auspices of the United Nations Conference on Trade and Development. All these various initiatives have led to a greater degree of consensus on this crucial question of international monetary reform than was the case when we met last in this forum. We have reached some consensus of opinion that contingency planning is necessary. The need for reserves is not confined to any particular group of countries, and it is generally realized that in any scheme of deliberate reserve creation the needs and interests of all members of the international community must be recognized. This is a distinct gain. Any creation of reserves has an impact on all countries within the international payments system. This is why we have to be sure as to the precise implications of the term "global" or "universal" that is often used in this context, especially as in the literature available one discerns some disturbing signs of a dualistic approach.

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I accept the idea that deliberate reserve creation, when under- taken, should have reference not to the balance of payments deficits and the consequential needs of particular countries but to the over-all requirements of the international community. If this is the approach, it follows logically that decisions as to the activation of whatever scheme of contingency planning emerges, and the follow-up thereon, should be taken internationally, that is, in the well-established forum of the International Monetary Fund. The interest and concern of the developing countries in international liquidity is not confined to just a share in the distribution of newly created reserves; it relates to the very basis on which monetary cooperation among the nations of the world should continue and advance and, therefore, to the process of decision making itself. The entire discussion focuses on a new development of far-reaching import, and it must, in my view, be planned as an act initially, as well as throughout, of the international community as a whole. But the area remaining to be covered is difficult. It relates mainly to the concrete form and mechanism of the arrangements to be made for creating and administering new international liquidity. There is urgent need now to focus all further discussion in a central forum, and this can only be the institution in which all of us present here are represented. If joint deliberations between the Executive Directors of the Fund and others who have worked on these issues are to be undertaken, they should proceed in terms of certain basic ideas and methods of work which have become part of the mechanism of international economic coopera- tion. In the decisive stages of building for the future we must look not merely at the fleeting alignment of pulls and stresses but at the long-term requirements of the new international economic com- munity that we wish to evolve. And most important of all, there should be no question of our accepting solutions which at all weaken the structure and traditions of international monetary cooperation symbolized by the Fund. I cannot emphasize too strongly that what is involved here is not some petty point about procedure and protocol. What is really at stake is the system of international economic cooperation that we have so assiduously built up over the past 20 years. The inter-

©International Monetary Fund. Not for Redistribution 70 SUMMARY PROCEEDINGS, 1966 national community is made up of a great many nations with differing needs and interests as, indeed, with differing capabilities. But this has not prevented us in the past from evolving new and constructive ways of furthering our common human objectives. Should we then start our quest for a new era of international economic cooperation by underlining our differing needs and interests and capabilities, or rather emphasize the fact that all these differences must converge to a point where they become a new source of strength for all of us? There is little point, there- fore, in debating whether there is a clash or cleavage between the "general" interests of all Fund members and the "particular" interests or responsibilities of some of them, or, whether one group of countries needs primarily aid and another liquidity. What we need to stress, in short, are the positive aspects of our common endeavor, namely, that we want monetary reform that is truly international, universal in its scope, uniform in its application to all members, and implemented by the tried and trusted institution that we already have for this purpose. . . .

STATEMENT BY THE GOVERNOR OF THE FUND AND BANK FOR AUSTRALIA

William McMahon

It is an honor to represent my country at the Annual Meetings of the Fund and the Bank. These meetings form the summit of discussions on international financial and economic matters in which the Fund is the acknowledged leader on the monetary side. The significance and reputation of these two institutions continue to grow and to command our admiration. World economic activity has been expanding strongly. For the first time in the postwar period, the resources of virtually all the industrialized countries are fully employed. But growth and development have been uneven, and the triple goals of world prosperity, full employment, and decent living standards still beckon in the distance. There is in truth so much more to be done, and we must not permit the momentum of the last few years to be lost. We must do all we can to stimulate further progress.

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Let me mention some of our more pressing problems. First, as we know, the rate of economic growth of many of the less devel- oped countries has been disappointing; the net flow of international economic aid has remained static over the past 5 years; and the terms of aid have tended to harden. During this period Australian official aid has been raised by about 70 per cent, and Australia stands almost alone in making its bilateral aid available wholly in the form of grants. We hope that other countries may be encouraged to adopt similar aid policies. External aid of this kind can never play more than a marginal role in solving the problems of the less developed countries. We must look mainly elsewhere for the answers. I think increasing emphasis should now be given to measures likely to expand the international trade of the developing countries. Australia has already taken the initiative in extending preferences to less devel- oped countries, and we think the time has come for the indus- trialized nations to give primary producing countries greater access to their markets. Complementary to market access is the problem of fluctuations in world commodity prices. We welcome the Managing Director's announcement that the Fund has decided to liberalize its compensatory finance facility, and we hope too, as the third ingredient, that it will be possible to negotiate commodity agreements aimed at reducing the wide fluctuations in world prices of various primary commodities. There is another avenue worth exploring: our experience in Australia illustrates the role private capital can play in develop- ment. There are two criteria of success—the developing countries must provide a political and economic climate favorable to overseas investment, and the developed countries must encourage capital to flow freely. We understand the reasons for the restrictions on capital flows imposed by the United States and the United Kingdom. On the other side, we stress the heavy responsibility of other countries which are enjoying substantial surpluses in their international payments and are building up large reserves. In their own interests and in the interests of others, they should further develop their international capital markets. Some of them, too, could well make bolder use of a greater variety of economic and financial weapons in their efforts to achieve

©International Monetary Fund. Not for Redistribution 72 SUMMARY PROCEEDINGS, 1966 balance at home and abroad. They might, for example, by con- centrating more on fiscal than on monetary policies, help to encourage investment abroad and discourage excessive additions to their own international reserves. Unless such policies are adopted, international interest rates will tend to remain at excessive levels, and a substantial part of international liquidity—a subject to which I now turn—will become frozen and noneffective. My second thesis concerns international liquidity, which is one of the most important problems now before us. If a shortage of liquidity is allowed to develop, it could lead to a general slowing down in world trade and in economic growth. If that happened, we would all be worse off. At the same time, I believe that reserve creation is no substitute for good financial management. There are understandable differences of opinion on the adequacy of international liquidity. In my view we are clearly reaching a stage where liquidity might well be insufficient. Powerful forces exist which could easily produce an early shortage. The argument can be crystallized in these three illustrations: (1) Over the past 15 years, reserves have been rising at about 2.6 per cent per annum; world trade has been increasing at an annual rate of about 6 per cent; as a result, world reserves have fallen from about 67 per cent of world trade in 1951 to about 43 per cent today. (2) Another factor of critical importance is that the United States is anxious to overcome the deficit in its balance of payments —an objective which is supported by the main surplus countries. (3) The gold element in international reserves has failed to keep pace with the rise in world payments transactions, and gold hoarding has increased. The policies of building up gold and gold- guaranteed reserves by some of the major creditor countries is a clear indication of doubt and uncertainty in the international exchanges. Others may argue that these signs are not sufficient evidence of an imminent shortage of international liquidity, but we must be prepared for all eventualities. In my view, it would be imprudent to take the risk of permitting tightening reserves to threaten the smooth functioning of the world trade and payments system. So I again emphasize the urgent need to find a solution under which

©International Monetary Fund. Not for Redistribution GOVERNOR FOR AUSTRALIA 73 the availability of adequate, but not excessive, reserves will be assured to support the future working of the international financial system. In contrast to the situation a year ago, there is now wider recognition of the need for forward planning. With one notable exception, the Group of Ten has accepted the need for "con- tingency planning." This was a wise and farsighted decision, although the term "contingency" implies that the critical period may perhaps be more remote than it might in fact turn out to be. I sum up my own general approach in this way: (1) Specific proposals should be prepared and submitted to us at our Annual Meeting next year. (2) These proposals should deal solely with the problem of international liquidity, as it is improbable that rapid progress will be achieved if we attempt to deal simultaneously with the question of finance for development. (3) The Fund—which has the major responsibility for the efficient working of the international monetary system—should be the principal forum in which these proposals should be considered and finally converted into a detailed plan. (4) All Fund members should share, in a nondiscriminatory fashion, in the distribution of any newly created reserve assets. There is, I am glad to say, widespread support for this view. (5) The proposals should ultimately lead to a plan under which the creation and the amount of additions to international liquidity will be carried out within the general framework of the Fund, thus enabling the views of all Fund members to be taken into account on these critical aspects. I would add two qualifications—both of which relate to the Group of Ten. I strongly oppose the idea of discrimination within the world financial institutions: no group of countries can assume an exclusive right to predetermine, outside the Fund, matters vital to the interests of all Fund members. Frequently I have asked myself what characteristic distinguishes this particular group from other Fund members—apart from the fact that each country represented in the Group is in the Northern Hemisphere. I have

©International Monetary Fund. Not for Redistribution 74 SUMMARY PROCEEDINGS, 1966 not yet found a persuasive answer other than that they were originally regarded as the major creditor countries because of their participation in borrowing arrangements with the Fund. But we all know how quickly international positions can change: the creditor of today is often the debtor of tomorrow. Since the Group was first formed, a number of other countries, including my own, have established creditor positions in the Fund—and, more importantly, have demonstrated their willingness and ability to assist the Fund in its operations. There have been changes in the status of some countries within the Group of Ten, and more are bound to occur. We recognize, as a fact of life, that a new system of reserve creation must have the willing support of the major industrial countries. Equally, a new international system must be acceptable to Fund members generally. Implicitly this recognizes—and I would agree—that there should now be talks between the Executive Directors of the Fund and the Deputies of the Ten. They should, I suggest, be quite informal, with the fullest possible scope being given for the free exchange of views and ideas between all those who can contribute to a solution. The whole aim—and the only aim—should be a pooling of views from which a consensus within the Fund can be evolved. At our next Annual Meeting we should, with good will from all, be able to consider a report from the Executive Board on concrete proposals for reserve creation. My second qualification relates to the manner in which decisions might be made on the creation of additional liquidity. These should be made in the Fund—but with a recognition that, if the financially stronger countries are to be called upon to accept special obliga- tions, they can reasonably expect to receive special consideration in the decision-making process. It should be possible, in the proposals to be made to Governors, to devise arrangements which will accom- modate these views. Such arrangements must not, however, be allowed to divide the Fund membership into two or more pre- determined groups: this could be avoided, we believe, if the status of individual Fund members in the decision-making process were related in some way to their relative credit positions in the Fund at the time decisions are being taken.

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Finally, I refer to the supply of gold. The fixed price of gold has had a depressing influence on gold production. As far ahead as we can see, gold is likely to remain the foundation of our inter- national liquidity system. We should therefore face up to the challenge of finding a way to augment gold production and to increase the proportion of output that flows into monetary reserves. I repeat the suggestion put forward by my predecessor at the .last Annual Meeting that the Fund should study and report on these questions. By the time we assemble again next year, I hope some solid progress will have been made. I have said, and I repeat, that the momentum of progress in world trade and development must not be lost. Positively, we should strive to increase its momentum. The forces of inertia being strong, it is easier to lose rather than to gain pace. For each and every one of us, the dominant aim should be to achieve the goals set out in the preambles to the Articles of our institutions. I express my deep conviction that these will remain the goals of all members.

STATEMENT BY THE ALTERNATE GOVERNOR OF THE FUND AND BANK FOR KOREA

Se Ryun Kim

On behalf of the Government of the Republic of Korea, I would like to commend the Fund and the Bank Group on their solid and worthy achievements for world-wide economic progress during the fiscal year 1966. The Fund and the Bank Group have rendered Korea valuable assistance and cooperation toward its economic development during the past few years. The extension of the stand-by arrangement in March 1966, with increased stand-by credit, has played an important role in generating domestic and international confidence in the Korean economy. The relationship between the Fund and my Government has been further strengthened by the valuable technical assistance provided by the Fund continuously since late 1964. . . .

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I am very glad to say that in recent years Korea has shown a high rate of economic growth with financial stability and also a remarkable improvement in its balance of payments. The annual rate of growth of the real national product has exceeded 8 per cent for the last few years. As the result of a marked increase in fixed investment, secondary.industry made notable progress and played a leading role in our economic development. Conspicuous improve- ment has also been made in the balance of payments; exports in 1966 are expected to be twice those in 1964. We have also been successful in curbing inflationary pressures by our strict adherence to a stabilization program in which reform of the exchange rate and the interest rate structure have been key elements. The First Five-Year Plan has been a success and will be completed this year. The Second Five-Year Plan will be initiated in 1967. In this period, we hope to continue our recent record of high economic growth and stability. We are well aware that the initiative and resources of our people are the essential ingredient for our continued growth and development. We have set ourselves high goals for the mobilization of domestic resources for the Plan, and we will make every possible effort to achieve them. Still there will be a need for capital formation beyond our present resources and to meet this need we look forward to continued support from friendly countries and international institutions. Our development plan contemplates that, as we progress, our need for external assistance will gradually be reduced. . . . Many developing countrie's have contracted not only long-term loans, but also have had to rely on short-term and medium-term capital to implement their economic development programs. The debt-servicing obligations arising from the high level of their external indebtedness have added a considerable burden to their balance of payments. It is necessary for industrial countries to recognize this, by easing the terms of their development assistance and by offering such assistance on a stable basis. . . . The subject of international liquidity has received a thorough examination in Chapter 2 of the Fund Annual Report. This question has also been studied in other forums. We are in full agreement that a supplement to existing reserves will be needed

©International Monetary Fund. Not for Redistribution GOVERNOR FOR SINGAPORE 77 in the near future. It is essential to maintain a properly func- tioning international monetary system and thus facilitate economic development. A plan for reserve creation should be negotiated as quickly as possible so that it can obtain governmental approval and be ready for activation when the need arises. It is, of course, gratifying that there is full recognition that all countries have an interest in international liquidity and that deliberately created reserves should be distributed to all member countries. It inevitably follows from this conclusion that all Fund members must have an appropriate role in the decision-making process associated with the deliberate reserve creation. We are, therefore, in full agreement with the basic approach underlying the Managing Director's proposal that reserves should be created in the Fund. As for the future discussions leading to the development of a plan, the Managing Director has suggested a series of joint meetings of the Executive Directors with the Group of Ten. We believe that this is a useful way of proceeding and that these meetings should begin as soon as possible. I also wish to congratulate the Executive Directors on efforts and studies to liberalize compensatory financing facilities of the Fund in order to perform a vital role in meeting new requirements in the field of international liquidity.

STATEMENT BY THE GOVERNOR OF THE FUND AND BANK FOR SINGAPORE

Lim Kim San

Last year, as the representative of a country seeking membership in the Bank and the Fund, I had the pleasure of attending the meeting of the Joint Boards, but only as a silent observer. This year, as representatives of a newly admitted member, my Delega- tion and I have, in addition to the pleasure of attendance once again and of renewing friendships made last year, the opportunity and privilege of giving voice to our feelings and opinions. May I,

©International Monetary Fund. Not for Redistribution 78 SUMMARY PROCEEDINGS, 1966 therefore, first of all congratulate you, Mr. Chairman, on your deserved election and assumption of office. I should like next to express our thanks for the very kind words of welcome which have been extended to us by you, the President of the World Bank, the Managing Director of the International Monetary Fund, and by our many friends among the Delegations here. I should like to say in response to this welcome that small as Singapore is in size (only about 220 square miles) and in population (about 2 million), we aim to play our part in both the Bank and the Fund's policies and operations, and that, on the other hand, we expect to call upon and receive from them the advice and assistance they have been rendering to all their members. We are indebted to both Mr. Woods and Mr. Schweitzer for their excellent and comprehensive Reports and for their further statements in review of the past year's operations. It is valuable that the Bank's and the Fund's operations, and the problems which individual members tend to see perhaps only within their own limited field, can be viewed in broad world perspectives, even if the outlook seems somewhat gloomy in certain directions. . . . I should now like to say a few words on the International Monetary Fund, with which our association has been much more recent. In the past year, we have been in discussion with our sister country, Malaysia, from which we separated scarcely more than a year ago, in an attempt to find an arrangement whereby our two countries can continue to use a common currency. We have both had assistance from the International Monetary Fund, and although all the hard work that has been put in by everyone concerned, ministers and officials alike, has not led to favorable results, we wish to place on record our thanks to the IMF for their advice on technical aspects of currency issue and control. Singapore will issue its own currency from June 12, 1967, under a Currency Board system, which means that our currency will be backed 100 per cent by gold and foreign exchange reserves. We feel that, whatever the merits of a central banking organization, at the present stage of the development of our economy, it is more important to have a strong stable currency which will inspire the confidence of surrounding and faraway countries with whom we

©International Monetary Fund. Not for Redistribution GOVERNOR FOR SOMALIA 79 trade. We have, therefore, decided to eschew greater independence in the currency system, with its possibilities also of credit manage- ment and deficit financing, and to subject ourselves instead to the disciplines of automatic convertibility and the necessity to earn every dollar which we want to use for importation of goods. We propose with this convertibility to eliminate foreign exchange controls, the absence of which will be beneficial for our entrepot trade. These objectives are, we feel, in keeping with those of the Fund, and we shall be looking for guidance from the Fund in attaining them and also in solving our other problems.

STATEMENT BY THE GOVERNOR OF THE BANK FOR SOMALIA

Alt Omar See go

In taking the floor once again in this meeting, we wish first of all to express our sincere thanks for the warm hospitality the United States and the City of Washington have kindly shown us. Last year, we had the opportunity to appreciate this hospitality, and now, after one year, we meet here again to review the work accomplished in these last 12 months, to consider the most impor- tant problems that have occurred during this period and, at the same time, to examine, on the basis of past experience and within the framework of our associations, the urgent and long-term needs of our organizations. In the year which has lapsed since the last Annual Meeting in this City of Washington, the scale of international cooperation within our institutions shows an impressive record, both in the financial and technical assistance which member countries have been receiving from the World Bank, its affiliates, and the Inter- national Monetary Fund. Fellow delegates will, I am sure, join me in congratulating the management and the staff of our institutions for the measure of international cooperation which has been made possible in their wisdom and devotion. . . . Turning now to the related question of monetary and financial stability and the maintenance of an efficient payments system, the

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International Monetary Fund as a center of cooperation in this field has proved to be an efficient mechanism. We in Somalia have had the privilege of benefiting, on more than one occasion, from the technical and financial assistance which the Fund has increas- ingly been putting at the disposal of its members. Somalia, like most developing countries, was subject to financial and monetary pressures due mainly to the nature of our economy and to our development effort. In introducing programs of stabilization, the Fund's help, both in the technical and the financial fields, has been indispensable to us. We are mentioning here particularly the financial and the technical assistance we have been receiving to introduce and implement a new trade and exchange system in Somalia. One indication of our success in this field, thanks to the generous assistance of the Fund, is the fact that Somalia has as yet not drawn on its last stand-by arrangement, as a result of the financial and monetary measures which we have maintained in cooperation with the Fund. With regard to the much discussed problem of reserve creation and international liquidity, member countries have a common interest in maintaining a climate of international financial and monetary stability by observing international rules within the framework of the International Monetary Fund. This, by itself, is a recognition that pressures of economic development do not blind us to stability. Recent international discussions on world liquidity were indeed an indication of our concern to reconcile monetary and financial stability with the development needs of the world economy, and studies which have been made by the International Monetary Fund and others should pave the way for eventual agreement on deliberate reserve creation and reasonably sufficient liquidity. But whatever the mechanism or formula of reserve creation we may choose, it must include not only the principles of financial responsibility but also the equitable allocation of new reserves among the member countries and within the framework of the International Monetary Fund. We may conclude by noting that our institutions have limited resources to cope with all the problems which face the member countries. The success of our institutions therefore depends to a

©International Monetary Fund. Not for Redistribution GOVERNOR FOR SOMALIA gl large extent on the international confidence which they can inspire among all their members. From the Reports of the Bretton Woods institutions we know that the problems of development facing the larger part of mankind are enormous, and the efforts required in the years to come are beyond the resources these institutions can command. Therefore, it is a matter of urgency that adequate international resources should be found if we are to cope with these problems adequately. In the opinion of my Delegation, the pool of international resources both for payments and investments problems should be enlarged. The only way this can be achieved is for the poor and the rich to agree mutually on a program of partnership whereby the rich contribute more generously both in amount and terms to the development effort. On the other hand, what the less developed parts of the world can contribute is self-help, not only in mobilizing their own resources, but in making better use of international assistance.

©International Monetary Fund. Not for Redistribution DISCUSSION OF FUND POLICY BY GOVERNORS AT FUND SESSION x

STATEMENT BY THE ALTERNATE GOVERNOR OF THE FUND FOR SOUTH AFRICA

G. W. G. Browne

There are three major problems of international finance which call for consideration. They are the question of the balance of payments adjustment process, the question of international liquidity, and the question of financial assistance for the developing coun- tries. I should like to deal briefly with certain aspects of each of these problems. As regards the adjustment process, we are indebted to Working Party 3 of the Economic Policy Committee of the OECD for the valuable report they have recently submitted. The experience of the past few years shows that, while some countries seem able to restore balance of payments equilibrium without too much difficulty or delay, in others—whether for institutional or other reasons is not always clear—the process of adjustment from disequilibrium tends to be laborious and slow. No doubt the extension of condi- tional liquidity is appropriate in such cases. But the Working Party has done well to draw attention to the fact that exchange rate adjustment must also be regarded as an instrument, though in a sense the ultimate instrument, of the balance of payments adjust- ment process. I certainly do not advocate frequent or frivolous resort to devaluation, but we must be careful not to go to the other extreme. There is a tendency sometimes to regard the preservation of an existing exchange rate as an end in itself, or at least as a symbol of national prestige, but in conditions of fundamental disequilibrium (to use the Fund's terminology) it may actually be

1 September 28, 1966. 82

©International Monetary Fund. Not for Redistribution ALTERNATE GOVERNOR FOR SOUTH AFRICA 83 harmful to the international financial system to prolong the agony by clinging to an unrealistic exchange rate. Turning now to the question of international liquidity, I am disappointed that nothing has been done to follow up the proposal of the Governor for Australia two years ago, or my own suggestion last year, that the place of gold in world liquidity should be given further study. The studies of reserve creation by the Fund and by the Group of Ten are indeed valuable, but we must take care that the intellectual fascination of such studies does not blind us to the practical realities of the situation. The essence of an international reserve asset is confidence, and there is still nothing which can command the confidence of the practical financial world to the same extent as gold. This is shown by the fact that, whereas the total amount of new gold becoming available through free world gold production and Russian gold sales reached a new record level of $2 billion in 1965, only $250 million was added to the world monetary gold stock, the balance being absorbed by sales to Mainland China, by consumption in industry and arts, and—doubtless the main item—by private hoarding. In passing, I wonder if hoarding is not in fact facilitated by the operations of the central bank gold pool, which serve to keep down the gold price when demand is strong. It will be recalled that the Fund's liquidity study published in 1958 indicated that the quantity of gold which could be expected to become available for monetary purposes, at the present price, might amount in value to about $700 million a year. In fact, only in three years since 1958 has the annual addition reached this amount, while in three years—1960, 1962, and 1965—the addition was less than half the expected amount of $700 million. The average over the period 1959-65 was $540 million. It is simply not possible to gloss over the fact that the net accrual of new gold to international liquidity is not coming up to expecta- tions. This is not at present because of any shortfall in production, but because of the diversion of gold into private hoards. The ultimate effect of this trend on the structure of world liquidity, of which gold is still the base, must be far-reaching, and certainly merits a thorough and comprehensive study by the Fund.

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My country has long held the view that when a substantial increase in the quantity, as well as an improvement in the quality, of world liquidity is required, this can best be brought about through the mechanism provided in the Articles of Agreement of the Fund itself, i.e., through a uniform change in par values under Article IV, Section 7. I know that there are objections to such a step, but there are objections to other methods too; the question is, which is on balance the best method. A uniform change in par values is simple and easily understood; it does not require frequent and difficult decision making; and it has the important result of increasing the gold component, i.e., the quality of global liquidity. I sometimes gather the impression that its very simplicity is regarded as an objection, but, as I have already remarked, we must guard against the danger that the intellectual elegance of the various schemes for reserve creation may blind us to the more homely virtues of uniform currency revaluation. We have dealt with most of the objections to a uniform change in par values on previous occasions and I shall not cover the same ground again, but I wish to say something about one objection because it is relevant also to the third great financial problem, namely, the provision of capital for the developing countries. The objection is that a uniform currency revaluation would benefit primarily those countries which hold or produce large quantities of gold. That, however, is not necessarily the case; the ingenuity which has gone into the various studies of international liquidity could certainly devise a method of redistributing the book profits arising from a revaluation of gold—several such methods have, in fact, been proposed in published studies. It is true that the Ossola Report noted that "most members believe that the provision of capital to developing countries is a problem quite distinct from the creation of reserves," and "saw disadvantage in an attempt to combine objectives of long-term development finance with the needs of flexibility required for monetary management." But the revaluation of gold would pre- sumably be a once-for-all operation, not to be repeated in this generation, and different in kind from the periodic augmentation of liquidity which the Ossola Report discussed. If it is once decided

©International Monetary Fund. Not for Redistribution GOVERNOR FOR ISRAEL 85 that a given revaluation of currencies is necessary to strengthen world liquidity and in particular its gold base, there is no reason why a part of the book profits on the revaluation of gold reserves should not be applied to development aid. Having regard to the urgent capital needs of the developing countries and their rising indebtedness in respect of development loans, I am authorized to state that my country would be prepared to give very sympathetic consideration to the principle of such a proposal. It is of course true that revaluation does not in itself create real resources for development aid, but I believe there is no doubt that it would materially facilitate the provision of such aid. Care would obvi- ously have to be taken to ensure that the additional aid made available does not give rise to undue inflationary pressures. Given the present measure of international monetary cooperation, how- ever, there seems every reason to hope that this and other questions arising from the suggestion could be solved. I have suggested that the Fund should include in its liquidity studies a study of the future role of gold in world liquidity, and I believe that the possibility of combining a gold price adjustment with increased development aid, along the lines I have indicated, also merits thorough investigation.

STATEMENT BY THE GOVERNOR OF THE FUND FOR ISRAEL

Pinhas Sapir

May I start by joining all those who expressed their appreciation to the Managing Director of the Fund and its staff for the fruitful work done during the last year, not only in connection with the preparation of plans to assure international liquidity for the future but also for their untiring efforts to make the International Mone- tary Fund, as it stands today, function effectively in the different member countries. The International Monetary Fund and its policies have become generally acknowledged as guidelines for those countries which, for one reason or other, have encountered difficulties in their financial relationship with the outside world, and the advice obtained from

©International Monetary Fund. Not for Redistribution 86 SUMMARY PROCEEDINGS, 1966 the Fund has formed the foundation upon which those countries have based their new policies. We in Israel have always looked forward to the annual consultations and, together with many other countries, have enjoyed the benefit of the Fund's advice. In a certain sense the Israel economy has been a rather extreme example of the difficulties encountered in a developing country where a large inflow of capital enables the economy to expand rapidly. As a result of this positive factor, such an economy encounters many difficulties and under certain circumstances even distortions endangering its stability, especially in its dealings with the rest of the world. In Israel, during the last ten years, we have had an average annual increase in population of 4 per cent; our gross national product grew at an annual rate of 10 per cent, and we were able to allocate about 25 per cent of our total net available resources to investment. These percentages can be considered to be favorable ones when compared with other countries. But, as is the case in almost all developing countries, we were able to achieve this growth only because of a large inflow of capital—in our case, mainly through unrequited transfers but to a certain extent also by obtaining long-term loans from international institutions, on the one hand, and attracting private investment, on the other hand. In this way, the economy has become adjusted to having a large deficit on current account offset by a surplus in the capital account. However, it is clear that if we look to the future, the Israel economy—just as that of all other developing countries in the long run—will have to adapt itself to a situation in which it will have not only to finance its development out of its own means but also to return to the rest of the world both principal, interest, and dividends on the capital flow which was instrumental in bringing about the development during the take-off period. This process, which can be easily explained in theory and can be outlined by every economist well-versed in national accounting, presents an extremely difficult task for those who are responsible, in a democratic state, for implementing the correct conclusions of our economists.

©International Monetary Fund. Not for Redistribution GOVERNOR FOR ISRAEL 87

Everything possible should be done to enable the developing countries to effect the transition gradually, so as to prevent internal explosive tensions which might endanger an economy nearing the developed stage. I do not think that this is the proper forum in which to dwell on the many difficulties a government in the free world has to contend with in order to prevent such tensions from getting out of hand. I am sure that everybody here who occupies a politically responsible position in his own country is acquainted with the many pitfalls which must be avoided in order to manage a transition period without too much suffering for different sections of the population. However, there is one aspect of this problem for which I think the IMF has a special responsibility and where it can and should be of assistance to those countries which are pursuing correct policies for developing and consolidating their economies. This aspect concerns the necessity for every national economy to be able to draw on what I should like to call working capital, taking into account especially its need to draw on reserves in times of temporary stress. For the last few years we have participated in the discussions in the Fund about international liquidity, and I should like to recon- firm the point of view expressed by us during the previous meetings. In the first place, we think that the IMF should be generally recognized as being the institution in which decisions in respect of the future of international liquidity should be taken. We understand quite well the concern of our more affluent members who feel very strongly about their responsibility in respect of this crucial problem of international monetary relations, but we think that the system of weighted voting in the IMF provides a sufficient guarantee that no rash decisions will be taken against their considered opinion. But, on the other hand, we feel that it is against general demo- cratic principles in the free world to prevent the weaker economies —in which the majority of the world population lives—from having a say in the solution of this problem, which is no less important to them than it is to the developed countries. As stated previously, we are of the opinion that the voice of the developing countries, in their different stages of development,

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should be heard from the beginning of the deliberations, and that they should not be presented at the end with a solution based on a compromise between the different points of view of the developed countries only. We consider that the way of thinking and the interests of the developing countries should be taken into account from the initial stage of the deliberations. We urge the Chairman of the IMF to continue his efforts to convince the Group of Ten to hold their discussions within the framework of the IMF with the active participation of spokesmen of the developing countries. I would like to stress that the point I am making not only advocates the correct democratic procedure in the free world; it is based on the strong feeling that the developed countries, as is only natural, will always give more weight in their own internal discus- sions to their own special interests. I should like to mention one particular point on which the Ten appear to have reached a consensus, namely, the point that if and when an increase in international liquidity will be deemed necessary, there will be no connection between the provision of this increase and the need for more capital for the developing countries. It is easy to understand why the Ten could arrive at a consensus on this particular point, but I think that it should be understood by them that the way of thinking in developing countries concerning this point is based on another set of considerations. It seems to me that, in respect of this crucial factor for the development of the developing countries, every possibility of increasing the total available capital should be explored and that every effort be made to increase the amounts available for this purpose during the coming years. It is not my intention to express a final opinion here about the complicated problems of how initial increases in the amount of international liquidity should be injected into the inter- national monetary system, but I think that, from the start, more weight should be given to the considerations of the developing world than can be given by a group in which only the developed part of the world is represented. For this reason we support the proposal that all future discus- sions on the subject of international liquidity should be held within the framework of the IMF and that expert representatives of the

©International Monetary Fund. Not for Redistribution GOVERNOR FOR FINLAND 89 developing countries, in their different stages of development, should take an active part in them. As the Managing Director of the Fund so clearly stated on Monday, "the most important consideration is to leave no proce- dure and no channel untried which can advance the work in which we are engaged."

STATEMENT BY THE GOVERNOR OF THE FUND FOR FINLAND

Klaus Waris

Speaking jointly for the five Nordic member countries—Den- mark, Finland, Iceland, Norway, and Sweden—I should like to begin by paying a tribute to the studies on international liquidity made by the Fund and by the Deputies of the Group of Ten. I think we can all agree that the work done by these bodies has substantially clarified the issues and helped us to see more clearly than before the need for and nature of possible improvements in the present system. The problem of international liquidity has, of course, been discussed among the monetary authorities of the Nordic countries. We share the opinion that although the present system has served us well so far, the problem of an adequate supply of liquidity in the future needs to be solved. As the flow of gold into monetary reserves is diminishing, and in anticipation of a major reduction in the creation of new dollar balances, some new supplement to these traditional reserve items seems to be called for. Logically, the ideal solution of new liquidity creation should be such as to provide us with the possibility of deliberate and gradual increments to the world stock of liquidity. This aim could best be achieved by creating a new liquidity unit to become a part of unconditional reserves, possibly supplemented by increased draw- ing rights on the Fund. Without trying to evaluate the merits of alternative solutions, one can hardly deny the fact that, for instance, an increase in the price of gold would not be compatible with the

©International Monetary Fund. Not for Redistribution 90 SUMMARY PROCEEDINGS, 1966 requirement of a gradual and balanced increase in the world's liquidity reserves. The problem of liquidity is, of course, not a question of impor- tance to only a few big and highly developed industrial countries. I believe that this has now been accepted everywhere, and we have noted with satisfaction that the Group of Ten at the Ministerial Meeting in July expressly endorsed the view that deliberately created reserve assets, if and when needed, should be distributed to all member countries of the Fund on the basis of IMF quotas or some similar objective criteria. This does not exclude the fact that the delicate question of decision making has to be solved by a reasonable compromise, paying due regard to the rights and obligations of different coun- tries. In a universal new reserve system under the auspices of the IMF, it ought to be acceptable that special regard be paid to those countries whose collaboration is essential to the proper functioning of the new arrangements. Both the voting rules of the Fund and the rules for the activation of the GAB demonstrate that it is possible to arrange the necessary safeguards in this respect. One should not be too doctrinaire on this point, but should bear in mind that a solution which everybody considers perfect is not obtainable and that we do not have an unlimited amount of time. In the Nordic countries we have a strong feeling that a contin- gency plan is now urgently needed, considering the time-consuming process of working out the details and establishing the legal frame- work. We do hope that the interval between this and the next Fund meeting will be used for negotiating such a plan. . . .

STATEMENT BY THE GOVERNOR OF THE FUND FOR ITALY

Emilio Colombo

A joint discussion of the activities of the Fund and of the Bank and its affiliates not only serves to get us through our meetings with more dispatch but also reflects the intimate connection between, and the fundamental unity of, the purposes of all these institutions.

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in combining these remarks in a single statement, I wish first of all to acknowledge the merit of the Reports which have been put before us on the occasion of these our Annual Meetings. The Report which the Executive Directors of the International Monetary Fund have prepared for us this year is of the same traditionally high quality which they have accustomed us to expect. I associate myself with the Governors who have preceded me in paying tribute to this document and to the penetrating comments with which the Managing Director introduced it. . . . The international monetary problem is one of the two dominant themes of the Report of the Fund, which makes original contribu- tions to a debate that is about to enter the stage when ideas matured in the discussions of the most varied groups must meet in open confrontation. As last year, I would again, with your permission, make it clear just where we stand at present with respect to this problem—with the reservation that, like all of us whose opinions are constantly influenced by those of others, we keep our position flexible and welcome with an open mind any suggestion which might help to improve international monetary stability. I shall be as brief as possible, for I know that to repeat oneself does not always best serve one's cause. Our views on the order of priorities regarding the reform of the international monetary system have not changed. As no general shortage of liquidity exists at present; we believe that there are more important and more urgent problems than the deliberate creation of new reserve assets. The first of these problems lies in the coordination of both domestic and external policies with a view to eliminating serious and persistent balance of payments disequilibria, and the second is that of strengthening multilateral surveillance so as to make sure that imbalances are financed in the most appropriate way and so to obviate, through concerted policies, any danger of a sudden and massive contraction of reserves. In this connection I must point out that, while all of us are convinced by now that the share of gold in over-all reserves will inevitably decline, no one has so far suggested any viable alternative to our own proposal, suggested by the German Governor, of harmoniza- tion of reserve policies among industrial countries. Gold saving

©International Monetary Fund. Not for Redistribution 92 SUMMARY PROCEEDINGS, 1966 procedures could also be devised, possibly based on ideas similar to those underlying our lira loan of $250 million to the Fund, which the Managing Director referred to in his speech. As regards the problem of deliberate reserve creation, we are pleased to note that there is now a unanimous, or at any rate very widespread, consensus of opinion on several questions of principle. First of all, it is agreed that deliberate reserve creation must meet the reserve needs of the world as a whole, as evaluated by collective judgment. If it were decided to create new reserves in order to finance external deficits or development needs, or if, even though created on the basis of objective considerations, the new assets were distributed according to the two criteria just mentioned, reserve creation might lead to a permanent or long-term transfer of real resources—a result which is generally agreed should be avoided. Secondly, while the financial backing for any process of reserve creation can be provided only by the major industrial countries, which have adequate resources and whose currencies are most widely and most frequently used in the world's trade and finance, all the members of this institution have a legitimate interest in the adequacy of international reserves and, should there be a recog- nized need to proceed to deliberate creation of new assets, in their distribution on the basis of each country's economic and trading potential, measured either by its IMF quota or by a similar yard- stick. On this point I am in full agreement with the original observations contained in the relevant chapter of the Report. Thirdly, the new reserve assets should not be used simply to change the composition of a country's reserves; they should, there- fore, be accepted or spent just like the traditional assets, gold and dollars, with which they have to coexist. This result may be achieved, among other things, by establishing and maintaining a certain ratio between the two kinds of assets, either in payments or in reserve holdings. Finally, any scheme for deliberate reserve creation, decided upon in advance of actual needs, should not be activated before the attainment of a better balance of payments equilibrium among major countries, namely, before the elimination of the external

©International Monetary Fund. Not for Redistribution GOVERNOR FOR ITALY 93 deficits of the reserve currency countries; in any event, it is clearly evident that activation should not take place before a general shortage of reserves. Traditional reserves are earned through a surplus in the balance of payments, and to the extent that this surplus arises on current account, they are part of the nation's saving. The new reserve assets, by contrast, would be distributed without any such counter- part, and for this reason it is often said that to create them would be rather like printing paper money—something of which we have no past experience internationally. Now, quite apart from prece- dents of a multilateral and bilateral character, such as swaps and support arrangements or the former European Payments Union, it seems to us that there is nothing mysterious or fundamentally novel in a process of deliberate reserve creation. Whatever form the new assets might take, whether they are drawing rights either floating or within the quota, or else reserve units created by an exchange of claims or by overdraft facilities, what is involved in substance is reciprocal granting of credits between countries worthy of it, not so much because they can offer a sound collateral in the form of strong currency holdings but because they have as a rule demon- strated their political willingness to make such adjustments as are necessary to eliminate external imbalances. Of course, on the basis of the principle of equality and nondiscrimination between Fund members, the new reserve assets would be distributed also to countries which have not met the above condition to the same extent; but in that case it must be frankly admitted that the trans- action rests only formally on a balance of rights and obligations. This interpretation of the process of reserve creation differs basically from another interpretation often put forward, namely, that deliberate reserve creation should be exclusively a system of rights, "free of charges," and available by definition to all countries. From the first interpretation there follows a number of corollaries, which we would like to see explicitly recognized. First, since participation in the distribution of the new reserve assets implies not only a right but also a far from negligible burden, every country should be free to decide whether or not to accept the additional reserve quota allocated to it, and any possible negative

©International Monetary Fund. Not for Redistribution 94 SUMMARY PROCEEDINGS, 1966 decision should not imply that the country concerned will have to opt out of the system. A precedent exists in Article III, Section 2, of the Fund's Articles of Agreement, according to which "no quota shall be changed without the consent of the member concerned." Second, the countries from which the major financial contribu- tion is expected have special responsibilities not only in drawing up a contingency plan for reserve creation but also in the decisions regarding its activation. The two schemes put forward by the Managing Director and mentioned in the Report both explicitly acknowledge this principle, which we should like to see applied in such a way as to avoid an important group of countries being overruled. Systematic opposition to these elementary requirements might -constitute an obstacle to the success of our efforts or to the adherence of certain countries to any future agreement.

It is our conviction that the legitimate interest of all IMF members in the maintenance of an adequate level of international reserves, and the special responsibility of certain countries, can easily be reconciled, as I have pointed out, in the larger setting of the impending general discussions, if only we all give proof of good will and of a measure of realism. The suggestion by the Managing Director to enlarge the debate on the monetary problem through a series of joint informal meetings between the Executive Directors and the Deputies is, in our view, a wise and promising first step. I am also convinced that the GAB countries never meant to arrogate to themselves the right to decide the future of the inter- national monetary system. During the last three years, they applied themselves to examining the monetary problem, just as did other groups of countries, which published reports and statements often of great merit. Nor can there be any doubt that the studies con- ducted under various auspices greatly influenced each other, thanks not least to the presence of the Fund's representatives and to their helpful contributions to the debate. But unfortunately, perhaps because these studies were conducted in closed groups, they ended up by generating mutual misunderstandings, however unjustified these may have been. We hope that a joint debate on questions

©International Monetary Fund. Not for Redistribution GOVERNOR FOR NETHERLANDS 95 which, after all, are the common concern of the world economy as a whole may quickly dispel such misunderstandings. We are indeed perfectly aware that no monetary system which fails to take into account the need to help developing countries can gain wide acceptance. In a situation of general reserve shortage, all countries would benefit from the deliberate creation of new reserve assets in addition to gold and reserve currencies. But the advantages thereby accruing to developing countries cannot be measured merely in terms of the quota of new assets allocated to them; they stand to gain much from the more liberal trade and aid policies which the industrial countries would then be willing to adopt. It may be added that to avoid a general liquidity shortage means also to avoid the risk of trade and exchange restrictions resulting in incalculable economic loss for all countries. . . .

STATEMENT BY THE GOVERNOR OF THE FUND FOR THE NETHERLANDS

M. W. Holtrop

In his opening address the Managing Director referred to the fact that the past year had witnessed the twentieth anniversary of the first meeting of the Board of Executive Directors and reflected upon the achievements of the past two decades and on the preoc- cupations of the present. This being the twentieth meeting of the Fund Governors I have had the pleasure of attending but at the same time the last which I shall have the opportunity to address, I would feel inclined to follow the Managing Director's reflective mood and to indulge in reminiscences of those early years of post- war reconstruction, when the role of the Fund was dwarfed by the massive aid the United States gave to the European countries, and of those later years when the establishment of the European Pay- ments Union—that exercise in what now might be called the crea- tion of reserves within a limited group—gave rise to some contro- versy. Then there followed the slow ascent to full convertibility, still restricted to a minority of the Fund's membership, and finally the recent years, during which the role of the Fund as an interna-

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tional lender of last resort has become ever more important. I shall not, however, give in to this inclination to look back upon the past, but, like the Managing Director, I prefer to concentrate on the preoccupations of the present. My first and foremost preoccupation then is that, as money managers, we have not been very successful in maintaining the purchasing power of money, but actually seem to be losing ground in this respect rather than making progress. As appears from the valuable later statistical data incorporated in the Fund's Annual Report (p. 143), the last three years have shown an average yearly rise in the cost of living index of the countries belonging to the European Economic Community of almost 3 % per cent, and of more than 3 per cent in the United Kingdom. It is true that North America, with an average increase of nearly 2 per cent gave a better performance, but we all know also that of late the situation is deteriorating in this area. In some of the countries concerned, and among them my own country, the rise in the cost of living has even been higher and yearly increases in the 5 to 6 per cent range have already occurred. Very rightly the Executive Directors' Annual Report makes the observation that "containment of cost and price pressures for domestic reasons has become a problem common to all the industrial countries" (p. 4). Preoccupation with this phenomenon of persistent price inflation has a twofold aspect. First, there is the concern with the social inequity of the inflationary process and with the damaging impact it has upon the economy by stimulating speculative entrepreneurial activities. But secondly, there is the deep concern about whether, in the long run, the inflationary process can actually be contained, or rather will lead to either acceleration of the inflationary spiral if monetary policy yields, or to a breach if the monetary brakes are too vigorously applied. After a period of years during which in almost all industrial countries demand pressures have been sustained by a rate of internal liquidity creation, which exceeded the rate of real growth of GNP, we now find ourselves in a situation not of international but of internal liquidity scarcity. Wage and price inflation are outrunning the available means of financing, and the monetary

©International Monetary Fund. Not for Redistribution GOVERNOR FOR NETHERLANDS 97 authorities, generally insufficiently supported by appropriate fiscal policies, are faced with the difficult task of keeping liquidity scarce enough to help in bending back the inflationary trends, yet not so scarce as to cause disruption. I welcome the fact that the Fund's staff in their consultations with members are paying increasing attention to this problem. My second main preoccupation is with the persistence of some of the deficit/surplus situations in international payments, especially in as far as the two reserve currencies are involved. As to the United Kingdom, I sincerely hope that the determined measures which the Government has recently taken are going to prove effec- tive. As long as the reserve currency countries continue to be in deficit the stability of the monetary system remains under a cloud, however effective central bank cooperation may have proven in cushioning confidence. As to the United States, it is true that the bigger a country and the smaller the proportion of its foreign trade to GNP, the more difficult, and certainly the more time-consuming it becomes to allow external factors to have their full impact on internal conditions. Yet, no country can be absolved from the task of gearing its internal economy-to the requirements of external equilibrium. The International Monetary Fund has always recog- nized this necessity and both in its consultations with members and in the conditions set for the use of its resources has tried to influence policies into the direction of restoring external equilibrium. Alas, no generally accepted rules of the game exist as to the proper policies to be followed under specific conditions of disequilibrium. In this connection the important analysis, recently made by Work- ing Party 3 of the OECD, of the problems of the adjustment process, and the accompanying suggestions for improvements in this field, deserve the fullest attention. The final preoccupation I want to mention concerns the high expectations that seem to be created by the plans for further study of the problems of international liquidity and of possible deliberate reserve creation. I do not think these high expectations are justified, because I do not see that, however successful these further deliberations may be, they will have any relevance to the problems that haunt us today. A contingency plan for reserve

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creation is desirable to stave off the threat of world-wide defla- tionary or restrictive tendencies which might be caused by an insufficient supply of reserve media. At the present moment there is no question of such insufficiency; neither do we live under the threat of deflation, but under conditions of active inflation. Deliber- ate creation of reserves is not going to solve that problem. Nor will it bring a solution for the persistent deficit/surplus relation- ships. I also believe it will not give the answer to the problem of capital scarcity of the developing countries. Deliberate creation of monetary reserves should not have the purpose of bringing about a permanent transfer of real resources from one group of countries to another. I must conclude that planning for deliberate reserve creation will not do away with any of our present worries. This being said, I still think such planning should proceed, because the contingency it would take care of is a potential threat that should be removed. My country, therefore, is ready to cooperate fully in the continu- ing studies aiming toward the preparation of a contingency plan for the possible creation of additional reserves as and when needed, in the framework of both the Group of Ten Deputies and the Executive Board of the Fund. We also welcome the recommenda- tion for joint meetings in which the Deputies would take part together with the Executive Directors of the Fund. I share the view expressed yesterday by my distinguished colleague, the Governor for Germany, that a clear distinction must be made between a contingency plan and the actual creation of additional reserves; there should be adequate safeguards against premature activation of any plan. Furthermore, an effective and equitable procedure for the taking of decisions on actual creation should be established; this procedure should, in the words of the com- munique of the Ministerial Meeting of the Group of Ten in The Hague, reflect both the common interest of all countries in the smooth working of the international monetary system and the particular responsibilities of a limited group of major countries with a key role in the functioning of the international monetary system. I also share the preference expressed by the distinguished Governor for the United Kingdom for a unit type of asset over a drawing right type.

©International Monetary Fund. Not for Redistribution GOVERNOR FOR PHILIPPINES 99

Finally, I believe that it is essential that certain rules for the proper use of reserve units should be established so as to achieve the goal that the monetary system itself shall contribute to the functioning of the adjustment process and to the strengthen- ing of the balance of payments discipline. In this connection my country takes the view that the possible reform of the monetary system should also contribute to enhancing the disciplin- ary function of gold. This could, in our opinion, be achieved by providing for a transfer ratio linking the use of a new reserve unit to gold. In this way gold would once again become one of the normal means of settlement between the countries that traditionally hold a substantial part of their reserves in that form.

STATEMENT BY THE GOVERNOR OF THE FUND FOR THE PHILIPPINES

Andres V. Castillo

I would like to join my colleagues in congratulating Mr. Schweitzer for his stimulating address and the Executive Directors for their excellent Annual Report. The Annual Report gives us a very useful review of develop- ments in the world economy and, in particular, in international financial affairs during 1965. Within the framework of this meet- ing, a few of these developments stand out: firstly, world reserves increased during 1965 by only half as much as the annual average for the last decade. Ninety per cent of the addition to world reserves, moreover, resulted from Fund transactions with member countries. In this connection, secondly, the Report indicated that the deficits in the U.S. balance of payments do not necessarily generate additions to world reserves under the present circum- stances. In the field of international trade, thirdly, the growth in exports of primary producing countries during 1965 was less than half those of industrial countries. This relatively poor per- formance was accompanied by a deterioration in the terms of trade against the primary producing countries. This developed in the context of a stagnating flow of long-term financial resources

©International Monetary Fund. Not for Redistribution 100 SUMMARY PROCEEDINGS, 1966 to the less developed countries even as the industrial countries attained continued and substantial growth in gross national product. In the contemporary scene, July 1966 appears to be one of the turning points of international economic affairs. During this fateful month, the Government of the United Kingdom adopted a defla- tionary program in defense of the pound sterling, one of the two major reserve and trading currencies. Almost at the same time, the U.S. Senate voted to reduce the Government's foreign aid program, the principal source of external assistance to developing countries. In between, the Group of Ten met in The Hague and agreed that there was at present no general shortage of reserves. Soon after, it became evident that the rate of growth of the U.S. economy had slowed down and that price inflation had emerged as another problem in that economy. These will undoubtedly call for compensatory measures which will inevitably exert an influence on the world economy in the following months. In Germany we are witness to an inflationary situation which is attended by a surplus in the country's balance of payments. Every- where the cost of money is rising, leading one highly respected elder statesman to voice concern about the possibility of a depres- sionary situation. In pondering over these developments, a question raised by the Governor of the Bank for France in last year's meeting keeps coming to mind: "Does the decision belong to circumstance or to mankind?" The answer appears to be self-evident. What then are we to do? Sit down on our back seat and let the eddies of circumstance bring us into a whirlpool of precipitate decisions? Or shouldn't we, as men of reason, use the faculty of the mind to decide the intelligent courses of action which we will take in the immediate future? It is submitted that we have no choice but to act and act with dispatch. Some of the Governors who have already spoken called atten- tion to the urgency of the problem and, on this score, I would like to recommend the following^program of action: (1) At this meet- ing, an agreement should be reached on the principles underlying

©International Monetary Fund. Not for Redistribution GOVERNOR FOR PHILIPPINES 101 deliberate reserve creation, such as the basis for the creation of reserve assets, the scope and distribution of the reserve assets, and the backing to be provided to these assets. (2) During the next nine months, the Deputies and Executive Directors shall Consider the remaining questions on the liquidity problem, formu- late a contingency plan for reserve creation, and outline the organizational framework for the decisions necessary in the activa- tion of the contingency plan. (3) On June 30, 1967, the Deputies and Executive Directors shall submit their report to their respec- tive Ministers and Governors, containing recommendations on all aspects of the problem of reserve creation. (4) In September 1967, the Governors of the Fund shall consider the report and agree on the course of action to be recommended for approval by their respective governments. On the question of the organizational framework for decision making, I would like to express a strong protest against the layering of organizations as proposed in the communique of the Ministerial Meeting of the Group of Ten in The Hague. This communique stated that "proposals for reserve creation would be considered both by the limited group and by the Fund." Considering tftat the Group of Ten exercise the preponderant voting power in the Fund, the proposed superimposition of the majorities and voting procedures of the Group of Ten on those of the Fund is not only redundant but also nullifies rather effectively the agreed principle that all countries have a legitimate interest in the adequacy of international reserves. Let us not pay lip service to international cooperation if in substance we mean dictation. If the voting strengths of the members in the Group of Ten do not reflect their present relative financial positions, as appears to be one of the two roots of the problem, then let us address ourselves to this question by modifying these countries' quotas within the Fund Agreement accordingly. I, therefore, submit that the International Monetary Fund is logically the only organiza- tion which should be assigned the task of deciding the need for reserve creation based on preagreed criteria and activating the contingency plan for this purpose.

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On the other aspect of this controversial proposal, the problem appears to be the question of voting procedures, that is, whether weighted majority should prevail or some governments should exercise veto power in the decision processes. It is submitted that there is no substitute for a majority decision—a majority which is already weighted in an agreed manner—if cooperation and not dictation is to be the rule in our international financial affairs.

STATEMENT BY THE GOVERNOR OF THE FUND AND BANK FOR THE UNITED STATES

Henry H. Fowler

I give you my country's heartiest welcome as we meet together again to consider the vital work of the International Monetary Fund. We are honored by your presence. In their 1966 Annual Report, the Executive Directors report on the strengthening of the Fund in the past year. The Fund's resources have now been raised to over $20 billion as the result of global and selective increases in quotas. During the past year, a decision was made to renew the General Arrangements to Bor- row. These Arrangements have again been utilized for the special purposes for which they were designed and have helped the Fund meet record drawing requirements by its members. The United States fully supports the recent decision of the Executive Directors to improve the Fund's special compensatory financing facility, under which drawings may be made to meet shortfalls in export earnings. But our focus at these Annual Meetings must be on meeting future challenges rather than past accomplishments. When I spoke to you upon this same occasion last year, I closed with a plea that we lift our eyes from our daily tasks long enough to catch sight of the broad outlines of what we who are associated in the International Monetary Fund are seeking to create: a world

©International Monetary Fund. Not for Redistribution GOVERNOR FOR UNITED STATES 103 monetary structure strong enough, flexible enough, and with growth potentials adequate to the building of a Greater Society of Nations. This vision of a Greater Society of Nations places three princi- pal requirements upon us in the year ahead: First, it calls for acceptance of a wider, deeper, more generally shared effort in the field of international economic development— to fill the crucial finance gap—the difference between the capital available to all of us and the capacity of the developing countries to use increasing amounts of capital effectively and productively— so eloquently expressed by President Woods in his notable address earlier in this meeting. In his February 1 Message to the Congress on Foreign Aid, President Johnson, anticipating this call, clearly stated the position of the United States, saying: "I propose that the United States—in ways consistent with its balance of payments policy—increase its contributions to multilateral lending institutions, particularly the International Development Association. These increases will be conditional upon appropriate rises in contributions from other members. We are prepared immediately to support negotiations leading to agreements of this nature for submission to the Congress. We urge other advanced nations to join us in supporting this work." I have already made proposals to this end in a speech at Granada, Spain, earlier this year, and my colleague, Under Secre- tary of State George Ball, will develop this topic in his address. Second, the vision of a Greater Society of Nations calls for the successful negotiation in the year ahead of a specific contingency plan for improved and expanded international monetary arrange- ments—arrangements with more depth, more span, and more flexibility, arrangements that would build into our international monetary system a means to provide world liquidity consonant with the world's ability to use reserves constructively. I shall expand on this point later. Third, the vision of a Greater Society of Nations summons us to tasks of national and international cooperation and develop-

©International Monetary Fund. Not for Redistribution 104 SUMMARY PROCEEDINGS, 1966 ment so far-reaching that they require the full and efficient use of our human talent and our material resources. We are facing a period in the world's history when the numerous and pressing demands for both national effort and international economic cooperation will reach new heights. The United States regards the year ahead as a hinge for opening the door to a better future, as the strong nations, the old and the emerging, seize their joint opportunities to deal constructively with their joint problems, without being haunted by the past or con- founded by the present. I commend for your consideration the sense of urgency and analysis so well expressed in a Report issued within the month by the Subcommittee on International Exchange and Payments of the Joint Economic Committee of the Congress of the United States. This Report is entitled "Twenty Years After: An Appeal for the Renewal of International Economic Cooperation on a Grand Scale." Without passing upon the particular procedures proposed in that Report, there can be no question concerning the Tightness of the emphasis and urgency expressed in the following words: "The world is in trouble—deep trouble—in at least five different areas of economic negotiation and policy: trade; aid to less developed countries; maintaining a balance in interna- tional payments; international monetary reform; and mainte- nance of stable price levels in economies marked by full employ- ment and rapid economic growth." We in the United States are proud of our initiatives and national contribution in the last 20 years in these areas. We believe their spirit, their motivation, and their scale serve to give a measure of what must exemplify the role, not just of the United States, but of other nations individually as they regain and achieve strength and stature, and of our family of free nations all together, if inter- national economic and financial cooperation is to assume ever greater dimensions that are required for the last half of this century. We call upon nations—those that are now strong and those that are rapidly emerging—to join us in a renewed effort that will make the year ahead a notable beginning.

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Let us consider some of the specific ways in which we may move toward a better world economy.

Strengthening the Adjustment Process I call your attention to the Report of Working Party 3 of the Organization for Economic Cooperation and Development, and to the discussion in the Report of the Deputies of the Group of Ten countries of the need for improvement in our adjustment process, and to the concern of the International Monetary Fund with the effective operation of the adjustment mechanism. Each of these reports recognizes that the adjustment process needs to be improved and that the responsibility for adjustment should fall upon both deficit and surplus countries. Deficit countries must make full efforts to balance their pay- ments positions through appropriate policy mixes—depending pri- marily upon fiscal and monetary policy to achieve sustainable equi- librium. Surplus countries must employ their surpluses or hold them in forms that are consonant with the international interest, taking measures which will permit the adjustment policies adopted by deficit countries to work. It is neither the -course of national economic wisdom nor of international cooperation for surplus countries to use their capital markets as instruments for the accumulation of gold and other reserves beyond their needs. Rather they should liberalize them— to facilitate capital export and for the finance of increased develop- ment assistance through the international institutions such as the World Bank and its sister banks. Should this not be done by the surplus countries and should they not also liberalize trade restrictions, the deficit countries— after making appropriate use of policies to achieve equilibrium— may be forced, in the event such policies are not fully effective, either to adopt overly severe domestic measures or to apply unduly restrictive trade, capital, and assistance policies. These are not only difficult choices—they hurt the world economy. Let us apply these principles of adjustment to the problem of development finance. However excellent our development assis-

©International Monetary Fund. Not for Redistribution 106 SUMMARY PROCEEDINGS, 1966 tance intentions, our ability to realize them will be lessened if due attention is not paid to the need to finance assistance in ways that are consistent with balance of payments positions. In considering the extension of resources by the industrialized countries to the developing countries, there is a tendency to think of the donors as surplus countries and the recipients as deficit countries. This is not always the case. Among the capital export- ing countries there are countries with balance of payments deficits and countries with balance of payments surpluses. Further, these positions change from time to time. It should remain clear that the amount of assistance extended by donor countries should be determined by their capacities to give assistance. However, in seeking to increase these amounts to meet the growing needs of the developing countries, the balance of payments positions of particular donor countries must be taken into account. The most desirable way to reconcile these objectives would be for donor countries with balance of payments surpluses to reduce^ or eliminate any requirements that the financing which they pro- vide be linked to procurement in their markets. In extreme cases, surplus countries might even require that their financing be used for procurement in other countries. Surplus countries might also take steps to enlarge greatly the access of international lending institutions to their domestic capital markets. Deficit donor countries have to safeguard their balance of pay- ments position while continuing to extend amounts of assistance commensurate with the broad criteria of aid giving. It should be possible for us to devise imaginative methods to achieve this dual objective of increased aid and protection of balance of payments, and to this end we would welcome discussion among donor coun- tries and with the international financial institutions.

Rationalizing Capital Outflows The Recommendations of a Task Force of the U.S. Government that I was privileged to head in 1963 included the following:

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"The (United States) should, through appropriate international bodies, particularly the OECD, advocate the step-by-step relaxa- tion of monetary, legal, institutional, and administrative restric- tions on capital movements, together with other actions designed to increase the breadth and efficiency of Free World capital markets." Unfortunately, so little progress has thus far been made in this area that the United States is forced to ask American banks and corporations to restrict their foreign investment. We still find among the most highly developed countries of the world a widespread desire to run current account surpluses, although these same countries are not prepared to supply capital net to the world on the scale that is required to finance these export surpluses. Many of the problems we face arise from this simple fact. We expect that the OECD will issue shortly a blueprint for progress in improving capital markets abroad. We are also con- fident that, once the way is pointed, the OECD will establish pro- cedures to assist in the translation of plans into action. We can look forward to a meaningful improvement in foreign capital markets that in turn will reduce the need for restraining measures on our part to guard against overdependence upon U.S. capital.

Coordinating National with International Policy It is the responsibility of every nation so to conduct its internal affairs as to avoid weakening the international economic fabric upon which, in the end, we depend for our maximum individual and collective growth. The United States is keenly aware that it is particularly incumbent upon a reserve currency country to keep its economy in good balance so that its currency should be a dependable store of value in the reserves of other nations. As you know, a year ago I was able to report a very satisfying trend of improvement in the balance of payments accounts of the United States. But this year we have not been ^able to make a further improvement. To a very large extent the cause of our continued deficit is extraordinary and temporary: our heavy

©International Monetary Fund. Not for Redistribution 108 SUMMARY PROCEEDINGS, 1966 involvement in the defense of freedom in Viet-Nam has directly increased our foreign exchange costs for military expenditures in the Far East by nearly $1 billion. This does not take account of the indirect consequences reflected in the rapid rate of increase in imports which has diminished the trade surplus. In the past year sharp increases in demand, to a considerable extent also attributable to our involvement in Viet-Nam, have brought under attack the fine degree of balance among various elements of our economy that was maintained in the United States through most of the nearly 6 years of rapid economic growth we have enjoyed. Consequently, earlier this month President Johnson announced a program intended to contribute to restoring that balance in the U.S. economy. With this program the U.S. Government took a further step in a step-by-step use of fiscal and monetary weapons during the past year to deal with inflationary excesses in our economy, as and where they have appeared. Working Party 3 cited the need for the more active use of fiscal policy as a countercyclical weapon. In his Message to the Congress of September 8, President Johnson pointed out that when caution signs became visible early in 1966, the U.S. Admin- istration and the Congress acted promptly through a series of five fiscal measures taking $10 billion of excess purchasing power out of the economy during this calendar year. The President also pointed out that responsible fiscal policy demanded tight control of federal expenditures, and that this has been exercised, through a budget policy that, on a national income basis (the best measure of economic impact), was designed to show an over-all surplus of about $1 billion, and that in the first half of 1966 actually ran at an annual rate of $3 billion surplus. Speaking on September 8, the President could say that since January 1 the Government had taken in more than it spent. The President has placed before the Congress further fiscal recommendations: suspension for 16 months of special tax incen-

©International Monetary Fund. Not for Redistribution GOVERNOR FOR UNITED STATES 1Q9 tives to business plant and equipment investment. And he has undertaken a further wide range of actions to reduce federal out- lays, including a promise to cut actual spending far below what has been authorized by the Congress where authorizations exceed the fiscal 1967 budget. The Working Party 3 recommendations called also for further improvement in the implementation of general monetary policy. In the United States, monetary policy has been used actively during the past year to dampen excess spending by restricting the avail- ability of credit in the face of a strong surge in demands for credit. In the process, interest rates have risen to heights unprecedented for 40 years. All the instruments of general monetary policy— open market operations, reserve requirement changes, and discount policy—have been used during the past year and, most recently, there have been innovations in their use. We have also been making selective use of both fiscal and monetary weapons as the Adjustment Process Report likewise recommended. When the danger of excess demand first appeared early this year, we took both monetary and fiscal actions designed to restrain general demand. Now that excess activity has become centered in the area of business investment, the President has asked the Congress to enact selective restraints in that area by suspending special tax incentives to investment. Meanwhile, the Federal Reserve has adapted its discount administration so as to intensify the pressure on banks to dampen loans to finance business investment spending. And because excessive competition for sav- ings among financial institutions was having disproportionate effects on some sectors of the economy, we developed and won congressional approval for additional authority by the regulatory agencies over interest rates permissible for different types of deposits. We expect this wide-ranging, varied, and flexible mix of measures to exert effective control upon demand in the United States such as the Fund Report for this year suggests would be desirable. We also expect it to succeed, because of the careful selection and the variety of instruments used, without bringing about a harmful deflation.

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At the same time, President Johnson recently declared to the Congress: "Decisions made elsewhere will influence our defense needs in Viet-Nam. Because we cannot control or predict these out- comes, we cannot blueprint our fiscal measures in the months ahead. But should additional fiscal measures be required to preserve price stability and maintain sound fiscal policies, I will recommend them."

Improving the World System of Financial and Economic Cooperation One of the critically important areas in which we can and should be moving currently toward a more rational world economy lies in improvements that can be made in the world system of financial cooperation. At the center of this system lies the International Monetary Fund and the truly remarkable network of institutions and arrangements that has been developed to work with or alongside the Fund in the task of international economic problem solving. One of these is the General Arrangements to Borrow. Another is the cooperative network of reciprocal swap facilities developed by the United States and a number of other countries that has recently been enlarged to a total of $4.5 billion. There is less certainty that we have made progress in the field of the composition of reserves. Rising gold ratios, at a time when supplies of new monetary gold are limited, weaken rather than reinforce the system. The improvements to date in the inter- national monetary system that serves the nations gathered here have been on the whole defensive. What is needed now is a positive advance: a widening of the financial channels running between our nations, deepening of them so that they can carry greater loads, and extension of them so that they reach more directly into all our lands. For several years and in several international forums we have been intensely occupied with world trading arrangements in recog-

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nition of the necessity of expanding the volume and improving the flow of world commerce and, particularly, of increasing the partici- pation of the developing countries in this commerce. In the Kennedy Round of the GATT trade negotiations, we have now entered the crucial phase of activity. Another aspect of the future will be a different payments situa- tion from the one that has prevailed in the past two decades, when the world's reserves have grown chiefly due to U.S. payments deficits. It is these deficits, chiefly, that have provided successively to a number of countries the reserves which have given them the courage to liberalize their trade restrictions and have thus in a sense floated the great increase in world trade that has taken place in recent years. There is a realization that the world cannot look to continued U.S. payments deficits to supply reserves in the future on the scale that they have in the past, without unacceptable risks to the stability of the international monetary system. So we are moving toward equilibrium in our payments as fast as the unusual and temporary foreign exchange costs of the war in Viet-Nam will permit. Such large reductions in reserves as have occurred have affected the reserve currency countries and those countries that had unusually high reserves at the end of World War II. That is, where reserves were too concentrated at that time, they have been redistributed. But that process—having taken place—cannot be expected to continue under normal conditions—and further disper- sion at the expense of the reserve currencies does not strengthen the monetary system as a whole. We must also keep in mind the fact that changes are taking place that are greatly increasing demand for goods and services. For example, the world population is expanding at a startling rate. The world's ability to produce and transport is rising exponentially, due to leaping growth in our technological and scientific capabilities. Many more people, wanting many more goods and services and increasingly able to earn them, will require a very substantial rise in the world's needs for reserves. While we must not make the

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mistake of confusing money, the lubricant, with incomes, which provide the fuel for the whole economic machine, it is equally unwise not to give proper care to an adequate supply and use of lubricant. We must not let it be said that we were the generation of finance ministers who insisted that new mountains of the world's products could be carried to untold new millions of the world's people waiting and eager for them on an economic machine which we refused to lubricate adequately. On July 10, 1965, I announced that the United States stood ready to attend and participate in an international monetary con- ference that would consider what steps we might jointly take to secure substantial improvements in international monetary arrange- ments. Progress in the direction of better monetary arrangements, including assurance of adequate reserves in the future, is our decided purpose. With each passing month our determination to move in that direction has increased. The Report of the Deputies of the Group of Ten submitted this summer, the action of the Ministers and Governors at The Hague on July 28, the address of Managing Director Schweitzer of the Fund, and the expressions of Governors at this meeting confirm our conviction that the time for decisive action is here. We stand now at the threshold of the second stage of our nego- tiations aimed at improving international monetary arrangements. This stage follows upon agreement on basic points of contingency planning for reserve creation by the Ministers and Governors of the Group of Ten. A fundamental basis of the discussions among the Group of Ten countries was that all countries have a legitimate interest in the adequacy of international reserves. As a consequence, it was agreed that second-stage discussions should include joint meetings with the Executive Directors of the Fund. It was also agreed that deliberately created reserve assets, as and when needed, should be distributed to all members of the Fund on the basis of IMF

©International Monetary Fund. Not for Redistribution GOVERNOR FOR UNITED STATES H3 quotas or of similar objective criteria. Reserves distributed in this manner would be created on the basis of a collective judgment of the reserve needs of the world as a whole and would not be either geared or directed to the financing of balance of payments deficits of individual countries. I believe these are sound recommendations. I hope and trust that a specific plan for deliberate reserve creation will emerge from this second stage to become the subject of action by the Fund Governors not later than the next Annual Meeting.

The Burdens of Supporting Freedom The United States has raised a shield against aggression in Southeast Asia—as earlier in Europe and the Middle East. We fight there together with our Vietnamese friends whose homes, and lives, and country are threatened, and with the help of our allies from Australia, South Korea, and the Philippines. The homes, the lives, and the national integrity of every free man—of every free nation—in the entire world lies in the shelter of that shield. In closing, I want to refer back to the U.S. balance of payments position and, in this way, pull together the threads of my speech. Last year, our payments deficit was $1.3 billion on a liquidity basis. This year, so far, it is running at about that same rate— despite a rapid step-up of activity in Southeast Asia. We have done well—in the face of very adverse circumstances. If we have not made further progress in our balance of pay- ments position this year, the chief reason is the foreign exchange costs of the shield of freedom that I have just been discussing. The United States has, at present, a net international payments deficit on military account of $2.6 billion—this is not the budgetary cost but the foreign exchange drain. We have a net deficit on foreign aid account—after tying—of about three quarters of a billion dollars. The total of these two items taken together is about two and a half times our over-all deficit. As I have already said, we have used fiscal and monetary policy to keep our domestic economy in an attitude of sustainable growth.

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We are prepared to do more—as and when needed. The President has made this very clear. We already have adopted some restraints on capital and tightened our assistance policies to minimize the balance of payments cost of this assistance. My point is a simple one. We want and intend to attain balance —we do not intend in the future to meet the world reserve needs by an American deficit. The costs of Viet-Nam have made the task more difficult, to be sure. The question is, therefore, not "whether" but "how" to attain both our interim and longer-term objectives. Under present circumstances, there are three broad possibilities. We can apply general and selective measures that shrink the net flow of dollars to the rest of the world without any conscious geo- graphical selection—that is, wherever these measures happen to impinge. This course, we suspect, is likely to mean that, in the first instance, a number of developing countries and deficit coun- tries would feel the first impact in a shrinkage of their dollar receipts, or their ability to command real resources, or both. Only at a later stage would the needed adjustment of the persistent surplus countries take place, as a result of the effect of this shrinkage in the purchasing power of the intermediate countries on the hard core of the world's imbalances in these surplus countries. The second course would be to tailor our measures to the maxi- mum extent possible to concentrate the adjustment on surplus countries. Measures that affect capital outflow could in large degree be so directed. Indeed, our voluntary restraints on capital represented a first, albeit cautious, step in this direction, as did the Interest Equalization Tax. But as economic as this course would seem to be, it is not without problems, as you well know. Finally, there is the possibility that the burden of adjustment might be shared in a more positive way with the surplus countries. By this, I mean that the surplus countries would follow more active, instead of passive, policies in their pursuit of equilibrium. I say this although quite aware that such a course is not without difficulty for the major surplus countries. But I say this never- theless because it is clear to me that this course is the most

©International Monetary Fund. Not for Redistribution GOVERNOR FOR SYRIAN ARAB REPUBLIC H5 efficient, if not the only, means of taking into full account all aspects of the relationship of the pursuit of equilibrium to the total objectives of a rational world economic order. The answer to this question as to how the objectives are to be attained is not one for the United States alone to answer. How it will be answered depends on the composite result of our own efforts and the policies of other countries, particularly the coun- tries in persistent surplus. Measures taken by the deficit countries might have to be quite drastic if surplus countries follow, whether by design or otherwise, policies that tend to preserve these surpluses. Here, as elsewhere, it is our hope that we can continue to seek solutions through close and rational cooperation, both in the interim period and in the longer run. We seek a world in which nations work and consult together, understand each other's capaci- ties for action, and allow their policies to fit together. A combined forward thrust is the desideratum—indeed it is necessary—if our combined resources and efforts are to meet the impressive demands of the years and decade ahead.

STATEMENT BY THE GOVERNOR OF THE FUND FOR THE SYRIAN ARAB REPUBLIC

Ahmad Mourad

On behalf of my Government and as well as for myself, I would like to congratulate the management of the Fund for their valuable 1966 Annual Report. We also note with satisfaction the studies being carried on in the Fund which are designed to indicate ways and means to increase international liquidity. Moreover, we sup- port all future efforts of the Executive Directors in the form of carrying out consultations with all members of the Fund so as to bring about international consensus on desirable lines of action in order to increase international liquidity. Since this subject is of paramount importance to all members of this great institution, and in particular to the less developed

©International Monetary Fund. Not for Redistribution 116 SUMMARY PROCEEDINGS, 1966 ones, I hope I may be allowed to air a few thoughts on it with this distinguished gathering. As is well known, international liquidity comprises the foreign exchange reserves (including the gold tranche and the super gold tranche positions in the IMF) of the monetary authorities of various countries. It also includes short-term credits available to these authorities. International liquidity does not include, of course, foreign exchange reserves outside the control of the mone- tary authorities, nor does it include long-term aid that is designed to finance economic development. The object of international liquidity is to enable countries to finance short-term deficits in their balances of payments, and thus make it unnecessary for them to resort to corrective measures harmful to the growth of their economies and, inter alia, to the world economy. The need for liquidity becomes less if countries are ready to resort to certain measures, such as one or more of the following: (1) exchange and trade restrictions or the inten- sification of these restrictions, (2) hasty deflation at home, and (3) depreciation—that is to say, letting the impact of the deficit fall upon the exchange rate rather than on the reserves. There is a general consensus that, at present, there is no general shortage of international liquidity in the world as a whole. Such a shortage, however, may develop in the future owing to the fact that the main source that fed international liquidity in the past, namely, the deficit in the U.S. balance of payments, may cease to exist. Hence, there is a need to agree on ways and means from now on to increase international liquidity and thus prevent the realization of the predicted shortage. As the distinguished representatives are aware, many schemes designed to achieve this purpose have been envisaged. A number of them, such as the collective reserve unit scheme, which was discussed in the Ossola Report, aim at increasing directly the owned reserves of a limited group of countries. We are against such a scheme and its variants, precisely because of its limited membership. We are aware, however, that such a scheme may confer, if applied, indirect benefits on nonmembers in the scheme,

©International Monetary Fund. Not for Redistribution GOVERNOR FOR SYRIAN ARAB REPUBLIC H7 especially the less developed countries, in the form of increasing imports by members. The fact remains, however, that the owned reserves of members (which are rich countries) will increase by a stroke of the pen and without the surrender of real resources, while the reserves of nonmembers (which are mostly poor coun- tries) will increase as a result of the surrender of real resources, that is to say, as a result of a surplus in their balance of payments. We believe this to be unjust. We believe that any scheme to increase international reserves should be international in character and open to all countries willing to join. Moreover, we think that, though there is no shortage of international reserves for the world as a whole, such a shortage exists at present in the less developed countries. The distinguished Managing Director has stated in his speech to us on September 26 that the "level of their reserves remains low." Hence we feel that their needs for more reserves should be taken into consideration in any scheme to increase international liquidity. We support, therefore, the scheme proposed by the United Nations Conference on Trade and Development group of experts which aims at creating owned reserves, for all countries willing to join the scheme, in the form of IMF units against the surrender by members of local currencies in accordance with certain quotas based on those of the IMF. In addition, this scheme proposes a link between reserve creation and the granting of assistance. And though we think that this link is highly desirable, we feel that it should not constitute a hindrance against the acceptance of the reserve creation part of the scheme. We note with satisfaction the two proposals submitted by the distinguished Managing Director, Mr. Schweitzer, and men- tioned on page 19 of the latest Fund Report. And though we feel that the very act of proposing such schemes is a sign of the seriousness with which the Fund is tackling the problem of in- creasing international liquidity, nevertheless we think that more detailed information about the scheme for issuance of reserve units is necessary. Needless to say, we support the other scheme pro- posed by Mr. Schweitzer, namely, the extension of the quasi- automatic drawing rights of the gold tranche type in the Fund. It

©International Monetary Fund. Not for Redistribution 118 SUMMARY PROCEEDINGS, 1966 is necessary to stress, however, that this extension should not imply a reduction of conditional liquidity offered by the Fund. Finally, may I add the statement that we are confident that the world of money has gained much knowledge and good will since the 1930's, and that it will see to it that measures are taken in the international monetary field which will ensure the stability and prosperity of the world.

STATEMENT BY THE GOVERNOR OF THE FUND FOR BELGIUM

Hubert Ansiaux

This Annual Meeting not only provides the occasion for express- ing one's opinion on the Fund's activities during the past fis- cal year as presented in the excellent Report submitted by the Executive Directors but it also enables us to take a look at the future and to compare the views of Fund members on the direc- tion to be given to international monetary cooperation. The past fiscal year was characterized by a marked expansion of the Fund's activities, a sign of its vitality and usefulness. It is interesting to note that the drawings in the amount of $2.8 billion during the fiscal year ended April 30, 1966 were made in the currencies of the Group of Ten countries, with the exception of an amount of $99 million, and that the currencies of EEC coun- tries were represented in the amount of $1.7 billion. The Report of the Fund Executive Directors rightly points to the persistence of the strains to which the international monetary system has been subjected for several years. Needless to say, in these circumstances the monetary authorities cannot relax their vigilance. As the Report before us says, the reserve currency countries should continue their efforts to restore their balance of payments equilibrium as rapidly as possible. The smooth and balanced operation of monetary processes is essential to economic and social development. International monetary relations are now going through a phase of adaptation resulting from the convertibility of the principal

©International Monetary Fund. Not for Redistribution GOVERNOR FOR BELGIUM H9 currencies, from a modification in the structure of international liquidity, and from a tendency for the balance of payments deficit of certain countries to increase. We believe that the Fund can and should remain at the center of the international monetary cooperation efforts required by these developments. To that end, the Fund should be able to adapt itself flexibly and, to be sure, prudently to the new circumstances; however, although it should not hesitate to envisage the measures made necessary by these developments, the latter should not be allowed to change the nature of the Fund itself as it was originally conceived. Above all, the Fund should remain an exclusively monetary organization. It should retain this character both in its financial operations and in the role it assumes in maintaining and improving international monetary discipline. Moreover, the financial resources available to it have been granted for the purpose of helping countries to conform to this discipline, and this link should not be weakened. The financial assistance that the Fund can provide constitutes, in fact, a system of credit in favor of members who need it, pro- vided by the resources of other members. The Fund Agreement establishes this financing mechanism, particularly the conditions on which its members have agreed to bear the cost of the institu- tion's financial assistance. Experience has shown that the legal framework of the Fund permits the extension of its policies and practices. However, we should not hesitate to undertake desirable adjustments by amendment of the Articles of Agreement if that should prove to be necessary. We believe, in particular, that it would be appropriate to improve the status of positions in the gold tranche and super gold tranche, especially in respect of the automaticity of drawings, the expression of these positions in units of account, and the payment of interest. We are happy that the Group of Ten has welcomed these sugges- tions, and we await with interest the result of their study by the Fund. We believe that the improvements we have suggested are a practical contribution to the solution of the international liquidity problem. The study of the entire international liquidity question will continue, especially in the form of a dialogue between the Fund Executive Directors and the Deputies of the Group of Ten.

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We welcome this new initiative, which will promote a better under- standing of the various aspects of the problem. We are still convinced of the usefulness of technical discussions envisaging all the possibilities, both in respect of improvements to be made in the existing system and in respect of general principles of contingency plans for liquidity creation, in the event that the creation of liquidity should be required to meet the needs of the world economy. These studies will be of great importance for the political authorities when, at a time and on conditions that cannot be foreseen at the moment, they have to make decisions in this field. The solutions that could command our support should be found within the framework of the International Monetary Fund and the principles which characterize its action and which we have specified a moment ago. Without going into details of the prob- lems described in the Report of the Executive Directors of the Fund and in the Report of the Group of Ten Deputies, we wish, however, to recall the importance we attach to two essential principles. Any addition to international liquidity should be conceived in such a way as to safeguard the strictly monetary character of this liquidity. Its use should be accompanied by the discipline neces- sary to prevent the substitution of liquidity creation for the adjust- ment efforts required by the balanced functioning of the inter- national monetary system. The problem of decision making should be studied with partic- ular care. In order that the necessary resources for liquidity crea- tion may be found, it is essential that any decision on the creation of new liquidity be the result of a consensus between the interna- tional community that is the beneficiary of the liquidity creation, represented by the International Monetary Fund, and the collec- tivity of the countries which may be called upon to provide these resources and which will have to assume the heavy responsibilities inherent in their contributions. Our principal concern is to open the way for the necessary adjustments in the international monetary field, in and by the

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Fund, without deviating from the rules of conduct of monetary management whose universal validity and practical importance have been proved by experience. In this perspective, we are fully aware of the importance of other problems, particularly those of development finance. These problems require solutions of another kind, the implementation of which will be facilitated, moreover, by the existence of a stable monetary order. Belgium's collaboration in development finance, through appropriate capital resources and through multilateral procedures, can be counted upon. The targets to be reached in this field are no less important than those at which we aim in common in the parallel but separate area of international monetary relations.

STATEMENT BY THE ALTERNATE GOVERNOR OF THE FUND FOR AUSTRIA

Ludwig Seiberl

May I first express my appreciation to the Managing Director and to the staff of the Fund of the excellent quality of the Annual Report presented to this meeting. As in previous years, it gives a precise and succinct survey on the manifold activities of this organization performed in the service and to the benefit of the world monetary system. Though I cannot attempt in this short speech to underline the importance of all the valuable information contained in this document, I wish to say a few words on the sub- ject discussed in Chapter 2, which deals with the delicate and com- plex problem of international liquidity. In doing so I find myself in full agreement with the line of thought followed by Professor Kamitz, who, because of a sudden illness, is prevented from taking part in our meeting. It was in 1964 that this convention decided to have the particu- lar aspects of this problem studied by the Fund itself as well as by the Group of Ten. The latter entrusted a study of the balance of payments adjustment process to the Working Party 3 of the OECD; this task was intended to be complementary to the studies made in the Group of Ten concerning international liquidity. Since then,

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all three organizations have inquired into the relevant questions with remarkable thoroughness and summed up the results of their studies in comprehensive documents which have been published and widely discussed. All these reports, however, not only demonstrated the scope and paramount importance of the problem, but also revealed that beyond pure technicalities there exist deep-rooted differences of opinion among the leading countries on basic questions. So far, the only common fundamentals of agreement seem to be that the system of fixed parities should be upheld and that gold at a fixed price should continue to serve as a means of ultimate monetary reserve and as a medium of international settlements. Such an understanding, however, covers only the preconditions and cannot be considered as a solution of the problem itself. In order to find a way to promote the welfare of our monetary system, we should direct our attention not so much to the delibera- tion of technical problems but to the economic philosophy behind the scene. Since World War II economic policy in most countries has been conducted in such a way as to reach several aims at the same time. Countries tried to establish full employment and, simultaneously, attempted to keep the balance of payments in equilibrium and the price level as stable as possible. In recent times, this quite impressive schedule was extended by the inclusion of efforts to maintain a satisfactory rate of economic growth. As experience shows, it proved extremely difficult to direct the economic policy toward an acceptable consolidation of these rather divergent aims. Very often, an internal imbalance resulted in a balance of pay- ments disequilibrium which, in turn, called for unpopular meas- ures. Evidently, domestic and external equilibrium are very closely connected, and the failure to maintain domestic balance may produce long-lasting external disequilibria. Therefore, the world monetary system is laboring under strains and tensions, but these cannot be attributed to a shortage of monetary reserves as such. An increase in international liquidity would induce such countries to postpone the necessary corrective measures, prepare the ground for an extension of imbalance, and, thereby, aggravate the situation.

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Therefore, we consider the prescriptions for general economic policy set out in the report of OECD Working Party 3 of great value to all responsible for the conduct of monetary affairs. The "rules of prudence" which should be kept to by all countries in order to avoid balance of payments difficulties, as well as the deliberations on the "policy mix" appropriate to the internal and external situation once an imbalance has arisen, may in the future prove to be helpful guidelines for the authorities when they determine the course of economic policy. Moreover, the consulta- tions between the particular countries in this field as recommended in the report should, in monetary affairs, be extended from the technical level to matters of basic policy. Through such contacts progress in the various countries could be coordinated, excessive surpluses and deficits could be avoided, and international equilib- rium could be established as far as possible. No international cooperation, however, will spare the individual countries the trouble of taking adequate action in order to restore domestic and external equilibrium. It is not so much the monetary system that ought to be changed as the philosophy at the roots of economic policy. Nevertheless, we are not closing our eyes to the efforts to make our monetary system more flexible and to adapt it as far as possi- ble to future strains. As I said before, however, so far agreement has not been reached on all basic items. One of these, which appears to me of particular importance, concerns the number of countries which should participate in the creation and distribution of additional reserves. Those who favor a limited number of lead- ing countries underline the special responsibility of these countries for the successful operation of the world's monetary system. This is certainly a strong argument but it overlooks the interdependence of economic facts. I think that the responsibility for the functioning of the monetary system is equally divided between deficit countries and surplus countries. And though I would not deny a higher degree of respon- sibility for the larger industrial countries, the monetary prob- lems of the other countries also influence the functioning and the evolution of our existing international monetary order. Further- more, many smaller members of the international community have

©International Monetary Fund. Not for Redistribution 124 SUMMARY PROCEEDINGS, 1966 shown impressive discipline in the management of their economy and their monetary problems. These countries, too, ought to raise their voice if decisions are to be taken to increase or decrease international liquidity. Thus, all efforts to reshape our monetary system should be con- centrated in the International Monetary Fund. This organization not only includes most countries of the world among its members but it also has, on many occasions, demonstrated its ability to cope with difficult situations and, consequently, has a huge stock of experience to draw upon in case of need. For these reasons, the Fund seems to be the proper forum to represent the interests of all countries which, as a community, share the responsibility for a satisfactory performance and a favorable development of our monetary system.

STATEMENT BY THE GOVERNOR OF THE FUND AND BANK FOR MEXICO

Antonio Ortiz Mena

My colleagues from Latin America and the Philippines have done me the great honor of inviting me to represent them at this meeting. In accepting their request, I shall be speaking on behalf of Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, El Salvador, Guatemala, Haiti, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, the Phil- ippines, Uruguay, and Venezuela in presenting the common view- points of these countries concerning the activities and policy of the International Monetary Fund. I should like to begin by expressing our warm congratulations to Mr. Pierre-Paul Schweitzer, the Executive Directors, and the staff of the Fund for their fine work, as reviewed in the Annual Report and in the stimulating speech by the Managing Director which we heard two days ago. We were encouraged to hear Mr. Schweitzer himself reaffirm that the problems of international liquidity should be discussed within the organization best qualified to do so and in one that unites 105 nations who all have a legitimate

©International Monetary Fund. Not for Redistribution GOVERNOR FOR MEXICO 125 interest in how such an important issue should be solved. We feel there is no justified reason why any country willing to accept the obligations associated with participation in the international mone- tary system and its adjustment should be excluded from the actual discussions. Nor can such a country agree to any discrimina- tory procedures regarding the type or the distribution of liquidity which might harm the interests of a large number of developing countries. As far as Latin America is concerned, we can assert that the countries of this region have done little to aggravate the liquidity problem; on the contrary, between 1958 and the beginning of 1966, our imports rose only moderately, by $710 million, and our reserves by only $210 million. Furthermore, there was a shift in the composition of these reserves, with the region's holdings of gold declining by $725 million and those of foreign exchange rising by $810 million, that is, by $100 million more than the increase in imports. Moreover, the countries of Latin America, as part of their finan- cial and economic integration process—the Latin American Free Trade Association and the Central American Common Market— are energetically pursuing activities aimed at the creation of mechanisms that will help to alleviate their international pay- ments problems by perfecting procedures to strengthen monetary cooperation within the region. We hope we shall be able to rely on the firm cooperation of the International Monetary Fund in this process. In your brilliant opening speech, Mr. Chairman, you voiced a concern that we share, since it involves a basic contradiction: you pinpointed the trend, observed in 1964, toward a net transfer of funds from the poor to the wealthier nations. In point of fact, in 1965, as far as loans to the public sector are concerned, the combined debt service of the 97 developing countries represented an outflow equivalent to $3,500 million, as against an increase equivalent to only $3,400 million in their external public indebted- ness. In the area of private investment, payments represented an outflow equivalent to $4,000 million, compared with the equivalent of only $3,930 million in the form of new direct investments, rein-

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vestments, portfolio investments, and export loans. In 1965 itself, the trend detected in recent years persisted: the per capita domestic product of the industrialized countries grew at a rate of 4 per cent, whereas that of the developing countries as a whole increased by only 2 per cent, which means that the gap between the standards of living of these two groups of countries is tending to widen. A factor that has done much to create this situation is the introduction by the industrialized countries of restrictive measures with respect to lending and private investment in the developing countries. We wish to stress these facts and to point out the depressive effects they have, not only on the developing countries themselves but also on the level of trade and economic activity throughout the world; it is therefore essential that effective steps be taken to remedy them. We are fully aware of the urgent need that exists in some of the developed countries to correct disequilibria in their balance of payments, but we are no less aware of the overriding need to prevent the ensuing adjustments from impeding the flows of world trade and curtailing the flow of development finance to the less industrialized countries. The desirability of taking immediate action to diminish the adverse effects of limited international liquidity has been com- mented on by several Governors and also by you, Mr. Chairman, and therefore requires no further emphasis at this stage; we need merely express our appreciation of the fact that the Managing Director himself has already put forward a procedure for solving this problem once and for all, by working out a concrete program which we shall discuss at our next meeting. While we endorse Mr. Schweitzer's proposal that the Fund Executive Board should draw up this plan in direct cooperation with the representatives of the Group of Ten, we were particularly gratified by his reference to the desirability that arrangements should be made in the course of the year to enable the Executive Directors to hold informal con- versations with other interested groups. We consider, for example, that it would be worthwhile to canvass the opinions of the Latin American countries and the Philippines, some of which were expressed in the Declaration which their central banks issued in Jamaica in April this year, and also to note those contained in the memorandum which the developing countries signed in

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UNCTAD early this year on the subject of the right of those countries to participate in all discussions of this issue. Further- more, several countries in Latin America are prepared to present papers dealing with technical or operational aspects of the system it is intended to establish. We hold the view that the International Monetary Fund should be strengthened so that, in consultation with the other appropriate international agencies, it can become the accepted organ for discussions and decisions on this problem. We note with satisfaction that some of our joint suggestions at the last Annual Meeting were accepted by the Executive Board. We allude in particular to the compensatory financing plan, in which the "normal" drawing limit was raised from 25 to 50 per cent of quota, the compensatory drawings were separated from the Fund's ordinary operations, and it was decided to allow ordinary drawings to be reclassified as compensatory drawings. If these improv- ments are to be of practical use, we believe that the Executive Board should apply them both flexibly and generously. In partic- ular, facilities should be extended to make the right to draw com- pletely automatic. To turn to quite a different topic, we have taken note of the Executive Board's approval to extend the deadline for notifying consent to the new quota increases. We trust that, when the time comes, the Board will feel able to extend the deadline again. An examination of the world's financial situation reveals features that underscore the need for prompt action at the domestic level as well as in the field of international cooperation. In one of the statements made in this vein, Mr. George D. Woods reminded us that the interest rates now prevailing in the money and capital markets are the highest for the last 40 years. This is a sure sign that the emergency situation, against which we wanted to prepare the international monetary mechanism, is now in sight and that it would be unwise to postpone any longer the implementation of measures aimed at creating enough liquidity to support growing international trade and to provide increased development finance for the emergent nations. A year ago, this meeting decided to hold its 1967 meeting in Latin America. We are very pleased that Rio de Janeiro has been

©International Monetary Fund. Not for Redistribution 128 SUMMARY PROCEEDINGS, 1966 selected. It is without doubt one of the most beautiful cities in the hemisphere and has been the scene of decisions of paramount importance to the whole of Latin America. In providing the venue for this important world meeting, we hope that Rio will also produce a satisfactory solution to one of the most pressing problems of our time.

STATEMENT BY THE GOVERNOR OF THE FUND FOR GREECE Xenophon Zolotas It is with great pleasure that I join in the tributes which have been paid to the Managing Director for the stimulating address with which he introduced the Annual Report of the Executive Board. The staff of the Fund is also to be highly commended for their assiduous efforts and constructive contributions to the clari- fication of international monetary problems. I would also like to join the Managing Director in marking the present twenty-first Annual Meeting of our institutions and think back to the developments which have taken place in the last two decades. Having participated in the Savannah inaugural meeting and in all Annual Meetings thereafter, I am anxious to pay special tribute today to the memory of the two protagonists of the Savan- nah meeting and indeed to the earlier phases of our twin organi- zations: namely, the Secretary of the Treasury Vinson, who was the first Chairman of this Board, and the famous British economist. Lord Keynes, whose work for the formation of the postwar inter- national monetary and financial system has been decisive. The achievements of our two organizations in securing interna- tional monetary order and providing development finance for the underprivileged countries have been considerable during the last 20 years. Irrespective of criticism from any direction, one can best appreciate their contributions by thinking what the situation and problems would have been without their existence and initiatives. The Report of the Executive Directors and the speech of the Managing Director have presented us for the first time with con-

©International Monetary Fund. Not for Redistribution GOVERNOR FOR GREECE 129 crete ideas regarding the problem of international liquidity and reserve creation. This, together with the over-all conclusions recently reached by the Ministers and Governors of the Group of Ten, I consider as a highly useful and most timely step forward in meeting both current and future international monetary problems. It is not my intention today to add to the extensive discussions on the issue of international liquidity. But I should want to empha- size two aspects of the problem, which seem to attract less attention than they deserve. My first concern regards the time element in our common efforts to provide for a more sound and flexible international decision on reserve creation. Psychological factors are no less important than considerations about the present adequacy or the inadequacy of world reserves. Once it has been generally and officially recog- nized that the existing world monetary set-up will have to be supplemented to provide for additional reserve assets in line with future liquidity requirements, the door has been opened to all kinds of rumors, psychological reactions, and speculative activities. By this I do not mean to say that the problem should have been ignored in defiance of reality, or that it should not be thoroughly analyzed and meticulously pondered. But I mean to point at the existence of psychological time limits which could be violated by the perpetuation of discussions and the continuous postponement of international consensus as to what needs to be done, even if the consensus is reached only in terms of general lines of agreement. The uncertainty resulting therefrom fosters the interplay of dis- equilibrating forces which may well precipitate adverse develop- ments and force us to take drastic measures of another nature. In the course of the last 2 years, we have witnessed a sharp decline in the annual additions to the official stocks of monetary gold, mainly as a result of private hoarding. One cannot but share the concern shown in this respect by the Managing Director, who rightly considers the phenomenon as a disturbing indication of unease. The more so, as the increased propensity to hold gold has not been completely unshared by national monetary authorities, which cannot disregard their responsibility for a minimum hedging.

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Thus the primary condition for improving confidence should be not only to emphatically reject any ideas fostering gold speculation but also to reach international agreement on a mechanism for reserve creation—if and when such creation is deemed necessary— in a way that would unquestionably exclude the possibility of gains for gold hoarders. This alone would suffice to discourage specula- tion and to rechannel gold to official holdings in a way that would add to international liquidity and—more significantly—would strengthen the foundations of the world monetary system. I deem it not irrelevant to mention in this respect the experience of my own country in which private gold hoarding—a relic of the psychology of the war years—constituted the main form of secur- ing private savings whenever confidence was adversely affected. At the end of last year, following a persistent and massive increase in private demand for gold, the Greek monetary authorities took measures to regulate the domestic gold market and to implant in the public the conviction that gold profiteers would not gain. The result has been the purchase by the Bank of Greece of tens of millions of dollars worth of gold voluntarily offered by the public, which is continuously dishoarding gold in spite of con- secutive reductions in the domestic price of gold sovereigns and the rekindling of international gold speculation. An analogy at the international level would not be quite unwarranted. The relative urgency attributed to the problem of international liquidity by psychological factors need not blur the essential dis- tinction between the formulation of a contingency plan and the activation of that plan. As a matter of fact, as I have repeatedly emphasized, the simple announcement of international agreement on the eventual course of action would suffice to combat uncer- tainty and restore confidence. Experience—let it be said again— has shown that the mere existence of an effective system of safe- guards may serve to forestall the manifestation of disequilibrating tendencies. My second concern relates to the spreading conditions of dearer and tighter money and to the consequences therefrom on develop- ment financing.

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The efforts of the reserve centers to restore their external equilib- rium, as well as the domestic policies pursued by several major trading countries, have caused money to become increasingly dear and less available, particularly with respect to the needs of develop- ing countries. This situation is not unrelated to excessive reliance on monetary policy, where fiscal measures should also be called for. In these circumstances, the recent move of the authorities of key currency countries toward more active fiscal policies is to be welcomed. Development finance and international liquidity are interrelated, indeed, and their crucial link should not be lost sight of, while deciding on the essence and timing of measures to supplement world reserves. In this respect, two considerations are in order. (1) Aside from their inherent shortcomings, numerical meas- urements of the adequacy of world reserves become of second order of importance whenever monetary authorities behave as if a shortage of liquidity actually exists. Manifestations of such behav- ior may well be the stagnation or slight decline in the level of development aid and the tendencies for reversal in the process of liberalization of capital movements, for which the Managing Direc- tor has issued a judicious warning. (2) It is quite evident that the incidence of a real or "psycholog- ical" inadequacy of liquidity would not be of uniform severity and time sequence in all countries. Developing nations are first, by the nature of things, in the list of those who will suffer, even well before the shortage of reserves becomes statistically discernible on a global basis. Consequently, the interest of developing coun- tries in an international consensus on a universal contingency plan to forestall such adversities is of higher priority. The problem of international liquidity, once it has been posed by reality and officially recognized, must have a timely solution. Cur- rent developments and future perspectives indicate that there is a pressing need for the working out and the adoption of a contin- gency plan capable of prompt activation whenever necessary. It is to be hoped that appropriate procedural arrangements will be made, without delay, for discussions aimed at producing a con-

©International Monetary Fund. Not for Redistribution 132 SUMMARY PROCEEDINGS, 1966 sensus on such a plan. In this connection, I appreciate fully the ideas set forth in the Managing Director's address. Different pro- cedural arrangements are, of course, possible, but what the Manag- ing Director has proposed seems to be the most practical procedure in these circumstances. I should like, therefore, to express my full support for his proposals and suggestions.

STATEMENT BY THE GOVERNOR OF THE FUND AND BANK FOR IRELAND

John Lynch

The official studies of the past few years have greatly increased our understanding of international monetary problems. But we have not yet taken the decisions needed to avoid an insufficiency of international money and to safeguard the full development of world production and trade. The practical test of the adequacy of liquidity—domestic and international—is whether finance is available to maintain the economic growth made possible by physical resources. When we look around the world today, we find interest rates rising to unprece- dented heights. Even countries with economies which are operat- ing below capacity have come under pressure to raise their rates to protect their reserves. The world-wide shortage of capital which has contributed to the rise in interest rates is, in part at least, the result of restrictions which the traditional capital-exporting coun- tries have had to impose on the outflow of investment funds in order to reduce their external deficits. Difficulty has resulted for the smaller nations which, for economic development, need to have their domestic resources supplemented by some inflow of long- term foreign capital. In 1965, the increase in world reserves was only about half the annual average for the preceding decade. In the first quarter of this year there was actually a decline in total reserves. Only about one sixth of total gold production (excluding the Soviet countries

©International Monetary Fund. Not for Redistribution GOVERNOR FOR IRELAND 133 and Mainland China) was added to reserves in 1965; most of the balance was hoarded—an unflattering commentary on the existing international payments system. Earlier this month an extension of the mutual currency swap arrangements was announced. This temporary expedient, though useful, itself goes to show that the permanent international monetary arrangements are deficient. The present difficulties will be accentuated accordingly as the two reserve currency countries bring their external payments closer to balance. For more than a decade the U.S. dollar has been supply- ing half the addition to international reserves; its contribution henceforth will be much less. The planning and putting into opera- tion of a scheme of rational creation of reserve assets should not, therefore, in our view await the achievement of equilibrium by these two countries. Otherwise, the symptoms of a growing short- age of international liquidity will be aggravated and the problems of the developing countries will be increased. We in Ireland believe firmly that the planned creation of inter- national money is the business of the Fund. We support the prin- ciples set out in the Fund's Annual Report that reserve creation is the concern of all member countries, that planned increase should be related to the trend need for reserves, and that all should partici- pate, with due safeguards, in the distribution of newly created reserves. We consider that such reserve creation should take place either through the Fund or through an affiliate of the Fund and that some objective criterion, such as IMF quotas, should be taken as the approximate basis for distribution. Much discussion has centered on the question whether deliberate reserve creation should be by way of reserve units or by extension of quasi-automatic drawing rights in the Fund. In view of present attitudes to international reserves, it would seem desirable that the form should be that of reserve units, since an increase in owned reserves tends to give national authorities the feeling of security which they need to conduct their affairs without premature resort to restrictions. It is unfortunate that agreement on the creation of reserve units seems unlikely for some time. In view of the importance of taking

©International Monetary Fund. Not for Redistribution 134 SUMMARY PROCEEDINGS, 1966 some action soon, we suggest as an interim measure that a decision be taken to increase IMF quotas by an average annual amount over the next three years. The consequent increase in drawing rights would automatically supplement reserves. In our view, the action needed to improve present international monetary arrangements should be taken sooner rather than later. A positive decision is needed now. Whatever the risks of action, those of inaction may well be greater. If one thing more than another has emerged from this meeting so far, it is, in my opinion, that the appropriate sense of urgency prevails. This was evident from the excellent speeches that we heard on Monday—from you, Mr. Chairman, and from Mr. Schweitzer and Mr. Woods—and from the majority of state- ments of Governors since made from this rostrum.

STATEMENT BY THE GOVERNOR OF THE FUND FOR NEW ZEALAND

H. R. Lake

Allow me to associate myself with the distinguished Governors who have applauded the work of the Fund and the Bank during the year. The maturity of judgment and wisdom embodied in these institutions is a tribute to the caliber and teamwork of its Directors and staff. New Zealand has followed with interest the discussions on world liquidity, and we note with satisfaction that joint meetings between the Executive Directors of the Fund and the Deputies of the Group of Ten are intended. As a country whose standard of living and economic progress depend on overseas trade, New Zealand is vitally concerned that international trade and payments should not be stifled by a short- age of international reserve assets. We therefore attach consider- able importance to the proposal to proceed quickly to contingency

©International Monetary Fund. Not for Redistribution GOVERNOR FOR NEW ZEALAND 135 planning. New Zealand recognizes the responsibility and interest of the economically strong countries for the functioning of the inter- national monetary system, but we share the view that the IMF is the appropriate organization to manage any scheme for improv- ing world liquidity. We also regard it as essential that all Fund members should have the opportunity to participate in such a scheme on a uniform basis. Some countries—including several who have adequate reserves of their own—seem to doubt the urgency of this problem, but they should not ignore the fact that the less developed countries live under a constant fear that a shortage of international liquidity will inhibit the expansion of markets for their exports. It is important that this fear be removed as soon as possible. I note also the reference in the Fund's Report to the marked changes in the direction of international capital flows during the year. The Managing Director and many Governors have drawn our attention to the very great pressures that have been exerted on world capital markets. This is reflected in reduced availability of funds and much higher costs of borrowing. This is partly due to the use of monetary policies to correct domestic disturbances rather than other measures which affect interest rates less directly. But it is also due to serious imperfections in the process of balance of payments adjustments between countries. If countries with strong balance of payments and reserve positions fail to adopt good creditor policies by easing conditions in the capital markets and allowing greater access to them, there is bound to be a deflationary bias in economic policy making. Countries which are affected by these conditions must take countermeasures in their own econo- mies leading to lower growth rates and reduced external trade. We are conscious that the pressure on world capital markets is partly the result of necessary efforts by the reserve currency coun- tries to remedy their own external position. Nevertheless the dis- turbances caused by extensive restriction on capital movements are real and immediate for countries like New Zealand. It is, therefore, our hope that more normal conditions will be quickly restored in the world's capital markets through international cooperation.

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STATEMENT BY THE GOVERNOR OF THE FUND FOR NEPAL

Bhekh Bahadur Thapa

I consider it a great honor for me to participate for the first time in this meeting which happens to coincide with the completion of the twentieth year of the Fund's establishment. In these 20 years of operation, the Fund has asserted its importance as an institution charged with the responsibilities of maintaining inter- national monetary stability and of providing a code of behavior in the field of international monetary relations. The Fund has suc- ceeded in presenting its image as an international monetary author- ity whose judicious advice the member countries can ill afford to ignore. This, I think, is the greatest achievement the Fund has made at the close of the twentieth year of its life. The Executive Directors' Annual Report contains, as always, an excellent summing up of the economic situation of both the developed and the developing countries. An added attraction of this year's Report has been the introduction of two separate chap- ters—one dealing with the question of international liquidity and the other with the monetary and financial problems of the develop- ing countries. It is rather disheartening to learn that, although in recent years the industrialized countries have continued to enjoy a sustained economic expansion, the flow of economic aid and private long- term capital to the less developed countries has tended to remain almost stagnant, and has even fallen now to less than two thirds of 1 per cent of the total gross domestic product of the industrialized countries. It may here be recalled that the United Nations had pleaded with these countries to contribute at least 1 per cent of their gross domestic product as financial assistance to less devel- oped countries. It is also a matter of regret to learn from the Report that not much progress has been made in easing the terms on which these financial resources are provided to the less devel- oped countries. Insofar as the economic expansion in the less developed countries is contingent upon the volume and terms of the financial assistance from the industrialized countries, such a

©International Monetary Fund. Not for Redistribution GOVERNOR FOR NEPAL 137 trend is not desirable. The Fund has done well in stressing in its Annual Report that the richer countries should consider the pro- vision of financial resources to the less developed countries one of the topmost priorities in their national economic policies, and that this should not be influenced by balance of payments considerations. A sufficient flow of aid and private capital from developed countries to less developed countries depends, however, on the maintenance of a strong international monetary system. The record level of employment achieved for the first time in the post- war period by the industrialized countries has also brought with it the problems of containing cost and price pressures. In their anxiety to reduce payments imbalances, the industrialized countries took recourse to such measures as restraining outflow of capital and raising interest rates, which in turn intensified payments prob- lems of countries dependent on foreign capital for their economic development. The less developed countries, on the other hand, have been able to reduce their payments imbalances by adopting such measures as curtailment of imports, even at the cost of their economic growth. These developments during the past year again remind us that world economic prosperity cannot be segmented. A global economic prosperity simply cannot be achieved without international cooperation. It is in this wider context that the crea- tion of a strong international monetary system should be reappraised. The Managing Director's proposals regarding the deliberate creation of reserves are welcome. These proposals are consistent with the basic objectives of the Fund and are based on the prin- ciples on which, I think, most of the member countries will be in agreement. It is of great relief to know from Mr. Schweitzer that a general agreement has already been reached on the principle that all members of the Fund should take part in the distribution of any newly created reserves, and that the basis of allocation of such reserves should relate to Fund quotas or to similar such criteria which would reflect the relative economic position of countries. It is stated that the Executive Directors will continue to discuss these proposals, and I hope a general consensus of views will prevail.

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I am delighted to find in this year's Report a separate chapter dealing with financial and monetary problems of the developing countries. The suggestions given to combat these problems are instructive, as they have drawn heavily upon the vast accumulated experience of the Fund in its dealings with these countries. It has now been widely recognized that financial stability and eco- nomic growth are not contradictory concepts. Indeed, experience has amply proved that faster and more solid growth can take place only in an environment of financial stability. Particularly in newer countries with poor and inefficient administrative machinery, adop- tion of restrictive measures to contain price rises and payments im- balances unnecessarily diverts the limited talent and skill of administrators away from basic efforts for economic development. I wish that in the future also problems of the developing countries will be highlighted in the Fund's Annual Report. This council is well aware that India devalued her currency by 36.5 per cent on June 6, 1966. But Nepal, like other neighboring countries, decided to maintain the existing exchange rate of her currency in terms of gold and U.S. dollars, and, consequently, the Nepalese currency underwent appreciation by 57.5 per cent in terms of the Indian currency. We are, however, carefully watch- ing the impact of the Indian devaluation upon our economy and are taking actions needed from time to time to counter any adverse developments arising therefrom. Recently we have taken a series of fiscal and monetary measures aimed at controlling imports at an appropriate level, encouraging the volume of exports, protecting our domestic industries, mopping up the excess liquidity in the economy, and encouraging private savings. We have also started taking firm measures to complete the task of currency unification in the country within a few months. We hope that these measures would help the economy to undergo a new adjustment process. We are grateful to the Fund for its readiness to send soon a mission to Nepal to assist and advise the Government and the central bank in this task. I wish the Fund every success in its present efforts to evolve an international monetary system that would provide a solid base for an expanding world economy and pledge our full support for this noble cause.

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STATEMENT BY THE GOVERNOR OF THE FUND FOR THE DEMOCRATIC REPUBLIC OF CONGO

Albert Ndele

This year's Annual Report deserves very special attention because of the increasing and constructive interest the Fund is show- ing in the problems of developing countries and because of the suggestions made for reforming the international monetary system. As to the problems of developing countries, I wish to thank the Managing Director most especially for the emphasis he has placed on these problems in his opening address. I also wish to congratu- late our Executive Directors for the sections of Chapter 3 dealing with obstacles to stabilization programs and the role of central banks in these countries. Having experienced simultaneously balance of payments diffi- culties and inflation due to deficit financing, the Congo is heartened at this time by the solutions put forward by the Fund for correcting situations of this kind. After a period of profound disorganization, the government authorities have been engaged since November 1965 in a recovery effort based on a better allocation of national resources in all sectors of economic activity. The substantial decrease in the budget deficit and the slowing down of the price increase are the first positive results of the measures adopted to limit public expenditure and to exercise a stricter control over government accounts. These efforts will be continued during the months ahead, in conformity with the principles advocated in the Fund Report. As the Report clearly shows, the portion of a community's sav- ings that is reflected in an increase in cash holdings is usually larger in low-income countries. This increase in money supply makes available to the economy resources which allow credits to be granted for production and form an appropriate basis for financ- ing development, provided that they do not exceed the economy's actual supply capacity. Our current study of measures for restoring confidence in the currency takes fully into account the responsibility which thereby

©International Monetary Fund. Not for Redistribution 140 SUMMARY PROCEEDINGS, 1966 devolves upon our institute of issue in the creation and distribution of national savings. As to the role which, in the Fund's opinion, a central bank should play in a developing country, the Democratic Republic of Congo has good reason to share the opinion expressed in the Report, since its institute of issue, which has the strict legal status of a State bank, has sufficient independence to formulate and implement domestic monetary policy in accordance with general objectives formulated by the Government. In that capacity, the National Bank considers that it is its responsibility to insist that necessary reforms be introduced in the public finances and that use of the reserves by the various economic agents be geared to the country's balanced development requirements. Monetary measures, although a necessary condition for this balanced growth, certainly are not sufficient to achieve it. Public or private investment capital is also needed so as to ensure the recovery of agriculture and the diversification of industry and thereby diminish the incidence of mining export prices on our foreign exchange receipts. This should lead to a more favorable balance of payments struc- ture through an increase and stabilization of the balance on cur- rent transactions. I shall now refer to the reform of the international monetary system, hoping that this distinguished assembly will not consider it rash that one of its youngest members expresses satisfaction on noting that the majority of the speakers have shown a high degree of agreement on the need for an immediate reform of the inter- national monetary system. This need does not arise for all the speakers who have preceded me from an immediate need to in- crease liquidity but rather from the wish to make ready in good time the instruments necessary for a future expansion of the world economy, by strengthening confidence in this system right away by a correct anticipation of needs. In this context, I am happy to note that the work done in 1965 and 1966 has been oriented in a positive sense and has led to the Managing Director's proposals, which I fully support.

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I earnestly hope that these proposals will materialize in the near future and will make it possible to meet the increasing needs for liquidity by the creation of reserve assets in the form of claims on the International Monetary Fund. I also note with satisfaction that an agreement appears to be emerging to the effect that the creation of new reserves should take place on the basis of a collective judgment of all member coun- tries, a judgment dictated by world needs for reserves and not by the deficits of certain individual countries. In this way, resources will be permanently available to all mem- ber countries to enable them to cope more effectively with tem- porary balance of payments disequilibria, without compromising the fundamental objectives of development and full employment to which they are committed. The distribution of new reserves among countries might usefully be based on the relative importance of quotas. For these quotas in fact reflect various factors indicative of the weight of each mem- ber in international trade and they already serve as a basis for the IMF's operations. If, accordingly, this principle can be accepted as a first approximation, it does not, however, appear to us to be sufficient. Indeed, as the Fund itself acknowledged on establishing the compensatory financing facility, the raw material exporting countries experience relatively larger variations in their reserves. This fact should not be overlooked in the distribution of new reserves. We wish also to express our agreement on the proposal that drawing rights should be considered floating rights which the countries could hold in reserve even after having made use of the Fund's credit facilities. As to the choice between the two institutional mechanisms sug- gested by the Managing Director, our preference goes, at this stage of our work, to the distribution of reserve assets by an affiliate of the Fund, since this solution provides greater flexibility. In order to institute a permanent reform of the international payments system, these solutions should make provision for the

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direct participation of the developing countries in the decision- making arrangements. This collaboration will offer the advantage of a mutual exchange of experiences which will permit better con- sideration of the different aspects of the problem and the achieve- ment of solutions which reconcile the various interests of all members. I hope that the work undertaken in the months ahead for reforming the international monetary system will remain oriented in a constructive way and that the developing countries will have a full share in the preparation of the new solutions.

STATEMENT BY THE GOVERNOR OF THE FUND AND BANK FOR KENYA

/. S. Gichum

It is with considerable pleasure that I am able to announce that after the meeting of Governors last year arrangements for the opening of the Kenya Central Bank, to which I then referred in my address, moved ahead rapidly, and the new Central Bank of Kenya commenced operations two weeks ago. Kenya now has not only its own Central Bank but its national currency. However, the foreign reserves which Kenya will receive from the distribution of assets of the East African Currency Board, while entirely sufficient for backing the new currency, will not provide funds which could be drawn upon for development purposes. I do not regard it as particularly helpful to say that underdevel- oped countries do not need monetary reserves and that their needs are those merely of financial aid. Certainly we need aid, but if we are ever to stand on our own feet, or ever attain an economic position from which we may give aid to others, we must have the means to expand trade and to follow policies which will enable us to do this. I do not think that I will be alone in this meeting in expressing my very considerable disappointment at the slow rate of substantive progress that has been made over the last year in the discussions

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covering proposals for an increase in world liquidity. The limited progress by the Group of Ten underlines, in my view, the absolute necessity for all member countries to participate in the next round of discussions through the full association of the Fund. It is not at all clear to me, as Governor of the Fund, just how far the Fund has already participated in these discussions. It has, I know, been an observer in the discussions, but it would, I think, be valuable if the .Managing Director could publish the contents of his statement to the Executive Directors which is mentioned on page 18 of the Annual Report. This would enable countries outside the Group of Ten to be better informed on this question, and I would like to press that in the coming months all members of the Fund should be kept fully informed directly of progress made in these discussions. I should like to hope that I would not have to rely merely on indirect reports for this information. I accept the fact that in large measure it will be the industrial countries which will be required to provide backing with their resources to any increase in world liquidity, but this situation may not persist at all times, and I am convinced that all members of the Fund should participate in any increase in liquidity. There should be universality of distribution and decision making, as has been traditional in the Fund. It is difficult to escape the conclusion that the countries reluctant to advance on this question are perhaps failing in their international responsibilities. I am aware and understand the feeling that de- cisions on an increase in world liquidity should not be an excuse for countries to maintain a position of persistent deficit in their balance of payments, but there can be little doubt of the present determination of the United States and the United Kingdom to correct their present deficits. There is little doubt either about the fact that the sterling area will move into surplus next year, while the efforts of the U.S. Government in this direction must eventually prove to be effective, even if there is a continuation of the regret- table conflict in Viet-Nam. The efforts by the United States and the United Kingdom to correct their adverse balances of payments underline the approaching liquidity difficulty—indeed, I might say, crisis. By the time those two countries achieve the surplus they are

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planning, it will be too late to continue to discuss the ins and outs of various contingency plans. If the major developed countries are in surplus, who is then to hold the deficits which by definition must exist? The production of gold is insufficient and the present facilities of the Fund may well be placed under strain, even taking into account the increased quotas agreed in the last year and the welcome new arrangements for compensatory financing. The present trend toward anti- inflationary policies in the industrial countries suggests that, in spite of the present high level of prosperity, the world could quickly tip over toward more general deflation, with countries once again endeavoring to protect their own economies without regard to the effects their measures might have on others. I find considerable difficulty in understanding the continued emphasis on contingency planning. If a town needs a fire brigade, it does not draw up a "contingency" plan which is only put into effect after the largest building in town has burnt down; yet this, in effect, is what the present proposals regarding contingency plan- ning for an increase in world financial liquidity imply. We do not want a contingency plan, Mr. Chairman, we want a plan, which can be appraised and, I hope, agreed at our meeting next year so that we can go straight back to our Governments and ask for ratification. A timetable extending further than this would carry very considerable dangers for the health of the world economy. It is useless to claim that the time for reform has not yet come and that additional liquidity is not needed. The essential feature of liquidity is that it must exist independently of and prior to its actual use. It would seem that, in the main, countries which do not join me in this view are those which at the present time happen to find themselves in the fortunate position of balance of payments sur- plus. Yet countries in surplus have a responsibility quite as great as those countries in deficit; and this responsibility should be dis- charged to the rest of the world, either by those countries follow- ing an expansionary policy in their economies or by their giving much greater financial support to the international agencies and/or direct development aid to the poorer countries.

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A slightly different but related problem that I wish to mention concerns the problems posed by the continued persistence of high interest rates in the world. Although I do not wish to argue that the use of monetary policy and the adjustment of interest rates is of no use in controlling the economic system, the present tendency toward the competitive raising of interest rates is providing little benefit as a control measure, except insofar as it is a measure forced on countries by others. This trend is in part a symptom of the situation just mentioned, for there is no need for surplus coun- tries to raise their rates of interest against the debtor countries. They should be prepared to expand and accept the fact that this may lead to some loss of reserves. It must be borne in mind also that rising costs of borrowing on the world market represent a major stumbling block to development financing. First, the number of investment projects which can still bear the high cost of credit must necessarily decline. Secondly, accumulated debt servicing in the developing countries may soon attain a level which is incompatible wtih their ability to pay. The countries which are dependent upon foreign lending for develop- ment must not fall victims to the spiral of rising credit costs. Two points seem to emerge clearly out of such considerations. First, the foreign financing of development must be substantially detached from conditions prevailing in credit markets; in particu- lar, such schemes as IDA must necessarily prevail as the main instruments of international aid. Secondly, the solution of balance of payments difficulties must, as far as possible, be obtained by means other than those involving unwelcome financial side effects. In fact, the proper treatment of the problem of international liquid- ity must lead to a situation in which the competitive rise of interest rates will no longer serve as a classical short-run remedy against undesired movements of capital, and I fully endorse the view expressed by the Managing Director of the Fund that countries should have recourse to fiscal controls to a rather greater extent than has been the recent practice. It is also relevant to note with regret the recent tendency of industrial countries to attempt to restrict their deficits through the

©International Monetary Fund. Not for Redistribution 146 SUMMARY PROCEEDINGS, 1966 use of physical controls over capital and tourism. Capital controls, in a number of instances, have specifically excluded under- developed countries from their effects, but it is, I think, too optimistic to assume that it is possible to contract the flow of international capital around the world without this having any effect on these countries, which, by their nature, are not normally the most attractive outlets for scarce capital. Coming from a country whose most rapidly growing industry is tourism, I regret the use of control measures designed to restrict travel expenditures. . . .

STATEMENT BY THE GOVERNOR OF THE FUND AND BANK FOR TRINIDAD AND TOBAGO

A. N. R. Robinson

I think it is now clear from all the statements that we have heard so far that these meetings of the Fund and Bank convene this year at a time of stress in our relations. It is not only as you, Mr. Chairman, so graciously said in your opening statement on Monday, that the world has not yet fully met the challenge of the fundamental issues of development. It is, moreover, that there is diminishing confidence in the will to do so, and the hopes of the early part of the decade are now in danger of giving way to disappointment and resignation. I believe that the crisis that we face is too serious to permit apportionment of praise or blame. It will be readily conceded by both developed and developing nations alike that the job of devel- opment is the ultimate responsibility of the less developed them- selves. It will be equally readily conceded that they must have the tools to do the job. The fact is, however, that delivery of essential tools is flagging and that, in the struggle against poverty, develop- ing countries are faced with a generalized retreat on all fronts: terms of trade, tariff barriers, interest rates, capital flows, fiscal policies, debt service payments, and aid administration. Whether by accident or design, the cost of development is increasing, and the burden is falling most heavily on those least able to bear it.

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A major part of the trouble seems to emanate from the slow- ness of some industrialized countries in effecting structural changes necessary to keep their economies fully competitive, even though buoyant conditions in world markets provide a favorable climate for readjustment. The protective measures to which these coun- tries have resorted have interfered with the movement of both private and official capital to developing countries and have had an unsettling effect on development plans.

International Liquidity It is in this context that the Trinidad and Tobago Delegation sees the current issue regarding the world's monetary reserves. On this question we support the views already expressed by sev- eral Governors to the effect that any new arrangements should be open to all Fund members on uniform terms and should be coordinated with the operations of the Fund. I also support the views regarding a contingency plan already expressed by my Commonwealth colleagues both here and pre- viously at Montreal. There is, however, one further aspect of the matter to which attention should be paid: developing countries share with the more developed countries a direct interest in the provision of inter- national liquidity for protection against short-term balance of pay- ments fluctuations, but even for this purpose there are important differences. Some of the special needs of developing countries are recognized in the provisions made by the Fund for compensatory financing, but this is not an end to the matter. The need of such countries for medium-term and long-term development capital and for structural changes in their economies has a bearing on their balance of payments position and on their need for short-term liquidity. It is clear that these needs are closely interrelated, even though separately identifiable. I wish to emphasize that the interest is not illusory but real. It is as real as gold. Much more study appears to be required at the technical level in order to ensure that these interrelationships are fully understood and fully taken into account in any new arrangements for international liquidity.

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Trinidad and Tobago is greatly indebted to the Fund for the assistance provided in establishing and staffing our Central Bank. These services have been of inestimable value. We have also found discussions on various financial matters with members of the staff of the Fund to be of considerable assistance to us. ...

STATEMENT BY THE GOVERNOR OF THE FUND FOR CHAD

Abakar Sanga Traore

In taking the floor before this illustrious assembly of Governors of the Fund and World Bank, I voice the feelings and major con- cerns of a country whose resources are limited. My Delegation concurs fully in all the words of praise that have been directed at Mr. Schweitzer and Mr. Woods for the courageous stand they have taken. At the time of the last meetings of the Fund and Bank, or, to be more precise, after the Tokyo meeting, the developing countries, particularly those of the African continent which had just become members of the specialized agencies of the UN, thought that the Bank's activity in this "have-not" area would be vigorous enough to produce results that would compensate for their late entry into these agencies. That expectation appears to have been a rather forlorn hope in the light of the important problems and serious difficulties facing these countries and the urgent solution they require. As it happened, after Tokyo the Bank's policy did undergo several changes, but they did not all reflect the hopes expressed in 1964. Chad has been a member of the Bank and Fund for four years and has not yet had any actual financial assistance from these institutions, although the Bank has sent different missions to our country to aid our Government in preparing projects that might be feasible.

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During the last three years, Chad has made considerable and meritorious efforts. In 1964 it undertook to mobilize local savings by floating a national loan which was a real success. Austerity measures were decided upon. Recently the first Five-Year Development Plan became effective. I believe that my country can- not go beyond this, and we are counting on the sympathy and assistance of friendly countries and of international organizations. May I be allowed to express before these institutions the legiti- mate concern my country and other countries in similar circum- stances feel over the method employed by the Bank and its affiliates in providing assistance. Time does not seem to operate in favor of countries which have not yet derived any benefit from their membership in the Bank Group and the International Monetary Fund. The reasons for this concern are easy to understand. The increase this year in the minimum interest rate from 5.5 per cent to 6 per cent is not likely to raise the borrowing capacity of our States. . . . I have followed attentively, and with great pleasure and a certain consolation, the addresses of Mr. Schweitzer and Mr. Woods, in which a real appeal was made to the industrially advanced coun- tries. It seems unnecessary to repeat here that international eco- nomic cooperation is diminishing constantly and that aid, be it bilateral or multilateral, now shows a downward trend. The speakers who have preceded me have also remarked upon this development. It is entirely natural under these conditions that the underdevel- oped countries, which are unarmed and powerless in such a situa- tion, have no other way out than simply to resort to borrowing, on which the burden of repayment is excessively heavy. The advice lavishly bestowed on this matter by the institutions cannot in such circumstances be followed in our countries, because for us it is a question of survival and our patience still must be kept within acceptable bounds. It is a fact that those who are responsible for the deterioration of the world economy persist in their unprecedentedly egotistical and complacent attitude, despite the cries of anguish which are

©International Monetary Fund. Not for Redistribution 150 SUMMARY PROCEEDINGS, 1966 raised at numerous international conferences devoted to this topic. We are more especially distressed because the "have" countries do not stint their assistance when strategic reasons so require. Would it not be better to prevent disease in relatively stable coun- tries where there is still some chance of promoting a coordinated and peaceful growth than to try to heal a gangrenous limb? Finally, we think that for our countries the concept of the policy of aid to economic development should be reviewed with the utmost serenity in order to adapt it to our particular situation. I am thus led to pose the following question: why not set up a new Marshall Plan for the underdeveloped countries? In this connection, I quote a passage from the statement of a very dis- tinguished Governor in this very room a year ago: "Are things decided by events or men? If they are ever decided by events, we have no one to reproach." As Governor of the Fund, my statement would not be complete unless I added a word on the international liquidity problem. It is clear that this very complex problem which has dominated our meetings for the last four years is still unsolved. And for our economically weak countries, neither is the question of marketing our primary products solved. We are now witnessing a terrifying escalation of prices of finished products and a continuous decline in commodity prices, which is reflected in a widening of the gap between the countries of the Third World and the industrial countries. With the proposals before us, we believe that all mem- ber countries which are closely or remotely involved should take part in the search for a solution capable one day of making our economic future better. That is why I venture to suggest that the Horowitz proposal should be considered. I also think that the thesis upheld from time immemorial by France should be consid- ered as a basis for seeking a satisfactory solution. An increase in reserve currencies does not reduce the problem of underdevelop- ment. A real market organization is required if we are to begin to solve the problem of primary products. Needless to say, this should be done with the close collaboration of the International Monetary Fund.

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STATEMENT BY THE GOVERNOR OF THE FUND FOR TANZANIA

A. H. Jamal

Mr. Chairman, may I begin by expressing my appreciation to you, to Mr. Schweitzer, and to Mr. Woods for giving us, among the three of you, a most comprehensive compilation of the record of the world in organized international cooperation in the economic and financial field, its achievements and its limitations, the dan- gers and the prospects ahead of us, and perhaps an insight into the mood of the world community represented both inside this assembly and outside it. On behalf of my country I wish to convey to both Mr. Schweitzer and Mr. Woods our appreciation for their enormous endeavors toward the objectives of genuine international economic progress of the human community. In particular, I want to say how happy we were to have Mr. Woods visit us recently. This personal contract enabled us, as I hope it also enabled him, to understand the problems and prospects both of the IBRD and its affiliates as well as those of our own country. We earnestly look forward to the day when Mr. Schweitzer, with all his major preoccupations, will be able to find time to visit us, not, I hasten to say, in the context of a rescue operation or a remedial exercise but to see for himself a part of the grass roots of the world and the magnitude of the efforts in human terms compared with its resources in a part of the develop- ing world—efforts to become organically grafted to the advanced and sophisticated part of the world community against such heavy odds and at the same time with so much determination. Indeed, we have been fortunate in receiving valuable technical assistance from the Fund in establishing our own central bank. We appreciate this assistance very much. By virtue of its wide range of contacts with so many parts of the world, the International Monetary Fund is clearly the best qualified of all international organizations to take effective initiative in this field of technical assistance, in respect of financial institutions and policies. Not

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only is it best qualified but also it has a moral responsibility to give effective technical support to the development of financial institutions in the developing world. There is, I believe, a good case for the Fund's re-examining and reappraising its program of action in this important respect. As belonging to the developing part of the world—the poor world as the Malaysian Governor chose to call it—I approach this year's meeting of the Governors with a great deal of bewilderment. On the one hand, the meaning of what is being said about the gap between the rich and the poor widening is quite clear. It must mean that the world is moving toward a crisis. You, Mr. Chairman, put it in a language which can hardly be excelled. You said "the concept of comparative advantage is not a static one, it is a dynamic one." Unfortunately, the dynamics of the situation is that in order to stand still or to prevent going backward many of us have to run. Last year the farmer in my country—incidentally 90 per cent of Tanzania consists of peasant farmers—paid 6 per cent more than the previous year for the same kind of farm equipment and got 14 per cent less in price for what he produced. Despite this enormous burden—just think of the consequences of a similar phenomenon in an advanced industrialized country, some would say it would be unthinkable—despite this, we managed to have quite a modest balance of payments surplus. The credit for this goes to the efforts of the people, resulting in increased production together with a net inflow of capital funds. Now, when I come to this meeting of the Governors I find that, rightly or wrongly, the major preoccupation of the powers that be is international liquidity. World confidence in the international monetary system, it is said, needs to be strengthened. Of course the international com- munity consists of national entities. We have been in our own way in Tanzania endeavoring to establish confidence, not just of the world in us but of ourselves in us. We exhort people to pro- duce, and they do produce more. We endeavor to import judi- ciously. As far as we can endeavor to create a favorable invest-

©International Monetary Fund. Not for Redistribution GOVERNOR FOR TANZANIA 153 ment climate by having legislation to give protection to foreign investment by certain guarantees. Also, I hope to recommend to my Government to accede to the Convention on the Settlement of Investment Disputes and other similar arrangements. As Mr. Schweitzer said, world confidence will be greatly strengthened if it becomes possible for the members to agree on a system of deliberate reserve creation judiciously geared to a healthy growth of world economy. As representing a developing country, I want to share this confidence. Indeed I need it more than even the developed countries do, and I imagine many coun- tries in a position similar to Tanzania feel the same way. We all want to feel confident in a truly international monetary system. How do we do this? How do we feel this confidence in our bones? Mr. Schweitzer has observed that, in recent years, the industrial- ized countries, or some of them at any rate, have placed more emphasis on monetary policies than on fiscal measures to meet their problems. Quite instinctively, but not only instinctively, I share this view. I believe he is nearer the truth than otherwise. Proceeding from here we find ourselves catapulted into a world dialogue on international liquidity. A need is felt for the deliberate creation of international reserve units to supplement the present system. If I recognize one thing about it, it is that we are to pursue a certain monetary policy on the international plane. And I ask myself this question: as a small developing country, a poor country if you wish to call it, what are the likely effects of a delib- erate international monetary policy on the prospects of the peasant I represent here? Given the infinitely greater intensity of exchange of goods and services between the various rich industrialized countries, will this deliberate international policy not create a greater economic buoyancy in the advanced part of the world in comparison with my own and similar parts of the world? One industrialized country will exchange its aircraft for another's com- puter; an advanced country will exchange exotic perfumery for the latest electronic gadget. All this will establish values of vari- ous products of the industrialized world in terms of monetary units through a process which will have its logic, and in this logic will be caught the price of equipment which the peasant in my country

©International Monetary Fund. Not for Redistribution 154 SUMMARY PROCEEDINGS, 1966 will continue to need and for which he will continue to have to exchange his produce. In the end, will all this mean that we in our part of the world must run even faster than we do now to stand still or in order to take a slow walk? Perhaps the reason why monetary rather than fiscal policy prevailed in some important places is because political reality asserted itself in that way. Perhaps on the international scale, too, political realities are driving us now to emphasize the need for further monetary policy in the international context. I really do not know; I can only guess. But if this is the case, the burden and responsibility which Mr. Schweitzer and Mr. Woods are asked to bear are very heavy indeed. They are heavy enough for every one of us present here to say more than just "Good luck" to these gentlemen, because it is our own generation which is now involved. Not long ago, people talked about future generations paying the price or reaping the benefits of previous actions, but in this super- sonic age we overtake our own noise. If a deliberate creation of additional monetary reserves is inev- itable, it had better be created under the full glare and scrutiny of Mr. Schweitzer and his team of experts. It must be the product of true research and understanding of the crisis the world is facing today in this age of technology, which, among other things, sucks in through the computer the sweat and the toil of the peasant farmer in Africa and Asia. It must be made the business of the Interna- tional Monetary Fund. And if Mr. Schweitzer's gentle strictures to the industrialized world have validity, then his advocacy of a fiscal policy is equally valid. And on the international plane, what can it mean but a deliberate transfer of resources through the instrumentality of Mr. Woods, just as deliberate as the creation of an additional monetary unit and to be executed in the same breath. Even without the deliberate creation of an international monetary unit, the world needs a deliberate transfer of resources to meet the almost automatic operation of technological forces taking place between the developed countries with their total impact on the developing world. If Mr. Schweitzer embodies the circulatory system of the world, Mr. Woods is sustaining its muscles. Perhaps some part of these

©International Monetary Fund. Not for Redistribution GOVERNOR FOR PARAGUAY 155 muscles, such as the IFC, needs to be made more flexible, and here I fully agree with the Governors from Jamaica, Yugoslavia, and Trinidad and Tobago that a major reorientation is necessary. Mr. Woods must be given the fullest support, and more if it is possible, in his plea for a significant replenishment of IDA funds. This is not a plea in the selfish interest of the developing world; it is in the interest of world sanity and order, even if we were not talking today of deliberate creation of an additional monetary unit. But we are on our way to creating it. I leave it to those who have the power to ask themselves if they can also match their power with their will to establish a true balance and order in the scheme of things. Some of us may feel helpless but we are not dead yet. We would rather live than die, and there are no more promising institutions than the International Monetary Fund and the World Bank through which to meet the challenge which the world faces ahead of it. Let us heed the voice of that fine world statesman, Senator Ful- bright, in his plea for accelerated multilateral transfer of real resources and all that it implies in terms of capital funds, equitable prices, and interest rates. The urgency of the situation cannot be overstated.

STATEMENT BY THE GOVERNOR OF THE FUND FOR PARAGUAY

Cesar Barrientos

I have the great honor to represent my country, Paraguay, at this twenty-first meeting of Governors of the IMF, and in doing so I am inspired by the faith and confidence which my country has in this great institution. It was with great satisfaction that we read in the Report for the last fiscal year that the operations of our organization reached an unprecedented level both in the use of its resources and in net drawings. The financial position of the Fund has been strengthened still further as member countries have begun to pay their quota

©International Monetary Fund. Not for Redistribution 156 SUMMARY PROCEEDINGS, 1966 increases. The Report also shows that the Fund has taken deci- sions that are favorable to the developing countries, which gives us every cause for satisfaction. This is a fitting occasion to recall these words by Mr. Henry Morgenthau, Jr., before the U.S. Congress in March 1945: "One of the chief contributions to peace that the Bretton Woods program offers is that it will free the small and even the middle- sized nations from the danger of economic aggression by more powerful neighbors. The lesser nation will no longer be obliged to look to a single powerful country for monetary support or capital for development, and have to make dangerous political and eco- nomic concessions in the process. Political independence in the past has often proved to be a sham when economic independence did not go with it. "Under the Bretton Woods agreements both will be strengthened. The smaller countries can come to the international fund for monetary aid and to the world bank for reconstruction and devel- opment funds. Loans will be made without political strings and without forcing the borrower into unnatural or undesirable trade relationships." We sincerely believe that our institution, known today as the Center for International Financial Cooperation and representing 105 countries, has been able to meet in a common forum thanks to the good will, the sound sense, and the sincerity inspired by the desire to preserve the monetary stability of all member countries. Fortunately, today's issues are being debated within a context of institutional concepts and principles, which supports the view that we, as members, are all equally interested in strengthening the financial community to which we belong.

International Liquidity Paraguay, like other Latin American countries, is following with interest the studies made and the discussions held on the problem of international liquidity since 1963. It is acknowledged that the problem affects equally both the countries with strong currencies and those with weak currencies, which use the strong currencies

©International Monetary Fund. Not for Redistribution GOVERNOR FOR PARAGUAY 157 that are vital to the exchange of goods and services. For this reason alone we feel that the most suitable framework within which to debate this issue is that of the International Monetary Fund. In this area, we have also followed closely the apprehensions and principal suggestions that have emerged from the deliberations of the Group of Ten. We note with pleasure the progress being made in the discussions where the problems of all the Fund members are given equal consideration.

Compensatory Financing The mechanism instituted by the Fund in 1963 to assist member countries faced with balance of payments difficulties due to tem- porary shortfalls in their export earnings, known as the Compen- satory Financing of Export Fluctuations, is an extremely useful instrument for helping members whose need is greatest. Nonethe- less, there are some countries which feel that resort to this mechan- ism is governed by very rigid rules and that there must be alterna- tive means of obtaining resources to make up for serious shortfalls in export earnings. Accordingly, we heartily welcome the statement made by Mr. Schweitzer at the opening session to the effect that the Fund had decided to raise the limit of drawings to 50 per cent of quota. Paraguay has suffered, and still is suffering, from the decline in the prices of primary export products.

Exports and Balance of Trade I should now like to present a few short comments on some aspects of particular relevance within the general framework of my country's economy. Paraguay's over-all export trade expanded steadily in the period 1961-65. In 1961 exports were valued at $30.7 million (an increase of 13.7 per cent over the preceding year). Between 1962 and 1965 they recorded an average annual growth of $6.7 million, rising from $33.5 million in 1962 to $40.2 million in 1963 (an

©International Monetary Fund. Not for Redistribution 158 SUMMARY PROCEEDINGS, 1966 increase of 20 per cent). In 1964, the increase over the previous year's figures rose to 24 per cent, with total exports valued at $49.7 million, while in 1965 an increase of 15 per cent was achieved over 1964 and the total value of exports rose to $57.2 million. Reviewing the balance of trade over the last five years, it is seen that the annual growth rate of imports averaged 7.4 per cent, whereas exports recorded an average annual growth of 16.4 per cent, which was reflected in a strengthening of the country's purchasing power abroad. The increase in imports was largely accounted for by industrial equipment and the agricultural and livestock sectors; this trend is an essential requirement for accelerating economic and social development, a process which calls for, and will continue to require, imports of goods to meet the needs of the different plans and pro- grams that are prepared in this field.

Money Supply The money supply stands at 0 6,169 million. An increase in the supply in no way jeopardizes monetary stability, since it is amply justified by the increases recorded in the production of goods and the expansion of transactions.

International Monetary Reserves Last year's balance of trade situation played a decisive part in improving Paraguay's international monetary reserve position. At the end of December 1965 its reserves totaled $8,632,000, declin- ing in the first half of this year to $7,153,000.

Economic and Financial Situation The new stand-by agreement signed with the Fund for an amount of $7.5 million over the next 12 months will provide my country's Government with guarantees for its economic and social develop- ment plan and for the over-all progress of the country. I ask your indulgence while I refer to the IMF report prepared when the latest stand-by agreement was under consideration:

©International Monetary Fund. Not for Redistribution GOVERNOR FOR PARAGUAY 159

During 1965 Paraguay had achieved considerable progress in the field of economic development and financial equilibrium. The financial position of the Government improved, domestic activity expanded as a result of monetary stability, and revenues from exports—particularly meat—reached a record level thanks to increased production and high export prices. There was a substan- tial recovery in the country's international reserves, including the liquidation of earlier withdrawals of funds. Foreign exchange earnings this year have not been as high as in the corresponding period of 1965 owing to flood damage to the harvests in southern Paraguay and to low level of meat production and exports. The fiscal and monetary policies are aimed at restoring equilib- rium in the balance of payments, reorganizing the reserves, and reducing the level of amounts due but unpaid. Present reserves, although sufficient for immediate needs, are subject to seasonal pressures. The new stand-by credit provides the country with a secondary line of reserves on which it can draw immediately in the event of temporary difficulties. It is worth noting, however, that in the last five years Paraguay has made no drawings under stand-by arrangements with the Fund as the Central Bank's reserve position was such that the exchange needs of the market could be met. Revenues collected and deposited in the Treasury accounts totaled 04,786.2 million, against the estimate of 04,095.1 mil- lion, giving a surplus of 0 691 million on total collections, which is equivalent to 17 per cent of the appropriations provided for in fiscal 1965. Tax revenues in 1965 exceeded those of fiscal 1964 by 0 1,127.7 million. In the first half of this year collections outran budget projections by a total of 0 189.3 million. The increases recorded are closely linked to tax sources derived from foreign trade movements and the more effective application of laws affected by the tax reform in 1965. Paraguay's financial

©International Monetary Fund. Not for Redistribution 160 SUMMARY PROCEEDINGS, 1966 situation has shown a healthy development both in 1965 and the first half of 1966.

Economic Planning The work performed by the National Government to accelerate economic and social development has been very complex and vigorous. The objectives achieved are the result of the action, based on moral and social values, of the Paraguayan Government and people, on whose will and determination Paraguay's policy of development and progress depends. The Government's programs now make possible the orientation of its action in accordance with a well-defined economic policy coordinated with the sector of private initiative. The First Two- Year Plan (1965-66) instituted by the Government pinpointed the weak points in the national economy with great accuracy and skill. The Second Two-Year Plan (1967-68) improves the bases established in the preceding plan and sets concrete objectives and targets designed to achieve appropriate solutions of the various problems inherent in the process of economic development. In recent years a large part of public sector investment has been channeled into the expansion and strengthening of infrastructure works, including the construction of a major road network and a hydroelectric plant at a cost of $30 million, which will be a major source of power and an important factor in national development and integration.

Tax Reform The decision to go ahead with the tax reform program must be added to the points discussed. This decision proposes to cover gradually the entire tax system of Paraguay in its legal and admin- istrative aspects, in order to introduce amendments which will promote more equitable taxation, a more suitable climate for sav- ings and investment, and larger revenues for the State. The observations made in this statement have shown, along general lines, the achievements of a peace-loving Government

©International Monetary Fund. Not for Redistribution GOVERNOR FOR PARAGUAY 161 which, with its productive work, is leading the Paraguayan nation along the path of progress and well-being. On behalf of the Paraguayan Delegation, I wish to thank the Government and people of the United States most sincerely for having provided us with the opportunity to hold our twenty-first meeting in this ever beautiful city of Washington. I also wish to express on behalf of my Delegation our best wishes for the increasing progress of the brotherhood of nations rep- resented here at this major event, and the thanks of my country to the Managing Director and Chairman of the Board, the Execu- tive Directors, and other officers of the IMF for the collaboration we have always received.

©International Monetary Fund. Not for Redistribution DISCUSSION OF FUND POLICY BY GOVERNORS AT RANK, IFC, AND IDA SESSIONl STATEMENT BY THE GOVERNOR OF THE BANK FOR PAKISTAN

N. M. Uquaili

I would like to join my fellow Governors in congratulating the management of the Fund and the Bank on the completion of 20 years of their successful operations. Both the institutions have now come of age and are geared to better serve the objectives for which they were established 20 years ago. . . . As regards international liquidity, the Deputies of the Group of Ten have now for some time studied this problem in collaboration with the IMF. So have the Ministers of these countries. The need for such reserves is likely to arise. The second stage is now set for working out a contingency plan which could be implemented as and when the need should arise. It is logical, therefore, as a first step toward this second stage that the International Monetary Fund should continue to make intensive study of this problem. We welcome the proposal that the International Monetary Fund should provide the necessary assistance and, in consultation with all con- cerned, formulate proposals for consideration at the next Annual Meetings. It is appreciated that in the formulation of such a reserve plan, the Group of Ten have a special place, but it must be understood that the stake of the developing countries is by no means insignificant. . . . 1 September 29, 1966.

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©International Monetary Fund. Not for Redistribution GOVERNOR FOR MAURITANIA 163 STATEMENT BY THE TEMPORARY ALTERNATE GOVERNOR OF THE FUND AND BANK FOR THE UNITED STATES

George W. Ball

... I must say one word at this point concerning the balance of payments of donor countries and its effect on aid transfer arrangements. Certainly it would be unwise to add to the mounting debt burden of borrowing countries; but it could be equally unwise to increase the balance of payments drain on donor nations in external deficit. Such nations can be expected to transfer real resources—the industrial materials, the capital equipment, and the services that the developing countries need; and they can be expected to effect an increased part of this transfer through the World Bank Group. But no nation, when it is confronted with a serious balance of pay- ments deficit, can afford to see the funds it transfers work their way through the international monetary circuit and end up in a gold drain, an increase in its payments deficit—and ultimately pressure to adopt restrictive domestic policies. Surely aid transfers should not be so managed as to result in contraction of world liquidity and world output. The contrary should be the case. . . .

STATEMENT BY THE GOVERNOR OF THE FUND FOR MAURITANIA Mohamed Salem Ould M'Khaitirat I have the honor to speak on behalf of the seven countries of the West African Monetary Union (Dahomey, Ivory Coast, Upper Volta, Togo, Niger, Mauritania, and Senegal). On behalf of these countries, I should like to congratulate the President of the Bank, Mr. Woods, and the Managing Director of the Fund, Mr. Schweitzer, for their reports on the activities of their institutions during the past fiscal year. I should like to invite this twenty-first Annual Meeting, more urgently than those that have preceded it, to give thought to the

©International Monetary Fund. Not for Redistribution 164 SUMMARY PROCEEDINGS, 1966 burning issue of our time: the living standards of the proletarian nations. Rather than preoccupying itself with the conquest of space, the international community should make it its first concern to reduce the intolerable gap between the standard of living of the industrialized countries and that of the underdeveloped coun- tries. There is nothing more urgent than the need to create the conditions necessary for the rapid development of the underprivi- leged countries. The World Bank Group and the International Monetary Fund are devoting sober and praiseworthy efforts toward the financing of the development of the countries of the Third World. The record of the past fiscal year of the Fund and the Bank bears witness to the vitality of the Bretton Woods institutions, to their willingness to adapt to and understand the complex and delicate problems posed by the financial assistance given to the developing countries to ensure their economic growth. These fruitful and arduous endeavors are due both to President Woods' imaginative management and to the wise and enlightened boldness of the Managing Director of the Fund, Mr. Schweitzer. The Convention on the Settlement of Investment Disputes has come successfully into being, while the Fund is delving even more deeply into the establishment of the mechanism for compensatory financing and the study of international liquidity. With regard to this problem of international liquidity, and with- out entering into debate that is far from being concluded, we think that the solution to this problem is a matter of concern to all the member countries of our institutions, whether poor or developed; this solution should be sought within the sphere of action of the International Monetary Fund. Our African countries, in particular, need funds with which to face their many development problems. In our opinion, the indus- trialized countries which have the heaviest responsibilities must not allow themselves to proceed, at the risk of a generalized eco- nomic disequilibrium, to an unconsidered creation of additional liquidities. Our African difficulties will not be given any effective

©International Monetary Fund. Not for Redistribution GOVERNOR FOR PARAGUAY 165 definitive solution by means of an exclusively monetary policy, the consequences of which cannot be foreseen. Without ignoring the importance of compensatory financing, we still think that it is not the perfect answer to the distortions in our economies which are chiefly structural. The peculiar situation of the States of the West African Monetary Union shelters them to a large extent from balance of payments difficulties, but it does not relieve them of the necessity for strict management of their public finances and a sustained effort to increase their production. . . . Foreign aid must, in fact, take the form of international coopera- tive action to stabilize the prices of our primary products and to organize the world markets for those products. The Trade and Development Conference has already raised the alarm and has stated the problem in all its gravity and stark reality. Are the Geneva resolutions of 1964 to remain a dead letter? You indus- trialized countries, the world awaits your reply! The World Bank Group and the Fund are well enough aware of the essential development problems with which we are grappling; the developed countries are aware of the misery of the Third World; the time has come, therefore, to give an answer to the hopes and aspirations of the poor countries. Tomorrow will be too late.

STATEMENT BY THE GOVERNOR OF THE BANK FOR PARAGUAY

Cesar Romeo Acosta

The Governors of Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, El Salvador, Guate- mala, Haiti, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, the Philippines, Uruguay, and Venezuela have done me the honor of asking me to speak on their behalf. . . . Balance of payments surpluses in some countries presuppose deficits in others, and to this we would add that it is the responsi- bility of the powerful countries with balance of payments sur- pluses to liberalize trade practices and to assume a greater role in foreign aid, thereby helping to restore greater equilibrium. The

©International Monetary Fund. Not for Redistribution 166 SUMMARY PROCEEDINGS, 1966 suggestion of the Governor for France regarding the stabilization of prices of primary products holds undoubted advantages, despite the difficulties of achieving such stabilization through inter- national agreements. For this very reason, it is important to emphasize the need for the surplus countries to raise the level of their medium-term and long-term capital assistance to the develop- ing countries, either directly or through the international lending agencies. We think that support should also be available through the so-called supplementary financing scheme, so that unforeseen shortfalls in export revenues may not prejudice the developing countries' systematic efforts for economic development. Another serious imbalance affecting developing countries is the unfavorable trend in the terms of trade, to which attention has been drawn in a number of discussions on the subject. In the decade 1953-63, the volume of trade in primary products increased by 5.3 per cent and that in manufactured goods by 6.8 per cent, whereas prices of primary products fell by about 4 per cent, against an increase of 8 per cent in the prices of manufactured goods. According to the United Nations, this entailed a 10 per cent loss for the nonindustrial nations. . . .

STATEMENT BY THE GOVERNOR OF THE BANK FOR GUYANA

P. S. d'Aguiar

Mr. Chairman, fellow Governors, I thank you for the kind words expressed in welcoming Guyana as a member of the Fund and the Bank. It was a proud moment for me when, on Monday, I signed the Articles of Agreement and Guyana became the one hundred and fifth member of the Fund and the Bank. In Guyana we are striving for full employment and a better standard of life for our people. In order to achieve this we must make more effective use of our natural assets. Our land is as big as Great Britain and yet has a population of less than three quarters of a million people. Less than 1 per cent of our land is developed. To develop only 5 per cent would bring into use ten times as much land as is used now. Not only would this create full employment

©International Monetary Fund. Not for Redistribution GOVERNOR FOR GUYANA 167 for our people but it would create the opportunity for migration to our country. In a world where many countries are overpopulated, there seems to me to be special merit in developing an underpopu- lated one. What we plan to do will require much effort on our part and much assistance from others. We take our place as members of these international institutions with the expectation that they will help us to achieve our aims. With the help of these institutions, and with the help of our traditional friends in this hemisphere of which we are a part—the United States of America jand Canada—and with the continued and generous help of the United Kingdom, we expect to maintain stability and to achieve a better life for all in Guyana. Underdeveloped countries, such as Guyana, cannot hope to save enough of their small incomes to support a level of investment sufficient to produce a satisfactory rate of economic growth. They need capital from outside. A large part of our investment has to be directed to infrastruc- ture development, which in the short run neither adds to our exports nor reduces our imports. The effort to accelerate the pace of development in countries like ours inevitably increases the pres- sure of internal demand, which in our circumstances is to a large extent demand for imported consumer goods. There is need to pay more attention to this particular aspect of the investment pro- cess in developing countries like ours. Foreign aid which is given to finance imports of specific capital goods does not help to solve this problem. It is true that the Fund stands ready to help the developing countries once they find them- selves in difficulties. But it seems desirable, that, as part of the investment planning, and apart from the present stand-by arrange- ments with the Fund, aid which is designed'to meet the ensuing requirements for additional foreign exchange should be made available in the form of soft loans which are not tied to particular projects. I support the proposals for the replenishing of IDA. May I join in congratulating the Bank and the Fund on attain- ing their twentieth anniversary. Much has been achieved in the

©International Monetary Fund. Not for Redistribution 168 SUMMARY PROCEEDINGS, 1966 past. Judging from past achievements, and present careful prepa- rations to meet future problems, I confidently anticipate further progress for the great benefit of the developing nations of the free world in the next two decades. . . . You, Mr. Chairman, have said, "The poor and the rich (coun- tries) are both represented in this hall today. Let me ask them both to consider what more can be done in the years to come to attain the common goal which has gathered us together." I think that poor countries like ours can well ask: what more can we do to help ourselves? I think there is much more we can do to inspire more energy and effort in our people; we need to train more tech- nicians; we need to make our agriculture more efficient; we need to make more productive use of the capital we get. It has been said time and again that there is need for more capi- tal for poor countries; that interest rates are too high; that prices of basic materials fluctuate too much. These are problems that confront Guyana as well as other developing countries. If capital is in short supply it is tragic when any part of it is lost on projects which are not productive. We can help ourselves best if we ensure that there is no wastage of capital, and thus in the long run we will also help other developing countries by adding to, rather than diminishing, the general supply of capital. In seeking more capital, better rates of interest, and stable price agreements, we do so with the determination that we will play our part in making effective use of capital, and thus play a small, but I hope useful, role in helping to improve things for ourselves and, in general, for the poor countries who are members of this great family of nations.

STATEMENT BY THE TEMPORARY ALTERNATE GOVERNOR OF THE BANK FOR SWEDEN

Krister Wickman

... It will clearly not be easy to attain the proposed figure for IDA replenishment of $1,000 million per year. Presumably, the biggest stumbling block will be the balance of payments difficulties,

©International Monetary Fund. Not for Redistribution GOVERNOR FOR ETHIOPIA 169 present or expected, which certain countries may consider an obsta- cle to assuming heavy commitments for untied assistance. One way of reducing this obstacle would be to grant countries in serious balance of payments difficulties, as evidenced, e.g., by outstanding IMF drawings in excess of gold tranche facilities, the possibility of deferring the payment of part of the contributions committed. . . .

STATEMENT BY THE GOVERNOR OF THE BANK FOR ETHIOPIA

Yilma Deressa

It gives me great pleasure to be here once again at the head- quarters of the Bank and the Fund, and to meet with the distin- guished economic and financial experts of the world assembled here. Permit me, Mr. Chairman, to join my colleagues in con- gratulating you upon your elevation to the tasks of the Chair; I would like to thank the President of the Bank and the Managing Director of the Fund for their enlightening annual speeches and their staffs for the excellent Annual Reports. I would like also to take this opportunity to welcome our new members. On this twenty-first annual gathering of the Bank and the Fund, we can look back on a two-decade record of creditable progress. Progress has been made in the fields of economic development, the growth of international trade, and the maintenance of stable currencies. . . . As regards the question of international liquidity and the reform of the international payments system, the opinion of my Delegation has not changed since I had occasion to state it last year: the deci- sion as to the type, magnitude, and distribution of the reserve asset to be created should not be confined to a small minority of the membership of the Fund, however significant in the spheres of international finance they may be. We have no objection to private studies on this question being conducted to supplement those of the Fund. But to take any actions based on these studies inde- pendently of the rest of the members of the Fund may contribute to the weakening of the authority of the Fund in the sphere for which it was originally created.

©International Monetary Fund. Not for Redistribution 170 SUMMARY PROCEEDINGS, 1966

STATEMENT BY THE GOVERNOR OF THE FUND AND BANK FOR UGANDA L. Kalule-Settala Mr. Chairman, I join my colleagues who have spoken before me in expressing my appreciation for your candid speech on prob- lems with which the proceedings of this year's meetings opened. I also wish to thank Mr. Schweitzer and Mr. Woods for their excellent speeches highlighting the achievements of the Fund and the Bank during the last 12 months, as well as some of the prob- lems that are yet to be solved. I would also like to express my appreciation to the Governor for the United States for his remarks on behalf of the U.S. Government in welcoming us to Washington once again. One of the most important events in East Africa since our last meeting has been the implementation of the three Governments' decisions, as stated by my fellow Governor for Kenya yesterday, to end one of the few remaining currency unions while at the same time maintaining the free trade area. These decisions have resulted in the establishment of three separate central banks and the appointment of a Ministerial Commission headed by Professor K. Philip of Denmark, whose terms of reference were to find ways and means of not only maintaining but also strengthening the free trade area. The Commission presented its report, which is now under urgent consideration by the three Governments. The continuation of the Common Market will make it essential for the three Govern- ments to consult each other in a wide field of their respective eco- nomic and monetary policies; it will make it necessary for the three central banks to coordinate their activities in many areas and to consult regularly. The desire for consultations has already been indicated by our respective Heads of State. These developments present to the three countries a new experiment and a challenge which will require a constant spirit of cooperation and of give and take. On our part in Uganda we are determined to meet this challenge and to make this experiment a success. The decision to launch a national currency was taken after very careful weighing of all aspects of the circumstances existing in East

©International Monetary Fund. Not for Redistribution GOVERNOR FOR UGANDA 171

Africa today. We are aware that this decision will impose upon us a great degree of financial discipline in the allocation of our scarce resources and will entail more often than not the greatest measures of economy. For we are determined to maintain mone- tary stability, without which real economic development is not possible. We would like to develop our central bank as a truly na- tional institution, but at the same time we are equally determined to have it respected and recognized by the international financial community. My Government is grateful for the assistance we have received from the Fund in setting up Uganda's central bank. My country shares most of the development problems touched upon by you, the President of the Bank, and the Managing Director of the Fund and other speakers. We are naturally therefore watch- ful of the steps that are being taken to solve them. We are faced with fluctuating export earnings for our major primary exports, such as coffee, cotton, and copper. During 1965 our coffee export proceeds fell by <£5 million, despite a 13 per cent increase in the quantity we exported. Although there was a 15 per cent increase in the amount of cotton exported in 1965 compared with 1964, the increase in our export proceeds amounted to only 6 per cent. These relative falls in exports were somewhat compensated for by in- creases in the export proceeds of copper, tea, and other products. However, these increases were not sufficient to compensate fully the great fall in the value of our coffee exports. With coffee account- ing for 50 per cent of our total export earnings and cotton for another 25 per cent, the dependence of Uganda on the world prices for these commodities can easily be seen. On the other hand, prices for imports have been rising, and the gap between our export receipts and import payments has tended to deepen. The instability and falling trend in prices for our exports and the rising trend in prices for our imports are seriously impeding a smooth flow of our economic development effort. My country would therefore con- tinue to press for solutions to these problems through international organizations such as the International Coffee Organization (ICO), the International Institute for Cotton (IIC), UNCTAD, the Fund, and the Bank. There is need to minimize deflationary effects of temporary shortfalls in developing countries' export earnings. To

©International Monetary Fund. Not for Redistribution 172 SUMMARY PROCEEDINGS, 1966 this end we welcome the improvements effected by the Board of the Fund in the compensatory financing scheme, although we would have preferred them to be bolder in respect of the amount that can be taken up and in respect of the terms on which it can be taken up. There is need to devise means of stabilizing prices and to provide supplementary finance to those countries suffering from falling export prices over long periods. We hope the Bank will soon finalize its studies in this respect and propose bold solutions to this real problem. . . .

STATEMENT BY THE GOVERNOR OF THE FUND AND BANK FOR LAOS

Sisouk Na Champassak

It is always with great interest and renewed pleasure that I take part in the Annual Meeting of Governors of the International Monetary Fund and the World Bank, two international financial agencies of the free world which have been entrusted with the worthy but delicate mission of endeavoring to promote interna- tional monetary cooperation, exchange stability, and the establish- ment of a multilateral system of payments, and with the further task—no less important—of extending aid and assistance to pro- mote the development of the underdeveloped countries. Laos, a small, underdeveloped country with a population of 3V2 million, is fully aware of the advantages it stands to derive from its membership in these two institutions, and no less aware of its reciprocal duties toward them. As a country that had a stable currency and adequate foreign exchange reserves when it joined, Laos was earnestly hoping that with the aid of these two institutions it would be able to undertake the development of its vast territory, exploit its tremendous natural resources, develop the bases of its economy, and raise the living standards of its people. Unfortunately, however, the sequence of serious political and military events, which has now continued virtually uninterrupted

©International Monetary Fund. Not for Redistribution GOVERNOR FOR LAOS 173 for almost 20 years—and particularly since 1960—within Laos itself and in the surrounding regions, with its inevitable aftermath, has gravely dampened this hope and caused the situation in my country to deteriorate so badly that all attempts to solve its difficulties proved unavailing. It was then that the Royal Government, faced with the grave threat of political and monetary collapse, decided to appeal to the highest authorities in the field of international finance. The monetary reform of December 1963, undertaken and carried through with the energetic assistance of the international monetary mission and a few friendly nations, has been an unqualified success. Thanks to a series of measures recommended and implemented by the International Monetary Fund and thanks to the courage shown by the Royal Government, we have been able to curb, and later halt, the inflationary process, stabilize both the currency and prices, create sound conditions favorable for launching the coun- try's economic and social development, kindle new hope, and restore the people's confidence in the Government of His Highness Prince Souvanna Phouma and in its policy of nonalignment. At the invitation of our Government, successive missions from the Monetary Fund have been able to take note of the progress achieved in the combined program of fiscal measures and rigorous implementation of budgetary controls. It is therefore with real happiness and a feeling of sincere appreciation that I express once again the warm thanks and grati- tude of the Royal Government and the Laotian people for the valuable assistance which the International Monetary Fund lent my country at a time when, swept up in a maelstrom of serious upheavals in Southeast Asia, its future as a sovereign state was in jeopardy. Our thanks also go to the governments of the countries which have directly and actively assisted Laos by supporting the work of the Fund mission. I should like to mention them by name: the United States of America, the United Kingdom, France, Japan, and Australia. Since 1964, the effective date of the monetary reform under the agreements signed with the governments contributing to the For-

©International Monetary Fund. Not for Redistribution 174 SUMMARY PROCEEDINGS, 1966 eign Exchange Operations Fund (FEOF), the Government has been striving unremittingly to carry out the policy it has defined, which aims at halting inflation, maintaining the stability of the currency and of prices, safeguarding the purchasing power of the people, achieving budgetary equilibrium, and meeting its public expenditures out of its own revenues: in short, at creating a climate conducive to economic recovery. The results achieved are promising. The currency has now remained stable for close to three years. Money supply has risen by only 10-15 per cent. The efforts that have been made in the field of taxation are bearing fruit in the form of a very substantial increase in tax revenues. In the period 1964-66 the cover per- centage of our expenditures rose from 20 to 35, but if we exclude military expenditures, which some consider out of proportion to Laos' resources, our revenues covered as much as 83.3 per cent of our public and police expenditures. All these outstanding achievements redound to the credit of the Royal Government, which rightly believes it is well on the way to financial and mone- tary rehabilitation. However, a cloud has appeared on the horizon, as the con- tributions to the FEOF—the key instrument for stabilizing the currency—have been prematurely exhausted. The Fund mission invited by our Government in May last concluded that it was absolutely essential to replenish FEOF's resources or risk complete collapse of the currency stabilization program, thus undoing the work of international cooperation into which so much effort and patience had gone. As Governor and Minister of Finance, I sent a cable on September 9, 1966 drawing the attention of the International Monetary Fund to the gravity of the situation and to the urgent need to replenish FEOF's resources in order to prevent our stabilization program from ending in failure, the grave consequences of which are obvious to all. ...

©International Monetary Fund. Not for Redistribution DISCUSSION OF FUND POLICY AT CLOSING JOINT SESSIONx STATEMENT BY THE GOVERNOR OF THE BANK FOR CHINA Ching-Yu Chen I wish to associate myself with other Governors in expressing our thanks to you, Mr. Chairman, and the management and staff of the Fund and Bank for their efficient handling of this Conference. On behalf of my Delegation, I also wish to thank the host country, the United States of America, for its generous hospitality. I also wish to extend our warm welcome to our new members since our last Annual Meeting. Both the Fund and the Bank have just completed 20 years of very successful operations. Through the years these two inter- national financial institutions have been led by men of great com- petence and dedication: they have earned the respect and confi- dence of the world of finance for their forward-looking policies and solid achievements. My Delegation extends its hearty congratula- tions to Mr. Schweitzer and Mr. Woods and best wishes for their continued success in the years to come. . . . Turning to the operations of the International Monetary Fund, we are pleased to note that its transactions reached a record figure in the year under review. With more resources available in the form of quota increases and renewal of the General Agreements to Borrow, the Fund has been able to provide credit to both developed and developing members. The stand-by arrangements, supported by consultations, have greatly strengthened the members' efforts to balance their international payments and foster more rapid economic growth. It has been pointed out in the Annual Report that the flow of long-term financial assistance to the less developed countries has 1 September 30, 1966. 175

©International Monetary Fund. Not for Redistribution 176 SUMMARY PROCEEDINGS, 1966 not been rising in spite of the continued and substantial rise in gross national product in the industrial countries. We strongly support the view voiced by Mr. Schweitzer that aid to the less developed countries should have high priority. The Executive Board is to be congratulated for focusing its atten- tion this past year on the question of international liquidity and creation of reserves. There has been general agreement that, if there is no increase in gold to official reserves and if there is reduc- tion in the availability of reserve currencies, deliberate creation of reserves will be necessary to accommodate the requirements of world trade. In this connection we share the view that the creation of reserves is the concern of every member of the Fund and that all should participate, with due safeguards, both in the distribution of newly created reserves and in the decisions on their creation, and that such creation should take place either through the Fund or through an affiliate of the Fund. It is hoped that, either by means of the creation of reserves or other improvements in existing inter- national monetary arrangements, the international payments system will function more effectively to meet the ever-expanding needs of trade and economic growth. More than one half of the Develop- ment Decade has elapsed and its goal is not yet in sight. It is, therefore, also hoped that the flow of aid to the developing coun- tries will not be hindered by an inadequate payments system. To this end, we strongly endorse the suggestion that the Executive Board of the Fund should consult with other groups or institutions in order to arrive at a broad international consensus on the creation of reserves.

STATEMENT BY THE GOVERNOR OF THE FUND AND BANK FOR ZAMBIA

A. N. L. Wina

It was exactly 12 months ago that I made my maiden speech in this same building on the occasion of my Government's joining

©International Monetary Fund. Not for Redistribution GOVERNOR FOR ZAMBIA 177 the Bank and the Fund, and I feel privileged to be afforded a similar opportunity today to address this distinguished audience. May I start my remarks by associating myself with the rest of the Governors in welcoming Singapore and Guyana as members of the Fund and the Bank, and we also look forward to the success- ful completion of the membership processes for the States of the Gambia and Indonesia and later, we hope, Botswana and Lesotho. I also wish to join my fellow Governors in paying the highest tribute to the International Monetary Fund and the International Bank for Reconstruction and Development and its affiliates for having had yet another year of distinguished achievements in their operations. There is no doubt that these outstanding accomplish- ments will further strengthen the economies of the member States and enhance international financial cooperation among countries, and I would like to wish them continued success. . . . Most, if not all, distinguished members gathered here must be aware of the difficulties Zambia is experiencing as a result of the Rhodesian unilateral declaration of independence. Zambia, together with many other countries of the world, was called upon to support the economic sanctions imposed by the British Govern- ment against Rhodesia. Although we realized that the effect on Zambia's economy would be more severe than on any other country, we did not hesitate to play our full part. To support sanctions, Zambia has greatly reduced imports from Rhodesia and imposed restrictions on payments to that country. Although I freely admit that strategic considerations have always demanded that Zambia should develop other supply routes, the speed with which this has now been undertaken has imposed a severe strain on our economy, as Zambia has been dependent on Rhodesian goods and communications to the sea through Rhodesia for more than 40 years. The strain might have been even greater had not immediate and generous assistance been received from many countries. For Zambia, the cost of these sanctions has been great in terms of budgetary provisions, deferment of implementing vital and over- due economic projects, rising costs, shortages and scarcities of materials, and inflationary pressures. We are, however, confident

©International Monetary Fund. Not for Redistribution 178 SUMMARY PROCEEDINGS, 1966 in the knowledge that all this is a price which we must necessarily pay to ensure that in the not too distant future we shall have earned a great and permanent independence for our economic welfare from this one source. I would like to turn now to the important question of inter- national liquidity and reserve creation. We have studied with interest the chapter in the Annual Report of the IMF and the Report of the Group of Ten. We regret the failure to arrive at concrete proposals for a solution to this problem, which we feel becomes more important each year. Although at the present time my own country is fortunate enough to enjoy a substantial balance of payments surplus and a strong currency, this is not the case with many other developing countries. My Government is committed to a program of balanced develop- ment in the years ahead to ensure for our people in Zambia, in the reasonable future, a higher standard of living, of health, of education, and of opportunity. But we fear that all our plans could be endangered by a move away from liberalization of trade and economic growth in the world, leading to a contraction in demand for our primary products. It is our belief that to safeguard stable exchange rates, which facilitate not only the movement of goods and services between countries but also long-term capital movements, definite conclusions need to be reached now on the problem of liquidity based on international agreement after mutual consultations under the aegis of the Fund. We do not approach this problem from the point of view of considering it to be a method of providing additional resources to the underdeveloped world alone. Much less do we look for a means to enable governments to expand their domestic money supply irrespective of real resources. Rather do we see it as a logical concomitant of fixed exchange rates, liberalization of trade, and high levels of growth and employment in every country. Disequilibrium in their balance of payments has led many industrialized countries to make adjustments in their internal economies despite the existence in their countries of unutilized capacities and the potential for greater growth. These adjustments

©International Monetary Fund. Not for Redistribution GOVERNOR FOR ZAMBIA 179 have retarded the growth in world demand for exports and, in particular, for exports from developing countries. In consequence, terms of trade have moved against these countries and their ability to finance development out of their own resources has been weakened. My view is, therefore, that steps should be taken to avoid these deflationary movements in countries which are the largest consumers of the goods of developing nations. We believe that aid, though important, cannot be a substitute for trade and for increased production; indeed, the need for aid only grows with the fall in the volume of trade. In this connection we welcome the increasing interest of the IMF in providing compensatory financing to meet fluctuations in the prices of primary commodities, but we should still prefer to see these facilities more immediately available on longer repayment terms. In urging upon you, Mr. Chairman, the need for reform in the international monetary sys- tem, I am mindful of the many difficulties in the path of progress. I am aware, for example, of the considerable arguments that have been advanced regarding the adequacy of the current level of reserves, the inflationary impact of increasing that level by artificial means, permissible time periods for adjustments in the balance of payments disequilibrium, and whether the responsibility for correction should fall on deficit countries alone or equally on sur- plus and deficit countries. I am also aware of the growing size of external imbalances and the increase in the volume of trade. I feel that the long-run prospects for trade should now be clearly examined in this context. Agreed plans must be ready for immedi- ate introduction to forestall an international trade crisis by expand- ing the world's liquidity through the creation of an acceptable reserve unit, with the normal safeguards that are required for such a unit. We recognize, of course, the work which has gone into the Report of the Ten. But forgive me for saying that my impression, on reading the Report, was of planning to overcome disaster when disaster is close upon us. We in Zambia think disaster must be forestalled by taking the initiative now. If agreement is first needed on whether a liquidity crisis is approaching, followed by all the delays in bringing a scheme into operation, the develop-

©International Monetary Fund. Not for Redistribution 180 SUMMARY PROCEEDINGS, 1966 ment plans of many countries will be in ruins long before action is taken, and nothing done subsequently will put the position right. The present-day reserve structure based on gold and key cur- rencies has inherent dangers for my country. We not only feel that, in submission to the discipline of gold, trade would necessarily be restricted, but that since a large proportion of our reserves are held in key currencies, any adjustment in these countries will adversely affect us. A restriction of trade, to achieve external balance, will lead to a fall in demand for our products; a devalu- ation will reduce the level of our savings. The creation of an inter- national reserve unit sooner rather than later will protect and prolong the expansion of world trade. To sum up, if we are to look ahead to a period of growth, full employment, and liberalization of trade—together with stability of exchange rates—ensuring rapid development of the world's economy with a minimum of restriction on both current and capital account, we believe that a solution to the problem of liquidity, both in relation to its current level and future growth, needs to be found now and to be brought into effect with the minimum of delay. Mr. Woods, during his speech, informed us of the great strides which developing countries have made in the sphere of developing per capita income, mining, power, and industrial production. That record is a testimony to the determination of the Africans, the Asians, the Caribbeans, and the Latin Americans to forge ahead in pursuit of better living standards enjoyed by others who are more privileged. The future of these important institutions, the Fund and the Bank, will be crucially determined by the extent to which they respond to these aspirations. It may well be that in the long run the future state of the world will be determined not by plans for nuclear disarmament but by the willingness and readiness of the developed countries and the international institu- tions to cooperate with the poor parts of the world in a practical and cooperative effort to promote better and comparable standards of living and opportunities for all so that man everywhere may be born to expect and to earn a life of happiness and of equality in opportunity.

©International Monetary Fund. Not for Redistribution GOVERNOR FOR SIERRA LEONE Igl

STATEMENT BY THE GOVERNOR OF THE FUND AND BANK FOR SIERRA LEONE

R. G. O. King

Mr. Chairman, I would like to associate my Delegation with the compliments which have already been paid to the staff of the Fund, and of the Bank and its affiliated institutions, and to con- gratulate you also on your election to direct this year's meetings. We are all concerned and heartened by the fact that there is such substantial unanimity in the speeches of the Chairman, the Manag- ing Director of the Fund, and the President of the Bank on the international economic problems. As you have stated quite rightly, the uncertainty of the world trade situation has created many problems for developing coun- tries. While the national products of the industrial countries con- tinue to rise, those of the developing countries are still deteriorat- ing. The IBRD/IMF calculations show that the 1965 export prices of industrial goods rose by 2.9 per cent, while those of developing countries rose by only 1 per cent. We would like to thank the International Monetary Fund for the good work which it is doing in connection with international liquidity, and we would like to endorse the recommendation for the creation of reserves as a concern for all countries. In this connection, Mr. Chairman, my Delegation would like to say that, since the problem of liquidity is so urgent to us all, it should now be removed to the International Monetary Fund for concrete action. Allied to this problem is the need also to draw up a detailed contingency plan as soon as possible, and we feel that all IMF members should participate in the unit that is created. There should also be universality in drawing rights. In your address, you drew attention also to the gloomy economic situation which you quite rightly felt does not reflect the pious hopes expressed some time ago when it was felt that the Develop- ment Decade should be one of increasing prosperity. The world economic situation will continue to cause some concern as the developed countries continue to advance rapidly at the expense

©International Monetary Fund. Not for Redistribution 182 SUMMARY PROCEEDINGS, 1966 of the developing countries. In this connection, therefore, we would like to appeal to the advanced countries who have surpluses but who carry no reserve responsibility to reduce their surpluses to enable deficit countries to correct their imbalances. You also drew attention to the rising rates of interest. This is of immediate import to developing countries. Early this year, the Sierra Leone Government was informed of the increase from 5l/2 per cent to 6 per cent in the rate of interest on all future Bank loans. On the request of the Sierra Leone Government our Execu- tive Director vigorously opposed this increase. I am here to reiterate that my Government is alarmed at the continuous increase in the rate of interest on loanable funds from international institutions. We are therefore appealing to the World Bank and to the Euro- pean and Canadian Governments to use their good offices for a reduction in the rate of interest; or, alternatively, that all develop- ing countries should qualify automatically for loans from IDA. While aid from the advanced countries continues to decrease, it is simultaneously becoming more difficult for us to even raise loans from them. It is gratifying to note, however, that Mr. Schweitzer and Mr. Woods also drew special attention to the problems of the rising rate of interest on loanable funds, inter- national liquidity, and the need for the industrial countries to remove barriers against manufactured and semimanufactured goods from developing countries. . . .

STATEMENT BY THE GOVERNOR OF THE FUND AND BANK FOR ALGERIA

Ahmed Kdid

First of all I want to associate myself with the words that have been spoken here in this forum in praise of the work that has been done in the past fiscal year by the International Monetary Fund and the World Bank and its affiliates. Algeria appreciates the action of these international financial institutions, the more so as it is deeply devoted to the principle of

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cooperation among nations, which it conceives to be the surest means of surmounting the evils, the difficulties, and the growing inequalities from which the great majority of nations suffer. If we consider the various problems facing these institutions, and, keeping to essentials, we attempt to determine which among the most important and the most persistent of these problems are the ones that were especially pressing at the end of the fiscal year, we perceive that there are two: the first is international liquidity; the second, the increasing difficulty of the IBRD and its affiliates to procure a sufficient volume of funds at rates that can be borne by weak economies. The second problem is particularly distressing to the countries of the Third World, like Algeria, which inherited the arduous task of developing their economies to provide their peoples with a simply human standard of living. At the same time we note, on a more general plane, that the relative value of development aid is diminishing, in comparison with the growth in the national product of the industrialized coun- tries, not to mention the fact that we may sometimes wonder whether the countries and agencies that take part in this aid always consider in practice the matter of the source of these diffi- culties and of the objective situation of the distressed peoples caught in tragic backwardness, in a world in which casual encounters between men provide the opportunity for observations that can only nurture disappointment, bitterness, and ultimately rebellion of the mind, with consequences that are easy to predict. It is of course the regularization of the primary products markets and a better distribution of international trade that are the measures most likely to provide the nonindustrialized coun- tries with the stable and increasing resources that are necessary to their development. The United Nations Conference on Trade and Development has studied at length the various facets of this problem, and Algeria is gratified that the work of that Conference induced the international financial institutions to resolve this year to extend and to liberalize the compensatory financing mechanism that the

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IMF introduced in February 1963. While it is obvious that such financing does not constitute "the solution," it is at least important in that it demonstrates that financial mechanisms can provide some relief for difficulties of which no one denies the existence or the disastrous effects on the underdeveloped countries. Moreover, if we examine the form taken by these financial measures we see that they are carried out by the International Monetary Fund; in other words, they are expressed by action through international liquidity. We observe, then, that this action is not incompatible with the structural nature of the problems of the Third World or with the nature of the operations that the funds so released are called upon to finance. Now, the fact is that these funds are intended to be used to finance economic development, since that is why the underdeveloped countries stress the irregularity of their export receipts which is an obstacle to their development efforts, though the continuity of these is a primary condition of efficiency. So it is now recognized that action through international liquidity can be taken with development financing especially in view. Such recognition has been reached within the Fund, where both the underdeveloped and industrialized countries are members and where the latter have the decisive voice in its deliberations, by reason of the present rules on voting. But now the industrialized countries, after having in the past in a sense monopolized the study of international liquidity, affirm that such liquidity cannot be used for development financing. As the joint statement issued on this matter by the recent meet- ing of the Ministers of Finance of the Group of Ten declares: "the growth of developing countries calls for specific measures, such as aid to investment and the various forms of technical cooperation and trade policy, and that such growth cannot be sought in the creation of additional liquidity." Such a declaration, in our opinion, can only be considered as a retreat from the present situation and the recent decision extending and liberalizing the system of compensatory financing, the very purpose of which is the regularization of the financing of economic development.

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I will state at once that Algeria freely admits that the growth of nonindustrialized countries cannot be financed exclusively by the creation of new international liquidity, but it believes that it is a mere a priori assumption that the creation of liquidity should not contribute to such growth. What sets us apart from the developed countries is the fact that they believe that a mechanism for the creation of international liquidity cannot be used to finance development, while, in our opinion, it is only the degree to which this mechanism can be resorted to that can be debated. It is therefore necessary to examine the substance of the reserva- tion expressed by the Group of Ten. We must first recall that the specific function of the IMF is the financing of deficits in the balance of payments. Now, the imports item of such a balance includes indiscriminately imports of consumption products, of primary products, and capital goods. A possible deficit in the balance may result from any one of these, so that the IMF, in practice, and even aside from compensatory financing, is already financing some investment; at the limit, the position of the Group of Ten would call into question the principles on which the Fund's intervening action is based. This would lead one to suppose that their attitude is an expression rather of cautiousness in the face of the enormous demands of development than the result of an objective analysis. On another level, the anathema thrown by the Group of Ten seems to me to have as its basis the old distinction according to which only short-term financing would be a monetary matter while the financing of investment is the business of nonmonetary agencies, which would exclude the IMF. I should like to say that this concept, on the macroeconomic level, is difficult to justify. In fact, it is the volume of over-all liquidity in relation to its possible uses that is important essentially, whatever the operations that produce the liquidity and whatever the term may be. As is now recognized within the framework of national econo- mies, investments financed by long-term obligations may, if there

©International Monetary Fund. Not for Redistribution 186 SUMMARY PROCEEDINGS, 1966 is full employment, have an inflationary effect that would not arise in a period of underemployment from a purely monetary financing of the same operations. The problem then is one of resources in real terms, not one relating to the source of the financial resources. Moreover, it is contingent in the sense that it is bound to the economic situation of the moment and not to the nature of the institutions providing the funds. To institutionalize distinctions which do not tally with economic reality would be to condemn the effectiveness of a system of financing. The foregoing is equally true on the international level. Even sums received as grants are likely to create inflationary stresses if they are spent where resources are already fully utilized. This is the case, all too familiar in the underdeveloped countries, of the inflationary effect of local expenditures financed with foreign aid. In the same way, in a situation of full employment elsewhere in the world, an IBRD loan granted out of funds derived from long-term obligations and used to finance imports of capital goods by an underdeveloped country will have the same inflationary effect in the supplier countries as if it were made directly from foreign monetary resources. In the last analysis, everything will depend on the formation in the rest of the world of real savings commensurate with the resources that will be used for making the investment. Conse- quently, monetary financing of investments is admissible as long as it remains within the limits of the real savings that it mobilizes. Within these limits, a country may very well finance—out of international liquidities created for the purpose—the supply of capital goods for development of nations suffering under an eco- nomic handicap. At a given time, of course, recourse to monetary sources may make it appear in the industrialized countries that such operations are likely to be, from the economic standpoint, in competition with the financing of domestic transactions. But that problem already exists. It is, moreover, subjected to the economic policy of these countries; and the choices which will be made will show whether

©International Monetary Fund. Not for Redistribution GOVERNOR FOR ALGERIA 187 or not the tragic urgency for developing the Third World has been taken into account. It is therefore not justifiable to exclude a priori the financing of development from the scope of mechanisms for the creation of international liquidity. On the contrary, such financing is perfectly admissible within certain limits. This conclusion, moreover, is the answer, at least in part, to the problem I raised at the beginning of my address: the growing difficulty for the World Bank and its affiliates in finding sufficient resources at reasonable rates of interest. Funds released by a monetary mechanism would, in fact, undoubtedly enable these institutions better to promote productive investment. Would it not be illogical, in this line of thought, to assume that the Monetary Fund could intervene to cover a balance of payments deficit arising from the importation of nonessential articles and to adopt a negative position if the cause of the deficit was the purchase of capital goods, which nevertheless pave the way for the appearance on the markets of new products at the disposal of the world. You will excuse me for having discussed at too great a length some aspects of the financing of economic development, within the framework of international liquidity. My justification is that this is a vital question which affects to an important extent the volume and cost of development resources. I have purposely limited myself to this question. It is obvious, in fact, that the work done in the course of the last year, although it may have clarified many technical matters, has done nothing to reconcile the fundamental divergence of opinion that has been expressed from the outset on this essential point. In any case, this divergence emerges in an extremely clear manner, from a simple comparison of the reports made respectively by the Group of Ten and by the Group of Experts appointed by the UN Conference on Trade and Development. Now this is a question of an absolutely a priori nature, since, on its solution will depend the whole structure of the system which must be worked out. This question must therefore be solved first.

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If we wish to give due regard to the spirit of international cooperation surrounding the creation of the Fund, it can only be settled by taking into account, without distinction, the situa- tion and the objective problems of all the countries which have adhered to it. Some of the present trends of thought in this respect do not allay all fears. That is why I have tried, for my modest part and on behalf of Algeria, to place the problem in the context of economic reality, above national interests that are sometimes difficult to reconcile; to place it, in fact, in the only perspective that is the legitimate concern of all of us—that of an authentically international development.

STATEMENT BY THE GOVERNOR OF THE FUND AND BANK FOR NIGERIA

A. A. Atta

I listened with very great interest to the annual addresses of the President of the World Bank Group and the Managing Director of the International Monetary Fund, and would like to join the speakers before me in commending them for their excellent Reports. The Reports are important not only because they constitute a record of 20 years of success in the field of development financing and aid, but because they touch on the important economic prob- lems of our time. . . . I would like to conclude this statement with a brief reference to the problem of international liquidity. We entirely endorse the view that, as a matter of urgency, a contingency plan should be prepared ready for discussion by the next meeting of the Inter- national Monetary Fund. The International Monetary Fund should be fully associated in the preparation of such a plan. In our view, those countries which are in surplus should draw on their reserves to assist countries which are now in deficit to reach equilibrium. With regard to the allocation of the additional reserves to be created, it is our view too that such allocation should be based on the principle of universality.

©International Monetary Fund. Not for Redistribution GOVERNOR FOR CEYLON 189 STATEMENT BY THE GOVERNOR OF THE FUND AND BANK FOR CEYLON

U. B. Wanninayake

As has been suggested I will combine my remarks on matters relating to both the Bank and the Fund in this single statement. Let me, first of all, convey to the managements of these institu- tions my warm appreciation of the valuable part that they have both played in assisting in the economic recovery of my country. With the support of a stand-by arrangement with the Fund we have administered a program of monetary and fiscal stabilization, and I am glad to be able to say that we have already succeeded in reversing some of the unfavorable trends in this field which have afflicted us for many years past. With the assistance of the Bank we mobilized external assistance from donor countries for the purpose of relieving acute scarcities in supplies and of speeding up the tempo of activity in the economy. Technical teams from the Bank have helped us review our programs and projects for long-term development. As a result of all this we are becoming increasingly prepared to take forward strides in the months and years ahead and know that we can count on the continued coopera- tion of the Fund and the Bank in these endeavors. I need hardly stress how desperately important it is, in the context of all these new developments in Ceylon, that the external environment be favorable to our efforts. There are already dark clouds which cause us much anxiety. The prices of our staple export commodities—tea, rubber, and coconut—have declined considerably in 1966. In our planning and in our budgeting we had anticipated some declines in prices. But the actual falls have exceeded our most pessimistic forecasts. We hope, of course, that these fluctuations will prove to be shortlived, but we are disap- pointed that our hopes cannot be buttressed by signs that interna- tional action is being taken toward stabilizing and supporting the prices of primary commodities. I can only add my voice to the many others we have heard here in expressing deep concern about the great international crisis that

©International Monetary Fund. Not for Redistribution 190 SUMMARY PROCEEDINGS, 1966 besets the question of aid for development. In past years, Ceylon did not benefit significantly from the rise in the international flow of aid. Ceylon is now embarking upon programs requiring addi- tional external resources just at a time when the international climate for the flow of assistance is worsening. We hope very much that these unfavorable trends which have emerged in recent times will be reversed. In this connection, I wish to pay a tribute to the Annual Reports of the Bank and the Fund and to the statements made at this forum by the heads of these institu- tions. . . . Turning now to matters of relevance to the Fund, I wish to com- ment briefly on two points: First, I must welcome the improvements that have been outlined to us in respect of the Fund's compensatory financing facility— although I have not had the opportunity of making a detailed study of the recent report on this question. In my statement last year I suggested that declines in the terms of trade, or possibly in the import power of exports, be made eligible for compensation under the facility. The Fund's study has analyzed this suggestion and has pointed out the practical difficulties in the way of giving effect to it at the present time. I hope, however, that the possibility will be kept under review. I do not think that the absence of a suitable index of import prices in many developing countries is an obstacle that is too formidable to be overcome. My second observation concerns international monetary reform. I am somewhat encouraged by the way in which the great debate on this question has evolved, and there is some prospect at least of a consensus being reached despite the many issues that still remain in the balance. I have always felt that the developing countries have an immediate and vital stake in this subject—not only because they would be affected by a shortage of liquidity in the developed countries but also because they themselves have a direct need for additional liquidity or reserves. I have felt therefore that they should not be bypassed in the debate on these issues. I attach cardinal importance to the principle of universality in any scheme for the creation of additional liquidity or for inter-

©International Monetary Fund. Not for Redistribution GOVERNOR FOR CENTRAL AFRICAN REPUBLIC 191 national monetary reform. I feel that it is not sufficient to recog- nize that developing countries must share in the distribution of additional reserves. It is also necessary to ensure that the tech- niques of reserve creation are consistent with the principle of universality and that they avoid any "dualism" which distinguishes between the rich and the poor. The preponderant interest of the developed countries in the liquidity question will surely be reflected in any objective criteria for the distribution of reserves in a uni- form system of reserve creation and in the decision-making processes of a body like the Fund. I must fully support the approach of the Managing Director on this issue. I feel that there has been some confusion on the question of the relationship between liquidity and aid to developing countries. I think that it should be clearly understood by all of us that the amount of additional reserve creation must be determined by the world's need for liquidity rather than by the need of the developing countries for aid. If suggestions are made which link the creation of liquidity to the flow of long-term resources for development, these must in no way detract from the primary objective of reserve creation. May I conclude by welcoming the proposal of the Managing Director for consultations in the months ahead between the Execu- tive Directors of the Fund and the Group of Ten as well as other groups. I hope that these talks will lead to a final consensus and that they will afford an opportunity for the views and interests of developing countries to be made known. I, for my part, will warmly welcome the formulation of an agreed contingency plan within the year ahead.

STATEMENT BY THE GOVERNOR OF THE FUND FOR THE CENTRAL AFRICAN REPUBLIC Alexandre Banza Allow me, in my first words on behalf of the Central African Delegation, to convey our warm thanks to the American Govern- ment and people for their kind and friendly hospitality. Next, we wish to express our special gratitude to all the Fund and Bank

©International Monetary Fund. Not for Redistribution 192 SUMMARY PROCEEDINGS, 1966 authorities and to all our colleagues in economic, financial, and other fields who have given their valuable time to the organization of this Annual Meeting. Meetings such as those that bring us together today are always memorable because it is the very rare occasion when the economic and financial policymakers of member countries meet, exchange views, and consult with one another on their problems, policies, and development programs. In the Central African Republic, it is the daily concern of my country to transform the rural sector into a source of power, the foundation of our economy. The main targets of my Govern- ment's economic policy are essentially geared to expansion of pro- duction and productivity, the development of stockbreeding, the cultivation of coffee, cotton, tobacco, oilseed, vegetables, etc. To achieve these targets, priority has been given to the naturally and potentially rich regions; preference has been given to integrated operations, and to the training of men to control and organize these operations. The exploitation of diamonds and gold by craftsmen and by industry, the discovery of a uranium deposit, etc., may open bright prospects for our country's economy. The efforts undertaken will be continued during the 4 years ahead, beginning in 1967, with an organized search for new mineral ores. In demanding severe sacrifices, with a discipline of iron— what we have called a regime of financial austerity—merely on the strength of objective reasoning and theoretical arguments, we realize, unfortunately, that this alone is not enough and could not be enough to satisfy us fully, because it is against nature and because scientific and technological advances, in a word, progress, are giving men everywhere proof that happiness can be found more cheaply. And what is the purpose of existence but to find happiness? It has clearly become indispensable and urgent to remedy the have-not situation in which the Third World is submerged. We cannot give too much emphasis to this matter, for it is no longer possible to allow our state of underdevelopment, this source of

©International Monetary Fund. Not for Redistribution GOVERNOR FOR LIBYA 193 unrest and instability, this hotbed of dissatisfactions of all kinds to continue. In Africa, in particular, what has been going on for the 81 years since the act partitioning this continent among the colonial powers was signed in Berlin in 1885? The following basic truths have constantly been disregarded: Even if capital is lacking, the soil and subsoil of Africa abound in potential wealth. Who can gainsay it? Moreover, because of its climate, only Africa can provide the temperate zones of the world with certain products. This is tirelessly repeated in order finally to convince everyone. But what is most needed is to get the industrialized countries to realize it in time and give the African countries as direct and as cheap an outlet to the sea as possible, whence arises the need for ports and heavy-traffic railroads to link areas of production with the ports; this is the problem of the Central African Republic, a perfect example of a continental country which is trying desperately to put through its sole project, a railroad from Bangui to M'Balmayo: it is, moreover, the problem of preparing and processing products at the places where they are produced, in order to reduce as far as possible the volume and weight of products to be exported and thus increase their value. . . . Another problem, lastly, is that of the use of French as a working language. It is often noted that the French version of the Bank's Annual Report is delivered to the Delegations in Washing- ton, sometimes during the course of the meetings. This is odd, because our statements at the joint meetings should be based on this Report. If our presence at the meetings is to be of any use to our countries, recognition should be given to a working instrument which we are accustomed to use.

STATEMENT BY THE GOVERNOR OF THE FUND FOR LIBYA

Khalil Bennani

It is a great pleasure and honor for me to address the twenty- first Annual Meeting of the Board of Governors of the Fund and

©International Monetary Fund. Not for Redistribution 194 SUMMARY PROCEEDINGS, 1966 the Bank and its affiliates, IFC and IDA. I wish to associate myself with those who have welcomed the new members who are attending our meetings for the first time, and with the congratula- tions expressed to you, Mr. Chairman, on your able direction of our discussion. On behalf of the Government of the Kingdom of Libya, I wish also to congratulate the Fund and the Bank Group on their remarkable achievements during the fiscal year 1965/66. We in Libya have been following with interest recent discus- sions on the subject of international liquidity, in general, and its relationship to the provision of development finance, in particular. We also earnestly believe that both the industrialized and develop- ing countries should participate in the discussions on this subject. In this connection, we endorse the views of some fellow Governors who have supported the propositions put forward in this respect by Mr. Schweitzer in his valuable and detailed speech at our present session. We also share both their hope and interest in bringing home a feasible plan looking toward a satisfactory reform of the present international monetary system. In view of the absence of medium-term and long-term financing in most develop- ing countries, we should like to support the proposition that, in any such reform, there should, in particular, be a link between the creation of international liquidity and the provision of develop- ment financing, which would involve a long-term movement of real resources from more developed to less developed countries. In order to safeguard their interests, the developing countries should take a common position on the proposed reforms of the present system. Unfortunately, however, only a few developing countries so far have succeeded in setting up consultative machinery to discuss their views on this problem. At present it appears as if there is uncertainty as to whether what is good for some coun- tries can be equally good for the rest. Therefore, we would recom- mend that efforts should be made by these countries, the UN regional Economic Commissions, and the IMF to organize such a consultative mechanism as soon as possible. If these efforts succeed, we trust that their result will be more cooperation and understanding in the areas of both payments and policy coordi- nation.

©International Monetary Fund. Not for Redistribution GOVERNOR FOR BURUNDI 195

We pay special attention to the valuable role played by the World Bank in the supply of development finance which has contributed to the growth of economies of many member countries. Equally important, however, is the extension of technical assistance programs of the World Bank and the Fund to the developing coun- tries which, for reasons and causes too obvious to mention, are in vital need of it. We feel that technical know-how is a pre- requisite to the proper and fruitful utilization of any capital investments. Finally, we wish both the Fund and the World Bank and its affiliates every success in their efforts aiming at a stable and pros- perous international economy.

STATEMENT BY THE GOVERNOR OF THE BANK FOR BURUNDI

Eric Manirakiza

Like all the speakers who have preceded me, and as the Annual Reports show, we must congratulate the Managing Director of the IMF, Mr. Pierre-Paul Schweitzer, and the President of the World Bank Group, Mr. George Woods, for the work they have again accomplished within the framework of these important insti- tutions toward increasing and strengthening international financial cooperation. For almost two years Burundi has been committed to the goal of financial stability. The International Monetary Fund has pro- vided and is still providing essential technical and financial assist- ance for this stabilization program, the indispensable basis of the long-term development policy undertaken by our Government. In this connection, we note with satisfaction the action of the IMF, for we are able to say that since we have called upon it we have received all the support it could give us under the Articles of Agreement. Our country has no intention of departing from the strict and orderly management of its affairs by which it is now characterized. As to more general problems such as international liquidity and reserve creation, Burundi concurs with the generally accepted

©International Monetary Fund. Not for Redistribution 196 SUMMARY PROCEEDINGS, 1966 view that the study of this question should be continued within the framework of a commission composed of the Group of Ten and the Executive Directors of the Fund. As to the distribution of the reserves to be created, the pro- posal made by a group of experts reporting to the Board of UNCTAD and mentioned on page 22 of the Fund's Annual Report for 1966 2 should not be brushed aside. It might be considered in combination with the criterion of quotas of Fund member countries. A colleague raised a question on liquidity at a limited meeting, to the obvious surprise of those present, since problems involving only the World Bank were being discussed at the time. The under- developed countries, with independent currencies and having essen- tially structural balance of payments deficits, cannot eliminate these deficits and build up foreign exchange reserves on a permanent basis without substantial assistance from the World Bank Group, the principal multilateral source of long-term capital. The Delegation of Burundi considers, as does the majority of countries represented at this august assembly, that a revision of the geographic distribution of IDA's funds should be contemplated. Naturally, it welcomes any initiative aiming at increasing the resources available to this agency. Burundi also supports the proposal of the Governor for France for the establishment of an organization for stabilizing commodity prices. These are the few observations it has seemed useful to us to make during the present session.

STATEMENT BY THE GOVERNOR OF THE BANK FOR THE UNITED ARAB REPUBLIC

Nazih Ahmed Dei]

Among the most gratifying rewards of attending the Fund's and the Bank's Annual Meetings is the opportunity to express and to repeat in person sincere appreciation for the able management of 2 French version; page 16 of the English version.

©International Monetary Fund. Not for Redistribution GOVERNOR FOR UNITED ARAB REPUBLIC 197 both institutions which has been sustained at such a high level throughout the years. The efficiency of the international monetary and financial system is, however, dependent on something more complicated than the straightforward operations of efficient management. The principles upon which this system is based must be flexible and capable of progressing with the development of human knowledge and experi- ence. This beneficial flexibility would not be possible unless the international community liberates itself from restrictive conven- tionality. The members of the Fund, as well as various other financial institutions, should be more receptive than they have hitherto been to new ideas in economic and monetary thought. Receptivity, it can be said, has somewhat improved over the past two decades, but there are still some important grievances which ought to be voiced in this respect. But before turning to these, I would like, first, to convey to the heads of our institu- tions our appreciation for their clear and stimulating opening addresses in which they gave, as usual, penetrating reviews of the world economic, financial, and monetary developments since we met here last September. I wish, also, to pay tribute to the Executive Directors for their comprehensive and interesting Annual Reports, in which they have devoted much attention to the prob- lems of developing countries based on consultations with member countries and experiences with the progress of programs and policies. Furthermore, I wish to express my appreciation of the chapter in the Fund's Report dealing with international liquidity and reserve creation which indicates a continuing preoccupation with this vital issue, and I shall direct my following remarks first to this most topical subject. To start with, it is unfortunate to note that in some important quarters international liquidity is still considered to be primarily a problem of the developed countries. To my mind, this attitude actually confuses two aspects of the problem. The first is con- cerned with the reform so obviously needed with regard to the technique of issuing reserve currencies as international money. Naturally, this part of the problem, though important for the whole world community, is especially important for the developed

©International Monetary Fund. Not for Redistribution 198 SUMMARY PROCEEDINGS, 1966 countries which are either holders of reserve currencies or creators of such currencies. This is not, however, a problem of shortage of international liquidity, but rather a problem of capital move- ments which can adversely affect the countries which issue and redeem reserve currencies and hence can jeopardize the whole of the international monetary system. The policies of the Group of Ten and the swap arrangements can temporarily minimize such jeopardy but cannot provide a fundamental solution to the prob- lem. The second aspect of the problem of international liquidity is concerned with the shortage of international money supply relative to the growing needs of international transactions. Undoubt- edly, this shortage is also affected by the first aspect, but it has also its own independent features directly related to the needs of the developing countries. These countries are anxious to increase their imports from the developed countries within the framework of their economic development programs, but are unable to do so since the outflow of capital from the developed countries is not forthcoming in sufficient volume. At the same time, the developed countries' capacity to export is not fully util- ized, and in certain fields surpluses of output are being accumulated. The question of how much international liquidity is needed should not overshadow the other question of who is really in need of such liquidity. If we consider the current needs of the developed coun- tries alone, there would be a strong case for those who claim that there is no shortage of international liquidity. But if we adopt the wider view of considering the expanding needs of all countries, we would then see the problem of international liquidity in its true perspective. The Group of Ten's limited policies have tended to reflect, I am sorry to say, the more parochial view. Fortunately, some measure of change in this attitude has materialized from the Group's meeting in The Hague in July last, as the majority of its members at last decided to modify their ideas somewhat. I believe it is in the interest of all parties concerned that inter- national effective demand should be strengthened by the creation of sufficient international fiduciary money with the flexibility necessary for meeting the requirements of international trade. The fear of plunging into a state of international monetary inflation is somewhat exaggerated, since nobody is suggesting that such

©International Monetary Fund. Not for Redistribution GOVERNOR FOR UNITED ARAB REPUBLIC 199 international fiduciary money should be issued without sensible controls. Whichever way we may look at the problem of international liquidity, we should ask ourselves the question: what practical measures have we taken to reach a fundamental solution? I feel that our progress in this field has been too slow and hitherto ineffec- tive, and this is seen to be true even after we take a look at the statement on international liquidity issued by the Ministers and Governors of the Group of Ten at the conclusion of The Hague meeting. Secondly, it is only fair to mention that political considerations seem to continue to have the upper hand in determining the size and direction of the international flow of capital. This often results in depriving successful development experiments of sorely needed capital and, at the same time, in directing a substantial portion of international aid and loans to uneconomic ends. Realism bars us from expecting an immediate end to this conflict of interests, but we think that a genuinely international community should regard success in economic development as an achievement as worthy of support as any other political objective. The third grievance which I would like to voice concerns the fact that the developing countries often meet with a blatant contra- diction between what the theory of economic development teaches and what monetary institutions follow in practice. Economic theory is unanimous that the developing countries are apt to incur deficits in their balances of payments if they are really going to develop. It is also indisputable that such deficits are not short term but will last for some time, as has been in the past the experience of most of the countries which are now highly developed. We would like to see monetary institutions giving ample weight to this part of accepted economic theory instead of letting undue concern about balance of payments deficits defeat economic development pur- poses. Caution should not be abandoned but it should be used in ascertaining whether the deficits incurred in the payment balances of the developing countries are genuinely contributing to these countries' rates of growth. On the other hand, it has been noticed

©International Monetary Fund. Not for Redistribution 200 SUMMARY PROCEEDINGS, 1966 that, when dealing with another symptom of a deficient balance of payments, namely, the relevant rate of exchange, drastic meas- ures are sometimes dictated, irrespective of the exigencies of local conditions in the member country concerned. Indeed, we should now dare to expect that the Fund, its man- agement, and its Directors would be able to serve the purposes of our institution, while at the same time giving due regard to par- ticular considerations prevailing in member countries. As an example, a situation which, on sheer technical grounds, may require a certain dose of devaluation, may also be put right, if the treatment, instead of being applied all at once, is phased according to the response of the malady to that treatment. A member country that is tied to many friendly bilateral agreements, may be allowed to drop her trade partners gently and gradually, instead of being asked to drop them suddenly and all at once. Admittedly, the Fund, in its approach over the last few years, has shown welcome signs of appreciating such considerations as I have referred to, but we hope that even a broader horizon is now thought to be necessary because of the rising importance of the Fund in the international monetary circles as an acknowledged arbiter of financial dependability. It is our belief that a Fund outlook oriented as I have indicated will serve as a council of wisdom in the international credit market, and will help cause the latter to be better disposed to heed the urgent demand of the developing countries for short-term and medium-term credits, and enable these countries to spread the repayment of their debts over a reasonable period of time. For the burden of repayments is probably still one of the most inade- quately dealt with problems in the financing of economic develop- ment, and here it is important to note that this problem is not the result of any capricious or excessive borrowing by the develop- ing countries, since we all know that there is actually an acute shortage in the amount of capital flowing to these countries. Neither is it a result of exceptional failure in economic development efforts. The excessively concentrated burden of repayments is actually the result of a deficient international money market in the first

©International Monetary Fund. Not for Redistribution GOVERNOR FOR UNITED ARAB REPUBLIC 201 place. The present financial market is not only incapable of meeting the long-term and even the medium-term loans essential for economic development. It is also incapable of properly financ- ing the suppliers in the advanced countries who are willing to equip the developing countries with the sinews of economic development. Hence, the developing countries have been and are still being forced to borrow at shorter terms than are actually suited to their economic development plans. . . . On the other hand, the International Monetary Fund is being continuously beset with the balance of payments deficits which cannot be fairly diagnosed as either of the two types of deficits originally mentioned in its Articles of Agreement. The deficits in the developing countries' balances of payments are neither temporary nor fundamental, in the original sense of the IMF Articles of Agreement. They are not temporary because they will continue for several years until the economic development process reaches a certain stage of success. They are not fundamental in the classic sense because they are not due to a disequilibrium between domestic and foreign price levels which may be corrected by a simple devaluation of the exchange rate, as the Fund charter suggests, or by an internal policy of severe deflation which would inevitably be reflected in a dangerously reduced rate of economic growth. These problems are of a universal nature and are not confined to individual cases among the developing countries. Allow me, nevertheless, to give an example of the aforementioned analysis from the experience of my country, the U.A.R. Our first five-year development plan did achieve a remarkable success, as the rate of growth during the plan period averaged some 6.6 per cent at constant prices. Naturally, this high rate of growth was achieved through increasing our imports of capital goods, raw materials, and food. In other words, we had to run a deficit in our balance of payments and to increase our borrowings from abroad. Con- currently, we had to suffer some inflationary pressures, due to the greatly increased outlay on development projects. Such transi- tional problems have to be met by all developing countries, if they are seriously going through with their economic development

©International Monetary Fund. Not for Redistribution 202 SUMMARY PROCEEDINGS, 1966 programs. Naturally, domestic policies should be implemented to reduce such adverse effects on economic development to the minimum. In our case, we did initiate a financial policy of consolidation, and firm price and tax measures were introduced in December of last year. In addition, several measures were taken to check public current outlay and to rationalize the invest- ment expenditure. Special emphasis has been given to such invest- ment projects as will raise productivity, improve industrial comple- mentarity, and help to increase exports. I believe that all the developing countries appreciate the importance of initiating such consolidation policies, and it would be equally helpful if the international financial community took the initiative of repairing the current defects in the international credit market. Indeed, a stable international credit market is a sine qua non for the success of economic planning in developing countries, which, with their increasing debt burden vis-a-vis the outside world, find themselves liable to suffer, as a result of the vagaries of the international financial markets. Such debt obligations introduce a precarious element into a country's planning for development. For reasons totally extraneous to its own economic determinants, a country which is creditworthy in the midst of a certain international financial climate may over- night find its credit threatened just because this situation has changed. But to end my remarks on a more cheerful note, I would add that it has been gratifying to learn from the Annual Report that the fiscal year 1965/66 has been actually a year of unprecedented activity for the Fund. Total drawings during the year have reached $2.8 billion, of which drawings by the United Kingdom amounted to $1.4 billion and those by the United States to $550 million. Thus, these two reserve currency countries, alone, accounted for nearly 70 per cent of total drawings—a fact which testifies to the vitally important role of the Fund in the international monetary system. But it also casts light on the modest share obtained by developing countries in the assistance granted by the Fund. We also note with satisfaction and relief that arrangements

©International Monetary Fund. Not for Redistribution GOVERNOR FOR UPPER VOLTA 203 for the general increase in Fund resources have been completed and that the increase has actually become effective, by raising members' quotas from about $16 billion to some $20 billion. This, together with the renewal of the General Arrangements to Borrow for four years as from next October, should go a long way toward safeguarding the workability of the international monetary system—other things being equal, of course. This brings to my mind another change for the better, very recently decided upon by the Board, which renders the Fund resources more usefully available to member countries. This is the decision to improve the conditions of the availability of com- pensatory financing to member countries. As a country depending for its earnings of foreign exchange mainly on its exports of agri- cultural crops, the U.A.R. welcomes the raising of the limit of the possible drawing under that special facility from 25 per cent to 50 per cent of a member's quota. It is, however, a pity that this utterly practical measure of liberalization should be watered down by the condition that the net drawings of a member country will not ordinarily exceed 25 per cent of its quota in any one year. To a great extent this restrictive provision detracts from the special nature of compensatory financing, which entails compensa- tion in emergency cases equal to the damage sustained. We trust that experience will prove that this, and some other similarly restrictive conditions embodied in the scheme, are unnecessary impediments.

STATEMENT BY THE GOVERNOR OF THE FUND FOR UPPER VOLTA

Tiemoko Marc Garango The Delegation of Upper Volta is happy to be here among you and to take part in the discussions concerning the great monetary and financial problems that command your attention. It does not pretend that it can offer an original contribution to the solution of these problems; it merely wishes to call attention to a combination of circumstances which should permit us to make some progress, with the improvements already adopted, toward solutions within

©International Monetary Fund. Not for Redistribution 204 SUMMARY PROCEEDINGS, 1966 the framework of our institutions and in the interest of their mem- ber States. That is why, before respectfully submitting for your consideration matters that are close to our hearts and stating our point of view, it seems necessary to place our country, which is a reflection of the Third World, in the context of the present discussion.

Position of Upper Volta At the present we do not believe that the risk of insufficient liquidity exists, the more so since the general raising of the quotas by the majority of the governments brings liquidity up to a satisfactory level. Nevertheless, a "contingency plan" seems necessary in order that future needs may be met in due time. It is in the light of this and to allow for one underdeveloped state that we believe it necessary to point out the policies that may lead to the satisfaction of our legitimate aspirations. We belong to a monetary union which up till now has made it possible for us to resolve our balance of payments difficulties without the aid of the IMF. Nevertheless, we were and are still anxious to belong to the IMF because we ardently desire monetary and financial cooperation; this is proved by the fact that we have freely, and at our own cost, made liquidity available to the Fund. In fact, our contribution to the IMF represents an annual loss of about CFAF 15 million because a good share of our receipts derived from the operations of our central bank, which deposits one gold share, are not paid to us. This sum may seem insignificant, but for us, it represents a sacrifice, especially when everyone expects beneficial effects from the Fund and the Bank. The burden is even heavier when we are obliged to note the fact that it is the most favored countries, that is, the industrialized countries, that benefit much more from this machinery, even as we flounder in the difficulties inherent in our underdeveloped state. I refer to the depreciation of our export products and the well-known inade- quacy of financing for our development, an insufficiency yet further increased by a method of proceeding that is obviously not adapted to our circumstances.

©International Monetary Fund. Not for Redistribution GOVERNOR FOR UPPER VOLTA 205

The Problem of Financing Since becoming a member of the IMF and the Bank, Upper Volta has not yet received any financing in any form whatsoever. It must be stated at the outset that we have been handicapped from the beginning, because we have not had the means of financing sectoral studies and preliminary projects, which are often very costly; no subsidy is possible that is less than $200,000 (CFAF 50 million), a fact which leads inevitably, through the formula of a repayable loan, to tying the study to acceptance of the project. But, as our projects generally do not attain the minimum cost of $1 million (CFAF 250 million) required by the Bank, we find ourselves in an impasse. To get out of this situation, we propose, with regard to these studies, that the IMF pay the states of the franc zone, over and above possible subsidies, interest on the amount of the subscriptions actually paid in gold or in national currency, in order to wipe out the losses mentioned above and thus increase their capacity in this sphere. Concerning the financing of our little projects, it seems wise to suppress the restrictive condition or, alternatively, to furnish liquidity to our national development banks to enable them to play their role fully; this financial assistance would have the great advantage of achieving a realistic approach and adapting the means of action to environments that have their peculiarities and diverse characteristics.

The Problem of the Depreciation of Primary Products In our time, we are witnessing a relentless process of deteriora- tion of the terms of trade as regards tropical products, the chief resources of the countries of the Third World: besides the vicissi- tudes of the climate, the rural masses see their efforts to increase production turned against them, as a result of the excessive fluctua- tions in world prices, the operation of which they scarcely under- stand. This state of affairs arises essentially from the refusal of the industrialized countries to grant us an acceptable price level. Our institutions cannot remain insensitive to this situation, espe- cially as this problem can be successfully linked to that of inter- national liquidity. Indeed, in order to alleviate the scarcity of

©International Monetary Fund. Not for Redistribution 206 SUMMARY PROCEEDINGS, 1966 foreign exchange and to create additional monetary media, it is not inappropriate to adopt the idea of "currency-goods" advocated by some authors. As it is the younger countries that supply the primary products that would serve as an additional stake and derive most of their export receipts from them, a stabilizing effect on prices would be achieved. This would offer us some security, without overlooking the interests of the industrialized countries, which would find in this a means of controlling their price and employment policies. Moreover, the methods of rendering assist- ance to the underdeveloped countries, which until now has been distributed in a scattered and arbitrary manner, would become more objective and of wider scope. We should thus be relieved of the inevitable bargaining and the political pressures. Moreover, the governments of the industrialized countries would be able to justify their aid policy to public opinion, which is often self- centered, on the basis of a legitimate reward for the work of the producers of the products needed for world consumption. We are not unaware of the practical problems arising from this proposal, namely, the choice of products, the stockpiling of products, and the opening of credits on the issue of currency; but the needs are so great that all formulas likely to improve the monetary situation, to lessen the excesses of economic fluctuations, and to give the underdeveloped countries effective and appropriate aid must be closely examined. Pending the introduction of so complete a mechanism, it is important that the industrialized countries understand, right now, that our presence in these institutions is justified only to the extent that they can support us in our arduous task of developing our respective countries. We earnestly desire international cooperation, but not one-way cooperation at our expense. It is clear, therefore, that these coun- tries must strive to find a procedure for equalizing the burden by allowing the transfer of funds to developing countries in the form of compensatory financing or of support and revaluation of the prices of primary products.

©International Monetary Fund. Not for Redistribution GOVERNOR FOR UPPER VOLTA 207

Conclusions The Republic of Upper Volta is very much aware of the prob- lems facing our monetary and financial institutions and accordingly praises their action, but it believes that, in order to solve these problems, it is essential that international cooperation be under- stood as a formula that will make it possible gradually to eliminate excessive differences between standards of living and to lay the foundation of the economic stability necessary to harmonious development. In order that this may be achieved, it hopes that from the standpoint of justice interest will be paid to the countries that do not use the machinery of the IMF, in order to offset the losses of receipts consequent on the paying in of their subscriptions. As regards the problem of development, some parallelism must be established between the constitution of complementary reserves and the revaluation of the prices of tropical products of the new countries, for the purpose of raising them out of economic stagna- tion and restoring the climate of stability that is necessary for investment. Lastly, it would be highly desirable for the authorities of our institutions to study, with attention and good will, the case of our countries which are colliding either with over-all concepts that do not apply to their situation or with mechanisms that complicate and paralyze their efforts. We believe that, if all of the problems confronting us are studied with this in mind and if the industrialized countries rid themselves of the temptation to exercise power and domination, our institu- tions, which have already accomplished important work for which we are gratified, will be in a position to effectively pursue their objectives and attain the ultimate goal of cooperation in an inter- national solidarity destined to rectify the basic imbalances in national economies and thus provide for everyone living conditions worthy of our times.

©International Monetary Fund. Not for Redistribution CONCLUDING REMARKS 1 STATEMENT BY THE CHAIRMAN OF THE EXECUTIVE BOARD AND MANAGING DIRECTOR OF THE INTERNATIONAL MONETARY FUND

Pierre-Paul Schweitzer

In my concluding remarks last year, Mr. Chairman, I stressed how valuable it was to me and to the Executive Directors and staff of the Fund to be made aware during these meetings of the candid opinions of our members. I said on that occasion that I had been impressed even more strongly than in previous years by the frank and constructive comments on the Fund's activities which Governors had made. I am grateful to the Governors for enabling me to make that same statement again this year. In the course of the last few days, Governors have addressed themselves to the main problems which they see in the world eco- nomic situation, including questions related to the flow of aid and capital to developing countries. In discussing how best to achieve domestic stability and to adjust payments disequilibria, they have put particular emphasis on the desirability of strengthening fiscal policy. I found a wide identity of view that we should aim in this way to reduce the burden that is now being carried by monetary policy and thus to ease the strains in national and international capital markets. Governors' views on these and other problems will be given careful consideration in the Fund, and will be helpful to us in the continuing process of consulting with and advising our members. The stress that has been placed by so many Governors on the need for improvements in the international monetary system underscores the fact that this subject is a legitimate interest of all countries. I welcome the general acceptance by Governors of the 1 Delivered at the Closing Joint Session, September 30, 1966. 208

©International Monetary Fund. Not for Redistribution CONCLUDING REMARKS 209 central role to be played by the Fund in carrying out such improve- ments. The helpful practical suggestions that have been made by the Governors will assist us as we continue our work in the field of international liquidity. I heard no dissent from the proposi- tion that we should press forward with our studies of methods of deliberate reserve creation. I am confident that the Fund's Execu- tive Directors will stand ready to consult with other groups where this promises to be productive. Arrangements for informal meet- ings with the Deputies of the Group of Ten are now being discussed, and I am sure that such meetings would be useful in identifying common ground for action, and especially so to the extent that they would help us all to concentrate on issues that are relevant and have not already been resolved. My overriding impression is that Governors, in their comments on all these matters, have indicated a clear desire for us to set about this work promptly—and so we shall. Finally, Mr. Chairman, I should like to join with you in congrat- ulating the Governor from Norway on his designation as Chairman of the Board of Governors for the coming year, and to pay my respects to you for your conduct of these meetings; it has been a great pleasure to be associated with you during your tenure of office.

STATEMENT ON THE FORTHCOMING RETIREMENT OF THE SECRETARY OF THE FUND BY THE GOVERNOR OF THE FUND FOR GREECE

Xenophon Zolotas

Mr. Chairman, I am very thankful for being given the opportu- nity to speak at this time. As you mentioned, Mr. Chairman, I had the honor to be the Governor for Greece at the Inaugural Meeting of the Fund and Bank in 1946.

©International Monetary Fund. Not for Redistribution 210 SUMMARY PROCEEDINGS, 1966

It is a great pleasure for me to recall at this moment that I participated in approving the first two Resolutions adopted by the Board of Governors of the International Monetary Fund. Those Resolutions called upon Mr. Roman Home to assume the duties of the Secretary of the Fund, to make arrangements for the first meeting of the Executive Directors, and to make the necessary arrangements for establishing the initial financial accounts of the Fund. At that time none of us could have envisioned the vast and complicated duties which would evolve from those Resolutions in order to achieve the excellence of the meeting which, more than 20 years later, we are now concluding. Mr. Home, together with Mr. Mendels, the Bank Secretary, has been primarily responsible for the efficiency with which we Governors have been able to conduct our business in spite of the rapid increase in our membership and responsibilities. It is with regret that we have learned that Mr. Home is to relinquish his duties before we meet again. I know that I convey the feelings of all fellow Governors when I express my warm thanks and profound appreciation to Mr. Home for the excellent way in which he has performed his difficult task. In fulfilling his combined duties as Secretary of the Fund and Secretary of its Board of Governors, Mr. Home has displayed an extraordinary combination of diligence and tact and, in particular, a constant devotion to the interests of the Board of Governors and of the Fund. His special qualities have enabled us to come to know him not only as an efficient officer but also as a friend. I am grateful to you, Mr. Chairman, for allowing me to be the one to express these sentiments at the close of his last Annual Meeting. Mr. Home, please accept from me personally and from the Board of Governors as a whole, our sincere thanks for your unceasing efforts on our behalf.

©International Monetary Fund. Not for Redistribution CONCLUDING REMARKS 211 STATEMENT BY THE CHAIRMAN OF THE BOARDS OF GOVERNORS, THE GOVERNOR FOR IRAN

Jamshid Amouzegar

I am sure everyone wishes to associate himself with the feelings expressed by the Governor for Greece. I would like to save Mr. Home from 105 statements. His valuable contribution to the Fund is known to all of us. His mere presence in these meetings gives one a feeling of assurance and security, and, indeed, having added so much luster to the local scene, it is very difficult to think of him as departing from our midst, but I hope that I speak on behalf of all of you, myself, and all past Chairmen, to extend our real gratitude and thanks to him and hope that, upon retiring, he shall not lose touch with the International Monetary Fund to which he has contributed so much. Now the time has come for us to close our proceedings. Our discussions have embraced a spectrum of the economic problems confronting the world today. Our attention has beerf forcibly drawn to the difficulties facing the economically advanced nations in maintaining internal and external balances. And it has been made clear that this situation is of concern also to the developing countries both in terms of volume of foreign capital available and the price they have to pay for it. We have heard a wide diversity of views on the problem of international liquidity, which has important implications for the growth of world trade and for the ability of all countries, developed and developing alike, to maintain growth under stable conditions. We shall look forward to the results of the further work on this matter projected for the coming year. In this connection, I calm myself with a reminder from Hafiz, the beloved Persian poet, who wrote: "Although the road is long and destination not in sight, do not lose hope as there is an end to every road." We shall, also, look forward to a constructive implementation of the new compensatory financing facility announced by Mr. Schweitzer last Monday.

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Although we have heard striking examples of progress in developing countries, we are still painfully aware of the great need for more development assistance if the momentum of this effort is not to be lost. The debt servicing burden, already grave, is aggravated by rising interest rates. Mr. Woods has rightly singled out the question of IDA replenish- ment at this time as a matter of urgent concern to all of us. Before we adjourn, I wish to extend our gratitude and thanks to Mr. Schweitzer, Mr. Woods, and all of their staff whose valuable assistance has been instrumental in making our meetings a success. I myself cannot think of a better expression of my feelings than to recite from that immortal English writer, Shakespeare, a quota- tion which runs as follows: I have been swimming, these last few summer days, "like little wanton boys that swim on bladders . . . in a sea of glory, but far beyond my depth." And if I have not been totally submerged, it is because of the unfailing support and assist- ance which I have received from the staff. To those behind the scenes, without whose dedicated service the successful accomplishment of our meeting would have not been possible, I pay special tribute. To those who will be in charge of the Boards of Governors next year, I would like to express my best wishes. With these words, Gentlemen, these meetings of the International Monetary Fund, the International Bank for Reconstruction and Development, the International Finance Corporation, and the International Development Association stand adjourned.

©International Monetary Fund. Not for Redistribution DOCUMENTS

and

RESOLUTIONS OF THE BOARD OF GOVERNORS

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©International Monetary Fund. Not for Redistribution SCHEDULE OF MEETINGS

Monday 10:00 a.m.—JOINT BOARDS September 26 Opening Ceremonies Address by the Chairman Annual Address of Managing Director, IMF Annual Address of President, IBRD, IFC, and IDA

Tuesday 9:30 a.m.—JOINT BOARDS September 27 Annual Discussion

Wednesday 9:30 a.m.—IMF BOARD September 28 Election of Executive Directors Annual Discussion

Thursday 9:30 a.m.—IBRD, IFC, AND IDA BOARDS September 29 Election of Executive Directors Annual Discussion 5:00 p.m.—Joint Procedures Committee

Friday 9:30 a.m.—JOINT BOARDS September 30 Conclusion of Annual Discussions Joint Procedures Committee Reports Comments by Heads of Organizations Adjournment 215

©International Monetary Fund. Not for Redistribution PROVISIONS RELATING TO THE CONDUCT OF THE MEETINGS Admission 1. Sessions of the Boards of Governors of the Fund, the Bank, IFC, and IDA, including joint sessions, shall be open to accredited observers, the press, and guests. 2. Meetings of the Joint Procedures Committee shall be open only to Governors who are members of the Committee and their advisers. 3. Sessions of the Boards of Governors and meetings of the Joint Procedures Committee shall be open to the Secretariat and technical staff as may be necessary. Procedure and Records 4. The Chairman 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. 5. With the consent of the Chairman, a Governor may extend his statement in the record following advance submission of the text to the Secretaries. 6. The Secretaries will have verbatim transcripts prepared of the proceedings of the Boards of Governors and the Joint Pro- cedures Committee. The transcripts of proceedings of the Joint Procedures Committee will be confidential and available only to the Chairman, the Managing Director of the Fund, the President of the Bank and its Affiliates, and the Secretaries. 7. Reports of the Joint Procedures Committee shall be signed by the Committee Chairman and the Reporting Member. Public Information 8. The Chairman of the Boards of Governors, the Managing Director of the Fund, and the President of the Bank and its Affiliates will communicate to the press such information con- cerning the proceedings of the Annual Meetings as they may deem suitable. 216

©International Monetary Fund. Not for Redistribution REPORTS OF THE JOINT PROCEDURES COMMITTEE

Chairman Iran Vice Chairmen Argentina Denmark Reporting Member Tunisia

Other Members: Brazil, France, Germany, India, Ireland, Israel, Jamaica, Japan, Mali, Netherlands, Nigeria, Portugal, Somalia, Togo, United Kingdom, United States, Uruguay

Report I* September 29, 1966 Mr. Chairman:

At the meeting of the Joint Procedures Committee held on September 29, 1966, the items of business on the agenda [Annex I] of the Board of Governors of the International Monetary Fund were considered. The Committee submits the following report and recommenda- tions.

1. Annual Report The Committee noted that provision had been made for the annual discussion of the business of the Fund.

1 The Report and the Resolutions recommended therein were adopted by the Board of Governors of the Fund, in Joint Session with the Boards of Governors of the Bank, IFC, and IDA, on September 30, 1966. 217

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2. Financial Statements, Report on Audit, and Administrative Budget The Committee considered the Report on Audit for the Fiscal Year ended April 30, 1966, the Financial Statements contained therein (Fund Document No. 4 and Appendix V of the 1966 Annual Report), and the Administrative Budget for the Fiscal Year ending April 30, 1967 (Appendix III of the Annual Report and Fund Document No. 6). The Committee recommends to the Board of Governors the adoption of the draft resolution set forth in Fund Document No. 5.2

3. General Reserve The Committee also considered the recommendation of the Executive Directors with respect to the allocation to the General Reserve of the Fund's net income for the Fiscal Year ended April 30, 1966 [Annex II]. The Committee recommends that the Board of Governors adopt the draft resolution contained in Fund Document No. 7.3

4. Rules and Regulations The Committee reviewed the amendments of Rules 1-2 and 1-4(f) (2) of the Rules and Regulations as submitted by the Executive Directors [Annex III] and recommends adoption by the Board of Governors of the draft resolution set forth in Fund Document No. 8.4

5. Membership—Indonesia The Committee considered the recommendation of the Executive Directors regarding the readmission of Indonesia to membership in the Fund [Annex IV]. The Committee recommends that the Board of Governors adopt the draft resolution set forth in Fund Document No. 9.5 2 Resolution No. 21-9; see page 247. 3 Resolution No. 21-10; see page 247. 4 Resolution No. 21-11; see page 248. r> Resolution No. 21-12; see page 248.

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6. Election of Executive Directors The Committee noted that the 1966 Regular Election of Execu- tive Directors [Annex V] had taken place and that the next Regular Election of Executive Directors will take place at the Annual Meeting of the Board of Governors in 1968.

Approved: /s/ J. AMOUZEGAR /s/ H. NOUIRA Chairman—Iran Reporting Member—Tunisia

Annex I to Report I

AGENDA

1. 1966 Annual Report 2. Financial Statements and Audit Report (Appendix V of 1966 Annual Report and Fund Documents Nos. 4 and 5) 3. Administrative Budget for Fiscal Year Ending April 30, 1967 (Appendix III of 1966 Annual Report and Fund Documents Nos. 5 and 6) 4. General Reserve (Fund Document No. 7) 5. Changes in the Rules and Regulations (Fund Document No. 8) 6. Election of Executive Directors (Fund Document No. 10) 7. Membership—Indonesia (Fund Document No. 9) 8. Place and Date of 1968 Annual Meeting 9. Election of Officers and Joint Procedures Committee for 1966-67

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Annex II to Report I

September 26, 1966

Dear Mr. Chairman:

For the fiscal year ended April 30, 1966, the Fund had net income of $44,545,481.82. Under the Articles of Agreement it must be determined annually what part of the Fund's income shall be placed to reserve and what part, if any, shall be distributed. At the Twentieth Annual Meeting, the Board of Governors approved the allocation to the General Reserve of the net income for the fiscal year ended April 30, 1965 (Resolution No. 20-16). Pursuant to the decision taken by the Executive Board on April 14, 1958, the net income of the Fund subsequent to April 30, 1965 has been transferred provisionally at the end of each month to the General Reserve. The total amount thus trans- ferred for the fiscal year ended April 30, 1966 is $44,545,481.82. The Executive Directors recommend that the Board of Gover- nors adopt the attached draft resolution 6 approving this allocation to the General Reserve.

Very truly yours, /s/ PIERRE-PAUL SCHWEITZER Managing Director and Chairman of the Executive Board

Chairman of the Board of Governors 1966 Annual Meeting International Monetary Fund

6 Resolution No. 21-10; see page 247.

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Annex III to Report I

September 26, 1966

Dear Mr. Chairman:

In accordance with Section 16 of the By-Laws, the attached amendments of the Rules and Regulations are submitted for review by the Board of Governors. On April 22, 1966, Rules 1-2 and I-4(f)(2) were amended to extend beyond April 30, 1966 the then prevailing service charge on transactions and charges on the Fund's holdings of members' currencies in excess of quotas. At that time, it was further decided that the schedule of Fund charges shall be reviewed by the Executive Directors prior to May 1, 1967, and annually thereafter. These Rules as last amended are set forth in Attachment 1. A proposed Resolution for consideration by the Board of Gover- nors is attached.7 The Executive Directors have made no other changes in the Rules and Regulations since the last Annual Meeting.

Very truly yours, /s/ PIERRE-PAUL SCHWEITZER Managing Director and Chairman of the Executive Board

Chairman of the Board of Governors 1966 Annual Meeting International Monetary Fund

7 Resolution No. 21-11; see page 248.

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Attachment 1. Amendments of the Rules and Regulations Since the 1965 Annual Meeting

Rule 1-2. Text as amended on April 22, 1966: The service charge payable by a member buying the currency of another member in exchange for its own currency shall be paid at the time the transaction is consummated. The service charge payable for such transactions taking place after Novem- ber 30,1951 shall be % of 1 per cent. Rule I-4(f) (2). Text as amended on April 22, 1966: (2) With respect to each segment of the holdings of a member's currency to the extent that it represents the acquisition of that currency by the Fund after April 30, 1963: (i) The charge to be levied on each segment to the extent that it is within the first bracket of 50 per cent in excess of the quota shall be nil for the first three months, 2 per cent per annum for the next fifteen months, and an additional % per cent per annum for each subsequent six months. (ii) The charge to be levied on each segment to the extent that it is within the second bracket of more than 50 per cent and not more than 100 per cent in excess of the quota shall be nil for the first three months, 2 per cent per annum for the next nine months, and an additional % per cent per annum for each subsequent six months.

(iii) The charge to be levied on each segment to the extent that it is within the third bracket of more than 100 per cent in excess of the quota shall be nil for the first three months, 2 per cent per annum for the next three months, and l an additional /2 per cent per annum for each subsequent six months.

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Annex IV to Report I

September 26, 1966

Dear Mr. Chairman:

I am transmitting herewith on behalf of the Executive Board a proposed Resolution,8 which is recommended for adoption by the Board of Governors, on the readmission of Indonesia to mem- bership in the Fund.

Very truly yours, /s/ PIERRE-PAUL SCHWEITZER Managing Director and Chairman of the Executive Board Chairman of the Board of Governors 1966 Annual Meeting International Monetary Fund

Annex V to Report I

Rules for the Conduct of the 1966 Regular Election of Executive Directors of the Fund

1. Definitions: In these Rules, unless the context shall otherwise require: (a) "Articles" means the Articles of Agreement of the Fund. (b) "Board" means the Board of Governors of the Fund. (c) "Chairman" means the Chairman of the Board or a Vice Chairman acting as Chairman. (d) "Governor" includes the Alternate Governor or any temporary Alternate Governor when acting for the Governor. 8 Resolution No. 21-12; see page 248.

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(e) "Secretary" means the Secretary or any acting Secretary of the Fund. (f) "Election" means the 1966 Regular Election of Execu- tive Directors. 2. Date of Election: The election shall be held during the 1966 Annual Meeting at a time to be fixed by the Board. 3. Basic Rules—Schedule C: Subject to the adjustments set forth herein, the provisions of Schedule C of the Articles shall apply to the conduct of the election. 4. Executive Directors to Be Elected Under Article XII, Section 3(b)(iii): (a) Twelve Executive Directors shall be elected under Article XII, Section 3 (b) (iii) . (b) In view of the number of Executive Directors to be elected under Article XII, Section 3(b)(iii): (i) 6 per cent shall be substituted for "nineteen per cent" in paragraphs 2 and 5 of Schedule C. (ii) 13 per cent shall be substituted for "twenty per cent" in paragraphs 3, 4, and 5 of Schedule C. 5. Executive Directors to Be Elected Under Article XII, Section 3(b)(iv): Three Executive Directors shall be elected under Article XII, Section 3 (b ) (iv ) : and (a) The minimum percentage of the eligible votes required for election under this subparagraph shall be 28 per cent. (b) The maximum percentage of eligible votes for any one nominee for the purposes of paragraph 1 3 below shall be 3 8 per cent. 6. Nominations: (a) Any person nominated by one or more Governors entitled to vote in the election shall be eligible for election as Executive Director.

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(b) Each nomination shall be made on a Nomination Form furnished by the Secretary, signed by the Governor or Governors making the nomination and deposited with the Secretary. (c) A Governor may nominate only one person. (d) Nominations may be made until 12 o'clock noon on the day before the day on which the election is scheduled to be held. The Secretary shall post and distribute a list of the persons nominated. 7. Supervision of the Election: The Chairman shall appoint such tellers and other assistants and take such other action as he deems necessary for the conduct of the election. 8. Ballots: One ballot form shall be furnished, before a ballot is taken, to each Governor entitled to vote. On any particular ballot only ballot forms distributed for that ballot shall be counted. 9. Balloting—Order: The first ballot shall be simultaneous balloting of all the Governors entitled to participate in the election of Executive Directors under Article XII, Section 3(b)(iii), and all of the American Republics entitled to participate in the election of Executive Directors under Article XII, Section 3(b)(iv). The balloting for the Execu- tive Directors elected under Article XII, Section 3(b)(iii), shall then be concluded before any further ballots are taken for the Executive Directors to be elected by the American Republics. 10. Balloting—General: Each ballot shall be taken as follows: (a) Members whose Governors are entitled to vote shall be called in alphabetical order and each ballot, signed by the Governor, shall be deposited in the ballot box. (b) When a ballot shall have been completed, the Chairman shall cause the ballots to be counted and shall announce the names of the persons elected before the end of the session at which the election is held. If a succeeding

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ballot is necessary, the Chairman shall announce the names of the nominees to be voted on and the members whose Governors are entitled to vote. (c) If the tellers shall be of the opinion that any particular ballot form is not properly executed, they shall, if pos- sible, afford the Governor concerned an opportunity to correct it before tallying the results; and such ballot form, if so corrected, shall be deemed valid. 11. Balloting and Election of Executive Directors Under Article XII, Section 3(fe) (Hi): (a) When on any ballot the number of nominees shall not exceed the number of Executive Directors to be elected, each nominee shall be deemed to be elected by the num- ber of votes received by him on such ballot; provided, however, that if on such ballot the votes of any Governor shall be deemed under paragraph 4 of Schedule C to have raised the votes cast for any nominee above 13 per cent of the eligible votes, no nominee shall be deemed to have been elected who shall not have received on such ballot a minimum of 6 per cent of the eligible votes and a succeeding ballot shall be taken for which any nominee not elected shall be eligible. (b) If, as a result of the first ballot, the number of Execu- tive Directors to be elected in accordance with para- graph 4 above shall not have been elected, a second and, if necessary, further ballots shall be taken. The Governors entitled to vote on such succeeding ballots shall be only (i) those Governors who voted on the preceding ballot for any nominee not elected, and (ii) those Governors whose votes for a nominee elected on the preceding ballot are deemed under paragraph 4 of Schedule C to have raised the votes cast for such nominee above 13 per cent of the eligible votes. (c) The votes of a Governor shall not be deemed under paragraph 4 of Schedule C to have raised the total votes

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for a nominee above 13 per cent of the eligible votes if without the votes of such Governor such total would be more than 6 per cent but not more than 13 per cent of the eligible votes. (d) If on any ballot two or more Governors having an equal number of votes shall have voted for the same nominee and the votes of one or more, but not all, of such Gover- nors could be deemed under paragraph 4 of Schedule C to have raised the total votes received by such nominee above 13 per cent of the eligible votes, the Chairman shall determine by lot the Governor or Governors, as the case may be, who shall be entitled to vote on the next ballot. (e) If a Governor shall abstain from voting on any ballot taken under Article XII, Section 3(b)(iii), he shall not be entitled to vote on any subsequent ballot and his votes shall not be counted within the meaning of Article XII, Section 3(i), toward the election of any Executive Director. If at the time of any ballot a member shall not have a duly appointed Governor, such member shall be deemed to have abstained from voting on that ballot. 12. Election of Executive Directors Under Article XII, Section 3(b)(iv): These Rules supplement paragraph 7 of Schedule C. (a) Each Governor eligible to participate in the election shall cast for one person all the votes to which he is entitled. (b) The three nominees receiving the greatest number of votes shall be elected, provided that no nominee shall be elected who receives less than 28 per cent of the eligible votes. The person elected with the least number of votes cast for the three elected nominees shall be deemed to have been elected by all the votes cast for him, all the votes not cast in the ballot through absten- tion from voting and all those cast for such other nominee or nominees as were not elected.

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(c) When on any ballot two or more Executive Directors remain to be elected and there are the same number of nominees, each nominee shall be elected by the number of votes received by him; provided, that if the votes of any Governor shall be deemed to have raised the votes cast for any nominee above 38 per cent of the eligible votes, no nominee shall be elected on that ballot who shall not have received 28 per cent of the eligible votes and a succeeding ballot shall be taken for which any nominee not elected on the preceding ballot shall be eligible. 13. Succeeding Ballots for Election of Executive Directors Under Article XII, Section 3(b) (iv): (a) If, as a result of the first ballot, the number of Executive Directors to be elected in accordance with paragraph 5 above shall not have been elected, a second and, if necessary, further ballots shall be taken. The Governors entitled to vote on such succeeding ballots shall be only (i) those Governors who voted on the preceding ballot for any nominee not elected or who abstained from voting on the preceding ballot and (ii) those Governors whose votes for a nominee elected on the preceding ballot are deemed to have raised the votes cast for such nominee above 38 per cent of the eligible votes. In determining whether the votes cast by a Governor are to be deemed to have raised the total of any nominee above 38 per cent of the eligible votes, the 38 per cent shall be deemed to include, first, the votes of the Governor casting the largest number of votes for such nominee, then the votes of the Governor casting the next largest number of votes and so on until 38 per cent is reached. (b) The votes of a Governor under subparagraph (a) above shall not be deemed to have raised the total votes for a nominee above 38 per cent of the eligible votes if with- out the votes of such Governor such total would be

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more than 28 per cent but not more than 38 per cent of the eligible votes. (c) If on any ballot two or more Governors having an equal number of votes shall have voted for the same nominee and the votes of one or more, but not all of such Governors, could be deemed under subparagraph (a) above to have raised the total votes received by such nominee above 38 per cent of the eligible votes, the Chairman shall determine by lot the Governor or Gover- nors, as the case may be, who shall be entitled to vote on the next ballot. 14. Elimination of Nominees: If on any ballot two or more nominees shall receive the lowest number of votes, no nominee shall be dropped from the next succeeding ballot, but if the same situation is repeated on such succeeding ballot, the Chairman shall eliminate by lot one of the nominees from the following ballot. 15. Announcement of Result: After the last ballot the Chairman shall cause to be distributed a statement setting forth the result of the election. 16. Effective Date of Election of Executive Directors: The effec- tive date of election shall be November 1, 1966. Incumbent elected Executive Directors shall serve through the day pre- ceding such date. 17. General: Any question arising in connection with the conduct of the election shall be resolved by the tellers, subject to appeal, at the request of any Governor, to the Chairman and from him to the Board. Whenever possible, any such question shall be put without identifying the members or Governors concerned. As approved by Board of Governors Resolution No. 21-7, September 6,1966

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STATEMENT OF RESULTS OF ELECTIONS, SEPTEMBER 28, 1966

Candidates Elected Under Article XII, Section 3(b) (iii)

Members Whose Votes Counted Number of Candidate Elected Toward Election Votes Paul L. Faber Burundi 400 (Guinea) Guinea 440 Kenya 570 Liberia 450 Malawi 362 Mali 420 Nigeria 750 Sierra Leone 400 Sudan 820 Tanzania 570 Trinidad and Tobago 500 Uganda 570 Zambia 750 7,002

Torben Friis Denmark 1,880 (Denmark) Finland 1,500 Iceland 400 Norway 1,750 Sweden 2,500 8,030

S. J. Handfield-Jones Canada 7,650 (Canada) Guyana 400 Ireland 1,050 Jamaica 550 9,650

©International Monetary Fund. Not for Redistribution COMMITTEE REPORTS 231 Candidates Elected Under Article XII, Section 3(b)(iii)—cont. Members Whose Votes Counted Number of Candidate Elected toward Election Votes Pieter Lieftinck Cyprus 400 (Netherlands) Israel 1,150 Netherlands 5,450 Yugoslavia 1,750 8,750 Amon Nikoi Algeria 880 (Ghana) Ghana 940 Laos 325 Libya 440 Malaysia 1,091 Morocco 1,006 Singapore 550 Tunisia 600 5,832 M. W. O'Donnell Australia 5,250 (Australia) New Zealand 1,820 South Africa 2,250 9,320

Ahmed Zaki Saad Afghanistan 540 (United Arab Ethiopia 440 Republic) Iran 1,500 Iraq 1,050 Jordan 380 Kuwait 750 Lebanon 317 Pakistan 2,130 Philippines 1,000 Saudi Arabia 1,150 Somalia 400 Syrian Arab Republic 630 United Arab Republic 1,750 12,037

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Candidates Elected Under Article XII, Section 3(b)(iii)—cont.

Members Whose Votes Counted Number of Candidate Elected Toward Election Votes Sergio Siglienti Greece 1,250 (Italy) Italy 6,500 Portugal 1,000 Spain 2,750 11,500

Hideo Suzuki Burma 550 (Japan) Ceylon 1,030 Japan 7,500 Nepal 350 Thailand 1,200 10,630

Beue Tann China 5,750 (China) Korea 490 Viet-Nam 488 6/728

Andre van Campenhout Austria 2,000 (Belgium) Belgium 4,470 Luxembourg 408 Turkey 1,110 7^88

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Candidates Elected Under Article XII, Section 3(b)(iii)—concl.

Members Whose Votes Counted Number of Candidate Elected Toward Election Votes Antoine W. Yameogo Cameroon 408 (Upper Volta) Central African Republic 330 Chad 330 Congo (Brazzaville) 330 Congo, Dem. Rep. of 724 Dahomey 330 Gabon 330 Ivory Coast 408 Malagasy Republic 440 Mauritania 330 Niger 330 Rwanda 370 Senegal 500 Togo 362 Upper Volta 330 5,852

Candidates Elected Under Article XII, Section 3(b)(iv)

Members Whose Votes Counted Number of Candidate Elected Toward Election Votes Alexandre Kafka Brazil 3,750 (Brazil) Colombia 1,500 Dominican Republic 514 Haiti 400 Panama 362 Peru 720 7^246

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Candidates Elected Under Article XII, Section 3(b)(iv)—concl.

Members Whose Votes Counted Number of Candidate Elected Toward Election Votes Adolfo C. Diz Argentina 3,750 (Argentina) Bolivia 540 Chile 1,250 Ecuador 500 Paraguay 400 Uruguay 550 6,990

Jorge Gonzalez del Valle Costa Rica 500 (Guatemala) El Salvador 500 Guatemala 500 Honduras 440 Mexico 2,950 Nicaragua 440 Venezuela 2,750 8^80

/s/ Albert Adomakoh /s/ Khalil Salim (Ghana) (Jordan) Teller Teller

Report III' September 29, 1966 Mr. Chairman:

The Joint Procedures Committee met on September 29 and submits the following report:

1 Report II dealt with the business of the Boards of Governors of the Bank, IFC, and IDA. Report III and the recommendations therein were adopted by the Boards of Governors of the Fund and of the Bank, IFC, and IDA, in Joint Session, on September 30, 1966.

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1. 1968 A nnual Meetings The Committee recommends that the 1968 Annual Meetings of the Boards of Governors be convened in Washington, D.C.

2. Officers and Joint Procedures Committee The Committee recommends that the Governors for Norway be elected Chairmen, and that the Governors for Malaysia and Sierra Leone be elected 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 occasion requires, by convening; and that this Committee shall consist of the Governors for the fol- lowing members: Algeria, Austria, Brazil, Cameroon, Canada, Chile, China, France, Germany, Honduras, India, Kenya, Lebanon, Luxembourg, Malaysia, Norway, Sierra Leone, United Kingdom, and United States. It is recommended that the Chairmen of the Joint Procedures Committee shall be the Governors for Norway and the Vice Chairmen shall be the Governors for Malaysia and Sierra Leone and that the Governors for Honduras shall serve as Reporting Members.

Approved:

/s/ J. AMOUZEGAR /s/ H. NOUIRA Chairman—Iran Reporting Member—Tunisia (Fund) /s/ A. BEN SALAH Reporting Member—Tunisia (Bank, IFC, and ID A)

©International Monetary Fund. Not for Redistribution RESOLUTIONS

Resolution No. 21-1

Increase in the Quota of Nicaragua

Under date of September 9, 1965, the Government of Nicaragua requested that its quota in the Fund be increased from $11.25 million to $15 million. The Executive Board resolved on Novem- ber 79, 7965 that action on the request should not be postponed until the next regular meeting of the Board of Governors. In accordance with Section 13 of the By-Laws, the following Resolution was submitted to the Governors on November 19, 1965 for a vote without meeting:

RESOLVED: (i) That the quota of Nicaragua shall be changed to $15 million, provided that Nicaragua consents to the change on or before June 20, 1966, and provided further that, if extraordinary circum- stances are deemed by the Executive Directors to warrant an extension of the period in which consent is required pursuant to this Resolution, the Executive Directors may extend such period until such later date or dates as they may determine. Not less than 25 per cent of the increase shall be paid in gold and the balance in the currency of Nicaragua. The change shall become effective on the date the Fund receives notice in writing that Nicaragua consents to the change but not sooner than the date of this Resolution. Such written consent shall be signed by a competent official whose authority and signature are duly authenticated. (ii) For the purposes of the First Resolution on "Increases in Quotas of Members—Fourth Quinquennial Review" adopted by 236

©International Monetary Fund. Not for Redistribution RESOLUTIONS 237 the Board of Governors on March 31, 1965 (Resolution No. 20-6), this Resolution shall be treated as if it had been submitted to the Board of Governors before February 26, 1965. The Board of Governors adopted the foregoing Resolution, effective December 20, 1965. The written notice that Nicaragua consented to the increase was received by the Fund on January 24, 1966, on which date the new quota became effective.

Resolution No. 21-2

Increase in the Quota of Tunisia

Under date of September 29, 1965, the Government of Tunisia requested that its quota in the Fund be increased from $22.5 million to $28 million. The Executive Board resolved on January 5, 1966 that action on the request should not be postponed until the next regular meeting of the Board of Governors. In accordance with Section 13 of the By-Laws, the following Resolution was submitted to the Governors on January 7, 1966 for a vote without meeting:

RESOLVED: (i) That the quota of Tunisia shall be changed to $28 million, provided that Tunisia consents to the change on or before August 8, 1966, and provided further that, if extraordinary circum- stances are deemed by the Executive Directors to warrant an extension of the period in which consent is required pursuant to this Resolution, the Executive Directors may extend such period until such later date or dates as they may determine. Not less than 25 per cent of the increase shall be paid in gold and the balance in the currency of Tunisia. The change shall become effective on the date the Fund receives notice in writing that Tunisia consents to the change but not sooner than the date of this Resolution. Such written consent shall be signed by a compe- tent official whose authority and signature are duly authenticated.

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(ii) For the purposes of the First Resolution on "Increases in Quotas of Members—Fourth Quinquennial Review" adopted by the Board of Governors on March 31, 1965 (Resolution No. 20-6), this Resolution shall be treated as if it had been submitted to the Board of Governors before February 26, 1965. The Board of Governors adopted the foregoing Resolution, effective February 7, 1966. The written notice that Tunisia con- sented to the increase was received by the Fund on March 21, 1966, on which date the new quota became effective.

Resolution No. 21-3

Membership for Singapore

On September 8, 1965, the Government of Singapore applied for membership in the Fund. The Executive Board resolved on January 14, 1966 that action on the application should not be postponed until the next regular meeting of the Board of Governors. In accordance with Section 13 of the By-Laws, the following Resolution was submitted to the Governors on January 27, 7966 for a vote without meeting: WHEREAS, the Government of Singapore, on September 8, 1965, applied for membership in the International Monetary Fund in accordance with Section 2 of Article II of the Articles of Agree- ment of the Fund; and WHEREAS, pursuant to Section 21 of the By-Laws of the Fund, the Executive Directors have consulted with the representative of that Government and have agreed upon the terms and conditions which, in the opinion of the Executive Directors, the Board of Governors may wish to prescribe for admitting Singapore to mem- bership in the Fund; Now, THEREFORE, the Board of Governors, having considered the recommendations of the Executive Directors, hereby resolves

©International Monetary Fund. Not for Redistribution RESOLUTIONS 239 that the terms and conditions upon which Singapore shall be admitted to membership in the Fund shall be as follows: 1. Definitions: As used in this Resolution: (a) The term "Fund" means the International Monetary Fund. (b) The term "Articles" means the Articles of Agreement of the International Monetary Fund. (c) The term "dollars" or "$" means United States dollars of the weight and fineness in effect on July 1, 1944. 2. Quota: The quota of Singapore shall be $30 million. 3. Subscription: The subscription of Singapore shall be equal to its quota. Singapore shall pay in gold, as a minimum, 25 per cent of its quota. The balance of the subscription shall be paid in the currency of Singapore. 4. Payment of Subscription: The portion of the subscription to be paid in gold shall be paid not later than the day the Articles are signed on behalf of Singapore. In case Singapore does not acquire membership in the Fund the gold so paid shall be returned to it by the Fund. The remaining part of the subscription which has not been paid in gold shall be paid before the thirtieth day after the initial par value of the currency of Singapore has been agreed in accordance with paragraph 5 below. 5. Determination of Par Value: Within 30 days after the Fund so requests, Singapore shall communicate to the Fund a proposed par value for its currency, and within 60 days following the Fund's receipt of the proposed par value, Singapore and the Fund shall agree on an initial par value for the currency; provided that the Fund may extend the period of 60 days and that Singapore shall be deemed to have withdrawn from the Fund if agreement on a par value has not been reached when the extended period expires. In the period between accepting membership and the estab- lishment of an initial par value pursuant to this paragraph,

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Singapore shall not change its exchange rates prevailing at the time of accepting membership without agreement with the Fund after prior consultation. 6. Exchange Transactions "with the Fund: Singapore may not engage in exchange transactions with the Fund until both (a) the par value of its currency has been agreed in accord- ance with paragraph 5 above and put into operation and (b) its subscription has been paid in full; provided, however, that at any time before the requirements under (a) and (b) have been met, the Executive Directors are authorized to permit exchange transactions with Singapore under such conditions and in such amounts as may be prescribed by the Executive Directors. 7. Representation and Information: Before accepting member- ship in the Fund, Singapore shall represent to the Fund that it has taken all action necessary to sign and deposit the Instrument of Acceptance and sign the Articles, as contem- plated by paragraph 8(a) and (b) of this Resolution, and Singapore shall furnish to the Fund such information in respect of such action as the Fund may request. 8. Acceptance of Membership: After the Fund shall have informed the Government of the United States of America that Singapore has complied with the conditions set forth in paragraph 7 of this Resolution, Singapore shall become a member of the Fund as of the date when Singapore shall have complied with the following requirements: (a) Singapore shall deposit with the Government of the United States of America an instrument stating that it has accepted in accordance with its law the Articles and all the terms and conditions prescribed in this Resolu- tion, and that it has taken all steps necessary to enable it to carry out all its obligations under the Articles and this Resolution; and (b) Singapore shall sign the original copy of the Articles held in the Archives of the Government of the United States of America,

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9. Limitation on Period of Acceptance of Membership: Singa- pore may accept membership in the Fund pursuant to this Resolution within six months of the effective date of this Resolution, which date shall be the date of its adoption by the Board of Governors; provided, however, that if extraordinary circumstances are deemed by the Executive Directors to warrant an extension of the period during which the applicant may accept membership pursuant to this Resolution, the Executive Directors may extend such period until such later date as they may determine. The Board of Governors adopted the foregoing Resolution, effec- tive February 21, 1966. The Articles of Agreement were signed by Mr. Goh Koh Pui, Chairman and General Manager of the Port of Singapore Authority, on behalf of the Government of Singapore, on August 3,1966.

Resolution No. 21-4 Revocation of the Quota Increase for Laos

On July 6, 7965, the Government of Laos consented to an increase in its quota from $7.5 million to $10 million by install- ments in accordance with the First Resolution of the Board of Governors on Increases in Quotas of Members—Fourth Quin- quennial Review (No. 20-6). In accordance with the terms of that Resolution, payment of the first installment of the increase, required before the increase or any installment thereof could go into effect, was due not later than March 25, 1966, but had not yet been made. Under date of March 17, 1966, the Government of Laos requested the Fund to consider an adjustment of its quota so that its quota will be maintained at the present $7.5 million. The Executive Board resolved on March 30, 1966 that action on the request should not be postponed until the next regular meeting of the Board of Governors. In accordance with Section 13 of the By-Laws, the following Resolution was submitted to the Governors on March 30, 1966 for a vote without meeting:

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RESOLVED: Laos, which initially had consented to an increase in quota to $10 million, has now requested that its present quota of $7.5 million remain in effect. The Board of Governors hereby grants the request of Laos and deems the consent of Laos to an increase in its quota under Board of Governors Resolution No. 20-6 to have been withdrawn with the approval of the Fund. The Board of Governors adopted the foregoing Resolution, effec- tive April 27,1966.

Resolution No. 21-5

Amendment of Section 14(a) of the By-Laws

The Executive Board resolved on May 4, 1966 that action on the amendment should not be postponed until the next regular meeting of the Board of Governors. In accordance with Section 13 of the By-Laws, the following Resolution was submitted to the Governors on May 9, 1966 for a vote without meeting:

RESOLVED: That Section 14(a) of the By-Laws of the Fund shall be amended to read as follows: Section 14(a). Governors and Alternates shall receive their actual transport expenses to and from the place of meeting in attending meetings, and $75 for each night which attendance at such meetings requires them to spend away from their normal place of residence, this amount being reduced to $15 for each night when accommodation is included in the price of transportation. The Board of Governors adopted the foregoing Resolution, effective June 6,1966.

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Resolution No. 21-6 Amendment of Section 14(e) of the By-Laws

The Executive Board resolved on July 5, 1966 that action on the amendment should not be postponed until the next regular meeting of the Board of Governors. In accordance with Section 13 of the By-Laws, the following Resolution was submitted to the Governors on July 6, 1966 for a vote without meeting:

RESOLVED: That, effective November 1, 1965: Section 14(e) of the By-Laws shall be amended to read as follows: The maximum salary and expense allowance including hous- ing, entertainment and all other expenses [except those specified in subsection (f)] shall be $28,000 per year for Executive Direc- tors and $22,000 per year for Alternates. It will be the duty of each Executive Director and each Alternate to state how much of these amounts he intends to draw whether as salary or as expense allowance, except that no Executive Director shall draw more than $25,000 and no Alternate shall draw more than $20,000 as salary. The Board of Governors adopted the foregoing Resolution, effec- tive August 8,1966.

Resolution No. 21-7 1966 Regular Election of Executive Directors

The Executive Board resolved on July 13, 1966 that action in connection with the rules for the conduct of the 1966 regular election of Executive Directors should not be postponed until the time of the next regular meeting of the Board of Governors, at which the election will take place.

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In accordance with Section 13 of the By-Laws, the following Resolution was submitted to the Governors on August 9, 1966 for a vote without meeting:

RESOLVED: (a) That the proposed Rules for the Conduct of the 1966 Regu- lar Election of Executive Directors are hereby adopted; and (b) That a Regular Election of Executive Directors shall take place at the Annual Meeting of the Board of Governors in 1968. The Board of Governors adopted the foregoing Resolution, effec- tive September 6,1966.

Resolution No. 21-8 Membership for Guyana

On March 14, 1966, the Government of Guyana applied for membership in the Fund. The Executive Board resolved on August 3, 1966 that action on the application should not be post- poned until the next regular meeting of the Board of Governors. In accordance with Section 13 of the By-Laws, the following Resolution was submitted to the Governors on August 11, 1966 for a vote without meeting: WHEREAS, the Government of Guyana on March 14, 1966 applied for admission to membership in the International Monetary Fund in accordance with Section 2 of Article II of the Articles of Agreement of the Fund; and WHEREAS, pursuant to Section 21 of the By-Laws of the Fund, the Executive Directors have consulted with representatives of that Government and have agreed upon the terms and conditions which, in the opinion of the Executive Directors, the Board of Governors may wish to prescribe for admitting Guyana to mem- bership in the Fund; Now, THEREFORE, the Board of Governors, having considered the recommendations of the Executive Directors, hereby resolves

©International Monetary Fund. Not for Redistribution RESOLUTIONS 245 that the terms and conditions upon which Guyana shall be admitted to membership in the Fund shall be as follows: 1. Definitions: As used in this Resolution: (a) The term "Fund" means the International Monetary Fund. (b) The term "Articles" means, the Articles of Agreement of the International Monetary Fund. (c) The term "dollars" or "$" means United States dollars of the weight and fineness in effect on July 1, 1944. 2. Quota: The quota of Guyana shall be $15 million. 3. Subscription: The subscription of Guyana shall be equal to its quota and not less than $1.2 million of the subscription shall be paid in gold and the balance in the currency of Guyana. 4. Payment of Subscription: The portion of the subscription to be paid in gold shall be paid not later than the day the Articles are signed on behalf of Guyana. In case Guyana does not acquire membership in the Fund the gold so paid shall be returned to it by the Fund. The remaining part of the subscription which has not been paid in gold shall be paid before the thirtieth day after the initial par value of the currency of Guyana has been agreed in accordance with paragraph 5 below. 5. Determination of Par Value: Within 30 days after the Fund so requests, Guyana shall communicate to the Fund a proposed par value for its currency, and within 60 days following the Fund's receipt of the proposed par value, Guyana and the Fund shall agree on an initial par value for the currency; provided that the Fund may extend the period of 60 days and that Guyana shall be deemed to have withdrawn from the Fund if agreement on a par value has not been reached when the extended period expires. In the period between accepting membership and the estab- lishment of an initial par value pursuant to this paragraph,

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Guyana shall not change its exchange rates prevailing at the time of accepting membership without agreement with the Fund after prior consultation. 6. Exchange Transactions with the Fund: Guyana may not engage in exchange transactions with the Fund until both (a) the par value of its currency has been agreed in accordance with paragraph 5 above and put into operation and (b) its subscription has been paid in full; provided, however, that at any time before the requirements under (a) and (b) have been met, the Executive Directors are author- ized to permit exchange transactions with Guyana under such conditions and in such amounts as may be prescribed by the Executive Directors. 7. Representation and Information: Before accepting member- ship in the Fund, Guyana shall represent to the Fund that it has taken all action necessary to sign and deposit the Instrument of Acceptance and sign the Articles, as contem- plated by paragraph 8(a) and (b) of this Resolution, and Guyana shall furnish to the Fund such information in respect of such action as the Fund may request. 8. Acceptance of Membership: After the Fund shall have informed the Government of the United States of America that Guyana has complied with the conditions set forth in paragraph 7 of this Resolution, Guyana shall become a member of the Fund as of the date when Guyana shall have complied with the following requirements: (a) Guyana shall deposit with the Government of the United States of America an instrument stating that it has accepted in accordance with its law the Articles and all the terms and conditions prescribed in this Resolu- tion, and that it has taken all steps necessary to enable it to carry out all its obligations under the Articles and this Resolution; and (b) Guyana shall sign the original copy of the Articles held in the Archives of the Government of the United States of America.

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9. Limitation on Period for Acceptance of Membership: Guyana may accept membership in the Fund pursuant to this Resolu- tion within six months of the effective date of this Resolution, which date shall be the date of its adoption by the Board of Governors; provided, however, that, if extraordinary cir- cumstances are deemed by the Executive Directors to- warrant an extension of the period during which the appli- cant may accept membership pursuant to this Resolution, the Executive Directors may extend such period until such later date as they may determine. The Board of Governors adopted the foregoing Resolution, effec- tive September 12, 1966. The Articles of Agreement were signed by the Honorable Peter S. d'Aguiar, Minister of Finance of Guyana, on behalf of the Government of Guyana, on September 26, 1966.

Resolution No. 21-9 I Financial Statements, Report on Audit, and Administrative Budget RESOLVED: That the Board of Governors of the Fund considers the Report on Audit for the Fiscal Year ended April 30, 1966, the Financial Statements contained therein, and the Administrative Budget for the Fiscal Year ending April 30, 1967 as fulfilling the require- ments of Article XII, Section 7 of the Articles of Agreement and Section 20 of the By-Laws.

Resolution No. 21-10 x General Reserve RESOLVED: The Board of Governors approves the allocation to the General Reserve of $44,545,481.82, the net income for the fiscal year ended April 30, 1966. 1 Adopted by ihe Board of Governors of the Fund, in Joint Session with the Boards of Governors of the Bank, IFC, and IDA, on September 30, 1966.

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Resolution No. 21-11l

Amendments of the Rules and Regulations

RESOLVED: That the Board of Governors of the Fund hereby notifies the Executive Directors that it has reviewed the amendments of Rules 1-2 and 1-4(f) (2) of the Rules and Regulations adopted by the Executive Board since the 1965 Annual Meeting and has no changes to suggest.

Resolution No. 21-12 x

Membership for Indonesia

WHEREAS, Indonesia, which had been a member of the Fund since April 15, 1954, voluntarily withdrew from the International Monetary Fund under Article XV, Section 1 of the Articles of Agreement of the Fund, effective August 17, 1965; and WHEREAS, Indonesia could have consented to an increase in its quota to $207 million under the Board of Governors Resolution (No. 20-6) on Increases in Quotas of Fund Members—Fourth Quinquennial Review; and WHEREAS, an Agreement on Settlement of All Accounts was adopted on February 16, 1966; and WHEREAS, Indonesia on July 5, 1966 again applied for member- ship in the International Monetary Fund in accordance with Section 2 of Article II of the Articles of Agreement of the Fund; and WHEREAS, pursuant to Section 21 of the By-Laws of the Fund, the Executive Directors have consulted with the representative of Indonesia and have agreed upon the terms and conditions which, in the opinion of the Executive Directors, the Board of Governors

1 Adopted by the Board of Governors of the Fund, in Joint Session with the Boards of Governors of the Bank, IFC, and IDA, on September 30, 1966.

©International Monetary Fund. Not for Redistribution RESOLUTIONS 249 may wish to prescribe for again admitting Indonesia to membership in the Fund; Now, THEREFORE, the Board of Governors, having considered the recommendations of the Executive Directors, hereby resolves that the terms and conditions upon which Indonesia shall be again admitted to membership in the Fund shall be as follows: 1. Definitions: As used in this Resolution: (a) The term "Fund" means the International Monetary Fund. (b) The term "Articles" means the Articles of Agreement of the International Monetary Fund. (c) The term "dollars" or "$" means United States dollars of the weight and fineness in effect on July 1, 1944. 2. Quota: The quota of Indonesia shall be $207 million. 3. Subscription: The subscription of Indonesia shall be equal to its quota. Indonesia shall pay in gold, as a minimum, the lesser of (i) 25 per cent of its quota, or (ii) 10 per cent of its net official holdings of gold and convertible currencies as of the date Indonesia makes the representation to the Fund that it has taken all action necessary to adhere again to the Articles of Agreement. The balance shall be paid in the currency of Indonesia at the rate of exchange established in accordance with paragraph 6 below. 4. Payment of Subscription: The portion of the subscription to be paid in gold and the remaining part of the subscription to be paid in the currency of Indonesia shall be paid not later than the date the Articles are again signed on behalf of Indonesia. In case Indonesia does not again acquire member- ship in the Fund, the amounts paid with respect to the sub- scription shall be returned to it by the Fund. 5. Agreement on Settlement of Accounts and Repurchase Under- takings: (a) Indonesia shall, not later than the date it again accepts membership in the Fund in accordance with paragraph 10

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below, pay to the Fund in gold or convertible currencies acceptable to the Fund all charges which shall have accrued under the Agreement on Settlement of All Accounts and remain unpaid from August 17, 1965 to the date Indonesia again accepts membership in the Fund. (b) Indonesia shall, not later than the date it again accepts membership in accordance with paragraph 10 below, pay to the Fund an amount in the currency of Indonesia at the rate of exchange established in accordance with paragraph 6 below equal, on the date of such payment, to the gold value of the currency of Indonesia held in the IMF Liquidation Account with the Bank Negara Indo- nesia Unit One and presently amounting to the equivalent of 1,812,744.778 troy ounces of fine gold. The Fund shall, promptly after the date Indonesia again accepts membership in accordance with paragraph 10 below, return to Indonesia the currency of Indonesia held in the IMF Liquidation Account. Indonesia shall pay charges on the amount of the Fund's holdings of the currency of Indonesia in excess of the quota of Indonesia in accordance with the provisions of Rule 1-4(f) of the Rules and Regulations of the Fund and for the purposes of this Rule the date of acquisition shall be deemed to be the date Indonesia again accepts membership in the Fund. (c) After Indonesia has again accepted membership in the Fund in accordance with paragraph 10 below, and has made the payments of the amounts as set forth in para- graphs 3 and 4 above and subparagraphs (a) and (b) of this paragraph 5, and after the Fund has returned to Indonesia the currency held in the Liquidation Account, the Agreement on Settlement of All Accounts shall terminate and the IMF Liquidation Account shall be closed. In the event Indonesia does not again acquire membership in the Fund, the amounts of gold and con- vertible currencies paid under subparagraph (a) of this paragraph 5 shall be applied to the payment of charges

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due to the Fund in accordance with the terms of the Agreement on Settlement of All Accounts and the amount of the currency of Indonesia paid to the Fund under subparagraph (b) of this paragraph 5 shall be returned to Indonesia by the Fund. (d) Indonesia shall repurchase from the Fund in gold or convertible currencies acceptable to the Fund an amount of the currency of Indonesia equivalent to not less than the gold value of the currency Indonesia paid to the Fund in accordance with subparagraph (b) of this paragraph 5, as follows: (i) An amount equal to 181,274.478 troy ounces of fine gold not later than February 17, 1967; (ii) An amount equal to 181,274.478 troy ounces of fine gold not later than August 17, 1967; and (iii) An amount equal to 1,450,195.822 troy ounces of fine gold at dates and installments to be deter- mined by the Executive Directors of the Fund, such determination to be made after August 17, 1967 but not later than 12 months from the date on which Indonesia has again accepted member- ship in the Fund in accordance with paragraph 10 below. 6. Establishment of the Rate of Exchange: Indonesia shall, at the time it makes the representation required under para- graph 9 below, communicate to the Fund a rate of exchange based on the rate prevailing in its territories at the time the rate is communicated. Before Indonesia again accepts mem- bership in the Fund in accordance with paragraph 10 below, the Fund and Indonesia shall agree on a rate of exchange at which Indonesia shall pay its currency subscription and the other amount to be paid in the currency of Indonesia in accordance with paragraphs 4 and 5(b) above. 7. Determination of Par Value: Within 30 days after the Fund so requests, Indonesia shall communicate to the Fund a

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proposed par value for its currency, and within 60 days following the Fund's receipt of the proposed par value, Indonesia and the Fund shall agree on an initial par value for the currency; provided that the Fund may extend the period of 60 days and that Indonesia shall be deemed to have withdrawn from the Fund if agreement on a par value has not been reached when the extended period expires. In the period between again accepting membership and the estab- lishment of an initial par value pursuant to this paragraph, Indonesia shall not change its exchange rates prevailing at the time it again accepts membership without agreement with the Fund after prior consultation. 8. Exchange Transactions with the Fund: Indonesia may not engage in exchange transactions with the Fund until both (a) the par value of its currency has been agreed in accord- ance with paragraph 7 above and put into operation, and (b) its subscription has been paid in full; provided, however, that at any time before the requirements under (a) have been met, the Executive Directors are authorized to permit exchange transactions with Indonesia under such conditions and in such amounts as may be prescribed by the Executive Directors. 9. Representation and Information: Before again accepting membership in the Fund, Indonesia shall represent to the Fund that it has taken all action necessary to sign and deposit a new Instrument of Acceptance and to sign again the Articles, as contemplated by paragraph 10(a) and (b) of this Resolu- tion, and Indonesia shall furnish to the Fund such informa- tion in respect of such action as the Fund may request. 10. Reacceptance of Membership: After the Fund shall have informed the Government of the United States of America that Indonesia has complied with the conditions set forth in paragraphs 6 and 9 of this Resolution, Indonesia shall again become a member of the Fund as of the date when Indonesia shall have complied with the following requirements: (a) Indonesia shall deposit with the Government of the United States of America a new instrument stating that

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it has again accepted, in accordance with its law, the Articles of Agreement and all the terms and conditions prescribed in this Resolution, and that it has taken all steps necessary to enable it to carry out all its obligations under the Articles and this Resolution; and (b) Indonesia shall again sign the original copy of the Articles held in the Archives of the Government of the United States of America; and (c) Indonesia shall have paid the amounts as required by paragraphs 3, 4, and 5(a) and (b) of this Resolution. 11. Limitation on Period of Reacceptance of Membership: Indo- nesia may again accept membership in the Fund pursuant to this Resolution within four months of the effective date of this Resolution, which date shall be the date of its adoption by the Board of Governors; provided, however, that, if extraordinary circumstances are deemed by the Executive Directors to warrant an extension of the period during which the applicant may again accept membership pursuant to this Resolution, the Executive Directors may extend such period until such later date as they may determine.

©International Monetary Fund. Not for Redistribution ATTENDANCE

MEMBERS OF FUND DELEGATIONS

Afghanistan Adolfo C. Diz Governor Enrique Domenech Habibullah Achaczai Daniel Fernandez Roberto H. Murcia Temporary Alternate Governor Jose R. Sanchis Munoz Mohammad Aman Manuel San Miguel Raul L. Urtizberea Algeria Enrique Gaston Valente Governor Hector L. Zavala Ahmed Kai'd Australia Alternate Governor Seghir Mostefai Governor Advisers William McMahon Mohamed Aberkane Alternate Governor Mohammed Boudries F. C. Pryor Sid Ahmed Ghozali Cherif Guellal Advisers Yahia Khelif T. J. Bartley Smail Mahroug I. Castles Hachemi Saibi H. C. Coombs Georges Simon M. A. Cranswick Layachi Yaker M. W. O'Donnell J. R. Thomas Argentina J. K. Waller

Governor Austria Jorge Nestor Salimei Alternate Governor Alternate Governor Ludwig Seiberl Felipe S. Tami Advisers Temporary Alternate Governor Horacio A. Alonso Ferdinand Hain Carlos Jose Besanson Advisers Angel R. Caram Paul Berger Angel R. Couriel Erwin Schmidbauer 254

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Belgium Burundi

Governor Governor Hubert Ansiaux Donatien Bihute Alternate Governor Marcel D'Haeze Alternate Governor Ferdinand Bitariho Advisers Herman Biron Adviser Cecil de Strycker Jacques Baudoux Jacques Mertens de Wilmars Andre van Campenhout P. H. Wigny Cameroon Governor Bolivia Simon Nko'o Etoungou Alternate Governor Alternate Governor Wenceslao Alba Quiroz Timothee Mpanjo Penda Adviser Alberto Ibanez Advisers Alfred Ekoko Mpondo Brazil Theodore Koule

Governor Canada Octavio Gouvea de Bulhoes Alternate Governor Governor Denio Chagas Nogueira Mitchell Sharp Advisers Alternate Governor Mauricio C. Bicalho Louis Rasminsky Levy Campos Moura Luiz Felipe Bernardi d'Aragona Advisers Charles Pullen Hargreaves A. J. Barry Alexandre Kafka J. J. J. Chretien Antonio Maciel W. K. Griffiths Luiz Moraes Barros S. J. Handfield-Jones Sebastiao Sant'Anna e Silva W. C. Hood L. Denis Hudon W. A. Kennett Burma R. W. Lawson Governor M. J. McCabe U Kyaw Nyein W. A. McKay Patrick M. Reid Temporary Alternate Governor P. M. Towe Colonel Thein Maung S. Wheelock

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Central African Republic Alternate Governor Beue Tann Governor Alexandra Banza Advisers Felix S. Y. Chang Alternate Governor Pao-Chuan Chao Albert Madiabola R. C. Chen Adviser C. L. Chow Francois Giscard d'Estaing Yung-Chuan Chu W. Y. Hui Martin Wong Ceylon Nelson G. Y. Yu Governor U. B. Wanninayake Colombia Alternate Governor D. W. Rajapatirana Governor Eduardo Arias Robledo Temporary Alternate Governor Gamani Corea Temporary Alternate Governor Arturo Gomez Jaramillo

Chad Adviser Governor Hernando Gomez Otalora Abakar Sanga Traore Alternate Governor Congo (Brazzaville) Jean Nendigui Governor Adviser Edouard Ebouka-Babackas Rene Roustan Alternate Governor Nicaise Samba Chile

Governor Congo, Democratic Republic of Carlos Massad Governor Alternate Governor Albert Ndele Jorge Marshall Alternate Governor Advisers Jean-Martin Mondjobe Luis Escobar Enrique Vial Advisers Jacques de Groote China Louis Lamonzie Edouard Mambu Governor Domenico Paolillo Kan Lee Lievin Zangadi

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Costa Rica Temporary Alternate Governor Bernardo Vega Alternate Governor Alvaro Vargas Ecuador Temporary Alternate Governor Governor Rodrigo Caamano Guillermo Perez Chiriboga Adviser Temporary Alternate Governor Bolivar Salas Castillo Alfonso Arcos

Cyprus Adviser Jacinto Benalcazar Governor C. C. Stephani El Salvador Temporary Alternate Governor Governor K. N. Lazarides Francisco Aquino h. Advisers Dahomey Mauricio Ernesto Martinez Governor Tomas Alfonso Medina Nicephore Soglo Ethiopia Alternate Governor Christian Johnson Governor Menasse Lemma Adviser Jean Charpentier Alternate Governor Yawand-Wossen Mangasha Denmark Adviser Asfaw Damte Governor Erik Hoffmeyer Finland Alternate Governor Governor Karl Otto Bredahl Klaus Waris Advisers Alternate Governor Flemming Agerup Svend Andersen Jouko J. Voutilainen Otto Schelin Advisers Steen Secher Olavi Munkki Max Soerensen Pentti Uusivirta

Dominican Republic France Governor Governor Diogenes H. Fernandez Jacques Brunet

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France (continued) Hilmar H. Hartig Alternate Governor Heinrich Irmler Maurice Perouse Ernst Jirka Harald Joerges Advisers Giinter Keiser Gilbert Bouchet Helmut Koinzer Louis Bruneau Gerhard Laske Jean Carriere Gustav Adolf Sonnenhol Daniel Deguen Miss Helga Steeg Jean du Pre de Saint Maur Erich Stoffers Pierre Esteva Horst Ungerer Jean-Yves Haberer Ernst vom Hofe Rene Larre Friedrich Wilhelm von Schelling Jean Malaplate Claude Pierre-Brossolette Robert Raymond Ghana Gerard M. Teyssier Governor Jean Vallet Albert Adomakoh Gabon Temporary Alternate Governor Governor E. N. Omaboe Leonard Badinga Advisers Alternate Governor P. K. Anane-Binfoh Claude Panouillot B. K. Mensah Adviser Mr. Boutamba Greece Germany Governor Xenophon Zolotas Governor Karl Blessing Alternate Governor John S. Pesmazoglu Alternate Governor Wolfram Langer Advisers Costa P. Caranicas Temporary Alternate Governor F. H. Mahon Otmar Emminger A. D. Sismanidis Advisers Walter Baeumer Guatemala Bernhard Braubach Otto Donner Governor Klaus Flachmann J. Francisco Fernandez Rivas Miss Lore Fiinfgelt Rolf Gocht Alternate Governor Walter O. Habermeier Alberto Fuentes Mohr

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Advisers Iceland Mario Gomez Valencia Armando Gonzalez Campo Governor Manuel Mendez Escobar Johannes Nordal Gert Rosenthal Alternate Governor Manuel Rubio Sanchez Jonas H. Haralz Advisers Guinea Johannes Eliasson Governor S. Frimannsson Moussa Diakite Vilhjalmur Thor Petur Thorsteinsson Alternate Governor Kalilou Doumbouya India Adviser Paul Stephen Governor Sachindra Chaudhuri Guyana Alternate Governor P. C. Bhattacharyya Governor H. Bockelmann Temporary Alternate Governors C. S. Krishna Moorthi Alternate Governor I. G. Patel W. P. D'Andrade Advisers Adviser J. J. Anjaria C. E. Douglas P. K. Banerjee A. K. Banerji Haiti S. Guhan M. G. Kaul Governor R. G. Nayak Antonio Andre A. U. Ratwani Temporary Alternate Governor Pierre Joseph Iran

Honduras Governor Jamshid Amouzegar Governor Temporary Alternate Governor Roberto Ramirez Abdol-Majid Majidi Alternate Governor Advisers Guillermo Bueso Nader Akrami Advisers Parviz Behroozi Ricardo Alvarez R. Amir Goudarznia Ramon Euceda Cardona M. Sadegh Parand

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Iraq Ivory Coast Governor Alternate Governor Saleh Kubba Jean-Baptiste Amethier Alternate Governor Temporary Alternate Governor Subhi Frankool Francois Eliard

Ireland Advisers Daba Agoussi Governor Jean Batigne John Lynch John C. Elliott Alternate Governor Charles Gomis Maurice Moynihan Pierre Laigroz

Israel Jamaica Governor Governor Pinhas Sapir D. B. Sangster Alternate Governor Alternate Governor Y. J. Taub R. T. P. Hall Advisers Advisers Avner Cassuto D. R. Clarke M. Lador R. I. Mason Eli Nevo H. S. Neita Nachum Shamir S. J. Stephens S. Sitton Japan Italy Governor Governor Takeo Fukuda Emilio Colombo Alternate Governor Alternate Governor Makoto Usami Guide Carli Temporary Alternate Governors Advisers Yusuke Kashiwagi Domenico Brancatisano Masayuki Kitoku Berto Capitani Haruo Mayekawa Giovanni De Paolis Taketoshi Yamashita Guido Forte Ugo Morabito Advisers Pietro Ricci Yukihiko Awane Giorgio Rota Hirotake Fujino Sergio Siglienti Toyoo Gyohten Gaetano Stammati Shinsuke Hori Girolamo Trotta Taro Hori

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Toshio Horikomi Advisers Daizo Hoshino Yong Kook Chang Koichi Inamura Byung Kyu Chun Kazuhiko Isohata Wan Mo Hong Michiya Matsukawa Sun Chang Kim Michio Ochi Pyong Whi Min Shijuro Ogata Chung Pum Song Eiji Ozaki Bong Kyun Suh Shigemitsu Sugisaki Gengo Suzuki Hideo Suzuki Kuwait Keijiro Tanaka Alternate Governor Tetsuo Tanaka Hamzah Abbas Hussein Takeshi Watanabe Yukinori Watanabe Toshihiko Yoshino Laos Hitoshi Yukawa Governor Sisouk Na Champassak Jordan Alternate Governor Governor Oudong Souvannavong Khalil Salim Advisers Alternate Governor Sitha Sisombat Ganj Shukri Souvanthong Phenglamphanh Pheng Uplavan Kenya Governor Lebanon J. S. Gichuru Governor Alternate Governor Joseph Oughourlian L. Baranski Alternate Governor Temporary Alternate Governor Farid Solh A. T. Brough

Korea Liberia Governor Governor Hak-Yul Kim Charles Dunbar Sherman Alternate Governor Alternate Governor Se Ryun Kim J. Milton Weeks Temporary Alternate Governors Advisers Jae Sul Lee George A. Blowers Myung Won Shim Thomas Ireland

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Libya Advisers Chong Hon Nyan Governor Khalil bin Hassan Khalil Bennani Lin See Yan M. Shanmughalingam Alternate Governor Tan Sri Ong Yoke Lin Faraj Bugrara Mali Luxembourg Governor Governor Jean-Marie Kone Pierre Werner Temporary A Iternate Governor Sekou Sangare Alternate Governor Gustave Stoltz Mauritania Governor Malagasy Republic Mohamed Salem Ould Governor M'Khaitirat Victor Miadana Alternate Governor Pierre Braemer Alternate Governor Raymond Rabenoro Advisers Robert Julienne Adviser Pierre Sanner Jean-Jacques Boissard Mexico Malawi Governor Antonio Ortiz Mena Governor J. Z. U. Tembo Alternate Governor Rodrigo Gomez Alternate Governor A. G. Perrin Advisers Mario Ram6n Beteta Advisers Gustavo Petricioli Iturbide G. E. Gondwe Enrique Sosa C. V. B. Munthali Morocco Malaysia Governor Driss Slaoui Governor Tan Siew Sin Advisers Abdeslam Jaidi Alternate Governor Abdeslam Tadlaoui Ismail bin Mohamed All Abderrahman Tazi

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Nepal Temporary Alternate Governor Alvaro Porta Governor Bhekh Bahadur Thapa Advisers Gustavo Escoto Goenaga Alternate Governor Oscar Moncada Pushkar Nath Pant Adviser Niger Bijaya Bahadur Pradhan Governor Courmo Barcourgne Netherlands Alternate Governor Governor Charles Godefroy M. W. Holtrop Alternate Governor Nigeria E. van Lennep Governor Advisers A. A. Atta V. M. de Miranda Alternate Governor J. Everts Aliyu Mai-Bornu J. Grooters Miss G. A. Koen Advisers P. Lieftinck A. A. Ayida Baron A. W. R. Mackay A. E. Ekukinam J. A. Sillem Otto B. Essien C. van der Tak F. M. C. Obi H. M. H. A. van der Valk D. M. N. van Wensveen Norway

New Zealand Governor Erik Brofoss Governor H. R. Lake Alternate Governor Thomas L0vold Alternate Governor A. R. Low Advisers Erling Borresen Advisers Odd H0kedal E. G. Buckton Gabriel Kielland P. R. Coney V. H. Schirmer C. H. Terry Olaf Solli

Nicaragua Pakistan Alternate Governor Governor Roberto Solorzano Marin S. A. Hasnie

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Pakistan (continued) Alfonso Grades Alternate Governor Javier Otero M. Majid Ali Alfredo Valencia Advisers M. M. Ahmad Philippines Ziauddin Ahmad Governor A. G. N. Kazi Andres V. Castillo S. M. Sulaiman Ashraf-uz-Zaman Advisers Constantino Bautista Panama Fortunate de Leon Francisco A. Javier Governor Jose Laurel, IV Jorge T. Velasquez Pablo Lazatin Temporary Alternate Governors Benito Legarda, Jr. Juan Jose Illueca Dutary Gregorio S. Licaros Juan Antonio Tejada Mora Manuel P. Manahan Ambrosio Padilla Paraguay Vicente L. Peralta Gil J. Puyat Governor Gil J. Puyat, Jr. General Cesar Barrientos Pablo R. Roman Alternate Governor Antonio V. Roxas Edgar F. Taboada Jose J. Roy Advisers Oscar Antonio Estigarribia Portugal Julio Gutierrez Governor Felix H. Kasamatu Antonio Manuel Pinto Barbosa Mario Luis Moreno Alternate Governor Peru Manuel Jacinto Nunes

Governor Advisers Celso Pastor Conde de Paco d'Arcos Alternate Governor Hernani Caeiro Pereira Emilio G. Barreto Luis Esteves Fernandes Armenio Fonseca Lopes Temporary Alternate Governor Joao Freitas Fernando Schwalb Advisers Rwanda German de la Melena Max Gamarra Governor Carlos Gibson Masaya Hattori

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Alternate Governor Adviser Jean-Baptiste Habyarimana Ahmed Mohamoud Goale

Saudi Arabia South Africa

Governor Alternate Governor Ahmed Zaki Saad G. W. G. Browne Alternate Governor Advisers Abid M. S. Sheikh A. M. de Villiers John Kincaid A. Waldemar Kuhn Senegal

Governor Spain Jean Collin Alternate Governor Alternate Governor Manuel Varela Louis-Jean Eude Advisers Adviser Rafael Aguilar Abd-el Kadel N'Diaye Agustin Alcocer Gabriel Fernandez de Valderrama Sierra Leone Francisco Gimenez Torres Governor Joaquin Gutierrez Cano R. G. O. King Javier Irastorza Angel Madronero Alternate Governor Manuel Ortinez S. B. Nicol-Cole Juan Sarda Dexeus

Singapore Sudan

Governor Alternate Governor Lim Kim San El Sid El Fil Alternate Governor Temporary Alternate Governor Hon Sui Sen Abdel Rahim Mirghani

Somalia Sweden

Governor Governor Seek Abdi Hagi Abicar Per Asbrink

Alternate Governor Alternate Governor Abdullahi Ahmed Addou Sven Joge

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Sweden (continued) Alternate Governor Eugene Abaglo Advisers Kurt Eklof Adviser Lars Kalderen Victor de Medeiros John Wingstrand Trinidad and Tobago Syrian Arab Republic Governor Governor A. N. R. Robinson Ahmad Mourad Alternate Governor Alternate Governor Alex N. McLeod Adnan Farra Advisers Adviser Owen Alves Mohamed El Atrash Errol Williams Leonard Williams Tanzania Governor Tunisia A. H. Jamal Governor Alternate Governor Hedi Nouira E. I. M. Mtei Alternate Governor Sadok Bahroun Advisers G. Akermalm Advisers M. Kamba Ismail Khelil H. A. Noorani Taoufik Smida J. G. Scott Iddi Simba Turkey J. S. Skinner Governor Thailand Ihsan Gursan Temporary Alternate Governor Alternate Governor Mrs. Suparb Yossundara Kemal Cantiirk Advisers Temporary Alternate Governor Pandit Bunyapana Nairn Talu Thavil Khutrakul Advisers Manas Leeviraphan Mehmet Akmansu Chalong Pungtrakul Nezih Tuncsiper

Togo Uganda Governor Governor Antoine Meatchi L. Kalule-Settala

©International Monetary Fund. Not for Redistribution ATTENDANCE—MEMBERS OF FUND DELEGATIONS 267

Temporary Alternate Governor L. P. Thompson-McCausland J. M. Mubiru A. H. Walker D. W. G. Wass Adviser C. Wilson S. M. Musoke

United States United Arab Republic Governor Governor Henry H. Fowler Ahmed Zando Temporary Alternate Governors Alternate Governor George W. Ball Nazmy Abdel Hamid Joseph W. Barr William B. Dale Advisers Frederick L. Deming Samir Abdel-Galil Winthrop Knowlton Abdel Rahman Hammoud Livingston T. Merchant All Nazif Abdel Latif Seoudi Congressional Advisers Henry Tadros Bourke B. Hickenlooper Henry S. Reuss John J. Sparkman United Kingdom William B. Widnall Governor Hale Boggs James Callaghan Joseph S. Clark Paul H. Douglas Alternate Governor Robert F. Ellsworth C. J. Morse Mrs. Martha W. Griffiths Seymour Halpern Temporary Alternate Governors Vance Hartke Sir Denis Rickett James Harvey J. M. Stevens Jacob K. Javits Russell B. Long Advisers Abraham J. Multer P. R. Baldwin George A. Smathers R. H. Belcher Robert G. Stephens, Jr. G. L. Bell A. W. D. Eves Advisers G. M. Gill Gardner Ackley F. L. Hall Francis M. Bator D. F. Hubback John T. Connor P. Jay Charles A. Coombs J. A. Kirbyshire J. Dewey Daane R. R. Neild W. True Davis, Jr. R. E. Radford Mark C. Peer C. Raphael William S. Gaud

©International Monetary Fund. Not for Redistribution 268 SUMMARY PROCEEDINGS, 1966

United States (continued) Viet-Nam Alfred Hayes Governor John S. Hooker Au Truong Thanh Harold F. Linder William McChesney Martin, Jr. Temporary Alternate Governor Arthur Okun Tran Thanh Quan Walter C. Sauer Anthony M. Solomon Adviser Bernard Zagorin Ha Xuan Trung

Upper Volta Yugoslavia Governor Tiemoko Marc Garango Governor Nikola Miljanic Alternate Governor Robert Pebayle Alternate Governor Borivoje Jelic Uruguay Advisers Alternate Governor Miljenko Bojanic Raul Ybarra San Martin Mirko Mermolja Pavel Pavlovic Temporary Alternate Governor Gavra Popovic Alfredo Castelli Milivoje Spasic Zoran Zagar Venezuela Alternate Governor Zambia Benito Raul Losada Governor Advisers A. N. L. Wina Isaac Chocron Leopoldo Diaz Bruzual Temporary Alternate Governor Gustavo Escobar B. R. Kuwani Alfredo Masso Ernesto Peltzer Advisers Guillermo Pimentel D. Banda Samuel Rieber Wolf S. C. Mbilishi Marcos Sandoval L. M. Nyambe

©International Monetary Fund. Not for Redistribution ATTENDANCE—OBSERVERS 269 OBSERVERS

The Gambia Central Bank of West African States S. S. Sisay J. Taylor Robert Julienne Pierre Sanner Indonesia Common Organization of African H. A. Pandelaki and Malagasy States Ambroise Foalem African Development Bank S. M. A. Alamoody Commonwealth Secretariat Ali Kara-Mustapha P. Clarence Parker, Jr. T. E. Gooneratne

Asian Development Bank CONTRACTING PARTIES to the Gen- eral Agreement on Tariffs and Douglas C. Gunesekera Trade Rolf Hancke Bank for International Settlements European Economic Community Gabriel Ferras Milton Gilbert Robert Marjolin Georges Janson Robert Triffin Tom de Vries Center for Latin American Mone- tary Studies European Free Trade Association Javier Marquez George R. Young Fernando Rivera Frank Mitchell

Central American Bank for Eco- European Investment Bank nomic Integration Yves Le Portz Gustavo Guerrero Giandomenico Sertoli Jorge Sol Castellanos Pierre Barre Hugo Ordonez Guy Trancart

Central Bank of Equatorial Afri- Food and Agriculture Organiza- can States and Cameroon tion of the United Nations Georges Gautier I. H. Ergas

©International Monetary Fund. Not for Redistribution 270 SUMMARY PROCEEDINGS, 1966 Inter-American Development Organization of American States Bank Walter J. Sedwitz Felipe Herrera Germanico Salgado T. Graydon Upton Rene Monserrat Ignacio Copete-Lizarralde Inter-American Committee on the Robert B. Menapace Alliance for Progress Rodrigo Llorente Carlos Sanz de Santamaria Jose Juan Olloqui Francisco Norberto Castro Julio C. Gutierrez Permanent Secretariat of the Gen- Diego Calle Restrepo eral Treaty for Central Ameri- Victor da Silva can Economic Integration Carlos E. Peralta Mendez Jorge Gonzalez del Valle

International Labor Organization United Nations Ralph Wright Philippe de Seynes I. H. Abdel-Rahman League of Arab States Hans W. Singer Sidney Dell Abdel-Khalek Hassouna Karl E. Lachmann United Nations Development Organization for Economic Coop- Program eration and Development Roberto M. Heurtematte Rajendra Coomaraswamy Thorkil Kristensen Rank Asha Jean Cottier Wilhelm Hanemann J. C. R. Dow United Nations Educational, Luciano Giretti Scientific and Cultural Philip Hayes Organization Development Assistance A. Gagliotti Committee W. Moller Willard L. Thorp World Health Organization European Monetary Agreement Alexandra Hay Dr. R. L. Coigney

©International Monetary Fund. Not for Redistribution EXECUTIVE DIRECTORS AND ALTERNATES

Executive Directors Alternate Executive Directors J. J. Anjaria Arun K. Banerji Mauricio C. Bicalho Alexandre Kafka William B. Dale John S. Hooker Kurt Eklof Otto Schelin Luis Escobar Enrique Domenech S. J. Handfield-Jones Patrick M. Reid Louis Kande Antoine W. Yameogo Semyano Kiingi Paul L. Faber Rene Larre Gerard M. Teyssier Pieter Lieftinck H. M. H. A. van der Valk Amon Nikoi M. W. O'Donnell A. M. de Villiers Ahmed Zaki Saad Albert Mansour Sergio Siglienti Costa P. Caranicas J. M. Stevens Douglas W. G. Wass Gengo Suzuki Eiji Ozaki Beue Tann C. L. Chow Enrique Tejera-Paris Jorge Gonzalez del Valle Andre van Campenhout Herman Biron Ernst vom Hofe Horst Ungerer

271

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©International Monetary Fund. Not for Redistribution GUIDE TO STATEMENTS BY GOVERNORS

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©International Monetary Fund. Not for Redistribution Statements by Governors Listed in Alphabetical Order by Country PAGE Afghanistan—Abdullah Yaftaly 64 Algeria—Ahmed Kaid 182 Australia—William McMahon 70 Austria—Ludwig Seiberl 121 Belgium—Hubert Ansiaux 118 Burundi—Eric Manirakiza 195 Canada—Mitchell Sharp 33 Central African Republic—Alexandre Banza 191 Ceylon—U. B. Wanninayake 189 Chad—Abakar Sanga Traore 148 China—Ching-Yu Chen 175 Congo, Democratic Republic of—Albert Ndele 139 Ethiopia—Yilma Deressa . . . 169 Finland—Klaus Waris 89 France—Michel Debre 37 Germany—Karl Blessing 53 Ghana—A. A. Afrifa 29 Greece—Xenophon Zolotas 128, 209 Guyana—P. S. d'Aguiar 166 India—Sachindra Chaudhuri 67 Ireland—John Lynch 132 Israel—Pinhas Sapir 85 Italy—Emilio Colombo 90 Jamaica—D. B. Sangster 22 Japan—Takeo Fukuda 49 Jordan—Hatim S. Zu'bi 53 Kenya—J. S. Gichuru 142 Korea—Se Ryun Kim 75 Laos—Sisouk Na Champassak 172 Libya—Khalil Bennani 193 Malaysia—Tan Siew Sin 25 Mauritania—Mohamed Salem Ould M'Khaitirat 163 Mexico—Antonio Ortiz Mena 124 Nepal—Bhekh Bahadur Thapa 136 Netherlands—M. W. Holtrop 95 275

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PAGE New Zealand—H. R. Lake 134 Nigeria—A. A. Atta 188 Pakistan—N. M. Uquaili 162 Paraguay—Cesar Barrientos 155 Cesar Romeo Acosta 165 Philippines—Andres V. Castillo 99 Sierra Leone—R. G. O. King 181 Singapore—Lim Kim San 77 Somalia—Ali Omar Scego 79 South Africa—G. W. G. Browne 82 Sweden—Krister Wickman 168 Syrian Arab Republic—Ahmad Mourad 115 Tanzania—A. H. Jamal 151 Trinidad and Tobago—A. N. R. Robinson 146 Uganda—L. Kalule-Settala 170 United Arab Republic—Nazih Ahmed Deif 196 United Kingdom—James Callaghan 57 United States—George W. Ball 163 Henry H. Fowler 102 Upper Volta—Tiemoko Marc Garango 203 Yugoslavia—Kiro Gligorov 34 Zambia—A. N. L. Wina 176

©International Monetary Fund. Not for Redistribution List of Principal Topics Discussed l Developing countries Burden of debt 5, 17, 26, 66-67, 76, 86-87, 125-26, 149 Interest rates 22-24, 68, 131, 145, 149, 182, 211, 212 Needs and response thereto 5-9, 16-17, 23-24, 25-28, 41-43, 45- 47, 65-66, 68, 71, 81, 84-85, 103, 106, 125-26, 136-37, 138, 146-47, 149-50, 154-55, 156, 163-64, 165- 66, 167-68, 168-69, 175-76, 178- 79, 181-82, 183-84, 190, 192-93, 196, 199-201,201-202,205-207,212 Prices and terms of trade 25, 28, 30, 47, 152, 166, 189, 205-206 Gold Price 56, 75, 84-85, 89-90 Reserves 44-46, 55-56, 72, 75, 83, 91-92, 110 International capital movements 14, 71, 106-107, 135, 199 International economic situation Interest rates 12, 14-16, 49, 58-59, 71-72, 100, 127, 132, 145 Level of activity and prices 12-13, 49, 58, 70, 96-97, 137, 181 Mix of monetary and fiscal policies 14-16, 33, 54-55, 58-59, 96-97, 140, 145, 208 Need for cooperation 46-48, 49-50, 52, 91, 103-104, 137, 180 International liquidity Adequacy 12-13, 20-21, 35-36, 40-42, 48, 50-51, 56, 60-61, 68, 72, 76-77, 83, 89, 91, 98, 111-12, 116, 127, 132-33, 176, 198-99 Decision making 31-32, 33-34, 53, 57, 61-62, 66, 69, 73-74, 77, 87-88, 90, 94, 101, 120-21, 141, 143, 169, 176 Distribution of additional reserves 19, 24, 31, 33-34, 35-36, 50-51, 61-62, 73, 77, 80, 88, 90, 92, 137, 141, 143, 176,184-88, 191,194,196 Form of new arrangements 4, 24, 30-31, 34, 35-36, 51-52, 57, 61-63, 66, 68-70, 73, 77, 83-84, 89-90, 92, 93-94, 98-99, 116-17, 120, 123-25, 133, 135, 140-41, 147, 154, 156-57, 164- 65, 176, 181, 188, 190-91 Procedures for further consideration 19, 20, 33, 34, 35-36, 57, 61, 69, 74, 77, 87, 88, 94, 98, 100-101, 112-13, 115, 119-20, 126-27, 131-32, 134, 142-43, 162, 176, 191, 194, 195-96, 208-209, 211 1 This list relates only to the Addresses and Statements. It excludes dis- cussions of individual countries, tributes to the host country, and personal tributes. References are to pages. 277

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International liquidity (cont.) Role of reserve country deficits 13, 40, 55-56, 111, 114, 133 Timing of new arrangements 20, 24, 32, 33-34, 35-36, 51, 52, 56- 57, 61, 63-64, 73, 77, 90, 92-93, 98, 103-104, 120, 129-30, 134-35, 140, 143-44, 147, 178-80, 181, 188, 204 and developing countries. .7, 17-18, 24, 42-43, 53, 80, 95, 117, 121, 131, 141, 142, 147, 150, 152-54, 162, 164-65, 176, 178, 184-88, 190-91, 194, 196, 197-98 International Monetary Fund Annual Report 4, 10-11, 13, 19, 32, 35, 49, 50, 53, 57, 64, 68, 76, 78, 81, 91, 94, 96, 99, 102, 109, 115, 117, 118, 120, 121, 124, 128, 133, 135, 136, 137, 138, 139-40, 143, 155- 56, 169, 175, 178, 188, 190, 195, 197, 202 Compensatory financing 18-19, 32, 35, 52, 58, 68, 71, 77, 102, 127, 147, 157, 165, 171- 72, 179, 183-84, 190, 203, 211 Cooperation with IBRD 36, 52, 58 General Arrangements to Borrow 48, 102, 110, 175, 203 Quota increases 4, 11, 48, 102, 127, 175, 203 Suggested studies 75, 83, 85, 119-20, 190, 207 Technical assistance and training 11, 28, 67, 85-86, 151-52, 195 Transactions and financial policies 3, 10, 36, 47-48, 66, 68, 91-92, 118, 119, 175, 200, 202, 204-205, 207 Twentieth anniversary 2, 11, 25, 32, 34, 64, 95, 128, 136, 162, 167, 169, 175, 188 International monetary system Balance of payments adjustment process. . 12-13, 44, 55-57, 59, 60, 82-83, 97, 99, 105-106, 116, 120, 121-22, 123, 125- 26, 135, 145-46, 179, 211 Central bank cooperation 20, 56, 59, 110, 133 Gold exchange standard 38-40 Regional economic arrangements 125, 170, 204

©International Monetary Fund. Not for Redistribution