Notes to Financial Statements June 30, 1961
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Public Disclosure Authorized ,/ CU) ri _ 0 [ C) C)A Public Disclosure Authorized _ _ { -~ m C oCD Public Disclosure Authorized Public Disclosure Authorized WBG INTERNATIONAL DEVELOPMENT ASSOCIATION 1818 ii STREET N.W. WASIIIN(TON 25, i).c. September 19, 1961 My dear Mr. Chairman: In accordance with Section 2 of the By-Laws of the International Development Association, I have been authorized by the Executive Directors to submit to the Board of Governors this Annual Report of the Association covering the period from Sep- nnembcr ')A -gcln U~11tI hT, 190,117kU)V whenW-A the1L111-I i1LL1%i..A;ticles Utof .13~,rLA,1IL1-1L %_1L'.U11Uentc;cd, IIILUinto 7 force, to June 30, 1961. Sincerely yours, AzzS . 4 I%\ I EUGENE R. BLACK President Chairman, Board of Governors, TInerna-ional Tevel-5Vi'Jen A--oi-.-Lo NCE..a 44 ,VWAS, INATIONS0I,AVE BEEN PRACn,ICING. ECON04VLJC AID AND FINANCIAL cooneration on a miiltilaiteral hasis ton n linnrrpecelpndpd exepnf The Intprnational Development Association is the newest of the international organizations established as a vehicle for this cooperation. IDA came into existence in September 1960, and, at the close of its first fiscal year, has extended credits of just over $100 million for development projects in its member countries. IDA aims, in the words of its Articles of Agreement, "to promote economic de- velopment, increase productivity and thus raise standards of living in the less developed areas of the world." It is an affiliate of the International Bank for Reconstruction and Dv e-"p ...- 1' buAL.LA tLh I, iLtLIIa1Iank), LiIcaLWsuc 1thtwire iLLiLiV des en- tirely separate. Like the Bank, IDA helps to finance development projects which have been carefully selected and prepared; but it provides capital on more liberal terms of reDavment and is readv to heln finanee a wider ranae of nrniectc thnn the Rnnlc The establishment of IDA came after many years of discussions of the desirability of accelerating economic growth in the less developed areas by adding international funds, repayable on other than conventional terms, to the flow of development capital. After consultations which began among the member governments of the World Bank in 1958, th-e Bank's Board or Governors at its Annual Meeting in i959 approved a United States resolution calling on the Bank's Executive Directors to draft Articles of Agreement for IDA. The Articles were submitted to governments in January 1960. The Articles provided that only mem.ber governments of the Bank were eligible to join the Association, and provided for initial subscriptions aggregating $1,000 million, if all the members of the Bank became original members of the Association. The initial subscrip- tion of each original member was proportioned to that member's subscription to the capital stock of the Bank. A sufficient number of members of the Bank accepted mem- bersnip to bring the Articles into force on September 24, 1960. Under the Articles of Agreement, members of the Association are divided into two groups: Part I countries, consisting of the countries which are more advanced eco- norrically; anA Part IT countries, c11JLi1i theL ess dcvl opVeUFU1nations. I e t -Wo groups make their payments on subscriptions in different ways. A Part I country makes an initial payment of 23% and pays the balance in four equal annual installments; all these funds are convertible and usable yli the Asso.iation for development . redits. A Part II country makes its payments on the same installment basis; but of the total, only 10%-half paid initially and the rest in four installments-is in convertible funds. The remainder is paid in the member's own currency and may not be used by IDA without the member's consent. Part I countries are to be contributors for iDA purposes, altnough tne Association may extend credits for projects in their dependent and associated territories. All Part II countries are eligible to receive IDA credits; those assisted may receive a blend of Bank lonsnan-A TTnA credi,an til ol- --- 1 A - -r-AQ -L A- __ 4F- _- LA t,aLza A.JatnJ- ani'a U±L-.'L -LL h , Vll Llb I.. IUI1IILaMll a., ii4y ULJ assisted by IDA ctedits only. IDA has begun its work at an opportune time. In the era of economic growth and political change which has followed the war. the demand for develonment canital has markedly expanded. In a growing number of developing countries, however, the need for, and the ability to make effective use of, outside capital is increasing faster than the ability to service conventional loans; some countries have already begun to draw close to the limit of the debt they can prudently assume on conventional terms. The problem is comllpounded by the circu1sLanLces or many newly independent countries: tney are not able to rely to the same extent as before on the financial support of the metro- politan powers, including guarantees on loans floated abroad; but they have not yet developed a credit standing of thleir ow sucient to enable 4-hm t- borrow on 1 scale they require. IDA has no policy of allocating its funds in advance. An effort is being made, however, to assure wide geographic distribution of development creditsf tacing into 4~~~~~~~~~~~~~~~~~~~~~~~ account the priority which should be given to the poorer countries. At the same time, it probablv will be necessary to observe a limit on credits for some countries wllich could quickly present enough suitable projccts to absorb a disproportionate amount of ID A runds. In administering its funds, IDA will have the same regard as the Bank to the obsenrance by recipient countries of sound financial and economic policies and to the careful selection and preparation of projects or programs .ich nma be financed. Where imports of goods or services are being paid for by IDA funds, the Association will normally require that procurement be based on full international competition. IDA now has a lengthening list of Drop)osals under investigation all over the world. They include projects for the development of electric power, transportation, agriculture and other activities of a kind traditionally finaniced by the Bank. They also include projects of a kind not hithcrto financed by the Bank: for instance, for municipal water supply and teclhnical training. 111 I oLdL1UI1tu I1 X sple l' UperatioUn aU tileIIC eeu ror tile type of' duevlop- ment capital that IDA can provide, its resources are small. At the end of the fiscal year, 51 member governments of the Bank had accepted membership of IDA (15 as Pahrf I menmiers and 36 as Part I nmemmbcrs) Subscrirptinnc amoiined to the equivalent of almost $906 million, including $756 million which IDA may convert as needed for its operations. IDA received payments of $208 million on these subscriptions, including $178 million in convertible form. Further payments on initial subscriptions are to be made annually over four years. The 'Articies of Agreement require iDA to keep the adequacy of its resources under regular review. The first review is to take place within the first five years of operation, with reviews at five-year intervals thereafter. The Articles of Agreement also provide, hlowever, that gencral orindivi,hual-- rinrcrases in the- -ubscription of r-lllcbr governments may be authorized at any time. Although IDA is a separate legal entity with its own financial resources, it is closely affiliated with the Bank. The sanme Executive Directors represent rconntriPe tflat are members of both the Bank and IDA. The President of the Bank is ex officio President of IDA, and the officers and staff of the Bank serve as the officers and staff for IDA. This joint administration not only makes for operating economies, but also assures the effective coordination of the policies and procedures of the two institutions. IIJA, like the Bank, nas entered into an agreement with the United Nations. Thne agreement establishes on a formal basis, and includes IDA within, a liaison committee which has been operating on an informal basis for a number of years. The committee Consistsf of the Secretary General of the U. N., the Managing Director of the U. N. Special Fund, the Executive Director of the U. N. Technical Assistance Board, and the President of the Bank and IDA, or their designated representatives. OPERATIONS IDA operations began on November 8, 1960, when the Executive Directors of the Asso- cciion01 hldIIU tllirL fiirs[ecting. In its first eight months of operations, ending June 30, 1961, IDA extended develop- ment credits totaling $101 million in four countries. The credits are on identical terms: each is for 50 years, uvithout interest, Repayment is due in foreign exchange; amortiza- tion is to begin after a ten-year period of grace; thereafter, 1% of the principal is repay- able annually for ten years and 3% is repavable annually for the final 30 years. A service charge of 3/4 of 1% per annum, payable on the amounts withdrawn and outstanding, will be made to meet IDA's administrative costs. These terms do not necessarily set a de- tailed pattern for future iDA credits, but they indicate that iDA's assistance is to be given on a basis strikingly different from the basis on which assistance has hitherto been available from international sources. .IUU1i L1ldI Udet1101i VIDAk cdits1L up to JuInI 20J are giVenl UbUeW. HONDURAS $9 million credit for highwvays signed May 12, 1961 This development credit, the first to be extended by IDA, will make $9 million available to Honduras to assist in carrying out a program of highway development and maintenance.* -. TT1 ne-_ program_t lbeing1 _'-_ _ nnancedr -_ 1I includes1 1 -a o6-mlne' 1 extension.