IN THIS ISSUE Cover: Raymond Aubin; back The AWKWI Meetings of the Boards of Governors of the cover: Hordur Karlsson; photo International Monetary Fund and the Group were credits: pages 2, 3, Central Mort- gage and Housing Corp., Canada; 5, held In September in Copenhagen, . Articles in the Leroy Woodson, Jr., Corcoran Gal- center section of the issue beginning on p. 29 point out the lery of Art; 8, 14, 21, 39, 44, 53, highlights of these meetings, at which the Governors discussed 59, Edwin G. Huffman for World sortie df the most important problems now facing the world Bank; 27, Ray Witlin for World economy. Bank; 33, 34, 35, 36, 37, 38, 42, Pressehuset, Copenhagen; 37 Ate- lier Bache, Copenhagen; charts: 19, Subjects discussed at the Meetings find echoes in other Linda Reynolds; 49, Hordur Karls- articles. In "Urbanization Problems and Prospects" on p. 2, son; maps: 26, Linda Reynolds; 46, Richard M. Westebbe fees rapid urbanization in the less 47, Richard D. Lawrie; illustra- developed world as an historical phenomenon that calls for tions: 32, 39, 40, 41, 43, 44, 56, Hordur Karlsson. analytical study m well as current action.

In "Exchange Rates at the Beginning of 1970" (p. 16), Jozef Swidrowski surveys the world system of exchange rates at this point in time.

In "Special Drawing Rights: The Computer Approach to the Wtw -(tern Asset/' Otndeterio Trujilte shows how SDft's were established by etectropie computing and transferring each country's allocation onto computer magnetic tape.

JJ. Potak and Fred Hirsch review books dealing with different aspects of the evolving monetary system. See Book Notices, p. 61.

©International Monetary Fund. Not for Redistribution EDITOR J. D. Scott

DEPUTY EDITOR Donald Townson Finance and Development CONSULTING EDITORS Volume 7 Number 4 December 1970 L. Ruben Az6car~ Jean van der Mensbrugghe

ADVISORS TO THE EDITOR Roger V. Anderson CONTENTS Barend A. de Vries John A. Edelman H. Geoffrey Hilton Michael L. Hoffman Urbanization Problems and Prospects 2 F. A. G. Keesing Richard M. Westebbe Henri H. P. King LarsLind The Case for a Central Projects Bureau 9 Samuel Lipkowitz C. J. Martin A. S.Ray Charles F. Schwartz Exchange Rates at the Beginning of 1970 16 Jozef Swidrowski DESIGN Hordur Karlsson Livestock: The Road to Market 22 Fund Graphics Section Donald J. Pryor

1970 Annual Meetings, Copenhagen 29

The Bank Group Meeting 32 Cyril H. Davies Finance and Development is pub- lished quarterly in English, French, and Spanish by the International The Fund Meeting 38 Monetary Fund and the International Bank for Reconstruction and Develop- Tony Helm and John Kay ment, Washington, D.C. 20431, U.S.A. A German language edition is Indonesia: Economic Stabilization, 1966-69 46 published by the International Mone- Gunnar Tdmasson tary Fund and the International Bank for Reconstruction and Development in collaboration with HWWA-Insti- Special Drawing Rights: The Computer Approach 54 tut fur Wirtschaftsforschung-Ham- burg, sponsored by Kreditanstalt fur to the New Reserve Asset Wiederaufbau and produced by Ver- Candelario Trujillo, Jr. lag Weltarchiv GmbH. A selection of its contents is pub- Book Notices 61 lished annually in Rio de Janeiro, , in cooperation with the United Nations Information Center. Recent Activity—International Bank for Reconstruction and 64 Opinions expressed in articles and Development, International Development Association, and other material are those of the writer or writers; they are not statements of International Finance Corporation Fund or Bank policy. The contents of Finance and De- Recent Activity—International Monetary Fund 66 velopment^ may be quoted or repro- duced without further permission. Due acknowledgment is requested. Table of Contents for Volume 7, 1970 70

©International Monetary Fund. Not for Redistribution Urbanization Problems and Prospects

The author sees the rapid urbanization in the less developed -world not as a crisis that can be "dealt with" by urgent measures but as a major his- torical phenomenon that calls for analytical study as well as current action in the hope that it can be influenced to play a positive role in economic development.

Richard M. Westebbe

'-pHROUGHOUT the less developed world rapid The result is that the cities of the underdeveloped JL urbanization is accompanied by bitter social dis- world are increasingly spawning what has been termed tress as well as intractable problems that will pro- by Oscar Lewis a "culture of poverty" that is more foundly influence economic development. The urban akin to rural peasant society than it is to modern urban population grows far more rapidly than the number of society. new jobs available to it, causing severe unemployment Is there, then, an "urban crisis"? It is tempting to and underemployment. The cities are financially unable think in such terms. The word "crisis" suggests that to meet the sharply rising demand for social services urgent measures can be taken that will avert imminent and social overhead investment, thus leading to a dete- disaster. In fact there are no urgent measures that we rioration in the quality of urban life for the bulk of the can take, and there is no prospect that the social struc- inhabitants and to slums and shanty towns for the very tures of the less developed world are about to collapse. poor. The chaotic growth of cities, the ineffective allo- We are witnessing an historical transformation, in cation of resources, and deficiencies in basic infrastruc- which great forces are at work, rending and remaking ture are retarding industrialization, the growth of the whole social pattern; these forces are operating employment, and, in turn, the growth of the national over a long period, and the concept of crisis is inappro- economy. priate. Not only do the cities fail to provide jobs for the It is an unbalanced transformation and—given newcomers—they do not even provide the training and present demographic trends, economic growth rates in the cultural integration that might lead to jobs. Often, the less developed world, and the constraints on the newcomers are absorbed only in the strictest physi- resources—it will probably get worse. Yet urbanization cal sense; in every other way they remain outsiders. is, for better or worse, at the core of the process of 2

©International Monetary Fund. Not for Redistribution development. The economic growth of urban areas In the most recent years the trends have accelerated. where most industry is centered and the growth of the In the decade of the 1950's the rate of increase of national economy are closely interrelated. The task urban population was almost one and a half times that then is to plan for the most efficient spatial and eco- of the previous three decades in both the developed nomic organization of the system of cities in the less and the less developed countries; in the less developed developed world in order to maximize growth. Further, countries urban populations rose by 64 per cent from we should seek to minimize the cost of urbanization, 1950 to 1960 compared with 31 per cent in the devel- improve the mobilization of urban resources, and oped countries. Projections for the period through greatly improve the management of urban centers. In 2000 indicate that in those less developed countries this way more resources will be available to raise that are densely populated the urban population may output, increase employment, and facilitate the eco- rise fourfold to fivefold and in those of relatively low nomic and cultural integration of the growing marginal density the urban population may rise sixfold to eight- city populations of the less developed regions into fold. modern urban life. Despite these dramatic increases in urban popula- In such ways governments and institutions con- tions, the rural and small-town populations of the less cerned with international development can help to developed countries rose by over 50 per cent from shape these forces, we must first of all study them. As 1920 through 1960 and are projected to rise by a fur- reverse, the historical forces that are currently mani- ther 90 per cent through the end of the century. The festing themselves in the process of urbanization. To growth of big cities is expected to continue to exceed shape these forces, we must first of all study them. As urbanization rates in general. With most major cities the world will not wait and much of our knowledge growing at rates of from 5 per cent to 8 per cent will have to be obtained from experience, programs annually, they can be expected to double their popula- and policies need to be devised on a current basis. The tions in 10 to 15 years' time. management of both national and international While the projections take no account of the effects resources will have to be devoted to urban areas that of potentially successful family planning programs, it can be greatly improved so that the pattern and scale would be unwise to look to such programs for much of urban development can increasingly reflect national, relief in the next two decades. In the first place, family economic, and social objectives. planning programs are only likely to become effective gradually and are therefore unlikely to have great The Demographic Characteristics of Urbani- impact on population growth rates in the near future. zation Second, the numbers entering the labor force will not be affected for at least 15 years; these people are The urbanization process in the developing countries already born. Third, family planning no matter how is characterized by high rates of natural population effective, is unlikely to affect the rate of rural to urban increase coupled with an accelerating movement of migration. More than half of the urban population rural populations to urban centers.1 In the 40 years growth is due to migration from rural areas and small from 1920, the urban population of the more devel- towns. The evidence indicates that as countries reach oped countries doubled, so that by 1960 it was 46 per higher levels of urbanization, the exodus from rural cent of the total; North America was 58 per cent areas increases sharply. The really low income areas of urbanized, the Soviet Union 36 per cent. In the same the world, including most of Asia and tropical Africa, period, the urban population of the less developed have yet to reach 25 per cent levels of urbanization. countries grew almost fivefold but still constituted only 15 per cent of the total by 1960; in most of Asia the percentage urbanized was about 14, in tropical South Urbanization and Development: Past and 2 Present America it was 30, and in tropical Africa 7. In the countries that are now highly urbanized—the 1 "Urban" is defined by the United Nations as a settlement leading industrial countries—urbanization proceeded of 20,000 or over. slowly at the beginning of the development process, 2 In this analysis, temperate South America, including , Chile, and Uruguay, is included among the more then rose steeply in the early stages of industrialization, developed countries with an aggregate 1960 urbanization level and finally tapered off when a saturation point was of 53 per cent. While the demographic pressures in this area reached. At the most advanced stage of urbanization are less acute, the problems of urbanization and economic development are serious. dispersion of the urban population takes place through

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©International Monetary Fund. Not for Redistribution the industrialization of rural areas. Technological rather than slums of despair. Over the short run the changes in transport and communications as well as supply of labor in the cities of the less developed world the changing functions of cities over time contribute to is almost infinitely elastic, and an increased demand for this process. labor in the urban modern sector will continue to India may be taken as a case in point in comparing attract an increased flow of rural migrants into the city. development with urbanization in the less developed The effects of rising rural productivity have not been countries. India's urbanization in 1951 was 11 per sufficiently analyzed. With improved inputs and tech- cent, a point reached by a number of European coun- niques in rural areas, dramatic rises in output per unit tries between 1850 and 1900. At this point—the 11 of land are being achieved. In the industrializing west- per cent point—slightly more than half of the popula- ern world this phenomenon freed large numbers of tion of the European countries derived their livelihood people to go to the cities. In the underdeveloped areas from , while two thirds of India's population it may simply make more people superfluous on the , still depended on agriculture. About one fourth of land. Yet we would want to know more about the Europe's labor force was already engaged in manufac- impact of rising income levels on the demand for turing at this early state of urbanization; the figure for goods and services in rural areas and the possibility of India was 10 per cent. In addition, much of India's absorbing part of the surplus labor force in urban set- manufacturing is of the cottage kind in rural areas. By tlements in rural areas. contrast, industry in developing Europe was able to benefit from the external economies of location in large The Provision of Public Services urban centers and internal economies of scale, leading to rapid capital formation in urban areas. In India the The conceptual problems of analyzing urban invest- generally smaller scale and dispersion of manufacturing ment in terms of costs and benefits are complex. The reduces capital formation, technological change, and the fact that an increasing proportion of the population of growth of employment in rapidly growing centers. The the less developed countries will be living in urban increasing urban population accordingly must find areas means that the demand for urban public services employment in miscellaneous low productivity will be increasing. People living in rural areas normally occupations. In contrast, the and Europe do not enjoy the same benefits of public health, educa- industrialized under conditions where the long-run tion, fire, police, sewerage, water, roads, power, and demand for labor approximated the supply of labor in other services that are available in urban areas. At any urban areas and endowments of capital and capacity rate, their requirements for such services are lower. for introducing technological changes were compara- Even housing creates special demands in urban areas tively far greater. that are simply not considered as a function of public policy in rural areas. Public authorities face two Rural-Urban Migration difficulties in relation to this rising demand. First, if they decide to allow the quality of services to decline, If the cities provide neither sufficient jobs nor decent social pressures are likely to increase. Second, they will housing, why are the less developed countries urbaniz- be constrained by the impact of declines in service ing so rapidly? The answer may be sought in terms of levels on the productivity of the urban economy. economic motivation as well as the social opportunities of major urban areas. In India, the city offers at least an alternative to the overpopulation of rural areas The Economics of Urban Growth where there is not enough arable land to support a Most cities are the result of a complex dynamic growing population. Although the land problem is less process involving not only economic factors but also severe in Latin America, there is nevertheless substan- social and psychological considerations. A good deal of tial evidence of rural push. Latin American cities with what we know from the literature concerns urban higher degrees of industrialization and a more rapidly growth in highly industrialized western societies. The growing modern sector also offer better prospects for reasons for the original establishment of urban centers some sort of employment. For the rural migrant the include natural location, resource advantages, and his- city also provides vastly improved educational oppor- torical considerations such as the growth of ports tunities for his children, health services for the entire related to raw material exports or the location of an family, and a range of urban amenities and services; administrative center. The economic factors leading to while of low and declining quality, they are neverthe- the creation and growth of urban centers are basically less superior to what was available in the rural areas. that the economies of agglomeration increase as cities The decision to come to the city with its higher per grow, while the unit costs of infrastructure fall substan- capita incomes and other advantages is thus rational, tially, at least through the first stages of city growth. and the shanty towns that often shock visitors from the Some of the agglomerative factors that account for rich countries of the world are often slums of hope urban concentrations and determine their contribution

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©International Monetary Fund. Not for Redistribution to national growth are accessibility to markets, internal The city is not, then, an isolated economic unit; it is economies of scale, scale economies in the public a subsystem of a national economy. A nation may be sector, external economies to industry that include inter- said to consist of a system of cities in which each per- industry linkages and encompass finance, law engineer- forms functions for the surrounding regions. In addi- ing, marketing, and such overheads as good schools, tion, cities may be regarded in a hierarchical frame- universities, and research centers, availability of skilled work, with certain primary cities performing functions labor, and communications. for the entire economy and other urban centers The economic base of a city is conventionally dependent on the primary city in varying degrees. In regarded as those industries that are able to export to some countries the primary city continues to grow other regions or abroad. They create a multiple seemingly at the expense of other lesser urban centers employment and income effect on total economic activ- because of its ability to attract capital, industry, and ity in the area in question. In the long run, however, a labor, causing sever,e imbalances in regional standards city must be able to attract new industries as well as of living and growth. As the demand for urban services sustain existing ones. It must have trained manpower and overheads is greatest in the primary city, it and training facilities and research and other institu- receives the bulk of public investment for this purpose, tions important for innovation. The real economic base thus contributing to its further growth. is the city itself. Historically, it can be observed that Much of what is happening in the urbanization pro- the growth of a city is an interacting process between cess is the result of a large number of private decisions production for export and import substitution in which that react to limited alternatives and that may .well not changing technology and markets cause constant adap- benefit the economy as a whole. Adequate infrastruc- tations to the point where the original factor causing ture for industries often exists only in certain central the creation of 'the city becomes a minor element in its cities; migrants logically come where the opportunities continuing growth. The capacity of a city to attract seem greatest, and the government and foreign aid industries and growth is in part a function of how agencies react by financing investment to make good efficiently it is organized and administered and in part deficiencies in urban services in the places that are a function of the adequacy and cost of its basic pro- growing. There is disquieting evidence that the growth ductive infrastructure. The presence of the city is also a powerful influence of western cities under market influences has not been for the modernization of agriculture in the surrounding satisfactory from the point of view of either welfare of region, as it provides markets for high value crops as the inhabitants or efficiency of the economic systems, well as the technology, inputs, and distribution mecha- particularly if the economic costs of environmental pol- nism needed to transform traditional agriculture to a lution and social costs are considered. The high cost of modern basis. infrastructural investments in cities in the less devel- One solution for tomorrow: Paolo Soleri's "Arcosanti" is a complete environment. Future urban centers should be conceived as systems that enable man to achieve higher economic and cultural goals consistent with the ecology of the planet.

©International Monetary Fund. Not for Redistribution oped countries may mean that the historically given tion of land use that will occur through speculative spatial locations of urban services are not necessarily rises in land values and would in fact be able to economical, given the present structures of their econo- acquire as a public resource a good part of the gain in mies. The decision-making apparatus is usually frag- land values resulting from the investment decisions of mented. Not only are the many small municipal admin- the public sector. istrations and independent authorities unable to allocate resources in terms of an urban metropolitan The Housing Issue economy but often they do not regard economic The issue of housing is a central one in the problem growth as important in their decisions to allocate urban of urbanization. Enormous public resources have been services. At the national level, too little consideration is spent, mainly in Latin America, on low-cost public given to regional locational factors in allocating housing and middle-class private housing. The eco- resources and setting policies, although there is some nomic arguments for these large-scale grant and invest- evidence of progress in this respect in several coun- ment guarantee programs are based on the presumed tries. This would be a promising development, for increases in productivity of those who have adequate central government interest in urbanization is very housing versus those who do not. Further, a housing important. industry on the U.S. model can be shown to have important employment-creating effects for the lowest A National Approach to Urbanization unskilled income groups. At the same time it creates a There are essentially two approaches to the present demand for building materials, thereby causing a build- chaotic growth observed in major metropolitan areas. ing materials industry to grow. In effect, by employing First is the identification of alternative "growth poles" largely surplus labor and using local materials, a new on the basis of their economic potential, which can economic sector can be created. There is validity in attract a share of the internal migration through de- these arguments, but in practice the programs under- liberate policies and programs to stimulate their growth. taken so far have not been uniformly satisfactory. Growth poles also help a country on its way to There are various calculations of the so-called need national goals in that they promote the growth of for housing. A recent UN document estimated that regional per capita income. Industries that are resource three times the present annual expenditure on housing oriented or that have heavy inputs of raw materials pre- in developing countries would have to be undertaken fer urban centers near such resources arid raw materials. in order to reach the desired level of construction of The increasing tendency of less developed countries to 10 units per 1000 persons annually. Neither internal move from import substitution in the consumer goods conventional savings nor foreign aid can provide field to import substitution in intermediate products resources for the low income housing need that consti- and capital goods may contribute to decentralization of tutes the bulk of the deficiency. Few governments city locations. In carrying out a national strategy, con- could\long afford to subsidize the capital and current sideration should be given to selecting regions where costs of mass low cost public housing without disabling concentrated activity and investments can have a deci- sacrifices of other economic development objectives. sive impact on the economic development of a wide In many countries with large public housing pro- area. grams, excess demand pressures have led to high rates A second approach, which is by no means inconsist- of , balance of payments pressures, arid misal- ent with decentralization through alternative growth locations of resources. To the extent that housing poles, is the improved allocation of resources in exist- demand is based on public credit creation and not on ing cities. The objective would be to determine the newly generated savings, these circumstances can only most efficient direction of urban growth and to use contribute to inflationary pressures. public policy instruments to achieve an optimum use of Even if it could be achieved, would such a program available space. Land use should be organized in such be effective? While the provision of a minimum stand- a way that the location of productive activities and ard house may contribute markedly to the productivity dwellings makes the most efficient use of combinations of a worker in a developed, fully employed economy, it of transportation and other infrastructural investments. is, questionable whether productivity would be much Accomplishment of this more efficient pattern of urban affected among slum dwellers whose main concern is to growth would include the creation of industrial estates, find some kind of employment. Further, the provision the acquisition of parcels of land large enough to of housing alone, for people who cannot get the ensure the availability and financing of land for hous- income to maintain it, usually results in the creation of ing of various income groups, and the planning and new slums as migration continues. carrying out of package programs of public infrastruc- Sociological investigation provides part of the tural investments. By anticipating and planning for answer. For very poor slum dwellers or squatters the growth, the public authorities could avoid the distor- primary objective is the right or title to land. When

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©International Monetary Fund. Not for Redistribution One solution for today: Habitat 67, built on an island in the middle of Montreal. Housing needs must be related to efficient transportation to jobs. they are given land or seize it, the low income groups an immense opportunity as well as challenge. The build their own houses from intermittent savings. In opportunity lies in the possibility of providing for Latin America there are excellent examples of what urban growth in a far more efficient manner than was can be done in this respect, usually in opposition to done in the past—precisely because so much of it is law and the police power of the state. Self-built hous- yet to come. The cities of the less developed countries ing does not saddle the owner with large fixed debts. in most instances will double in population and per- His family gets more housing at an earlier stage than haps in area in the foreseeable future. The challenge with comparable public housing. Such housing can be lies in the planning and implementing of integrated built on a large scale consistent with the efficient national and urban growth strategies that reflect the growth of an urban area by relatively inexpensive key role of urban centers in bringing about the eco- public "sites and services" schemes. Unattractive as it nomic and social transformation of the nation. Such is to orthodox planners, planned self-built housing has strategies should recognize the relationship of rural great potential. development to urbanization particularly through At higher levels of income, experience shows that migration. Strategy should not seek to inhibit arbi- savings can be stimulated through a variety of public trarily the growth of cities or even certain cities, but and private institutions that offer the incentive of home rather should employ policy and resources to promote ownership and security against inflation. Instead of a pattern of urbanization that is consistent with basic placing principal reliance upon public funds and gov- employment, income, and social goals. ernment departments to produce housing, public The recognition of the economic development role authorities can be most efficient by supporting the crea- of the cities by national authorities should lead to a tion of appropriate institutional mechanisms and by shift in the present preoccupation with sectoral plan- subsidizing, where necessary, what must basically be ning in a national framework to sectoral planning financed by the mobilization of private savings. within the urban region, where the interdependency of investments and activities in a defined area becomes an Some Policy Conclusions important element in achieving national objectives. In As a consequence of the rapid urbanization of their order to generate growth in this context, substantial societies, the developing nations of the world are facing public investments in urban overhead will be required

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©International Monetary Fund. Not for Redistribution —far higher in absolute amounts and as a proportion What is needed is a development framework within of total investment than has been true of the past. This which investment programs can be evaluated and car- raises the issue of resource allocation at both the ried out as part of a continuous planning process. The national and subnational levels. Choices will have to be metropolitan development strategy should be aimed at made in accordance with a system of priorities. In this, optimizing output and employment in a given area and urban service levels should not be fixed at arbitrary providing for a least cost overhead and service systems levels without good reason, particularly if the alterna- investment consistent with the society's distributional tive to such standards may be jobs, education, or other objectives. In order to carry out such a strategy, effec- more basic goals. tive management mechanisms will be required in the The creation of coherent national strategies for world's major urban regions. The appropriate institu- urban-regional development will require careful reap- tional mechanisms will vary considerably by country, praisal of the economy and organization of the metro- but at the least they should provide for a coordination politan region. In many cities of the world there are between sectors and authorities in the use of resources problems of fragmented administration, ineffective and for an efficient way of mobilizing revenues. As the municipal or regional utility service systems, and a large cities provide the bulk of modern sector jobs and general lack of coordination in planning and in the incomes and a good part of a nation's traditional serv- allocation of investments. Municipalities are often ice employment, effectiveness of urban governments underfinanced, do not adequately mobilize local may be a critical determinant in the ability of a society resources, and have little conception of budgeting or of to achieve its development as well as distributional what constitutes an effective allocation of resources. goals.

Richard M. Westebbe, a citizen of the United States, is Chief of the Economics of Urbanization Division in the Economics Depart- ment of the World Bank. A graduate of Georgetown University's School of Foreign Service and Harvard University, he joined the staff of the Bank in 1966, having previously worked for the Economic Corporation Administration, the Federal Reserve Board, and as an Executive Director of the Greek Government Foreign Trade Ad- ministration. Mr. Westebbe is the author of a number of articles and The Economy of to be published by Praeger Publishers.

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©International Monetary Fund. Not for Redistribution The Case for a Central Projects Bureau

Writers on development organization often advocate the setting up of programing units in various government departments, each making plans for a single sector of the economy. But many governments of developing countries do not have the manpower for such ambitious spreading of rare expertise. The author suggests that it would often be wiser to concentrate available skills in a Central Projects Bureau. C. J. Martin

N THE LAST DECADE development planners Because administrative structures are still weak, effec- I have been changing their interest and emphasis. tive implementation is still too rare." 1 They have been moving away from the mere formula- Effective implementation of development plans tion of medium-term plans toward a course of action requires, among other things, the organization of sector which tends more and more to include the imple- programs, their coordination, where appropriate, into mentation of such plans—a process which involves the a public sector investment program, and the prepara- preparation of programs, assessment of projects, tion of projects. The absence of well-prepared projects administrative coordination and development of poli- has been a stumbling block to implementation in many cies. countries, and even where individual projects have This change in approach has brought problems in been prepared, there has often been little attempt to organization. As the Pearson Commission stated in its appraise them on a comparable basis and examine Report: "The capacity to prepare development plans their complementarity. Mr. Robert S. McNamara, depends on a relatively small group of well-trained President of the World Bank Group, in his address of individuals. These can be trained quickly abroad and February 20, 1970 to the Columbia University Confer- they can be supplemented readily by small numbers of ence on International Economic Development, drew foreign advisers. The implementation of such plans, 1 Pearson, Lester B., Partners in Development: Report of the however, involves the whole administrative structure of Commission on International Development, Praeger (New the government together with the private sector. York, 1969), pp. 43-44.

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©International Monetary Fund. Not for Redistribution attention to this aspect when he stated: "Perhaps one of nized. Mr. John H. Adler, in Some Aspects of the the most wasteful mistakes that both developing coun- Economic Philosophy of the World Bank,2 stated: tries and aid agencies can make is to proceed on a "Any economist, or for that matter, a member of random project-by-project basis, rather than first to any other profession who claims that he is an expert establish an over-all development strategy, and then in project analysis, should be fired immediately. Project select projects that mutually support and interlock with analysis takes a good deal of field work and a good one another within that over-all plan." deal of reliance on the technical competence and the The creation of suitable machinery to achieve what imagination of other disciplines, frequently the natural has been suggested by Mr. McNamara is not easy sciences as well as the social sciences." because the development of sector programs which will design the sector strategy and identify projects requires One advantage of a Central Projects Bureau is that it skills that are not easily found and which, when found, can provide the manpower and management needed to may be difficult to transplant to developing countries achieve efficient project preparation. and expensive to maintain there. We, therefore, find ourselves with a new emphasis on implementation and Locating the Bureau at the same time a lack of experienced technicians to A Central Projects Bureau should be located where do the work. On the assumption of sufficient experts, it can serve the largest number of ministries. In a gov- the generally approved method for improving project ernment with a Ministry of Planning or similar central preparation is by the creation of programing units in planning organization, the Bureau will form a major sector ministries, but in the actual circumstances of the division of the Ministry and work closely with other present day, many small countries cannot find the tech- divisions. In governments without a central planning nicians to do this. It is necessary to find some other organization, the Bureau will best be located in the mechanism. One promising alternative is a Central ministry responsible for deciding on the choice of public Projects Bureau. sector projects in relation to available finance and for preparing the public sector capital development pro- FUNCTIONS OF A CENTRAL gram. In the absence of a planning ministry, this func- PROJECTS BUREAU tion is often undertaken by the Ministry of Finance. The main function of a Central Projects Bureau is In rarer cases the Bureau could form part of a Ministry to formulate viable projects that can be examined in of the Economy or in a very simple government admin- relation to the priorities established in any national istration it might be located in the Ministry of Public development plan and which can then be developed Works. It will function best, however, in a location and executed by methods that attempt to ensure the which will allow it to have the authority to initiate, highest economic returns. The Bureau becomes respon- coordinate, and set standards for project preparation. sible for part of the functions which, in some countries, would normally be undertaken by ministerial program- What Is a Project? ing units, but it works closely with the technical sec- tions of each ministry to help the ministries to bring Since the Bureau will be dealing with projects, it is forward projects ready for implementation. It does not important first to define what is meant by a project. attempt to undertake all project preparation itself but There are different views on what constitutes a project, provides specialized knowledge, both technical and but in the World Bank it has been taken in general to mean "a proposal for a capital investment to develop economic, in cooperation with the technical and local 8 information provided by the individual ministries and, facilities to provide goods and services." The capital where necessary, special skills provided by foreign con- investment can be designed to build something entirely sultants. In addition to these executive and advisory new, quite specific and virtually a unit in itself, such as functions, the Central Projects Bureau helps to train a new electric power station; or it can be a measure for staff from technical ministries in the art of project the improvement of existing facilities or even a more preparation and also lays down standards, advises on generalized investment that permits the improvement of methods to be adopted by technical ministries in proj- many facilities and activities. The technique of project ect preparation, and helps in the preparation of proj- appraisal for which the Bank is noted has application ects. The Central Projects Bureau designs all terms of 2 Adler, John H., "Allocations of Investment," in Some reference to be used by the Projects Bureau itself and Aspects of the Economic Philosophy of the World Bank by technical ministries, both those for internal study as (Transcriptions of talks by World Bank economists at a seminar for Brazilian Professors of Economics in Rio de well as those for the guidance of consultants. Janeiro, 18-22 September 1967), September 1968, p. 44. To be successful, project preparation should be a 3 King, John A. Jr., Economic Development Projects and Their Appraisal: Cases and Principles from the Experience of team activity involving experts of different disciplines the World Bank, The Johns Hopkins Press (Baltimore, Mary- who have to be given help and also have to be orga- land, 1967), p. 3.

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©International Monetary Fund. Not for Redistribution to the identification and preparation of projects by Like a national development plan, a sector program entrepreneurs and by government agencies. goes through a number of steps as it is being prepared, The identification, selection, and preparation of proj- some interrelated but each distinct. First, the basic ects should, in ideal conditions, follow from the prepa- goals and objectives have to be set, such as a general ration of a national development plan that will have contribution to economic development, reduced unem- identified the priority sectors and production targets, ployment, or the development of a particular region. thereby providing the criteria for the selection of proj- This step is then followed by an inventory of existing ects. Although projects can be derived from a plan in knowledge and activities. For the transport sector, for this way, usually they are selected to meet specific example, this inventory will include an analysis of all needs which have been identified in order to take types of transport including rail, road, sea, and air, advantage of special opportunities, such as the pres- giving the facilities, their condition, and use. ence of natural resources or other special circum- For the agricultural sector it is necessary to under- stances that would permit the production of a com- take a study of resource availability including the modity at a relatively low cost or to meet domestic supply of inputs, such as credit facilities, seeds, fertiliz- demand, either unsatisfied or satisfied through imports. ers, and tools, as well as the general institutional In these circumstances, the desirability of the project framework for promoting agricultural expansion. Full being examined is determined, not by comparing it details of agricultural marketing need to be enumer- with other possible projects, but by measuring it ated. Descriptions of types of soils and types and against the estimated real marginal rate of return on amounts of crops grown and livestock raised, in addi- other newly invested capital in the country. tion to information on water resources and basic trans- But a proposal that merely suggests that it would be port facilities, are included in the inventory. Of equal useful for a country to build a fertilizer factory, grow importance is the development of appropriate strategies, groundnuts, or irrigate a large area of land does not since the adoption of suitable policies in agriculture constitute a project. Before a project exists, much data can result in a situation in which investment can be have to be collected and analyzed. Until this has been made by private farmers. These conditions have been done and reviewed, and a satisfactory assessment expounded by John de Wilde in the book Experiences made of the technical facilities and economic justifica- with Agricultural Development in Tropical Africa,5 tion, the project has not been adequately prepared and which lists those efforts most likely to be successful in remains merely an idea. From the time an idea is developing the agricultural sector. brought forward by an individual or institution until the A sector program is not merely a listing of possible project is ready for implementation, the examination projects. It includes objectives and priorities, the and review will go through many stages, each of which attainment of which will, in the public sector, require becomes more complex as the criteria to be met investment in a number of appropriate and economi- become more exacting. How these data are collected cally justified projects. The period of a sector program and reviewed has been described extensively will vary depending on the stage of the country's devel- elsewhere,4 but what is generally involved needs to be opment and the state and importance of the particular explained with reference to the activities of a Central sector being examined. As sector programs are devel- Projects Bureau. oped, they will need coordinating to ensure the elimi- nation of contradictions and to develop complementary Sector Programs policies. The organizational structure of each sector is examined and its suitability assessed. Coordination is Once the basic guidelines of development proposed achieved through the Central Planning Organization of in the plan have been accepted by a government, it is the country and through the Central Projects Bureau, important to consider the preparation of sector pro- which can be part of that organization. grams. There is no unique definition of a sector pro- Although sector programs should be undertaken gram, but for the purpose of implementing a plan it wherever possible by programing units in individual may be taken to mean a program for a particular eco- ministries, in small countries it may be possible to deal nomic or social sector, designed to extend over a only with one or two major sectors at any one time. number of years, to highlight the directions of develop- Since this prevents the adoption of a coordinated ment proposed, to describe the strategy to be used, and approach, it can reduce the efficiency of planning. to include lists of projects in various stages of readi- Where, however, there are shortages of manpower and ness. The program will also provide for continuous finance the only course open to the government may be evaluation of results to ensure that the priorities and to establish a Central Projects Bureau which can plan objectives will be achieved.

5 4 de Wilde, John, Experiences with Agricultural Development See "The Project Cycle" by Warren C. Baum, Finance in Tropical Africa, Vol. 1, The Synthesis, The Johns Hopkins and Development, June 1970. Press (Baltimore, Maryland, 1967).

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©International Monetary Fund. Not for Redistribution and develop programs for these important sectors, allo- reports and recommendations with those of the special- cating to the technical sections of individual ministries ists in the technical ministries and those stationed in responsibility for collecting materials and for helping in the Central Projects Bureau. The Central Projects the preparation of the program. A Central Projects Bureau has a part to play in all the activities described Bureau is also responsible for coordination and for the earlier, but in addition has certain important specific submission of the final sector program to the Central responsibilities that need to be explained and appre- Planning Organization, after agreement with the techni- ciated. cal ministry. SPECIFIC RESPONSIBILITIES Project Preparation Terms of reference are basic to project development At the project level, what investigations need to be even if the Central Projects Bureau does the work undertaken before a decision is taken on investment itself. They describe the information that has to be and what role can a Central Projects Bureau play in gathered, the studies needed to provide such informa- these investigations? There is a need to establish the tion, the analyses to be made, and the alternatives to priority of the project, determine its feasibility, and be covered. The Bureau draws up a model check list discover the changes in government policies, opera- to ensure internal consistency, but however good the tions, or institutions which may be necessary to ensure Central Projects Bureau may become, it will need, the successful implementation and functioning of the from time to time, to use the services of consultants. In project. The study, therefore, covers the full range the early stages it may need to use such services on from a basic resource inventory and studies of alter- many occasions. One of the major problems facing a nate development patterns to the functional design, Central Projects Bureau in the employment of individ- preliminary engineering, and financial or economic ual consultants or consulting organizations is the prepa- analysis. It would also, where necessary, cover the ration of suitable terms of reference, explaining what analysis of project-related organizations, administrative the experts should do. After completion of a study, problems, manpower resources, training requirements, arguments can develop and problems can arise because and similar activities. There are certain general basic consultants were under the impression that only certain examinations which need to be undertaken and which activities were to be undertaken while the government should be described briefly to explain the functions to or sponsoring organization believed that much wider be performed by the Central Projects Bureau, but it activities were to be included in the consultants' should be remembered that each project has its own responsibilities. Time spent on discussing terms of ref- idiosyncrasies. The position is well described by Hugh erence is time well spent. One of the responsibilities of B. Ripman in his article "Project Appraisal" 6 where a Central Projects Bureau is to prepare terms of refer- he states, "It is in the nature of the subject that no ence but it is not sufficient for these terms of reference treatment can be exhaustive. The fact that no project is to be merely given to the consultants. They require to exactly like another, that every project has its own pecu- be examined and discussed in depth with the consul- liar problems, provides the interest and challenge of tants and may require to be expanded since the consul- appraisal work." tants, with their specialized knowledge, may well have The study of a project is made from a number of a number of suggestions to make to help to improve aspects, namely, economic, technical, managerial, com- the study. Each project has its own problems but mercial, and financial, and goes through a number of model terms of reference can be prepared for practice stages before it is ready for financing. Since project and reviewed as an aid to the drafting of special ones. preparation is a skilled operation requiring people of t different disciplines working together if the project is to Standard Procedures be undertaken successfully, the Central Projects Since most projects start as general schemes hi the Bureau recruits the necessary permanent staff to under- mind of a politician, civil servant, or private entrepre- take the basic work and is responsible for recruiting neur, there must be a method to guarantee that all pro- consultants who undertake the more specialized work. posals which come forward are screened and examined If there should be only one project requiring special on a comparable basis. Such a system ensures that knowledge and experience, it would be wasteful to try those projects are chosen which have the highest eco- to employ a specialist full time and make him a nomic and social returns and that the others are member of the Central Projects Bureau. Therefore, rejected. There are many different ways of examining a the Bureau makes use of short-term consultants or project proposal; sometimes only the technical aspects consulting firms, bringing them in so that their special- are studied and alternatives and economic justification ties can be used fully and then coordinating their omitted. Cost estimates may be prepared on different 6 Ripman, Hugh B., "Project Appraisal," Finance and bases and with different coverage. It is the responsi- Development, December 1964, p. 178. bility of the Central Projects Bureau to prepare stand-

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©International Monetary Fund. Not for Redistribution ard procedures and to see that, within the possible with the staff of the central planning bureau it evalu- limits, the various ministries and the consultants pre- ates implementation and learns lessons from the mis- pare projects on a basis that will permit rational choices takes that have been made. In the central planning to be made. bureau the planners are responsible for the general evaluation of progress, but the special expertise of the Standardization of Basic Data staff of the Central Projects Bureau gives it a basic At the stage when a general scheme is being trans- responsibility for evaluating the performance of indi- lated into a project, many of the projects require the vidual projects and examining actual results against the same type of basic information. There is a general forecasts made. demand for knowledge of population totals, income distributions, size of crops, availability of transport and Staff Requirements types of transport systems, and details of water and The type of staff required in a Central Projects power supplies. A Central Projects Bureau can bring Bureau will depend on the priorities set by the govern- together this information and make it available to all. ment in its development plan. If no priority has been A central statistical office may also collect such infor- given to the industrial sector, an industrial engineer mation, but it rarely has the time or the inclination to would obviously be wasted. If high priority has been collect it in the manner required for project work. If placed on the development of water resources for irri- the Central Projects Bureau demands that certain gation and hydroelectric power, it is necessary to standards be maintained and requests that similar basic obtain the services of a competent electrical engineer information be used in all project analysis, this stan- as well as an expert in agriculture and irrigation. In dardization allows relatively easy comparison of basic addition to such specialists it is important to have on data affecting more than one project. To help with the staff an economist trained in microeconomic prob- data collection the Projects Bureau knows where to lems. In some countries the original staff of a Projects search for information and whom to contact, whether Bureau might consist of a director; technical specialists it be the statistical office, the department of customs, in agriculture, infrastructure, and either livestock, for- the chamber of commerce, libraries, or organizations estry, or industry; and an economist, possessing wide overseas. The Bureau provides an intelligence service experience in project preparation, capable of making as well as demanding acceptance of certain basic rules. the calculations connected with the economic and finan- Standardization in Other Fields cial appraisals and of measuring economic rates of return using techniques such as cost benefit analy- In addition to the setting of standards for the prepa- sis. Before staff is recruited a detailed job description ration of market information, the Bureau also sets should be prepared for each specialist. standards for the submission of project information for individual projects. The latter deals with the necessary inputs for the, development of the project. Forms are CONCLUSION designed describing the general information needed for In most writings on development organization it is different kinds of projects, setting out the requirements proposed that for sector programing and project prepa- of such inputs as raw materials, transport, basic infra- ration, a programing unit in each technical ministry structure, and training. The Central Projects Bureau should be established, the activities of which should be also prepares standards for commercial profitability coordinated by the central planning organization. and estimates of the economic return. General forms Nothing in this article should be taken as criticism of setting out all these details should be prepared and such an approach; in large countries with sizable invest- treated as check lists. ment programs it may well be the best method. What The Central Projects Bureau prepares for each proj- I have suggested, however, is that in some small coun- ect, as it is started, a timetable describing the stages tries with modest development programs it is impossible through which the project is expected to go. The to recruit sufficient experts to develop programs in Bureau is responsible for ensuring that no new stage is each ministry. In order that skilled manpower should started until satisfactory information on all previous be used most efficiently, I propose that a Central Proj- stages has been obtained. Waste of time and financial ects Bureau be established with responsibility for initi- resources can result from new stages of project prepa- ating sector programing in one or two major sectors, ration being developed before basic information has developing project preparation by allocating specific been collected and the project has been approved for functions to the staff of the technical ministries, to further investigation. short-term specialists, and to permanent members of the Central Projects Bureau (the setting of standards, Evaluation the design of terms of reference, the coordination of The Central Projects Bureau does not merely keep project activities, and the control of timetables). Such timetables of the progress of preparation. Together a program might be criticized on the grounds that a

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©International Monetary Fund. Not for Redistribution Central Projects Bureau should not be responsible for still has a function as a setter of standards, a controller detailed development of projects. But it could be that of activities, and a coordinator of project development, if such a Bureau were not responsible, little project a responsibility often at present placed on the central preparation would be accomplished. The creation of planning bureau, where the economists rarely have the such a Bureau still allows the establishment, at a later skills required for this type of work. date, of programing units in individual ministries by Whether operational or advisory, the Central Proj- the secondment of staff from the Bureau to the minis- ects Bureau attempts to use the scarce manpower tries or by the training of the staff of the ministeries in available to the best advantage and to ensure that proj- the Central Projects Bureau. Even if sector programing ects are prepared in a manner which permits compari- units can be created later, the Central Projects Bureau son and rational choice by the government.

C. J. Martin, an Englishman, is Adviser on Planning Organiza- tion in the Development Services Department of the World Bank. He has been engaged in planning activities for nearly 25 years, first in a developed, then in a developing country, and recently in the Bank. In 1940 he joined Winston Churchill's personal staff to help in the planning of the War and later the postwar reconstruction. He left the British Civil Service in 1946 to set up a statistical and economic research organization for the Governments of the East African terri- tories of Kenya, Tanganyika, Uganda, and Zanzibar. He joined the staff of the Bank in 1961 in the Economic Development Institute to help research development planning and collaborated in the writing of the book, Development Planning: Lessons of Experience.

STAFF PAPERS Staff Papers is a publication through development, and national monetary and which the Fund makes available some of fiscal policies. Summaries in French and the studies on monetary and financial Spanish are appended to each article. There problems prepared by members of its staff. are three issues each year. The studies published thus far have dealt The subscription is $6.00 a year or $2.50 with such subjects as international liquid- for a single copy; university libraries, facul- ity, balances of payments and exchange ties, and students may obtain it for $3.00 a rates, inflation in relation to economic year or $ 1.00 a single copy.

Orders may be sent to The Secretary INTERNATIONAL MONETARY FUND 19th and H Streets, N.W. Washington, D.C. 20431, U.S.A.

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©International Monetary Fund. Not for Redistribution THE INTERNATIONAL MONETARY FUND, 1945-1965 Twenty Years of International Monetary Cooperation

Vol. I. Chronicle, 663 pp. Vol. II. Analysis, 62) pp. Vol. III. Documents, 549 pp.

Price: $12.50 the set ($5 a volume if sold separately), or the equivalent in most other currencies.

This history of the first 20 years of the International Monetary Fund has been written by past and present members of the Fund staff, and is based upon both the Fund's own records and research into other documents. Volume I starts with a description of the several different plans formulated in 1941-44 for an international monetary institution, leading up to a review of the proceedings at Bretton Woods. It then describes, year by year, the principal events in the Fund's history. Extensive summaries of the discussions in the Boards of Governors and Executive Directors elucidate the arguments for and against the de- cisions which the Boards took. Volume II briefly outlines the process of policymahing in the Fund, and its functions and objectives, and then treats systematically the formation of the Fund's policies in three important fields—exchange rates (including ); exchange restrictions; and the use of the Fund's resources (including stand-by arrange- ments and stabilization programs). It concludes with a detailed study of the con- stitutional development of the Fund from 1945 to 1969. Volume III reproduces most of the documents referred to in Volumes I and II, including early versions of the plans devised by Lord Keynes and Mr. Harry Dexter White which have not been previously published. Volume I was written by J. Keith Horsefield; Volume II by Margaret G. de Vries, Joseph Gold, Mary H. Gumbart, J. Keith Horsefield, Gertrud Lovasy, and Emil G. Spitzer. Available in English only. Orders should be addressed to The Secretary International Monetary Fund 19th and H Streets, N.W. Washington, D.C., 20431 U.S.A.

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©International Monetary Fund. Not for Redistribution Exchange Rates at the

Theauthor surveys the world system of exchange rates.

Jozef Swidrowski

HE FIXING and formation of foreign exchange The spot and forward foreign exchange market and T rates in operation at the beginning of 1970 display exchange arbitrage operations in the United States are a great heterogeneity, reflecting countries' monetary free for residents and nonresidents. No restrictions on systems, the degree of freedom, and the manner in foreign payments exist except those imposed for rea- which international trade and settlements are carried sons other than economic ones on transactions involv- out, and the institutions, habits, and techniques which ing the authorities or nationals of mainland , have been developed in the past.1 Cuba, North Korea, North Viet-Nam, and Rhodesia. Residents and nonresidents are not restricted in their Unitary Exchange Rates exchange operations by any specific requirements or Exchange rates can be divided into three broad limitations such as those related to prescription of cur- groups: unitary exchange rates, single fluctuating rency, repatriation, and surrender of exchange earnings exchange rates, and multiple rates. The first group or holdings. includes the United States, countries which adhere to Exchange Rates Under the European the European Monetary Agreement (EMA), countries Monetary Agreement hi which quotations are based on the rates of the lead- ing foreign exchange markets, and countries in which Exchange rates vis-a-vis the U.S. dollar of currencies exchange rates are technically (although not economic- of countries of the European Monetary Agreement ally) independent of the quotations outside. fluctuate within limits determined by the convertibility mechanism functioning in accordance with the provi- Exchange Rates in the United States sions of the European Monetary Agreement of Au- gust 1, 1955.2 The Agreement came into effect on Au- Exchange rates in the United States fluctuate within gust 27, 1958, i.e., at the time of the termination of the narrow limits around a parity determined by ar- European Payments Union. Exchange rates for cur- rangements about the convertibility of the U.S. dollar rencies of nonmembers are freely fluctuating on foreign in respect of gold. The U.S. Treasury buys gold only exchange markets of many EMA countries. from official sources and sells it only to governments Under the Multilateral System of Settlements of the and central banks, and under certain conditions, to EMA, each member country's central bank is assured international institutions for the settlement of inter- of obtaining settlements in U.S. dollars, at an exchange national balances and other monetary purposes at the rate known in advance, of its holdings in other mem- fixed par value of the U.S. dollar. 2 The following 17 countries signed the Agreement: Austria, 1 The study deals exclusively with spot quotations and is , Denmark, , the Federal Republic of Ger- primarily based on information about exchange rates in 119 many, Greece, , Ireland, , , the countries included in the Fund's 21st Annual Report on , , , , , , Exchange Restrictions. and the United Kingdom. 16

©International Monetary Fund. Not for Redistribution Beginning of 19 7O

bers' currencies. In accordance with the provisions of the currencies of Iceland and Greece (the smallest the Agreement, each member country fixes the parity, spread), and over 3.9 per cent for the currencies of buying and selling rates for gold, the U.S. dollar, and Switzerland and Portugal (the biggest spread). other members' currencies, and notifies the other mem- Exchange rate mechanisms in 5 EMA countries do bers of the EMA of the fixed rates, which must be not work as fully as those in the remaining EMA used as a basis for the calculation and settlements pro- countries. One of these countries maintains multiple vided for in the Agreement. Spreads (in percentage rates. Exchange rates in Belgium and Luxembourg terms) between the buying and selling rates for the may become multiple rates from time to time because U.S. dollar in terms of EMA currencies 3 and their of the operation of their free foreign exchange market respective par values or parity rates are between 0.7 in addition to the official foreign exchange market. per cent and 0.9 per cent except the following: about 0.1 per cent for the Icelandic kr6nur and 0.3 per cent for Greek drachmas, 1.14 per cent for Portuguese Dependent Quotations escudos, and 1.17 per cent for Swiss francs. Fixed buy- In 56 countries, quotations are based on the quota- ing and selling rates for the U.S. dollar in terms of tions in various leading foreign exchange markets, the EMA currencies determine rates for EMA currencies main reason for this being that their own exchange in terms of one another. These official rates, which markets are too small. Countries that continue to main- make up a range within which exchange rates can tain close banking, financial, and exchange relations fluctuate, are called limits or intervention points; they with the foreign exchange and financial markets of one indicate that central banks are ready to intervene on or more countries are often reluctant to switch to in- exchange markets at these rates, when freely fluctuat- dependent quotations, fearing such a change would ing rates for EMA currencies are quoted beyond these be misinterpreted as a weakening of old ties. limits. The percentage spread between fixed buying quotations are closely followed by 28 coun- (or selling) rates for EMA currencies in terms of their tries in establishing their exchange rates. Practically all respective parities (calculated on the basis of their par of these countries are tied to the United Kingdom by values or parity rates in respect of the U.S. dollar) is their participation in the sterling area; those outside the sum of the spread between the buying (or selling) the sterling area follow London quotations because of rate for the U.S. dollar in terms of one EMA currency the importance of London as a financial center. Sev- and the selling (or buying) rate of the other EMA eral countries in this group apply only one rate to all currency. Thus, the spread is over 0.4 per cent between exchange transactions involving the pound sterling. In 3 countries, London quotations are used indirectly; 3 The U.S. dollar is quoted in terms of EMA currencies with the exception of the pound sterling, which is quoted in they follow the quotations of a country in the sterling terms of the U.S. dollar. area which uses London quotations.

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©International Monetary Fund. Not for Redistribution In 16 countries, exchange rates for foreign curren- dollars at rates fixed daily, while the commercial banks cies are based on Paris quotations; 14 of these have deal in other currencies at rates based on quotations very close financial and economic relations with France; in London, New York, and other foreign exchange 1 of these countries maintains multiple rates as speci- markets. In another country, transactions in French fied exchange transactions are subject to an exchange francs are carried out at the parity rate; buying and tax of 2V2 per cent. selling by the central bank for convertible currencies Six countries base their rates for foreign currencies are based on quotations in the leading foreign exchange on New York quotations. In 4 countries in this group, markets. official buying and selling rates for the U.S. dollar are In the third country, exchange transactions between fixed, while in the fifth country, exchange transactions commercial banks and the public take place at fixed in the U. S. dollar are carried out at a parity rate. In buying and selling rates for the U.S. dollar. While the one of these countries, minimum and maximum buying buying rate differs from the par value by less than 1 per and selling rates are prescribed for exchange transac- cent, the selling rate (including a tax) differs by tions between authorized banks and their customers; slightly more than 1 per cent from the par value. the minimum buying rate of authorized banks for the In the fourth country, both official buying and selling U.S. dollar is slightly below the official buying rate of rates for the U.S. dollar are below the par value rate. the central bank, while the maximum selling rate of Exchange rates for ten specified currencies quoted authorized banks for the U.S. dollar is slightly above by the central bank are based on official buying and the official selling rate of the central bank. In another selling rates for the U.S. dollar, taking into account the country in this group, all exchange transactions in exchange rates of these currencies on the international pounds sterling are carried out at dollar parity rates. exchange markets. The authorized banks are permitted In the sixth country basing its rate on New York to quote rates for the U.S. dollar within the limits of quotations, the unit of currency is equal to the U.S. the official buying rate and the par value increased by dollar, and its official accounts are kept in dollars. In almost 1 per cent. Rates for other currencies are deter- addition, U.S. currency is in circulation along with the mined by the authorized banks in a similar way to that country's coins. There are no restrictions in this country used for rates for quoted currencies. on foreign exchange transactions. In two countries, rates for foreign currencies are Independent Fixed Rates based on Brussels quotations. In both of them, the In 23 countries, official buying and selling rates for parity rates for national currencies are expressed in the U.S. dollar and specified other currencies, the lists terms of the Belgian franc. In one of them, official of which are different in various countries, are fixed buying and selling rates for the U.S. dollar are estab- independently of the quotations of the leading foreign lished by the central bank. In addition, the central bank exchange markets, although the quotations of these bases its quotations for the other 14 foreign currencies markets seem to be taken into consideration in a num- on the rates of these currencies against the Belgian ber of countries. The rates are either fixed for a rela- franc in Brussels. Authorized banks in this country are tively long period of time or altered relatively fre- required to carry out permitted exchange transactions quently. at rates between the buying and selling rates fixed by Rates for the U.S. dollar, which plays a predominant the central bank for currencies quoted by that bank and role in exchange systems of most of these countries, are at rates fixed freely with their customers for certain fixed in the following way. In 6 countries, the same other currencies. rates (mostly par value or parity rates) are applied In another country in this group, the buying and to purchases and sales of U.S. currency; in some of selling rates for currencies other than the Belgian these countries, however, small taxes—not considered franc are based on the fixed rate for the Belgian franc as giving rise to multiple rates—are applicable to ex- and the official market rates for these other currencies change operations involving the U.S. dollar. In 12 in Brussels. However, the central bank of the country other countries, buying and selling rates are officially buys and sells most foreign currencies against the fixed; authorized banks in eight of these countries country's currencies at rates differing by not more than carry out exchange transactions at rates within or at 0.75 per cent from the cross rates resulting from the official rates. In 1 country, U.S. dollars are pur- official par values or parities. chased at the parity rate, but the selling rate differs In one country quotations are based on those quoted from the parity rate by 1 per cent. in the Madrid exchange market. Four countries belong to a group in which rates are based on quotations of several foreign exchange Single Fluctuating Rates markets. In one country, the central bank deals with Single fluctuating exchange rates (without being commercial banks only in pounds sterling and U.S. combined with multiple currency arrangements) are

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©International Monetary Fund. Not for Redistribution VARIOUS MARKET The Pattern ot Exchanoe Rates QUOTATIONS in 119 countries (4 Countries)

MULTIPLE MADRID RATES QUOTATIONS (19 Countries) (1 Country)

INDEPENDENTLY FIXED RATES (23 Countries)

SINGLE BRUSSELS FLUCTUATING QUOTATIONS RATES (2 Countries) (3 Countries)

PEGGED RATES (56 Countries) Based On

UNITARY NEW YORK RATES QUOTATIONS (97 Countries) (6 Countries)

EMA COUNTRIES (17)

PARIS QUOTATIONS (15 Countries)

UNITED STATES

LONDON QUOTATIONS (28 Countries)

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©International Monetary Fund. Not for Redistribution maintained in only 3 countries. In 1 country, a subsidies, etc., of an exchange nature;4 4) those that fluctuating exchange rate is not permitted to appreciate provide for selling to, or buying by, the monetary au- beyond a certain limit. In another country, all exchange thorities at different rates various portions of exchange transactions take place at a free market rate. In the accruing from or needed for the same operation or third country, where a single fluctuating rate exists, all transaction; and 5) those that provide for the retention sales of foreign exchange are subject to a tax of 1.6 of foreign currency proceeds accruing to residents on per cent and a 2 per mill stamp tax. The total spread account of exports or services rendered to nonresidents. (including taxes) between the buying and selling rates Nineteen countries maintain multiple rates arising of the monetary authority is about 1.8 per cent. from the application of one or more arrangements

A 16th century woodcut of a foreign exchange dealer by Hans Baldung: "An exchange rate should be simply the price at which international ex- change transactions and opera- tions are made."

Multiple Rates Broadly speaking, five main arrangements can give 4 Such bonuses, premiums, etc., are extended to residents rise to multiple rates: 1) those that provide for two through various devices including so-called exchange certif- icates (known also under other names) which are given to or more explicitly established exchange rates; 2) those residents surrendering their exchange earnings; they must be that provide for taxes and charges of an exchange submitted to buyers of exchange from official sources. Supply of, and demand for, exchange certificates determine their nature; 3) those that provide for bonuses, premiums, market value.

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©International Monetary Fund. Not for Redistribution mentioned above; one of these countries belongs to the Various obstacles make uniformity in the field of EMA group, and another to the group of countries in exchange rates difficult if not impossible. Habits, tra- which exchange rates for foreign currencies are based dition, and inertia still play a great role in preventing on Paris quotations. Spreads between the highest and the introduction of uniformity in this field. Potent lowest multiple rates vary widely in these countries. economic groups and even individuals exert strong In 5 countries, they do not exceed 10 per cent; in other effective pressure upon the maintenance of arrange- countries the spreads are higher and in some much ments that permit them to realize advantages through higher—even up to 300 per cent. Spreads between preferential multiple buying or selling exchange rates. the highest and the lowest multiple rates do not, how- What if an international agreement were to provide for ever, reflect the full economic impact of multiple rates, larger spreads between official buying and selling rates, as in many countries only one rate out of various mul- or for freedom to alter exchange rates within relatively tiple rates is of primary importance. wide limits, thus allowing adjustment processes to be Moreover, multiple rates can arise in one country carried out through the exchange rate mechanism to a from the arrangement under which specified exporters greater or smaller extent? Several countries would still may retain and use on preferential terms a part of their probably prefer to rely on multiple exchange rates or on export proceeds. In addition, some 10 other countries relatively unlimited freedom to change foreign exchange are (or can be) involved in multiple currency practices rates. They would thereby avoid adjustment processes mainly in connection with specified capital transactions through changes in domestic price and income levels involving nonresident interests. These countries which needed to maintain or re-establish external equilibrium. apply unitary rates to most exchange transactions are Is it desirable that monetary authorities may regard included in the unitary rate group. the fixing of quotations for foreign currencies as a source of additional income to the Treasury, the banks, or governmental agencies? Should exchange rates be Conclusion used as instruments for cost control? An exchange rate should be simply the price at which international ex- Unitary rates maintained in various countries present change transactions and operations are made. It should considerable differences as to the manner of their fixing not be distorted by the application of exchange mea- and as to the part that free market forces play in in- sures for purposes which have little—if anything—in fluencing their daily fluctuations within established common with the real nature of the exchange rate limits of official buying and selling rates. mechanism.

Jozef Swidrowski, who is a senior economist in the Exchange and Trade Relations Department, joined the staff of the Fund in 1947. He was educated at the Academy of Commerce, Warsaw, and the London School of Economics. He is the author of four books in Polish: The Theory of Paper Money in England in the 17th Cen- tury (1935); The Monetary Theory of John Law (1938); Bretton Woods (1946), and Nature and Methods of International Settle- ments (1946), and many articles published in Polish, most of them included in the prewar Encyclopedia of Political Sciences. Dr. Swidrowski is now a U.S. citizen.

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©International Monetary Fund. Not for Redistribution Livestock: The Road to

In the previous issue, the author argued that the ranch has been the forgotten stepchild of agriculture in most developing countries, its potential even more neglected than that of the field and paddy. In this concluding article he describes how some Latin American governments and the World Bank are working to eliminate obstacles which clutter the road to home and foreign markets.

Donald J. Pryor

TPHE BURGEONING SUCCESS of efforts to swamps and jungle some 400 miles to the Bolivian A improve livestock production, in which the World border, sometimes as straight as a laser beam for 50 Bank is deeply involved in more than a score of miles or more. Even No. 9, which is part of the countries, is helping to focus attention on important famous Pan-American Highway, stops short of the obstacles which clutter the road to market, all the way capital city some 15 miles to the north, where it from the ranch gate to the customs offices of importing encounters the Paraguay River and finds no bridge. countries thousands of miles away. At least in the There are more roads in the eastern region, but not short term and medium term, the most formidable bar- many. So most cattle coming from ranches north of riers are found in the developing countries themselves, Asuncion, both to the east and west, must be trekked and governments are taking increasingly determined to the great river for shipment to the country's three steps to overcome them. main slaughterhouses. From there, products destined Some are physical. In parts of Bolivia's Beni region, for export, such as canned corned beef and meat for example, protesting cattle must be prodded, extract, must be loaded again on river boats for the coaxed, and shoved aboard ancient boats after a long long trip to Buenos Aires, clearance through Argentine trek overland, for transport to towns or distant roads customs, and transshipment to their final destinations, by river. Others are slaughtered near landing strips, perhaps in Europe or North America. often in open-air abattoirs, and their quartered car- Determined men can surmount most natural bar- casses flown fresh to La Paz and the districts for riers, though sometimes at excessive cost. To help processing and consumption. Some of the better cuts bring costs down, governments are exploring the need are chilled and flown again to markets in neighboring for more efficient transport, processing, and marketing countries. facilities. Bolivia, as one example, now has extensive Paraguay, also landlocked, faces similar difficulties. plans to improve these aspects of the industry as it There is no road to Asuncion from lonely ranches in moves into a third and more comprehensive phase of a the Chaco except for Highway 9, which slices through livestock development program with assistance from

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©International Monetary Fund. Not for Redistribution Market

the International Development Asociation (IDA) and find and consumption by the poor does not increase. the Inter-American Development Bank. Export outlets may be available, but only a fraction of this demand can be satisfied.

Constraints on Production and Exports Some governments that intervene to keep meat prices artificially low have also been inclined to impose high Even more stubborn, however, are the artificial con- and often discriminatory taxes on livestock. Sometimes straints on both production and exports that have been local jurisdictions exact their own levies as cattle move raised by governments themselves, sometimes for com- from one jurisdiction to another. In one country, pro- pelling political reasons. These often reflect the popular vincial authorities take the hides of animals crossing attitudes toward ranchers and ranching which were their borders for slaughter. National governments, examined in the previous article. In some cases they however, are usually more demanding. In a country consist of positive hindrances, in others simply a lack which depends on livestock for more than four fifths of of action which could enhance the livestock industry's its exports, the industry was taxed until recently almost contribution to development. A brief, generalized three times as heavily as the nonagricultural sectors. catalog of such constraints may be illuminating, with- The burden of such efforts to keep prices low, sat- out identifying individual countries concerned. isfy the resulting demand, and maintain a dispropor- Official controls are often imposed on both con- tionate flow of tax revenue from livestock often falls sumer and producer prices. The object, of course, is to most heavily on exports, cutting into foreign exchange assure the availability of meat to those with low earnings and serving as a brake on development. In incomes; but this and related practices often have one country where livestock earns a third of export unintended results by reducing or eliminating incentives receipts and could readily account for much more, a to invest in order to expand production. Where official quota system, a differential tax structure, and a limita- prices are kept excessively low, beef is often hard to tion on the season for export slaughter reduced the

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©International Monetary Fund. Not for Redistribution volume of foreign sales for many years and inhibited Fences, corrals, and water holes have to be con- investments to increase both production and exports. structed. Improved pastures must be planted. And with The same result is often achieved by taxes of various increasing production, of course, new jobs are created types imposed directly on exports and by burdening along the entire chain of transport, processing, and imports of essential production and processing equip- marketing activities. In one country, each new dollar of ment with heavy taxes, duties, and special charges. In investment in livestock improvement is estimated to some countries, these measures have prevented the generate six dollars of additional income, compared modernization of packing plants to improve efficiency, with a ratio of one to two for industry. Before such raise hygienic standards, and meet the growing demand results can be realized, however, the road to market of major foreign markets for more fully processed cuts. within developing countries must be cleared of Such negative effects have been further heightened by obstructions. unrealistic exchange rates together with excessive Attitudes toward private enterprise, foreign inves- import restrictions, maintained by some governments in tors, and monopoly have also played a role in limiting order to encourage the growth of import substitution the benefits obtained from the livestock industry. industries. Efficiency, and with it the possibility of lower real Both production and exports have been affected by prices and higher export earnings, has suffered in some the failure of many countries to establish and maintain countries from officially countenanced or encouraged adequate standards of animal health and hygiene. Mor- monopoly arrangements in the processing industry, tality rates and the incidence of a wide range of animal both public and private. In one country, plants vari- diseases are unnecessarily high in most developing ously owned by domestic investors, a producers' coop- countries. Some of the more important export markets erative, and a foreign packing company long operated have been closed, either permanently or temporarily, under a "live-and-let-live" agreement on prices paid to because of endemic diseases, low hygienic standards, producers. In another, a government-owned monopoly and poor inspection services. Until recently, inadequate in the capital city became a model of inefficiency, with attention had been given to these problems, which far more employees than its production justified, fully usually can be overcome successfully only through vig- a third of whom had office jobs. Together with exces- orous governmental intervention. sive taxes, price controls, and other handicaps, this contributed to processing costs three and a half times Effects on Employment as high as those in Argentina, for example. Another set of obstacles to growth of the livestock Perhaps the most perverse result of such policies is industry in developing countries, which for the present found in their effect on employment opportunities, may be more psychological than real, is raised by the especially in the countryside, and in the vicious circle major importing countries to protect their own pro- that results. The fact that ranching requires relatively ducers. In beef production especially, many developing little labor contributes to the popular image which countries have important advantages in land, climate, gives rise to special constraints on livestock production. and labor costs. Their ability to exploit these efficiently The lack of jobs in rural areas has been one of the is affected mainly by their own policies. Their policy driving forces behind the farm-to-city migration of decisions, however, have undoubtedly been influenced recent years. As political power and the rural poor by those of the industrialized countries to which they have shifted to urban centers the already prevalent must look, at least over the next decade or so, for their popular attitudes toward livestock have gained weight principal export markets. From their vantage point, and found expression in policies which, in turn, have import restrictions applied by the industrialized coun- tended to foreclose the possibility of increasing tries tend to cloud the prospect in these markets with employment in the livestock and related industries. uncertainty. These possibilities are by no means insignificant. It is true that the type of extensive, inefficient ranching on unimproved natural grassland, which prevails in most Growing Markets developing countries, gives rise to very few jobs on the Throughout the world, growing population and range itself. The labor component increases, however, incomes have resulted in rising demand for meat. Since as the industry shifts to more intensive methods of pro- there is a pronounced income elasticity of demand for duction, which result in greater output, more efficiency, meat, the increase has been greatest in the industrial- and lower costs. This shift, which is essential to satisfy ized countries of Europe and North America. Under domestic demand and take advantage of already exist- pressure of demand, prices have moved generally ing export opportunities, requires extensive investment higher in most of these countries over the last 15 years, in ranch development programs. The job-creating though in the United States the trend has been erratic. capacity of these programs themselves is considerable. Most of the growing demand for meat in the indus- Swamps are often drained and forest areas cleared. trialized countries has been satisfied by increasing

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©International Monetary Fund. Not for Redistribution domestic output. In response to rising prices and unified market. Under this scheme, imports are con- expanding markets, producers have turned increasingly trolled through a system of duties, special levies tied to to new, more capital-intensive techniques of high- a variable range of producer prices, and official market volume production. Perhaps the most familiar example intervention, adding major elements of instability to an is the broiler "factory," which has revolutionized the already imperfect world market mechanism. poultry industry, though similar methods shorten the These actions restrained imports and cushioned road to market for pigs and other relatively fast-growing prices, which rose above the high levels of 1962. It animals. would be impossible to say with assurance, however, Beef (including veal), however, is the preferred that they had any direct negative impact on exports in a meat-hungry world. It accounts for about from the developing countries. Most of these countries half of total meat production and 45 per cent of exports, are barred from exporting unprocessed beef to the which are based on low-cost, grass-fed beef. Exports United States, not under quota provisions of the law have been growing at the rate of 6 per cent a year in but because of endemic diseases. Even so, they have volume and 10 per cent in value, amounting in 1965- seldom supplied enough beef to take advantage of 67 to $1.2 billion a year. Even with the most opportunities available to them in the EEC, the United advanced high-cost techniques, it takes much longer to Kingdom, and other markets. Most import demand in expand the production of beef than of most other the United States and much in other industrialized meats. Yet in this field also, the industrialized countries countries has been supplied, not by the developing have been able to meet most of their demand by countries but by exporters in Western Europe, Aus- increasing domestic supply. This has been accom- tralia, and New Zealand. Furthermore, despite restric- plished through the adoption of ever more sophisti- tions so far imposed, present indications are that total cated methods to reduce disease and mortality, opportunities for beef exports from developing coun- improve calving rates, upgrade the meat-producing tries may exceed their ability to produce by a signifi- attributes of herds, and speed the processes of growth cant margin in the medium term. Nevertheless, the and fattening. Many of these techniques, including evidence since 1964 that even the principal especially the use of feedlots for fattening on grain and market-oriented countries will not permit market forces silage, have been applied most intensively in the to determine the level of their imports of beef has not United States, which expanded output by about 45 per escaped the notice of policymakers in the developing cent from 1952-56 to 1965-67. Between 1952 and countries. It undoubtedly has inhibited the readiness of 1967 the United States produced more beef than all some, despite their comparative advantage, to adopt developing countries combined excluding mainland the positive policies that expanded production requires China, and more than 28 per cent of the world's and to make the necessary investments. supply. Comparable increases have been achieved in This cloud over the future may eventually become an Western Europe, which produced a fifth of the world's important practical, as well as psychological, constraint beef in 1965-67, and in the Soviet Union, which raised on efforts of the developing countries to realize their its share from 9 per cent to 11 per cent while the potential in livestock production. Meanwhile, the prob- world total was expanding by nearly half. lem is being studied internationally. Perhaps by the Despite such increases in production, demand grew time enough beef is produced under satisfactory stand- even faster during most of this period, leaving rela- ards of health and sanitation to overcome recurring tively small but significant gaps to be filled by imports. world shortages, arrangements can be arrived at to Exporting countries moved to fill them. Between 1961 assure more freedom and stability in world markets. and 1964, exports of beef to members of the European The developing countries appear to have a long way Economic Community (EEC) roughly quadrupled, to go, however, before their export capabilities exceed exerting downward pressure on prices. Under the com- import demand under existing restrictions. To travel bined weight of rising domestic production and that distance and establish a sound basis for further imports, wholesale prices in the United States fell by expansion, strong measures will be necessary in many about a fifth. countries to reorder priorities and clear away their own impediments to growth. In some, this will require a EEC and U.S. Import Controls good deal of political courage. A few have begun to move in that direction and there is encouraging evi- At this point, governments intervened on behalf of dence that others may soon follow suit. their domestic producers. The U.S. Congress enacted the Meat Import Act of 1964, establishing a quota system which effectively limited imports to about 5 per The L ruguayan Project cent of domestic output. In the same year, the EEC Uruguay may again prove to be the bellwether in adopted its Common Agricultural Policy for beef, this respect, as it was more than a decade ago when which was later buttressed by the establishment of a the World Bank first entered the field. It was the first

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©International Monetary Fund. Not for Redistribution The striking success of participating Uruguayan ranchers under two World Bank loans stimulated many others to make similar investments and attracted the interest of cattle growers in a neighboring country. The benefits of this important demonstration effect, how- ever, were greatly diminished by the impact of inflation any policies which, throughout most of the 1960's, dis- couraged wider investment in livestock improvement. For example, growers with more than a fixed amount of capital were made ineligible by law to receive proj- ect assistance, while the cost of private loans for such purposes became prohibitive. Thus benefits of the pro- gram were effectively restricted to the smaller ranches, as reflected in the fact that more than 4,500 improve- ment plans that had been financed by early 1970 affected only 7 per cent of the pasture area. Other impediments to production and exports included many of those already mentioned: controls on producer and consumer prices, high export taxes on meat, import levies on necessary machinery and equip- ment, an inefficient processing and marketing system, and inadequate meat inspection services. As a result of these and other constraints, total beef production had failed to expand. Domestic consumption, already among the highest in the world on a per capita basis, had increased while exports had declined. Per capita income, though still the third highest in Latin Amer- ica, had remained virtually stagnant and may have actually fallen. The turning point came last year. In May the United Kingdom, Uruguay's largest customer, imposed an embargo on the country's beef because of low hygienic standards and inadequate inspection. In October, Uru- guay itself barred the export of even processed beef to country to borrow from the Bank for livestock the United States, which already barred fresh, chilled, improvement, establishing a prototype of the directed and frozen beef from all Latin American countries credit system which was described in the previous arti- south of Panama. cle and is now being employed in well over a score of other countries around the world. In many of these, as Policies for Improvement we have seen, the main barrier to faster growth has The Government also took a series of politically dif- become the reluctance or inability of governments to ficult decisions on a wide front. The meat inspection provide adequate incentives for production, to reform service is being improved. Inspectors are being paid obsolete or inappropriate processing and marketing solely by the Government rather than by the meat pack- systems, to adopt firm policies and programs for effec- ers, and are being trained in a special internationally tive disease control, and to encourage exports. Until assisted program. Consumer prices for beef have been last year, this had been true in Uruguay. raised, making more available for export. The beef Technically, the Uruguayan project has been suc- export tax has been reduced. Import taxes and sur- cessful. Project ranches now produce three and a half charges on farm machinery and packing house equip- times as much beef per acre as the national average, as ment have been removed. The Montevideo market has well -as twice as much wool and two and a half times been opened to all meat packers, ending the Govern- as much mutton. These figures are especially significant ment's own monopoly. With more competition, pro- in Uruguay, where livestock was and is the mainstay of ducer prices increased by some 30 per cent, providing the economy; it generates a higher proportion of incentive for borrowers, while a system for indexing national income than any other sector and accounts for loans to ranchers mitigated the effects of inflation on well over four fifths of exports, of which a third con- lending institutions. The Government has also sists of beef and beef products. embarked on a wide-ranging program to bring about

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©International Monetary Fund. Not for Redistribution the reorganization and modernization of the meat proc- period of economic stagnation and decline. If so, it will essing and marketing industries. not go unnoticed in other developing countries where If such policies can be adhered to and successfully governments have been feeling their way in the same carried out, there is little doubt that Uruguay's live- direction, with varying degrees of trepidation and stock industry can lead the country out of its long doubt.

Donald J. Pryor, a citizen of the United States, is in the Informa- tion and Public Affairs Department of the World Bank. He did graduate work in economics at the University of Iowa and his career includes service as a foreign correspondent, newspaper editor, and Assistant to the Administrator of the U.S. Federal Security Agency. Mr. Pryor was also Director of Information for the Inter- national Refugee Organization, Director of Information and Liaison with the UN Korean Reconstruction Agency, and a consultant for governments and international agencies before joining' the World Bank staff in 1964.

BANK GROUP ANNUAL MEETING

The report in this issue of Finance and A more complete record of the Meeting Development of the Bank Annual Meeting will be published shortly by the Bank in a is greatly condensed, touching only upon a volume entitled Summary Proceedings. It is small portion of the speeches and activities. available free on request from

Publications Office International Bank for Reconstruction and Development 1818 H Street, N.W., Washington, D.C. 20433 U.S.A.

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©International Monetary Fund. Not for Redistribution The Headline-Making Pearson Commission Report

The Report of the Commission on International Development

Lester B. Pearson, Chairman

The full report of the Commission established by the World Bank in response to the crisis of declining foreign aid appropriations. Under the direction of Lester B. Pearson, for- mer Prime Minister of Canada, the Commission presents its findings and recommendations "with fresh clarity, candor and conviction. . . . The fate of this crucial report and of the world community for which it pleads depends on the response it evokes in Washington."— lead editorial in of Sunday, October 5, 1969. "I am convinced that it will become one of the most important documents of the twenti- eth century."—British Prime Minister Harold Wilson.

Orders should sent to

English — Praeger Publishers German —Fritz Molden Verlag DM24 111 Fourth Avenue 1198 Wien New York, N.Y. 10003 Muthgasse 2, Austria U.S.A. $2.95 Spanish—Editorial Tecnos S.A. French — Editions Denoel O'Donnell 27 14 rue Amelie Madrid 9, Spain Pta. 180 75-Paris 7"ne France F25

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©International Monetary Fund. Not for Redistribution 29

©International Monetary Fund. Not for Redistribution 197O Annual!

The Annual Meetings of the Boards of Governors of the International Monetary Fund and the World Bank Group were held in the week of September 21-25 in Copenhagen, Denmark. The opening of joint sessions at the Bella Center was honored by the presence of Their Majesties King Frederik and Queen Ingrid of Denmark, and the opening address was made by Prime Minister Hilmar Baunsgaard. In it he noted that over the past 25 years the Fund and the Bank Group have rendered

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©International Monetary Fund. Not for Redistribution Copenhagen

Meetings

"great contributions to the efforts designed to improve the standards of living, to provide economic development, and to liberalize world trade." The 1970 proceedings of the Boards of Governors dealt with the continuing efforts of these institutions, and the two following articles, "The Bank Group Meeting" and "The Fund Meeting" point out the highlights.

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©International Monetary Fund. Not for Redistribution The Banh Group

It was perhaps a pity that the demon- "The distribution of income and strators, whose threats to disrupt the wealth is severely skewed, and in some Annual Meetings of the Boards of Gover- countries becoming more so. nors of the Bank Group and International In India, 12 per cent of the rural Monetary Fund fortunately came to families control more than half of the nothing, could not have been admitted, cultivated land. In Brazil, less than 10 strictly as spectators, since they might per cent of the families control 75 per have found the proceedings enlightening. cent of the land. They would have found, in the discussion In Pakistan, the disparity in per capita of the Bank's developmental role, little income between East and West, which suggestion of a bitter "confrontation" amounted to 18 per cent in 1950, between "haves" and "have-nots." In- became 25 per cent in 1970, 31 per stead, they would have heard a serious cent in 1965, and 38 per cent in 1970. dialogue notable for the wide agreement between representatives of developed and "The gap between the per capita in- developing countries on what the pro- comes of the rich nations and the poor blems were and how they should be nations is widening rather than nar- approached. rowing, both relatively and absolutely. At the extremes that gap is already more than $3,000. Present projections Human Suffering and indicate it may well widen to $9,000 by the end of the century. In the year Itepriration 2000, per capita income in the United This wide agreement was not the result as compared with an average pound States in terms of today's prices is of complacency on the part of the devel- and a quarter in a low-standard area. expected to be approximately oped countries on the aid they had $10,000; in Brazil, $500; and in India, provided, or acceptance by the devel- "Infant mortality is high. $200." oping countries of this aid as sufficient. Infant deaths per 1,000 live births are There was no sweeping of problems Under four times as high in the developing The World Community the rug. Any tendency to compla- countries as in the developed countries cency, even if it had existed, could (110 compared with 27). and Its Conscience' have hardly survived the address given The considerable consensus of views by Mr. McNamara, President of the "Life expectancy is low. on the basics of development was thus Bank, at the opening session. After re- A man in the West can expect to live due not to euphoria but rather to a sober counting the progress made in the past 40 per cent longer than the average and searching appraisal of the enormous year toward the fulfillment of the Five- man in the developing countries and task ahead, which, it was clear from Year Program to double the Bank twice as long as the average man in Governors' speeches, had been stimulated Group's operations over the period some of the African countries. by the Report of the Pearson Commission 1969-73 in comparison with the period on International Development, "Partners 1964-68, Mr. McNamara proceeded to "Illiteracy is widespread. in Development"; this Report, according characterize what he called "the realities There are 100 million more illiterates to Mr. Anthony Barber, Fund Governor of human suffering and deprivation" in today than there were 20 years ago, for the United Kingdom, "has contri- the developing world in the following bringing the total number to some 800 buted in my country—and I do not doubt terms: million. elsewhere—to a more informed public debate on aid and trade relationships "Malnutrition is common. "Unemployment is endemic and with the developing countries." Mr. Y. The Food and Agriculture Organiza- growing. B. Chavan, Governor for India, said tion estimates that at least a third to a The equivalent of approximately 20 that it was enough to take a tally of half of the world's people suffer from per cent of the entire male labor force the recommendations of the Report "to hunger or nutritional deprivation. The is unemployed, and in many areas the see what a gulf there still is between what average person in a high-standard area urban population is growing twice as the world community recognizes to be consumes four pounds of food a day fast as the number of urban jobs. right and what it is prepared to do about

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©International Monetary Fund. Not for Redistribution Meeting By Cyril H. Bavles

" it." It was evident, however, both from ' events preceding the meeting and views expressed during its course, that the "world community" had already begun to examine its conscience on this point. One cloud that might have over- ' shadowed the meeting had already been dissipated by what Mr. Edgar J. Benson, Governor for Canada, called "the most important event of the development year," the agreement of the so called Part I countries, i.e., the richer members of the International Development Asso- ciation (IDA), on a third replenishment of IDA's resources at the rate of $800 million a year for three years, twice the amount of the second replenishment. The Chairman reminded the Governors in his closing remarks, however, that hard work and persuasion on their part would still be necessary to ensure speedy ratification of the agreement. The developing countries were also tionist trade policies divert them from necessary but not a sufficient cause of encouraged by the increasing recognition their own responsibilities. "An efficiently successful modernization. . . .We must on the part of the developed countries managed economy is in itself sufficient to ensure that in such critical fields as that aid was more than a matter of attract foreign capital," he continued, population planning, rural renewal, fuller maneuvering to obtain commercial or adding that "economic development employment, and decent urbanism, posi- political advantages. This trend was re- should not be regarded as some kind of tive policies support and hasten the social flected in the wide support given to the by-product of international philanthropy. transformation without which economic untying of bilateral aid at the high-level It is something earned primarily by seri- growth itself becomes obstructed and its meeting of the Development Assistance ous and disciplined effort on the part of results impaired." Mr. N. M. Perera, Gov- Committee (DAC) held in Tokyo just the countries concerned." The Governors ernor for Ceylon, expressed the same idea before the Copenhagen meetings, and by of several developing countries advocated when he said, "I think it is necessary also the intention expressed by a number of the establishment of the proposed Inter- to question the conventional wisdom the industrialized countries to channel national Investment Insurance Agency in which emphasizes more aid through multilateral institu- order to encourage private capital to growth to the exclusion of redistributive tions. Noteworthy in this respect was the invest in the developing countries. social justice." emphasis on multilateral aid in President There was also, as there had been the Mr. McNamara testified to the serious Nixon's special message to the U.S. Con- previous year, general agreement that attention that the Bank had given to the gress on foreign aid. development called for profound struc- recommendations of the Pearson Com- This constructive disposition on the tural changes in the developing countries; mission, on 31 of which he had submitted part of the developed countries found in the words of Mr. P. A. Reid, Governor detailed memoranda for discussion and an echo from the developing coun- for Guyana, "Unless investment is made review by the Executive Directors. He tries. The strongest statement of their in a favorable social and institutional had endorsed most of those that related responsibilities came from the Chair- environment, it must ultimately be to the Bank Group, his chief disagree- man himself, Mr. Hedi Nouira, Gover- sterile." Other speakers went further by ment being with the Commission's sugges- nor for Tunisia. In his opening ad- emphasizing that successful investment, tion that IDA, which was financed by dress Mr. Nouira counseled the devel- which increased the gross national pro- government contributions, might in due oping countries not to let their re- duct (GNP), was not enough if social evils course need reorganization to enable it to proaches against the developed countries such as unemployment and an excessively follow policies independent of those of for inadequate aid, failure to stabilize the unequal distribution of income con- the Bank, which, in the opinion of the prices of primary products, and protec- tinued. Mr. McNamara said, "Growth is a Commission, was necessarily influenced

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©International Monetary Fund. Not for Redistribution by the need to borrow in private capital U.S. Government had in mind an expan- "* markets. Mr. McNamara said that both sion of the flow of its external aid from *, the Bank and IDA should lend on the its current low level, Mr. McNamara said basis of identical criteria; the decisive that the United States, which would ' factor for both should be what con- increase its GNP by $500 billion by 1979, tributed most to the borrowing country. was "wealthy enough to support a just The source of funds affected only the and reasonable foreign aid program, and ~ terms on which they could be lent, and at the same time deal effectively with *,, was irrelevant to the choice of project in domestic needs." Not only the United which to invest them. States, he continued, but also the other The Population Problem Turning to recommendations not spe- cifically addressed to the Bank, Mr. McNamara commended the Pearson Com- mission for facing squarely what it had called "the ominous implications of un- controlled population growth." Reviewing the general state of population planning, he noted that in only a few areas was there clear evidence that the rate of population increase had been significantly reduced by family planning programs. What was needed was, first, a feasible goal which, he suggested, should be "to gain a few decades on what would occur to fertility in the absence of popu- lation planning." In order to attain this goal, there were further requisites: the rich industrialized countries were faced political will to support the effort, under- with a fundamental question, "Which is standing and willingness to act on the ultimately more in a nation's interest: to - part of the people, the availability of funnel national resources into an end- ^ effective and acceptable birth control lessly spiraling consumer economy—with methods, an efficient administrative or- its by-products of waste and pollution—or ganization, and demographic analyses to to dedicate a more reasonable share of evaluate results and to point to weak- who have nevertheless determined to these same resources to improving the press on with their policy." nesses in the program. While there had fundamental quality of life both at home - been a considerable increase of political and abroad?" The same note had already support for population planning in recent Need for Aid on been struck by Mr. Nouira when he years, much less progress had been made emphasized that, while the task of in respect of the other requisites. The Conwsttionarij Term* bringing humanity out of the "dark laby- additional funds needed to attack the Mr. McNamara devoted considerable rinth of poverty and ignorance" was first population problem on all fronts were attention to the Commission's recommen- and foremost the responsibility of the c relatively small, but time was short, and it dation that a separate target—equivalent Third World," this responsibility was ^ was essential to apply them quickly. The to 0.7 per cent of GNP—be established shared by "the advanced countries which Bank was organizing itself to provide for official development aid, and reached, continue to flaunt their wealth in the face both the advice and financial assis- preferably by the middle of the decade, of the majority of mankind, who are tance that many of its members were but in no case later than 1980. He hardly able to satisfy their basic needs." asking for. Governors paid tribute to pointed out that, although this target It was a sign of the times that the Mr. McNamara's speeches at the 1968 required the DAC countries to double the problem of finding resources for develop- ^ Annual Meeting and later at the Univer- proportion of their total GNP devoted to ment was discussed mainly in terms of sity of Notre Dame for making the idea aid, it had in general received a very IDA, rather than the Bank. Many Gover- of population planning acceptable. 'The positive response from those countries, nors for developing countries echoed the fact that there are so many whose deeply one consequence of which was the agree- view of Mr. Veerasamy Ringadoo, Cover- held convictions are opposed to family ment on the third IDA replenishment. nor for Mauritius, that "one cannot fight planning." said Mr. Barber, "only high- Noting that the United States had sup- the population explosion with World lights the courage of those in the Bank ported the replenishment and that the Bank money at 7% per cent interest."

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©International Monetary Fund. Not for Redistribution However, while the high interest rate was posed by Mr. McNamara on "endlessly deplored as a disincentive to develop- spiraling consumer economies." However, ment, most Governors accepted it with the majority of the Governors for the resignation as something due to circum- developing countries were of the opinion, stances over which the Bank had little also expressed at the 1969 meeting, that control. Mr. Hannes Androsch, Governor the Fund's special drawing rights (SDR's) for Austria, pointed out that the Bank could be used to provide development had exercised great restraint in deter- finance, in a politically acceptable way, mining its lending rate, and that the either through the allocation of more recent increase from 7 per cent to 7% SDR's to the developing countries, per cent did not reflect the increased cost through the contribution by the devel- of funds; the margin between its lending oped countries of the equivalent of part and borrowing rates, formerly a flat 1.25 of their SDR's to IDA, or through some per cent, had become negative a year or other mechanism for providing IDA with two earlier. SDR's. There was general support by Pleas for an increase of IDA's conces- these Governors for a proposal that the sionary assistance were in general based Fund be requested to study the question on the heavy debt burdens of the devel- of the establishment of a direct link oping countries. Many Governors cited between SDR's and development finance the figures given in the Bank's Annual and to make its report available before Report, which showed, inter alia, that decisions on the next round of allocations over the past decade both the outstanding had to be taken in 1972. debt and the debt service payments of the Spokesmen for the developed coun- developing countries had grown twice as tries, however, were skeptical. Mr. Karl fast as their export earnings, and almost Schiller, Governor for , em- three times as fast as their combined gross phasizing that the primary need was to domestic products. strengthen confidence in SDR's and

would run the risk of confusing the purpose for which SDR's were invented, namely, to deal with the problem of maintaining adequate international liquid- ity," added that, "Nor should it be imagined that there is anything painless about giving aid through SDR's. To the extent that developing countries run down their SDR holdings they will be drawing on the resources of developed countries, and this will be taken into account in the aid plans of developed countries." He expressed hope that con- sideration of the matter would not be carried to the point at which it might prejudice the future allocation of SDR's. Other proposals involving the Fund, supported by a number of Governors for developing countries, were that it should transfer part of its reserves to IDA, or that Spwint torturing Right* establish them firmly as a universally it should invest its reserves in low-interest and nvvcttopmvnt acceptable reserve medium, added, "This Bank bonds and thus enable the Bank, to is also the reason why I do not consider it this extent, to make loans at a conces- Finanw advisable to burden the new instrument sionary rate. with additional functions it was not It was generally realized that, in designed for. SDR's cannot be a medium EUgiMUtij for IDA the long run, a substantially increased to finance capital aid." Mr. L.H.E. Bury, Assifttunci* flow of concessionary aid depended Governor for , after saying that on the response of the developed "to allow SDR creation to be influenced There was, as in previous years, strong countries to the fundamental question by the needs of development finance criticism of IDA's restriction of itsfinan-

©International Monetary Fund. Not for Redistribution cing to countries with a per capita GNP ings of $213 million was generally ap- the moment of obtaining additional of not more than $300, which, it was proved, some Governors regretted that IDA funds for this purpose, the Bank complained, excluded most Latin Ameri- the transfer was of a smaller proportion should defer further detailed considera- can countries. The Governor for Mexico, of net earnings than in 1969. On the tion of the subject. Mr. Perera added Mr. Hugo B. Margain, speaking for the other hand, Mr. H. J. Witteveen, Gover- that, while he appreciated the reason Latin American countries and the Philip- nor for the Netherlands, warned that the given by Mr. McNamara, potential donor pines, said that while these countries did developing countries could not have the countries were likely to give more seri- not object to the proposed transfer of best of both worlds-large Bank transfers ous consideration to the idea of addi- part of the Bank's net earnings in the past to IDA as well as a lending rate well tional commitments if they were pre- to IDA, they hoped that other below the prevailing cost of money. In his sented as part of a detailed scheme. He ways of helping IDA could "be found in opinion, the Bank was striking a fair therefore welcomed the decision reached future, so as to ensure that it will not be balance between these two objectives. by the Trade and Development Board the previous week to renew its request to the Bank to pursue its efforts to work out a scheme. There was strong support by Gov- ernors for developing countries, and also by Mr. Barber, for the proposals that the Bank and IDA should be more flexi- ble than at present in financing the local costs of projects and in making nonproject loans, which could be dis- bursed rapidly. Urging a "judicious the developing countries themselves who Special Forms of through profit-producing interest, sub- mixture" of project and nonproject sidize, albeit partially, a limited group of Lending assistance, Mr. Chavan said that he countries." Mr. Margain, like several other Many Governors revived familiar but failed to understand why the latter Governors, pointed out that some coun- controversial proposals for the use or should be considered less desirable than the former; "no such thoughts tries which had per capita GNP of more increased use of special forms of lending. confused our minds during the days than $300 contained depressed areas Some were disappointed that there had of the Marshall Plan or, indeed, when which in some cases had larger popu- been no progress in the direction of Bank the World Bank assisted industrial lations than whole countries which were action toward the stabilization of the countries." Mr. Janko Smole, Governor eligible for IDA financing. IDA's Articles prices of primary products, a subject on for Yugoslavia, revived the suggestion of Agreement, it was urged, made a which both Bank and Fund had sub-- made by several Governors at the 1969 country's creditworthiness, and not its mi tted reports to their Boards of Gover- meetings that the Bank consider the per capita GNP, the basic criterion of nors in 1969, or toward the adoption of a possibility of refinancing export credits eligibility for IDA financing. Hopes were scheme of supplementary finance which granted by developing countries to other expressed that the doubled rate of IDA would provide funds to enable countries developing countries. replenishment would permit a relaxation to maintain their development despite of this criterion and would permit a'blend unforeseen falls in export earnings. Mr. of IDA and Bank financing containing Perera, describing the effects on Ceylon's Private tnretttmvnt higher proportions of IDA funds for economy of the fall of tea prices from The importance attached to private countries that had limited creditworthi- 1965 to 1969, said that much of the aid investment as a source of funds for ness, but were not poor enough to justify received by Ceylon during that period development and the need to give the their receiving IDA funds only. Some had to be regarded as supplementary private investor assurances of equitable Governors seemed to feel that even this finance rather than aid proper. He de- treatment was emphasized by the marked division of borrowers into Bank, IDA- scribed Ceylon's experience as an exam- revival of interest in the proposed Inter- blend, and IDA categories did not permit ple of the "harshness of the international national Investment Insurance Agency. a sufficiently flexible adjustment of climate within which small open eco- At the request of UNCTAD, the Bank lending terms to the economic circum- nomies are today compelled to develop." had for some years been trying to draft a stances of countries (and, as some would He therefore regretted that, in his reply charter that would command sufficient have it, the rates of return on projects) to a request from the Trade and De- support to justify the setting up of such and envisaged some sort of pooling of velopment Board of the United Na- an agency, but progress had been slow Bank and IDA resources that would tions Conference on Trade and Devel- and halting because some of the most permit each country, and perhaps even opment (UNCTAD) that the Bank important developed countries and most each project, to have its own made-to- consider working out and introducing of the developing countries had shown measure interest rate and other terms. arrangements for supplementary fi- little interest. Within recent months, how- While the proposed transfer to IDA of nance, Mr. McNamara had said that, ever, there had been encouraging changes $100 million from the Bank's net earn- because there was little prospect at in the positions taken by , the

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©International Monetary Fund. Not for Redistribution United Kingdom, and the United States and some developing countries, which were confirmed in speeches at the meeting. Mr. Takeo Fukuda, Governor for Japan, expressing the hope that an agency could be created as soon as possible "with the blessing of all coun- tries, developing as well as developed," said that two points should be borne in mind: first, the need for a spirit of partnership and solidarity among devel- oping and developed countries should be clearly stated in the scheme; sec- ond, the scheme should not place an excessive burden on the developing countries. Mr. Aleke K. Banda, Gover- nor for Malawi, said that the fears of investors of nationalization without ade-

on "appropriate terms." Mr. Witteveen necessary and which involve expenditures expressed the hope that the Netherlands' we can ill afford." Similarly, Mr. Mwai initiative would be followed by other Kibaki, Governor for Kenya, advised members. Although Mr. Witteveen did Bank missions to exercise greater caution not specify the terms of the proposed when they questioned the organization of loan, his statement raised the possibility governments, and to show less enthusiasm that loans from member governments for setting up new government agencies might help to solve the problem that simply to operate individual projects. would confront IFC in a few years' time, Mr. P. Bomani, Governor for the namely, that of finding additional funds United Republic of Tanzania, summed for equity investment, since the Bank's up this problem when, after welcoming Articles of Agreement did not permit the what he described as the change from the proceeds of Bank loans to IFC, at present Bank's "early role as a reconstruction I PC's chief source of additional funds, to agent for Europe and the international be invested in equity. market to the developmental role so ably outlined by President McNamara earlier Wanted and tJnumntvd in these meetings," he went on to say, "It is vital that the Bank should consider Advice development strategy as well as projects, quate compensation were usually ground- While the technical assistance and ad- education as well as roads, the quality of ' less but were fed by newspaper headlines vice provided by the Bank in cooperation life as well as repayment schedules. If it and rumors. These fears coutd only be with other agencies, such as United can do this as a servant of development allayed by active and positive support for Nations Development Program, Food and and a partner of developing countries, the the proposed agency on the part of Agriculture Organization, and United potential benefits to all of us are im- t developing countries. Nations Educational, Scientific and Cul- mense. The danger is that the Bank-by In the direction of fiscal incentives to tural Organization, was generally com- virtue of its professional expertise and foreign investment, however, Mr. Cesar mended. Governors for some African funds—will come to see itself as a world Virata, Governor for the , countries pointed out that there were planning authority supplanting national thought that developing countries tended development problems that the devel- effort, rather than as a source of re- to go too far, and he hoped that the Bank oping countries felt they had to decide sources and advice for supplementing would try to dissuade them from offering for themselves. Mr. Banda said that, while national and regional planning by the inducements not really needed to attract the developing countries often needed developing economies. . . . Industrial foreign investors. and asked for advice, and appreciated it economies and the Bank are welcome as Considerable interest was aroused by when it was given, they did not want colleagues, advisers, friends in our course Mr. Witteveen's statement that the "advice, or rather lectures, for which we toward development. National develop- Netherlands Government intended in have not asked. What we do not want is ment must be nationally determined, 1971 to make a loan of $5 million to the to be told that money will be provided nationally sought, and largely nationally International Finance Corporation (IFC), for a project only if we take certain other financed if it is to be real and if it is to the Bank Group's private enterprise arm, actions which we ourselves consider un- lay the basis for a more harmonious,

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©International Monetary Fund. Not for Redistribution agreement and in formulating procedures for giving it effect. The Bank Group, which had emerged from the 1969 meetings committed to the study of the Pearson Commission recommendations, thus found itself at the end of the 1970 meetings with a further heavy agenda of study. This aspect of its role was well characterized at the very beginning of the meeting when the Danish Prime Minister, Mr. Hilmar Bauns- gaard, welcoming the delegations, quoted a modern Danish poet as follows:

We shall have to evolve problem-solvers galore since each problem they solve creates ten problems more.

The General Mood The general mood of the meetings could be described as one of constructive "* realism—of realism because there was no H disposition to minimize the difficulty of narrowing the gap between the rich and poor countries as long as the population problem made it necessary for nations, like Alice in Wonderland, to run fast to stay in the same place; constructive be- „. cause of a willingness to think more in

equitable, and prosperous international and developing countries for an inter- system." national investment insurance plan; Agenda for Study shortly after the Annual Meetings the Executive Directors, meeting as a Com- In his closing remarks, Mr. McNamara mittee of the Whole, would review the singled out for comment five proposals position. Fourth, while member Govern- that had received particularly strong sup- ments held divergent views on the subject port from Governors. First, he said that of more flexible lending policies, particu- the Bank would make a study of the larly as far as nonproject lending and the mounting burden of external debt, which financing of local currency expenditures had become a matter of great concern to were concerned, and while the freedom many developing countries. Second, he of action of both the Bank and IDA was said that, while he realized that sharply limited by their Articles of Agreement, so conflicting views were held on the de- much interest had been expressed in the sirability of a link between SDK's and subject that the Bank would make a full development finance, no other subject re-examination of it within the next few had been referred to so often during the months. Fifth, he welcomed the declared meeting, and the Bank would be prepared intentions of most of the members to try to assist in any study of the matter to reach agreement on the untying of undertaken by the Fund. Third, he wel- bilateral development loans; the Bank was comed the support from both developed prepared to help in working out such an

©International Monetary Fund. Not for Redistribution terms of concerted action than of na- tional or group interests. Such a willing- ness could help to reduce the effect of what Mr. McNamara called "too many millennia of tribal suspicion and hos- tility ... still at work in our subconscious minds." Pointing out that no more than a 5 per cent shift of expenditure from arms to development aid was needed to bring the Pearson target for official devel- opment assistance within sight, he added, 'There are really no material obstacles to a sane, manageable, and progressive re- sponse to the world's development needs. The obstacles lie in the minds of men."

Cyril H. Davies studied economics at Oxford University, and before World War II taught economics at what is now the University of Bradford. After an introduction to the financial problems of reconstruction in Europe while with the Supreme Headquarters, Allied Expeditionary Force and the Control Commission for Germany in 1944-46, he came to the Bank in 1947, and served as a Loan Officer in the Western Hemisphere Department before joining the Secretary's Department in 1961.

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©International Monetary Fund. Not for Redistribution The Fund Meeting

The speeches of Fund interest at the 1970 Annual Meetings in Copenhagen (where all sessions were held jointly with the World Bank Group) in the main reflected the comparative calm that had existed in the major financial markets of the world during the previous year. The Bretton Woods system, liquidity, in- flation, trade policies, and the needs of the developing countries—in fact, the matters of outstanding concern in the economic and financial worlds—were the themes under discussion. As the Chair- man, Mr. Hedi Nouira, said in his con- cluding remarks, the Meetings permitted United States, noted that the report of Mr. Diogenes H. Fernandez, Governor Governors to consider certain approaches the Executive Directors on The Role of for the Dominican Republic,1 felt to outstanding problems and the aims of Exchange Rates seemed to recognize that strongly that "A system of freely floating the two institutions. ". . . there are circumstances in which exchange rates would not be acceptable more flexible techniques and practices, as a general system. Nor is a system of Th<> Bretton Woods within the general context of the Bretton automatic and continuous adjustments in System Woods system, could make a practical par values in accordance with certain and useful contribution to maintaining indices, i.e., a crawling peg, to be recom- The Governors, who had before them the basic conditions for free trade and mended, as no mechanical procedures can a report by the Executive Directors on orderly markets." Many Governors from be used to identify a fundamental dis- the Role of Exchange Rates in the Ad- developing countries reminded the Gov- equilibrium." In the same vein, Mr. justment of International Payments, gen- ernors of their more developed partners Anthony Barber, Governor for the United erally considered it a valuable contri- that, as Mr. E.H.K. Mudenda, Governor Kingdom, criticized the school that ad- bution to the existing knowledge of the for Zambia, explained, ". . . the devel- vocated floating rates. adjustment process. Its main conclusions, oping countries should be assured of the In dealing with some of the other with which the speakers on the whole relative stability of exchange rates." suggestions made in the report on The agreed, were that the basic principles of In a different context. Baron Snoy et Role of Exchange Rates, some Gover- the Bretton Woods system of stable but d'Oppuers, Bank Governor for Belgium, nors argued that the adoption of wider not rigid exchange rates were sound and reported that the EEC countries were margins around parity would introduce should be maintained and strengthened, seriously considering coming together in more uncertainty into financial affairs but that certain modifications in the an economic and monetary union. Thus, and add to the cost of international system might be worth further consider- "any flexibility could only exist outside trade to the detriment of the poorer ation provided that they did not weaken this system, and, furthermore, [the mem- countries, especially primary producers, the existing arrangements. There was bers'] position in response to any exter- while others suggested that Fund mem- some divergence of views as to the nal flexibility will necessarily be a com- bers might derive certain benefits, such as amount of flexibility that was desirable. mon one." a reduction in the amount of official Arguing for stability, Mr. Vale>y intervention in the market, from wider Giscard d'Estaing, Bank Governor for Possible Modifications margins. Concerning smaller and promp- France, noted that "We [the French ter changes in parity, the views of Gover- authorities] remain faithful to the spirit, to the System nors on the substantive aspects of the and even more truly to the inspiration, of Governors discussed at some length proposal offered a wide spectrum from the Bretton Woods charter .... Greater the suggestions that had been considered acceptance to complete rejection. flexibility would weaken the will to by the Executive Directors for possible protect currencies against inflation. . . modifications to the present system. 1 Speaking also on behalf of Argentina, Bolivia, Why should we fight to the death when it There was a fairly general agreement that Brazil, Chile, Colombia, Costa Rica, Ecuador, seems that an avenue of escape is con- the suggestions for the introduction of El Salvador, Guatemala, Haiti, Honduras, stantly open to us?" On the other hand, either "floating rates" or "crawling , Panama, Paraguay, Peru, Uruguay, Mr. David M. Kennedy, Governor for the pegs" could be too destabilizing. In fact. and Venezuela.

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©International Monetary Fund. Not for Redistribution By Tony Helm and John Kay

The issue of exchange rate adjustment order to restore the desired long-term was further commented on by some trend of world reserves." Several Gover- Governors who stated that the present nors recognized that the U.S. payments system was basically sound and that it position might have the effect of limiting was only through the default of indivi- the creation of further special drawing dual members that strains existed. Mr. rights. The sustained deliberate creation L.H.E. Bury, Governor for Australia, for of unconditional liquidity through the instance, pointed out that "... the failure Fund, they felt, depended on containing of some countries to curb inflationary the payments deficits of the reserve cen- processes has led to pressures on their ters. Regarding the distribution of special balances of payments." And Mr. Erik drawing rights, some speakers from devel- Brofoss, Governor for Norway, added: oping countries suggested that the allo- 'There seems to be a general consensus of cation arrangements were not entirely opinion that one of the main causes of equitable. Mr. Mohammed Aman, Bank the imbalance which has threatened the Governor for Afghanistan, for instance, fabric of the international monetary remarked that ". . . we are especially system in the 1960's has been the inade- concerned about the rigidity of the for- quacy of fiscal policies. . . . The Articles mula for allocating the special drawing of Agreement ought not only to provide rights. It appears to us that the developed the Managing Director of the Fund with tion in North America was in contrast. countries, rather than the developing the discretionary authority but also to Mr. Pierre-Paul Schweitzer, Managing countries, benefit the most from this impose upon him the statutory duty to Director of the Fund in his opening rigidity." initiate discussions with national govern- address noted the present difficulties by So far as the gold component of ments on the realignment of exchange saying, "In the case of Canada, upward liquidity was concerned, the Fund's rates." pressure on the reserve position led to a agreement with was felt to The Governors endorsed the sugges- decision last May not to maintain the have helped to stabilize the bullion mar- tion by the Executive Directors that exchange rate for the Canadian dollar in kets; Mr. Nicolaas Diederichs, Governor certain aspects of the subject should be accordance with the Articles of Agree- for South Africa, said, "I still consider studied further. In the words of Mr. ment; I trust, however, that an effective that the best interests of world finance Mario Ferrari-Aggradi, Governor for Italy, par value will be resumed at the earliest would be served by permitting the free ". . . in the course of the next year the possible date." Furthermore, the need to flow into monetary reserves of their Executive Directors of the Fund [should] rectify the U.S. payments position had strongest element, namely, gold .... At examine further the costs and benefits been termed by the Annual Report "the the same time, many important monetary which would derive from the possible most urgent remaining task in the field of authorities continue to demonstrate that solutions which are already clearly out- international payments." they have as great a preference for gold lined in their Report. This would allow us Some time was spent by Governors over other reserve assets as ever—the to reach a well thought-out and, as far as discussing the working of the Special recent large gold sale by the Fund bears possible, unanimous decision on the Drawing Account. Many of them felt, eloquent testimony to this." Another future setup of the international mone- after almost one year of experience, that view was expressed by Mr. Kuo-Hwa Yu, tary system." the participating countries had made pru- Governor for China, who said: "But even Payment* dent use of the new facility, which had the institution of the [SDR] system generally been treated as a reserve asset helped to take the wind out of rampant and Liquidity equal to the other traditional components gold speculation, thus contributing direct- In general terms the feeling of the of reserves. Some reservations were, how- ly to the maintenance of world financial Governors was that, especially since ever, made in relation to the new facility. stability." 1969, the realignment of major European Mr. H.J. Witteveen, Bank Governor for The future role of the Fund in connec- currencies had considerably eased the the Netherlands, noted, for example, that tion with the world monetary system was strains in the international monetary "If, however, the unforeseen inflationary mentioned on several occasions. Mr. fabric; in particular, the flow of short- developments should continue during the Takeo Fukuda, Governor for Japan, said term funds between financial centers, rest of the present basic period, we will that "... I am convinced that the though a continuing source of concern, have to take these into account when it international monetary system will move had been substantially reduced. The situa- comes to starting the next basic period in forward in the direction of an inter-

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©International Monetary Fund. Not for Redistribution nationally managed currency system. This point I have stressed on previous occa- sions in relation to SDR's and the Fund quota increase." inflation "What is perhaps more disturbing is that pressure on costs and prices has, if anything, increased in 1970, in many cases against a background of defla- tionary policies," Mr. R.D. Muldoon, Governor for New Zealand, noted. Many Governors clearly considered that world price instability was a major problem, to be solved through international as well as national efforts in the coming months. Not only was inflation regarded as social- ly unjust and psychologically destructive; it was also causing a resurgence of nation- alistic policies, which acted to the dis- to play if the word-wide inflationary ming from Canada's anti-inflationary poli- advantage of the economically weaker trend was to be checked. In his turn, cies. "We believed," he said, "that any member countries. In relation to the last Mr. Kennedy said that". . . we fully further efforts to maintain this fixed rate point, Mr. Fernandez described Latin recognize that the inflationary process in [of 92.5 U.S. cents] would have had American experience as follows: "Protec- the United States, as in the world at large, serious consequences . . . Further reserve tionist measures, a leveling off of aid, is not yet under full control .... we are accumulation could not have been pre- barriers restricting access to capital mar- as fully aware of the danger of too fast vented from bringing about further mone- kets, an increase in the cost of money, a expansion and renewed overheating as we tary expansion ... this we were most slackening in the flow of private capital, were of deep recession." The point was reluctant to permit because—like the and a rise in the cost of imports: these, in repeated throughout the Meetings that, Fund—we attach very great importance to short, have been the consequences for Latin America of this inflationary while the U.S. authorities had made some the restoration of price stability." On the domestic side, incomes policies process." progress in stabilizing internal prices, were felt to be a useful supplement to Mr. Wolfgang Schmitz, Governor for further efforts were required. It was also monetary and fiscal policies, but not a Austria, described the growing general emphasized by many Governors that the substitute for them. Nevertheless, Mr. willingness to resign oneself to living with developed countries as a whole ought to Alberto Monreal Luque, Bank Governor creeping inflation. "Sometimes," he said, pay more attention to combating in- for Spain, remarked that ". . . . bringing "one hears stabilization efforts hailed as flation in their own economies. increases in earnings into line with the successful when all that they have More specifically, Mr. Fukuda com- average growth of productivity will prob- achieved is an inflation rate which is no mented that ". . . since cost-push factors ably be the major problem of the 1970's longer increasing. Today, I see a great have greatly contributed to the present for industrial societies, and its solution danger in being satisfied if the rate of inflation, it is.more necessary than before will require of those responsible for eco- inflation in one's own country does not to enforce selective policy measures in a nomic policy a large measure of imagina- exceed that in one's most important most timely and adequate way." More- tion and political resolve." trading partners." over, the attitude of both employers and Mr. Barber, moreover, stressed that "A employees was seen to have exacerbated Development and the general climate of inflation in the world the situation. As Mr. Ali Wardhana, Bank injures the developing countries in special Governor for Indonesia, noted, ". . . the "Link" ways. Not only is the real value to them matter is one of how to handle imperfect The desirability of a link between of aid and investment flows reduced, but competition in which human beings are special drawing rights and development they suffer from the correspondingly high involved; it is perhaps more a social and finance was a topic that called forth level of world interest rates .... political problem rather than an eco- comment from Governors expressing Meanwhile they find the prices of manu- nomic problem." many shades of opinion. No consensus factures they import continually in- Mr. Karl Schiller, Bank Governor for emerged. Governors from developing creasing. So there can be no doubt that Germany, noted that both internal and countries urged that some link should be the longer-term interests of developing external measures could be taken by forged, while others were less convinced. countries call for greater stability of price national governments to check inflation. Mr. F.C. Prevatt, Governor for Trini- levels." In this connection, Mr. Edgar J. Benson, dad and Tobago, said that "We are Many speakers referred to the role that Bank Governor for Canada, explained his convinced of the practicability and the the United States would inevitably have country's exchange rate action as stem- usefulness of implementing a link be-

42 ©International Monetary Fund. Not for Redistribution tween the special drawing rights and the term credit cannot, however, meet the provision of additional development development need. Consequently, I can- finance on concessional terms .... we not see any logical link between aid and would urge that this study [of the link] the creation of liquidity." be done in good time so as to permit a Mr. Aman believed that the Fund's decision by the Board of Governors in monetary experts should study alter- 1972." Mr. Albert Ndele, Governor for native methods for allocating special the Democratic Republic of Congo, put drawing rights. One possibility would be the case for a link on behalf of the to continue the present system of compu- developing countries even more strongly, tation based on quotas, but to make arguing that ". . . the industrial countries available a double allocation of special cannot obtain the expected surplus unless drawing rights for developing countries. they are prepared to finance the deficit of The question whether or not the allo- the less developed countries without cation of special drawing rights for devel- thereby excessively aggravating those opment finance purposes would be infla- countries' burden of debt, either by tionary was closely examined. Mr. David transferring existing savings to the devel- Horowitz, Bank Governor for Israel, oping countries or by creating new instru- thought that it would not. ". . . the very ments of payment for their use." And Mr. fact that these SDR's are anyway being Hassan Abbas Zaki, Bank Governor for created invalidates the argument that this the United Arab Republic, observed that would be inflationary," he said. "In all other groups had considered some such modesty, it seems to me that the opposite arrangement desirable; in particular, the is true . . ." Mr. C.N. (song. Governor for culties. Despite the increase in world United Nations General Assembly had , made a more general comment trade, barriers to access of both primary asked for consideration at an early date on the same theme: "Some of the objec- products and manufactured goods from of the possibility of establishing such a tions to this link do not take into account developing countries to markets in indus- link after the activation of special the long-term political and economic trial countries seemed to be increasing. drawing rights. stability of the developing nations. In the Mr. P. A. Reid, Bank Governor for final analysis, when the demands of the Mr. Y.B. Chavan, Governor for India, Guyana, warned that there was a possi- developing nations are seen against the remarked that the Fund was not an bility that, as a result of the lack of access spectrum of world events, the link be- ordinary credit organization. Suggestions to markets, developing countries could be tween the SDR system and development for further improvement of the return on relegated to the permanent status of creditor positions would not be in con- finance would be found to be desirable." primary producers with subsequent losses In the light of these rather opposing sonance with the conception and charac- of employment opportunities. ter of the Fund. On the contrary, he views, the Managing Director said that he Another trade problem affecting pri- believed the time had come when the felt sure that the Executive Directors mary producing countries in particular Fund should use a part of its resources would wish to give careful consideration was the low level of, and fluctuations in, to the Fund's program of work in the and accruing net income for investment the prices received for their commodities. field of special drawing rights. in an international instrument, such as Tun Tan Siew Sin, Bank Governor for World Bank bonds. Malaysia, commented that the "terms of Tradv 11111! \M trade which are so overwhelmingly loaded Among those who took a less enthusi- Problems against the developing world will con- astic view, Mr. Bury said, "I do think we tinue to impoverish them ... All we The trade policies of member coun- should remember that the Fund is in the want is fair terms of trade, a square deal. tries received perhaps more mention than balance of payments business and the I do not think we are asking for too much they have at recent Annual Meetings. Mr. Bank is in the development finance busi- or seeking something which is unreason- Kennedy, in particular, referred to the ness and we may weaken both if we get able. The alternative is a mad rush on the dangers of faltering on the path to freer their functions confused." The problems part of all developing countries to indus- trade in these words: "The danger is that of forming a link were pointed out by Mr. trialize as much as possible and as rapidly we all could be swept into a self-defeating Witteveen as follows: ". . . there is a as possible." Several speakers discussed spiral of efforts to defend particular fundamental difference between develop- the lack of effectiveness of international interests. The only answer can be to ment aid 'and liquidity creation. Real commodity agreements and commented reassert—forcefully and widely—the pri- resources are necessary for development. on the working of the Fund's compen- macy of our strong mutual interest in My country has already approached a satory financing facility. For instance, freer and multilateral trade." target of devoting 1 per cent of its net Mr. Abdoulaye Lamana,2 Governor for income to public aid. These real resources Many members, it was pointed out by can be made available only by taxes or other speakers, imposed restrictions on 2 Speaking also on behalf of Cameroon, the savings. The provision of additional liqui- trade of one type or another instead of Central Africa Republic, the People's Repub- dity through a scheme of mutual short- resolving the underlying payments diffi- lic of the Congo, and Gabon.

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©International Monetary Fund. Not for Redistribution cerned interest rates. For example, Mr. Fernandez considered that the reason for the climb in interest rates and the les- sening of the flow of capital was to be found in the fact that the inflation with which the industrialized countries were afflicted had been and still was being fought largely with restrictive measures of a monetary nature. In general, there was a feeling that the adoption of stronger fiscal policies in the major countries would assist the Third World consider- ably. Finally, many speakers called for a general untying of aid. While accepting the fact that private enterprise should play ah important role in the develop- ment process, Mr. Brofoss said "... we endorse the recommendation of the recent high-level DAC meeting in Tokyo that maximum aid should be in untied form. A substantial increase in the pro- portion of untied aid will serve to dispel Chad, expressed a view shared by others suspicion and apprehension as to ulterior when he said ". .. we have welcomed the motives of donor countries." If such an improvements made in the compensatory increase did not take place, Mr. Mesut financing mechanism with a view to Erez, Bank Governor for , feared, assisting member countries to participate to have the effect of reducing the demand ". . . tied aid, relatively high interest in buffer stock arrangements. Without for goods from primary producing and rates, and the declining trend noted any doubt this is a positive step forward. developing countries. Mr. Yu, for in- recently in government aid are likely to However, it involves such limitations, as stance, noted that "... abrupt economic have a negative effect on trade between concerns its bases and methods, that we decisions of the key industrial countries both the industrialized and the devel- cannot see that it represents an effective are liable to reverberate through the oping countries." or lasting solution in providing the neces- fabric of the economy of all nations. The The Governors thus discussed, in some sary regulation of prices for raw ma- effect, I may add, is particularly serious 60 speeches delivered over four days, the terials." to the economies of those developing main financial and economic problems Deflationary Policies countries whose industries are beginning facing the Fund as it continues to pursue to develop." The other major conse- the purposes set out in Article I of the Deflationary policies adopted by in- quence of deflationary policies imple- Fund Agreement at Bretton Woods more dustrial countries were seen by Governors mented by developed countries con- than a quarter century ago.

Tony Helm joined the Secretary's Department of the Fund in 1970. He studied Economics at Hull University, England, and also undertook post- graduate work there.

After graduating from Oxford University, England, and serving in World War II, John Kay worked on the staff of international organizations in Europe and the West Indies. In the West Indies, too, he acquired experience in private industry before joining the Language Services Division of the Fund in 1966.

44 ©International Monetary Fund. Not for Redistribution WATER AND POWER RESOURCES OF WEST PAKISTAN

A STUDY IN SECTOR PLANNING

The Tarbela Dam in West Pakistan is the West Pakistan's water and power resources. largest earth and rock-filled dam in the This program is outlined in the three- world, and will cost some $900 million. volume World Bank Report prepared by a The dam's significance, however, goes far World Bank Study Group comprised of beyond its size and cost; it is the largest Pieter Lieftinck, A. Robert Sadove, and civil engineering work of the complex and Thomas C. Creyke. interrelated system of reservoirs, barrages, and link canals which formed the basis of Volume I is a condensed version of the the Indus Waters Treaty of 1960, and entire study, including an evaluation of the marked the end of the long dispute over huge Tarbela Dam project. Volume II gives water supplies between India and Pakistan. a detailed discussion of irrigation and agri- It is also the centerpiece of an integrated culture. Volume III contains papers cover- development program designed to exploit ing background and methodological issues.

Volume I: The Main Report, 368 pp., $10.00 Volume II: The Development of Irrigation and Agriculture, 512 pp., $12.50 Volume III: Background and Methodology, 432 pp., $12.50 $28.50 the set Published in English only.

Order from THE JOHNS HOPKINS PRESS Baltimore, Maryland 21218, U.S.A.

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©International Monetary Fund. Not for Redistribution INDONESIA Economic Stabilization,

In 1965 Indonesia underwent a political upheaval that resulted in the installation of a new regime. This regime was immediately faced with the problem of runaway inflation and the threat of external insolvency. How a stabilization program was put into effect without slowing the economy into stagnation is told in this article.

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©International Monetary Fund. Not for Redistribution HE INDONESIAN economy suffered from rapid Tinflation during the first half of the 1960's, culmi- nating in an increase of over 1,500 per cent in the Djakarta price index during the 12-month period ended June 1966. Mismanagement and inflation severely disrupted the economy and this in turn accen- tuated the inflationary impact of continuing monetary expansion. At the time of the political upheaval late in 1965, it was clear that unless a major effort were made to restore relative price stability, the country was faced by complete economic collapse. Accordingly, in Octo- ber 1966, as soon as the new Government had consoli- 1966-69 dated its position, it launched an economic stabilization program. Inflation is essentially an economic problem, the solution of which requires appropriate economic meas- ures. A successful stabilization program, therefore, requires that political conditions permit the design and execution of policies that are internally consistent and coordinated. During the stabilization period, a group of high-ranking government officials, who enjoyed the unqualified support of the Indonesian Government as a whole, were responsible for formulating economic policy. In view of the difficult, and often unpopular, policy decisions that were required, this political soli- darity was essential. Also important was the support in the form of economic aid and technical assistance given by the international community to Indonesia throughout the stabilization period. Substantial amounts of foreign aid were provided by a group of western countries and Japan—the Intergovernmental Group for Indonesia, with the Netherlands as chairman —who met regularly with representatives of the Indo- nesian Government and of the international institutions to review the progress of the stabilization program and to consider the need for additional aid. Agreements were also made between Indonesia and its creditor countries, rescheduling the debt obligations that were outstanding at the beginning of the stabilization period. Staff members of the International Monetary Fund assisted the Indonesian authorities in formulating the stabilization program, and early in 1967 the Fund assigned a resident representative to Indonesia to advise on economic policy. The Fund also served as a liaison link between the Indonesian Government and the foreign governments that were aiding the stabiliza- tion effort. Beginning in 1968, the Fund extended financial support to Indonesia under the first of succes- sive stand-by arrangements. In the second half of 1968, the World Bank also established a resident mis- sion in Indonesia, mainly to assist in long-term devel- opment planning. At the outset, most observers believed that the resto- ration of price stability would require several years. However, the actual progress of the stabilization pro- gram belied this initial skepticism; from 639 per cent in 1966, the increase in the Djakarta consumer price

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©International Monetary Fund. Not for Redistribution index decelerated to 113 per cent and 85 per cent in nomic levels, and by the decision to introduce an 1967 and 1968, respectively, and to 10 per cent in exchange system virtually free of restrictions on pay- 1969. This remarkable achievement, which has few if ments, with flexible exchange rates for most transac- any parallels in recent years, reflects the determined tions. Although the public sector retained a predomi- implementation of comprehensive economic policies nant role in the economy, much greater scope was over a three-year period. Although specific circum- given to the private sector, and direct foreign invest- stances may differ in other economies, the success of ment was encouraged. the Indonesian stabilization program may provide valu- able guidance on how rapid inflation can be controlled. Fiscal Policy The government budget deficit had been the princi- THE STABILIZATION PROGRAM pal factor in the past inflation, reflecting a serious dete- The stabilization program was aimed not only at re- rioration in tax administration and a large increase in storing relative price stability as an essential prerequisite current expenditures. Between 1960 and 1966 the ratio for orderly long-term economic growth and develop- of budget receipts to national income is estimated to ment but also at achieving this aim quickly. The have declined from about 10 per cent to about 4 per Indonesian authorities recognized that an effective pro- cent, and the current account deficit in 1966 amounted gram would impose hardship on the general public as to over 90 per cent of current receipts. The Govern- economic resources were directed away from current ment's economic program, therefore, gave high priority consumption to productive uses, and they were espe- to a major improvement in the fiscal field, including cially concerned, therefore, that the period of hardship the early elimination of bank financing of the budget should be brief. This concern was reflected in the fiscal deficit. Current budget expenditures, including wages and monetary policies adopted by the Government, and salaries of government employees, were maintained which sought to curtail less essential budget expendi- at an austerity level throughout the stabilization period, tures and to eliminate the large operational losses of and a concerted effort was made to increase current many public sector enterprises, while providing bank budget receipts through improved fiscal administration. credit for agricultural, industrial, and essential distribu- As a result of these measures, the current budget tion activities. A major effort was made to increase deficit was reduced to 20 per cent of current receipts current budget revenues, which had declined sharply in 1967, while the over-all deficit was only about 5 per during the early 1960's, in order to balance the current cent of total budget receipts, because of aid counter- budget and later to provide funds for financing the part receipts in excess of development expenditures. In development budget. The emphasis on economic 1968 both the current budget and the over-all budget growth and development was also reflected in the estab- were balanced, and in 1969 there was a sizable surplus lishment in 1966 of a National Planning Board for on the current budget while the over-all budget coordinating development activities and for preparing a remained in balance. By the end of the stabilization long-term development plan. period, it was estimated that domestic budget revenues On the external side, Indonesia had accumulated had been increased to about 8 per cent of national large foreign debts during the inflationary period, while income. its export earnings had declined because of economic The achievement in the fiscal field reflected the dislocations. It was very important, therefore, for the determination of the authorities to limit budget expend- success of the stabilization program that Indonesia was itures to available budget resources. In a country rav- able to reschedule most of the foreign debt maturities aged by inflation, this policy of course involved the that were due during the stabilization period and to ob- postponement of many urgent expenditures, especially tain substantial amounts of new foreign aid. In addition for maintenance of public facilities and for adequate to relieving the balance of payments pressure by provid- government salaries. To ease the implementation of ing foreign exchange resources for financing essential fiscal policy in a rapidly changing economic situation, imports, the foreign aid program generated counterpart procedures for quarterly budget programing were intro- funds that were a major factor in the noninflationary duced early in the stabilization period. Thereafter, financing of the budget deficit throughout the stabiliza- quarterly expenditure programs were prepared regu- tion period. larly on the basis of projected receipts, and with allow- These specific economic measures, important as they ance for seasonal variations in both budget expendi- were, represented only a part of the attack on inflation. tures and receipts. Once the quarterly program had Equally important was the basic change away from a been approved, expenditure authorizations were limited government-directed economy toward a system in strictly to the program amount, unless budget receipts which market forces played a predominant role. This exceeded the original estimate, in which case authori- change was evidenced by permitting public utility zations were usually increased by an equal amount. On prices and other administered prices to rise to eco- the other hand, if there was a shortfall in actual

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©International Monetary Fund. Not for Redistribution receipts, the expenditure program for the following Monetary Policy quarter was adjusted accordingly. The rate of monetary expansion during the stabiliza- On the receipt side, emphasis was placed on increas- tion period, although still rapid, decelerated sharply. ing customs duty collections, direct tax revenues, and Money supply, which increased by 760 per cent in proceeds from excises and sales taxes. At the customs, 1966, rose by about 130 per cent and 120 per cent in the average effective tariff rate on imports was 1967 and 1968, respectively. Even in 1969, when rela- increased substantially by the use of a realistic tive price stability was largely restored, money supply accounting rate for determining the local currency increased by as much as 60 per cent, reflecting a value of imports on which the duty was levied. A sales return to a more normal level of real liquidity in the tax on imports was introduced, and close attention was economy. Most of the increase in money supply paid to improving customs administration and to reflected nongovernment bank credit, which increased reducing underinvoicing of imports and other irregular- by 388 per cent in 1967 and further by 306 per cent ities. This effort resulted in a sharp increase in pro- and 85 per cent in 1968 and 1969, respectively. The ceeds from import levies, which rose by about 115 per 1 process of stabilization, therefore, could tolerate a high cent in real terms between 1967 and 1969/70, while rate of monetary expansion as long as new credit was total imports increased by only 60 per cent, including a directed primarily to essential economic activities, relatively larger share of low-duty or duty-free imports. rather than to financing current budget deficits or the Equally impressive increases were recorded in revenue losses of public utilities, and provided that the balance from the domestic sales tax and general excises, owing of payments impact of the expansion could be met by to improved administration and increased economic available foreign exchange resources including foreign activity, and in income tax collections, especially from aid. Central bank credit represented the major part of oil companies. the monetary expansion, especially during the first two The most striking increase, however, was in excise years of the stabilization program, as the authorities and sales taxes on products, which rose sought to eliminate the physical shortages of essential more than sixfold in real terms between 1967 and consumer and production goods, which were a major 1969/70, from 2.6 per cent of current receipts to 7.5 factor in the inflationary spiral. This primary credit per cent. Before 1966 petroleum products, including expansion was essential to the Government's objective kerosene for household use, had been sold at a small of restoring price stability while expanding over-all fraction of production cost. Soon after the introduction of the stabilization program, and at intervals thereafter, the prices of all petroleum products were raised in order to eliminate the huge implicit consumer subsidies and to generate budget revenue. These and similar adjustments in public utility prices had a very sharp impact on the cost of living and were, therefore, among the most difficult and courageous decisions taken by the authorities during the stabilization period. How- ever, they are a clear example of the basic change in fiscal policy that was an integral part of the stabiliza- tion program. As noted before, the counterpart of foreign com- modity aid was an important source of budget receipts during the stabilization period. The Indonesian Gov- ernment, however, attached great importance to financ- ing all current expenditures from current receipts while assigning aid counterpart funds to development. This objective was not fully realized in 1967, but beginning with the 1968 budget, all counterpart proceeds were used exclusively for financing development expendi- tures. By 1969/70, the first year of the Government's Five-Year Development Plan, the current budget posi- tion had improved sufficiently to generate a surplus equal to about 30 per cent of development budget out- lays, excluding foreign project aid disbursements. 1 From April 1, 1969, the Indonesian fiscal year was changed to cover the period April/March instead of the calendar year.

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©International Monetary Fund. Not for Redistribution domestic production, "because the level of real liquidity during January-April 1969, increasing from about 11 in the economy had been reduced by about 60 per cent per cent to about 25 per cent of money supply. In ret- during 1960-66, and the capital resources of both busi- rospect, these developments marked an important turn- ness enterprises and the commercial banking system ing point in the stabilization effort; the foreign had been largely depleted by the inflation. exchange speculation was the last of several encoun- Inflation in Indonesia was due not simply to exces- tered during the stabilization period, and the increase sive monetary expansion but also to a serious break- in time deposits marked the restoration of confidence down of public confidence in the currency and the in the currency and the beginning of a rapid reconstitu- emergence of critical supply bottlenecks and the dis- tion of the economy's real liquid holdings. ruption of production. The importance of nonmonetary Credit policy was unquestionably one of the critical factors was vividly demonstrated by developments late factors in the Indonesian stabilization program. As in 1967 and early in 1968, when a rice shortage coin- already indicated, its basic premise was that extension cided with speculative demand for foreign exchange of credit to existing production units for financing reha- which could not be met from official reserves. As a bilitation and working capital requirements would facil- result, the price of rice increased by about 100 per itate the fight against inflation through its impact on cent in one month alone, the free market foreign production for the domestic market and for export. exchange rate depreciated by 42 per cent in three Therefore, for the first two and a half years of the sta- months, and the general price level rose by 82 per cent bilization period, most bank credit was extended for from October 1967 to February 1968. Subsequently, short-term current financing rather than for medium- despite an increase of 57 per cent in money supply, the term investment financing. However, a limited amount Djakarta price index rose by only 11 per cent during of investment funds was provided through the Govern- the six-month period after March 1968, when supplies ment's development budget and through the disburse- of food and foreign exchange became more adequate. ment of foreign project aid. With the return of relative The periodic sharp adjustments in public utility prices price stability, a medium-term investment credit pro- and in the prices of oil products, although important as gram was introduced in April 1969, financed primarily a part of the stabilization program, also tended to have by the central bank and by budget funds. Although an inflationary impact on the economy. However, after comprehensive statistics are not available, import and relative price stability and confidence in the currency export data as well as other indicators strongly suggest had been restored, an increase of from 50 per cent to that the stabilization period was marked by a substan- 150 per cent hi the prices of important oil products in tial increase in economic activity. January 1970 had little noticeable effect on other The Indonesian case, therefore, clearly contradicts prices. the popular belief that stabilization needs to entail Interest Rate Policy economic stagnation or recession. Provided that avail- able resources are allocated primarily on the basis of Interest rate policy was largely passive during the economic criteria, stabilization can indeed proceed first two years of the stabilization period, and real simultaneously with economic growth. interest rates on bank borrowing were generally nega- tive, except hi the relatively small private banking sector. No attempt was made to generate private sav- Balance of Payments Policy ings deposits while the rate of inflation remained very The policies adopted by the Indonesian Government high. In October 1968, however, amidst increasing in the external sector were the third major component indications that inflation was being contained, a savings of the stabilization program. During the first half of the deposit scheme was introduced. Under the scheme, 1960's the foreign exchange system itself had become state commercial banks paid an interest rate of 6 per an important distorting factor in the economy as the cent a month for 12-month deposits and somewhat authorities sought to cope with continued pressure on lower rates for 3-month and 6-month deposits. the balance of payments by introducing a vastly com- Although the level of interest rates was ^lowered in plicated system of exchange allocation and multiple March 1969, the central bank had to subsidize the exchange rates—which, in the absence of effective interest cost to the commercial banks, which until May measures to deal with the underlying monetary causes 1969 exceeded the average rate of interest earned on of the imbalance, was quite ineffective. By 1966 export their loans. production was declining, partly because of heavy The savings deposit scheme proved very successful. taxes on export proceeds; there were critical shortages After a sharp speculative attack in the foreign of imported raw materials and spare parts in most sec- exchange market late in 1968 had resulted hi a heavy tors of the economy; and additional foreign assistance loss for the speculators, and with increasing domestic was increasingly difficult to obtain. Moreover, new for- price stability, time deposits rose by 175 per cent eign investment had practically ceased following the

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©International Monetary Fund. Not for Redistribution nationalization of most foreign-owned enterprises in ment budget. The importance of nonproject aid for the 1964 and 1965. Since, in addition, repayments of past balance of payments is reflected in import statistics: debts were falling due, Indonesia faced external excluding project imports and imports for the oil insolvency. sector, total imports increased by 25 per cent in 1967 One of the first tasks of the new Indonesian Govern- and further by 11 per cent in both 1968 and 1969, ment was accordingly to negotiate debt relief agree- while the share financed by aid increased from 23 per ments with its creditors. The first such agreement was cent in 1966 to 34 per cent in 1968. In 1969 the ratio reached in 1966 with the major western creditors and declined to 30 per cent. Japan; subsequently, there were annual agreements on Indonesia's own foreign exchange earnings also the rescheduling of debt maturities falling due each increased substantially during the stabilization period year. Separate agreements were negotiated with Indo- from $714 million in 1966 to $975 million in 1969; nesia's East European creditors. As a result of these during the three years 1967-69 oil exports rose by 67 agreements the otherwise heavy burden of debt repay- per cent, to $358 million, and other exports by 24 per ment was lifted from the balance of payments during cent, to $617 million. Export promotion was an impor- the stabilization period. tant aspect of the new Government's policy, as shown In addition, substantial amounts of new foreign aid by the decrease in official exchange taxes on exports were provided by a-number of western creditor coun- from as much as 50 per cent at the end of 1966 to less tries and Japan, which joined in a consultative group than 15 per cent at the end of 1969. under the chairmanship of the Dutch Government In determining their long-term strategy for economic to consider Indonesia's annual aid requirements. growth, the Indonesian authorities recognized that Throughout the stabilization period a large part of the early development of the country's substantial and aid was used to finance imports of essential consumer varied natural resources would require a large inflow of goods and raw materials, but an increasing share was foreign capital and technical skills. In line with their earmarked for financing development projects. The basic policy of developing an open economy, they local currency counterpart of the nonproject aid was decided to encourage private foreign capital investment also the chief means of financing Indonesia's develop- and to return foreign properties that had been taken Bustling Djakarta, the capital of Indonesia: "The basic approach of the Indonesian program represents a promising model of anti-inflationary policies." [See the second last paragraph of article for this quote.]

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©International Monetary Fund. Not for Redistribution over by the State to their former owners. A special for- would have a multiplier impact on the general domes- eign investment board was established to negotiate tic price level. However, in their exchange rate policy, agreements with individual foreign investors, and work as in their decision not to restrict capital movements was started on a complete revision of Indonesian com- through the secondary exchange market, the authorities pany and taxation laws to adapt them to prevailing chose not to address themselves to the symptoms of international standards. In addition to approved proj- inflation and external imbalance but to attack the ects in the oil sector in which there is great interest by underlying causes. Apart from the greatly improved foreign investors, foreign investment proposals involv- allocation of foreign exchange resources under the new ing potential capital outlay of over $1.0 billion had system, complemented, of course, by the Government's been approved by the end of 1969. The largest part, credit and fiscal policies, the freedom of transactions $463 million, represents investment in the mining itself was an important psychological factor in the res- industry, and an additional $353 million investment toration of confidence and reflected the Government's in me forestry sector. own confidence in the ultimate success of its stabiliza- Foreign exchange transactions during the stabiliza- tion effort. tion period were conducted mainly in two markets, The Indonesian Government moved consistently called the BE (Bonus Export) market and the DP between 1966 and 1969 toward a unified foreign (Complementary Foreign Exchange) market, each of exchange system. Unification, however, was not consid- which had a flexible rate. The BE market was by far ered desirable until confidence in the domestic cur- the more important of the two and included the major rency had been restored, because of the possibility of part of exports and imports, government transactions, permitting speculative outflow of funds at a more approved foreign investments, and certain invisibles. depreciated rate through the DP market without having Exporters of nonoil commodities were permitted to sell to adjust the principal exchange rate itself. The two a certain part of their export proceeds in the DP exchange rates fluctuated freely during the first half of market, where the exchange rate tended to be about 15 the stabilization period. However, by May 1968 the per cent more depreciated than the BE rate. In addi- disequilibrium in the domestic economy had been sub- tion, the DP market covered less essential imports, stantially reduced and the prospects for an early resto- miscellaneous capital flows, and nontrade invisibles. ration of relative price stability appeared favorable. In the foreign exchange field the abolition of the old Therefore, a new policy was introduced for exchange system of payment restrictions and direct allocation of rate management in the BE market, whereby short- exchange was a major element in the stabilization pro- term fluctuations in the rate were eliminated. The gram, as was the establishment of a system of flexible authorities continued, nevertheless, to permit the BE exchange rates. These changes, which were introduced rate to move according to basic market conditions. At at the beginning of the stabilization period in October the end of October 1968, a similar policy was adopted 1966, ensured that the foreign exchange resources of with respect to the DP market, and after March 1969 the economy would be allocated on the basis of market the two rates were kept stable, with the DP rate 15 per demand and supply and at a price set by the market cent below the BE rate. This stability prepared the itself, rather than through arbitrary administrative deci- ground for the unification of the exchange rates in sions. The authorities recognized, of course, that the April 1970. foreign exchange rate is an important factor in any The introduction of a major exchange reform on inflationary spiral, and that depreciation of the rate April 17, 1970 may be regarded as marking the end of the stabilization period. Under the reform, the BE and Termed rice paddies are characteristic configurations of agricultural land H tte islwds ttat centrist lidenesia. the DP markets were unified at the DP rate of Rp 378 = US$1. With the exception of program aid funds for commodity imports and related services, which con- tinue to be sold at the previous BE rate of Rp 326, all trade, capital, and invisible transactions are effected without restrictions at the unified rate of Rp 378. This reform culminated the efforts of the Indonesian Gov- ernment throughout the stabilization period to improve the efficiency of the foreign exchange system and to rely on monetary, fiscal, and trade policies to attain their balance of payments objectives.

Conclusion Considering the severity of the inflationary problem, the success of the Indonesian stabilization program was

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©International Monetary Fund. Not for Redistribution a remarkable achievement. Although circumstances will exchange system and the maintenance throughout the differ in other countries faced with rapid inflation, the stabilization period of a liberal trade and payments basic approach of the Indonesian program represents a system in which the exchange rates were permitted to promising model of anti-inflationary policies. The prin- move according to underlying demand and supply cipal factor in the Indonesian case was the clear recog- conditions. nition from the outset that a stabilization program The stabilization program did not proceed without could not succeed if it did not attack directly the encountering temporary difficulties and setbacks, some underlying causes of excessive monetary expansion, of which had not been foreseen at the beginning of the i.e., the budget deficit and other public sector deficits. period. In meeting each of these, however, the Indone- The second important factor was the implementation sian authorities consistently sought to apply corrective of a selective credit program, which directed new bank measures that were consistent with the basic strategy of credit to economic activities that were essential for the the stabilization program, rather than to deviate even elimination of supply bottlenecks and for the reactiva- temporarily from that strategy. This consistency was an tion of existing production facilities, rather than for important factor in restoring public confidence in the financing new investment. A third major component Government's economic policies and, therefore, was was the dismantling of the previous, complex foreign essential for the success of the stabilization program.

Gmmar TVhnasson, from Iceland, is an economist in the Asian Department of the Fund. A graduate of Manchester and Harvard Universities, Mr. T6masson joined the staff in 1966 and was Assistant Representative of the International Monetary Fund in Djakarta in 1968 and 1969.

iiiiiiiiyiiHiaiffilFinance and Development articles...

No permission is required to quote or reproduce material appearing in Finance and Development. A credit line or other acknowledgment is requested.

The Editor would be glad to receive two copies of publications containing reprints or quotations.

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©International Monetary Fund. Not for Redistribution HE COMPUTER system for special drawing liquidity. The allocation was made at a rate expressed T rights has been operative from the first alloca- as a percentage of quotas (the size of members' quotas tion of SDR's 1 on January 1, 1970. It is designed to determines or affects the use of the Fund's resources provide comprehensive and up-to-date information on and voting; in the case of SDR's, allocations are ex- any entry into the Special Drawing Account and to as- pressed as a percentage of a member's quota in the sure the financial reliability and control necessary to Fund) of participants in the Special Drawing Account satisfy requirements of the Articles of Agreement and on the day before the allocation in question. The rate Special Drawing Rights: The Computer Approach to the New Reserve Asset

the Rules and Regulations of the Fund. Rule 0-13 stip- for the first year of the three-year first basic period was ulates that "The Fund shall record a transaction in the computed at 16.8 per cent of the quota, as of December Special Drawing Account when it is satisfied that the 31, 1969, of each participant receiving an allocation. transaction is in conformity with the obligations of In the technical sense, the new asset was established participants under the Articles of Agreement. . . ." by electronically computing and transferring each The system is also designed to be responsive to the participant's allocation onto a computer magnetic tape, information needs of the Fund and of the participants since all accounting for SDR's is done by means of a in the Special Drawing Account. This information is computer. provided by automated means as rapidly as needed. In devising a computer system for accounting for The initial allocation of special drawing rights of SDR's, a number of basic requirements had to be met. SDR 3,414 million was made to 104 participating The system would have to member countries in the Fund's Special Drawing Ac- • account for SDR's and produce accurate financial count. The allocation was made in accordance with the reports, as well as maintain complete records of Resolution adopted by the Board of Governors at its transactions and operations in the Special Draw- 1969 Annual Meeting, which was the result of several ing Account; years of discussion on how to increase international • operate with the minimum amount of human inter- vention and handle transactions and operations *SDR 1 = 0.888671 gram of fine gold, which equals US$1. speedily;

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©International Monetary Fund. Not for Redistribution be reliable and at the same time flexible in order information on the computer as a basis for necessary to meet any changes that would come about as the action, rather than having to maintain their own manual 2 records of pending transactions. use of SDR's grew and became more diversified; For operational purposes, it was also decided that it would be useful for the Fund staff concerned with the and produce all necessary records and information operation of the Special Drawing Account early each for handling daily operations and transactions. day to have a report on the holdings of each partici-

Special drawing rights, the new reserve asset being held by 104 partici- pating Fund members, were established by electronically computing and transferring each country's allocation onto a computer magnetic tape. Allocations of SDR's made to participating members have the effect of in- creasing the reserves of those members. The author describes in simple language how the computer system for accounting for SDR's was devised.

Candelario Trujillo, Jr.

Indeed, there is now virtually a daily flow of input pant in the plan. Therefore, the system is designed to relating to transactions or operations, and of certain be capable of producing a listing of the participants' outputs in the form of printed daily control reports holdings of SDR's, based on the previous day's en- (reflecting changes, additions, or deletions to the tries in the Special Drawing Account. master file), and of participants' holdings reports. In performing all these functions, it was planned that a Movements of SDR's minimum of work should be required from the opera- The principal feature of the computer system is tor of the system. Accordingly, the data on the input that it was designed to compute and to record, in de- forms are converted quickly to punch cards and trans- tail, all movements of SDR's either from one participant ferred to the Computer Center with a maximum turn- to another or from a participant to the General Account around time requirement of about one hour or less, of the Fund (and to any other authorized holders, so that operational officers in the Fund can use the although at present there are no authorized other 2 Use so far includes the use of SDR's to obtain foreign ex- holders), or vice versa. A movement of SDR's from a change; to acquire balances of the user's own currency held user to a recipient is accompanied by counterflows of by others; to pay charges and make repurchases (transactions between a member and the Fund in which a member reac- currency from one participant to another, as SDR's, quires its own currency from the Fund in exchange for gold or with certain exceptions, are not used directly in inter- currencies acceptable to the Fund) to the General Account; and, at the option of participants, to receive in SDR's remuner- national payments. (The exceptions, at present, are pay- ation payable by the General Account. ments to the Fund's General Account, at the option of

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©International Monetary Fund. Not for Redistribution participants, for repurchases, charges, or payments of Advantages of the Computer Scheme remuneration by the Fund's General Account, again Since the special drawing rights scheme would cover at the option of participants.) SDK's are first exchanged uncharted ground, there was a great interest in devising into convertible currency through the mechanism of a computer system that could handle all possible forms designated transactions, and records of the appropriate that the transactions and operations would take. From exchange rates for the currencies used in such transac- the beginning of the planning stage, it was felt that tions are maintained. Through this system, detailed one advantage offered by systems analysis would be as well as summary statements are produced along the provision of a more comprehensive design. A com- with other types of statistical information required by puter scheme differs greatly from a manual system, the Fund Articles of Agreement and Rules and which tends to proceed on the basis of a narrower con- Regulations. cept of what may be required. An example of this is the opening of books of account and the posting of Providing a Basis for Audit entries by hand as required by actual operations with- out necessarily attempting to make advance provision The system also provides the basis for audit by pro- for a comprehensive analysis of likely future types of viding a detailed and analytical classification of the operation. In contrast, a computer system offers the SDR Chart of Accounts. During 1969, as part of the advantage of using a broader logic and thus of pro- Fund's preparations for the operation of the new re- viding an opportunity for a deeper and more compre- serve asset, the Electronic Data Processing (EDP) staff hensive analysis of future possibilities. in the Treasurer's Department had the task of design- ing, programing, and then testing a computer system which would record transactions, maintain appropriate files, and produce accounting and financial reports and financial statistics for internal and external use. During this tune, the aims of the automated system were established and a model was prepared. The work included the design of output reports, master files on magnetic tape and disk, a system for verifying the ac- curacy of input data, and the writing and testing of the component programs. It also included performing a "systems test," which was run against hypothetical transactions of various types, to ensure that all the computer programs forming part of the system were in good order. The system allows these programs to be operated on several other computers in the Washington, D.C. area, should the need arise to use a "backup" computer for emergency use. - For several reasons, programs are all written in COBOL (Common Business Oriented Language). COBOL uses English words and phrases which can be read and understood by nontechnical personnel with a minimal acquaintance with electronic data processing. COBOL programs written for one type of computer usually can be run on a different type of computer with a minimum of modification. In addition, it was con- sidered that the costly, time-consuming process of program testing would be simplified and that tie docu- mentation of the programs would be facilitated by the use of COBOL, as, in many instances, the fact that computer instructions are written in English means that a COBOL program in effect provides its own docu- A Modular Design Concept mentation. Since documentation of this character is The SDR computer system is modular in design. It is easily understood, a person other than the original not one large, comprehensive system but is composed programmer can be called on to finish or modify a of several smaller, independent yet cohesively organized program at no great inconvenience or cost. program units. These programs can be changed or sub-

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©International Monetary Fund. Not for Redistribution stituted as necessary without requiring an overhaul The program also provides a change report which re- of the whole system. There are three main processing flects all changes made to the file. programs, ranging from a total of 500 coded instruc- In addition to the financial data that can be recorded tions for the smallest to 6,000 for the largest. These by the computer on a daily basis, separate tables of instructions are the means by which a computer com- country codes and of country and currency names are piler program—the "software"—interprets the pro- maintained; these tables are also easily modified to cessing steps by which the data are to be manipulated. incorporate changes. Given the fact that the SDR scheme is an innovation (3) The report programs compute and produce for with the potential for growth and diversification of its each participant information on its net cumulative allo- operations and transactions, such an approach was cation of SDR's and its holdings as a percentage of its chosen so as to be able to accommodate necessary cumulative allocation; they also produce a summary of future changes quickly and with the minimum disturb- transactions and operations between participants and ance to the relevant established part of the system. It between participants and the General Account, as well is expected that this combination of flexibility and as details of any currency conversions that were re- stability will prove beneficial not only in saving time quired in a transaction involving the designation of but also in avoiding the errors and the losing of control participants. A report on the source and use of SDR's that often occur when electronic data processing sys- by various categories of operations and transactions tems are changed. Several changes have been made is also regularly produced; as is a schedule of interest without any difficulties since the system first became and charges on SDR's, which reflects a participant's operational. charges on cumulative allocations, interest on its hold- The heart of the modular system is an analytical ac- ings, and any net charge or net interest to date. In sup- counting numbering system in the form of a master port of this schedule, the program also prepares the SDR Chart of Accounts. The Chart of Accounts, de- monthly statement that is mailed to each participant veloped by the Fund accounting staff, is categorized and that shows its holdings and uses (if any) of SDR's. to provide several degrees of detailed information. It In addition, calculations are made for purposes of cal- contains approximately 275 major account and sub- culating and entering interest, charges, and assessments account categories, each having a separate description. at the end of each financial year. The numbering scheme is such that subaccounts may From the edit program, which is the first, all these be tied in with any of the major categories. programs have various control devices built into them to ensure that erroneous data in the input forms and The Main Component Programs punch cards are not accepted by the system and that coding or other mistakes are quickly identified. In the SDR computer system the main component programs are as follows: General Description of the System and (1) An edit program that processes all SDR input Flow of Information data relating to the daily transactions on punch cards. Once the documentation (usually a cable communi- Editing may involve the deletion of unwanted data, the cation from the participant's fiscal agency) relating to selection of pertinent data, the application of format the use of SDR's is received by the Fund, the relevant techniques, the insertion of symbols such as page num- data and information are manually transcribed on input bers and typewriter characters, the application of stand- forms from which cards are keypunched. The manual ard processes such as zero suppression, and the test- process of completing these input forms provides the ing of data for reasonableness and proper range. The initial means for checking the accuracy of the recording edit program ensures that the data fields contain the of each transaction. Control elements for checking op- correct information. An important output of this pro- erations and transactions in SDR's include such items gram is a voucher which is printed from the input as total numbers of SDR's and totals for the currency transaction cards and is the main mechanism for en- or currencies to be used in the transaction. Control suring accuracy by which transactions and data ele- element are the numbers of SDR's being used and the ments are controlled. A control feature is that the appropriate exchange rates for the currencies. In a voucher will not be printed by the computer unless all transaction that involves a currency conversion, the the data elements are correct. computer program double-checks that the exchange (2) The file maintenance program is designed to rate calculation used to arrive at the total amount for maintain the basic file, to update it as required, and to the transaction is correct. The computer system also make modifications to the file as the need arises. The furnishes a double check by providing for the automatic program provides a means by which erroneous infor- computation of these items and provides for the conver- mation can be extracted and the correct data inserted. sion to magnetic tape of this information for file updat-

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©International Monetary Fund. Not for Redistribution ing and reporting purposes, independently of the manual program in effect interrogates the parameter card input preparation of the input forms. to determine which types of reports are due in this The next operation of the system is to edit (i.e., to processing period. The program checks to see if in- check) all data to ensure that the input is correct. The terest, charges, or assessments are to be calculated. In edit computer program of the system checks for any cases where the processing includes the handling of errors in keypunching or format, and provides a further these items, the program again calls the "update and check of all entries relating to the transactions that are file maintenance" program from the disk. necessary both for the preparation of a voucher and At the end of the processing of this segment, a "re- for the preparation of a transaction record from which port generation" program is called. This program calls the SDR file is maintained. The edit program performs on the appropriate program subroutines for purposes numerical checks on the information in an input form, of data handling and formatting of the reports. Each i.e., value dates, participants' numbers, account num- report is, thus, a segment within the program. bers, debits and credits (by amounts), currency con- version rates and the amounts of currency, and the Computer Systems Control codes for the input records. Any computer system, but especially one relating All information that passes the first edit and agrees to financial matters, obviously must be secure from with the predetermined control elements is then pro- the loss of information. Appropriate procedures have cessed through a subprogram (in the edit process) that been adopted to safeguard the SDR system. The prob- produces a voucher with a preassigned voucher num- lem of security was handled by fully documenting all ber. The edit program also uses an account table and the manual and automatic procedures to be followed a country and currency table for purposes of printing in operating and recording SDR transactions and oper- account names on the voucher. The voucher is printed ations. (The term documentation means a detailed only if the data are accepted by the edit program. If written description of all aspects of the program and the data are not accepted, a notation that the infor- procedures.) All source and input data (which in- mation for the voucher is incorrect will be printed by cludes input forms and punched cards) after being the computer and the processing of that transaction will processed on a computer are filed and locked in separ- stop. In such a case, the data elements that do not meet ate cabinets. As an additional precaution, the entire the conditions of the edit are printed so that they can master file is transferred every month to tape, and the be easily recognized by the staff for rechecking and for tape file is locked in a vault located away from the making the necessary corrections. When corrected, computer. Four magnetic tape backup (or emergency) the data are keypunched and reprocessed on the com- files, a master file on disk, and all input data are also puter. The program then goes into a second main phase retained indefinitely. and updates the master file. This is an automatic opera- All the computer programs are maintained both on tion through the file maintenance and update program tape and in the form of cards. All the programs within without requiring any action either by the computer the system are documented and any change to the sys- operator or the programmer. tem no matter how inconsequential must be approved. The master file for SDR,accounts is maintained on This documentation is kept in the Fund with a dupli- a disk for purposes of updating the Special Drawing cate set locked in a vault. Account master file. During this processing cycle, a All input data are handled on preprinted input sheets cumulative or monthly journal may be produced as prepared by the staff responsible for dealing with opera- necessary. A change report that reflects all additions, tions and transactions in SDR's. All entries are, of modifications, and deletions of data to the master file course, manually checked and separately approved is also produced. This computer routine writes the up- prior to being sent to a keypunch unit for subsequent dated master file to magnetic tape or disk to maintain handling by the computer system. a current master file for purposes of producing the Coding sheets and punched cards are stored for the appropriate reports. The updated master file remains purposes of backup, so that in the event the SDR on disk so that it is input into the next operational master file were lost or destroyed it could be recreated. computer phase. The programing controls include the complete test- The next program in the system uses, as input, the ing of each program as well as of the systems and the newly created master file, plus an account, country, approval of the systems' output plus the approval for and currency table. Another program in this segment any change to any program in the system. The operat- of the whole system generates records from the master ing controls are furnished by means of "run books" file for purposes of report processing. At the end of for each procedural step in the system. The systems this process, a total for SDR's is printed on a daily documentation includes a narrative of the entire sys- report on holdings which is used for both operational tem, a narrative of each program within the system, and control purposes. At this stage, another sub- flowcharts of the system, and microflowcharts for each

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©International Monetary Fund. Not for Redistribution program and routine within the system. The docu- of participants, and numerous statements have been mentation also includes instructions for restart proce- prepared and printed by means of the computer sys- dures in case of a systems failure. tem. The system has met all the demands placed on it The Special Drawing Account has now been fully so far, most importantly the prime requirements of operational for 12 months. In the first 6-month period, flexibility and reliability. It is fully programed to handle 575 entries, including allocations, interest, charges, data from the second allocation of SDK's, which will be and assessments, were made in the holdings accounts made on January 1, 1971.

Candelario Trujillo, Jr., a citizen of the United States, is a Senior Computer Systems Officer in the Treasurer's Department of the Fund. Mr. Trujillo has been in the field of Electronic Data Processing since i960, first in New Mexico and then at the Agency for Inter- national Development in Washington, D.C. He graduated from the College of St. Joseph in New Mexico in Business Administration and Economics and received an MBA in Industrial Management from the University of New Mexico.

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©International Monetary Fund. Not for Redistribution Automotive Industries in Developing Countries by Jack Baranson

World Bank Staff Occasional Paper No. 8

Against the background of world industry in which economies of scale are of predominant importance, this book examines the problems of adaptation faced in the transfer of automobile production to a newly industrializing economy. It provides data on comparative production costs in three Latin American countries, the United States, and India and analyzes in some depth the relative cost problem in Argentina, New Zealand and Yugoslavia. From the evidence presented, the study concludes that in 1965 the over-all cost for manufacturing automobile products in developing countries was some 80 per cent above the world market {mainly U.S.) level. A strategy to reduce this excess cost is suggested. Manufacture of Heavy Electrical Equipment in Developing Countries by Ayhan Cilingiroglu

World Bank Staff Occasional Paper No. 9.

This study analyzes the attempt of industrializing countries—Argentina, Brazil, India, Mexico, Pakistan and Spain, particularly—to compete in the field of transformers, generators, heavy switchgear, motors, etc. The author finds that the dominance of large international firms and the falling real price of such equipment over time have made the task of the new competitors more difficult.

Case studies of costs of equipment in developing countries include calculations of effective protection and domestic resource cost per unit of foreign exchange saved. They also illustrate some practical problems faced by such manufacturers. For example, essential raw materials, in particular, often cost much more than in developed countries even though they are internationally traded. Finally, the author provides some data on relative price trends which suggest that, over time, competitiveness has improved for some products, and that the infant industry argument may have some validity.

Both Occasional Papers are available in English only at $3.00 from

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All other countries Write Sales Manager The Johns Hopkins Press Baltimore. Maryland 21218 U.S.A.

©International Monetary Fund. Not for Redistribution nology in the form of "ex-ante elas- ticity" and "ex-post elasticity" in Book Notices place of "built-in elasticity" and "buoyancy"). Another merit of the book is that full recognition is given to the political and administrative con- straints within which the Government Cohen, Stephen D., International volume) led to a universal scheme for of Colombia, as perhaps any govern- Monetary Reform, 1964-69, The Polit- reserve creation in the Fund? Granted ment, has to act. ical Dimension, New York, N.Y., that the discussions were continually In this latter respect richard Bird U.S.A., Praeger, 1970, 201 pp., influenced by political considerations, takes a highly favorable view, in my $13.50. can it seriously be maintained that opinion correctly, of earmarking as a their outcome was "dictated by tradi- tax device in developing countries. The In this book Mr. Cohen presents a tional Atlantic political patterns"?Can dislike, if not the rejection, of ear- history of the negotiations that led up the implicit verdict of the book that marking by conventional public fi- to the creation of the facility for the SDR facility is technically inferior nance theory on the grounds that it special drawing rights (SDR'sj in the to, say, the CRU scheme be sub- distorts the pattern of expenditure Fund with particular emphasis on stantiated? from some hypothetical "optimum" what he calls "the political dimen- pattern has always seemed to be some- sion." His main thesis is that the J. J. Polak what questionable in the circum- liquidity discussions were primarily a stances of countries with a low level of result of Atlantic Community politics political and social cohesion, inade- which resulted ultimately in a politi- Bird, Richard, Taxation and Develop- quate expenditures on services such as cally, rather than technically, deter- ment: Lessons from Colombian Ex- education which is so needed and mined scheme. perience, Cambridge, Mass., U.S.A., widely demanded, and other depar- The author pays particular atten- Harvard University Press, 1970, xvii + tures from the model normally set but tion to the conflicting U.S. and French 277 pp., $9.00. in the theoretical literature. Bird docu- views and the role of Germany as a ments these circumstances for Co- mediator between these views. A paral- Toward the end of this book Prof. lombia and concludes that "more lel is repeatedly drawn with other Bird asserts that "Colombia has a long rather than less earmarking of the right major issues in the Atlantic Commu- tradition of foreign tax missions, as kind is what is needed in Colombia." nity, such as the North Atlantic Treaty well as a surprisingly good record of One of the special contributions of Organization (NATO) and control over listening to them, not always with this study is the discussion of the local atomic weapons. The gold-exchange desirable results." One can only hope government finance problem, which is standard, like NATO, is presented as that his own analysis and policy con- typically given but a nodding recog- the incarnation of U.S. hegemony in clusions are also treated with respect nition in tax studies of developing Europe, against which the new center by the Colombian authorities, since countries. About 20 per cent of the of power, the Common Market, would the results could be extremely book is devoted to this topic, and naturally rebel. desirable. there is in particular an extremely The author has gained considerable Bird's examination of Colombia is a valuable discussion of experience, both inside knowledge of the discussions as model of what a country case study successful and unsuccessful, with the a result of off-the-record interviews should be. It is set in a wide context of valorization tax in Colombia (some- with U.S. Government and Fund developmental objectives related to times called the special assessment or officials. His descriptions of some of growth, income distribution, employ- betterment tax). This discussion con- the crucial meetings and their inter- ment, and balance of payments man- cludes with the presentation of eight relations are consequently quite re- agement. It emphasizes the role of conditions which seem to be heeded vealing. taxation in relation to the attainment for the successful implementation of The book as a whole suffers some- of these objectives, and accordingly the valorization tax. In view of the what from the fact that the particular gives considerable attention to the growing concern over the problems of angle from which the author ap- allocative function of taxation. At the urbanization in developing countries, proaches his subject, while interesting same time the need is recognized to and the need for major expenditures and important, does not provide any- develop a structure of taxes with a to meet these problems, this is a highly where near a full explanation of the high built-in elasticity of revenue in relevant issue. result of the liquidity discussions. Why relation to national income if the need If, as we would hope, the Govern- was it that negotiations between the for resources for both recurrent and ment of Colombia will take a favorable Common Market countries and the capital purposes is to be met (though, view of this study, it is also to be United States (the other Atlantic as an aside, one can regret the intro- hoped that the author is correct when powers receive little attention in this duction of new and unnecessary termi- he writes: "There is good reason to

61 ©International Monetary Fund. Not for Redistribution expect that any government which is Professor of Economics at Michigan | underdeveloped societies cannot be capable of raising real revenues in the State University. easily repeated. Industrializing when ways proposed in this book will be a the world outside was even more Paul Danquah government which will spend the in- backward is qualitatively different creases in ways relevant to and helpful from industrializing today when other Hunter, Guy, Modernizing Peasant for development." nations are already at an advanced Societies, London-New York, Oxford stage. University Press, 1969, x + 324 pp. Stanley Please Mr. Hunter's study is based not $6.50. merely on intellectual perception of the social, economic, and political Taylor, Milton C. (Editor), Taxation This book, resulting from a project forces, but also derives heavily from for African Economic Development, undertaken by the author on behalf of his experiences in the major develop- New York, N.Y., U.S.A., Africana Pub- the Institute of Race Relations and the ing countries such as India and Paki- lishing Corporation, 1970, 560 pp., Overseas Development Institute, both stan. He has eschewed a temptation to $15.00. in London, attempts to answer two present a neat and elegant theory, important questions about peasant so- divorced from reality,and for that the Read with the keen eye of a rev- cieties seeking to modernize them- reader is richer. He is exposed to the- enue man or a tax collector, this useful selves. The first is whether it is pos- more painful way of learning what it book would doubtless suffer more sible for the traditional peasant so- means for a country to strive for astute criticism. Scanned, on the other cieties to adopt a set of modern economic development in the twen- hand, by an averagely intelligent stu- institutions and techniques borrowed tieth century. dent of Africa with an interest in the from the developed countries and the problems of economic development, it laws of economic and social growth Deena R. Khatkhate stands up extremely well either as a that evolved from their circumstances. useful work of reference for the ex- The second is whether these societies pert, or as an informative set of essays in the twentieth century can look for Grubel, Herbert G., The International about the use of taxation as a stimulus guidance to the peasant phase of now Monetary System, New York, N.Y., to economic development or as a developed countries and deduce from U.S.A., Penguin Books, lnc.,1970, 208 means of controlling or guiding both their experience the sequences which pp., $1.65 (paperback). public and private expenditure. The they can follow in their own de- Africana Publishing Corporation prob- velopment. This book is part of a new series of ably will have another success with Mr. Hunter perceives a basic differ- inexpensive texts and readings in eco- this book-they are the publishers of, ence which separates the historical nomics, representing an important de- among other things, the English ver- conditions of Western economic velopment in educational publishing. sion of the highly regarded Jeune growth from the conditions which face The claim made for the texts by the Afrique Yearbook. Asia and Africa today. For one thing, General Editor is on the grand scale-- Prof. Taylor has collected 21 essays Europe or America—when in the phase "they will differ from conventional on theories of taxation applicable to in which many of the developing books in their attempt to chart and the developing countries of Africa. countries are today—were character- explore new directions in economic The book is divided into five sections, ized by an almost total absence of thinking." The text under review is of each with an introduction by the population pressure; the skills of their high quality: it provides a carefully editor, and the topics include fiscal population in many ways were far balanced synthesis, presented in an policy, economic'development, direct better developed then than they are in original way and with extraordinary and indirect taxation, and tax policy. today's developing world; and, in addi- economy in less than 200 small pages. Among the contributors are Sir Arthur tion, they had an immense area of the The particular virtue of this text is Lewis, Adebayo Adedeji, Nicholas globe open to them for commercial its integration of the considerations' Kaldor, and Prof. Taylor himself. Al- enterprise, local settlement, and ad- concerning the system of exchange though the collection was originally ministrative vocation. In the early rates with the considerations, concern- assembled as material for students and years of the industrialization phase, ing international reserves. Professor teachers interested in the problems of social conscience remained dormant Grubel views the available policy in- public revenue systems, the style and and the consequences were pauperism, struments in the international mone- layout suggest it could serve equally exploitation of children, and other tary system as each involving welfare well as a useful guide for planning abuses causing human suffering that costs; but since these instruments are offices and ministries of finance. would how be unacceptable as a cost to some degree a substitute for each The idea for Prof. Taylor's book of development. other, the use of any one instrument came to him while he was teaching tax These differences between past and also involves benefits from avoidance principles and policy at the University present indicate that the process of of the costs incurred by using the of IFE in Ibadan, Nigeria. He is now transformation of the present-day other available instruments. Thus,

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©International Monetary Fund. Not for Redistribution flexible exchange rates involve costs in with an inadequate grounding in the Prentice-Hall, Inc., 1970, x + 180pp., uncertainty; adaptation of domestic full range of considerations involved. $3.95 (paperback). choices on the trade-off between various desiderata such as low un- Fred Hirsch de Closets, Francois, En Danger de employment and low inflation involves Progres, Paris, France, Editions De- costs of enforced conformity; restric- Pollard, Sidney and David W. Crossley, noel, 1970, 317 pp.. F 21 (paper- tions on international trade involve The Wealth of Britain, New York, back). costs of misal location of resources; N.Y., U.S.A., Schocken Books, Inc., and expansion of reserves involves 1969, 303 pp., $9.00. Flanders, Allan (Editor), Collective costs in terms of alternative invest- Bargaining, Baltimore, Maryland, ment forgone (though this will be a This book is an attempt to describe U.S.A., Penguin Books, Inc., 1969, cost for the world as a whole only the sources and distribution of the 431 pp., $2.45 (paperback). where commodities such as gold are wealth of Britain over a period of used as reserves; Prof. Grubel does not nearly nine centuries, from 1085 to Reid, Graham L. and Kevin Allen, venture far into the largely uncharted 1966. The authors are well aware of Nationalized Industries, Baltimore, area of the costs of fiduciary reserves the pitfalls that lie in wait for anyone Maryland, U.S.A., Penguin Books, Inc., for the world as a whole). Thus, none attempting so ambitious a project, and 1970,196 pp., $1.65 (paperback). of these instruments is ideal in itself; they have avoided any generalized the policy tools "together represent an juxtaposition of data from the nine Oficina Internacional del Trabajo, Ha- interdependent system which works centuries. They are also concious that cio el Pleno Empleo, Ginebra, Suiza, efficiently when the loss in welfare the material available for their study is Oficina Internacional del Trabajo, associated with the marginal increase very unevenly distributed over the 1970, viii + 500 pp., $4.00, Sw F 17 in the use of any one variable is just period, and they warn the reader, in (paperback). equal to the losses associated with the particular, of the lack of reliable in- marginal use of each of the others." formation for many centuries on such King, Timothy, Mexico: Industriali- Under this general approach. Prof. matters as per capita income and zation and Trade Policies Since 1940, Grubel divides his treatment into three wealth. New York, N.Y., U.S.A., Oxford Uni- parts. He begins with the theoretical Nevertheless, the book offers to the versity Press, 1970, x + 160 pp., $2.50 "characteristics of an efficient world reader a well-documented economic (paperback). monetary order." He goes on to dis- history (mainly of England rather cuss in the light of the theory the main than of Great Britain as a whole) Bergsman, Joel, Brazil: Industriali- organizational prototypes—the gold focused on the changing ways by zation and Trade Policies, New York, standard, freely fluctuating exchange which the population earned their N.Y., U.S.A., Oxford University Press, rates, the gold exchange standard, and living, and on the distribution of the xiv + 281 pp., $5.75 (paperback). centrally created reserves; in the latter national product. The authors have context. Prof. Grubel gives welcome made great efforts to piece together all Link, Max, Die Ursachen des indus- prominence to the neglected subject of the available data, and to illustrate triellen Aufstiegs Mexikos, Zurich, interest rates on centrally created re- them from contemporary writings. Switzerland, Orell Fiissli Verlag, 1970, serves, and gives a concise description The result is an illuminating study. 229 pp. of his concept of seigniorage as applied J. Keith Horsefield Linder, Staffan B., The Harried Lei- to international reserves. In the last sure Class, New York, N.Y., U.S.A., part of the book, he describes recent Columbia University Press, 1970, viii + developments, including the establish- OTHER BOOKS RECEIVED 182 pp., $7.00. ment of special drawing rights and the Katzner, Donald W., Static Demand 1968 arrangements for gold, though Cetron, Marvin J., Raymond Isenson, Theory, New York, N.Y., U.S.A., The the treatment of these is cursory. Jacob N. Johnson, Ambrose B. Nutt, Macmillan Company, 1970, x + 242 Essentially, the book provides the and Howard A. Wells (Editors), Tech- pp., $9.95. theoretical background of these de- nical Resource Management: Quantita- velopments, and that is its special De Gregori, Thomas R., Technology tive Methods, Cambridge, Mass., value. This book deserves an audience and the Economic Development of U.S.A., The M.I.T. Press, xx + 236 pp., as wide as the group of people whose the Tropical African Frontier, Cleve- $10.00. professional duties or personal in- land, Ohio, U.S.A., The Press of Case terests lead them to pronounce or Mueller, Gerhard G. and Charles H. Western Reserve University, 1969, viii decide on aspects of its subject matter. Smith (Editors), Accounting: A Book + 531 pp., $12.50. The pros and cons of a freely fluctuat- of Readings, New York, N.Y., U.S.A., ing system of exchange rates, or of Van Home, James C., Function and Holt, Rinehart and Winston, Inc., larger or smaller world reserves, are Analysis of Capital Market Rates, 1970, xvi + 429 pp., $5.95 (paper- too often discussed in isolation and Englewood Cliffs, New Jersey, U.S.A., back).

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©International Monetary Fund. Not for Redistribution sary legislative action, of making a contribution in connection with the Recent Aeilnliy replenishment. These countries and the amounts they propose to contri- INTERNATIONAL BANK FOR bute over the three-years are as follows: RECONSTRUCTION AND DEVELOPMENT Amount INTERNATIONAL DEVELOPMENT ASSOCIATION Country ($ millions)

INTERNATIONAL FINANCE Ireland .4.00 CORPORATION Spain .2.50 Yugoslavia .4.04

Completing the package of addi- tions to IDA's resources, the Swiss Confederation, not a member of IDA, has agreed to make the Association a 50-year interest-free loan equivalent to approximately $10 million a year for a total of $30 million, payable in three equal installments in 1971, 1972, and 1973. Switzerland had extended a $12 million loan on similar terms to IDA at the time of the second replenishment in 1968. The target date for the replenish- ment to become effective is June 30, 1971, by which time at least 12 countries, pledging not less than Third General Replenishment of IDA make annual contributions to IDA in $1,900 million, must formally notify Resources the amounts shown below: IDA that they will make their speci- fied contributions. The rapid recent growth of IDA Amount It was also agreed that the voting commitments and the still faster Country ($ millions) power of Part I members should be growth of developing countries' needs adjusted so as to reflect more accu- for concessionary development finance Australia 16.00 rately the share of each of them in the of the kind that IDA provides make it Austria 5.44 total financial contributions of Part I essential that the Association obtain Belgium 13.60 countries to the Association. It was more funds. Negotiations for a third Canada 50.00 further agreed that Part II countries be general replenishment of IDA's re- Denmark 8.80 given the opportunity to make addi- sources, for the fiscal years 1972, Finland 4.08 tional subscriptions on easy terms to 1973> and 1974, were successfully France 50.00 the Association in order to permit concluded. In July, the Association's Germany 78.00 them to maintain the relative voting Executive Directors recommended and Italy 32.24 power of the Part II countries as a transmitted to member governments Japan 48.00 group. for approval a proposal under which Kuwait 3,60 21 member countries plus Switzerland Luxembourg 0.40 Bank Transfers $100 million to IDA would make available to IDA approxi- Netherlands 22.52 mately $813 million a year. This Norway 8.00 Annual transfers from net income compares with the first replenishment South Africa 1.00 in the form of grants have been made of IDA's resources, in 1966, which Sweden 34.00 by the Bank to IDA in each year since provided $250 million a year, and the United Kingdom 103.68 1964; the six-year total amounts to second replenishment, in 1968, which United States 320.00 $385 million. These transfers have provided $400 million a year. been of sums that would otherwise Under the terms of this proposal, Three IDA members that are not have been made available for distribu- the 18 high-income member countries Part I countries have also indicated tion as dividends to the Bank's mem- known as "Part I" countries would their intention, subject to any neces- ber countries and that are not needed

64

©International Monetary Fund. Not for Redistribution for allocation to reserves or otherwise Thailand's creditworthiness. The ne- Pakistan required to be retained in the Bank's cessity of larger capital inflows, the business. At the Annual Meeting in major part of which is expected from The Pakistan Consortium met in Copenhagen in September, the Board the private sector, during the Third Paris in July and reviewed (a) the recent economic developments and the of Governors approved a recommenda- Five-Year Plan (1971-76) was recog- issues confronting the country during tion of the Executive Directors for a nized. In this regard, the maintenance the Fourth Five-Year Plan, which further transfer to IDA of $100 mil- of a good investment climate was began on July 1, (b) Pakistan's demo- lion. considered of importance. The amount graphic situation and family planning of public capital inflows suggested by Aid Coordination program, and (c) the country's aid the Government of Thailand and en- requirements for the current fiscal The Bank took over from the Inter- dorsed in the Bank's economic report year. The meeting also considered a national Monetary Fund the chair- was considered realistic. manship of the Consultative Group for program for the accelerated develop- The meeting agreed that in the next the coordination of development assis- ment of East Pakistan's agricultural 12 months the efforts of the Govern- tance to , and reactivated the and water resources. ment and the Group should be direc- Group for Thailand during the quarter Members of the Consortium noted ted toward the study and preparation ended September 30. A meeting of the with satisfaction that over the past five of programs and projects for inclusion Pakistan Consortium was also held years Pakistan had been able, despite in the Third Development Plan. During during the quarter. severe difficulties, to achieve con- 1971 the Bank will review economic siderable progress in several important Ghana developments in Thailand and the areas of economic development, nota- Third Plan. A report will be distri- bly in over-all economic growth, in At its meeting in London in July buted to the Group prior to the next accelerating agricultural growth in the Ghana Group reviewed the coun- meeting, which it was agreed should be West Pakistan, and in expanding for- try's economic situation and prospects held late in 1971. eign exchange earnings. and noted that Ghana was fully justi- Ten countries—Australia, Belgium, Members of the Consortium also fied in seeking to accelerate the pace Canada, France, Germany, Italy, noted that progress toward meeting of its development. To sustain more Japan, New Zealand, the United King- the needs of economic and social rapid growth Ghana needs domestic dom, and the United States—were development, as outlined in the and external resources well above represented at the meeting. In addi- Fourth Plan, would make considerable those available at present. tion, representatives of the Fund, demands on the Government of Paki- In addition to the Bank, the Fund, UNDP, and observers from the Asian stan to raise additional resources do- and Ghana, the following countries Development Bank, the Netherlands, were represented at the meeting: mestically, to achieve continuing rapid Switzerland, and the Organization for Canada, France, Germany, Italy, expansion of exchange earnings, and Economic Cooperation and Develop- to provide an effective framework for Japan, the Netherlands, Switzerland, ment (OECD) attended the meeting. the United Kingdom, and the United the allocation of resources to areas of The Thailand Group last met in high priority. They noted further that States. The United Nations Develop- 1966. In the ensuing years Thailand's successful implementation of the ment Program (UNDP) was repre- circumstances were such that it had no Fourth Plan would also depend on the sented by an observer. need for assistance other than that ability of those assisting Pakistan to The meeting of the Group, the first provided by the member countries provide adequate technical and finan- to be held under Bank chairmanship, following that meeting. cial support. was a preliminary to a more compre- hensive meeting planned before the WORLD BANK LOANS DURING THE FIRST QUARTER OF FISCAL 1971 end of 1970. AMOUNT COUNTRY PURPOSE ($ millions) Thailand The Consultative Group for Thai- Development Finance Company 50.00 land met in Paris in September under Malaysia Power 20.00 the chairmanship of the Bank and Morocco Development Finance Company 10.00 noted the remarkable economic Nigeria Development Finance Company 10.00 growth of Thailand over the last de- Peru Road Reconstruction 30.00 cade, achieved under conditions of Thailand Port 12.50 stability. The meeting agreed that the Zambia Power 40.00 increased inflow of external capital and the ensuing rise of debt service Total loans made during the first liabilities had not in any way reduced quarter of Fiscal 1971 172.50

65

©International Monetary Fund. Not for Redistribution Many members of the Consortium IDA. Representatives of the Fund, the shared the concern expressed by the OECD, the UNDP, and Switzerland head of the Pakistan delegation on the attended as observers. Recent Activity implications rapid population growth INTERNATIONAL Bank Membership had on the possible improvement MONETARY in living standards in Pakistan. They Equatorial Guinea and Cambodia FUND noted with satisfaction that over the became members of the Bank in July, past five years Pakistan had made a raising the membership of the Bank to promising start in dealing with this 115 countries. IDA membership in- problem and in building up a country- creased to 106 with the addition of wide organization for family planning. Cambodia. They also welcomed the Government's intention to pursue these efforts with New IFC Investments determination in the years ahead. IFC joined a broad group of Turk- A report prepared by the Bank ish private investors and a United proposing a series of short-run and States company to sponsor NASAS long-run measures to increase the pace (Aluminyum Sanayii ve Ticareti A.S.), of agricultural and water development a new $24.7 million, 20,550 tons-a- and flood protection in East Pakistan year aluminum sheet and foil pro- was presented at the meeting. Mem- ducing enterprise in Turkey. Turkish bers agreed that the objectives of this sources, including a group of more program were of the first priority in than 100 business firms and individ- accelerating economic and social devel- uals, are providing the bulk of the opment in East Pakistan, and that the financing. Amax Aluminum Company, proposals for an action program pre- Inc., a subsidiary of American Metal pared by the World Bank represented a Climax Inc., is technical partner. IFC's reasonable basis for a coordinated ef- commitment was approximately $7.3 fort to this end. million in loan and equity. The members noted the Pakistan The Corporation made its third Government's request for external commitment to C.A. Venezolana de assistance in the current fiscal year of Desarrollo (Sociedad Financiera), $570 million and accepted that Pak- known as Cavendes, Venezuela's only istan could effectively use aid in this private development finance company amount. and its most important private source During the third quarter of 1970, Norway became a member of the of investment finance. The $10 million the Fund's resources were utilized by Consortium at this meeting. The other loan and stand-by loan commitment 15 countries. They purchased 12 cur- members are Belgium, Canada, France, bring IFC's investments in Cavendes to rencies in amounts equivalent to Germany, Italy, Japan, the Nether- almost $19 million and will help the $357.9 million. Repayments by re- lands, Sweden, the United Kingdom, company meet rapidly rising demands purchase during the quarter totaled the United States, and the Bank and for industrial finance in Venezuela. $524.4 million. Purchases of currencies from the Fund plus repayments of borrowings IDA CREDITS DURING THE FIRST QUARTER OF FISCAL 1971 by the Fund reached $1,698.1 million in the first nine months of 1970, AMOUNT against $1,706.6 million in the corre- COUNTRY PURPOSE ($ millions) sponding period of 1969, and a total of $2,871.2 million for that year. Dahomey Roads 3.50 At the end of September, gross Indonesia Telecommunications 12.80 sales (i.e., total drawings since the Indonesia Agriculture 3.50 beginning of Fund operations) reached Indonesia Technical Assistance 4.00 $21.87 billion, and net or outstanding Malagasy Agriculture 5.00 drawings were $5.01 billion. Pakistan Power 23.00 By the end of September total Uganda Agriculture 4.00 transactions in special drawing rights (SDR's) had reached SDR 631.6 mil- Total credits extended during the first lion and SDR 231.3 million was held quarter of fiscal 1971 55.80 by the Fund in its General Account.

66

©International Monetary Fund. Not for Redistribution In other developments during the lent to $50 million (Belgian francs $5 Special Drawing Rights quarter, the Fund repaid its indebted- million, deutsche mark $20 million, Transactions in SDR's totaled the ness to the Government of Italy under Japanese yen $10 million, Netherlands equivalent of $631.6 million by Sep- the General Arrangements to Borrow guilders $5 million, and U.S. dollars tember 30, 1970, the end of the first (GAB), new par values were agreed $10 million); this purchase was under nine months of operation of the new upon for the Turkish lira and the the stand-by arrangement approved on facility. Since the allocation of ap- Ecuadoran sucre, and initial par values August 14 (see "Stand-By Arrange- proximately SDR 3.4 billion to 104 were established for the Congo zaire ments," below). Smaller drawings were participating members of the Fund and the new Taiwan dollar. In ad- made by Colombia, Denmark, Ecua- was made on January 1, 1970, in dition, Ecuador accepted the obliga- dor, Indonesia, , Lesotho, Nicara- amounts proportional to their Fund tions of Article VIII, and stand-by gua, Peru, the Philippines, South quotas, 53 countries have made use of arrangements were approved with Africa, Swaziland, the United Arab their SDR holdings. Thirteen countries Nicaragua, Turkey, and Ecuador. The Republic, and Uruguay. have used almost the full amount at Fund replenished its holdings of 12 In September, France repurchased their disposal until the next allocation, currencies, decided to liquidate part of the equivalent of $246.25 million, scheduled for January 1, 1971. 27 its investments, and purchased addi- mostly in U.S. dollars ($245.59 mil- countries accepted transfers of SDR's tional quantities of gold from South lion), and the balance in deutsche from other participants through the Africa. The Governors resolved that mark, Japanese yen, Austrian schil- Special Drawing Account during this $17.53 million would be distributed to lings, and Mexican pesos. The next nine-month period, providing currency members out of net income earned by largest repurchase during the third in return for SDR's received by them. the Fund for fiscal 1970. quarter was made in August by Brazil 15 countries have accepted SDR's in for an amount equivalent to $75.17 Drawings and Repurchases payment of remuneration, 9 have ac- million, predominantly in U.S. dollars cepted them under the distribution of By far the largest drawing during ($72.08 million), and the balance in net income and 3 have elected to the third quarter of 1970 was the gold deutsche mark, Netherlands guilders, receive SDR's when the Fund re- tranche purchase of deutsche mark in Belgian francs, Canadian dollars, Nor- plenishes its holdings of scarce cur- an amount equivalent to $133 million wegian kroner, and Mexican pesos. rencies (see "Replenishment" below). (made by Italy). Other large drawings Total repurchases during the quarter The Fund's General Account hold- included a purchase by Turkey equiva- were $524.4 million. ings were SDR 231.3 million on September 30, 1970.

DRAWINGS BY FUND MEMBERS DURING THE THIRD QUARTER OF 1970 Transactions Under the General Arrangements to Borrow AMOUNT In July, the Fund repaid to Italy its MEMBER MONTH ($ millions) debt, equivalent to $330 million, under the GAB. The repayment was Colombia August 9.00 made in Belgian francs ($30 million), Denmark July 25.00 Canadian dollars ($75 million), Ecuador September 10.00 deutsche mark ($60 million), Nether- Indonesia August 10.00 lands guilders ($30 million), and U.S. Iraq August 20.01 dollars ($135 million). Italy July 133.00 Lesotho July 0.60 Nicaragua September 6.00 Distribution of Net Income Peru August 18.00 Philippines August 9.50 A resolution adopted by the Board South Africa September 25.00 of Governors at the 1970 Annual Swaziland July 1.15 Meeting provided that, out of $57.55 Turkey August 50.00 million net income earned by the United Arab Republic July 17.50 I Fund for the fiscal year ended April Uruguay July, September 23.14 30, 1970, an amount equal to $17.53 million would be distributed to 34 Total drawings in the third quarter of 1970 357.90 members, which had net creditor posi- tions in the Fund. The remainder, Total net drawings at the end of the third equal to $40.02 million, was placed in quarter of 1970 5,010.7 the General Reserve.

67

©International Monetary Fund. Not for Redistribution Par Values On August 14, the Fund approved a lion, Canada $36.37 million, Finland one-year stand-by arrangement for the $1.14 million, Germany $2.08 million, On August 9, Turkey and the Fund Government of Turkey authorizing the Ireland $3.38 million, Japan $56.84 agreed upon a new par value for the purchase of up to $90 million in million, Mexico $5.26 million, the Turkish lira, at LT 15= US$1. The foreign currencies, in order to support Netherlands $40.43 million, Norway previous par value was LT 9 per U.S. Turkey's reserves and to back a pro- $6.08 million, and the United States dollar. This adjustment was followed gram designed in particular to increase $131.89 million. The replenishment by complementary measures designed the rate of savings, encourage opti- was made by the sale of gold, but to reduce existing inflationary pressure mum allocation of resources, and three members, exercising an option in the economy. adapt economic institutions to the provided by the Fund, received a total It was announced on August 16, changing character of the economy. of SDR 67.51 million in place of gold that Ecuador had proposed and the Immediate steps of the program are (Canada SDR 36.37 million, Finland Fund had concurred in a change in fiscal and credit measures to mod- SDR 1.14 million, the United States the par value of the Ecuadoran sucre. erate demand and to halt the gen- SDR 30.0 million). The new par value is S/ 25 = US$1, against S/ 18 per U.S. dollar, previ- ously. The adjustment was one of the features of comprehensive exchange FUND STAND-BY ARRANGEMENTS reform measures. APPROVED DURING THE THIRD QUARTER OF 1970 An initial par value for the Congo zaire, at Z1 = US$2, was established AMOUNT on September 2, by agreement be- MEMBER MONTH ($ millions) tween the Government of the Demo- cratic Republic of Congo and the Ecuador September 22.00 Fund. Nicaragua August 14.00 An initial par value for the new Turkey August 90.00 Taiwan dollar, at NT$40 = US$1, was established on September 4, by agree- ment between the Government of the eration of inflationary purchasing Republic of China and the Fund. Partial Liquidation of the Fund's power. Strengthening the balance of divestments payments remains the primary aim Article VIM Status Also in September, the Fund de- of economic and financial policy. cided to reduce by $400 million the On September 11, it was an- On September 11, a one-year $800 million invested in short-term nounced that Ecuador had notified the stand-by arrangement for the equiv- U.S. Treasury securities. The invest- Fund that it accepted, effective alent of $22 million was approved for ments were made in 1956, 1959, and August 31, 1970, the obligations of Ecuador, in support of a program 1960 to raise income in order to meet convertibility expressed in Article VIII designed to strengthen the fiscal situa- the Fund's past administrative deficits of the Fund's Articles of Agreement. tion and allow an improvement in the and to provide a reserve toward meet- Ecuador is the 35th member thus to net international reserves. Ecuador is ing possible future deficits. These in- move to convertibility. Since joining following a policy which seeks to vestments were made with the pro- the Fund as one of its original mem- maintain financial stability while al- ceeds of sales of gold by the Fund to bers it had availed itself of the transi- lowing for the expansion of domestic the United States for dollars. In ac- tional arrangements of Article XJV. credit to the extent necessary to cordance with decisions under which sustain a satisfactory rate of economic the sales of gold were made, the Fund Stand-By Arrangements growth. reacquired from the United States an A one-year stand-by arrangement amount of gold equivalent to $400 with Nicaragua for the equivalent of million. $14 million was approved on August Replenishment of Fund's Currency Holdings 12 in support of a program aimed at Purchases of South African Gold achieving the maximum rate of eco- In September the Fund replenished nomic growth compatible with a its holdings of the currencies of 12 Fund purchases of gold from South moderate balance of payments surplus members in an amount equivalent to Africa during the third quarter of the and a reasonable degree of domestic US$325 million. The equivalent year were $35 million, raising to price stability, while permitting an amounts of the currencies of the fol- $342.25 million the total purchased increase in public investment and lowing members were acquired: since January 1 under the agreement maintaining the exchange system vir- Australia $14.79 million, Austria with South Africa announced in De- tually free from restrictions. $14.36 million, Belgium $12.38 mil- cember 1969.

68

©International Monetary Fund. Not for Redistribution RISK ANALYSIS IN PROJECT

APPRAISAL by Louis Pouliquen

WORLD BANK STAFF OCCASIONAL PAPER NUMBER 11

In the first year of using probability analysis, the Bank applied it to three transport projects in Africa, to one pre-project analysis, and to a telecommunica- tions project. This is basically an account by- one of the economists of the practical problems met, with some preliminary conclusions on the pragmatic advantages and disadvantages of the approach. Particularly interesting is the description of how the appraiser helps the technical expert to construct a probability profile of an event. Mr. Pouliquen is currently an economist with the Transportation Project Department of the World Bank. Available in English only. $2.50

United Kingdom INTERNATIONAL UNITED PUBLISHERS SERVICES LTD. BOOK EXPORT GROUP, LTD. Shimura Building, Continental Europe, Japan Near and Middle East 2-4 Brook Street 4-1 Kojimachi, Chiyoda-ku Africa London, W1A 1AA, England Tokyo,Japan

CENTRO INTERAMERICANO AUSTRALIA AND NEW ZEALAND Australia, DE LIBROS ACADEMICOS (CILA) BOOK CO., PTY., LTD. Mexico New Zealand, 31 Sullivan-Bis S.E. Asia 83/85 Whiting Street Mexico 4, D.F. Artarmon, N.S.W., 2064, Australia

THE JOHNS HOPKINS PRESS All other countries Baltimore, Maryland 21218 U.S.A.

69

©International Monetary Fund. Not for Redistribution Table of Contents for Volume 7 (1970)

ARTICLES Month Page Month Page

'Animal Production; Constraints and West Rate Policies In Developing Their Removal Countries C. P. McMeekan June 22 Anand G. Chandavarkar March 19

ntiejJanJCGroup Meeting Ljvejtpcki The Recognition of a Stepchild Cyril H. Davies December 32 Donald J. Pryor September 19

lanking__and Money Market Arrangements vestock: The Road to Market in the United States ' Donald J. Pryor December 22 Frederick C. Dirks September 49 The Management of Public Debt in The Brain_firain-as a Social Safety Valve Developing Countries Deena R. Khatkhate March 34 Jonathan Levin June 29 'The Case for A Central Projects Bureau C.J March December 9 Monetary Discipline'and Growth-The Case of Pananja June 44 G3j|2iflsuiancer Grerfitworthiness, and Alvarofrtarravide Development BernardOury September 36 he ProjecrCycJjs Warren C. Baum June 2 Development Finance and the Environment M"i3iaerL.~ffoWman Septembei 2 Promoting Agricultural Development Dinesh Bahf June 38 Economic Cooperation in East Africa cience and World Animal Production: Edward A. Arowolo March 47 Achievement and Failure C. P. McMeekan March 2 Exchange Rates at the Beginning of 1970 December jiozeFswiarowski 16 Special Drawing Rights: The Computer AppToTCTftoThTNew Reserve Asset Interviews Finance and Development Candelario Trujillo, Jr. December 54 William S. Gaud of the International /finance Corporation March 12 Stabilization Problems and Policies in Tunisij The fifth General Review of Quotas EvangelosA. Calamitsis September 43 David Williams September 13

Urbanization Problems and Prospects r Foreign Investment Legislation in Africa Richard M. Westebbe December 2 Alison KTluTtcheif March 7

The Value-Added Tax The Fund Meeting Bidm~Matthfassd"h~ March 40 TonyTJelm and John Kay December 38 What Does It Really Mean? Fiscal Policy he Impact of Development: Progress for Henry C. Murphy June 14 People Through Industrial Reyolutjon- Singgore What Does It Really Mean? Fund Quotas Peter W. Bocock September 26 J. Keith Horsefield September 7

Indonesia: Economic Stabilization, 1966-69 TSunnar Tdmasson December 46 BOOK NOTICES

'Indijstrial Development in an open Economy: Aliber, Robert Z. (Editor), TVie Inter- The Case of Norway national Market for Foreign Exchange Beta Balassa March 28 Reviewed by Fred Hirsch September 59

70

©International Monetary Fund. Not for Redistribution Month Page Month Page

Beaulac, Willard L., A Diplomat Looks Mundell, Robert A. and Alexander K. Swoboda at Aid to Latin America (Editors), Monetary Problems of the Reviewed by Albert Waterston . . June 52 International Economy Reviewed by Fred Hirsch September 59 Bhagwati, Jagadish, Trade, Tariffs and Growth Oloya, J. Reviewed by Deena R. Khatkhate . . September 60 J., Some Aspects of Economic Development with Special Reference to East Africa Bird, Richard, Taxation and Development: Reviewed by Edward A. Arowolo June 54 Lessons from Colombian Experience Reviewed by Stanley Please December 61 Peattie, Lisa Redf ield. The View From the Barrio British Financial Institutions (Central Reviewed by Jonathan Levin June 51 Office of Information Reference Pamphlet No. 24), H.M.S.O. Pollard, Sidney and David W. Crossley, Reviewed by J. Keith Horsefield . . . September 59 The Wealth of Britain Reviewed by J. Keith Horsefield . . . December 63 Brown, Lester R., Seeds of Change: The Green Revolution and Development in Roseveare, Henry, The Treasury: The Evo- the 1970's lution of a British Institution Reviewed by D. W. Townson September 61 Reviewed by David Armour September 59

Burgess, Norman, How to Find Out About Sanger, Clyde, Half a Loaf: Canada's Semi- Banking and Investment Role Among the Developing Countries Reviewed by J. Keith Horsefield . . . September 59 Reviewed by D. W. Townson March 53

Scharf, Traute with the cooperation of Cohen, Stephen D., International Monetary Marc Balin, Dictionary of Develop- Reform, J964-69, The Political Dimension Reviewed by J. J. Polak December 61 ment Economics Reviewed by Pierre de Fontnouvelle . . . .March 53

Edel, Matthew, Food Supply and Inflation Sporn, Philip, Technology, Engineering, in Latin America and Economics Reviewed by Donald J. Pryor March 53 Reviewed by Thomas Berrie June 52

Einzig, Paul, Leads and Lags, The Main Taylor, Milton C. (Editor), Taxation for Cause of Devaluation African Economic Development Reviewed by J. Keith Horsefield March 55 Reviewed by Paul Danquah December 62

Grubel, Herbert G., The International The Yearbook of the Far Eastern Economic Monetary System Review, 1970 March 55 Reviewed by Fred Hirsch December 62 Other Books Received . . . March 55 Gruber, William H. and Donald G. Marquis, June 54 (Editors), Factors in the Transfer of September 62 Technology December 63 Reviewed by Thomas Berrie June 52

Hunter, Guy, Modernizing Peasant Societies REPORTS Reviewed by Deena R. Khatkhate .... December 62 Recent Activity- International Bank for Reconstruction and Development, In- Johnson, Harry G. (Editor), New Trade ternational Development Association, Strategy for the World Economy and International Finance Corporation . . . March 60 Reviewed by Deena R. Khatkhate . . September 60 June 58 September 66 Linert, Peter H., Key Currencies and Gold December 64 Reviewed by David Williams June 53 Recent Activity—International Moggridge, D. E., The Return to Gold, 1925: Monetary Fund . . . March 56 The Formulation of Economic Policy and June 61 Its Critics September 64 Reviewed by David Williams June 53 December 66

Munby, Denys (Editor), World Development: Views and Comments . . . March 55 Challenge to the Churches June 55 Reviewed by Harold Graves March 54 September 62

71

©International Monetary Fund. Not for Redistribution Toward a World Central Bank?

This was the question discussed at the 7th Per Jacobsson Foundation lecture in Basle just prior to the 1970 Annual Meetings in Copenhagen. William McChesney Martin, former Chairman of the Federal Reserve Board of the United States, presented the basic paper on the subject. In this Mr. Martin noted that the Fund already shows many of the characteristics of a world central bank. He also outlined the functions which such an institution should perform. Commentaries on this paper were made by Karl Blessing, former President of the Deutsches Bundesbank, Alfredo Machado-Gomez, former President of the Central Bank of Venezuela, and Professor Harry G. Johnson. The Proceedings of this meeting are in the course of preparation and will be published early in 1971 in English, French and Spanish. Copies will be available upon request from

The Secretary Per Jacobsson Foundation International Monetary Fund Building 19th and H Streets, N.W. Washington, D.C. 20431

72

©International Monetary Fund. Not for Redistribution SURVEYS OF AFRICAN ECONOMIES

Volume 3: Dahomey, , Mauritania, Niger, Senegal, Togo, and Upper Volta This volume is the third in a series of 1969 which have become available. These surveys being published by the Interna- data are drawn from published sources and tional Monetary Fund on the economies of from material gathered by the Fund in its the African countries. Like Volumes 1 and 2, regular consultations with member coun- the opening chapters describe arrangements tries. Maps of the region and each country for regional cooperation among the coun- complete the volume. tries included in the volume and compare Volume 1, covering Cameroon, Central the monetary systems, trade and payments African Republic, Chad, Congo (Brazza- relations, and exchange control systems. ville), and Gabon, and Volume 2, covering The remaining chapters cover each indi- Kenya, Tanzania, Uganda, and Somalia, are vidual country's production, economic available in both English and French. The development plans and progress, treatment French edition of Volume 3 is being of foreign investments, national budgets prepared for publication. and fiscal policies, money and banking Price: $5.00 a volume; $2.50 to univer- arrangements, and foreign trade, aid, and sity libraries, faculty members, and stu- payments. dents. Payment will also be accepted in The text and tables concentrate on data most other currencies. Please state the for 1962-68 but include some figures for language required.

Address correspondence to The Secretary INTERNATIONAL MONETARY FUND 19th and H Streets, N.W. Washington, D.C. 20431 U.S.A.

©International Monetary Fund. Not for Redistribution |^BI^ff?f^^^H!Kfliifl»'^a^^^^^^i^^^^^y?j^T^?'lCTKIj£M^ff;K^^ffiM^F?Tr^?r'^n^^^ IISSSTlSZ>^fcU^E2S5S!Si?!iEZjr^SIiS?T^'-^^^'^^^^r^fcTit/i / ^^ 'itSJ^^^^^^^j^^^^Z^^T^^-llilj ^^^^^u>g^^^HlM^?j(^B^aiI^^^?^Fy?f'?f^;T^?y''JT'''?^M!i^I •'!^^i^