THE FINANCING OF ECONOMIC DEVELOPMENT World Economic Survey 1965 - Part I U N IT ED NAT IO N.S De par t men t 0 fE CI) nI) mi c a11 d Soc i aI Aff airs THE FINANCING OF ECONOMIC DEVELOPMENT UNIT EON ATION S New Yo rk, 1966 NOTE Symbols of United Nations documents are composed of capital letters combined with figures. Mention of such a symbol indicates a reference to a United Nations document. E/4187/Rev.l ST/ECA/9l UNITED NATIONS PUBLICATION Sales No.; 66. H.C. 1 Prioe: $U.S. 2.50 (or equivalent in other currencies) FOREWORD This report, World Economic Survey, 1965, is the tries. Trends in the period 1953-1955 to 1962-1964 eighteenth in a series of comprehensive reviews of are reviewed and the sources of saving are examined, world economic conditions published by the United distinguishing in particular between domestic and Nations. It is issued in response to General Assembly foreign, between government and private, and be­ resolution 118 (II), in which the Secretary-General tween corporate and household. The strategic im­ was requested to prepare an annual review and portance of foreign saving is emphasized, and the analysis of world economic conditions and trends. next three chapters take up the various aspects of in­ The report is intended to meet the requirements of ternational resource transfer that is implied in foreign the Economic and Social Council and other organs saving. Chapters II and III examine the volume and of the United Nations for an appraisal of world form of transfers from the developed market eco­ economic conditions which may serve as a basis for nomies, pointing out the increased involvement of recommendations in the economic field. It is also governments and the growth of transfers in kind intended to stimulate interest in and discussion of There is a discussion of the tying of loans and its international economic problems among a more gen­ consequences and a discussion of the terms of lend­ eral public audience. ing, in the light of the mounting burden that the Each year since 1955, the /iVorld Economic Survey servicing of debt entails. Chapter IV reviews the has contained a study of a particular problem in the nature and source of transfers from the centrally field of economic development. Among the subjects planned economies and comments on some of the examined have been economic growth in the first ideas now being formulated for rationalizing the post-war decade, balance of payments problems in lending and repaying arrangements with the develop­ relation to economic growth, inflation, post-war com­ ing countries. Chapter V traces the history of the modity trade and policies, experience and policies international interest in the transfer of resources to relating to investment and saving, industrialization the developing countries both at the operational level and economic development, foreign trade and eco­ through multilateral agencies and at the level of nomic development and the appraisal of development policy formulation. The five chapters are preceded plans. by an introduction which provides a summary and a perspective. The present Survey deals with a problem that has been a matter of long-standing concern in various Part II of the Survey, which is issued as a separate United Nations bodies, namely the financing of eco­ volume, deals with the salient features of the world nomic development. The focus of this concern in economic situation. It covers the events of 1965 and recent years has been the slow progress towards the early 1966 and summarizes the principal develop­ targets of the Development Decade. If growth rates ments in four sections-world production and trade, are to be accelerated, more resources will have to be recent trends in the developed market economies, the devoted to investment, and the twin tasks of raising developing countries and the centrally planned coun­ saving levels in low-income countries and generating tries-and forty-two tables. It incorporates informa­ an adequate volume of external purchasing power tion provided by governments in response to the in countries most of whose exports face a relatively Secretary-GeneraI's questionnaire on economic trends, unresponsive demand pose a formidable challenge. problems and policies circulated in December 1965. Considerable importance therefore attaches to the flow of resources to the developing countries in the The World Economic Survey is prepared in the form of loans and grants from the rest of the world. Centre for Development Planning, Projections and Chapter I discusses the problem of increasing the Policies of the Department of Economic and Social volume of savings available to the developing coun- Affairs of the United Nations Secretariat. iii EXPLANATORY NOTES The following symbols have been used in the tables throughout the report: Three dots ( ... ) indicate that data are not available or are not separately reported A dash (-) indicates that the amount is nil or negligible A blank in a table indicates that the item is not applicable A minus sign (-) indicates a deficit or decrease, except as indicated A. full stop (.) is used to indicate decimals A comma (,) is used to distinguish thousands and millions A slash (/) indicates a crop year or financial year, e.g., 1960/61 Use of a hyphen (-) between dates representing years, e.g., 1961-1963, signifies the full period involved, including the beginning and end years. Reference to "tons" indicates metric tons, and to "dollars" United States dollars, unless otherwise stated. The term "billion" signifies a thousand million. Annual rates of growth or change, unless otherwise stated, refer to annual compound rates. Details and percentages in tables do not necessarily add to totals, because of rounding. The following abbreviations have been used: ADELA Atlantic Community Development Group for Latin America AID Agency for International Development [United States of America] CMEA Council for Mutual Economic Assistance DAC Development Assistance Committee [OECD] EACSO East African Common Services Organization EDF European Development Fund EEC European Economic Community EIB European Investment Bank ERP European Recovery Programme GATT General Agreement on Tariffs and Trade IBRD International Bank for Reconstruction and Development ICA International Co-operation Administration IDA International Development Association IDB Inter-American Development Bank iv IFC International Finance Corporation IMF International Monetary Fund OECD Organisation for Economic Co-operation and Development UNCTAD United Nations Conference on Trade and Development UNEPTA United Nations Expanded Programme of Technical Assistance UNFC United Nations Fund for the Congo UNHCR United Nations High Commissioner for Refugees UNICEF United Nations Children's Fund UNKRA United Nations Korean Reconstruction Agency UNRRA United Nations Relief and Rehabilitation Administration UNRWA United Nations Relief and Works Agency UNSF United Nations Special Fund UNTA United Nations Technical Assistance WFP World Food Programme "Rhodesia and Nyasaland" stands for the former Federation of Rhodesia and Nyasaland; "Tanzania", for the United Republic of Tanzania. Where statistical presentation has rendered it necessary, the term "Federation of Malaya" has been used to indicate that data refer only to those parts of Malaysia formerly so designated; "South Africa" has been used to designate the Republic of South Africa, South West Africa and the High Commission territories of Basutoland, Bechuanaland and Swaziland. The designations employed and the presentation of the material in this publication do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations concerning the legal status of any country or territory or of its authorities, or concerning the delimitation of its frontiers. v CONTENTS Page SUMMARY AND CONCLUSIONS ... 1 Some lessons from recent experience . 4 International involvement in development financing . 10 Chapter 1. FINANCING INVESTMENT IN THE DEVELOPING COUNTRIES 13 The supply of savings . 14 The mobilization of domestic savings 17 The role of external resources 36 Annex 39 II. THE FLOW OF RESOURCES FROM THE DEVE~OPED MARKET ECONOMIES 43 Recent trends in the flow of resources .... 44 The supply of private capital .. 46 Direct government involvement with resource transfers 66 Annex . 71 III. SOME PROBLEMS OF EXTERNAL FINANCE 73 Project financing 74 The problem of tying 76 Proposals for untying 80 The transfer of resources in kind 81 The role of technical assistance 84 The problem of external debt 87 Annex .... 97 IV. THE FLOW OF RESOURCES FROM THE CENTRALLY PLANNED ECONOMIES The volume, terms and conditions of aid to developing countries " 98 New tendencies in the aid policies of the centrally planned economies 108 V. THE MULTILATERAL APPROACH TO DEVj!;LOPMENT FINANCE 120 The prolifer3Jtion of international activities .............. .. 121 The use of multilateral institutions ...... .. 126 International machinery for mobilizing and co"ordinating the flow of development finance , 129 Other international efforts to increase the flow of resources 136 VB List of Tables Page 1. FINANCING INVESTMENT IN THE DEVELOPING COUNTRIES I-I. Developing countries: Rate of growth of real output and relationship between investment and output, 1953-1954 to 1962-1963 13 1-2. Developing countries: Levels of foreign and domestic saving, average 1962-1964 . ............ 15 1-3. Developing countries: Relative change m foreign and domestic saving, 1953-1955 to 1962-1964 ..................