ADDRESS BY EUGENE R. BLACK, PRESIDENT OF THE BANK, IN PRESENTING THE EIGHTH ANNUAL REPORT TO THE BOARD OF GOVERNORS, SEPTEMBER 9, 1953 It gives me great pleasure to welcome you million. This brought our commitments at to Washington on the occasion of the Eighth the end of the year to almost $1,600 million. Annual Meeting of the International Bank. Studies and negotiations intended to clear I believe that you will find much to interest the way for further lending have been going you in the four days ahead, and I hope that forward on an unusually wide range of proj­ when you leave here you will take with you ects. At the same time, we have carried out an added store of pleasant memories. I, for a great deal of technical and advisory work. my part, am particularly glad of the oppor­ Our tenth general survey mission-the mis­ tunity of meeting with you in this city, where sion to British Guiana-has completed its our headquarters are located, where much of task and we have sent out a large number of the Bank's work is carried on, and where you missions with more specialized objectives. will have the chance to establish personal Both public and private enterprise are to contact with many of the Bank's officers. benefit from the loans made during the fiscal Since our meeting last September in Mexico year. One of them will make more than $30 City, I think we can look back on another million available to expand the production of period of progress and solid achievement in steel by a privately-owned plant in India; the Bank's record of operations. Loans others will support vital industries in two signed during the fiscal year totaled $179 countries in Europe; others will enable Co- [5] lombia to integrate her railway system and to finance purchases by borrowers least able Brazil to expand her supplies of electric to support additional dollar debt. power. Hitherto, in many instances, the use by The work done during the fiscal year in pre- the Bank of released 18 per cent funds has paring the ground for new loans has already been subject to limitations. Sometimes, re- begun to bring results. Since the first of leased funds may be used only for lending to July, seven additional loans have been made- specified member countries; sometimes, they to Brazil, Iceland, Nicaragua, and South may be used only to finance the purchase of Africa-amounting to $73 million. specified cate,gories of goods; sometimes As our commitments increase, so does the there are restrictions in both respects. Fre- rate of our disbursements. In the year to quently the release is subject to prior consul- 30 June last we disbursed $227 million. This tation on each project between the Bank and was more than in any year except 1948, when the releasing member government. our large postwar reconstruction loans in I welcome any addition of resources to our Europe were being rapidly drawn down. capital funds. At the same time, I must em- Nearly a third of the year's disbursements phasize that releases subject to such restric- were made in Europe. The equivalent of $68 tions or limitations do not adequately meet million was spent there. Almost $15 million the requirements of the Bank or of our bor- was spent in other regions outside the United rowers. Nor do I think that they carry full States. In this way the Bank is helping to advantage to the releasing country. In the enlist the products and skills of the world, very early stages of the preparation of a wherever they may be recruited to best ad- project, it is important that the Bank should vantage. know what currencies will be available to fi- To increase its financial resources, the nance the borrower's requirements. It is also Bank has sold three new bond issues. An important that the borrower should know issue of $60 million was sold in the United that the widest possible field of procurement States, and two issues, each equivalent to will be open. Unless there is assurance that about $12 million, in Switzerland. As a re- a contract can be financed in the currency of sult of changes in money market conditions, a particular supplying country, the borrower interest rates in the United States rose dur- may not ask for, or consider, tenders for ing the fiscal year. Some rise in the rates equipment or services from that country. charged on new Bank loans consequently be- This assurance may well determine in what came unavoidable. country the contract is placed. Indeed, it The Bank's resources have also been aug- may be the determining factor in the bor- mented by various releases of the 18 per cent rower's ability to obtain a Bank loan, in those capital subscriptions paid in by member coun- cases where the borrower's capacity to incur tries in their own currencies. By the end of further external debt depends on the cur- the last fiscal year, we had loaned or allo- rency which he is obligated to repay. cated to loans the equivalent of $65 million With all these considerations in mind, I from the 18 per cent subscriptions of coun- have continued to press our Western Euro- tries outside North America. pean member governments to liberalize the I continue to attach the greatest impor- use by the Bank of their 18 per cent sub- tance to further releases of 18 per cent sub- scriptions, so that the Bank may be able to scriptions. Additional resources of non- rely upon substantial resources of non-dollar dollar capital would increase the scope of the currencies, free from the restrictions that I Bank's lending operations. They would also have mentioned. enable the Bank's borrowers to take more I am glad to inform the Board of Gover- advantage of the increased availabilities of nors that my representations have met with non-dollar goods and services. We would considerable success. Several of our Euro- continue, of course, to adhere to our existing pean member ,governments have already ac- practice of conserving our non-dollar funds cepted the principle that I have been advocat- [6] ing. In some cases, details are now being trying to do in the field of economic develop- worked out and I expect to be able to report ment. more fully to the Board on this subject before There can be no doubt that an indispensable this annual meeting closes. element in the financing of long-term devel- For me, as President of the Bank, one of opment is the increased flow into the under- the outstanding events of my year was my developed world of private investment capi- visit to Turkey, Ethiopia, and the Middle tal from abroad. The stimulation of this East in February and March. I have made it flow should in my opinion rank as one of the a practice to visit for some time each year primary objectives of the Bank. some part of the world, getting to know at I am sure therefore that it will be of ad- first hand the economic and development vantage to all of us to hear the discussion on problems of member countries. "Private Foreign Investment in Underdevel- I was impressed by the development needs oped Countries" which has been arranged for of the Middle East countries and by the eco- our session on Friday morning; and I should nomic importance of the region. I am there- like to express the gratitude of the Bank to fore glad to be able to announce that the those distinguished gentlemen-Governors Bank has decided to locate a representative and other-who have agreed to present the in that area. I hope to arrange with the subject. Lebanese Government to establish his head- The existence of unsettled external obliga- quarters in Beirut. His function will be to tions can be a serious barrier against a re- develop and maintain contacts with the coun- newed flow of foreign private investment. I tries and the authorities of the region. I be- am therefore pleased to note the progress lieve that these arrangements will be of value that has been made in recent years in wiping in establishing closer relationships with our the slate clean of unsettled foreign debts. Middle Eastern member governments and in Efforts are being made by various member increasing the possibilities of assisting them countries to come to agreements with their in their development problems. creditors. The most recent settlement has As you already know, Dr. Pieter Lieftinck, been that negotiated by Ecuador. You will formerly the Netherlands Minister of Finance remember too that agreements have been ar- and a former Governor of the Bank, has been rived at with their main creditors by Ger- in Turkey for over a year and continues to many and Japan and that settlements of represent us there, with great advantage to certain smaller amounts have been reached our relations with the Turkish authorities. by other countries. In several other in- I expect to be able to use his services also for stances active discussions have been going on additional important special assignments in between the debtor country and bondholders the future. abroad. As a result of all this activity nearly It has also been decided to locate a Bank two thirds of the publicly held external debt representative in Brazil. He will leave for of member countries which was in default at Rio de Janeiro within the next few weeks. the end of 1946 has now been settled or is I shall not attempt in the time at my dis- under negotiation. posal to analyze the present state of the world I should now like to deal with a subject economy. The year just behind us has had whose significance has impressed itself in- its ups and downs-its record of pluses and creasingly upon us in the Bank in the course minuses in the balance sheet. But no brief of our activities over the past six years. summary could do justice to the various fac- The bulk of our investment operations has tors that enter into the complex and still been in the field of public utilities, especially precariously balanced play of economic of electric power, and we are constantly en- forces. countering the importance of power, even I shall therefore confine my remarks to where we are financing projects outside the certain aspects of the situation which imme- immediate power field. The authorities and diately concern the job which the Bank is the industrialists, and indeed the community [7] at large, in our underdeveloped member coun- power. In the rest of the world (again ex- tries, are highly "power conscious." The cluding Russia and China), with a population slogan almost everywhere is "cheap power, of over eleven hundred million, per capita use and more of it." averaged only 50 kilowatt hours per year. I certainly share the view that if plans for To visualize what this low level of con- general economic development are to go for- sumption means, imagine each family of five ward at the desired pace, an expansion of confined to the use of one moderate sized power facilities is essential. The technical lamp, and no power at all for industrial or advances which have made it possible to pro- any other purposes. duce electricity at a central point and to Even if, over the next ten years, the pres- distribute it over wide areas have given the ent low per capita consumption in the less world the most economical and convenient developed countries were to be no more than source of heat, light, and power yet known doubled, an investment of as much as ten to man. There is an ever-growing tendency billion dollars would probably be needed, of toward the substitution of electricity for which more than half would have to be spent other forms of energy. With the expansion on imports. of industry and agriculture and the rise in The funds for expansion should come, to the standard of living, the demand for power some extent, from reinvested earnings of the is ever-increasing; and as availabilities of undertakings themselves. But usually the power increase, new demands are created. demand for expansion is on a scale certainly Consequently, in a developing country, greater than could be financed on a cash basis there is likely to be a legitimate need for a out of normal operating revenues. Perma- steady increase in power supplies over the nent investment of this kind should properly foreseeable future, for purposes necessary to be financed on a long-term basis. But here a orderly economic progress. But, in most serious obstacle presents itself. In most of places, there are stubborn factors which oper- the underdeveloped countries a capital market ate in such a way that the supply tends al- does not exist to which recourse can be had ways to lag behind the demand. for funds for power development in the man- The approach to a power expansion policy ner that has become routine in North Amer- of a nation deserves, I think, more serious ica and in Western Europe. study and more careful planning than have In my opinion, the mobilization of invest- sometimes been given to it. For example, ment funds for the expansion of power serv- there are the alternatives of hydro-power and ices in our underdeveloped member countries thermal power. Technical considerations presents a financial problem of the most aside, the choice between the two must be urgent importance and of the greatest com- carefully weighed. Hydro-sources may pro- plexity. The development of a capital market vide power at cheaper costs of production, that will be receptive to offerings of bonds but the amount of the capital investment or shares of power undertakings will be a may present a serious financial problem. slow process at best. In the meantime, the Thermal sources, on the other hand, may only alternative sources of the needed invest- necessitate the use of scarce foreign exchange ment funds are the ,government, or the con- for the importation of needed fuel. sumers themselves. But, in a developing But-given even the most prudently plan- country, the simultaneous claims on govern- ned expansion program-acute problems arise ment funds for public investment are heavy in the field of finance. In 1950, some 20 coun- and pressing: it seems to me a prudent policy tries with a population of about 500 million to conserve those funds for necessary proj- had an average annual per capita consump- ects which are not themselves direct revenue- tion of electricity of about 500 kilowatt hours. producers. I therefore see considerable merit These countries, with less than one-third of in the view that, to the maximum possible the world's population (excluding Russia and extent, those who are the users of power China), used over 90,/0 of the world's electric should contribute more than they have done [8] ,-------------'-, ,_ ..' - - - - - - - .. .. " in the past toward providing the funds for substantial scale, the problems of future expansion. I do not believe that such an ap- financing have recently become pressing. proach would impose an unduly heavy bur- The authorities in that country have agreed den; the cost of power, within any likely with the Bank that a joint study should be limits, can only be a small factor in the pro- undertaken of the power expansion program duction costs of industry or in the domestic and of the measures required to finance de- budget. velopment both in the private and in the If the needed flow of funds is to be induced, government sector. I hope that conclusions novel and ingenious financing techniques will and recommendations will emerge that will have to be adopted to meet conditions where evoke wide interest. orthodox financial institutions or mechanisms Looking at the international investment or investment habits are, so far, in their in- picture as a whole, it can be said without fancy. For example, I think it is worth con- undue complacency that the flow of funds sidering the possibility of imposing a "con- across national borders is now a somewhat struction funds surcharge" on the basic less hazardous operation than it was in the rates, which would be paid by the consumer first postwar years. But world economic con- in cash, but in return for which he would be ditions remain in a variety of ways unfavor- entitled to receive an equivalent in stock or able to the international movement of capital. debentures of the undertaking. It should be the concern of all of us to see It is, I think, regrettable that, at some how these conditions can be improved in the times in some countries, the rates charged coming years. to the consumer for power are fixed by the There is, I think, too much of a tendency authorities more with reference to the po- to single out some one among the many fac- litical factors of the times than with proper tors that impede the world's economic prog- regard to the economic necessities of par- ress and to attribute all the world's difficulties ticular situations. When this happens, every to that one factor alone. I am sure that this sound financial and business consideration approach is too narrow to provide a correct runs the risk of being sacrificed in what is appreciation of the economic problems facing believed to be the cause of cheap power. But the world. if power can be made cheap only by charging It is true for instance that, without great rates that do not provide an economic return, effort and a growing hospitality toward for- the power undertakings are denied the ability eign capital in the underdeveloped regions, to raise not only funds to finance needed ex- economic progress in these regions will con- pansion, but even the funds to maintain their tinue to be slow and unsatisfactory. But it existing plants in good order. In such cir- is also true that the extent to which produc- cumstances, a community in the long run tion will increase in the underdeveloped must be a heavy loser. regions will depend in large part on condi- All these considerations that I have men- tions and policies elsewhere. Especially, it tioned apply with equal force whether the will depend on whether the more advanced industry is ,government-owned or privately- countries will continue to provide a satis- owned, and whether the private segment is in factory market for the products of these domestic ownership or in foreign ownership. regions and supply to them the funds needed The economic facts of life are no respecters for their development. either of governments or of persons. Similarly, it is true that there must be an It is encouraging to note that a better un- increase in European industrial efficiency if derstanding of this important and complex European countries are to restore a satisfac- problem is beginning to be shown and that tory balance in their external accounts and more realistic policies are beginning to raise the living standards of their people. emerge. But it is also true that an increase in effi- In one of our member countries, where the ciency will not solve the payments problem Bank has financed power development on a of European countries unless Europe is given [9] the opportunity to sell its goods in the mar- markets have, ever since the war, been kets which supply its primary products. This hedged round with quotas and similar re- means that European difficulties cannot be strictions. These restrictions were sharply solved by increased efficiency alone. There increased last year in response to the pay- must also be an expansion of trade between ments crisis. Balance was restored largely Europe and other regions which does not de- as a result of the fall in imports from hard pend only on European policies. Moreover, currency areas. A considerably higher level the Bank's experience in recent years has of buying from hard currency areas could be convinced us that an increase in European expected if a more stable payments position efficiency may itself partly depend upon in- permitted the abandonment of these restric- creased availability of capital from the West- tions. ern Hemisphere. The world balance recently achieved is, in Finally, while it is true that the liberaliza- fact, precarious. Merely to refrain from re- tion of United States imports is an essential versing the downward trend in United States condition for the elimination of the dollar import tariffs over the last two decades would shortage and the expansion of international not be enough to put international trade on investment, it is equally true that liberaliza- an even keel. Fresh action is required if a tion alone will not restore balance in the world durable contribution is to be made by the economy. There is also urgent need for the United States to the postwar dollar shortage rest of the world to drive back the inflation- and to the avoidance of the periodic crises ary tide and to remove other major obstacles which this had induced in many parts of the to progress. free world. A further reduction in the ob- It will therefore require the joint efforts stacles to imports into the United States of all of us to deal effectively with the diffi- could make this durable contribution. culties still facing the world. But the United But I do not need to labor this point. The States, because of its towering position, has case for a more liberal import policy has al- no doubt special responsibilities in this field ready been argued not only in the world at and must play a leading part in every effort large but also within the United States. Two to improve world economic conditions. important official reports to the United States The United States can hardly reconcile her Government during the present year have position as the .giant of the world economy strongly advocated this policy. It is my hope with the fear of foreign competition, which is that due attention will be paid to these re- implied, and is indeed expressed, in the main- ports by the commission which is shortly to tenance of high trade barriers and other re- begin a thorough study of the whole question strictions against foreign goods. The conse- of the future foreign economic policy of the quence of these restrictions is to deprive United States. Prominent United States in- foreign countries of the opportunity of earn- dustrialists, also, have recommended the low- ing dollars with which to purchase American ering of tariffs, and have expressed their goods and to service American capital. These confidence in the ability of their enterprises barriers make the world, including the United to stand up to the full force of foreign compe- States, poorer than it would be if foreign tition. A step in the direction of more liberal products had easier access to the American trade has indeed already been taken. The market. customs procedure of the United States has In this context I should like to stress my to some extent been simplified by a law passed opinion that the recent improvement in the this summer. But much else remains to be world payments position has certainly not done if the flow of international trade is to removed the need for a more liberal United reflect a growing and dynamic world States policy on foreign trade. The improve- economy. ment was not achieved without severe re- Let me conclude by expressing my convic- strictions upon the imports of the non-dollar tion that, in the years ahead, international world and upon American exports. Many investment will play an increasingly impor- [ 10] tant part in the world-wide effort to en­ The Bank has a mandate to keep within courage trade and raise production. Helped the field of productive investment and of by the improvements that have already taken projects yielding a sound economic return. place in the world economy, and by those that But our mandate gives full recognition to the could follow from the policies that are being place of the private investor within this field advocated, I believe that private capital and precludes the Bank from undertaking would make a large contribution to this in­ projects for which private capital is avail­ vestment. able. Indeed, the Bank's work helps to pave A swelling stream of international invest­ the way for other investment. It penetrates ment would benefit recipient countries by territory unfamiliar to most investors, and helping to speed their development and to helps to lay the basis on which other invest­ raise their productivity and their living ment can be built. By the sale of its own standards. It would also benefit investing bonds and of securities from its portfolio, it countries. They would find eager new mar­ also provides a channel through which inves­ kets for their products and wide new applica­ tors around the world can participate in the tions for their techniques. They would find development projects which the Bank is sup­ new sources of the supplies needed by their porting. With larger opportunities for inter­ own economies. Like the recipients, they national investment in prospect, I am confi­ would gain from the more stable world trade dent that the scope of the Bank's activities balance to which international investment will widen and its services to the world econ­ would make its own substantial contribution. omy increase. [ 11]