HOLP FOR REI.EA$. HOLD. FOR llELEA~ HOLD FOR RE ~ASE 0 nITERNATIONAL BANK FO~ RECONSTRUCTION AND DEVELOH-$Nr F.OR THE PRESS For Release P~ess Release No. 173 l P.M•.E.S.T. Thursday, Feb~' 23, l950 Address by Eugene R. Black, President of the International Bank.for Reconstru~tio~ and Development Betore the Investment Dealers• Association of Canada, Eastern District~ Montreal, Canada - february 23, 1950 The Internatiopal Bank tor Reconstructton anC,. Development is rather a mouth.filling name. People u~111:i1ly ,...,,t it down to ipitiale, o:r eall it s{mply the "World Bank''• But once in a while I lilre to hea/t! it rol,led out to full length., because the name aione tells a good deal about what we are and what we are trying to do. In the fir.st place the Bank i~ an ~nternational institiitio?l, owned by forty-eight nat~on~. Our Board o~ Pirectors is compoaed of repre$enta~ tives of those natj.or1s, and our operatj.ng staff includes citizens or eome ~6 different countries. It ie prima,:-j,ly because ot it$ international, characte:r, l tpink, that the Bimk has been able to maintain fJ h:tgh degree 't of objeQtivity i.n relation to tne problems and needs ot. its various member cov.ntries, and, Qften to exeJ-t a QQnstruotive :im£luence on their economic programs and pol!cies. \\ ) 1 tn the second place this international institution is a bank, and nl~ an agency f.o~ rel!ef or e.m.ergenQy aid.. We borrpw funds in the p:r;-ivate capit~l JIJ8rket for :relending-abroad, and we expect our loans to be/ :repa;f..d~h More important, we lend only for p~ojeot~ which we are satisfi~d will - 1) , , D ' L----: gen\\inely increase the productivity and econond.c ~tr~ngt,h of the borrQWing countrief3. And, like any good ~nk1 we are con~erned to see th~t the £mids • we make available are properly expended for the purposes agreed upon. Where we differ from a private bank is that, because the various member coUlltries share the risk of our loans and in effect guarantee our oblig~tions, we can make loans that private in~titution,s are unable or l.Ulwilling to make under present world condition~. Thus we can surmounl7i~ome of the s~cial difficul- ties that plague the international eoonoiey" and, to a certain extent, help to mitigate them. It i~ ~n indispensable qondition of the Bank's success $nd conttn~ ~ed operations that it lend soundly, and pay ita obligations. Ou~ purpose, however, is not to make proflts but-' while ~e~in.ing solvent and meeting our ohliga tjone, to contribute effectively to the twin goals of ~nstruq_ti5m • The close 1:.nklng of these la st two words in accidental o:r arbit:c;=-·::\1 ~ m1r t1-:-,1e tTar:i.ous governmental and pr5. :; ~ :·,.::; is not r.r· :::g:ce.ms have been undertaken to attack one or the other of these probJ.~.:ns . ,....... the resto~a~ tion. or economic ~tability in countries devastated or se,rerely shaken by the war.,,and the achievenient of higher levels of product!on and living st~ndards in the less-developed areas of the world. In the minds of ~Bny people there seems to be an ele:ment o-,C competition between the two. For exa1J1ple, there have been suggestions from some Lati~ American and Asi~n sr,okesmen that too nxuch emphasis has been,placeci upon the reconstruction of Eµrope, thro-qgh 'v ERP and other phannels, and that aasistance ,( should be given instead to the i\effs-advanced countries. And some of the most vigorous advocateES of the l'fi,rshall Plan in its. ea:rly phases we:re a:Cr~id that the simultaneous exten- si~,n of economic aid to other areas might n1:, L!ght & Power Co.,. Ltd. The :L,oan is to finance most of the fore'-gn exchange cost of expa~ding hydroelectrio power and telephone facilities or the Company's subsidiaries in the S~o Paolo and Rio de Janeiro areas or Brazil~ This Br~zilian Traction ioa.-i is a -good exaxnple., I think, of the kind of loan it is easiest for us to ma~e. The Company is well establtsped end well· managed, and ;its e~pansion plans were carefuJ.l.y :worlced out and fully justified, - technically, f'inartciaUy ~nd fJ-om the standpoint of their contribution to the develc,p.ment of tlle Brazi.B.an economy. It had ~esources available to finanC.$ the necessary local co:sts of the project. And th.e Brazilian Govern~ent wae willing to guar$~tee the loan, a requirement of • our Articles of Agreement for any loan$ toe non-government oo~rower • How.ever, 1n m~ny of' the countries and fields of aotivity which most need d,eveloprnent, the.~e favorable conditione ~re not present. Un.der- dev~lop~nt normally means, alnto$t by definition, thatwell..-..eatabl!s,hed private enterprises are lacki,n~., that l<;>cal capital ts ~eanty and poorly organized, that teqhJ;dcal c,ata and plans are def;i.c~ent, and t.11$t the gpvern.- ~ental adlniniet~ati.on is i,i~dequate. It ie precieely ~cause these conditions prevail 1;,h$t outdd,e hel:p i~ neoe~sary to stirntitate and. ass;lst in the devel,opment process. Yet the e~iestence or these con;najor benef~t in the development of a local capital market to foster l<::>ng~term investment in other fields. !n both these examples - Brazil and El Salvador ... our relationsh:\p wttb the borrowing country ~s centered about specif1.c projects for which a lo~n was desired, Bl.lt w:i,th sev~ral other o.ount1"'ies the Bank h~s had an opportunity to establis~ a broader an~ more intimate kind of partnership • • One of the basic problems in most unq~:rdeveloped countr;i.es is a pe~sist~nt shortage of capital in relation to their investmept needs. is important, tbe~fc,re 1 that they make th.e ~~t It v.~e po~sible of the capital they do have, and discourage ;its be;b1g di~sipated on u;nproduot;ive or l.lll- econoroic purpose~. Thia ;requj.res a general ~etermination of priority needs., and us~ally some adaptation of Government policie~ so as to encourag~ investment in tne most ur~ent an~ productive fields and disQotWage less us~~ f-ql unde~taking;3. But the reaching of sound deo~sions on these f\lndal"Jlen·tal poliqy questionij is often handim~pped QY a laok of adequate teohnie~l and econoIQio data, by ~ shortage or the neQ~ssa:ey analytical skillt?, an.d fre- quently by strong pres$ures from ~pecial. interests •. So some 1?f o"Ur member coun~rtes hav~ come to the Bank for help in ,nelyzing tneir p~oblems and • potent;i.~lities, and. for objective ~dvice in forinulati?lg balanc·ed developinent program~ ~nd effective policie~ to carry out those programs. • The most extensive commitment we have undertaken for assistance of this ~ind has been to the Republio of ColQmb!a. briefly to you what we are trying to do there. I would like to describe Something over a year ago the Colombian Gove~nment applied for loans to finance several projects. Most of them seemed promising, but 1 as we diso~ssed them, it became clear that a number of bas~c questions about Colombian development had not been fully thought thr9ugh. We foW.'ld that the Governpient agreed with us, and W8$ a1:pi:ious to get assista:pee in working out a sound program. After some prelixrd.nacy- discus:;5io:ris, therefore, we were asked to $end a mission to take an· objective look at the whole econoJDY. Colombia's potentialitie~ seemed veI"J' propd.sing. lts dollar position was ~ood; it was knowr.. to have very rich ~esource~, many of them ~rdly • touched; it possessed a substantial nl.llllber of well~educated people, ~bo had shown great skill and ~daptabi+it.y in al!*e~ting and managing modern industriee or various kinds; and it pad 'been re~atively stable politioaily for halt. a century 41 Nevertheless, the standard ot living of' the great majority of the people was depressingly low. Most of them had little educ~tion, poor heal.th, poor ho-µsing, ill~talanced d:1.ets, «nd few of the a+nen.itie~ of life. aere, then, wae a country :ricbly endowed by natur~, in whi~h oon• siderable economic. development had Qlready oceui-red, but wh;~b gave most of its people a 11.ving standard much below thl:¢ ~fforded by other co\llltries that have fewer b~stc re~o~rce$. It we CQW.d noi;i sug~est waye of oorrecting thie situation, the possib:Ui,ty ot our making an effectjv~ oontribut;i,on ;,. to qe,v~lopm.ent el.~ewhere i1;1 the world ,appeared dubioue., To head o~r }4iseion to Co:lroml~ia we were fortunate in obtai.ning the services or Dr. Lauchlin 0Ufrie 1 a forme:r Canad!llnwho has r.ad a ~ther unique co~bination of el¢per!en.ce 1n th~ Urµ.ted States a~~ professional ec9nomist. -s- • "Government exec1,1.tive and private 1 • 3inessman. Acting in conjunction with the Bank's tnanagement, he brought together a group of tech.p.icia.ns of out- standing ability in their variQUS fields - including expert~ in agricult~e, transportation, p~blic health, industry and power, pqblic £:tnance and toreign exchange, as well a~ economists with a general background. Three members Qf the Bank's staff were attached to the Mi~sion; the rest were specially employed for the purpose. At the Bank's request the Food ~nd Agriculture O~ganizat~on o.t the United Nations ano. the Wc:>rld Health Organi~ation nom;Ln- ated the experts in their respective fiel4s, and tne International Monetary Fl.Uld ~ttaehed a member of its staff to act aa the Mission's expert on foreign exchange. The various members of the Miesion spep:t, from two to nearly four • months in Colombia. They traveled widely, interviewed hundreds of people, and struggled with mountains of statistics -- goodt pad and indiffereijt. In short, they made the broadest and mo~t intensive economic study of Colombia aveJt undertaken. Their report has not yet been submj_tted to the Bank, and it woul,d be inappropriate for me to try to anticipate thei~ specific f!ndtngs. B~t the work is far e~ough along £or us to feel confident qf its va~ue, both to Colo~bia and to the Banlc. The Mission developed for the first time some estimates or ColoJnbia I s naM,onal incoln8, of the amount or savings, Qf where those s~vings come from and where tney go 1 of the likely couree. of productiof.l in various rields, and f?O on. 'l'he valµe of the$e qata is by no means merely academic, fo:r they form tile indispensable f;r~mewo;rk both for iru'o~d investment and for sol.Uld public poli,Qy, We ere ac.,o~sto~d, in Canada, the Un:f/ijed states • am. other eeonOJ11i,caJ.ly advanced CO'®tries, to take tb!s kind l'Jf ~formation ,, .,,. .. , •;"" .. , ,- .. • - 9 .. for ~ranted; but when we deal with countrtes where it is entirely lacking we get a new insight into its importance. or couree 1 the Mission also conoerned itself with more specific matter~. ,Dr. Currie has told me that they saw many instances wpere some eh~nge in the organization and techniques of prod~ctton, or some rel$tively minor investment of capital, 1'4ght yield ret~ns as great in the aggregate as could be expected from mo~t of the major investment projects. For e~mple, the best a~ic~ltural land is now largely devoted to the raising of 1:eef cattle on large estates. Any change that woulInpany ~ which will be more or less like the mission to Colombia in its composition ~nd purposes. We e:,q,ect it will ~t~rt work soon •. lt will work clo~ely wtth the EC~ Mission in Tl.U"key, and since the latter is prilll8r!ly concerned w;i.th the r···~:.rt term· period '1_ I of the Ew:-op~Ln Recovery Program I think Qur mi~sion will ~eef''-lllY supplement its ~ctJvities~ In addition we have been t l j1ing to work out me~ns of eti~ulating priv~te in:itiattve ~nd investment in T\Wkey. As is the case with many other underdeveloped countries 1 Turkish econond,o growth has been retarded 11t·a rel1,1ctance op ~he part ot private capitalists. to make long-.te;rm investments /1 1~ produotive enterp:rises, and by a lacJt of the organtzatiQnal and managerial skille needed for moq.er,n indu~tr:tes. l'n an at·cempt to make 1,1p for this lack the Turlns with Turkish buainessmen and Government officials duripg October ~nd November· • he worked out a plan 'for an indust~ial QrJed;1.t :in~t:1,t.ute - privately own.eel ~nd directed, but with aot;1.ve support ~nd fin~ncial .assistance from the Gover.nment .~ to spon~or and finance private inq~~trieij in Turkey. The details of his plan are now being worked o"Q.t, ancl :i.f tlley p;rove satisfactory I e:JtPect the International ~ank will be prepared to make a loap to the insti,tute to f~nance at l~a.st. part c;,f the f<,;r:eign excha·ngys cost of- projects sponsored by it. I have great hope that this lcind of. approach will p;i-ave. to be a practiQal means of st!mu+ating the local in!t~ative ~nd investment that is so vitally important ta s~Qces~f~l development. Tqe example~ I have given~· each somewh~t different,.. provider I thi~, a pretty good ~~mple of the k;inds of ti1i.ngs. we a.re tryin~ to do. r should ero.phasi~e that where ,.,e have t.1ndertal{en to make a geperal development ~\U'Vey and recommen-lationij 1 ~s in .Colombia o:r Turkey, our aim ~s not to produce • a blue:p:r,int or 5-y~ax- pl.an 1 that co~~ be adopted by the government without e.h1;1nge or ~xnpJ.Jficat;ton. Riji;,b~:r these ~,po;r-ts are intended to be workittg -12 .... ;. papers.? on the basis of wM~ch tbe Government concerned can itself evolve a satisfaQto:ry program and policies fof development, i:f' it accepts. the general pattern recommended by- otW· H:tssiop.,. .. l!f> hope th9t these intial surveys will be the beg:LL....in($ of a :f'ru.:i,tful long-term oolla bo;ratio~ with_ the countJ:7 inv,':>lved; in each oase, in. i:thioh we can f'urn;ish both teohpical and financlal aijsistarioe, and that oui- r~~onunendations wi;J.l belp,to foste;r an economic climate favo,able to private enterprise apd inve~tment. I believe this kind of approaqh is a new,,depart1,1re for an inter- national financing institutio1l o\lt analogeus situations can h~ found in \\ dome~r~ic financial operatie:ms, both pri.vate apd, goverlffllental. l re.call, fo:i- examf)+e I that 'back in the 'JOs the .,.·v~·i:t,ed ) States was· faoed with the probl~m of how to help the lQwest income far~eirs, who were . . able only with great difficulty to eke o~·ti s ba:re subsistence on poor,1 run- :• d.own land. They could not compete m the ,market with more ei'fi.cient pro~ ducers, and received little help from t!1e major a~ric\lltural aid program. In effect, .they consti t,.ited ,~n underdeveloped ijegrn.ent of,, the American economy., ,, . .. //,' .~· A fund was s~t up .fQ·r lo~ns to these f~rmers, but th~re were strict ( / ' j condttions attached.. On ~ceiv!ng an &fJ'l),iaation fof a loan thtf Co•.u1t:r / . (J Agrim.iltural SUJ?8rv!sor would t'irst l,d'ok over the f~:i'~ t~ dete1-'l!dne whether\ 0 ~.. /J it could eve~ be· expected to P:roGlqce a d.et-1~11t 1~viPg. If the land was toQ · ,J? (I poor, or on too steep a slop«;), or too remete, o:r to.o sirlall in" area, tbe loan wa~ refu~ed on the gro.und that it would simply eaddle. ~he farmf;)r wtth a de't,t he .could never ·pay,, and wtitch cQ\'lld only leave him. worse off i.n tlle long run. ive~ if the supervisor felt that with proper util.iijati.on.the r~"ourQes et hand wo\ll.d furn~13b fl deQent minimum stand.ard 0£ J.iiring,. he would not approve an outrigllt l,c;,an, .First.11 he helped the farm. family to wor~ out a plan. Together they might e.oncl,:µde thet witb ce~tain types or agri~ult1,1ral • tools, seed or fertilize~, some live~tock or perb.aps·soine canning equipment, it wotlld be possibl~ for the farme.r t_o live bette~ .and at the same t~Jne obtain the wherewithal to repay the loan. T}Je supervisor would then approve 1 ~ a loan ~armarked for these speciflo purposee. He would also instruct the farme~ ~n the u~e of the new equipment and in better farm practice~, and wo'l.lJ.d pay peri<:>dic visits to check on hi~ progret,s. As .t:i result of th~tJ close combination of financial and technical ass;tstance, pract:~caily al::1 the loans were repaid, the fertilit7 of ipillions.of acres was restore4, and many thousands of' people were transformed from a drag on the economy into self~respecting and self~supporting producers. What the International Bank is trying ,to -do is quite similar,- .-as I have ~µggested. Technical advice alone is n0.t s~tficient to bring about •• economic